Meanwhile in other news, the government is going to combat inflation in house prices by … handing out free money every month to young couples to pay their rent or interest payments. Think about that for a moment… fighting inflation by handing out armfuls of money. Rather like trying to put out a fire by dousing it with petrol.

A more sensible way to make housing a realistic proposition for young people is to allow the market to correct naturally. After all, when houses get to 30% of what they are just now, young people won’t have many problems at all…

Ending on a cheery note: inflation is now rising faster than my salary, and the government is using the tax system to hand out giant armfuls of my money to other young people simply because they are married. Brilliant!

Here is what happened in Tokyo and Hong Kong when their property prices zoomed in the way that Taipei’s have. I believe that in ‘house-price-relative-to-earnings’ terms, Taipei has recently exceeded the heights of these graphs.

So, dear reader, I show you a possible - indeed, likely - future.

Click on the pictures to view them fullsize from the original author’s sites.

If you look at the high point on those graphs… well, that’s where I think we are now. And if you look at the low point…. well, that’s where I think we shall swiftly go: 70-80% falls in property prices, and most of it too fast for anyone to hope to escape.

“Taiwan’s housing prices will rise 5-10% annually through 2010 at least, according to construction company and real estate brokerage executives speaking at a “real estate summit meeting” sponsored by the Taiwanese real estate magazine Zhu Zhan in early November. Some even declared this rate of growth would be sustained through the next ten years.”

” Others noted that the Olympics in Beijing in 2008 would not only boost China’s economy, but the economies of other countries in the region as well, and that Taiwan’s real estate market would be among those benefiting.”

Now, let’s take a look at today’s media, too. Bear in mind these journalists can’t be bothered to do their own research, so they’re simply serving up numbers presented to them by estate agents - whose interests are served best if it seems house prices are rocketing up!

With that in mind… take a look here at the China Post (Aug 1, 2008).

First of all, it again mentions the 10% July price drop in Taipei; and 15% drop in transactions.

Secondly, more information about the rest of the island. Taichung sees a drop of 5% in one month, in July alone. Closed deals were down by 30%. 5% a month annualises to… a 46% drop this year, before taking into account inflation… Kaohsiung had flat prices and a slight raise in transactions, but there’s no indication if this is just a normal seasonal ’summer rise’, or a seasonally adjusted figure.

I’d be interested to see if the other figures were seasonally adjusted - if they aren’t, the drop in Taipei and Taichung may be even more steep than the figures suggest!

Apparently there is an additional Autumn pressure on Taiwanese houses that I didn’t know about - Ghost Month! Quoting the China post, “Furthermore, as the Ghost Month has arrived, more sellers are expected to lower prices to attract buyers. In the Chinese culture, Ghost Month is the month of July on the Lunar Calendar, which this year lasts from Aug. 1 to Aug. 30. Most people are hesitant to buy houses during this period.”

Very interesting stuff - but the thing that stands out the most to me, is this quote from an estate agent who is talking about why people are selling, again from the China post article (my own emphasis added):

“most sellers lowered their prices in the hope of getting rid of their property as soon as possible, due to the mounting mortgage pressure“

Mounting mortgage pressure? With interest rates still near historic lows?

How on earth will these people cope if mortgage rates reach levels such as 15-25%, as they have in developed countries across the world in the past?

On the one hand we have the risk of even more price inflation if interest rates stay low and the currency gets weak. On the other, we have this ‘mounting mortgage pressure’ showing up at rates as low as 3%! Something tells me that Taiwan is not in for a good time in the next few years.

p.s. Other news just in. Housing transactions in Taipei are now down by 60% in just 3 months… going into the summer! 60% down in 3 months…blimey!

(Apologies, Scott… it was too tempting)

Finally, it seems like we’re there. The number of house sales is continuing to collapse (minus 15% taipei, minus 30% taichung in just one month) at what should be one of the best times of year for sales in most cultures. In other words, bye-bye buyers.

Of course, this is not even remotely surprising to anyone paying attention to the crashes in America, Australia, the UK, various European countries (Spain, Ireland, Italy), New Zealand, … all of which have followed nearly identical courses in the preceding 12-18 months.

Banks stop lending. Potential buyers stop buying (no ability to borrow). Sellers flood the market as they realise ‘the train has left the platform’. Potential buyers definitely stop buying as they see what’s happening! A two-tier market forms; some people who ‘have to get this money or we’ve lost everything’ with unrealistically high prices and houses that never sell; and some people smart enough to realise that a 20-30% price cut is probably still better than what they’ll get in a year’s time.

International money markets have been messed up for almost 12 months now, so even if people do want to buy, they can’t get the money because the banks can’t get the money. The banks just don’t have any capital left to lend out of their own and there is no willingness from large scale international institutional funds to take on bundles of mortgages.

In 6 months, price drops should be really obvious indeed, as estate agents scream at sellers to drop their prices. According to the article I quoted, prices are already down 10% in one month in Taipei.

Remember, a 50% drop cancels out a 100% rise, so a few 10% monthly drops relative to the peak can quickly become more significant than they first seem. Besides, annualising a 10% monthly drop shows you how serious it is, if it continues for any length in time.

10% monthly drops would turn your 10 million NTD Taipei apartment into a 2.8 million NTD Taipei apartment after 12 months. That might seem too much, but looking at history in a few different countries, you’d reasonably expect a market starting on a HPER of 12 to end up around an HPER of 2.5 or 3 (which is around or slightly below the long term average house price). Again, that represents about an 75-80% drop in prices.

This is extremely unfortunate for my friends in Taiwan who have bought houses in the last two years against my protestations. However, there was plenty of time to get out, and the warning signs that this was not a sane market were very obvious, specifically the crazy average-houseprice-to-average-earnings ratio in Taipei. There is not really any excuse for failing to take a few weeks or months to teach yourself about finance thoroughly, before you undertake what is probably the single most important financial decision of your life.

