Business unimpressed by UK chancellor Alistair Darling

BUSINESS leaders accused Alistair Darling of talking Britain into a recession as the pound fell to a record low against the euro.

The Chancellor’s warning that Britain is facing its biggest economic challenge for 60 years was described as a “self-fulfilling prophesy”.

His words threaten to overshadow the first day of Gordon Brown’s long-awaited political fightback.

In a further setback for Mr Brown, a Populus poll for The Times suggests that most voters do not believe that his rescue plan can protect them from an economic downturn.

The Prime Minister will announce measures to help first-time buyers and homeowners facing repossession. A second set of initiatives on fuel is expected within a week. The poll shows that a large majority of voters do not believe they will benefit. While most of the expected proposals are popular, few think that they will make a significant difference to their own situations.

The findings deal a serious blow to Mr Brown, who has staked his future on proving to voters he can shield them from the downturn.

The Conservatives, who remain 16 points ahead in polls, are expected to oppose many of today’s measures and to accuse Labour of mortgaging Britain’s long-term future for the sake of Mr Brown’s political survival.

David Cameron accused Mr Darling of triggering a crisis of confidence with his remark during an interview that Britain was facing the biggest economic challenge in 60 years.

The Chancellor insisted later that he had meant that the country faced a global challenge, and Downing Street has sought to dampen speculation that Mr Darling would be sacked.

The markets reacted to both the interview and the speculation over the Chancellor’s future.

Richard Lambert, Director-General of the CBI, said that the remarks were a surprise. “Chancellors usually talk up the economy,” he said.

Steve Radley, chief economist at EEF, the manufacturers’ organisation, said that Mr Darling’s comments were “in danger of becoming a self-fulfilling prophecy” because of their impact on confidence.

Martin Weale, director of the National Institute of Economic and Social Reform, mocked Mr Darling’s assertion, saying: “Maybe in the October (pre-Budget report) he will implement rationing.”

The euro rose to 81.37p in early trading as investors took fright – the highest level since the single currency was introduced in 1999. It fell back slightly in late trading.

Sterling is now the worst-performing of the ten leading currencies this year, having fallen by more than 9 per cent against the euro since January amid mounting expectations that the Bank of England would cut interest rates. The pound has also plummeted against the US dollar in recent months and fell to a two-year low of $US1.7996 last night.

Mr Brown’s attempt to regain the political initiative was undermined further when Ed Balls, the Schools Secretary, warned David Miliband that a leadership challenge would be “crazy, destructive and divisive”.

Asked whether Mr Miliband, the Foreign Secretary, was preparing a leadership bid, Mr Balls said: “I know that he is a sensible, rational, sane politician and a good guy, and I don’t think that he would ever do anything so crazy, destructive and divisive, and that is why I am totally confident that’s not what he was doing.”

長期鍛鍊唔好偷懶

全球六十六億人口中，超過二十億喺上周五晚上睇北京奧運開幕典禮，籌備七年費用3億美元，超過一萬五千人參加演出及歡迎來自二百零四個國家超過一萬一千個運動健兒，向全世界展示一個現代化中國，亦係改革開放政策落實三十年後中國，雖然仲係窮但朝氣勃勃。二十一世紀係中國人！去年10月起，滬深A股進入內地股市重開以嚟最大一個熊市。一如美猴王被困煉丹爐七七四十九日，受盡痛苦同折磨，先至煉成銅皮鐵骨及金睛火眼變成齊天大勝。1929到32年美國華爾街危機後，到1937年一個全新美國由大蕭條中冒起，準備日後管治全世界。鄧普頓1935年開始投資美股，當年佢名句：「牛市喺最悲觀日子誕生、喺懷疑期長大、喺樂觀期成熟、喺亢奮期死亡！」接近九十五歲鄧普頓喺生日前過身，留下上述不朽名句。我老曹亦經歷過香港多次最悲觀時刻，例如1967年離開學校到社會做嘢時，唔少親戚及朋友去移民。我老曹因父親早死，冇錢到外國讀書兼移民，被人地批為喺香港死梗；1974年香港出現有史以來最大一個熊市又以為我老曹死梗。經歷過呢兩次大難不死，反而養成不怕死性格。响社會上學習精英致富之道，唔好學習佢地生活習慣；學習企業家精神，而唔係佢地風流艷史。

投資利潤可以無限大，但虧損15％要止蝕，極限係20％。唔使怕波幅，波幅愈大，機會愈多。世上冇一帆風順致富法，卻有點樣將驚濤駭浪生存法。唔好將1萬元變成2萬元，呢個係小孩子遊戲，諗諗點樣將1萬元變成100萬元，甚至1000萬元。年輕人應有冒險精神，但响出發前先好好裝備自己。如果連太平山頂亦未上過，又點可以爬喜馬拉雅山？切忌志大才疏，欲登喜馬拉雅山前必先鍛鍊自己；世界上充滿機會（1967年唔少親戚及朋友話香港冇機會而去咗多倫多，事後證明佢地係錯；1982年D同學話香港冇機會又證明係錯；1989年連至愛親朋亦話香港冇機會，同樣證明佢地係錯）。平均每個月出現二至五次機會，問題係你要把握得到。例如7月份拋空石油期貨，你話可以賺幾多？如果你冇長期鍛鍊又點樣喺奧運奪金？Come On , Don't be a lazy boy!

