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.

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

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).

“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

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” 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?

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.

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.

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.

MollyCule – http://mollycule.org

Taiwan’s jobless rate hits record high. Yes, despite the government spending an absolute bloody fortune employing hundreds of thousands of people to pick up dog turds and trap mosquitoes, unemployment continues to rise. No doubt there are plenty of entrepreneurial Taiwanese people in areas of high unemployment that are busily breeding mosquitoes and feeding up stray dogs to try and improve the local job market.

Just think what happens next when the economic stimulus runs out.

Taiwan’s May Export Orders Slide for an Eighth Month. Taiwan’s exports down 20%. This is interesting because it’s already a year since the economic crisis happened, but the export data is still looking awful. Remember, something like 70% of Taiwan’s GDP is exports.

Meanwhile, I hear that everyone in T is going crazy trying to get into ’safe’ government and teaching jobs. I wonder what will happen when the government notices that tax income and public expenditure are completely disproportionate? I don’t think ’safe’ government jobs are safe at all. Look at Latvia – the public sector is being cut by 20%!

The numbers are in: almost a 20% fall in tax received between January and May this year. This is despite stimulus spending that should have increased short-term taxable corporate income. Intriguingly, the article mentions that this kind of ‘tax shock’ is not a first for Taiwan, it happened previously during the dotcom blowout as well.

Taiwan’s biggest semiconductor producer, TSMC, claims things are getting better.

Meanwhile, Taiwan’s stock markets took a pretty sharp plummet over the last two days. This isn’t very surprising, the TAIEX has been rocketing up for a while now despite rather gloomy export numbers and increasingly worrying unemployment data.

I’m rather busy writing academic papers these days, so please do forgive the tardiness of my recent posts. Still, I thought I’d gather together a few economic nuggets that pertain to Taiwan for you to feast upon. Let’s begin with a pretty picture of the damage so far…

Take a look at this, from John Mauldin’s E-Letter. Eek! Taiwan’s exports have been hit the worst in all the world… and the country that Taiwan is relying upon for a bailout, has been hit just as badly.

Now, Japan’s economy relies far less on exports than Taiwan’s economy. And Japan’s exports have contracted less, year-on-year, than Taiwan’s have. So how is it then that Japan’s government is admitting to a greater than 15% drop in GDP, and yet Taiwan’s government is claiming only a 4.25% drop will take place in the current recession? Hmm? Something here does not add up. Even that 4% drop was suggested grudgingly from the previous estimate of 3%.

Also, as Michael Turton correctly (and regularly) points out, these numbers are hilarious in other ways too. They are invariably given to 2 decimal places. It is never a “3% drop”, it’s a “2.97%” drop. It’s never a “4-6% drop”, it’s always a “4.25% drop”. Frankly, if the people in charge of government statistics actually believe their predictions are meaningful at this level of accuracy, then Taiwan is perhaps in even more trouble than I think it is. And that’s a lot of trouble.

Taking a look at the latest quarterly GDP numbers, it seems that the shrinkage of Taiwan’s economy has accelerated, even in the government’s own data, despite a huge improvement in sentiment and financial markets:

“The Directorate-General of Budget, Accounting and Statistics (DGBAS) unveiled the latest economic data yesterday, which showed GDP sinking by a record 10.24 percent, worse than the revised 8.6 percent fall in the fourth quarter of last year.” (Taipei Times)

These are the worst numbers ever recorded for Taiwan’s GDP growth.

In other hilarious news, to try and make things look less bad than they actually are, the government are now changing the yardstick of measurement to one that looks less bad for them.

“Council for Economic Planning and Development Chairman Chen Tain-jy (陳添枝) told a press conference later on Thursday that GDP dipped 0.37 percent based on a quarterly annualized formula, and would show improvement for the rest of the year.” – and swoosh, with the wave of a magic formula, the recession ended, and everyone lived happily ever after!

“The DGBAS has promised to compute economic data using both formulas starting in November, when third-quarter figures will be published.”… Perhaps Taiwan could get out of recession even faster by simply using 20 different formulas, and picking whichever gives them the nicest numbers? Maybe they can even find one that will give them 6% GDP growth, no matter what… ^_^

“Premier Liu Chao-shiuan (劉兆玄) yesterday said the country’s economic growth rate should turn positive in the fourth quarter this year if economic trends continued.”. (Taipei Times). Technically, this is true. By then, 12 months worth of terrible data will be used as the baseline for the next year’s calculation. Unless things get considerably worse again, we should expect the GDP growth numbers to turn positive… eventually. But to some extent, it’s a little bit like saying “Once everyone is dead of the disease, there will be no more new infections!”.

Also, “As to whether the government would consider extending for another year a 100 percent state guarantee on all bank deposits, Liu said this was under deliberation by a team led by Vice Premier Paul Chiu (邱正雄). … Liu said the guarantee was the policy he was most satisfied with over the past year as it had stabilized the financial market without costing the government a penny, while the US government had spent US$300 billion and the UK government ￡80 billion (US$124 billion) to help their economies.”. Err… the fact that it didn’t cost anything, doesn’t mean that it couldn’t. The cost was the terrifying risk of having to stump up unimaginably vast sums of cash for bank depositors. It’s like being proud that you kicked a snake off your doorstep, without getting bitten. Being smart and being lucky are not the same.

The quarterly drops in Taiwanese exports are getting smaller, which is something, so the total drop in GDP probably won’t be more than 20% unless a new phase of this global crisis kicks off… again, to some extent, this is perhaps because we’re getting closer to ‘1 year since the pain began’, rather than ‘things getting better’.

Unemployment is about to become much more of a problem. Unemployment is still rising, and now that we’re about 8 months into the worst part of the crisis, Taiwan’s unemployed will have their benefits cut off (there’s a 6 month limit). (China post)

From that same link: despite the government handing out time-limited shopping vouchers that had to be spent, i.e. free money, consumer spending still dropped noticeably during the first quarter of the year. What a surprise…

Meanwhile, Taiwan’s stockmarket has rocketed upwards. The TAIEX is at 6700 and everyone is happy. But.. wait a minute… wasn’t it less than a year ago, when the TAIEX was over 6800, that we saw headlines like this:
“The Financial Supervisory Commission urged investors to remain calm”… “Taiex plunges”…
(Taipei times)

It never ceases to amaze me that the market can be priced at the same level repeatedly over a short period of time, yet people – particularly journalists – can have such wildly different emotions and reactions to the same news…

I continue to be amazed by the price placed upon bare land in Taiwan…

“A 203m² piece of land located near Nanhai Road and Ningbo West Street in Taipei has a floor price of NT$93.4 million, or around NT$1.4 million per ping, which is close to market price.”

NTD$93.4 million for 20×10 metres in Taipei. Hmm… or, with that kind of money, you could buy a few castles in Europe, with plenty of land. You could hardly expect the quality of life in France and Italy to be up to that of Taipei, of course.

Some comedy advice from April, that I forgot to mention…

“He wasn’t upbeat about the residential property market, which he said had not hit bottom. Investors should put their money into the rallying stock market rather than into the residential property market, which is still on a downward slope, he said. “

Yes, imagine how silly it would be to consider buying things that have recently become cheaper, when they have the alternative of buying things that have become recently much more expensive. Can you believe though, that the person offering this advice is the general manager of a real estate firm?