What happens next, I expect, is that most of the country is trapped ‘where they are’ - unable to change house, or escape debts they have built up. Meanwhile, interest rates rise as the central bank tries to keep inflation under control… gradually, people give up trying to stay current with their mortgage… and lose their house.

The next two to five years will be interesting to observe as a matter of academic curiosity, but for many people, I expect they will be very painful to experience.

A side note: Normally it’s a bit strange to annualise high monthly drops, the way I did above to get large implied annualised drops.

If a large, diversified, well run international company can drop like that; if a house in a US state full of wealthy people can drop like that; then by god, a crappy little Taipei apartment can drop 70-80% too!

She had a great time - all my friends were really nice to her, and helped me to show her some cool places. I saw a few new places myself, too..

Mum, Leila, Ethan, and their children, shopping in a giant mall in Zhongli.

Exploring Taoyuan city centre

Tasting shui jiao (dumplings) for the first time, near Taipei Main Station.

Taipei City Hall area.

Enjoying the view from Taipei 101.

Looking out across Taoyuan city.

Exploring ceramics at Inge with Sean, Kyle and Leila.

The main Taoyuan city temple.

Visiting the Grand Hotel, Taipei.

Enjoying the decor, before lunch.

Travelling to Hualian County.

Discovering that in one Taiwanese hotel, only midgets can use the facilities (look carefully).

Reaching Toroko Gorge, Hualien.

Can you see mum on the bottom right?

Walking through the corridors of the Toroko.
This part of the road is said to be as ‘twisty as a Chinese dragon’.

Mum with Davie (our friendly host in Hualien) and his daughter Tina.

Stopping for a break at a lake near Hualien City.

Late night shopping in Hualien City with Davie, his son and a friend.

Exploring the beach.

First view of the Pacific Ocean

Myself, mum and Tina near “Cow Mountain”.

Exploring a temple on the East coast.

Back to Taipei. Looking from the Chinese Culture University (YangMingShan).

What’s that little building over there on the left?

Exploring the sulphuric geysers of YangMingShan.

Leila and Mum at an organic farm in YangMingShan.

Lots of wildlife…

Strange buildings in the mist…

Say Cheese…(Kyle, Sean, Leila, Mum and myself).

Kyle treating everyone to a healthy organic meal.

Picking Canna Lilies at YangMingShan.

Underground shopping at Taipei City Mall.

Visiting the Maokong Gondola, Taipei.

Since that post, the Shanghai stockmarket has fallen almost 50%.

The FT article (linked above) is quite interesting. It’s becoming quite normal to see 5% drops each day in the Chinese stockmarkets.

Of course, I’m quite sure everyone will pull their money out NOW rather than 6 months ago, before it was too late. People are quite amazing at doing things badly with money.

Actually, though, if I had money in the Chinese stockmarket, I’d pull it out now anyway. It’s still overpriced. Unless the government takes actions to prop it up, I think it could quite easily reach a much lower (and more reasonable) price in the future.

UPDATE:

1. I notice that October 2007 was also when Warren Buffet massively sold out of Petrochina at a huge profit. The company’s share price has since fallen 60%.

2. Apparently the Chinese government is now modifying the stamp duty (share tax) laws to try and keep the market afloat. Why are price drops seen as a bad thing? Who knows.

The idea that in Taiwan, I should avoid seeking ‘friends for the sake of friendship’, is one that I’m not very comfortable with. I don’t see my friends as tools I can use to achieve tasks. Therefore, it seems there may be some cultural lines that I am unwilling to cross in my engagement with Taiwanese society.

After writing my previous post, I received some interesting replies, particularly those from Cary Allen, and Kerim Friedman. Thanks for writing, guys! For the moment, I’m taking the original post offline while I reflect upon the ideas raised in correspondance, to make sure I am being fair to Taiwanese culture.

Particularly, the idea of ‘cultural translations’ as a way of understanding ‘white lies’ in other cultures, is an interesting one.

“I just wondered if I could borrow some coffee” might be considered an example of a similar situation in early dating in western society, which due to its familiarity seems more an excuse than a direct lie or misrepresentation.

Is that something to do with the ’short-term’ nature of borrowing coffee, as opposed to the longer-term nature of ‘language exchange’ or ‘research’? Or, is it perhaps the ‘distance’ of borrowing coffee from a stranger, as opposed to seeking closer forms of interaction such as language exchange? Or is it something else? Am I applying two sets of standards here?

Either way, the idea of the necessity of an excuse in Taiwanese society, as part of forming a friendship, seems to remain as a seperate issue. This is something I’m still puzzling over.

This can be found near Chihkan Fort, Tainan…

However, I have an illness that has meant I’ve been spending a little time in hospital, and getting plenty of rest. I’ll post more as the doctors find out more about the illness. I can say though that the preliminary results are reasonably encouraging, so far.

I am fortunate to have some awesome friends who looked after me when I was in hospital, who have helped me through this illness and been there to talk to. I don’t know how many of them read this blog. But, hey friends. You know who you are. Thankyou.

I also want to say thankyou to all the people who keep checking this blog to see what I’m writing. It is comforting to see that although I haven’t been able to write much recently, you are still popping by.

Unfortunately though, for the moment this blog is on vacation, hopefully to resume normal service next month, depending on what the doctors find.

For everyone else though, it’s Chinese new year. Rather, it’s about to be Chinese new year. There are a few more hours of pig year left; then the year of the rat will begin.

I quite liked the year of the pig. Apart from the bad luck at the end, most of the year went well; I made some new friends; I saw new things; I learned new stuff; and life was… well… not bad. Quite good, actually. My parents continue to enjoy the start of their happy retirement. My brother is still happily married. Some of my friends have new children, and some have children on the way. Life goes on.

Outside, there are firecrackers going off everywhere, even out close to the hills and countryside of Taoyuan. Fireworks are flying into the air and coming disturbingly close to my bedroom window. I had a direct hit against the window last year. This year has been a little less terrifying, but we haven’t yet reached the main event yet. I expect I won’t be getting too much quality sleep though.

