Political Posts

[Luke]

28 minutes ago, Ulti said:

Again I thought the odd lots podcast was spot on: debt demographics decoupling and deflation( I think i'm quoting right ).. are the major issues... having a financial regression regime run by Xi and the banks... They cant allow more capitalism because it would potentially take power away . The idea of economies of scale are risky nowadays has taken hold and this does not bode well for China....It will be interesting to see how russia China and the Brics come up with a new paradigm.

 

https://www.msn.com/en-us/money/markets/russia-china-look-to-advance-agendas-at-brics-summit-of-developing-countries-in-south-africa/ar-AA1fxSME

"they cant allow more capitalism because it would potentially take the power away". 

 

Away to whom?

 

Will it be for the better if China is controlled by a corporate elite? How did the neoliberal model for the US turn out since the last 30 years?, if I look at the data it turns out to be pretty bleak. Chinas local economy is brutal, turbo capitalism. Many many players, hard competition.

 

Whats important to the administration is that these mega caps dont negatively influence chinas trajectory to become prosperous. Thats why they punish parasitic business practices where wages are getting pushed down, and monopoly practices interfere with healthy competition. Its always surprising by how much investors have exited china for good but IMO based on erratic believes. Xi is not an idiot that doesnt understand markets and capitalism and basically wants to clone Mao now. But something like that spooks around in the head of all the investors that experienced their first hard bear market. We are up sometime 100%+ for many great holdings since those lows in october 2022 and i actually agree with what the administration said: "People will be slapped by reality". 

[Luke]

4 minutes ago, tnp20 said:

 

If you are short China, you shoul be short NVDA and the likes....NVDA valuation is through the roof....

Dont forget indirect revenues, If Nvidia has 45% of sales in China and they are a large customer of micron, that pushes the exposure up significantly. And then all the factories and people that developed technical skills to build the products, supply chains etc..

[Luke]

And China industrialized much later than Germany and US etc, they have a LONG runway left. They are around a level of development of a germany in 1985-1990 if you compare GDP per capita. 

 

From Pwc: 

 

• The world economy could more than double in size by 2050, far outstripping population growth, due to continued technology-driven productivity improvements
• Emerging markets (E7) could grow around twice as fast as advanced economies (G7) on average
• As a result, six of the seven largest economies in the world are projected to be emerging economies in 2050 led by China (1st), India (2nd) and Indonesia (4th)

They estimate GDP of China to be around 50 Tr USD in 2045.

 

 

China regulates exactly according to studies by as an example the OECD: 

 

It follows that policies to reduce income inequalities should not only be pursued to improve social outcomes but also to sustain long-term growth. Redistribution policies via taxes and transfers are a key tool to ensure the benefits of growth are more broadly distributed and the results suggest they need not be expected to undermine growth. But it is also important to promote equality of opportunity in access to and quality of education. This implies a focus on families with children and youths – as this is when decisions about human capital accumulation are made -- promoting employment for disadvantaged groups through active labour market policies, childcare supports and in-work benefits.

 

 

[Luke]

So which Country sets the global rules then? Will it still be a currently deteriorating europe, i dont think so? The US will be a fine economy but the party will shift to the E7.

 

Yeah and maybe the west or US doesnt like it and there will be wars or sabotage but hey, thats what always happens if we look take the past 2023 years of history. One just cant invest "around" wars. They will happen over time. If one thinks the likelihood of China and US war is high the next 10 years, then one shouldn't own many US stocks neither and maybe focus on some smallcaps in other countries that are unaffected by such an event. 

[Luke]

So owning strong businesses in either India or China for the next 20 years should turn out in some pretty nice multibaggers for sure!

[Spekulatius]

Good posts from @tnp20 here and yes keep away worthless political unrelated drivel and the scope crisp around what really matters.

 

I do wonder a bit if the CCP should try to bail out housing in general. it seems to me that a lot of housing just serves as a fairly unproductive store of value for the Chinese.

