Taoyuan Nights

Quick Asian housing news round up:

In Korea…

“SEOUL, Nov 4 (Reuters) – Housing prices across South Korea will rise in 2010 for a sixth consecutive year and by the fastest pace in four years, an industry association research agency forecast on Wednesday.” (when do industry association representatives ever say anything else?) , “Kookmin Bank said on Monday housing prices rose for a seventh consecutive month in October from the previous month following a six-month decline.
http://www.forbes.com/feeds/afx/2009/11/04/afx7082777.html

In Singapore…

“Demand for private homes has experienced “strong growth” and unchecked price gains may expose the property market to risks in the global economy, the Monetary Authority of Singapore said in its Financial Stability Review today.”, “This comes after property prices rose 15.8% in the third quarter of this year, the most in 28 years, after dropping 25% in the previous four quarters.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aqr8hthy9z5k&pos=5
http://www.propertywire.com/news/asia/soaring-property-price-fears-200911133672.html

In China…

“Chinese real estate figures out on Tuesday show investment in the sector was up 18.9 per cent in October, while property sales soared 48.4 per cent year-to-date.”, “This is further evidence that strong bank lending and easy liquidity conditions are creating an overheated property market.”
http://ftalphaville.ft.com/blog/2009/11/10/82486/more-on-that-overheating-chinese-property-market/

In Hong Kong…

“Statistics compiled by CB Richard Ellis, an estate agent, show that prices of high-end flats have risen by 40% since January, and are now just 13% below their 2008 pre-crisis peak. Some are once again priced at record levels.”
http://www.economist.com/businessfinance/displaystory.cfm?story_id=14816657

In Taiwan…

“Nov. 13 (Bloomberg) — Taipei’s residential prices may rise 15 percent in 2010″ (That’s right – one random dude’s guess is apparently worthy of an entire news article at a major news agency)

http://www.bloomberg.com/apps/news?pid=20601087&sid=ayxWM98dXAjA&pos=7

“Wealthy Taiwanese eye luxury homes in the south”

http://www.chinapost.com.tw/business/asia/b-taiwan/2009/11/13/232610/Wealthy-Taiwanese.htm

Also repeated here in the Taipei Times (Thanks Michael).

In fact, the Taipei Times also adds this little nugget: “Taiwan joined Singapore, Hong Kong, India and China in moving to prevent excessive property-market swings, after falling interest rates drove prices higher.”

So… wait a minute… how long have Taiwanese rates been low? (Answer: a long time). And how long has it been known that low interest rates cause asset bubbles (Answer: a long time – 80 years, at least). So why wasn’t this rapidly put in place when prices were swinging UP, effectively stealing the future earnings of the youth of the country and handing them to the old? Oh wait, maybe I know… taxes are higher when property prices are higher… and taxes go lower when property prices go lower.

So who do Asian economists blame for these Asian bubbles?

“Fed May Cause Next Crisis, Hong Kong’s Tsang Suggests”

http://www.bloomberg.com/apps/news?pid=20601080&sid=aU3AiTc_Q_vk

What a surprise.

“Where is the money going — it’s where the problem’s going to be: Asia,” Tsang said. “You can see asset prices going up, not only in Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals.”

Oh dear, poor little Asia. At least they’re making serious progress in placing the blame elsewhere – the next stage of the crisis hasn’t even happened yet and yet it’s clearly America’s fault.

Summary & My Opinion.

Asian housing propaganda (’houses always go up!!!’) is once again filling the newspapers. Meanwhile, local governments pour money into the economy, keep interest rates low, and fail to regulate their housing and asset markets properly.

Yet when this all goes wrong it will be America’s fault apparently.

Hmm. My view is that a lot of people who failed to learn a lesson in 2008 are going to get burned again. More banks went bust in the USA this year than in any previous year, and losses are continuing. While modest GDP growth has been achieved in some countries thanks to a huge stimulus spending program and low interest rates, there is no indication that the world is really out of crisis yet. So why are people once again paying record prices to buy little piles of bricks and wood? I have no idea. It seems crazy.