投資愈後生開始愈好。二十三歲開始每月投資2500元到六十五歲已擁有1000萬元。生活量入為出，投資要睇中長線。搵個良好投資顧問（唔係股票經紀），多做運動、唔食煙、每天飲八杯水……月有圓缺、人有悲歡；牛市中保持平常心，熊市中持盈保泰。男仔約會女仔然後一齊使錢；慢慢買佢地負擔唔起嘢而陷入借貸，債上再加債最後連借錢畀佢地金融機構都因呆壞賬太多而執笠。解決辦法得一個──量入為出，開始儲蓄。只係咁樣一嚟全世界金、銀、銅、鐵及石油都要跌價，全球經濟陷入衰退。Meredith Whitney係去年預見次按危機出現分析員，佢家吓正預見上述情況將出現。未來銀行倒閉事件較Jack and Jill roll down the hill仲多。CNN報道加州過去十二個月出售二手樓中，有63％係蝕本，以及拉斯維加斯60％要蝕本，最差係Merced 74.9％賣樓者係蝕本賣出。格蛇話樓價今年年尾見底？只係佢一廂情願想法。

T Boone Pickens今年八十歲。1951年佢喺地理學系畢業後加入Phillips石油公司；1956年同人地借咗2500美元做資本而搵到自己第一口油井；1981年佢Mesa石油公司係全球最大私人石油公司。今天佢已富甲一方，去年只係私人捐款數目已達2億美元，估計佢今天財富達數百億美元。證明成功同開始時有幾多資本係冇關，而係有幾多智慧。

The Subprime Solution:How Today's Global Financial Crisis Happened, and What to Do about It - Robert Shiller

The subprime mortgage crisis has already wreaked havoc on the lives of millions of people and now it threatens to derail the U.S. economy and economies around the world. In this trenchant book, best-selling economist Robert Shiller reveals the origins of this crisis and puts forward bold measures to solve it. He calls for an aggressive response--a restructuring of the institutional foundations of the financial system that will not only allow people once again to buy and sell homes with confidence, but will create the conditions for greater prosperity in America and throughout the deeply interconnected world economy.

Shiller blames the subprime crisis on the irrational exuberance that drove the economy's two most recent bubbles--in stocks in the 1990s and in housing between 2000and 2007. He shows how these bubbles led to the dangerous overextension of credit now resulting in foreclosures, bankruptcies, and write-offs, as well as a global credit crunch. To restore confidence in the markets, Shiller argues, bailouts are needed in the short run. But he insists that these bailouts must be targeted at low-income victims of subprime deals. In the longer term, the subprime solution will require leaders to revamp the financial framework by deploying an ambitious package of initiatives to inhibit the formation of bubbles and limit risks, including better financial information; simplified legal contracts and regulations; expanded markets for managing risks; home equity insurance policies; income-linked home loans; and new measures to protect consumers against hidden inflationary effects.

This powerful book is essential reading for anyone who wants to understand how we got into the subprime mess--and how we can get out.

Reviews:

"With The Subprime Solution, Robert Shiller offers his formula to protect us from repeating such disasters: more financial engineering. It would be easy to sneer at this idea, but Mr. Shiller, an economics professor at Yale University, always deserves a hearing. . . . In what he describes as a 'brief manifesto,' Mr. Shiller argues that bailouts of distressed borrowers are inevitable to avoid wrecking our economy and shredding our social fabric--even though bailouts may punish the prudent (say, through higher taxes) while comforting those who gambled on real estate and lost."--James R. Hagerty, Wall Street Journal

"Robert J. Shiller's clear-eyed look at what happened in the U.S. housing market--and what might be done about it--is not keen to attribute blame to the actors in the drama. He explains that the development of subprime mortgages in the Nineties was welcomed as a way of extending home ownership to those once locked out of the market, and it was not the dishonesty of the mortgage lenders, or the greed of bankers, that led to the bubble. There was dishonesty and greed, but these were the result of the bubble, not its cause."--Tim Worstall, The Telegraph

"American optimism: Is there any investment bubble it can't fuel? Consider the excesses of the housing market, the effects of which are roiling the global economy. As Yale University economist Robert Shiller demonstrates in his short, whip-smart new book The Subprime Solution, there was a contagion at work that helped pushed home prices to unsustainable levels. . . . Shiller's views are grounded in exhaustive research and penetrating analysis. The Subprime Solution should be read by anyone with assets at risk in the global financial crisis and a desire to fix things ahead of the next crisis. Which is to say, all of us."--Robert Elder, Austin American-Statesman

"Robert Shiller's got an argument that will make some peoples' heads explode in his new book The Subprime Solution--we need more speculation in the housing market. . . . I said above that this solution will make some peoples' heads explode, that the solution to an excess of speculation is to create a market in yet more speculation. Yet in this case ti is indeed true, this is a valid solution."--Tim Worstall, The Register

"[The Subprime Solution] is short, punchy and political. Shiller is a top-flight academic economist who has often warned of the tendency of markets towards irrational exuberance, and of the harmful consequences that follow. He is rightly scathing towards the 'boosters' who kept assuring us that house prices only rise, and he gains authority for having spoken out during the boom, when it was an unpopular position to hold. . . . Shiller's debunking of house price myths is masterful. Especially important is his rubbishing of the concept of scarcity . . . Shiller's explanations are sophisticated and intelligent, and they are also admirably clear."--Michael Savage, Fund Strategy

"The Subprime Solution, his postmortem on irrational exuberance in the real estate market, is superb, even for general-interest readers otherwise confused by the whole mess. Though his introduction reads a bit like an arid position paper, his insistence on the fundamentally psychological, rather than economic, basis of the boom is supple and fascinating."--Andrew Rosenblum, New York Observer

"If you're unfamiliar with Robert Shiller then understand that he is perhaps the most eminent and considered examiner of modern investment bubbles. . . . Shiller's new book, The Subprime Solution, is a concise attempt to elaborate in just seven short chapters the genesis of the housing bubble, explode its myths, explore its scale and the dangers of its deepening impact, assert the need to maintain confidence in our economic and financial institutions by aggressive action, and then explore longer-term, more fundamental reforms and innovations that will create a population much more attuned to economic risk.... There are many more recommendations, but if this book has the ambition of Keynes' earlier work, and the scale of the problem is as suggested, I'd argue that the book is as accessible as you are going to get from such a modern behavioural economics guru. It's a book that everyone who lives in a house should own; just don't buy ten and try to rent them out to friends."--The Knackered Hack

ENDORSEMENTS:

"The subprime crisis has visited ruin on thousands of Americans, and it threatens the health of the global economy. In this timely and fascinating book, Robert Shiller, an expert on irrational behavior in financial markets, conducts a postmortem. How could so many smart people have been so wrong? Shiller concludes that unchecked financial innovation works poorly in asset markets, and he describes the institutions needed to prevent future bubbles."--Gregory Clark, author of A Farewell to Alms

"Reading this exciting book is like watching a skilled surgeon at work. The diagnosis of the subprime mortgage mess is biting in its intensity--the best I have seen--and encompasses the human tragedy as well as the economic and financial crisis. The recommended therapy develops logically from Shiller's analysis and is unique in concept as well as powerful in application. The crystal-clear writing style makes his manifesto a pleasure to read."--Peter L. Bernstein, author of Capital Ideas: The Improbable Origins of Modern Wall Street and Capital Ideas Evolving

House Prices Still Too High Despite Collapse

Despite early signs of a turn in the housing market, prices still have a long way to fall. In fact, we're probably only halfway there.