The CCP probably does not to bail out the future homeowners that have paid for their apartments (in escrow accounts) but are stuck in limbo because those apartments are skeleton building  cannot be completed by the developers because they don't have the cash to do so. it a catch 22 situation where the developer needs some cash to hit the next milestone and get cash released from the escrow accounts etc. Seems to me that some intervention needs to happen because these unfinished homes ruin not just the neighborhood, but also the future homeowners (there are several stories in youtube about Chinese homeowners document their plight) as well as the developers or more likely the banks and debt holders who supplied most of the funding.

 

This seems to be a classical case where state intervention needs to happen to break a gridlock. Beyond that, a more productive use of capital would be to move away from housing and perhaps infrastructure (which relates to new home builds) to more consumption based purposes. This also reduces Chinas dependency on manufacturing and exports.

 

That could result in a bull case for China and their economy eventually.

[james22]

2 hours ago, Luca said:

Xi is not an idiot that doesnt understand markets and capitalism and basically wants to clone Mao now.

 

And the burnt Fool's bandaged finger goes wabbling back to the Fire

[tnp20]

3 hours ago, Spekulatius said:

This seems to be a classical case where state intervention needs to happen to break a gridlock. Beyond that, a more productive use of capital would be to move away from housing and perhaps infrastructure (which relates to new home builds) to more consumption based purposes. This also reduces Chinas dependency on manufacturing and exports.

The Only Five Paths China’s Economy Can Follow

 

Any economy broadly speaking has only three sources of demand that can drive growth: consumption, investment, and trade surpluses. For that reason, there are basically five paths that China’s economy could take going forward.

1. China can stay on its current path and keep letting large amounts of nonproductive investment continue driving the country’s debt burden up indefinitely
2. China can reduce the large amount of nonproductive investment on which it relies to drive growth and replace it with productive investment in forms like new technology
3. China can reduce the large amount of nonproductive investment on which it relies to drive growth and replace it with rising consumption
4. China can reduce the large amount of nonproductive investment on which it relies to drive growth and replace it with a growing trade surplus
5. China can reduce the large amount of nonproductive investment on which it relies to drive growth and replace it with nothing, in which case growth would necessarily slow sharply

These are the same five paths, by the way, faced by every other country that has followed the high savings, high investment model. Each of these paths creates its own systemic difficulties and each, except for the first, implies substantial changes in economic institutions that, inevitably, must be associated with substantial changes in political institutions. This may be why in the end every previous country followed the last of the five paths.

 

https://carnegieendowment.org/chinafinancialmarkets/87007

 

This is a long piece from Dr. Pettis from last year but super insightful....Only paths 2 and 3 are tenable long term...they will still do path 1 but less and less so over time to ensure they hit their GDP targets and to keep the economy on an even keel whilst they transition to path 2 and 3.

 

The issue is that even at 3-4% overall GDP growth long term...there will be companies in AI/Cloud/EV/Green Tech space  that will growh exponentially as this is all new area....the risk being power structures and Xi.

 

 

 

 

Edited August 22, 2023 by tnp20

[UK]

7 hours ago, Luca said:

 Xi is not an idiot that doesnt understand markets and capitalism and basically wants to clone Mao now.

 

https://www.wsj.com/articles/xi-jinping-putin-china-russia-relations-11671030896

 

“I have a similar personality to yours,” Mr. Xi told Mr. Putin during his visit to Moscow.

 

https://www.nytimes.com/2023/08/15/opinion/china-russia-dictators-xi-putin.html

 

Aging dictators have less time to reshape the world — and more memories of being obeyed at home and dissed abroad for their conduct. They become increasingly repressive and aggressive as power goes to their heads. Surrounded by sycophants, they make disastrous decisions again and again. They start pondering their legacies and wondering why they haven’t received the global respect they think they deserve or achieved the glory that would etch their names among history’s greats. They may decide that they don’t want to go down as a merely transitional figure. It’s a combustible combination: an autocrat who is overconfident and aggrieved and in a hurry.