I think I’ll finish this blog post here. By the way, I am no longer living in Taiwan. So if anyone can give me news about what is happening ‘on the ground’ currently in the Taiwanese real estate market, I’d be interested to hear it.

I’ll leave you with this cheerful article that talks about Taiwan’s declining economic competitiveness and the possibility that there will be no sudden recovery in the economy.

Ciao for now.

Mu

H1N1 Swine Flu : US Deaths, 365 days preceding 29/04/2009: 1 American.

Seasonal Flu : US Deaths, 365 days preceding 29/04/2009: 20,000-60,000 Americans.

Ciggy Flu (Smoking) : US Deaths, 365 days preceding 29/04/2009: 467,000 Americans.

Fatty Flu (obesity) : US Deaths, 365 days preceding 29/04/2009: 216,000 Americans.

Salty Flu (high salt intake) US Deaths, 365 days preceding 29/04/2009: 102,000 Americans.

Source 1, Source 2.

From the Taipei Times:

In January 2009, the IMF predicted a 4% drop in Taiwan’s GDP in 2009.
Now, in April 2009, the IMF has just predicted a much worse drop of 7.5% in Taiwan’s GDP in 2009.

That’s a pretty big difference in just 3 months! I wonder what they will be predicting by the summer…

Meanwhile, they expect Singapore’s GDP to drop 10%…

Take a look at this and this!

Singapore’s economy shrank by 20% in the 3 months at the start of 2009, compared to the previous 3-month period; and it fell 11.5% year on year comapred with last year.

Wow! If that keeps up, they have a big problem. The US great depression also had average quarterly falls in GDP of only 10% year on year. Singapore is seeing twice that fall currently. Remember, for the first 6 months of last year, the crazy economic boom was still in full swing, so that average of 11.5% down over the last 12 months, is made up of 3 months of good, 3 months of OK, and 6 months of awful. Taiwan will be falling at this rate, too; there’s almost no other way the export math can add up.

Similarly, I don’t know how anyone could believe China’s official GDP figures, when things have become so bad that they have been locking people into factories to stop them rioting…

Singapore has decided to devalue their currency, but the problem is that everyone else is doing the same thing, so it won’t work very well. Further, if it does work, they will have hellish inflation to cope with.

The same bad news is coming to Taiwan. Taiwan isn’t special. There is no magical umbrella to shield it from what is coming. In fact, if anything, Taiwan is almost uniquely unprepared, having had no experience of such problems for 60 years…

If you’d like to drop me an email about anything I’ve written, my email address is ‘|\/|u ‘ at taoyuan-nights.com. (hint: read |\/| as a capital letter.)

In my previous posts, I’ve referred to published articles which state that Taiwan’s exports are almost 70% of GDP. However, recently I noticed other articles, particularly one from the UN, that say that exports are only 50% of Taiwan’s GDP. If this latter figure is correct, then the more-than-halving of exports we saw in January isn’t quite as bad it first seemed, for overall GDP. But it’s still pretty bloody awful.

Also, in this link, you can read that the US has reiterated it’s support for Taiwan in a reasonably enthusiastic way. Definitely good news for Taiwan.

Some bad news:

Japan announced this week that exports are down by 55%. This is seen as awful news in Japan. However, consider that exports actually only make up 16% of the Japanese economy. Yet Japan expects a 12-13% annualised drop in their total GDP if the recession continues unabated, particularly because of the effect of exports.

So, on the left we have:

Japan – with decades of experience of recession – 16% of GDP is exports, there’s been 25-55% drops in exports in recent months, and they expect a 12-13% drop in GDP.

And on the right we have:

Taiwan – with almost no experience of recession in living memory – 50%+ of GDP is exports, there’s been 25-55% drops in exports in recent months, and they expect a 0% drop in GDP.

Who do you think is right?

Note to readers. There are a lot of other factors involved in GDP calculations. I’m simply highlighting that Taiwan’s government predictions are insanely out of line with other countries, and also out of line with basic common sense.

Taiwan Export Orders Fall 22%, Fifth Monthly Decline

Wage declines thwarting economic efforts: analysts

TSMC is restoring regular hours.. but only after getting rid of 1000 employees!

Taiwan giveth and Taiwan taketh away…after encouraging people to spend, new laws will lead to a sharp cut in consumer lending.

Suicides rising fast in the bad economy.

“A panel of US experts has painted a bleak picture for Taiwan unless the administration of US President Barack Obama is prepared to sell a lot more new weapons systems to Taipei.”

Taiwan’s weapons have become less competitive.

More Chinese missiles in the Taiwan strait, says the US defense department.

To summarise:

• Basic unemployment has risen to the highest level ever recorded in Taiwan: 5.6%.
  
• If you factor in the ‘fake jobs’ recently added to hide unemployment, the level is 6.1%.
  
• If you factor in the people who’ve simply given up looking for a job, the level is 7.3%.
  
• If you factor in the high student intake of recent years, I suspect you’d get closer to 9%.
  
• If you factor in that governments are notorious for producing lagging data, I suspect you’d get closer to 9.5%.
  
• If you factor in that governments are notorious for producing ‘nice-looking’ data, i.e. Taiwan’s claims of no drop in GDP this year for example, you probably get somewhere way north of 10%.
  
• What else could I factor in… the pointless 15 months of ‘military service’? 11%+?
  

Meanwhile, wages dropped another 0.8% this month. Or to put it another way, if we were to annualise the current rate of drop in wages, we’d see that wages are dropping at an annualised rate of 10% per year. Given that in some industries, Taiwan is already competing with China and India for paying low wages, this is quite remarkable.

With doubled spending but a halved tax take, income tax is likely to rocket. But people’s wages are lower. Still feeling glad you spent your ’stimulus’ voter-bribe back in February? And was it a good idea to buy houses at record high prices, in the hope of a quick and easy profit?

Asian Tiger? Asian Tigger more like.

This seems to be partly a result of big stimulus spending by China, who unlike the USA are actually in a good position to increase public spending without accumulating unprecedented levels of debt.

Meanwhile, some of the larger tech companies are seeing an improvement; TSMC has had some big orders placed, and has now removed the policy of forcing some staff to go on unpaid leave for several days each month.

Nonetheless I still ask myself, what happens next? What happens after the stimulus money of each country has been spent? There are still a lot of people in Taiwan with a lot of debt, in a world that now favours having a lot of cash. There are a lot of businesses operating in sectors that involve discretionary purchases, and are not very profitable either.

But at least the future is only looking greyish-black, compared with the jet black of a few months ago.

The big question in my mind is the extent to which Taiwan will sell itself to China, in exchange for temporary financial security…

“He who would trade liberty for some temporary security, deserves neither liberty nor security” (Benjamin Franklin).

UPDATE: The Wall Street Journal reports that unemployment in Taiwan just jumped for a tenth month in a row. It’s now at a record 5.75%. Unemployment is one of these things that drives feedback loops. Less spending in shops; more defaulting on home loans; less people to bail out their family members…

“According to a series of reports from Taiwanese industry-watcher DigiTimes, orders are piling up at some tech companies, and forecasts of future sales are looking far rosier than during the hideous last three months of 2008.