There's no perfect valuation metric for houses, but two measures--price-to-rent and price-to-income--are the best we know of. Asha Bangalore of Northern Trust provides recent charts of both, and a quick glance reveals how expensive house prices still are.

Price to Rent
Asha calculates the price-to-rent ratio using the Case-Shiller price index and the "Owner's Equivalent Rent" component of the CPI. The horizontal "means" in her chart are one standard deviation above the long term mean (i.e., they're not the average...they're a standard-deviation higher than the average*). The higher mean includes the high prices of the bubble years, and the lower one doesn't. Either way, it's clear that house prices are still well above their long-term average level relative to rents. (And don't forget that prices spend about half the time below the average).

Price to Income
The median price of an existing single- family home as a percentage of median disposable income rose to a record high of 469.5% in 2005, far above the median value of 337.9% during the history of this series (1968-2007) which includes the inflationary period of the later 1970s and the sharp increase in home prices seen in the first seven years of the current decade. Excluding the problematic period of the 1970s and the current decade, the median was 336.5%.

Conclusion
It's hard to say precisely how far house prices will drop and when they'll bottom. But based on these two valuation measures, combined with the rate of decline in house prices, it seems likely that house prices will fall for at least another year and at least as far as they have already (at least in inflation-adjusted terms).

曾渊沧@股友通讯录 八月份

8月份又是一个股市下跌的月份。股市在5 月份反弹见顶后就接连3 个月，下跌的速度不快，慢慢的跌，这也是最可怕的跌。跌得快，反弹得快；跌得慢，反弹也慢。
目前的大势唯一的一项好消息是股价已经跌至比“合理”价格还低的水平。何谓“合理”的价格？就是长期走势线的中间位置。这可从海峡时报指数化成对数之后看到。我们可以看到目前的海峡时报指数已经低过代表其长期走势的直线回归线，即附图中中间那条直线。

可以说，目前整体股价于长期趋势中已属于遍低水平，或者说，熊市已过了中期。熊市从去年11 月开始，已经历了9 个月，也许，再过9 个月就是熊市见底时，大家该耐心地等，仍未卖掉的股票也没有必要再卖了。

整体国际经济大势则出现相当混乱的讯息。美国道琼斯指数在跌破11000 点之后出现不错的反弹，同时美元兑世界各地主要货币的汇率也出现反弹，反弹的幅度颇大。7 月份还有人说石油价格将升上每桶200 美元，现在则有人说石油价格会跌破每桶80 美元。不单止石油，许许多多的贵金属、天然资源、商品（Commodity）的价格更出现暴跌现象。看来，这类商品的炒卖泡沫也爆破了。商品期货泡沫爆破，其他货币的汇价回落，大量热钱没地方去，极大的一部分会回到美国，推动美元汇价继续上升，推动美股反弹。如果你有胆量的话，也不妨以少
量的资金搏反弹。只要美股能有不错的反弹，就可以带动新加坡股市。当然，近期美股本身也是一天升一天跌，走势非常反复，的确不容易准确的捕捉低点，有时只能靠感觉。当你感到某一天大盘出现极度恐慌的气氛，股价直线下泻，你可以搏反弹。

新加坡房地产市道下跌，房地产市场已是新加坡经济发展中很重要的一环。涨得太快，不利国家发展；下跌，也不利国家发展。现在房地产价格下跌了一段时间，政府也开始出面做点事，那就是降低发展商的土地重新发展的发展税约6%。这应该会激发发展商的重建欲望，维持建筑业的开工机会。对建筑股，建筑材料股都有利。调低
发展税是减低发展商的负担，不等于楼房价格会上升，因此，地产股仍未到吸纳之时。

欧洲的情况可能比美国更差。美国从去年次级贷款问题恶化之后，就不断地减利率，一减再减，目前美国联邦利率是2%。低利率始终对经济复苏有利，但欧元利率依然相当高，欧洲中央银行依然以对抗通胀为央行的第一目标，因此，维持欧元利率在高水平，导致欧洲陷入经济衰退。因此在可预见的将来，欧洲极可能减息以对抗衰退。

中国的情况更古怪。目前中国经济依然高速增长，最新GDP 的增长率依然达10%以上，经济如果高速增长，8 成国企公布的业绩都不错，盈利增加，但是中国上海、深圳股市大幅下跌，上海综合指数已由去年6000 点高位跌至2300 点，跌幅超越60%。大量股民天天在网上呼吁中央政府救市，连一些外资大证券行也曾经出报告说听到消息中央将会出4000 亿元人民币救市。