“On Thursday, the Taiwan Institute for Economic Research (TIER) revised its economic forecast for this year, predicting the nation’s GDP would contract 2.89 percent year-on-year, worse than its previous estimate of a 1.91 percent decline.”

Funny, really, you’d think people who were predicting 3 significant figures of accuracy would be ashamed of not even getting the first significant figure right, and would avoid repeating their mistake. Apparently not.

Not that it matters, since the real harm to Taiwan’s economy is almost certainly bigger than either of these numbers. I have trouble imagining how Taiwan and Japan’s exports can drop by similar amounts, and yet Japan reports a GDP hit many times times bigger than Taiwan. Doesn’t add up.

http://www.taipeitimes.com/News/editorials/archives/2009/11/08/2003457915

The following link (Telegraph) is one of the better pieces I’ve read lately.

As you may know, historically, economists/financiers seem to have held the view that although Japan had horrific government debt relative to the size of its economy (GDP), this was ‘OK’ since it was all lent by Japanese citizens (because of the high savings ratio). This meant the debt could be easily be repaid at any time by inflation, i.e. printing new money to pay back old debt.

Unfortunately, the debt was never repaid, it just grew and grew. It proved hard to generate inflation, and now all those people who provided the government with money via savings, are getting old, and they want to spend their savings.

So the Japanese government is trying to roll over some 250% of GDP into foreign borrowing instead of domestic borrowing at the worst possible time (i.e. when every other government and business in the world desperately wants to borrow money too).

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6480289/It-is-Japan-we-should-be-worrying-about-not-America.html

This should be interesting to watch.

(Britain is in a slightly similar situation, though with a growing population, lots of recently acquired debt, and a negative savings ratio which has now recently turned positive).

Having ‘dropped unemployment’ and ‘raised salaries’, as per their election promises, a Taiwanese government report now promises:

“in the absence of an ECFA, the country stands to lose 47,000 jobs and the Gross Domestic Product growth will be cut by 0.179 percent.”

“In the event Taiwan and China sign an ECFA without including the liberalization of agricultural products, Taiwan could add 105,000 jobs while the economy would grow by 0.824 percent, the report said.”

Wow! It’s amazing that they can get their numbers precise to 3 decimal places. And as always, magically, China will bring great prosperity to Taiwan, just… because! It will! Don’t argue!

http://www.etaiwannews.com/etn/news_content.php?id=1087314&lang=eng_news&cate_img=logo_taiwan&cate_rss=TAIWAN_eng

Easy predictions & publicity-seeking behaviour

Another company is desperate to make a name for themselves again, after their absolute failure to predict any of the recent events that have plagued Taiwan in the last year. Here, they’re making a ‘prediction’ that has an extremely high chance of coming true simply by chance. And even then, they have to add the word ‘may’ at the start – making this statement 100% likely to be true, no matter what happens.

In contrast, real predictions can be falsified; and real predictions are for events that are unlikely to occur simply by chance.

Correlation is not Causation; abuse of the word ‘as’

I’ve talked about this kind of media junk in my last post. This time, I want to draw your attention to something else (something that Michael Turton is famed for highlighting on his own blog). Look at this sentence:

“The Taiex surged the most in eight years on April 30 as the island allowed Chinese investment for the first time since the end of a civil war in 1949.”

You see how they used the word ‘as’ and placed these two independent things in the same sentence, so as to imply a connection between them? As though A caused B? But how do we know it did? This ‘Chinese investment’ issue has been an ongoing issue for the last year or two now with continuous small movements in that direction.

I mean, “I stood up as a car drove past”. That hardly means the two are connected; but the financial media of the world are wont to abuse the connective ‘as’ in this manner. It’s worthwhile to be aware of this: two things happening around the same day, does not mean they are in any way connected, despite what the financial media would like you to think. Look out for the word ‘as‘ being abused, next time you watch a financial program on TV or read an article about finance or the economy.