Happy Chinese new year, everyone. I hope the year of the rat is lucky for all of us, and I hope I can resume normal service and start writing about Taoyuan and life in Taiwan again, soon.

Gong hsi fa tsai!

(picture via Spring’s Greetings)

An ETF is just a form of index tracking fund, that can be bought and sold as though it was a company. Index tracking involves copying the performance of a group of shares, usually a well known group. For example, an index might contain the largest 500 companies in a particular country (the SP500, DAX or FTSE100, for example).

If you think of ETFs as a pretend company listed on the stockmarket, that performs like the average company in the market, you wouldn’t be a mile from the truth. For example, “ISF” is the name of one ETF, whose share price mirrors the level of the FTSE100. It also pays out the same dividend as the companies in the FTSE100, on average (less a fairly small annual charge).

Internationally, ETFs have been available to the public for a few years, and you can purchase ETF shares corresponding to almost any major stockmarket index: America, Europe (or individual countries in Europe), Asia (or individual countries in Asia), …

Unlike a mutual fund, ETFs don’t have an upfront charge to buy in units of the fund; nor an exit charge; and typically, ongoing annual charges are tiny - 0.4% per year being easily achievable on most major indices.

So why do I bring this up today? Well, for about a year I’ve been trying to find a way to invest in ETFs from Taiwan, so that my Taiwanese friends can enjoy the almost magical returns of passive, long-term-buy-and-hold index investing.

To date, I’ve only found ‘fake’ ETFs available through some Taiwanese banks - where “ETF” has been included as part of the name of a traditional mutual fund, to try to make it sound trendy, new and fashionable. These ‘ETFs’ aren’t worth spitting on; they’re not tradable like real ETFs; there’s often no real attempt to actually replicate a well-known index; they have high annual charges; and remarkably, they typically have costly entry and exit charges.

However, the Financial times reported today that the Taiwan Stock Exchange is to list more than a dozen real ETFs mirroring the indices of countries all across the world.

This is great news if you’re living in Taiwan, and especially if you’re limited to investing in Taiwan. These ETFs will offer an ‘easy to get in, easy to get out’ way of investing in index trackers, and at low cost - no upfront costs besides a small share dealing charge, and a tiny annual management fee.

For anyone who just wants to invest in international stockmarkets, but doesn’t want to learn about shares or funds or fund managers, this is a great choice. Also, there’s bucketloads of evidence that passive index trackers outperform traditional actively managed mutual funds, after charges are taken into consideration, so this is really a superbly effective way to invest spare money.

Anyway, please don’t take my word for any of this - this is a blog post, after all, not financial advice. Still, I’d recommend to anyone with some spare dosh, currently living in Taiwan, that it would be well worth your time to learn a little bit about ETFs.

I’ve been waiting for this exhibition for a month or two, so I went along this week to take a look. At the front door I was welcomed with a free guidebook and several computer games. The exhibition is well staffed, with guides on most exhibits, fluent in Chinese and English. The exhibits themself come from all around the world, from a number of famous digital artists.

Some artists are making a statement; the ‘bingmayong puppets’ for example have an interesting backstory. Others are experimental or geeky, such as HardDisko, the orchestra made from broken hard drives locked into an eternity of spinup cycles, or Khronos, which makes you feel like “Hiro Nakamura” from the TV show “Heroes”. Many exhibits may also look completely different depending on who visited them in the last half hour. You can quite literally leave your own mark on the exhibition - here’s my own brief appearance in one exhibit!

I took along several non-geeky friends, and they had a fun time, so this is definitely suitable for anyone, not just computer geeks. You can find the Red House theater next to the MRT exit (5?), near the ‘Ximen Walker’ statue, on Chengdu Road. I strongly recommend taking advantage of this extremely unusual free exhibition and visiting before it closes on Sunday.

More info here: Taipei Times, Open Play website.

Don’t worry - none of these photos give away the most surprising features of any exhibit.

41292387 (match all the digits for the grand prize of $2 million NTD).

32971009 (prizes for matching 3 or more digits starting at the right hand side).

39376966 (prizes for matching 3 or more digits starting at the right hand side).

50336841 (prizes for matching 3 or more digits starting at the right hand side).

One amusing quote worth picking up on:

“The main reasons for failed FamilyMart franchises are long working hours and a lack of employees,” said Hsu Shu-ching (徐淑卿), manager of the convenience store chain’s franchise department.

Oh I see! So it’s not because we have directly competing convenience stores positioned literally every 5 metres along every street in the country, selling identical goods at identical prices? :)

Taiwanese clothes store…

Read more about his experience (and see some wonderful photos) here!

Thanks Michael!

Michael, Scott, Graeme (thanks to Eva Wai).

NNT is one of the few authors in Finance I take seriously; the others being Warren Buffett, and Benjamin Graham. His books, ‘Fooled by Randomness’ and ‘The Black Swan’, are must-haves for any serious finance nut. Besides his theoretical savvy, NNT is a damned funny read, as you’ll see in this article.

I admire his guts. Remember, he is up against the entirety of financial academia as well as the bulk of the finance industry - stating out loud that the most basic theories in Finance are flat out wrong. Fortunately for him, he happens to be right.

Furthermore, he is in very good company. Anyone who has read ‘the superinvestors of Graham and Doddsville‘ will have become well aware that the core theories of finance are based on utterly absurd premises.

Here’s a sneak preview… enough to whet your appetite.

Last August, The Wall Street Journal published a statement by one Matthew Rothman, financial economist, expressing his surprise that financial markets experienced a string of events that “would happen once in 10,000 years”.

A portrait of Mr Rothman accompanying the article reveals that he is considerably younger than 10,000 years; it is therefore fair to assume he is not drawing his inference from his own empirical experience but from some theoretical model that produces the risk of rare events, or what he perceives to be rare events. (NNT, FT.com)

Click here for more.