我是相信中央会救市，但不会是直接拿钱到市场买股票救市，而是以其他方法保持上市公司能赚钱。中长远而言，只要企业继续赚钱，其股票的价格一定能反映。

30年经济最大调整在即

出口疲软、企业和地方政府出现偿债危机以及生产成本上升，是中国目前的三大挑战

无疑，中国举办了一届成功的也是最费钱的奥运会。没有哪个国家曾花这么多钱办奥运。不过，中国作为东道主荣登金牌榜首，菲尔普斯和博尔特在这次奥运会上创造了种种“奇迹”，这笔钱花得还算值。
中国之所以能办得起这场“豪华”奥运会，是因为过去30年里，它的经济取得了成功。当然，是邓小平的改革开放政策将中国引向成功。奥运会上，应该给改革开放政策发一块最耀眼的金牌。
奥运盛会已经结束，我们必须重返真实世界。这可能有点让人扫兴。中国的经济正面临空前挑战，不过，大多数与奥运会无关。
首先，欧洲、日本和美国经济30年来同时收缩。这对中国出口造成巨大压力。其次，因“热钱”流入而产生的中国资产泡沫（部分原因是对奥运行情过于乐观）已经破灭。许多公司和地方政府在泡沫中扩张过度。由于资产价格下跌，他们正面临一场偿债能力危机。最后，也是更根本的，生产成本上升正在考验中国低成本扩张战略。
应对挑战时，有正确的做法和错误的做法。错误的做法是，采用以控制价格为目标的行政措施，来解决资产价格下跌和CPI上涨问题。这些政策可能短期内会减轻疼痛，但是，随后会引发一场全面的经济危机。

正确的做法是，将短期稳定需求政策和深入改革、提高效率结合在一起。中国应该从以下几方面着手：
（1）增加地方政府的财政收入份额，以解决他们的偿债能力危机；
（2）加快基础设施建设，来缓冲经济增长减速；
（3）改革金融业，提高经济效率。
　　
过去，中国总是在出现危机时深度调整。例如，为应对亚洲金融危机，中国进行了国有企业改革、公共住房私有化、加入WTO和修建全国范围的高速公路网。这些政策为此后十年的繁荣奠定了基础。
　　
出口之困
目前，中国最大的挑战是出口需求疲软。中国出口总额约占GDP的40％。按附加值算，出口也占到GDP的四分之一。自2003年以来，以美元计价，出口每年以逾20％的幅度增长。排除价格上涨因素，出口部门可能每年直接为中国GDP增长贡献4个百分点。很明显，如果出口增长减速甚至出现下滑，整体经济增长将显著放缓。
　　作为需求问题之一，自2004年以来，大宗商品价格开始上涨，中国的出口便遭遇成本上升难题。人民币升值和工资上涨使问题更加严峻。劳动密集型商品的出口企业利润本来就薄，成本压力将它们中很大一部分推向亏损边缘。因为固定资产成本的存在和企业主寄望情况会改善，利润下降初期，企业都会坚持原来的生产计划。这就是在过去三年里，中国出口保持强劲的原因。但是，当企业看到成本上升是一个长期问题，它们会缩减产量。
　　全球贸易是周期性的。可以将目前出口低迷理解为另一次周期的开始，中国可以等待低迷时期结束，出口重新走强。这种战略最终会成功。但是，等待的时间可能很长。不过，中国可以实施改革，来加快贸易复苏。
　　需求方面，市场格局发生改变。上涨的大宗商品价格，特别是石油价格，将全球收入重新分配，从经合组织和东亚国家向非洲、拉丁美洲、中东和俄罗斯倾斜。单油价上涨就重新分配了占全球GDP3％的收入（与中国出口总额持平）。这些钱转移到了石油出口国。未来几年，强劲的需求应该来自资源出口型国家。中国的出口企业应该在这些市场投资。
　　成本上升是一个更棘手的问题。大多数中国出口企业是原始设备生产商（OEM），依赖价格竞争取得订单。它们无法接触最终使用者，也不拥有技术。它们是跨国公司的附属工厂，并很难独立谋生。这些中国出口企业和它们的客户——跨国公司谈判能力非常差。当成本上升，跨国公司迫使它们消化了这部分成本。这样下去，会毁掉中国出口企业。这些企业的困境在股价中反映出来。
　　过去两年，香港上市的出口企业股价已跌了50％-80％（即使这些股票以前也没大涨过）。金融市场基本上表明，这些企业的经营模式不再有效。
　　中国出口企业必须脱离跨国公司的控制，开辟独立生存之路。在需求方面，随着市场从经合组织国家向资源富裕国家转移，出口企业需要开辟自己的销售渠道。一些企业，例如华为和中国交通建设集团，已经开始这么做了。这些努力需要巨大的投资。雇佣外国员工（在大多数市场很可能是必需的）可能很昂贵。不过，当产品卖不出去，成本再低也无济于事。现在的市场上，最便宜的产品未必会赢得竞争。
　　在供给方面，中国出口企业也必须升级它们的技术、改善设计和提高品牌知名度。不幸的是，中国出口企业很少具备这些实力。增加这些方面实力需要很长时间。有一个捷径，就是从国外买进技术和品牌。
　　金融危机为这个战略提供了很好的机会。欧洲、日本和北美大多数中小企业都具备这样的品质，而且现在非常便宜。但是，因为中国出口企业目前困难重重，即便国外的中小企业价格很低，它们也负担不起。但我们也看到，中国外汇储备已经增加到2万亿美元。这些钱应该获得好的回报。可以将这些外汇储备借给出口企业，让它们去买国外优质的中小企业。当这些出口企业盈利改善，它们的股价应该会回到此前的高位，从而也可以回馈它们的资金赞助人——管理外汇的机构。