Semiconductor designers, for example, are feeling downright perky. The 3,000 employees of the fabless design firm MediaTek are looking forward to a 10 to 15 per cent growth in orders this month, thanks to increased demand from China.”

“Kilbinder Dosanjh, a senior economist at The Economist Intelligence Unit (EIU), said Taiwan’s unemployment rate would surge to 10 percent by the end of the year, the Central News Agency reported on Feb. 21. ” (Taipei Times)

http://www.taipeitimes.com/News/biz/archives/2009/03/09/2003437986

“if Taiwan were to employ the US calculation method, its economic growth rate for the last quarter of last year would be close to minus 20 percent.” (Taipei Times)

http://www.taipeitimes.com/News/editorials/archives/2009/03/06/2003437730

“Average wages have also fallen by 5% in real terms over the past year.” (The Economist)

http://www.economist.com/world/asia/displaystory.cfm?story_id=13109874

“Here in Hsinchu Science Park, modeled after California’s Silicon Valley, some 100,000 of its 130,000 workers are taking up to 10 days of unpaid leave a month.”

http://www.latimes.com/business/la-fi-nolayoffs9-2009mar09,0,2920405.story

Mu: In fact, some workers continue to show up and ‘work for free’ in the hope they won’t be the first ones laid off. And these news reports are the tip of the iceberg.

“If the US were to employ Taiwan’s calculation method, its economy would be reported as having contracted only 0.82 percent year-on-year in the last quarter of last year, which fails to represent the seriousness of the situation.

This figure shows the real seriousness of the decline.

-20%, and heading swiftly for -30%, folks… this is not a good situation. That’s twice as bad as the Great Depression in the US, and going towards three times as bad. That’s the collapse of the Qing Dynasty, in a single year instead of twenty.

But few people pay attention. The shops and restaurants are still quite busy. My friends listen with curiosity and mild concern.

But what is coming, is not a matter for curiosity and mild concern. Rather, what is called for here is the significant and rapid readjustment of every aspect of your life. Not merely ‘tightening your belt’ but ‘planning for when you can’t afford to buy food at all’.

From the Telegraph in the UK:

This terrifying fall has been concentrated in the last five months. The job slaughter has barely begun. Social mayhem comes with a 12-month lag. By comparison, industrial output in core-Europe fell 2.8pc in 1930, 5.1pc in 1931 and 3.9pc in 1932, according to RBS.”

So… Taiwan is currently 15 times worse-off than Europe at the start of the Great Depression era, by this metric… Taiwan is looking squarely at the worst part of the recession that the whole world faces, during one of the worst global crises of the last 100 years.

Well, boys and girls, you can forget the government’s crap about a 3% drop in GDP over the year. If America can drop 6.5% GDP in 3 months, then by god, Taiwan can drop rather considerably more than 3% GDP in one year.

What we are about to see in Taiwan, is best described as… “La merde frappe le ventilateur”.

• Taiwan has now already had a record drop in estimated GDP (compared with the last 60 years).
  
• The rate of decline in GDP is getting faster and faster.
  
• The Taiwan stockmarket is still falling – down 46% in 2008, down another few % so far this year.
  
• Biggest decline in retail sales (shopping) … since records began.
  
• Interest rates already close to zero, there is almost no room for further drops.

Consider this. The Taiwanese stimulus plan is a 6% of GDP expenditure. But, we’ve already had a 7% decline in GDP and things are getting worse every month. The way things are going, this will be like putting a ’sticky plaster’ (band-aid) on a neck wound!

Meanwhile, people talk about Taiwan ‘devaluing the NTD’ to make Taiwanese wages more competitive – but every other country in Asia (and everywhere else) already had the same idea! You can’t devalue if everyone else is trying to devalue too. Furthermore, almost everyone else has much more room to devalue their currency than Taiwan…

The good news is the drop in the stockmarket price. At least young people will have a good chance to invest money for later in life, even though house prices are still very overpriced.

We are still near the start of this, in my view. Someone told me today they felt sorry for the students graduating in 6 months. Actually, I think those guys will be OK – the stimulus spending and support for continuing education will give them opportunities. It is the students who graduate in 2 years time that I worry about. I suspect there will not be so much money around to provide them opportunities of any kind, if the economy is still doing poorly. My advice to those students is: work really hard! You had better be good at what you do, by the time you graduate…

Update: later the same day, the GDP numbers were revised downwards again!
The FT is reporting a ‘more than 8%’ drop in GDP so far based on the last 3 month’s news.

- the government is handing out free money to almost everyone
- the government is planning on handing out free education vouchers
- the government is planning to employ 100000’s of people in huge infrastructure projects
- the government is providing money to bail out local banks
- the government is providing money to bail out the technology sector
- social welfare payments (unemployment, retirement) are increasing

So, outgoing expenditure is ballooning like crazy, and there’s just one small problem:

The government’s tax income has just dropped by an astounding 41%.

I think I’m going to have to say that again.

The government’s tax income has just dropped by an astounding 41%.

Now… how exactly is THAT going to work out OK in the end?

My understanding is that Taiwan’s tax structure is basically geared to take tax mostly from businesses and capital gains, because the tax on individual’s income is incredibly low – around 6-11%, even for professionals. However, since exports dropped 57% year on year, and since most businesses in Taiwan are exporters with lots of operational gearing, that has meant big losses at most companies.

So, what happens next?

Well, the money the government is spending has to come from somewhere. There are at least five obvious places it might come from.

(1) Vastly increase tax on business profits.
(2) Vastly increase tax on capital gains.
(3) Vastly increase tax on individual’s income.
(4) The government could borrow money; i.e. increase the country’s debt.
(5) The government can print money.

Reviewing these options:

(1) won’t work, because you can’t take what ain’t there.

(2) won’t work, because you can’t take what ain’t there.

(3) will kill individual spending and thus hurt internal spending in the local economy, further crushing GDP and tax income. Besides, no-one has any money to be taken through tax, since the previous government allowed one of the largest housing bubbles in world history to develop, and everyone is now too busy paying their home loans. Everyone who still has a job, that is. Again, you can’t take what ain’t there.

(4) is limited by the willingness of people to lend money to the government essentially ‘for free’, in a climate when nobody in the world wants to lend money to anyone. Yet if the government raises interest rates to attract money for them to borrow, then home-loan repayers get murdered by their repayments (higher rates), and exporters get killed by a rise in the value of the New Taiwan Dollar (higher NTD value).

(5) already destroyed the Taiwanese economy completely once before (1945-1952), and is presently destroying the Zimbabwe economy. On the bright side it will solve the home loan problem, because everyone will go bankrupt.

There is no easy way out of this problem.

A separate anecdote: Many civil servants here have a magical bank account backed by the government, that pays out a mind-blowing compound 20% per annum. Do the maths; if you put in $10000 at age 15 into such an account, and never make any further contributions, it magically becomes $10,000,000 by the time you’re 50. Or $320,000,000 by the time you’re 65. Or $320,000,000,000 by the time you’re 100 (how often do you get to say ‘wan wan wan’ in Chinese?). Not a bad return on $10000, and it’s all subsidised through taxation. Welcome to Taiwanomics.

