yadayada

real earnings won't take a hit when they buy a new boat, if earnings take a hit, that is with the assumption that revenue will not adjust for inflation. Also Old ships get lower rental rates then new ships. and have higher maintenance costs. If you assume revenue tracks inflation, then earnings will be higher in nominal terms. but in real terms they stay flat, except for lower rental rates because of older ships, and higher maintenance costs.

If you assume fair value of Chinese workers is 1/4 that of the west, then that would mean GDP would grow roughly 25% more then in the west. So if you think the west will grow about 2-2.5%, China will still grow 4.5-5% a year over the next decade. Edit: @liberty: yeah and I never said that work ethic alone would matter. The price you pay for that work is just as important. You ignored that in your argument. If you come with this: You are basically saying 'well i dont have any argument on why you are wrong, but you should still not predict the future and have some doubt, even though I did not provide an argument and gave basically zero new information and mostly ignored what you said, and twisted it out of context'.

Liberty I think you are missing the point. My argument was that current ratio's do you no good in predicting the longer term prospects of a country. And that looking at the things that do matter (in my opinion) is a better idea. And when you look at those things, it looks likely China will keep growing, as they really resemble Japan in the 60's. But you seem to ignore that argument for the most part coming in with something about bias. So far you have not provided a convicing argument why China's workers should be worth 5x less then western workers. And that this gap is justified because of some sort of bias i should have? It could be that China will crash and burn, but I think the odds are good they will not over the next decade. I would suggest reading this paper: http://bwater.com/Uploads/FileManager/research/how-the-economic-machine-works/ray_dalio__how_the_economic_machine_works__leveragings_and_deleveragings.pdf also you are ignoring my argument, and basically say 'well you dont know'! Because who saw the oil crash coming! A short term fluctuation in a commodity, or the longer term prospects of a country are very different things. One is very difficult to predict, and the other is easier to predict. Predicting when a banking crisis will happen in China : extremely hard. Predicting 10-20 year prospects of a country: much easier. I also never said I was sure of anything. Just that I thought it would be likely China would do well.

Yeah but you can look at the huge gap in cost of workers and conclude there is still plenty of catching up to do. They would have to be a lot worse then western workers to justify their cheaper price. I agree with this sentiment if the difference was much smaller. But because the difference is so large, you can safely say that it is likely they will keep growing for another decade. You are forgetting cost, the cost of workers surpassed the cost of workers in the US in the late 80's. Since they were very comparable, they crashed. When one economy is growing very fast, it is because the gap is closed in relation to the most wealthy countries. That is why Japan exploded in the 60's and 70's. They had a smart population, low levels of corruption, and a lot of work ethic. Yet workers cost only a fraction of workers in the west. And when they caught up in cost, they had too much debt, and it all collapsed really violently. The hard part is predicting. If you look at Russia in the 90's, you will see a huge gap in pay, yet Russia did not catch up untill the last decade, and most of taht is because of the rising oil prices. This is due to corruption, poor justice system, and poor work ethic. That is also why China was lagging so much untill the 70's.

Yeah except that argument doesn't really fly right now. GDP per capita now in China is much lower then in the western world. Median pay is lower etc. If you compare cost of labor in Japan in the 80's and cost of labor in the US and China, You will see that Japanese labor wasn't much cheaper as they had caught up mostly to the rest of the world, yet were loaded up with so much debt because they thought the party would continue. If you read dalio's paper, you will conclude that labor in China is still very cheap to what they have to offer. I think China now is more comparable to Japan in the 60's. I think my point was that you need to look at what value they can provide for what they demand in pay. So ignoring this seems kind of silly. GDP per capita in Japan : http://knoema.com/mhrzolg/gdp-statistics-from-the-world-bank#Japan Note how there was a massive catch up from the 1960's to the 1980's GDP per capita in 1970 in Japan: 2k$, and in the US it was 5.2k$. and it kept going well because of enourmous debt built up, except when they passed the US, and their labor was no longer competitive. You basically had western people overseas, who would demand much lower pay, so obviously Japanese exports exploded. http://knoema.com/mhrzolg/gdp-statistics-from-the-world-bank#United%20States Now look at China: http://knoema.com/mhrzolg/gdp-statistics-from-the-world-bank#China Plenty of catching up to do... Unless you think there are crippling levels of corruption and lack of work ethic. That is why China exploded in the 80's, when it opened up to the west. I think you got to worry when GDP per capita reaches 15-20k$. So really the biggest risk for China is other emerging countries and India: http://knoema.com/mhrzolg/gdp-statistics-from-the-world-bank#India If you add a catch up, with crippling levels of debt relative to GDP, you get a lost decade. As you see in Japan there was a huge catch up in the 80's, and then it all overheated, and grinded to a halt. If your workers are paid more, they also need to provide more value. But you would have done really well if you invested in Japan in the early 60 and 70's, because there was still a lot of catching up to do relative to the value they provided to the US: http://blog.irishlife.ie/wp-content/uploads/2011/03/japanese-equities-20-years1.png So really if you want to study Chinese growth, you need to analyze how much companies still want to move jobs to China vs other countries. Which is really ahrd to measure. But you have to agree that China is still many times cheaper then the west with regards to labor. So really this discussion should revolve around, how competitive is labor in China in various levels of industry with regards to the west (don't forget price here!). And not about current account ratio's.