债务之难
很明显，中国企业存在偿还债务问题。“三角债”，特别是以应收账款形式存在的债务，在不断堆积。问题的源头可能是地方政府缺少资金。地方政府财政收入非常依赖土地销售收入和房地产行业税收收入。这鼓励它们想尽办法推高房价，这也是这场泡沫的一个主要原因。
　　更深层的原因是，过去十年地方政府财政收入比重下降，刺激它们去寻找新的收入来源，并最后落在了房地产市场。过去一段时间里，由于价格较低，大量土地销售并没有给这些政府带来预期的现金流。目前，房地产市场泡沫已经被刺破。开发商不能像以前那样容易地卖出房子，而且也不能保证支付去年购买土地的应付账款。房地产销售放缓也减少了地方政府的税收。现金紧缺的政府无法付清他们签订的合同，合同的债权人也就无法向他们的供货商支付货款。
　　解决问题最快的办法就是增加地方政府的收入份额。中国的税收已经达到历史最高水平。预算收入可能达到6万亿人民币（前七个月已经是3.67万亿元人民币），占GDP的21％，是20世纪90年代最低水平的两倍。预算外收入会在此基础上增加30％-40％。国有企业的利润可能达到GDP的6％。总体而言，政府的金库收藏了GDP三分之一的财富，或者是国民生产净值（GDP减去资本贬值）的40％。在过去十年，中国经济明显地转向政府这边，而地方政府的收入份额相对偏小。
　　降低政府在经济中的重要程度，可能解决中国目前面临的经济问题。在此之前，部门间财政收入重新分配可能会提高地方政府偿债能力。中央政府现在有实力这么做。它可以向地方政府转移财政盈余，这对解决三角债问题有很大帮助。实际上，中央政府还可以发行债券并通过政府间转移支付来解决地方政府偿债问题。
　　财政再分配应该与增加基础设施投资同步进行。中国经济增长减速越来越明显。考虑到出口企业和房地产开发商的资产流动性问题（这两个行业支撑了中国一半经济增长），中国经济可能会下滑非常快。一些财政激励措施可以看做是软着陆的保障。幸运的是，中国政府有足够的实力制定这样的计划。其中，核心是城市基础设施建设和铁路网修建。

增效之径
中国经济将要面临1998年以来最大的调整。疲软的需求虽有财政刺激加以缓解，也可能要很久才能复原。在供给方面，成本上升需要用市场手段来解决。大多数调整应该依赖价格机制。许多企业将会破产。但是，更多有效率的企业会替代他们。最终，经济会变得更有效率。
　　当一些企业濒于破产，地方政府的一个反应就是如何拯救它们。不幸的是，这种态度是错误的。许多企业因为忽视主营业务、转向房地产和其他金融交易来获利，现在出现了问题。由于成本上升让制造业盈利变得更加困难，许多企业转向房地产和股票市场，因为这样挣钱很快。随着泡沫破灭，它们出现资不抵债。很难估计这个问题的严重程度有多深。但是，当我去全国各个地方，与当地企业交谈，我发现这个问题很普遍。受资产持续贬值影响，未来12个月，银行间的不良贷款会大幅增加。问题十分严重。
　　解决方法是什么呢？问题是昨天造成的，我们现在改变不了问题存在的事实。然而，政府也不能拯救所有破产企业。否则，我们就倒退回计划经济和贫穷时代。
　　相反的，地方政府应该看住那些陷入困境的企业主，防止他们携带资产潜逃。这一幕在十年前发生过。相信许多人这次也会这么做。他们出逃会让中国损失很大。在逃跑前，他们会从破产公司向境外私人银行转移大笔现金，这将让中国银行出现更大的窟窿。所以，地方政府花钱营救他们是很愚蠢的举动。这些钱很可能被偷走。为保护中国金融安全，最有用的政策应该是防止负债累累的企业主离开中国。
　　中国正面临成本上升或者竞争力下降的挑战。经济增长复苏，需要提高效率。当然，提高效率应该在公司层面上，由价格机制引导。
　　但是，政策低效率也是一个重要问题。特别是，中国金融系统是中国经济的沉重负担。提高金融行业的效率，对经济增长来讲，有显著的刺激作用。中国应该以提高存款利率作为开端，将存贷差降低到正常的两个百分点。当然，中央银行也应该降低存款准备金率，来使银行系统正常化。同时，“热钱”流出给降低存款准备金率提供了好环境。
　　中国股票市场是一个败笔。上海A股指数在两年里从1000点跃升到6000点，然后又在一年内掉到2400点。中国应该彻底改进它的市场，防止未来出现目前的危机。重中之重，政府应该放松在市场中的微观干预。当法律出台后，市场就应该自我运行。这是促进市场健康发展的惟一途径。
　　即将到来的挑战有些令人望而生畏。但是，中国仍然有很多牌可以出。强大的财政和贸易顺差，是“硬着陆”的缓冲垫。仍有很多机会可以改善贸易条件。还有很多领域，例如金融体系，有提高效率的空间。只要政府采取合理政策，经济在两年内就会重焕活力。

死海游泳记

我年轻时健康并不好，很容易生病，谢天谢地，如今年近古稀，身体反而硬朗，也很少生病，此皆拜长期游泳之赐。

游泳是我的嗜好之一，也是我坚持的生活日课，即使在旅途中，只要酒店有游泳池，也不放过游泳的机会。

最近游约旦，到了死海，自然不肯错过这千载难逢的下海良机。

死海是世界名海之一，相信不少人曾到此观光，但真正在死海游泳的人，恐怕就不多。

死海其实是一个大湖，距离约旦首都安曼约55公里，由约旦和以色列共同拥有，各占一半湖面。

这个湖长67公里，阔18公里，湖最深处达330公尺（约1000英尺）。由北向南流的约旦河注入死海，死海没有出口，四周是沙漠。

死海之得名，恐怕也不是由于没有出口，而是由于海水咸度比普通海水高8.6倍，没有任何生命可以在含盐量这么高的海水中生存。

约旦河的鱼，顺流而下，误入死海，立刻死亡，尸体被冲至岸边，晒乾后裹着一层白盐，是名副其实的“咸鱼”，“死海”名不虚传。

我们在上午九时许到达死海，我换上泳装，就步入海中，要在死海中一展身手，焉知甫入海中，就叫苦连天。

由于含盐量高，我老早就知道，人在死海中，绝对不会下沉，却没想到，一般的游泳技术，在死海中根本没有用武之地。

原来海水的浮力奇大，人在海中，整个身体都被海水推上海面，平躺在海面上，不要说潜水，即使自由式和蛙式也派不上用场，因为海水太咸，头部一沉入水中，鼻孔和眼睛奇痛无比，根本受不了。我企图把头伸出海面，但海水马上把我的下半身也推上海面，头部根本无法保持在水面上。为了避免鼻孔和眼睛沾到海水而疼痛，唯一的方法，是面向天空，平躺在海面上。