[Ulti]

"China’s total trade with Russia in the first seven months of this year jumped 36% from the same period a year earlier, to $134 billion, putting Moscow just behind Australia and Taiwan on the list of China’s biggest trading partners, according to trade data released last week"

 

https://www.wsj.com/world/china/booming-china-russia-trade-sends-trench-digging-machines-to-ukraines-front-lines-85f5b5ff

[Luke]

 

[hillfronter83]

53 minutes ago, Luca said:

 

As long as those slogans are still on such landmark in Beijing, nothing fundamentally changed for CCP.

[Luke]

50 minutes ago, hillfronter83 said:

As long as those slogans are still on such landmark in Beijing, nothing fundamentally changed for CCP.

What do you mean with "nothing changed"?

[james22]

For decades, China powered its economy by investing in factories, skyscrapers and roads. The model sparked an extraordinary period of growth that lifted China out of poverty and turned it into a global giant whose export prowess washed across the globe.

 

Now the model is broken.

 

What worked when China was playing catch-up makes less sense now that the country is drowning in debt and running out of things to build. . . .

 

The most obvious solution, economists say, would be for China to shift toward promoting consumer spending and service industries, which would help create a more balanced economy that more resembles those of the U.S. and Western Europe. . . .

 

Instead, guided by a desire to strengthen political control, Xi’s leadership has doubled down on state intervention to make China an even bigger industrial power, strong in government-favored industries such as semiconductors, EVs and AI.

 

https://archive.ph/HES9y#selection-639.0-653.36

 

With the old model reaching its end, it would make sense for China to pursue another phase of liberalization, evolving toward a freer economy with a focus on consumer spending and service industries. But that clashes with President Xi Jinping's vision. Instead, the government is scaling up another round of industrial policy focused on semiconductors, artificial intelligence, and direct government spending on cultural items such as sporting events.

 

"The leadership also worries that empowering individuals to make more decisions over how they spend their money could undermine state authority, without generating the kind of growth Beijing desires," the Journal reports.

 

That line does a pretty great job of summing up what's at stake in China. There's no doubt that governmental stimulus spending can drive economic growth higher over the short term, but the bill eventually comes due in the form of higher debt and wasted resources. Sustainable, long-term economic growth doesn't come from officials issuing edicts. It comes from the individuals' power to pursue their own needs and desires in the marketplace—even if some of those desires aren't aligned with what the government wants.

 

https://reason.com/2023/08/21/chinas-industrial-policy-is-failing-will-american-politicians-take-notice/

 

 

[Luke]

7 minutes ago, james22 said:

For decades, China powered its economy by investing in factories, skyscrapers and roads. The model sparked an extraordinary period of growth that lifted China out of poverty and turned it into a global giant whose export prowess washed across the globe.

 

Now the model is broken.

 

What worked when China was playing catch-up makes less sense now that the country is drowning in debt and running out of things to build. . . .

 

The most obvious solution, economists say, would be for China to shift toward promoting consumer spending and service industries, which would help create a more balanced economy that more resembles those of the U.S. and Western Europe. . . .

 

Instead, guided by a desire to strengthen political control, Xi’s leadership has doubled down on state intervention to make China an even bigger industrial power, strong in government-favored industries such as semiconductors, EVs and AI.

 

https://archive.ph/HES9y#selection-639.0-653.36

 

With the old model reaching its end, it would make sense for China to pursue another phase of liberalization, evolving toward a freer economy with a focus on consumer spending and service industries. But that clashes with President Xi Jinping's vision. Instead, the government is scaling up another round of industrial policy focused on semiconductors, artificial intelligence, and direct government spending on cultural items such as sporting events.

 

"The leadership also worries that empowering individuals to make more decisions over how they spend their money could undermine state authority, without generating the kind of growth Beijing desires," the Journal reports.