what i miss in that post is the actual discussion of people. Their skills work ethic , their cost of labor, levels of corruption etc. I miss that in a lot of macro discussions. Probably why a lot of macro economists are so terrible at predicting stuff? They are the drivers of an economy, not some abstract savings ratio. That is a sympton. And a lot of macro economists treat people like they are uniform rational spheres that are all the same, and not matter a great deal. ANd ignore them in their analysis. Probably has to do with assumptions that market partcipants are always rational and everything is always fairly valued? It seems to me that growth comes from the fact that Chinese workers are working like crazy, their education level is good, and they charge little for their work. So you have workers that are almost as smart as western equivalents, work like crazy and you can pay them only a fraction of what you pay people in that west. And the system those people are functioning in works relatively well. Without crippling levels of red tape and corruption that can run a good business in the ground. As long as they can keep taking over more jobs in China for less money, and they keep up their productivity, China will grow like crazy over the next decade or so. I see nowhere why exactly this is true? Why is there no need for investment? Why is demand lacking? Maybe it has to do with supply? With ballooning debt levels? With the fact that western workers are becoming less competitive for what you have to pay them? Because if demand lacks, it means that those people and institutions that would demand stuff, have nothing to supply in return to get that demand. If you figure that out, you get to the core of the problem. Also is the world worse off if China has a shitload of workers with more work ethic that are slowly catching up with the west in terms of their ability? And are willing to do it for cheaper? It means cheaper stuff goods for the west. It seems China is still good value in this regard. And if you want to predict a medium and longer term slowdown, you are predicting that this value gap between western workers and Chinese workers has closed. Or that Frontier economies are surpassing China in this regard. I dont think that is true. I think we will see a move to China of higher skilled jobs and higher tech industries in the future. I think a ccontinuing increase of labor arbitrage to China is the best predictor of growth. If you want to analyze Chinese growth, you have to analyze that. Because if there is more value the Chinese can provide in the future, it means they can take more value, and it means their GDP will keep growing, even if the rest of the world is slowing down. That is also why a lost decade for China is very unlikely right now. When that happened to Japan it was because that value arbitrage gap was mostly closed, Japanese workers did not produce much more value vs western workers considering what you had to pay them. So that stunted growth. ANd debt had reached crippling levels there. So I guess to summarize, it is kind of strange to discuss chinese growth without discussing both debt and the value of workers comparing to the rest of the world. FWIW, i did not come up with this, im just parroting ray dalio :) . I think his view on this makes the most sense.

Meanwhile still nobody uses it: https://blockchain.info/nl/charts/n-transactions?timespan=2year&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address= Allthough the size of illegal drug website has ballooned. There are now various new silk roads, and each one of them is larger then the original. So most of the growth probably comes from illegal transactions. Transactions went from 60k to 90k in 2 years. And when it was at 60k, bitcoin was virtually unknown. ::) Id say fair value of this currency is still somewhere below 50$. When most people realize that this is not a practical way to transact legal transactions, it will be dumped by the speculators, and probably go below 50$. It is brilliant for buying drugs though. From what iv heard, quality of drugs is many times better then on the street, and you even get customer service! It is also very handy for taking something or someone hostage. As the problem used to be a paper trail, or having to pick up the cash in person. Now you can shuffle the coins, and dissapear without a trace. I think there is a growing industry of taking someone's computer and data hostage, and demanding a ransom.

stats on Chinese concrete use: And some interesting top comments from some engineers. Apparently, judging by those comments, the Chinese construction industry is a smaller % of GDP then the west.

rb: Take a look at HOS.