在死海仰泳是唯一可用的游泳法。即使你不会游泳，也可以躺在海面上看报纸。

在死海中游泳一小时，没感受游泳之乐，但毕竟是毕生难忘的经历。

掉进死海，即使不会游泳，也绝对不会溺毙，因为含盐量高的海水有一种力量，一定会把你推上海面。

我觉得，股票投资亦如此。

基本面强的投票，有如含盐量高的死海海水，浮力奇强。

一如不会游泳的人不会溺毙于死海，购买基本面强的股票的投资者，即使经验不足，也不会溺毙于“股海”。

购买基本面弱的劣股，有如在没有浮力的普通海水中游泳，随时有溺毙海中的危险。

即使游泳健将，也可能葬身海底，因为海上风大浪高，人微力弱，根本无法与大自然的力量对抗。

永不投机散户生存
在股海中，泳技不如人的散户，要战胜滔天巨浪，难乎其难！

散户唯一的生存机会，就是永不投机，只在低价时购买五星级股票，长期持有。

就好像不会游泳的人，只有在浮力奇强的死海，才有可能生存，若自视过高，企图通过猜测股市动向而抢进杀出，最后必饮恨股海。

死海海水的浮力跟含盐量成正比。

股海的浮力，跟基本面的强度成正比。

索羅斯教你亂世求生

索羅斯，一個被稱為「擊垮英格蘭銀行」的金融大鱷。曾經，他只是一個猶太難民；如今，他坐擁新台幣2,700億身價(90億美元)，成為全球百大億萬富豪之一。他說：「我的成功，不是來自猜測正確，而是來自承認錯誤」。

《商業周刊》採訪團隊特別來到紐約，專訪一位「亂世求生」的大師級人物。過去五十年裡，每逢亂世，就是他出擊的時刻。
他認為，雖然99％的時間，世界依照常理運作，但每當1％的意外發生，其衝擊將遠超過過去的99％。「而我，只對那出現變動的1％市場感興趣。」
索羅斯（George Soros），著名的金融巨鱷。1997年，他在亞洲金融風暴中，扮演扣下扳機的角色，成為各國央行的頭號敵人，被美國《商業週刊》喻為「動搖市場的人」。
然而，也因為他總能從亂世中獲利，他被《機構投資人》雜誌封為「全球最傑出的基金經理人」。他操盤的量子基金（Quantum Fund）至今40年，平均年報酬率超過30％，更曾經創下累積十年高達3365％報酬率的紀錄。
五十年前，他只是個無名小卒，因身為猶太人，從小被納粹迫害，飽受戰火洗禮。在英國求學時，為了求生存，他曾經擔任油漆工、洗碗工、泳池救生員等工作，最窮的時候，甚至得靠客人留下的殘羹剩菜果腹。
從無名小卒到世界巨富，這一切，源自於他求生的本事。他擅長與不確定共處，並從中獲利。「我特別長於偵測，及應付遠離均衡的狀態。」他自剖。
索羅斯針對我們的提問，分別從經濟趨勢、人生哲學、投資心法等面向，與我們分享他五十年的心得。

現在是超級泡沫的頂點
《商業周刊》問（以下簡稱問）：你怎麼看目前的金融情勢？跟以前的金融危機相比，它有什麼特色？
索羅斯答（以下簡稱答）：這是從1930年代經濟大蕭條以來，最糟的金融危機。
目前的危機不同於1980年代以來，只影響部分特定金融體系的週期性危機，譬如一九九七年的新興市場危機、2000年的科技泡沫。它不限於特定的公司，或特定部門，而是讓整個體系陷入崩潰的邊緣。
這是一個時代的終結。美國做為主宰力量的長期穩定時期將結束，以美元做為國際貨幣信用擴張的時代也結束。我預測未來會有一段政治與金融的不穩定。

問：怎麼說呢？
答：這場危機源自於兩個泡沫的破滅：一是房地產市場的泡沫，另一個則被我稱為較長期的「超級泡沫」。更複雜的是，這兩個泡沫並不是分開獨自發展。目前的危機，是超過二十五年形成超級泡沫的頂點。

問：你所指的超級泡沫是？
答：超級泡沫結合了三個趨勢，每一個趨勢都有其缺失。第一個是信用不斷擴張的長期趨勢，第二個是金融市場的全球化，第三個是金融創新加速。第一個趨勢可以回溯到1930年代，第二、第三個趨勢則奠基於1980代。
有些人認為，次級房貸危機只是孤立現象，其實是欠缺對狀況的正確了解。次級房貸危機只是扳機，讓超級泡沫走向破滅。

問：依你之見，最差的情況何時會來？經濟還要多久才會復原？
答：很難說，現在情況繼續惡化中，因為金融產業的狀況持續惡化，對經濟層面的影響也還沒完全反應。
不過，大多數的信用緊縮，預期會在短期內發生。對沖基金與銀行正全力降低財務槓桿，一年內應該可以完成過程。 在當下，保有現金是最好的

問：主要的觀察指標為何？
答：比較好的指標是美國房價，觀察房價是否穩定下來，那是一個很好的觀察指標。

問：在逐漸崩解的超級泡沫下，在你看來，我們應該如何面對現況？你建議，我們應該更努力工作、增加儲蓄？要加碼投資，還是擁抱現金？
答：我認為要努力工作，好好存錢（笑）。至於投資，嗯……，這要看情況，如果截至目前，你的投資還沒出問題可以繼續，否則在當下，保有現金是最好的。

我的成功來自於認錯
問：在生活態度上呢？要如何因應不斷變動的環境？
答：這真是很困難的事。現代人花了許多時間，沉浸在電視秀、電玩及其他娛樂形式的虛擬實境之中，很難對現實（指變動、不確定）產生敬意。但是，如果你無視於現實，現實終究會趕上你。
要面對現實，體認錯誤是其中最重要、也最困難的一步。多數人以為，認錯是羞恥的來源；但實際上，只要能體認「不完美的理解」（imperfect understanding）是人類的常態，就不會覺得認錯有什麼好丟臉的。
認錯的好處，是可以刺激並增進批判力，讓你進一步重新檢視決定，然後修正錯誤。我以承認錯誤為榮，甚至我驕傲的根源來自於認錯（to recognize mistake is my source of pride）。
在現在這個反常的年代，經常遭遇的狀況是，你體認到自己犯了錯，但同時又必須做決定、必須有所行動，更讓環境充滿不確定性。而人們害怕不確定，總會不自覺的逃避，再加上有各種意識形態可以幫你逃避不確定性。你看一些權威，無論是神權或威權，總要告訴你怎麼做，讓你可以逃避不確定性。
我有認錯的勇氣。當我一覺得犯錯，馬上改正，這對我的事業十分有幫助。我的成功，不是來自於猜測正確，而是來自於承認錯誤。