In this case, on April 29th (US time), the DJIA had jumped 200 pts – a fairly steep rise – which would have had an impact on the Asian markets as they opened 8 hours later. Why isn’t this mentioned? It would seem to be very likely to be a contributing factor, since it is fairly well established that drops and rises in one major equity market tend to cause similar behaviour in other equity markets around the world (it’s something like when a supermarket drops the price of beer; you may find that other supermarkets nearby do exactly the same thing to compete).

Cargo Cults

The reason why this particular article was written goes a little bit deeper than mere page-filling and the abuse of coincidental events: this is really about the Cargo Cult effect. It is common to see this in the Taiwanese media (and media relating to Taiwan); a mystical belief that anything to do with the mainland and investment will magically lead to riches for Taiwan.

However, there’s no reason to believe this is the case. It’s my understanding that a reasonable part of Korea’s economy was hollowed out by China, and the Japanese have had to take careful steps to prevent the same thing happening to them too. The best place to read more about this is Michael’s blog; I’m just highlighting it here for anyone that hasn’t heard of this problem in the financial media coverage of Taiwan. China may be a positive thing for Taiwan, or it may be a net negative. But these days, you will very seldom find coverage of the negative angle in the Taiwanese media. Most people want to believe that a saviour is coming to solve all their ills by magic…

…but it is the same ’saviour’ that has thousands of missile warheads pointed at them, only 20 minutes from impact at any time.

Round numbers

Finally, one other thing: ’round numbers’. Check out their forecasts:

“The Taiex Index may climb to 8,500″, “The brokerage previously forecast 7,700″

Notice how these are both round numbers, multiples of 100? Isn’t that strange? How do you imagine they got that number and not another number?

a) A complicated computer program crunched numbers and computed statistics, until it produced the prediction: precisely 8500.000! Incredible!

b) Everyone in the office picked a number between 70 and 100. They put the numbers in a hat, took the answer out, and multiplied it by 100.

:-|

Anchoring

“Anchoring” is when you introduce a number to someone to make their mind fix on it. For example, if you walk into a shop and you see drinks at $2 each, then at the back of the store you see one at $1, you think, hey that’s a good price. Meanwhile, the store next door is selling the drink at $0.50.

Anchoring shows up in lots of areas. A common situation is when institutions that profit from share-trading try to stimulate consumers to buy/sell shares (usually, buy, since the institutions tend to already hold those shares, but any action taken by retail investors is generally profit-making for financial institutions – they live off volatility). I saw a fun example today:

Some thoughts:

1. Does anyone remember Sinopac predicting the crash in Taiwanese stocks in 2008? I don’t.
2. Has anyone ever heard Sinopac (or any other institution) predict giant losses for any year, ever, when the market has been going up over the previous months?
3. Where did this magical number 33% come from?
4. Why ‘by mid-2010?’?
5. Do Sinopac have a track record of re-evaluating their past claims to measure the success rate?
6. Is there money on the table?

I’m not saying it can’t happen. I mean, it’s actually quite possible that at some point over the next year, stocks could continue bubbling up another 33%. Stranger things have happened.

But the real story is this: this ‘33% rise’ idea is there to make people feel greedy, to feel like suckers if they’re not already on the gravy train. It’s so that people start talking about whether it will be a 20% or a 50% rise. The idea of a 80% drop will not be discussed at all. But if Sinopac really believed that shares were going to be going up 33%… why tell anyone? Why not buy every share they can find? In fact, why not start screaming ‘the market is going down!’ so that they could buy everyone else’s shares more cheaply and take a nice profit themselves in mid-2010 (or before)?

And that takes us to the magic word “may” in the story headline… which makes the whole article *completely pointless*. Stocks may rise 33%, they may fall 33%, they may do nothing… this is not news. It’s just junk to get the magical number of ‘33%’ into people’s heads. And like 6-3-3, people will fall for it once again, I suspect.

