State of the Union

Now, this is not a dig at Obama, but more of a dig at the sort of nonsense that probably goes into every SOTU address. I normally never watch them. I did not watch the SOTU this year either, however, I did catch this blurb on the news.

Obama said that the US will double exports over the next 5 years...creating 2 million jobs.

Really? First of all, unless those 5 years are under some new 5-Year Plan ala the Soviet Union, I don't see how he can do that. Is he going to make the Chinese buy GM cars from Detroit or something? And, adding jobs implies a structural move towards a larger export sector.

Oh, and so I did a google search to see if I could pull the exact quote, I find that the NYT and others also have a stories on this. So, its not just me who thought this political vaporware was interesting.

Let's say its NOT vaporware though. It would seem to me that the only way to achieve this goal, within the normal powers of the presidency, would be the devaluation of the dollar. That's sort of been happening slowly over time, but maybe Obama is signalling something more, with regards to Chinese currency?

I'd put the odds at 95% its just vaporware though.

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Rep. Frank: Abolish Fannie Mae, Freddie Mac

This one almost caused me to spit take. I don't know what's been put in the Mass. water supply, but its working.

This from the guy who once said:

"I want to roll the dice a little bit more in this situation towards subsidized housing. . . ."

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Stocks slide as Obama calls for tougher bank rules

That is one vague article.

The most important reform says that if you want to access to money from Uncle Sam, you have to be a plain vanilla bank, and not have your own proprietary trading desk.

Sorry if you own Goldman Sachs stock, but that sounds pretty reasonable to me.

Lender of last resort to prevent bank runs? OK.

Lender of first resort to punt on pig bellies? No thank you. Do that on your own dime.

Good job Obama.

Now get Freddie and Fannie fixed up and dumped off.

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This is actually a very good article about buying products and quality issues in China:

One thing that frequently happens in China is that factory owners will bid extremely low — even to the point where they have no profit — just to win an order. Once they've got the business, they search for ways to cut corners so they can widen their profit margin and recover what they lost with their lowball bid. They might switch to cheaper lead paint or buy inexpensive metal containing cadmium. This is called "quality fade."

Or they simply take the order wait for a while and then raise the price for some reason or other. The buyer is locked into the shipping schedule and eats the cost increase. They may also claim "confusion" as to what was agreed upon and explain that the "extras" the customer wants costs more.

To avoid misunderstandings and deviations, many buyers will create an elaborate "bill of materials" — a document that specifies what kind of materials must be used in the product. A furniture maker might specify the type of foam used in a chair's padding and what size nail will be used. The more experienced buyers will create an elaborate, highly technical bill of materials that is signed by both sides.

But the document doesn't have much teeth if buyers don't hire their own quality control staff to supervise the making of their products. Factories are notorious for making subtle, cost-saving changes to the product.

Part of this problem is that once you have a factory making your product, they pretty much think it is actually their product now and they can make changes as they see fit. Or sell them to other companies, too.

How many times have I told factories to NOT SHOW MY PRODUCTS IN THEIR SHOWROOM and then find my samples sitting in their showroom when I spot check. One factory even printed catalogs with our design in it before our own company had even finished a final sample with them. And this was after signing a contract in Chinese that explained that you could not do this, and that there would be stiff penalties if they did so. I ended up watching the guy destroy 1,000 catalogs in front of me.

I think many Chinese companies (and to be fair, I am sure its not just Chinese who do this stuff) use these "Car Sales" tactics because they actually work. If you are not the low bidder, then the customer is not even talking to you, then what's the point? Get the customer to talk with you, and start the process, then worry about everything else. The logic is workable. I have never tried this technique myself, though, because I think it would not work so well for a westerner. Customers assume the Chinese supplier will be duplicitous but would be enraged if I did that.

And I suppose if you are just a retailer, as the buyers are more and more often, instead of a product creator, designer, etc., then you rather like this style of business. You can get access to new designs, reduced costs versions of product, etc. without any effort by yourself.

Fueled by Jagermeister

1. Free Trade with China: Thought Experiment

Imagine if tomorrow the United States' government declared that all tariffs would be reduced to zero for Chinese made products. Any quotas and all other trade barriers would be removed.