Title says it all. Click here

But even taking these imaginary profits into consideration we’re looking at forward PERs of 60. 60! My mind can hardly cope. And yet rock solid American, British and European blue chip companies with pedigree histories can be bought on PERs ranging from 7 to 20 (i.e. 1/3 to 1/9 the price!). Another nugget: house prices have risen 13-fold in some areas in less than a decade. 13-fold. I think it’s a fairly safe bet that wages haven’t kept up.

I was going to write a blogpost about this, but I’ve been spared the need by some fellow market enthusiasts. Michael Turton has gathered up a couple of great sources of info on this topic, and you can read all about it here. It’s a good read, and he has provided links to Newsweek and David Webb’s sites. I strongly recommend you take a look if you’re in any way interested in the state of China’s economy.

01151187 (prizes for matching 3 or more digits starting at the right hand side).

20658657 (prizes for matching 3 or more digits starting at the right hand side).

76860639 (prizes for matching 3 or more digits starting at the right hand side).

Here are links to the data on the earthquake - biggest we’ve had for a few months.

• CWB1,
  CWB2
• CWB1 (Chinese),
  CWB2 (Chinese)
• USGS

As usual, I have lots of respect for the incredible Taiwanese engineers that have built an electrical grid and internet infrastructure that just keeps on running during earthquakes.

Oh, and some good news. I noticed that the English language system is now running in-line with the Chinese system. It used to be that English language version of the CWB website would lag behind by 15-30 minutes (or so it seemed…).

If you have time, you can fill in a report on the USGS website and help seismologists do their work…

Fruit and vegetables: subjectively, seem to be about 10% more expensive.
Yoghurt drinks: up 20%.
Bus travel: From $15, to $18 - and given the hassle of carrying lots of $1 coins, that’s arguably an increase to $20! That’s 33%!
Baked items: Noticably more pricey, around 10%.
Electricity bill: Through the roof (even though the electricity has been turned off!).

So far, I’ve only been in a couple of small shops - and I am not looking forward to my weekly spend at the supermarket if this pattern of price increases holds up. Thankfully, my rent has stayed the same this year, which is nice as it represents a big part of my spending.

Of course, economists might look at this and scoff - what about the many items that didn’t go up in price, which I didn’t mention - cans of ‘Vitali’, for example? What about the expensive items that take up a lot of people’s money, like flat-screen TVs, that usually go down in price over time?

The first point would be fair - we tend to notice changes more than things staying the same, and it is easy to build a skewed view of reality for this reason. But in regard to the second point: well, I wouldn’t really care if cars or flat-screen TVs came down 10% in price in the last 2 weeks - and I doubt very much that they did. Generally, I don’t make many discretionary purchases*, so my ‘personal price inflation’ is probably more like that of a old person - just the basics, thanks!

It seems though that on this occasion, the economists would probably agree that a bit of slightly higher inflation is appearing. The Taipei Times reported today that inflation jumped this month.

And from the China Post:

And that’s just in one month! Some of the other measures of inflation show it to be rocketing up fast for manufacturers as well as consumers:

Scary. Typical bank interest rates at around 2-2.5%; broad annual inflation** at up to 6.25%, and with a 1-month jump of anything up to 5% depending on what you’re buying. Watch your spending carefully, because there’s a very real chance your wage rise this year won’t come close to covering the increase in the cost of living.

Links: Michael Turton has recently written about Taiwanese food prices, here.

* discretionary purchase = ‘things you want / things you choose to buy’.
* non-discretionary purchase = ‘things you need / things you have no choice about buying’.
** I recommend being a bit wary of all government inflation figures - not just Taiwan’s! I believe they will be understated by their design, since it is in most government’s interests to report low inflation rather than high inflation. I instead suggest estimating your own personal inflation using a standardised ’shopping basket’.

More Asian economics over at toshou…

Although there are a number of Apple stores in Taiwan, most of them do not offer a repair service themselves. Instead, they will accept your damaged Mac or iPod, and post it off to a central repair depot.

If, like me, you instead prefer to take your electronic equipment directly to the people who will be fixing it (perhaps, because you want to explain the problem precisely to the guy that will be repairing it), then there is another nice alternative.

Data Express have just moved their service center from a hidden corner near Shuanglien MRT station, to a nice new easy-to-find place in K-Mall. K-Mall itself can be found directly across the road from Taipei Main Station, and next to the 2nd tallest building in Taipei - the Shin Kong Life Tower. Just walk into K-Mall, take the lift downstairs 1 level, and you will find Data Express’s repair center at the opposite end of the building, on the left hand side.

These guys have given me excellent service since I arrived in Taiwan. They speak great English; they fixed my laptop’s problems correctly and quickly in each case when I had minor problems; and they are super friendly.

I strongly recommend them if your Apple equipment needs servicing.

Map of the UK.

Today’s Lesson: The capital cities of the United Kingdom!

London, the capital of the UK, was built near the demographic center of the UK, so that it could represent Northern Ireland, Scotland and England equally without having a huge political or economic bias towards one area of the country. It’s a very logical place for it to be, and so other countries (such as Australia and the United States) have copied this design.

Cambridge, the capital of England, is home to one of the oldest and most famous universities in the world. It’s hardly surprising that the people of Britain wanted to protect such a valuable place of learning from any natural disaster that might occur. So many hundreds of years ago, the city of Cambridge was built beneath the sea, inside a giant glass bubble. This way, if mankind should ever destroy itself, or civilisation collapse, the sum of human knowledge built over the centuries would be preserved. It also won’t shock you to learn that Cambridge has an incredible marine biology department, being surrounded on all sides by the seabed. Scientists need only walk up to the glass wall to be able to observe an incredible variety of underwater creatures. Cambridge University is currently planning on building a new floating campus to allow the university to expand its student intake.

Edinburgh is the world’s most unusual capital city. Built on an outcrop of rocks in the outer hebrides, and surrounded by vast herds of sheep, this capital city has confused tourists since time immemorial. Why on earth was it built in such a remote location? With a modern population of just 3000, it’s not even clear if Edinburgh will continue to exist in the future, as islanders gradually move away towards Glasgow, in the north of Scotland, seeking jobs. If you should ever visit Edinburgh by aeroplane, be sure to watch out through the windows as you land, for farmers clearing their sheep from the runways before the weekly plane full of tourists arrives. There is a city tour bus operating on a circular route of some 200 meters length. Don’t miss it!