問：所以認錯是你成功的秘訣？
答：至少我如此看待自己的成功。

問：所以你認為，用接納錯誤、與不確定性共處的態度，來面對新時代，是比較好的生活態度？
答：是、是、是、是、是（語氣越來越強調）。我覺得是對的。 我對自己非常挑剔，同時也很容易釋懷

問：你縱橫金融圈50年，成功的要素非常多，諸如預先掌握趨勢、善於套利、人脈深廣，為何把認錯視為成功的關鍵？
答：因為在不確定的年代，你需要有批判思考力，並且誠實的認錯。我在事業上一直承受極大風險，如果不認錯，鐵定老早就被幹掉了。
有好幾次，如果我不撤出我的部位，就會一無所有，因為我使用融資、擴大槓桿倍數，儘管沒有用很多，但如果方向看錯，這些融資的部位足以讓我失去所有。曾經有好幾次我瀕臨一無所有的邊緣，如果我不採取行動，馬上變得一無所有。

問：好比你在1987年股市崩盤造成的損失嗎？（編按：1987年美國股市崩盤，索羅斯做多美股、放空日股，根據當時《霸榮週刊》預估，不到兩週內，量子基金虧損八億四千萬美元）
答：是、是、是，87年股市崩盤，我輸了很多錢。
現在想起來，我當時把手上的部位出清，也不見得是對的決定，我也可以放在那裡不要賣，但是生存下來是更重要的（編按：股市崩盤當週，索羅斯承認自己看錯，立刻大砍美股多頭部位，但隔天美股迅速反彈，故出此言）。有句俗話說，留得青山在，不怕沒柴燒（he who runs away lives to fight another day）。

問：你怎麼形容自己？
答：我寧可說我自己是一個不安全感分析師（insecurity analyst），而不是一個證券分析師。

問：解釋一下這句話的意思？
答：我知道我會犯錯，這讓我想到就充滿不安全感。不安全感讓我保持警覺，永遠準備好修正錯誤。
無論對別人或我自己，我都非常挑剔又批判。但是既然我這麼批判，同時也很容易釋懷（forgiving）。如果我不懂得諒解自己，就沒辦法認錯。一旦我們都能夠體會，「不完美的理解」是人類既存的限制，犯錯也就沒什麼好丟臉的，只有無法改正錯誤才是羞恥。
把認錯當成驕傲的來源，才能保住自我

問：為什麼一般人很難認錯？
答：我想是因為多數人都有「自我」和驕傲，而認錯等於否認自我、質疑自我。但實際上，那種「自我」不利於在金融市場求生存，久而久之，金融市場的本質也會摧毀那種「自我」。
反過來說，如果能面對現實，把認錯當成你驕傲的來源，你反而能夠保住自我。但依我個人經驗，認錯非常非常痛苦，十分折磨人。
你們知道，我通常會有身體上的疼痛，就是我那著名的背痛，當作錯誤的指標（編按：通常索羅斯的操作出現問題，背部就會莫名疼痛）。有人總是對我說，你根本就是有一套找出錯誤的邏輯，與背痛無關。
但事實上，當我不停檢視投資決定是否合乎原先邏輯，一旦理性思考出現問題，接著身體也會有反應，所以出現背痛和哲學是同一件事，兩者彼此息息相關。

問：一般人難以承認錯誤，因為它違背人性，難度非常高？
答：是的。尤其在事業上，我們的成功往往取決於投資能力，憑恃著優秀的投資能力，以說服外人：我的看法正確，因此相對來講，要認錯非常痛苦，等於否認自己的能力。

問：你自我控制（self-control）和抽離（detachment）的訣竅很有名。你認為這是基金經理人的必要條件嗎？
答：抽離，是的；自我控制，不是的。
賠錢時，我也很受傷；贏錢時，我一樣很開心。否認自己的感受，是最自我毀滅的事情了。一旦你警覺到你的感受，你可能不覺得有必要表現出來，但有時候，特別在你遭受極大壓力的時候，隱藏感受，會讓你的壓力更忍無可忍。
我記得在事業初期，有一次我把我自己帳戶裡的錢都賠光了，但我必須繼續工作，裝做沒發生任何事，那個壓力大到，午餐後我幾乎無法回去上班。這就是為什麼我鼓勵同事分享彼此的問題，只要他們表示有任何問題來找我，我都非常支持。
第三講：學習如何承認成功

問：量子基金前十一年都未虧損，但在1981年首度虧損超過二○％。到底發生什麼事？
答：其實很早就開始了。我當時極度成功，但是我否認我的成功。我每天工作得像一條狗，但每天都在擔心我的成功會危害我的成功，會讓我放棄不安全感。那我得到什麼回報？錢！錢！錢！更多的錢，更多的責任，更多的工作，也有更多的痛苦……。
基金規模當時已經到一億美元，個人財務在二千五百萬美元之譜，而我卻瀕臨崩潰，這完全沒有道理……。
如果越活越慘，寧願宰了生金蛋的鵝
後來，我決定接受現實、跟成功共處，即便接受成功意味著我要停止成功，畢竟我的成功有賴於自我否認、自我批判，以及自我折磨的態度。也許我會宰了生金蛋的鵝，但如果我活得越來越慘，會生金蛋有什麼用？我必須學習享受成功的果實，否則全部努力都是一場空。

