Life As It Goes By

3 years on, the global financial crisis or “tsunami” has not only subsided but completely overturned. Today, markets around the world are breaking new highs, except for a few in Europe. Asia is a hot spot now, with tons of panic money pumping in. As the fear factor begins to lose its weight, speculation slowly shifts in the balance. Risk taking could be more visible, particularly in Asia.

Looking back, we may ponder about the big bets taken by the U.S. government (and at one time, leading all other governments). Optimism was scarce and is still in U.S. As it all seems now that the true beneficiaries of all the stimulus are the so-called “too big to fail (TBTF)” companies. Not long from now, we will see the fairy tale of General Motors: from the verge of diminishing to dawn of a re-birth. It would only take a fool to realize the simplicity of a deal. Buying stocks of a TBTF is not only the safest “insurance” (which you know nowadays is becoming less credible) , but also the best bargain in town on returns. If the government can bring a dead company back to life, you must believe in the great potential in it. Fret not if you don’t have enough cash on hand, there are other available options such as Citigroup and AIG (or not…).

In a sense, it demonstrates the highest level of protectionism a country may enforce in subtlety. When a government became the greatest investor in a gloomy market, even the worst company in the industry can instantly become one of the greatest in the world. All others (productivity, product quality, brand etc) matter less. This should be the trump card on the table. All companies should strive to grow and extend beyond its physical limits. In this way, they can secure a ticket to the government’s deep pockets (this is why I don’t see a slowdown in any leveraged buyouts or acquisition through borrowing) . Those who are sad over missing the opportunity should not despair. If the economy is going for a double dip recession, they would still stand a chance. Now that employment is a big political issue, the number of employees you have will determine how big your chip is. A word of advice: don’t take your corporate jets (or your private ones as well) to meet the officials when you are asking them for money.

These two (dragon and eagle) creatures could be the icons for the decades to come. Maybe clash of titans would be a more appropriate title. As the world quietens down after financial woes in the past 2 years, the world’s greatest economy, US, and the newly installed number 2, China, are tugged in a series of trade wars (primarily anti-dumping duties). The conspiracy behind is said to be currency-driven. US hopes that the Chinese yuan to hold a higher value and hence, shifting the balance of the overall trade more to the US side. There remain questions that need to be answered. What should be the satisfied value for the yuan? As China progresses slowly towards this forced move, US accelerates the process by letting the dollar to fall not just against the yuan but also against all currencies.

This creates political resonances around the globe and has much of its desired effects. Now, the world is pushing China to speed up its currency reforms. Much lobbying efforts can be seen from both sides. International bodies such WTO and IMF are basically stuck in the middle, giving neutral opinions and unforced warnings. China should not be as surprised as they are now. If they learn from the history, this would be how US treats its biggest trading partner. It cannot be a win-lose situation. In fact, the only possibility of that happening is when US is the sole winner.

While China is complaining that US domestic problems are not caused by them, they have to pick themselves up to adapt to the game play at the highest level. No one dares to defy the US. No one can even describe the Americans as “buxxxes”. They are just better negotiators and they fight for the best deals they could get. You have to give credit to them, really, otherwise they won’t be what they are today. Ask the Japs, the Europeans and those who had been at wars with them.

One cannot underestimate the intelligence (or stupidity…) behind all the accusations towards the currency ploy. It takes certain courage for someone with a certain status in the society to make such statements. Someone just have to take the gun and start firing. If you can’t solve the problems internally, just take them outside. At worst, we all die together and we see who recover faster. It’s a dog eat dog world out there. What do you expect? Honeymoon is over. It’s time for the real thing.

Besides, it takes all the attention away and buys the much needed time and space for the brainy guys to work out something. Many had failed as it seemed and the number of bullets left are disappointing. A big shot has to be made sooner or later. What China has to do is to admit that fact it has gotten itself a tough-to-accommodate partner and continue to live on with it. This is what happens in marriage when you start to see the true colors of your partner. Basically, this partner is in deep shit and it needs lots, and lots of help to get itself back in shape. It cannot afford a ten-year recession like in Japan. Too much is at stake. It has its people to look after even though it is these people who bring these to themselves. It’s a sad story. We must learn to give empathy in times like this (and I mean it).