Not many people know this, but Ireland and Northern Ireland are the only two countries in the world that don’t actually have any capital cities! Instead, everyone lives in (roughly) equally spaced-apart houses along three giant streets that stretch the length of the island. In recent years, small villages have been allowed to form, so that people can find the pubs more easily. It’s hard to become lost while on holiday here - just remember which of the three streets you’re currently on, and keep driving until you find a village. Be careful though! There’s a small error in this map. Northern Ireland, through a quirk of history, is in fact located in the very southwest of Ireland, near Dublin.

Wales is famous for the fact that it doesn’t really exist. In fact, “Wales” is just a traditional joke played on tourists by people in the west of England.

Next week: Canada, the 51st state… (of Australia).

Pushed by high-priced apartments and suites, the price of housing in Taipei City has continued to rise, increasing from NT$460,400 per ping (3.3m2) in the first quarter to NT$489,400 per ping in the second quarter, the report said.

You need to read between the lines carefully with housing data, to see what is really being said. Here, the claim is made that the price of housing has ‘continued to rise’ and that the housing market has ‘continued to boom’. But what is really given here?

- Asking price? (initial price sought?)
- Agreed price? (final price negotiated?)
- Achieved price? (the money that ends up in the bank, including transactions that fall apart?)

In fact, it’s the first; and this is often not a reliable measure of what is happening in the market (whether rising, falling, or stagnating). If I told you that X amount of Chinese food went on the ‘market’ today, and that Y of it sold - do you think it would be the ‘average’ priced piece of food that sold? Or probably more of the cheap stuff? It’s very much the same with housing, and in housing markets with low turnover, you often find a ‘two-speed’ market forms. A two-speed market is where high-priced sellers sit and wait for a year at a time, while lower-priced sellers clear their properties in weeks.

Here, we see that the collective value of housing ‘went up’, and also that the number of houses on sale went up too - in fact, considerably more. Let’s do the math:

1st quarter: 19,663 units collectively priced at 214.8 bn = 10.9 million NTD per house on average.
2nd quarter: 25,335 units collectively priced at 248.1 bn = 9.8 million NTD per house on average.

Implied quarterly drop in average asking price: 10%.

Quarterly turnover? Down from 30.14% to 27.43%. Doesn’t sound like much does it? But that means houses have rapidly gone from ‘10 months to sell’ to ‘11 months to sell’. This is particularly interesting, given that the number of estate agents needed to achieve that lower level of turnover was vastly higher than in the first quarter! (see the original article)

Being honest, I don’t think ‘mixed’ quite describes that performance. I don’t think ‘housing boom continues’ quite catches it either. In fact, I think completely frakkin awful far better describes a 10% drop in price and 10% drop in turnover - in just 3 months!

Consider also, this was as we entered the summer - which in almost every country of the world is one of the best times of year to sell a house, as opposed to a bone-chilling winter! Of course, I’m sure someone will write to tell me that Taiwanese people in fact LOVE going out to view houses in the bitterly cold winter weather.

Now, time to get even more skeptical. Did you notice I used the words ‘priced at’, rather than ‘worth’ as the original article did? That’s because the worth of something, contrary to the Taipei Times belief, is not actually defined by its asking price. If I offered you a house for free, would the house be worthless? If I offered you a tasty 12″ pizza for 1 million NTD, is it worth 1 million NTD? Of course not!

There’s a stronger argument that ‘achieved prices’ measure a sense of worth, where worth means ‘what people are prepared to actually pay’. But if some dumb guy pays 1 billion NTD for a Big Mac, does that make all Big Macs worth 1 billion NTD? I say, hell no - of course it doesn’t. And that is as true of houses as it is of Big Macs. There is nothing magical about a collection of bricks and mud, that makes it different to every other type of item in the world.

Instead, I personally prefer (and recommend) a more ‘financially real’ sense of worth which derives from the financial value of a thing. If I buy a house with cash, and it returns me a rent of 10,000 per month, and after costs I am left with 7,000 per month, then I can compare that with putting my cash in the bank; or shares; or I can compare that with the damage done by inflation. This sense of worth is often imprecise and subject to your own beliefs about the risks and alternative returns involved. But, I personally believe it’s probably the most valuable sense of worth that there is. I encourage you to develop your own meaning of worth by thinking about these issues, rather than believing the absolute junk you are normally fed by the mass media about financial assets.

But, we can be more skeptical still. There are other questions we need to ask about housing data. Is it averaged out over several months, or raw data? Are we considering regions or national figures? Are they seasonally adjusted (taking account of the ‘nice weather effect’) or unadjusted? Are the annual figures a 12 month average, since start of year average, or an extrapolation of the current month’s data? Are the figures measuring asked, agreed, or achieved prices? Net of costs, or without costs? Money borrowed or money spent? Who is measuring (estate agents? the government? banks? surveyors?)? Why are they measuring? What are they measuring (sentiment, prices?) How are they measuring?

In fact, it’s fairly trivial to ‘flip’ between 100 different types of housing data, so that house prices can appear to go onwards and upwards continually each month; or to present housing in a negative way continually. It’s worthwhile to watch journalists do this as they are spoonfed ready-made ‘press releases’ by banks and estate agents. Many such press releases are seemingly published without a moment’s critical analysis.

My all time favourite is the simple, ‘declare victory, and retreat!’. We saw this above in the Taipei times article, where they talk as though this news is actually encouraging! They start by saying the news was ‘mixed’, but then we were soon told ‘the market is continuing to boom’, and then we are told about a collection of statistics going up (value of houses on sale, number of houses on sale, number of estate agencies, …). Take a look at the full article online (or in print). Notice how much time was spent talking about the number of real estate salesmen’s offices in Taipei and where they all opened? Notice how little time was spent calculating the average price of a house, or the consequences of a rise in price per ping in a falling market?