I saw a great deal of optimism at new year with people suggesting that maybe things would be OK. Well, I say optimism. What I mean is, ‘insane denial’. Allow me to be blunt: Taiwan is in deep, deep, deep trouble. Read these links, for starters:

January exports down 57% from last year

76% of science park workers forced to take unpaid days off.

Taiwan’s exports declines by record 44.1% on global demand drop

CLSA slashes South Korea and Taiwan outlooks – 11% GDP shrinkage

11% reduction in GDP in 1 year! And yet this is barely making it into the business pages, when it should be screamed on the front pages of any worthwhile newspaper.

What’s more alarming to my mind is that some local people are shrugging off this suggestion – for Taiwan. Sure, Singapore 10% GDP drop, no problem! Sure, South Korea 5% drop, no problem! But Taiwan??? No way, Taiwan is just… uh…. special. Taiwan has magical fairy powers that will protect it from economic harm.

Think again people. An 11% drop in Taiwan’s GDP is in fact optimistic, very far from the worst case. However, even an 11% drop would be a long way from anything Taiwan has faced in the last 60-70 years, it would be the worst crash in local living history.

Yet Taiwan’s people are debt-laden and in a very bad situation to cope with even this kind of drop in GDP. Consider that -11% GDP is the kind of drop we saw during the US great depression, the worst economic crash in American history.

But wait, in fact things are much worse than this. Take a closer look at these links:

EDITORIAL: Facing the cruel economic truth

Taiwan’s exports declines by record 44.1% on global demand drop

The first link refers to Taiwan’s GDP being 65% based upon exports. The second link suggests Taiwan’s GDP is 70% based upon exports.

And, these links say Taiwan’s exports dropped by 41% last month (relative to Dec 2007) and 57% this month (relative to Jan 2008), that is, exports are dropping with amazingly accelerating speed as we leave the Christmas season – and have basically halved already.

Let’s do a little maths. Assume that domestic GDP (local spending) remains the same – a very optimistic assumption indeed. Let’s take the 70% exports, and cut it in half to 35% as per the numbers above.

Add that 35% back to the constant 30% local GDP, and we get a total of 65%.

That would represent an almost *35%* drop in GDP this year if the drop in exports doesn’t change. Now, 35% doesn’t seem that bad as a number. But as a GDP number, it is literally out of this world. We are talking about an economic crash at a speed that would make the US great depression look like peanuts. We are talking about potentially one of the biggest economic crashes in all of history, if it occurs, and it will happen right here in Taiwan.

GDP during US great depression

And if local demand drops too, then by god, there will be no words to describe what happens next.

Quite frankly, Taiwan is not going to be a good place to be if a crash takes place that is three times worse than the worst crash in American history. In the US great depression, you stopped seeing stray dogs and cats because people were eating them to stay alive. Can you imagine American people cooking and eating a stray dog? Well, it happened, and it will happen in Taiwan too, and more, at this rate.

There is almost nothing Taiwan can do to stimulate exports. Wages are already at rock bottom; material costs are out of Taiwan’s control; external economies are unwilling to spend; and Taiwan has no room left with monetary policy to weaken its currency, as domestic interest rates are almost at zero, and are already lower than all of their competitors except Japan.

So here’s what I imagine may happen next over the next 2-3 years.

Taiwan will print money like crazy, as it did back in the 1940s. I don’t think they will borrow money for long, because if they borrow money, the interest rate will have to rise, the currency may appreciate and Taiwan will become even less competitive for exports. Furthermore, domestic homeowners are in no position to deal with higher interest rates on their debt. In contrast, printing money will ensure that the currency devalues fast, making exports cheaper. The big problem is that it will absolutely destroy Taiwan’s economy with hyperinflation and Taiwan will swiftly end up with the New-New Taiwan Dollar. Instead of the Great Depression, they will bring the hyperinflation of the Weimar Republic upon themselves (or Zimbabwe-nomics, to draw a more recent parallel). Taiwan’s government have done it before, after all.

I don’t think Taiwan is going to be a fun place to be, within the next 2 years. Just now, we are only at the start of all of this. In my view, things are going to get much worse. I suggest you prepare for it.

Finishing up, I see there’s another insane scheme started:

Government to subsidize newly set up franchisees

That’s right. Taiwan doesn’t need social welfare improvement, or engineering and science breakthroughs, or better transport links, or things like that to stimulate the local economy. No, what we need is *2* Seven/Eleven stores on every corner instead of *1*. We need to drive every last dollar of profitability out of the streets of Taiwan, and reward people for brainlessly copying one another with imagination-less copycat street stores.

(sigh)

I expect a second ‘voter bribe voucher scheme’ to start any minute now.

p.s. You can read more about this topic at Michael Turton’s blog.

Here is my reply.

I’m not a pessimist. I’m an optimist! I’m looking forward to a world (including Taiwan) where people don’t obsess about their worth in terms of how a pile of bricks is valued; where a family can choose to have an extra room AND have a child; where people don’t need to trade their entire working life to own a small, 2-bedroom apartment in nowhere-ville.

In fact, dropping prices is great even for owners! It means you will be able to trade up to an even nicer house, if you like, more cheaply. The world would be a much nicer place if house prices were considerably lower. The only people that gain from high house prices are landowners, housebuilders, very old people (who downsize), banks, estate agents and the government (through taxation). Most people don’t fall into one of these categories.

Besides, housing is not a measure of wealth. A country’s wealth comes from its productive ability in terms of tools, art, ideas, … Housing on the other hand is generally just a (poorly) assembled collection of mud and dead trees. People would hardly go screaming with joy around the streets if food prices doubled, or if water charges tripled, or electricity bills quadrupled. So why should anyone be cheerful when some other basic, needed commodity goes up? It’s bad news for everyone except those who make that commodity or benefit from its trade!

For me, the pessimists are those who think that high house prices are good, when really they tie up the capital of a society in a completely unproductive way, and transfer wealth from young to old in an entirely unfair and disproportionate way.

Anyway, my view on what will happen to housing is not coloured by what I would *like* to happen to housing or what I think is best for society. Rather, it’s just based on what history shows us, and the ‘laws of finance’, as far as they seem to exist. And besides…

Regarding the topic of housing, however, I thought I should respond.

Across the last 100 years or so, across every country in the world I’ve looked at, housing tends to have an average price, relative to basic salary, and over the long term, of around 3.5x – 4x. In other words, the average house – not just a crappy apartment – is some 3.5x the local average salary. If the local average salary is 30,000 wibbles, then an average family home will be around 110,000 wibbles.

Now it’s a little bit dangerous to start throwing around things like ‘100 years’ and ‘every country’ carelessly, so please, I encourage everyone to take a look into this claim for themself and assure themself to some extent that this is indeed the case.

The reasons for this ratio are perhaps that it represents a level of affordability that works well with a broad range of interest rates, and it works well given other demands on salary such as food and healthcare. Equally, this ratio allows rented housing to operate at a reasonable level of profitability, given the costs incurred in letting out property. So there are a number of quite sensible reasons why we should expect this relationship to exist.

