Taoyuan Nights

“Share prices plummeted 47.5 percent last month, compared with a 31.6 percent drop in September, as investors exit the market and took shelter in times and savings deposits.”

Picture from tw.quote.com, showing TAIEX 2005-2008.

Clearly, being invested in the Taiwanese stockmarket wasn’t such a great idea. The Taiwanese stockmarket index is dominated by just a handful of electronics/semiconductor companies, and is heavily biased towards exporters.

This stockmarket downturn is going to make people feel poorer, which will make them spend less and invest less. Ironically, it’s now likely to be a better time to invest for the very long term. But people won’t do this of course… when it comes to investment, most people like to pay high prices for things, and then sell them at low prices. It’s quite remarkable to observe.

“Hong and Wu expressed hope that the various government economic stimulus, including the consumer voucher plan, would ease the blow of the financial storm that is evolving into a global economic gloom. “

The political blow, perhaps…

“The survey’s composite index of confidence in property prices dropped to a low of 56 points last quarter — even lower than the 90-point level recorded during the SARS outbreak in 2003 and the lowest since early 2002 when the survey started, Chang Chin-oh (張金鶚), professor of land economics at National Chengchi University, told a media briefing yesterday. “The worst is yet to come,” he said.”

Indeed it is, Prof. Chang. :-)

“With luxury houses in Taipei being cut by about a third in the past few months, Chang estimated that property prices in Taipei would fall further by 30 percent.”

That would certainly take prices back towards long term averages… but personally, I think an overshoot might be entirely possible. And here’s my personal favourite:

“The survey also found that the central bank’s aggressive interest rate cuts drew mixed reactions from potential home buyers, with 48.5 percent of respondents saying they wouldn’t purchase a property simply because of lower short-term interest rates, Chang said.”

So… low interest rates won’t make people spend any more… handing out ‘forced shopping coupons’ won’t make people spend any more… large government purchases of shares hasn’t make the slightest difference to the stockmarket…

I think it’s rather clear that the economic situation is completely out of the government’s control.

Generally, I don’t think ‘debt and spending’ is a good cure for the problem of ‘debt and spending’. For example, the voter bribe shopping vouchers, as a cure for public sentiment, are rather like trying to sober someone up by hooking them up intravenously to a bottle of whisky.

However, Prof. Chang doesn’t have it entirely right.

““Only price cuts by construction companies can help the market return to health,” Chang said.”

The problem is not simply one of healthy pricing, but of healthy attitude. Many people were buying houses to get rich quick, not because they had a realistic business plan or a real need for the house. Over the last two years, I talked with many people who bought houses, and not one of them had any idea of historical interest rates in Taiwan or internationally. Not one of them planned for ‘what if no one rents your house for 3-4 years, and the market falls’. Not one of them had studied the longterm history of the Taiwanese economy, other Asian economies, or house prices elsewhere in the world. Not one of them was considering the possibility of losing their job and not finding another job.

The solution is going to involve a lot of pain. The price drops required are going to drive banks and housebuilders completely out of business.

“The latest act of chutzpah was the promotion of several Taipei City police chiefs who were accused of using illegal tactics against protesters during the visit of Association for Relations Across the Taiwan Strait Chairman Chen Yunlin (陳雲林) earlier this month. “

8′ C expected this weekend. Time to dig that heater out of the cupboard. Personally, I’m loving this frosty cold weather. The street outside is silent, when normally on Friday night it is buzzing with late night scooters. Bliss.