No, most houseowners will worry when they see news of a mixed market, but then they will see ‘market continues to boom’, look at numbers going up, and they will feel reassured. The newspaper has succeeded! The scary headline sold the paper, yet the lovely story of the main article made the reader feel warm and happy.

To end this article, let’s look at the claim that the house price measured by ping went up. Intuitively, many people will think - oh ho - houses are becoming more expensive! But in fact, we’ve seen that collectively the ‘asking price per house’ went down by 10%; so if the price ‘per ping’ went up by around 5%, we can conclude that people have given up on selling big houses (generally) and are now selling pishy little apartments that are 15% smaller on average. Since the ‘achieved price’ should be considerably lower than the asking price in a low turnover market, this ‘house shrinkage’ effect may even be much worse.

As housebuyers in Taipei spend the next 30 years of their lives paying off around $10,000,000 NTD of debt - a sum which bought only a smaller-than-ever-before apartment - I wonder if they will question their sanity back in 2007.

But wait! Life will be just fine. Asus has stepped up to fill the gap. What they have produced is not a perfect competitor. The OLPC is aiming for 10-12 hour battery life with a rather slower processor, whereas this new Asus model only aims for 3 hours battery life. However, the EEE has a 900Mhz pentium M, which means it should be rather awesomely fast. It appears to be related to the Intel ‘Classmate’ low-cost subnotebook design, which was bouncing around the interwebs earlier in the year.

You can find information about the EEE PC here, here, here.

Some of the interesting features:

- 900Mhz processor.

- 7″ LCD display.

- 4-16GB solid state hard disk (basically, flash-based, tough as hell, fast, no fragmentation delays, smaller, lighter, lower power than a traditional hard disk).

- built in webcam, VGA out, USB, SD… (ooh, SD! Perfect for ‘on the move’ photo-editing then?)

- 512MB Ram.

- thin + light (0.82in thick, weighs 2 lbs).

- wifi.

- Linux-based operating system included.

Initial reports are that the machine boots up from cold in 10 seconds and shuts down in 5 seconds, so it should be great for ‘writer’s notepad’ type work too as well as the afore-mentioned ‘photo editing on the fly’.

In fact… this could well be the perfect tool for written or photographic blogging. I wonder if they realise that? Heck, dangle a GPS unit off the side, and you have a location-aware uber-blogging platform for less than a normal laptop!

According to Qbit Online, we can expect to see these tasty wee things arriving in late August. If you’re interested in seeing this mini-laptop in the flesh, there should be a demo next week at the Taipei Trade Center, as part of the TICA exhibition.

It seems this is a genuine ‘news’ report from the US shown on Fox. Unbelievable. Absolutely unbelievable.

Happy Corner. It’s not what you might think. More here at the Taipei Times.

Point 1: Old people are screwed. Can’t get a good return from the bank on their lifelong savings, because of low interest rates. Can’t effectively invest in assets like housing and stocks (prices are sky high, since people have borrowed money practically for free, driving up prices). Legal restrictions on their investment overseas. Ergo, old people are screwed.

Point 2: Young people are screwed. House prices are absurdly high (10-20 million in Taipei) relative to wages. Take long term (historical) mean interest rates of around 6%, plus bank mortage premium, and you come to the conclusion that either every single guy in Taipei is earning 2-3 million a year to pay for his living costs, or you have a lot of couples working super-hard in normal jobs, just to keep up. How will they save for their middle age and old age? How will they take time off work for kids? How will they pay for kids? What happens if one of them falls ill? What happens if they both fall ill, even for a month or two? How will they cope when interest rates rise beyond the mean, but wages don’t go anywhere at all?

Worse, there is a strong tendency for people to do what their parents tell them. And parents are telling kids to buy houses - many having never seen a really shocking economic crash in action firsthand, unless they were working in Japan 10 years ago. Oops. Practically every 20-something and 30-something in Taiwan has been set up for financial disaster.

Here’s a graph of Taiwan’s historical interest rates. Are we in a ‘normal’ or ‘abnormally cheap’ situation, do you think? How screwed will homeowners be if interest rates go back to 15%?

Point 3: Creative businesspeople are screwed. Yeah, for big companies with huge anti-competitive moats (i.e. the ultra-big fabs, TSMC etc.), life is pretty sweet, you can expand and expand and it costs you no money at all. But for small companies? No sooner do you think of a way to make a profit than 20 other guys are crowding in and destroying the profitability of your business niche! Damn!

Oh look, a street where no-one is running a hotpot store. 4 weeks later, after one guy has taken the risk and tried opening his pet store, everyone else sees the trade he’s getting, and muscles in with cheap loans (or cash from the oldies, who are desperately seeking any kind of return), and BAM!Every businessman in the fight is screwed.

Whether it’s pet monkeys, hotpot dishes, or mass-production of plastic widgets, as a businessman you are still going to get painfully screwed - time after time - in a ‘cheap and easy’ borrowing environment. Of course, everyone dreams of running their own business here… so they sleepwalk into small business failure.

Point 4: Consumers are screwed. Consumers have used up the next 10 years of consumption already. I look at the guys where I live, who struggle to earn a consistent $80-150TWD / hour. They are all driving super-cool cars; cars far, far cooler than those in the UK, supposedly one of the world’s richest economies. How the hell can they possibly afford them?

Of course, they can’t really afford them. It’s the magic of 10-20 year finance and low interest rates allowing a low monthly repayment - for the rest of your life. However, this repayment sucks up all their income each month - and as rates increase, it gets more and more painful. I’d say that most of the shiny, awesome, beautiful, expensive Japanese cars I see round here have bashes and dents somewhere. People can’t afford to have the car *and* get it repaired every time some scooter blasts into it from a blind corner.

But if you spend all your future earnings today - what do you spend next year, or the year after …?

Point 5: Importers are screwed. With the Taiwanese dollar as weak as it’s ever been, you wouldn’t want to be an importer. Hell no.

