The New Robber Barons Page 39
The Wukan problem wasn’t one of policy or indifference to mass suffering; it was a rebellion against theft of public land by corrupt and greedy officials. This sort of theft has been happening in many areas of China. Now that food price inflation has made arable land more valuable, more citizens may wake up and fight corruption.
Mainstream media spin centers around dealing with outraged townspeople instead of exposing and ousting corrupt officials. In that way, China’s politicians are like U.S. politicians, and mainstream media protects the politicians and their cronies.
In other words, nothing has been settled, and it will be interesting to see if China becomes more unsettled in 2012.
Slowdowns, Growth, and Savings
As mentioned previously, China has taken steps to cool its overheated economy and property market. A slowing means fewer local land sales. Some local governments have already begun deferring interest payments on loans. While the Fed holds rates near zero, China’s central bank holds rates at over 6.5%. Many economists are calling for easing, a reduction in rates to stimulate China’s economy through more lending. The problem with easing is that China is already in the grips of inflation. (“China Financial Markets: Time to relax credit?” by Michael Pettis, Guanghua School of Management, Peking University, October 31, 2011.)
China has loaded itself up with debt, but it is a global creditor nation. High household savings is a buffer as is its relatively faster growth than developed nations. While being a fast-growing creditor country helps mitigate the consequences of folly, the consequences are catching up with China.
Dylan Grice points out that anecdotal evidence can be misleading and China may “keep the plates spinning for a few more years.” (“Popular Delusions: On China’s swindles: how big is the bezzle?” by Dylan Grice, Societe Generale Cross Asset Research, November 4, 2011.) Localized real estate bubbles, dodgy lending, and outright fraud are specific problems, and supplier slowdowns and price declines are already in evidence. Do the previous anecdotes overstate the problem? That’s impossible to tell without reliable numbers. One also has to be skeptical of government growth statistics, yet many U.S. corporations have reported growth spurts that far surpass business in developed countries.
A Bull and a Bear in the China Shop
The question is how quickly and to what degree will China’s problems affect its economy?
It seems to me Jim Rogers and Jim Chanos are each answering this question in his own way. Jim Rogers invests in durable demand growth for selected commodities—especially the supply constrained ones that are still depressed on a historic basis. He’s bullish on water and air pollution treatment, agriculture, raw materials, and energy. Jim Chanos is shorting specific banks, property developers, and suppliers of construction materials such as iron ore, cement, steel and coal.
It looks as if 2012 isn’t the year of the bull or the bear. It’s the year of the Jims.
1 Jim Rogers and I have been professional admirers for several years, and his blurbs appear on the dust jackets of two of my books: Structured Finance, and Dear Mr. Buffett.
2 I attended the New-York (sic) Historical Society 2011 History Makers Awards honoring Henry Kissinger and James Chanos as Chanos’ guest. The theme was “China: An Evening with the Experts.”
Coming Soon
The Money Book (2012) – Tavakoli pierces the fog and predicts what you should buy and sell to take advantage of global financial turmoil and when to shift your investment strategy.
About Janet Tavakoli
Janet Tavakoli is the founder president of Tavakoli Structured Finance, Inc. (TSF), a Chicago based consulting firm established in 2003 for clients including financial institutions, institutional investors, and hedge funds.
After more than 22 years of experience structuring, trading and selling derivatives and structured products while working for global Wall Street firms in New York and London, Tavakoli has received industry recognition as a global expert in finance. Ms. Tavakoli is a world renowned author and speaker on derivative products and securities.
The University of Chicago profiled her as "Structured Success," and Business Week as "The Cassandra of Credit Derivatives." The International Monetary Fund, the Federal Reserve Bank, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission have tapped her expertise in various forums.
Ms. Tavakoli has written several books, Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, 2003, 2008), and Credit Derivatives (Wiley, 1998, 2001) which revealed grave flaws in the methodology for rating structured financial products and abuses in the credit derivatives markets. In Dear Mr. Buffett: What An Investor Learns 1,269 Miles from Wall Street, (Wiley 2009), she explained the causes of the greatest credit bubble in the history of the world, how we could have avoided it and how we can prevent it from happening again.
Ms. Tavakoli is frequently published and quoted in financial journals including The Wall Street Journal, The Financial Times, New York Times, The Economist, Business Week, Fortune, Global Risk Review, RISK, IDD, Chicago Tribune, Los Angeles Times, LIPPER HedgeWorld, Asset Securitization Report, Journal of Structured Finance, Investor Dealers' Digest, International Securitization Report, Bloomberg News, Bloomberg/Business Week Magazine, Credit, Derivatives Week, TheStreet.com, and Finance World.
Frequent television appearances include CBS's 60 Minutes, CNN, C-Span, CNBC, BNN, CBS Evening News, Bloomberg TV, First Business Morning News, Fox, ABC, and BBC.
Ms. Tavakoli earned a Bachelor’s degree in Chemical Engineering from the Illinois Institute of Technology and an MBA in Finance from the University of Chicago Graduate School of Business, now known as the Booth School of Business. She is a former adjunct associate professor of finance at the Booth School of Business where she taught "Derivatives: Futures, Forwards, Options and Swaps.”
For further information please see: www.tavakolistructuredfinance.com
Table of Contents
PREFACE
CHAPTER 1
CHAPTER 2
CHAPTER 3
CHAPTER 4
CHAPTER 5
CHAPTER 6
CHAPTER 7
CHAPTER 8
CHAPTER 9
CHAPTER 10
CHAPTER 11
CHAPTER 12
CHAPTER 13
CHAPTER 14
CHAPTER 15
CHAPTER 16
About Janet Tavakoli