Taiwan’s big problem is that house prices were at a peak of around 12x local average salaries in Taipei and variously 6-10x in other locations. So that would represent a drop of some 70-75% from peak values to bring Taiwan back into line with international and historical normality, in Taipei, and 50% elsewhere.

Meanwhile, we’ve hit a global credit crunch that has reduced the availability of credit; which in Taiwan is the primary means by which houses are purchased, as with most other countries. This means that even if prices were to drop by 50% tomorrow, the unwillingness of banks to lend would prevent people from buying anyway.

We also tend to see that housing markets that are falling tend not to stop until they have overshot the long term average (perhaps reaching 2.5-3x earnings before they start to rise again). This can be difficult to observe of course, since generally wages are rising at the same time house prices are falling, leading to the ratio being corrected more quickly than people realise. In other words, if everyone earns 30,000 wibbles/year on average, and average house prices are 300,000 wibbles, then we expect either money to devalue (so that wages rise to 100,000 wibbles/year) or houses to reduce in price (so that house prices go down to 90,000 wibbles/year).

But in practice we get both together, so housing corrections are usually over very quickly. Perhaps wages rise to 60,000 wibbles, and house prices fall to 180,000 wibbles.

So, in a crashing market, rising wages tend to ameliorate the damage somewhat. But currently in Taiwan we are seeing falling wages. The average person who changed jobs in the last few months took a pay cut of some 20-25%. The highest earners in Taiwan in the tech industry are being forced out on unpaid holidays 5 days every month. Consequently we have a new and hard-hitting downwards pressure on house prices; even as prices fall; wages are falling!

And all of this is happening without any trigger from rising interest rates, which usually represent another downwards pressure in a crash. This could yet be added to the Taiwanese maelstrom.

So in summary, it’s my belief that Taiwan is about to hit a very difficult time, especially in housing. We might be at the end of the beginning of the housing crash (10% falls per month is quite steep after all) but we are certainly far from the beginning of the end. Japan and Hong Kong are my models here, and they suggest another 50% (from Dec 2008) is still to come off house prices.

You’ll also see that marketing of houses will reduce as prices get lower; and consequently this factor too will lead to lower attained prices.

Regarding the topic of household size. Contrary to what you wrote, I believe that during a crash we tend to observe a reversal of the trend of diminishing household size. I will bet that if you look at household size figures for 2009 and 2010, you will see people moving back in with parents; taking in a lodger; or moving to a single house from two houses, to save money. You could argue this represents yet another downwards pressure on house prices. When money is hard, people share.

The idea of Taiwan’s population hitting 30 million is not at all realistic, I’m afraid. You can find the Taiwanese government projections for the population here.

Currently the population is around 23 million. The medium-level projection is for a peak of around 23.5 million 20 years hence, and falling from there. These things are sensitive to changes in health technologies and birth rate and so on. But basically, if you balance out all the trends, Taiwan’s population is going nowhere. That’s not my view, it’s the consensus government view.

Immigration won’t be an issue either – unless Taiwan surrenders to China, in which case Taiwan can expect a tibet/xinjiang/hongkong style mass immigration of Han Chinese from the mainland. But if that happens, I think population statistics will be the least of Taiwan’s problems.

Given that Taiwan is presently paying businesses a bonus if they lay off a foreigner rather than a local worker, I think other forms of immigration that might lead to an increased population can be safely ruled out for the moment, too.

So in summary:

- History says Taiwan has another 50% fall in house prices still to come.
- If unemployment gets worse, or if interest rates rise, or if wages drop, then the fall will be bigger.
- If the global credit markets stay locked up, the fall will likely be bigger.
- We have a number of trends, all of which are likely to push Taiwanese house prices lower.

Consequently I expect a further fall of 50% from December 2008 levels, over the next year or two. If wages were to rise sharply and unexpectedly, then it will lessen the fall in housing. I don’t think that will happen unless the Taiwanese government decides to print money like it did back in the 1940s – which lead to complete disaster.

To get a feel for his audience, he asks “How many people here believe in ghosts?”

About 90 students raise their hands.

“Well, that’s a good start. Out of those of you who believe in ghosts, do any of you think you’ve seen a ghost?”

About 40 students raise their hands.

“That’s really good. I’m really glad you take this seriously. Has anyone here ever talked to a ghost?”

About 15 students raise their hands.

“Has anyone here ever touched a ghost?”

3 students raise their hands.

“That’s fantastic. Now let me ask you one question further… Have any of you ever had sex with a ghost?”

Right at the back of the room, one guy raises his hand.

The professor takes off his glasses, and says, “All the years I’ve been giving this lecture, no one has ever claimed to have had sex with a ghost. You’ve got to come up here right now and tell us about your experience.”

The student begins to make his way up to the front of the class. When he reaches the front of the room, the professor asks, “So, tell us: what it’s like to have sex with a ghost?”

The student replies, “GHOST???? I thought you said GOAT!”

Meanwhile, in today’s news…

“National Chengchi University’s English Department yesterday defended its annual year-end production about man having a sexual affair with a goat as an appropriate choice and said they were puzzled why people would consider the play profane and foul.”

Michael Turton has just written an excellent short article about Taiwan’s economy. I should probably make some comments of my own. My main concerns at present are:

• Exports. Particularly, Taiwan’s DRAM manufacturers are being slaughtered by the Korean DRAM manufacturers, because the Won is cheap. Makes me wonder if Taiwan is going to crash the TWD to try and save its industries. I keep getting a feeling that every country in the world is simultaneously trying to say ‘we’re the worst’ and competing to offer the lowest returns right now, to try and make their exports cheap, so that employment stays up.

• Surge in unemployment – locals and foreigners alike. Local unemployment is now at a 5-year high and approximately 1 in every 20 people are out of work. This statistic ignores employees who’ve been put onto ‘unpaid leave’ for the time being, which is becoming quite a problem currently.

  Taiwan is also striding into first place for sacking foreign workers right now, as they make big steps towards addressing the ‘weiguoren problem’ that was commented upon in newspaper letters earlier this year. For example, these Philipino workers. Or the hundreds of thousands of very worried Indonesian workers. There is a phrase in English that foreign workers might use to describe some local employers: ‘fair weather friend‘.

  Check out this amazing quote from an article about a huge drop in charitable giving.

  ---

  “The results of recent surveys conducted by several online employment brokers suggest that 100,000 Taiwanese businesses are likely to lay off workers at the end of the year, and that 90 percent of salaried workers have suffered investment losses equal to six months’ pay or more.

  Meanwhile, 27 percent of workers have had their salaries cut, and 20 percent either are going to be or have been dismissed.”

  ---

  Thankfully, Taiwanese government employees have been unaffected by the downturn. :-|

  “In contrast to a faltering employment market in the private sector, workers in the public sector have not been affected at all. DGBAS figures show that civil servants enjoy an average monthly salary of NT$63,000, which is much higher than the NT$36,000 average in the private sector. While the general public is suffering from the economic downturn, civil servants do not have to worry about their jobs. “

• Bosses showing their evil side. If you look at the unemployment numbers, you’ll note that “those who quit because they were not satisfied increased 2,000″. Now, think about that. We’re going into a recession, people are losing their jobs, yet an extra 2000 people suddenly decide – in just 4 weeks – to quit in these scary economic conditions? It suggests to me that mistreatment of employees is rising sharply. This comes as no surprise to me.

