Hypocrisy and Hot Air
Charting around Asia
We trim this 2008 article from Financial Sense of June 25. The writer, a Sydney lawyer and financial consultant, publishes The Danielcode Report and lives with his family in Australia and New Zealand.
by John NeedhamThe global rush to be part of the great energy and diversity offered by Asian markets is quickly turning to disappointment and disillusionment with the dawning realization that the glitter from superior returns was not so much part of an economic miracle as another branch of the flooding tide of global liquidity.
The exodus from China reached fever pitch this month as investors slashed their net "weighting" position to -58, down from -14 in May. Surveyed funds reported their India weighting fell to -63 as investors took fright at the country's budget and trade deficits. Markets do what they do and the news (and surveys) follow.
China’s Shanghai Composite Index has lost more than 63% of its bull market run up and is working its way through its Daniel price sequences with precision. There are two degrees of DC support at 2700 where the market now is. China’s other Index, Hong Kong’s Hang Seng is in a stronger position, holding well above its March lows which dipped to near the 50% retracement of the whole bull market.
Japan’s Nikkei dived 60% into its March low but is trading well above that level having just been turned back by the 50% retracement at 14590. Large cap indices often find 50% retracements of ranges as a convenient parking lot.
Australia’s SPI 200 index retraced 43% in its dive to the March lows and is holding above that level on strength in the mining sector. Australia’s belief that “China will save us” is still strong.
As our yardstick for Asian markets, the Dow Jones barely retraced 35% at its January low. In times of stress, the US remains the safe harbor.
All of these markets ran up together and were highly correlated in shape if not degree. The stress testing is what makes these markets diverge.
Many global funds despair that Japan will ever embrace the principles of shareholder capitalism or drop its skepticism of foreign investors. Takao Kitabata, the top bureaucrat in the Japanese Ministry for the Economy, Trade and Industry, recently described short-term stock investors as “greedy, irresponsible fools to whom voting rights should never be given”.
In Asia, the long swing cycles, often too long for economists to notice and certainly not within the ken of CEOs focused on annual balance sheets are gradually emerging, as the growth stage of the cycle wanes and the contraction phase begins its unalterable course.
The Asian “miracle” is being revealed as a generational movement of labor arbitrage accompanied by technology transfers. In a decade Asia has achieved technological equality if not ascendancy with the west. The price of the labor arbitrage has been the improper pricing of (payment to) labor which is the default setting for all governments.
The outsourcing revolution this decade has begun to threaten middle-class jobs in the US and sap support for globalization. Everybody understood in the Golden Nineties that we would shed blue-collar jobs, but now white-collar jobs are going too, and that makes the politics more volatile.
Needham’s Law (#1) says that all profits are a function of the mispricing of resources usually created by legislative action.
The US and EU maintain a scandalous level of farm subsidies that adversely affect developing nations. Because of the subsidies that farmers in Europe receive, the market price of a bag of potatoes produced, for example, in France is cheaper than a bag produced anywhere in the developing world. And since the EU produces too much food, this bag of potatoes lands in the shops in the developing world, whether as aid or trade, and costs less than the local produce. Because the farmers in the developing world cannot compete with the incoming artificially cheap subsidized produce, they walk off the land.
Consider the automotive industry. If manufacturers had to pay the true cost of their product including the disposal of tires, dirty oil, smoke and noxious gases, cars would long ago have passed from being the biggest single polluter on the planet.
Natural resources are limited and absent the payment of the natural price – the cost of maintaining or replacing the resource in the same state as it was pre-plunder – the resource will be used until it is depleted.
Fishermen don’t pay this natural rent. California’s Sacramento River once saw spawning populations of 800,000. Last year, only 90,000 spawning adults returned to the river, the second lowest figure on record, and the projections for this year, based on sightings of two-year-old fish during last autumn's spawning run, are for fewer than 60,000. British, European, and Asian fisheries are depleted and whole species have been wiped out with monotonous regularity.
Since no natural rent has been paid for oil, no alternate has been developed.
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