Coupons Revisited

Meanwhile, you might remember the “Shopping Coupon Stimulus” project that the KMT touted back in February as the salvation of the economy. At the time, I blogged repeatedly on this issue, saying that results from other countries in the past showed that this kind of scheme doesn’t work. People just use the coupons for regular shopping, and save the money they would have spent. For example, here and here and here.

Results are now in: the coupon scheme was a near-total failure. 70% of coupons simply replaced regular spending. In fact, some people haven’t even spent them yet, even after 6 months, and despite the fact they’re about to expire. Can you believe it? “Free money” with an expiry date and *still* people won’t spend it?

So, as expected, this was a huge economic failure – for around 70% of people (even by government data), all that happened was that future tax income was borrowed through the government machine as a complicated and expensive loan to consumers in the present. The money will now have to be paid back, less the costs of all the administration involved. They can talk about ‘GDP gains’ all they like – it’s a fact that this will be a net loss for the people of Taiwan, given the pointless bureacracy involved in this nonsense, and that the ‘boost’ to GDP now will be a ‘drop’ to GDP in future of a slightly greater magnitude.

It was also a political failure. The KMT arranged to have this money paid out at polling stations. Think about it… go to the polling station, pick up your money from the KMT? Pavlovian, as Michael Turton and others pointed out at the time – you ring the money bell, the people vote KMT again. At least, that’s how it’s meant to work. Since then, the KMT’s popularity has plummeted, and they just got hammered in a recent election over the weekend. Nice one.

NOTE: A reader wrote to me to remind me of CEPD Minister Chen Tain-jy, who according to the government’s website said he would resign if the program failed to raise Taiwan’s GDP by at least 0.32%. LOL! Has he resigned?

Hello everyone, just some quick bites for you:

1) “Taiwan’s Export Orders Fall for 11th Straight Month” and by rather more than expected.

However, expect a mysterious flattening or upturn in 2 months time as we exit the first year of the crisis and start getting numbers relative to last year’s hideous data.

2) Taiwanese unemployment continues to rocket up. Ma Ying Jiou is fulfilling his 6-3-3 promise in an unexpected way: >6% unemployment and >33% drop in exports… this is despite the government trying to employ half the country as mosquito catchers and full-time students.

I note that the Taiwanese government is bravely blaming current events on things such as Typhoons (how could one expect typhoons, in Taiwan of all places?) and other governments.

3) The China Post uncharitably notes that unemployment is worse in Taiwan than in the other asian tiger economies.

4) Mainland China: some extremely interesting articles about the Chinese mindset regarding housing. They will quite happily buy houses and have no one living there. I wonder how this mindset will hold up in the face of e.g. a Japan or Hong-Kong style massive property crash?

http://shanghaisandlows.wordpress.com/2008/11/22/suburban-shanghai/

Financial Times: Time for a chinese real estate crash?

5) Chinese bank lending. Taiwan just got slaughtered by hitching itself to the USA just before a credit crunch. Is Taiwan repeating its biggest mistake? Take a look at the bubble in Chinese bank lending.

6) Taiwan’s government debt hits the maximum allowed, with a spending deficit 50% worse than expected. Record amounts of debt issued; 2010 spending to be reduced.

7) Taiwan’s money supply grows by 8%. With interest rates near 0%, this suggests that price inflation may soon be a big concern in Taiwan. Look out for rising prices.

Anyway, that’s all for now. I really recommend those articles on the typical mindset of Chinese people towards housing, they are eye-openers.

Sorry, I’m not updating so often these days. Some random economic nuggets relating to Taiwan:

Typhoon Morakot: hundreds dead + US$2-3 bn of damage.

Unemployment: “Unemployment in Taiwan has reached record levels for the third month running, according to the latest unemployment figures.”

http://news.bbc.co.uk/1/hi/business/8217907.stm

Wages: Scott Sommers pointed to this – real wages in Taiwan are now at 1996 levels:

http://www.taipeitimes.com/News/taiwan/archives/2009/08/26/2003452008

GDP: very strange stuff being put out. People are swapping between different methods of measurement and projection to try and make things look good:

“Gross domestic product fell 7.5 percent in the June quarter from a year earlier, in line with expectations and improving from a record 10.1 percent contraction in the previous quarter as the steep drop in exports eased.”

