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Effects of the Chinese Stimulus Package Part 1

June 15, 2009

Analysis of:Concerns About Cost of China's Stimulus Grow | online.wsj.com

Chinese stimulus package has been funded by massive amounts of loans by state banks to local governments and state owned enterprises. While it will be successful in stimulating short term demand for commodities, it will eventually result in large amounts of bad loans and over capacity. It has favored inefficient sectors of the economy and will not be effective in stimulating employment. The state owned banks, which have not been able to get rid of toxic assets from the last recession, are most likely under capitalized.

Emerging Market Investing: Sources of Volitility and Probability of a Bubble

May 29, 2009

Analysis of:China's dubious earnings numbers: Red flags | www.economist.com

Recent books and papers have confirmed my analysis that information about investments in emerging markets does not accurately reflect the true financial status of companies. Investors in these markets tend to ignore information and invest for alternative motives. The result is increased volatility potentially resulting in the creation of another bubble.

Understanding Game Theory Tools for Private Equity in China and other Emerging Markets

April 21, 2009

Analysis of:Wall Street Journal: Control Deals In China – It’s All About The Mindset | blogs.wsj.com

Doing private equity and other business deals in China and other emerging markets using people skills, trust, relationships and concepts based on culture misunderstands the real systems. The best way to analyze the problem and lower risk is to understand the rules using concepts from game theory.

Recovery of Asian and Other Emerging Markets will be Slow

April 21, 2009

Analysis of:Asian markets trim gains after weaker China growth | www.telegraph.co.uk

Emerging markets suffer from three problems. First is the lack of timely, accurate and complete information. Second, they all had real estate bubbles that left their own share of home grown toxic assets. Third, state owned banking systems that will have as much if not more difficulties disposing of the bad loans. In China the stimulus package has actually made the situation worse.

Chinese Stimulus Package Will Result in Massive Bad Loans

April 13, 2009

Analysis of:Financial Times: Beijing to tighten controls on credit | www.ft.com

The Chinese government's stimulus package has resulted in three quarters of a trillion dollars worth of loans in the first quarter alone. The speed and destination of these loans will result in massive write off further weakening the Chinese financial system

Are ICBC’s Chairman Predictions about China’s Economy Correct?

April 3, 2009

Analysis of:ICBC Chairman Upbeat About China Economy | online.wsj.com

ICBC's Chairman's statements about Chinese consumer spending, the level of bad loans, the prospects for real estate growth in China are wrong.

Increase Domination of State Owned Companies will Slow Recovery

March 18, 2009

Analysis of:So much for capitalism | www.economist.com

Governments around the world are injecting capital into companies and increasing their control. Since according to game theory and law and economics, state owned companies are always inefficient, these bailouts will ultimately make matters worse. Any investments in these firms should be avoided

Really bad banks: China’s Asset Management Companies

March 10, 2009

Analysis of:Amending bank bailouts | www.breakingviews.com

The best models for successful bank bailouts were the US's Resolution Trust Company and Sweden's Securum. Both used public funds, but private management to lower bad debts. The worst model was used by the big four Chinese state owned banks, which have not gotten rid of the bad loans from the 1999-2002 recession. No doubt the bad debts incurred by Chinese state owned banks since 2002 lead to questions of their solvency. 

Hong Kong Stock Exchange remains unable to provide adequate disclosure rules

February 26, 2009

Analysis of:Tycoons in the ascendant, THe Economist | www.economist.com

Hong Kong stock exchange killed a rule that would allow for more transparency Hong Kong stock exchange regulation has fundamental flaws that prevents transmission of accurate, complete and timely information. Insufficient, inaccurate or incomplete information makes the use of quantitative or fundamental analysis problematic.

Chinese Bond Holders Suffer from Lack of Legal Leverage

February 23, 2009

Analysis of:From China, a Bond Buyback Stirs Concerns | online.wsj.com

Asia Aluminum Holdings, a Chinese metals company, has offered to buy back bonds owned by foreign investors at discounts up to 87%, In most developed countries, bond holders have sufficient legal leverage to prevent this type of offer, but Asia and especially China’s murky legal systems deny them this power Many bond holders across Asia could have similar problems.