 

That line does a pretty great job of summing up what's at stake in China. There's no doubt that governmental stimulus spending can drive economic growth higher over the short term, but the bill eventually comes due in the form of higher debt and wasted resources. Sustainable, long-term economic growth doesn't come from officials issuing edicts. It comes from the individuals' power to pursue their own needs and desires in the marketplace—even if some of those desires aren't aligned with what the government wants.

 

https://reason.com/2023/08/21/chinas-industrial-policy-is-failing-will-american-politicians-take-notice/

 

 

@james22  Do you own or have you owned any shares in chinese companies or companies with significant stakes in china?

Edited August 22, 2023 by Luca

[james22]

14 minutes ago, Luca said:

@james22  Do you own or have you owned any shares in chinese companies or companies with significant stakes in china?

 

Only Apple exposure via BRK and VITAX. Not significant enough to hurt.

[hillfronter83]

16 hours ago, Luca said:

What do you mean with "nothing changed"?

In the picture is the entrance to the Zhongnanhai, where high Chinese officials live and work. It's not an accident that the slogans on the wall are from culture revolution era (Long live CCP! Chairman Mao's thoughts are invincible!). CCP is the same party as decades ago. The main goal is and always will be to stay in power. So the "reform" and "regulations" are all means for achieving such goal.

[Luke]

2 hours ago, hillfronter83 said:

 CCP is the same party as decades ago. The main goal is and always will be to stay in power. So the "reform" and "regulations" are all means for achieving such goal.

Literally true for western politicians too

[Spekulatius]

1 hour ago, Luca said:

20 hours ago, Luca said:

@james22  Do you own or have you owned any shares in chinese companies or companies with significant stakes in china?

Literally true for western politicians too

@Luca what is your exposure to Chinese stocks? Also how do you risk manage it - or in other words what would you change your mind and made you sell?

[hillfronter83]

1 hour ago, Luca said:

Literally true for western politicians too

Name me a western political party that has similar influence on AMZN as CCP on BABA.

[james22]

6 minutes ago, hillfronter83 said:

Name me a western political party that has similar influence on AMZN as CCP on BABA.

 

You don't remember when Bezos was disappeared?

[Luke]

59 minutes ago, hillfronter83 said:

Name me a western political party that has similar influence on AMZN as CCP on BABA.

Because the US has a sleepy government that just doesnt really care and can be easily bought!

[Andrew Moser]

What odds could you have gotten in a Deadpool for Prizgoven(sp?) before today? In case people haven’t seen he was listed among the dead in a private plane crash in Russia today.

Edited August 23, 2023 by kimoser22

[Luke]

1 hour ago, Spekulatius said:

@Luca what is your exposure to Chinese stocks? Also how do you risk manage it - or in other words what would you change your mind and made you sell?

Around 15-20% is in China now and regarding risk, i think its way overblown and i am willing to bet a part of the PF. 

 

So far i have not seen any fundamental problems with chinas trajectory besides perhaps the slowing birthrate that is my most significant worry. I would change my mind if they actually privatize many big companies with no regard for shareholders just for the sake of privatization, a real shift away from privately owned enterprises. The tutoring companies interefered with education etc so i have an understanding for that move. But everything i hear from china i think is temporary and the long term outlook remains with growth and innovation.

[Luke]

My base case is that economic problems will sort themselves over time (3-5 years), GDP growth accelerates as well by then, the US and West realizes that they cant deal without china in economic questions, get anything done regarding the climate crisis without them etc, need their markets and personell, factories etc. 

 

China will continue growing their country, todays completely disregarded valuations will get back to pre october 2022, the good strong businesses will continue to flourish and we will outperform the market by miles due to multiple expansion+ faster growing economy.

 

I also think birth rates will reaccelerate, maybe not above 2.1 but comparable to western standards. 

Edited August 23, 2023 by Luca