I think you make some interesting points, but I disagree here. I think you are leaving out the human element in the equation here, and that is: people are idiots. They think for themselves, and don't give a shit (or really know) what is good for the country. Look at spain with podemos. If that party would get to power and do all the things they say they would do, it would do huge damage to spain. I dont think governments are going to be responsible, they are going to push things untill everything spins out of control, because that is what their people want. The people dont know anything about economics, and most believe that a deficit is good, and not having one is bad and not social. Running a surplus is really political suicide, politicians are not incentivized at all to do what you say. And there is no central bank to nicely inflate their debt away at 4% inflation or so. So I think it will be pushed untill the bond markets push back, and then things will get ugly. Also business climate and corruption is just horrible in Italy, and this is not about to be changed, unless shit really hits the fan. They rank worse then various third world countries in this regard. But let's see I guess, I hope Im proven wrong. That is also why I like current greek government so much, these guys know what to say to get power, but secretly they know what is good for the country (I think). Im actually more optimistic about greece if they would manage to restructure their debt, and current government keeps its power for a few more years.

There is not really any evidence for this statement is there? I mean people still buy computers, iphones and cars, even though they could get that same model the next year for much cheaper. Or buy a better model for the same price next year? It seems people are really motivated by wether they need the thing they want to buy. Seems like one of those statements that sound kinda logical, but there is no convicing evidence this is actaully true in reality. It seems the only good argument for inflation is that it stimulates investing activity? As for Italy, it seems to reduce government debt, politicans need to reduce spending, which they won't do. Isn't it likely that they follow Japan here? And a exit of Italy is inevitable? And italy rates really badly with regards to corruption and productivity, which will greatly stunt their future growth. And when they then leave the euro, you will get bank runs, because it takes time to switch to the lira? So banking system will collapse, doing a lot of damage. And capital will flee from the country. Finally household debt is relatively low, but that is because italians are not as wealthy. And corporate debt is still quite high?

depreciation period is much shorter then actual life of the machines. A decent amount of coinstar machines lastee more then twice as long, so far, without being replaced. And there is pricing power, which I think will make a big difference this year, as they just upped prices. So barely any earnings last year, but a complete cash guzzler, unlike blockbuster. Lot's of other differences, but you gotta figure that out yourself if you really care.

your analysis is why it is an interesting stock to discuss. You got the FCF multiple horribly wrong, the coinstar business, the headwinds, and the pricing. Failed to look at what makes redbox unique vs netflix, and failed to look at capex vs D&A.

Outerwall seems fun! SHLD and FNMA...kind of a crowded situation. Outerwall is interesting, it screens well...but from a rudimentary reading of the 10K....it sucks. 9X FCFF business. Operating in segments which has tremendous secular headwinds. Why pay $2 for Blu-ray & $1.50 for DVD, per day per title, when I can pay $8 per month for all the titles I want. Coinstar is also kind of terrible. Shift to digital-based payment media should add pressure to the business. D&A, not including amortization of content library, is ~50% of EBITDA. A fun project. meeeeeh http://www.clipartbest.com/cliparts/Kcj/g7R/Kcjg7Rgpi.png

rb, that perfectly explains it, thanks! Interesting that deflation after the civil war in 1865 to 1890 was 2.84%! Yet you had highest gdp growth ever at 4.54% for 25 years. I wonder what debt gdp was over that period? That tells you, you don't need inflation to stimulate consumers or investors. If the opportunities are there, people will spend and invest. http://www.measuringworth.com/growth/growth_resultf.php?begin%5B%5D=1865&end%5B%5D=1890&beginP%5B%5D=&endP%5B%5D=&US%5B%5D=NOMINALGDP So what is happening is really politics influenced economics to say that inflation is good, so politicians can borrow more money to get more power? Even though it is complete bullshit. Allthough at some point it becomes necessairy to inflate away the excessive debt. But at the expense of the common man.

oh weird, im basing my numbers on this one: http://bwater.com/Uploads/FileManager/research/how-the-economic-machine-works/ray_dalio__how_the_economic_machine_works__leveragings_and_deleveragings.pdf Same source, but which one is right? Or am i reading that graph wrong? Page 300.

Have you seen what happened to Swiss equities on the day the peg broke? You have to be very confident that your productive assets remain productive when export prices shoot up by, say, 30%. Only one with significant risk of this is Future Bright, as they have most of their income in the pattaca. Keck seng looks the most attractive as they have almost no income in Hong Kong. They have almost their market cap in cash. But I don't know if this is all in hong kong dollar, or spread out in different currencies. For some reason they do not disclose this. Actually looking more closely it doesn't seem like a good bet on the HKD, still like them without that element though. Yeah it declined against a % of gdp. Could it be that the decline of the m0 supply against gdp declined because it was absorbed into m1 and m2? There was much lower inflation when it increased the 20 years prior. So when we see our m0 supply decrease now, without fed selling back securities, that means we will get inflation?

why not buy companies with a lot of HKD cash and cash flow outright? Take for example future bright or asia standard? Or keck seng. Those will pop when the peg is removed right? And you can own a productive asset at cheap prices at the same time, and not have to be dependant on timing or macro elements.