• Curious policy decisions.

• Drop in salaries. What exactly is the point in a one-off $3600 ‘voter bribe’ handout supposedly to stimulate spending, when people are getting $20000/month chopped off their salary? Even the biggest, most profitable companies in Taiwan are making giant cutbacks, for example, TSMC, the world’s biggest semiconductor manufacturer:

  “The company said manufacturing staff would take five days unpaid leave per month, starting this month, with other departments taking one day a week unpaid leave from January.”

  “Industry sources told Reuters last week that TSMC and its cross-town rival UMC were preparing to cut costs by up to 20 percent. UMC had told employees they may soon be put on a four-day week, taking the fifth day as unpaid leave.”

• Giving up children. Quite remarkable statistic this one. As hard times bite, people are downsizing their families.

• Local banks. If HSBC, UBS, Citigroup, … are in trouble – then how in heck’s name can local banks pretend they aren’t affected by the dramatic downturn in Taiwanese industry? Maybe they think they can all pretend they weren’t involved in lending huge sums of money directly into Taiwan’s insane housing bubble. I expect painful consequences.

I think I’ll close with some amusing quotes.

“The Taiwanese economy has entered into a bottom during the third and fourth quarters,” – Chen Miao, director of TIER’s Economic Forecast Center.

“I am sure that the Taiwan economic miracle has not come to an end. We are merely in a transition period.”- Taiwanese President Ma.

This person seems to have misunderstood the nature of graffiti.

A smiley face over Taoyuan!

Those aren’t stars in your eyes…
“Stellarium” is a useful, free program. Here it shows Venus and Jupiter.

1. Economy
   
   “Hong said that the composite score for the business indicators stood at 12 last month — the same level as in September, signifying tough times ahead with recession forecast to hit the country’s major trade partners. “

   “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…

2. Property
   

   “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.

3. Freedom

   “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. “

4. Weather
   

   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.

OK, I’m going to give you some quotes from this article, but in a different order, to show you how crazy their conclusion is.

Item 1: Is this coupon going to stimulate new spending?

“Asked whether or not they believe the plan will encourage the public to spend more, 57.9 percent replied that they will use the vouchers to buy daily necessities, ahead of 36.6 percent who said they plan to purchase extra items with the vouchers. Around 5.6 percent revealed that they will try to exchange them for cash.”

So, the majority of people (2 to 1) intend to convert this to cash savings by either continuing to purchase normally but substituting the coupons, or by trying to exchange them for cash directly. In other words, this ’stimulus’ (voter bribe) has already failed.

Item 2: Is the coupon likely to be ‘effective’? (Dictionary: “Producing a strong impression or response; striking; having the desired effect”)

OK…

So, let’s add up the parts of this poll that sound ‘effective!’ and the parts that sound ‘not effective!’.

I get ‘19.9% effective, 80.1% not effective’. The China Post gets:

…. I see.

Earth-base to China-Post-base: has the moon landing been successful?

• Firstly: This is not an ‘economic stimulus’ – it is a voter bribe. If it were an economic stimulus it would be handed out to all consumers. This taxpayer money is being redistributed only to voting families. Why do you think that is?

  Furthermore, do you think the government would be encouraging you to “buy gold” with it, if this was about saving small businesses or saving the economy?

  “Chen Tain-jy, chairman of Council of Economic Planning and Development (CEPD) told the press… ‘Of course, you can even buy gold as an investment.’”

  That quote is taken from the article “Anything can be bought with vouchers“. Though perhaps a better title would be ‘Anyone can be bought with vouchers’.

• Secondly: This is a voter distraction. With free money filling up the columns, journalists have less room to draw attention to the government’s recent amazingly low standing in the opinion polls, breaking of election promises, protests against police actions, imprisonment of opposition politicians, and kowtowing to Taiwan’s big friendly neighbour.

• Thirdly: These coupons are not a gift from the government. You think the politicians are dipping into their own wallets? This ‘gift’ is your own money! The government is going to take $4200 from you in tax over the next few years, waste $300 on administration and re-printing costs, waste $300 on interest costs, and give you $3600 back today.

• Fourthly: This is not going to save the economy. For goodness sake, it’s $3600. What will it buy? A single bottle of whiskey to drown your housing sorrows? 1/4 of a small digital camera?

  The average income is, (from GDP/PPP), around 900,000 NTD per year. Divide 3600/900000, and you get 0.004 of your annual income. Wow. 0.004 of one year’s income. And supposedly, this kind of huge spending is really going to avert disaster for small businesses… That’s how big a difference this is going to make. And don’t forget, that ‘0.004′ (+ another 0.001) will be taken back off you again in the next few years.

• Fifthly: If I re-frame this ‘gift’, perhaps you can see better what it really is.

  Effectively, you are being forced to take out a personal loan from the bank, whether you want it or not. Laws are being passed to force you to spend this personal loan, so that it must be spent on useless junk during the month of January. If you don’t spend all the loan, your money will be confiscated! And you can only spend it at places that are registered as taxpaying businesses, increasing the government tax income that month.

  Additionally, a new law will mean you are going to be forced to pay the government a small charge as a thankyou for imposing these new laws and forced borrowings on you, perhaps $600 or some similar fraction of the money borrowed, in administrative costs, printing costs, interest etc. Finally, another law will force you to repay the bank loan over the next few years, along with all the other crippling debt that is weighing you down just now.

  If the government tried to introduce such new laws as described this way, forcing people to take out unwanted debt and spend it on junk, confiscating people’s money if they didn’t go out and spend it where and when the government chooses, there would be riots in the streets! But this is what they are actually doing, and people are delighted! What the heck? What’s wrong with people?

  As I begin to see Taiwanese people talking about what they will spend the money on, I ask myself: Doesn’t anyone here realise who’s really paying for this ‘gift’? Don’t they realise the government is passing laws to force them to spend money they don’t have, on rubbish they don’t need – and that it will be forcing them to pay that money back with interest in the next year or two to come? And that the whole ‘gifting’ is simply marketing – a public relations attempt to gain favour with voters?
  

For what it’s worth. Taiwan is not the only country playing these silly games. Look at the USA, and George Bush’s pre-election rebate ’stimulus’ bonanza. Look at Britain, and the ‘poor elderly (voting) person’ handout we see in every single general election…

Just one problem. It’s completely daft, and it doesn’t work.

As I understand it, Keynes’ idea of monetary stimulus involved government spending on projects in situations where consumers had stopped spending, in essence, becoming a forced spender of last resort. Handing out extra money to consumers, when they have started saving and paying down debt, is only going to make them save more or pay down debt more. A meaningless transfer from the public debt to private debt balance sheets, that has no short-term effect, and will be reversed years down the line, for no net gain overall.

Aha! But wait. There is a cunning plan. They’re going to give out ’spending coupons’ that you can’t save, so you’ll have to spend them.

The problem is that after about ten second’s thought, people will just substitute these coupons for ordinary money in their normal spending. Then, they will save or pay down debts with the money they saved.

