Thursday, November 19, 2009

A Game

Macro Man's feeling a bit under the weather this morning, so today's post will be mercifully short.

What do these four countries have in common:

Brazil, Indonesia, South Korea, Taiwan

a) They all have trade surpluses, according to the last monthly data

b) They all saw the value of their FX reserve holdings rise by at least 1.5% in the last monthly reserve data

c) In the last month, they have all announced either the contemplation or imposition of capital controls or punitive taxes/restrictions on foreign access to domestic asset markets.

d) All of the above.

The answer, of course, is (d). Macro Man has been murmuring darkly about protectionism for most of the three-plus years of this blog's existence, and the drumbeat is growing louder.

Here are the stories on Brazil (which also closed an ADR loophole yesterday), Indonesia, South Korea, and Taiwan.

Now clearly, this is a) taking the piss, and b) not good news in the long run for global trade and risky assets. As yet more countries adopt a "we want you to buy our trinkets, and we want to buy your financial assets, but we don't want you to buy our financial assets" policy, the risk of a pushback must be rising.

Sadly, the Obama administration has resembled its predecessor in lacking the backbone to tell Voldy, et al to "shove it", and now the Europeans have even joined the Yanks in making an annual pilgrimmage to kow-tow to the Dragon Throne.

Maybe this will end well.....but Macro Man struggles to see how.


Anonymous said...

you should be watching greece bund spreads and cds....could be the harbinger of pain

jc said...

If I'm not mistaken they all have fixed or semi fixed exchange rates, right?

I actually don't see why the US would be adverse to these fools applying capital controls etc as it will mean the mullah flows the US's way on balance.

Are they dumb for doing this? Sure. I think it's just a pathetic way of them trying to control short term capital flows that could be inflationary under a fixed exchange rate system.

PJ said...

In a larger sense, the policy response to the depression is to do more of what created the leveraged boom: savings-and-export countries want more savings-and-exports, while borrow-and-import countries like the US are trying to promote borrowing.

Even if these policies work temporarily, they're just delaying the inevitable bust when everything unwinds. But it shows how powerful the groups that benefit from the established trade-and-capital flows are.

Anonymous said...

Wait until we get another leg down. Wen? Hu? I don't know, but I'm looking for an ultra long protectionism ETF.

Gregor Samsa said...

Anon 1:21, the problem of contrarian or independent thinking is that there are only rarely suitable ETFs you can invest in.
There is some consolation in the fact that there is little point in investing in a contrarian idea, because the real money is made only after it has become mainstream.

Anonymous said...

I agree with any trades that would benefit from more protectionism. As long as China refuses to let its currency appreciate, the heat is going to get turned higher and higher...and for good reason.

I don't see how US manufacturers can compete with China's state subsidies, cheap labor, lax environmmental laws, and an artifically cheap currency on top of it?? (Not to mention human rights or any lack of intellectual property rights). I believe in free trade but this is not free trade as the system is now. I think all countries (not just the US) should put a 50% tariff on Chinese imports so as to punish their fx policy. Then, they might be happier to let the yuan appreciate 30% like it should.

Everyone knows what happens when you articially interfere with the free market for an extended always ends in tears.

Anonymous said...

Global trade among a few regional autarky's will be fascinating to watch.

Anonymous said...

"In Manhattan, they have vacancy rates of 10-15 per cent and they feel like the sky is falling, but in Pudong [the central business district in Shanghai] vacancy rates are as high as 50 per cent and they are still building new skyscrapers," she said.

"If you look at GDP growth, then China looks like a new engine driving the global economy, but if you look at how growth is being created here by so much wasteful investment you wouldn't be so optimistic."

Zhang Xin, chief executive of Soho China, one of the country's most successful privately-owned property developers, told the Financial Times the asset bubble was leading to rampant wasteful investment in the sector, undermining the country's long-term growth prospects.


leftback said...

Hope you're feeling more lively, MM. Take a gander at today's action in T-bills, my friend. Certain people are parking large sums and getting zero return.... The game is afoot, Watson!

Nemo Incognito said...

Nemo notes that all his long standing shorts well, stand. On the (s)hitlist:

China property developer debt
Fortescue (all that rebar is going into Pudong these days)