European Banks will not abandon their Eastern Subsitdiaries

February 23, 2009

Analysis of:Will west European banks abandon their eastern subsidiaries? | www.economist.com

European banks issues with Eastern Europe are no doubt serious but currency fluctuations and unstable economic and political problems have been part of doing business in Eastern Europe for ever since European banks started investing there. Europeans banks operations in Eastern Europe are regulated by their home country regulators The EU has enormous political, social and economic reasons to see that the banks in Eastern Europe remain stron

Rise of the Shanghai A market and the Real Effect of China's Stimulus Package

February 17, 2009

Analysis of:Chinese Investors Bet on Rebound | online.wsj.com

The Chinese legal infrastructure has insured that it stimulus package was redirected to stock market speculation. This will increase the bad loans withing China's financial system and fail to stimulate their economy.

US Foreign Corrupt Practices Act will make doing business in China exceptionally difficult

February 13, 2009

Analysis of:Financial Times: Morgan Stanley suspends top official | www.ft.com

Foreign Corrupt Practices Act passed in the 1970s was barely enforced The number of opened cases has quadrupled in the past four years. Doing business in many emerging markets especially China will be exceptionally difficult as the Morgan Stanely case shows.

Economic Nationalism and its Impact on Emerging Markets

February 10, 2009

Analysis of:The Economist: The return of economic nationalism | www.economist.com

The trend toward globalization can be reversed. The economic incentives of economic nationalism are greater than globalization. The reversal or slowing of globalization will prevent a rapid rebound of emerging markets

Asian Bank Health is an Illusion

January 22, 2009

Analysis of:HSBC, Asian Banks Slump as RBS Loss Stokes Concerns | bloomberg.com

State owned banks and family owned corporations in relationship based systems of Asia will spell major problems for Asian banks with the possible exception of Korea and Tokyo. The problems with the banks will increase the severity of the Asian recession and slow a recovery.

Bad loans in Asia will be revealed

January 22, 2009

Analysis of:HSBC Sticks With China as RBS, UBS Sell Investments | www.bloomberg.com

Information has value. It is revealed only for consideration or because it is legally required. In Asia since the legal infrastructure is weak, it will take time for the information to come to light.

Gulf SWFs Investment Assumptions incorrect

December 8, 2008

Analysis of:Dubai International Capital looks east as it confirms plans to retreat from Western markets | business.timesonline.co.uk

 Gulf and other SWFs have been burned by western investments and will be investing at home because they feel emerging markets are less indebted so their recovery could be faster. This is incorrect. Information, regulatory systems, bankruptcy systems, corporate structures make it very hard to determine the nature and extent of the debt and the probability of recovery which could be near zero rather than the US rate of 40% Like the post crises Asian Tiger economies, recovery of emerging markets will be much slower than in the US 

Tenasek Blunders Again

October 7, 2008

Analysis of:SBI, Temasek Fund to Invest in Asian Financials | www.bloomberg.com

Temasek proposed investment in Asian financial institutions will be about as successful as the Government of Singapore Investment Corp’s investment in Washington Mutual. The investment is based on two incorrect assumptions.

No Black Swans Here, just termites.

October 3, 2008

Analysis of:Why Risk Models Failed to Spot the Credit Crisis by Adam Davidson | www.npr.org

Programs run on information Information has value Unless purchased or forced, accurate, timely and complete information will not be disclosed Bad information, bad results

Chinese Banks retreat from international financial markets

September 30, 2008

Analysis of:China's Banks Limit Interest-Rate Swaps With Overseas | www.bloomberg.com

Chinese banks limiting interest rate swaps are further evidence of a growing trend.   Part of the problem is economic. Chinese investments in foreign assets have been a catastrophe recently. This is a part of an effort to limit risk.   The Chinese feel, incorrectly I believe, that their economy is stronger than the US, so having local counter parties is safer than relying on foreign banks.   Third, this is part of a growing trend of Chinese protectionist attitudes, which will grow to dominate the Chinese economy in coming years.  

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