So that looks like a drop to me, and one that is bigger than the ‘0 to 4%’ annual drop that the government has talked about previously. But:

“In a further sign of a gradual recovery seen in most of Asia, gross domestic product rose 20.69 percent in the April-June period on a seasonally adjusted, annualised basis, the government said in its first release of such a series on Thursday.”

So the GDP is down from last year… but if you adjust the numbers a bit, and assume that the rest of the year behaves identically to the last 3 months, … then you get almost a 21% rise in GDP taking place? Well… that’s possibly technically true, but what if the current 3 months isn’t a great prediction of what’s to come? Then, the government’s prediction would be like walking along a dirty street somewhere, finding a $100 dollar note on the ground, deciding that this is the equivalent of finding a $1000 dollar note in a rich neighbourhood, and then assuming you’re going to keep finding dropped currency as you walk along the rest of the street, and calculating how rich you’ll be by the time you get home. Maybe you will find those notes; maybe you won’t.

One thing is for sure – extrapolating adjusted short-term data in the present economic environment over the long term is asking for trouble.

http://www.reuters.com/article/marketsNews/idUSTP9379020090820

Three simple questions to ask yourself:

1. Why would anyone with any training in statistics be making predictions about the future with 4 significant figures of accuracy (20.69% vs. 20.7% or 21% or 20% or “10-30″%)? The answer is: people conflate ‘precision’ with ‘accuracy’; but they’re not the same at all. The unexpected costs of Morakot alone account for 0.3% damage to GDP on a quarterly basis.

2. Did any of the people who are currently predicting a recovery, warn you of the downturn? And if they didn’t make that important prediction right… why would you listen to them now?

3. Did these people make unfavourable seasonal adjustments to the worst figures earlier in the year, and multiply them out four times as well? (as they did here). If not, why not? Why did they change their method?

Government economics is simply political marketing, and only a fool would take it seriously.

p.s. Yet more government spending described as ‘boosting GDP’, below. Does the writer realise that this is their future taxes and debt? Their children’s economic future being spent today? Besides, it isn’t economic growth when you have a bunch of stuff destroyed and then have to rebuild it. Otherwise, we would be paying kids to go round setting factories on fire, to stimulate the economy.

“The economy is expected to grow 3.92 percent next year, it said, with reconstruction from Typhoon Morakot, which triggered the island’s worst floods in about 50 years, likely to boost government spending.”

p.p.s. I really miss Din Tai Fung.

… but not today.

http://online.wsj.com/article/SB124958427788111913.html

Meanwhile, cigarette smokers across Taiwan continue to insist that they can quit any time they want, possibly even right now, if they really wanted to.

The only good news here is that the government is possibly starting to realise that if spending doubles and tax income halves, the country is in serious trouble long term.

I notice lately that the stockmarket in Taiwan and China is booming. I am guessing this is a consequence of the stimulus program in China combined with low interest rates and a continuing inability for people to connect with the reality of shares: they are not lottery tickets, or horses being raced. Rather, they are businesses in Taiwan.

Has the global crisis ended, or is it simply that many governments are printing money to fuel unaffordable stimulus programs – mostly in an effort to retain popularity with voters, rather than to set the country on a stable economic footing…

I think people investing in the Taiwanese and Chinese stockmarkets at present prices are mad. They could have bought the same shares months ago for a fraction of the current price. So why buy now, just a few months later, for twice as much? Answer: they have no idea what they are doing.

In case any of the readers of this blog are interested, I’ve just published an old project that was lying around my hard drive gathering dust. It’s a chemistry package for students, designed to be simple to use, and straightforward for anyone wanting to add new features.

MollyCule – http://mollycule.org