Point 6: Exporters will be screwed. Whenever the interest rates do go up, and the carry trade in TWD reverses, it will be UGLY for those exporters who have borrowed to their eyeballs to expand. Gearing up heavily is a nice way to set your business up for disaster. The only reason exports are rising in Taiwan so quickly is because Taiwanese Dollars are being handed out like candy to the rest of the world. What’s the good of selling 30% more stuff beyond the growth you’d have normally had, if the money you sell it for is worth 30% less?

Taiwan does more work, but gets the same money, in terms of international buying power. Great for employment numbers. Crap for increasing the wealth of Taiwanese people - which they find out as soon as they try to buy anything from other parts of the world, or go travelling, or pay their electricity bills…

Point 7: Houseowners are screwed. Besides the ongoing agony of mortgage repayments in a low inflation environment with rising interest rates, there’s the simple matter of negative equity. Low inflation means any ‘real’ drop in house prices will be a ‘nominal’ drop in house prices. I.e. prices actually DROP rather than stand still while everything else goes up in price. That means you can’t sell without taking a huge multi-million dollar loss. Which means, you effectively can’t sell. So you had better like the house you buy, people, because you will be living there a very long time.

Oh - and did you know that Taipei is famous for holding world records when it comes to house-price-to-earnings multiples? We’re talking about a earnings multiple of 10-15 in many regions of the city. That makes even America, Ireland, Northern Ireland, Australia, New Zealand and London look cheap. Heck it makes Hong Kong and Shanghai look cheap. Last time this happened in Taiwan was around the mid 90’s, and Taiwan’s housing market went nowhere for the following 8 years.

Point 8: Everyone servicing ‘young industries’ is screwed. Demographic decline. Basically, there was already a trend towards having fewer kids, (and later in life), but my belief is that it’s being accelerated by the ridiculous housing situation. Suffice to say I wouldn’t want to be Toys’R'Us in 5 years time. No money, no kids. Great for business…

Taiwan is also faced with a tough political choice. Either take in immigrants, boost your replacement ratio (number of kids per couple) or go into population decline like Japan. The last of those three options would not be good for house prices or businesses in this country.

Point 9: Energy screwage. Taiwan doesn’t have energy resources. You may have noticed the oil price recently. And last year. It looks like it may be with us to stay. Oh dear.

Und so weiter…

… I could go on. Now of course, there’s always something wrong in the economy. And there’s always something right. I mean, you could point to the superbly low unemployment in Taiwan and say, “hey, that’s pretty awesome”! But my view is that the good vibes of the ‘booming economy’ and ’superb unemployment’ are an accident, caused by people spending 10 years of future earnings, right now.

Analogy.

Imagine a car. What happens when you put your foot down hard on the accelerator all the time? You travel fast, everyone in the car feels pretty good…whee!… but you burn up your ‘future fuel’ early, and not as efficiently as if you’d just driven a little bit more carefully.

That’s what low interest rates do. And the effect is much the same. Then suddenly, and with little warning… you hear a funny noise from the engine and the car starts slowing down. And no matter what you do to the accelerator pedal at that stage… there’s nothing to stop your car grinding to a halt. It’s too late.

Don’t believe me? Look at Japan. They used up their fuel; their economy has stood still for more than a decade. Yet still they stupidly hold their foot down on the economic accelerator of cheap money, when there is clearly no gas in the tank. They need to raise their interest rates, get the old people spending for a while. Put a change of fuel in the engine.

You cannot have your cake, and eat it too. The people in your country either spend their future wages now (by borrowing money), or they spend them in the future (by earning them). But if they spend it now - it’s gone, and the future must go without.

Conclusion.

Will Taiwan take it’s foot off the economic accelerator pedal, and raise interest rates? Or will they hold the accelerator pedal to the floor, even as the car grinds to a halt, and find themselves stuck in the mud with Japan? It will be interesting to watch, either way.

Picture taken from globalpropertyguide.com.

18220444 (prizes for matching 3 or more digits starting at the right hand side).

26888640 (prizes for matching 3 or more digits starting at the right hand side).

37661297 (prizes for matching 3 or more digits starting at the right hand side).

1) Recently, a consortium of banks (Fortis, Santander, and RBS) offered £48 billion to buy ABN Amro.

2) According to the words of RBS’s CEO, Fred Goodwin: RBS has a 38% share of that transaction. In other words, £18.24bn.

3) However, that 38% included a bank within ABN Amro, called La Salle. La Salle has just been sold seperately for £11.5bn.

4) That leaves RBS paying for £6.74bn (18.24bn-11.5bn) for its share of the remaining parts of ABN AMRO, assuming that the business splitup is the same.

5) When RBS first expressed an interest in bidding for ABN Amro, its share price was £6.66.

6) However, RBS’s share price became £5.71 today (and was £5.76 at close of market).

7) RBS has 9,456,444,000 shares outstanding.

8) (6.66-5.71)*9,456,444,000 = almost exactly £9bn.

9) In other words, the market has ‘written off’ £9bn from the equity of RBS as a result of an offer made of £6.76bn, net.

10) Therefore, assuming the remainder of RBS not involved in this transaction is still worth what it was before, new buyers of RBS shares are effectively paying their fraction of -£2.26bn for ABN Amro. So, as a new buyer of RBS you are obtaining your ABN Amro shares for “Cheaper-Than-Free!”.

11) But wait. It gets better.

12) The consortium (Fortis, Santander, RBS) recently altered the offer being made, so that a greater proportion would be paid in cash. I’m going to change to Euros here, for simplicity’s sake.

13) The offer as it currently stands consists of 35.6 Euros (cash) and 0.296 RBS shares, being paid per ABN AMRO share.

14) At the close of market today, ABN’s share price was 35.29 Euros.

15) That means, RBS’s shares are being valued at ‘Cheaper-Than-Free!” too. By buying an ABN AMRO share, you get your money back, plus 0.31 Euros, plus 0.296 RBS shares.