Oh, and the exchange rate for the CNY/USD would 4.0/1.00 rather than 6.85/1.00.

Would you consider this "free trade?" and if you would not, then why do we consider "free trade" with China at an exchange rate fixed by Beijing to be "free" trade?

2. I forgot what else I was going to say. The Jager is hitting now.

p.s. Still for free trade, and technically, yeah, if China wants to subsidize my consumption fine - just worried about secondary effects:

a. Lower interest rates than normal due to Chinese monetary sterilization - and what that entails...

b. Chinese over-investment in production - this is not good for them either.

c. The re-balancing that might have to take place - I am not the man who wants to teach mortgage brokers how to run a CNC-lathe. Now, teachers rich Chinese consumers to buy rounds of Jagermeister, ab-master 2000, and juicers....

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Double Atomic bomb survivor dies in Japan

As we learned from the Final Destination movies, you cannot escape death.

This guy's life since '45 must have been one narrowly averted death after another. Wrecking balls flying right by him, streets collapsing, etc.

Insurance actuaries probably hate those movies.

semi-related, I listened to a podcast where they discussed how atomic bombs are not really that powerful (at least the basic kinds.) I remember the example of NYC, they said if one was set off in Central Park, it would not really destroy anything outside of the park.

Why the Yuan will not appreciate soon...

I had been hoping for the past several years the Yuan would be revalued up again. I am now feeling very doubtful about that occurring for the following reasons:

1. The poor world economy scares Chinese leadership, not just economically, but politically. Thus they will not attempt any policy that would hurt China's exports, even if it was a short term hurt for a long-term gain. Politicians everywhere seem to always take the short-term pain-killer policy. So, why not just juice up the loans from the state run banks and keep the exports for bonds model going?

2. I suspect the Chinese view is that even with the weird imbalances and exposure to US bonds, they are getting tons more in benefits, like a massive industrial base, foreign-investment (much of it in joint ventures that end up with technology transfer.)

Thus, my prediction is that the RMB sits at 7.85 for a long, long time. I'd say 2011 at the earliest for something to happen. Its also possible for a devaluation to happen.

So I see lots of downside and not much upside.

There still is the interest rate that is higher in China than the US, though. Not sure how high interest rates are in China.

.....

I have no idea what happens if the US has serious inflation. Do the Chinese keep the currency pegged then? Do they keep buying bonds?

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Officials: Bomber at Afghan CIA base was a double agent

Actually, I think he was a triple agent. Jihadi turned by Jordan, then turned back. When I was a kid and learning about spy stuff, I always thought triple agents seemed a little improbable.

Guess not.

Big Business Loves Big Government

All of this is doubtless useful to the interests of Tata back in India, which is heavily involved not just in bio-energy, renewables and insurance but also in ‘carbon trading’, the worldwide market in buying and selling the right to emit CO2. Much of this is administered at a profit by the UN under the Clean Development Mechanism (CDM) set up under the Kyoto Protocol, which the Copenhagen treaty was designed to replace with an even more lucrative successor.

Under the CDM, firms and consumers in the developed world pay for the right to exceed their ‘carbon limits’ by buying certificates from those firms in countries such as India and China which rack up ‘carbon credits’ for every renewable energy source they develop – or by showing that they have in some way reduced their own ‘carbon emissions’.

It is one of these deals, reported in last week’s Sunday Telegraph, which is enabling Tata to transfer three million tonnes of steel production from its Corus plant in Redcar to a new plant in Orissa, thus gaining a potential £1.2 billion in ‘carbon credits’ (and putting 1,700 people on Teesside out of work).

(from this story)

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So, large corporations can reap even larger profits by moving any production from developed countries to India or China just for the carbon credits they can sell.

And how does this help reduce carbon emissions? Why, it does not reduce them at all.

Its simply a weird re-distributive quota system, that pays corporations to move production overseas.

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Pervese result from this will be Chinese and Indian multinationals gobbling up any remaining US and European industries that can be moved overseas. The selling price now has a nice Carbon Discount attached.

(Why not a carbon consumption tax that is leveled across the board - imports subject just as much as domestic production. Then the incentive is to truly reduce carbon emissions, rather than game the system.)