Of course, China has its own domestic problems: poverty, social change, (unorganized?) urbanization and so on. Being the only large economy making growth in the past 2 years, it may have more burdens to bear now when the whole world situation has changed. It’s time to decide if China can carry the world on its back and move forward. Helping to heal US might lighten the load. China has to work out its own sums though. It has to be clear about how much percentage growth it would have to sacrifice in return for the higher valuation of its currency. It should have enough savings to stimulate the economy back by a certain percentage points. It’s not a test anymore. It’s for real. To be honest, I am still pessimistic of how much help would the revaluation of yuan will help the US. US has just too many domestic problems (mainly debts) to solve. Anyway, they are grabbing everything they could reach for to make the U-turn. So, any help is welcome, I guess.

Chinese companies can take the opportunity to expand their market to international if not regional by acquiring sales channels and distribution outside China. Employment for Chinese can be kept. Government should also be supportive in such activities. Stronger yuan will command cheaper prices for inputs. Perhaps it is time to shift manufacturing, which will take the greatest hit from the currency change, from labour intensive to capital intensive. Productivity per person should be raised. There still exists many infrastructure work for people. The same applies to service sectors such as retail, finance and IT in big cities. These changes have to be driven by the government. Only rapid and smooth transitions would keep the economy vibrant. It would be like a revolution.

The meaningless trade wars can go on so long as China can bargain back some, but not all, that it would have to sacrifice because it should be clear that after all this, no one would be truly grateful for what it has done. So what’s fair is fair. No doubt about it, the chips are definitely on side of the Dragon. The Eagle has shown its hand, so it’s up to the Dragon to take the bet or not.

This got to be the latest buzzwords. American shoppers have opted to pay in cash than credit card. There are calls to Asia to increase their domestic spending, hoping to turn them from export economies to import ones. Then, there is another case of over spending (or borrowing to be specific) from the recent Dubai crisis.

In a strict sense, everyone needs to spend to do their part in boosting the economic growth (if it is still real anymore). Otherwise, governments will have to keep pumping money to … (stock markets? I have really no clue where they go but definitely not my pocket) But it is not a simple task. I mean, to spend. I can’t even guarantee the availability of my job and house for the next few months, how can I commit to spend? Sure, I can spend on small, affordable items but when it comes to big ticket items, no way I am taking such risks (even at such a low interest rate). I think everyone will have a happy X’mas this year since it’s still within our means to spend on some gifts. In addition, the pocket money from the governments have benefited us in one way or the other. This is highly dependent on the efficiency of the distribution channels used by the governments.

This is the result of pursuing numbers too closely. When the economy is doing tremendously well, there will be whistle blowers giving warnings of spending too much (based on some numbers they have collected). At the opposite tip of sine wave, governments encourage you to spend when you don’t feel the need to do so. That’s the reality in life. And yet the same scenario happens again and again. We use numbers to forecast and prepare ourselves for such extreme situations but we always can’t avoid going there. Hence, we can deduce that there are always something (such as this) that we can never control no matter how accurate is our forecasting model.

How can an economy that is built on exports be turned into one that depends on imports? Spending alone won’t do the job. There got to be enough purchasing power and level of demand for imported goods first. For the latter, factors affecting purchase decision are more important than just asking people to simply spend. Revaluing currency is an option to increase the level of demand and enhancing the competitiveness of the nation’s goods. But bear in mind, that’s something which everyone can do though they might face resistance from forex traders. Hopefully, we won’t see another collapse in a currency in near term.

Back to the basics, the only way to crawl back to the recovery is to continue to make attractive products at an unbelievable price (but a profitable one). Yes, it is impossible but many have done that. Maybe you will be surprised to know that online shopping is growing. The same for hybrid cars, mobile broadband products and probably netbooks.

Think about the strengths and weaknesses of your trades. How to achieve sustainable competitive advantages in your strongest products should be something you focus now. Don’t just improve overseas sales. Try to give your home a chance as well. You should know your neighbours better. Understanding their needs should be cheaper than doing the same for foreigners.

In short, I am against spending recklessly, especially in times like this. The economy has contracted much by now. There are lots of inventories available. They should come cheap to me, as a consumer now. A good bargain, I should re-phrase. Companies thinking of holding on to these inventories instead of their employees will be put into real tests in the next few quarters. It’s true that many economies are recovering from recession. It also seems to be me that these are the works of the governments, by responding to the numbers and creating a smoke screen. Intention, I feel, is to increase confidence of the general public. However, it is slowly failing due to the fact that unemployment rate is still high. This key number is the main target for many nations now. It is going to be another huge investment and again the distribution channels have to work at the highest level of efficiency.

For me, I would bet on more value-for-money goods than government measures that are based on the numbers.