16) The horrifying conclusion.

a. ABN Amro’s shares are being valued at ‘less than nothing’.
b. RBS’s shares are being valued at ‘less than nothing’.
c. If an acquirer whose equity is valued at less than nothing, buys a company whose equity is also valued at less than nothing - is the acquirer’s equity diluted? Or does a black hole open up in the space time continuum and swallow us all?

Further notes

(point 4/9) It turns out, in the revised bid, RBS actually altered the net portion of ABN it wishes to have (in its revised bid) to around £10bn. But still, the market is apparently assuming that the entirety of this investment by RBS will just disappear into thin air… though it’s not quite as bad as I made out in the above argument - yet.

(point 15) Demully (a writer on various UK financial forums) suggests that because there are two bids in the running for ABN, the market price for ABN implies shareholders will pick a lower bid rather than the one from RBS; and also it reflects a risk premium, in that the bid might not go ahead at all. That’s a fair point. However, to my mind, the size of the premium seems… collossal… given that the RBS bid is actually formalised.

(generally) It’s actually unfair to say that all of the fall in RBS’s price can be attributed to the bid they have made for ABN Amro. There has been a mild fall in the market lately; however, comparing against one of RBS’s peers - say, HSBC - we can see that RBS’s share price has changed in a unique and significant way since the bid was announced.

Thanks to demully for some of the above.

The normal Wii is typically priced at $7999 NTD. If you look around, you should be able to find places selling it with a modchip pre-fitted for $9999 NTD. Haggle, though - there’s no end of stores selling it at this price. The modchips allow you to play ‘backup’ games… err… should your original disk become lost, for example. They also allow you to play homemade games.

There is also a really nice collection of games console shops between Taipei Main Station and the main bus station. Walk from Taipei Main, towards Ximen, down the ‘Taipei City Mall’ under the right hand street. Definitely worth exploring if you’re collecting unusual games for your console. Particularly the ‘old school’ store, which appears to stock games (and consoles?) dating back 15-20 years!

UPDATE: today, I found out one of the stores in Taipei City Mall has Wii’s at $7700. Haggle?

• POP3, the Post Office Protocol, is an old technology for email which is based on the idea of ‘visiting the postoffice’ to collect your mail. A POP3 server is a computer program that is always available on the internet, and which gradually stores up a collection of emails for you as they arrive. A bit like the business ‘PO box’ service still provided by many post offices in real life.

  Every now and then, your computer at home connects to the POP3 server and says ‘Have I got any new mail?’. The POP3 server then sends through a photocopy of the emails it has received, and (optionally) clears out the folder. That means your computer becomes the new home for all your emails. After all, who stores their postal mail at the postoffice?

  There are a few problems with this. First of all, it’s just a single giant box for new emails. You can’t put anything in it yourself (unless you send yourself an email); and you can’t organise your emails into different types or put them into different folders. It’s simply an ‘always-available’ dumping ground for email, so that you can receive email even when your home computer isn’t turned on.

  Also, you can’t store your sent-mail in your POP3 inbox. There are ways round this; you can always send a duplicate copy of outgoing mail to a second POP3 inbox, but that can get a little bit confusing, especially if you send things from different identities, i.e. your official ‘office’ persona, your ‘home’ persona, and your wacky ‘World of Warcraft’ persona.

  Finally, it’s annoying to share email between several computers using POP3. You can’t always be sure that both computers have the same emails downloaded. Imagine I go to the office, collect my email, and delete some spam. By the time I go home, I realise I left the computer on at home, and it also downloaded a copy of the spams, but now they’re not deleted!

  Or, maybe I organise my emails neatly into a folder. The problem is, on the office computer the emails are neatly organised into a folder, but at home they’re still sitting in my main INBOX, making a mess! Argh! If only you could easily keep things organised and up-to-date, across all of your computers…

• Webmail was introduced as a way of overcoming this problem, as well as the problem of accessing email from a temporary location such as an internet cafe where you can’t install your own programs. By storing both your ‘email program’ and ‘email archives’ on a web server, all you need is a web browser to access your mail from any location. The problem now is simply that the interface is limited, in terms of speed and ‘niceness’, by the limits of web browsers. Also, usually, webmail is not very well integrated with your home computer. By this, I mean that you can’t simply drag and drop files to and from emails in your webmail. Instead, you have to take a few extra clicks to save them. But webmail at least offers a standardised way of accessing your email from two or more places.

The third option that most people don’t know about is IMAP. IMAP was designed as a technology to make it easy to share your emails between different locations, and it is built into most modern email programs. It stores your emails on a centralised server, but in a way that is accessed a little like a POP3 mailbox rather than webmail. However, now you can seperate your mailbox into folders, and you can store your sent emails, all in the same inbox, and all with a single password. In fact, a set of IMAP folders in Outlook (or any other mail program) can be accessed exactly like a set of mail folders stored on your local computer.

This is remarkably handy. It means you can have an organised system for emails and files, shared between two or more places, but with a nice, fast graphical interface (Mail.app, Outlook Express). In practice, to make it run quickly, email is ‘cached’ on your home computer. In other words, a spare copy is sent to your computer from the IMAP server, so you can read your email even when your computer is not connected to the internet. But, the ‘official copy’ is stored on the IMAP server. That way, if you delete an email from your office, it’s also deleted when you log into email from home. If you organise your email on your office computer, then when you get home, the emails there have been automatically re-organised too, to match your office.

IMAP has a few other nice features that people don’t always notice. For example, instead of having to check your email every few minutes (we call this a pull technology in computing), IMAP contacts your computer to say ‘hey, I’ve got something new for you!’ (you guessed it - push technology). This means more work for the email server, but from your perspective, it means your emails always arrive instantly. Brilliant!

After setting up your new IMAP account (exactly like setting up POP3 - just enter the details in the IMAP section), you may want to make sure you’re not shouting everything to the world, everytime you send an email. By enabling ’secure/SSL SMTP’ and ’secure/SSL IMAP’ in your email program, you can be sure that both your outgoing and incoming email i