Agree with that, especially the immigrant part. Part of Chinese and Indian hard working talent will move to US and Europe. But the problem with the tech boom is that it will remove jobs for lower level workers. For example if a new solar panel is invented that is very cheap and very efficient. You will see a massive solar boom, and cost of energy going down. But those things will be made in factories that mostly require high level labor, as all the low level labor is automated away by robots and software. In the 50's and 60's, productivity growth and new technology created massive demand for low level factory workers, as we did not have software and automated robot arms back then. Same with driverless cars. Only creates jobs for high level workers, and removes jobs for low level workers. Or synthetic biology, will make healthcare cheaper. But it mostly creates jobs for people with advanced university degrees... New much cheaper batteries? Removes demand for oil and oil workers, and the high level oil workers with engineering degrees will move to the battery sector, and there is no demand for highschool or simple university degree level workers. So that will leave like half the population in a pretty bad shape, since half the population has an IQ of 100 or lower. Engineers, biologists and physicists will see their demand skyrocket, and highschool dropout oilworkers can barely get a mininum wage job with mcdonalds if they are lucky.

Well you can learn something about the current situation by looking what we are lacking right now, and how each deleveraging is different? So you could argue that the current deleveraging will not be so pretty precisely because there is no tech boom, and no gritty population full of spartan like people, and no women's lib? And you could argue that because those things are lacking, we are kinda screwed now in the west. Especially because China and India does have at least some of those things. Their population will soon be able to do all the things that we can do, except cheaper, and with more discipline. Seems like there is an eb and flow of these things. When a country goes through a really rough period, the years after that rough period will be better. But when things go well for a while, newer generations will be more spoiled and lazier, causing wealth to flow out of those area's. Causing more poverty, rince repeat :) .

Outerwall ? Relatively simple business, but possible to have a lot of discussion around that one

Yeah the problem is, that is the only good period we have on deleveragings. Go back before that, and the situation is even more different then now. You could conclude then, that a nice delevering would need mainly 2 things, a population with a lot of work ethic and discipline, working their asses off and technology to improve productivity by large amounts (because 2.6% a year seems quite a lot, it has been lower in the past decade.) Also maybe a third thing: a lot of women entering the work force really helped a lot? Population growth was only 0.54% a year, but possibly half the population slowly entering the work force made a huge difference? And today there is too much entitlement, the only tailwind we have now is technology, and so far productivity growth is really letting is down at a little over 1% a year? http://www.icecapassetmanagement.com/uploads/documents/2015.02%20IceCap%20Global%20Market%20Outlook.pdf

How about hedging this by buying the HKD, or stocks that have HKD cash balances? The HKD is arguable quite undervalued, and you can buy some really nice cheap stocks in that area. If inflation starts to happen, they will likely cut the peg, and the HKD would shoot up. So in a way the HKD is a hedge against the dollar? Also studying the great delevering of the UK, or Great brittain is an interesting study here. If someone can explain to me where their inflation came from... Between 1947 and 1969 they had 4% inflation on average each year. Nominal wages increased 5.8%, their m0 money supply decreased, and productivity increased by 2.5% each year. yet total debt/gdp went from 400% to 160%.... And real GDP increased 2.82% a year. That is what I call a beautifull delevering! So where did the 4% inflation come from? Why are they trying to get inflation right now, and we are still levering up, yet still near deflation! They delevered from 400% gdp to 160% gdp, and got 4% inflation in the process, and their m0 money supply went down... Right now US m0 money supply is up by trillions of dollars. Does that mean there was a lot to invest in in the 50's and 60's? So the printed money never entered into the m0 money supply, but straight away went into m1 and m2? But right now there are simply no interesting investing opportunities? So the money goes back to the central bank. Then what was so interesting to invest in back then? even with sky high debt levels. I cannot find m1 and m2 data that far back. This inflation thing is just a mystery to me. Everytime I think I understand where it comes from, I see something like this and then I dont get it.

https://wexboy.wordpress.com/2013/01/22/tetragon-ready-to-be-a-star/

while we are at it, why not perfetti. That company owns brands that my great grandfather created :D.