There’s another cunning plan. Why don’t we give out ‘50% discount’ coupons – that way people HAVE to spend some money to get the government handout? Again, a moment’s thought makes it obvious that people will just use up the coupon in place of everyday spending, over twice as long a period. When it comes to adding unnecessary flourishes to a bad idea, you can always rely on academics and public officials. I am sure this weekend will be busy, as people work hard to re-arrange the deckchairs on the Titanic.

Don’t get me wrong. I’m sure a few people will get in the mood and go and pointlessly buy crap – after all, they’ve been doing it for the last 5 years with great enthusiasm, using borrowed money. But where is this money coming from? Ultimately, it’s coming from taxation, increased debt (which must ultimately be repaid through taxation) or from inflation (which is a form of taxation). So guess who’s paying for this mystery bonus? Either ‘future you’, or your children. And what could be better than stealing from the pockets of unborn generations? Isn’t that how society improves?

So, here’s my question. How does pointlessly buying crap fix a problem of overindebtedness, which is at the heart of the current difficulties? How does it fix the problem of overvalued assets (houses, particularly) which drove that excessive debt? How does it fix the problem of an export-driven economy when no-one is importing Taiwan’s stuff?

The answer is, it doesn’t solve the problem, or even come close. Actually, it makes it much worse. It pushes up public debt and price inflation at a time when people have not much money anyway. This drives up the short-term costs of debt, and increases future taxation.

Besides, Japan tried this years ago as a solution to recession in 1998 and surprise surprise, it didn’t work there either – even during the dotcom boom worldwide, Japan remained firmly stuck in recession as it handed out pointless spending coupons, while public debt ballooned. And did I mention that the JPY devalued completely, to record lows, over the decade that followed?

But, I guess it makes people feel good to ‘get money from the government’. Even though really, it’s just deferred taxation, and even though really, it does nothing but piss money up the wall, wasting the government’s ability to actually solve the problem later.

I mean think about it for a moment. The problem is that people have taken on something like 8 M NTD of debt, to buy houses that are worth perhaps 3-4 M NTD on a good day. We’re talking millions of dollars of unsustainable debt. And the government’s solution? Hand out 10,000 NTD to solve a 4,000,000 NTD shortfall per household? It’s like shouting into a hurricane.

Oh, and you know what annoys me most of all? This!

“At least one banker said the government should consider issuing a “tax reduction/rebate card” to all citizens if the Cabinet wants to see an immediate effect to encourage spending.”

So who will probably get these coupons? Voters, since this is a idiotic voter bribe as much as it is an idiotic effort to stimulate spending. But who will pay for these coupons? Taxpayers.

If, like me, you are not a Taiwanese citizen, I want you to think about the distinction between voter and taxpayer. It implies a forced transfer of cash from non-Taiwanese resident’s wallets to Taiwanese resident’s wallets. But I guess weiguoren probably deserve it because of their weiguo-ness and its apparently horrid effect on the Taiwanese economy.

In unrelated news. While ’supporting the price of shares’, the Taiwanese government has been busy buying shares at prices higher than their current level, as the market dropped. So… you, Joe Public, are now sitting on a gigantic stockmarket loss, thanks to the government. Gong xi!

- Opposition politicians being arrested and detained.

- Noticeable restrictions on public freedom of movement and expression.

- Protests are taking place but are being stopped by police.

- It has reached a stage where some taxi drivers are being questioned by police as they move around Taipei.

I am not Taiwanese, but I am concerned to see this happening. Of course, part of me says, ‘well, what did you expect when you voted for these guys? Didn’t you study Taiwan’s history?’.

Here are some articles with more information, from people who are better informed than I am:

Michael Turton’s roundup.
“Are Taiwanese Fed Up Yet?
“Is Taiwan becoming a police state?”
Students protest peacefully at “Freedom Square”. Police remove them. Students re-assemble.

Looking back in history, partly, it was pressure from the USA that lead to Taiwan moving away from a period of repression. Maybe America can exert some useful influence again.

So, I explained that in BASH, we can do this quite easily:

for i in 13 17 21 23 ; do

commandname   $i

done

However, she explained that each of these pictures has a corresponding data value that has to be entered, and that doesn’t relate to the picture directly. For example, 13 might have the value 93, 17 might have the value 90, 21 might have the value 99 and so on. We need to enter these tuples in order to write the script.

Now, you could set up some list, and iterate through it, but it’s a nightmare if you want to add or delete a value, because you need to make sure your two lists don’t accidentally get out of sync as you add or remove numbers from them.

Unlike PERL, I don’t believe BASH has sufficiently complex data types that you could pass (13,93) as a single value. So… here’s a quick and ugly way to do this in a single loop without using a more complex datatype.

for i in 1393 1790 2199 2389 ; do

$a=$((i/100))

$b=$((i%100))

commandname  $a $b

done

In a situation where names are needed rather than numbers, you could use “firstpart-lastpart” style items in the for loop declaration, and then use the regular expression features built into BASH to split it apart as you iterate.

So, what’s the advantage of doing things this way? It’s easy to remember and you can code it in about 5 seconds flat.

The disadvantages? Read an article about Strong typing!

“The latest statistics from the Ministry of the Interior showed that the number of property transfers declined by 35 percent to 26,527 in August from 40,839 in May when President Ma Ying-jeou (馬英九) took office. Sales in Kaohsiung City, Taipei City and Taichung City in August saw some of the biggest drops of 45.9 percent, 42.7 percent and 41.4 percent respectively since May.”

but here’s the amazing bit – Taiwanese businessmen are EXPANDING their investment into this contracting market. Unbelievable.

“But at the same time, the sector continued to expand by opening a total of 4,057 outlets in August, up 5.1 percent from 3,861 stores in May. Despite a worsening market, such expansion has shown no signs of slowing down as the nation’s total number of realtor outlets continued to climb to 4,139 this month, Evertrust Rehouse said.”

Apparently… “the sector is appalled to find the unexpected acceleration of such a slowdown, the likes of which hasn’t been seen since the earthquake of Sept. 21, 1999.”

So much for the widely held idea that the north and south of Taiwan are separate property markets…

Finance has for a long time been the UK’s biggest sector, ever since we wasted all the oil we had on a gigantic social welfare system, and closed down our factories.

That ends today. Excluding HSBC which isn’t really ‘British’, there were only 7 big British banks in existance 18 months ago. Most of them have histories extending back 100-300 years. One of them, RBS, was described as ‘the biggest bank in the world’ by assets, and was top 10 rated by Forbes last year. We now have, after 3 weeks of remarkable change:

• 1 dead / bought out (Alliance and Leicester).
  
• 2 nationalised (Northern Rock, Bradford and Bingely)
  
• As of today, 3 more nationalised or part-nationalised (Royal Bank of Scotland, Halifax Bank of Scotland, and Lloyds).
  
• The last one is on the brink of nationalisation if a rights issue fails (Barclays)
  

Unbelievable. The People’s Republic of China has a banking sector with a better grasp of capitalism.

