I don’t think I’ll enough to say to warrant a ‘table of contents’ today. Have to stop by about 6.10 pm to go to pick up partner from Watford Junction after a three-day work visit to Liverpool.
My pitch to do some writing for a well known financial e-letter has not come anything;I may post one of my samples, just for the record. I’m going on with my property blogging, India yesterday and the Philippines today. At some point I’ll write a blog about property investments in the Hebrides, taking our holiday on Coll as a starting point. Speaking of which, I’ve been cleaning the tar we brought home with us on the car this afternoon. The sunny weather in our second week made the road melt. On the advice of family members, the cleaning process began by smearing butter over the affected area. The results were most impressive and a great relief. However, I did feel somewhat self conscious driving around in a buttery car and I was afraid somewhat might brush their clothes against the butter in a car park. So the car has now had a shampoo and is looking pretty much as normal.
The starting point of my blog on property investing in the islands was to have been the airfield improvements we noticed on Coll this year – couldn’t really help noticing the spanking new runway as our accommodation was right next to it – and on Colonsay in 2006. However, it doesn’t look as if this the start of a golden age of island tourism and second home ownership (if that’s desirable) as no one has agreed to fly regular services to these airfields and the Herald reports dissension on the Argyll and Bute Council about the expense.
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I’m not sure what to make of the controversy about Salman Rushdie’s knighthood. I’ve not read any of his books and I’m not sure that they would be my ‘cup of tea’. I’m inclined to think that the Pakistani government would do almost anything to distract its own people from its performance. Talk of a 30-year commitment to putting Afghanistan to rights made a big impression. It seems a very long time – leasehold colonisation you might think. Presumably, the UK government believe that Afghanistan is too dangerous to be left alone, that, unless we increase our commitment, the Taliban will end up back in control. But if British casualties continue to mount, there’s going to be the same domestic political pressure for the troops to be brought home.
There’s a fair amount of talk about developing Afghanistan but you get little sense of what different elements of Afghan society actually want. Presumably, development will cause the old tribal culture to wither away and that will make it more difficult for the Taliban to infiltrate. But the tribalism may be see by many Afghans as the essential characteristic of their country; ending it might make the country a better place for many people to live but they also need to be able to recognise it as their country. What’s needed is some way of respecting the traditional social structures while making them less exploitable – of drawing the line somewhere between local authority and hierarchy and warlord-ism.
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The idea seems to have been killed off and buried now but one wonders why the Americans could have seriously thought that Tony Blair would be a effective envoy the Palestinians with his reputation among Arabs. I heard on the radio that the idea was that he would help them with governance, not something Mr Blair seems famous for Why should Tony Blair step into the firing line to pull American irons out of the fire; if Bush, Cheney and Rumsfeld had listened to him a little more in 2003 the situation in the Holy Land might not have come to such a pass. He still could have a role somewhere in the world bringing people together to sort out their differences. Earlier, I thought he could be the catalyst for a solution in Darfur but I guess his reputation as anti-Arab and anti-Muslim won’t stand him in good stead with President Bashir either.
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On the financial front, the initial public offering of Blackstone seems highly dubious. Why would the captains of Private Equity want to sell some of their stake if not because they think they can do something either safer or more profitable than investing in their own company. On top of that John Plender seems to be suggesting in today’s FT that the shares are ‘junk’ because the shareholders will have so little control over the company.
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The sample piece I wrote about macroeconomics (I’m not an economist so I surprised myself) was in fact really about China. Conveniently, the property blog for that day was about the Shanghai property market so I was able to put myself in the mood early on. The property article took regulations to curb the real estate boom as its starting point but at one stage I realised I’d been reading some 2005 material on the web without realising these were different changes to regulations from the ones I was supposed to be writing about. However, the ceaseless efforts of the Chinese authorities to keep their economy under some kind of control is a main component of the economic story there.
This is what I wrote in my sample:
The effect of China on the world’s economy is like a maze for governments and investors. Beware the distracting spectacle of the Chinese bureaucracy struggling to control their juggernaut, something akin to three-dimensional chess.
This morning the China Daily reports that US administration has “refused to cite China as a country that manipulates its currency to gain an unfair trade advantage.” ‘Manipulate’ is loaded word but it’s certainly true that the Beijing government has other things to worry about apart from the effect of its export surplus on the US; mass-insolvencies in its public sector industries and a catastrophic threat to the country’s agricultural sector following on from the loss of competitiveness if the Yuan was allowed to rise significantly.
According to Will Hutton, the author of ‘The Writing on the Wall’, China will have to raise interest rates sooner or later to slow the rise in money supply and prevent inflation. This will have a severe impact on all corporations operating on very low profit margins. The flood of money in the Chinese economy is already well on the way to causing speculative bubbles in Chinese equities and real estate and the authorities are trying desperately to prevent these trends from running their natural course. A hike in the capital gains tax on property sales in Shanghai and Premier Wen Jiabao’s promise to raise borrowing rates are just the latest actions in the unending battle to keep the situation under control. He knows that the survival of the Communist Party government probably rests upon his success in preventing the implosion of the economy. Maybe the best policy would be a concerted effort to clean up corporate governance and standards of accounting; this at least would have the advantage of sending the right messages to the growing class of speculators.
For the rest of the world the short to medium term danger is less easy to predict – unless you’re unwise enough to invest in China. The potential of the Shanghai stock market to trigger a worldwide correction was tested in February with inconclusive results. This month the failure of Asian central banks intervention to support the price of long-dated US Treasuries was an important factor in the abrupt adjustment in the bond markets. Right now the People’s Bank of China is probably a more important influence on the financial world at large than the millions of Chinese investors. Bear in mind, though, that the authorities have allowed mainland Chinese banks to sell Hong Kong registered mutual funds to their customers in the last few weeks presumably to reduce speculative pressure on the domestic equity market.
The bigger picture, though, is that if the Chinese are going to spend their dollars on other things apart US government bonds, they run the risk of bringing about a downward correction in the value of the currency of which they hold so much. Investments like the $3bn sunk in Blackstone in late May will presumably lead to asset price rises in the US and shouldn’t hurt the exchange rate, but the Chinese are reputed to be aiming at investing $200bn and, if most of that goes the outside the US, the dollar could come under extra pressure.
Investing in Africa might be one answer, if ways could be devised to prevent African leaders siphoning the dollars off and the Chinese didn’t cut off the supply of strategic raw materials for the rest of us.
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Since last week the Chinese authorities have taken steps to make it easier for Chinese fund managers and brokerage houses to invest outside China and there’s been a fair amount of comment about China’s plans to launch a sovereign wealth fund – a way of recycling some of the trillion or so dollars it’s earned through exports. The Us government seems to be very doubtful about this development but it’s difficult to see what else the Chinese could do with their dollars, now that bonds are looking riskier, apart from burn them.
MarikaSunSeeker