This is the UK’s biggest industry and it has just died in 3 weeks. How did it die? The government leaked information through BBC journalists, particularly a BBC reporter called Robert Peston. There’s no conspiracy theory here folks, go look at his blog – you’ll find government plans to support the banks being released outside of the UK’s official market news service. Needless to say, the consequences for the banks were dire, particularly since many of the details leaked through journalists were inaccurate (about resignations, about the necessity of a bailout, the size of a bailout)…

Consequently, the government has effectively taken over a number of highly profitable banks for next to nothing. And we now have an incompetent government running our biggest industry.

Their first move? “Let the LENDING BEGIN!”. They immediately forced the banks to return to 2007 lending levels. See the RNS statements from the UK banks for the gory details – you can’t make this kind of stuff up. This is madness. In a world that is being destroyed by debt, their solution is to steal the public’s pension and savings assets and at the same time, try to get the public deeper into debt buying overpriced piles of bricks. I suppose it’s no big coincidence that so many members of the UK’s ruling Labour party seem to own a portfolio of rented housing…

It’s OK though. The UK can become rich and prosperous again if we just keep building more houses and selling them to each other at higher and higher prices until everyone is a millionaire. Hurray! :-(

“The real-estate market is becoming a buyers’ market, with nearly 70 percent of home buyers expecting to see falling property prices over the next year” – and that’s from a real estate agency!

“We believe property owners may face a 10 percent to 20 percent downward correction in their selling prices in order to close deals” – in other words, take the ‘official price drop reported’ and add 10-20% to reach the real number!

They add that ‘people have apparently been over-optimistic about Ma’s policies’. Really? Are you sure? Are you trying to tell me that there aren’t endless hordes of mainland Chinese businessman trying desperately to buy up flats in Linkou and Banciao?

Also: the Japanese market dropped 24% last night in overnight trading. Japan’s NIKKEI is now substantially cheaper than it was 25 years ago. In other words, if you bought 25 years ago, and held on to those shares your whole working life, you have lost money in aggregate, apart from dividends. Crikey.

The US isn’t looking too cheery either! DJIA at 8284 as I write. In January 2004, it was over 10000! I drew a graph on Yahoo, but the fall is so sharp, you can’t even see it at the right hand side. Basically, we are ‘back to 1998′. The graph below will update over time, automatically.

Hurray for America’s ‘glorious decade’…

For what it’s worth – I’m buying the market indices like mad currently, with every penny I have!

But I guess it wasn’t those ‘evil’ shorters that were causing the problem, was it? Of course… now, without shorters, we have no forced buyers in the market to flatten out the drops and start off recovery rallies.

And as for reintroducing low interest rates… well, what do you think it was that got the world economy into this problem in the first place?

So… what happens next, now that Taiwan has thrown away all this public money on busted attempts to prop the market up artificially?

More here at the China Post.

Fortunately I found that someone at the FT had already done it for me :-)

Of course… talk of whether McCain or Obama have greater support for Taiwan seems somewhat surreal to my mind – given another 4 more years of the present Republican party, America may not even exist anyway :-)

Elsewhere … Korea finds out the long-term costs of fueling an economy with high levels of debt.

“The won, which is already the world’s worst-performing major currency this year with a loss of 26 per cent, will weaken to 1,400 to the dollar as Korea struggles to refinance its short- term debt, CFC’s chief investment strategist Dariusz Kowalczyk wrote in a report Monday. The last time the currency breached that level was amid the Asian financial crisis, in 1998, when the won lost half of its value.”

Oh, and the FTSE is having the *3rd* worst day in all of UK history…. yawn. This crisis is getting boring.

Suffice to say it’s been the most interesting two weeks in finance, of my whole life.

We’ve lost the world’s biggest insurer, and basically all the world’s biggest investment banks are dead or eaten by competitors. Most of this happened in just 10 days.

In the UK, we had about 8 big banks of varying sizes, so far 2 are dead (NRK/BB), 2 have been forced into takeovers (AL, HBOS). That just leaves LLOY, BARC, RBS, and HSBC. It’s exciting stuff.

Meanwhile in the USA, idiot citizens are phoning in to their representatives, trying to stop politicians passing a $700bn financial stability package. This is tremendously short-sighted. What do you think will happen if the banks become paralysed or bankrupt? Hundreds of thousands of businesses will be screwed. Hundreds of millions of individuals will potentially be screwed as the housing market begins a new and steeper nosedive, as their pension funds collapse, and as jobs disappear. John Mauldin has it right – pinch your nose and do the deal, because it’s the least bad of many bad options right now.

Meanwhile, Taiwan has tried to keep it’s housing market and stockmarket afloat by making money cheaper to borrow again, i.e. dropping interest rates. But this is foolish – the banks are paralysed by not knowing what losses they’ve taken and what losses their counterparties are taking. So, it doesn’t matter how low you put interest rates, the banks simply won’t lend. This is a liquidity crunch now, far more than an affordability crunch (though the housing market here is pretty bad in that regard too!)

Check out the Taipei Times. Wow, the media is catching up to the fact that houses are absurdly expensive in Taiwan, particularly Taipei, and it only took them two years to realise that.

““Taiwan’s housing prices are still overpriced,” Chiang Li-wen, manager of Taiwan Cooperative Bank’s (合作金庫銀行) personal banking unit, said by telephone.”

“Taiwan’s top five banks, including Taiwan Cooperative Bank, issued a total of NT$31.97 billion (US$1 billion) in new mortgage loans last month, the lowest since NT$21.19 billion in loans made in February, the central bank said in a statement this week.”

Here is what happened in Japan 18 years ago when the banks realised they had huge losses on their books (just like Taiwan), at a time of ridiculously high house prices (just like Taiwan), and couldn’t lend any more (just like Taiwan). Notice the interest rate graph – dropping interest rates doesn’t save you in a liquidity crunch.

House price declines in Japan, last 18 years. From this article.

Interest rates in Japan, last 18 years. From this article.

Heading straight for Taichung/Hsinchu.
This picture mirrored from Taiwan CWB website.

According to the CWB, this one has a maximum sustained windstrength of 53m/s currently and gust strength of 63m/s. That basically puts it into the ‘worst type of Typhoon’ category in the Japanese system (grade 5), and the ‘pretty darned bad’ category (Grade 3) in the International system.

So I think we can call it ‘a biggy’.

1. Taiwan has at least 1 million houses that are sitting empty presently.

2. Taiwanese house prices rose 50% in the last few years, while wages rose 2% (I don’t recall the timeframe mentioned in the article – it doesn’t really matter with figures like these).

Now unless the population jumps 3-4 million in the next few months, I can see that 50% rise turning into a corresponding 33% fall. However, since correcting markets tend to overshoot… and since the market started out pretty expensive… we should expect a bigger drop.

Note: RBS and HSBA are the UK’s two biggest banks.
RBS is up 44.2% after the first hour of trading.

Also, a quick comment about Taiwan. The US is reporting some $80 billion NTD of losses for Taiwanese investors and banks. Taiwanese newspapers this week only mentioned about $2-3 billion NTD when reporting on companies that have been hit. If you are reading the Taiwanese press and thinking ‘it’s probably nothing’, you may get badly burned. If you think you are OK because your bank hasn’t been mentioned yet – consider the possibility it is because they are still trying to add up their losses. “No news is not good news” when it comes to admitting losses, unfortunately.

Addendum: check out this beauty of a graph!