問：當時的你面臨離婚、和合夥人拆夥，你怎麼度過這段中年危機？
答：我改變了我的態度。我接受我成功的事實，我放棄了不安全感，完全接納放棄不安全感可能帶來的危機。接下來就是一個狂亂的階段，那時羅傑斯（編按：Jim Rogers，當時量子基金的合夥人）離我而去，也跟第一任妻子離婚。
那段時間，我獨自一人經營超過一億美元的基金。我刻意放鬆過去對投資的一些限制，但諷刺的是，基金報酬率是難以想像的高，接下來的兩年，基金規模每年成長一倍；兩年後，基金從一億美元變成四億美元。

問：此時你嘗試著將基金轉換到另個階段，結果發生了意想不到的危機，是嗎？
答：我當時正在找與我分擔操盤任務的基金經理人，可是找不到，於是我開始尋找一個可以負擔全部責任的人，結果沒想到，我自己的內在危機變成了公共事務。只要我跟越多人談過，就越多人知道我心裡遇到什麼麻煩，然後我心情就越糟。
傳言四起，都說我面臨危機，然後我做錯一件事：當我尋找基金操盤手的時候，並未停止操盤。我實在應該把基金放一旁，然後重整基金管理，但我在操盤的時候仍在面試別人。

問：結果對基金造成什麼影響？
答：基金有史以來第一次虧損。我立刻通知投資人我碰到什麼問題，讓他們決定是否要贖回。在1981年9月，基金報酬率變成負26％，面臨大量贖回，基金被贖回五成。這是基金與我之間的內部矛盾，最後基金虧損，當年虧損22％。

問：會不會認為，承認成功會帶來厄運？有罪惡感？
答：不會，我覺得其中的意義更甚於此。過去我害怕承認成功，是因為擔心破壞我的不安全感。一旦你把成功當成理所當然，你就卸下心防了。現在，你必須知道自己成功，同時還能讓自己免於麻煩。

問：你當時對於感到滿足這件事，很恐懼？
答：沒錯！但在那段時間，我的人格有很大的改變，我克服了極大的罪惡感與羞恥感。有段時間我還求助於心理分析師，一想起我會躺在諮詢室的躺椅上，就覺得自己很膚淺，雖然一週才兩次。但還是很重要的過程，我坦白了我的想法，慢慢承認自己無法接受成功的理由根本說不過去，然後我可以跨越這些想法。
一旦把危機攤在陽光下，問題就解決了
有一次我嘴巴裡長了一個結石，好痛，醫生開刀把它拿出來，更痛。那顆結石是圓的、很硬，我把它保留下來，因為它是痛苦的來源。幾天以後，我察看它，結果石頭已經化為塵土，原來它的成分是鈣，只要一風乾，就隨風而逝。同樣的事情發生在我身上，一旦把危機攤在陽光下、講出來，問題就解決了。

問：之後你變得對人生樂觀許多？
答：是啊，我覺得自己好像完成了某件事情，成為一個好相處的人。我相信我的第一任妻子和第二任妻子，對我的觀感一定截然不同。

不安全感讓我有紀律
問：你的投資行為槓桿倍數都很高，風險承受度超乎常人。你如何承受這些？
答：如果使用槓桿，必須非常謹慎計算自己將面臨多少風險。如果你使用槓桿，記得要跑得快一點，否則不要用。
如果你不使用槓桿，你投資時所面臨的時間軸，可以拉長一點，但如果你使用槓桿，必須要注意短期風險。
做為一個審慎、甘冒投資風險的人，最需要的就是紀律，而每個人的紀律不同。我的紀律就是深刻的不安全感，足以讓我在問題爆發前提早反應。假使我沒有這樣紀律，我必須跟其他人一樣認真的照表操課，但那絕非是我強項。

當前金融危機，緣自無法評估不確定性
問：聽說你大量使用衍生性金融商品？
答：不、不，比一般人想得少。我們使用指數期貨，有時用來避險，有時提高部位，但不太使用選擇權，因為不知道該怎麼將選擇權的風險，算進我們的風險承受度中。
當你買選擇權時，你會付給專業金融機構極高的手續費，拜託他們提供槓桿給你，但同樣的結果，我們只要用手上的證券去抵押就有，而且便宜許多。

問：這跟我們的印象差很多？
答：我是個很老派的人，而且我對不確定非常敏感。現在的避險基金經理人，相信並使用時下流行的工具做為風險控管，實際上面臨的風險比我當初所面對的更多。
我對於目前金融危機的批判之一就是，市場上錯誤的原理和推論，引導人們設計了無法估算風險的過當金融商品，好比擔保債權憑證（CDO）等等，無法評估不確定性。
第五講：先進場、再評估

問：你曾說過「直覺是你的投資工具」，我們也知道對你來說，背痛是一個很重要的直覺。除了背痛之外，你都是怎麼發現自己犯了錯？
答：背痛很有幫助、背痛很有幫助（邊說邊點頭），但是總是靠背痛也未免太不科學。
這仍然是要看你當時所處的環境是怎樣，所以投資之前，我會預先有一套假設，根據假設判斷未來事件怎麼發生，然後提出一套論點，也算是一種想法，然後挑選符合假設的投資環境。
進場後，我會比較實際情況和論點之間的差異，進一步檢驗原先的假設。這其中牽涉到直覺，但我還是有一套理論架構的。

問：如果你是錯的，接下來你會怎麼做？
答：我有投資假設，我會重新檢視想法與現實，如果不一致，我才確定我方向錯誤。

問：但有時候行情暫時脫軌演出，然後又回到正軌。你要如何判斷？這需要點天分吧？
答：當現實與假設有所偏差，我會運用批判思考，找出偏差的原因；我或許會調整投資主題，也有可能找出突然出現影響的外力因素，所以最後有可能是加碼，而非賣掉。

問：有沒有明確的判斷指標？
答：這要看情況。要看你操作什麼，貨幣？股票？這不是教科書，而是有很多細節在其中。

問：你如何讓自己跑在趨勢之前？
答：我尋找每個投資主題裡的錯誤，找到了，我就再度安心；當我只看到正面因素的時候，我才擔心。
對於市場不願接納的投資主題，我特別注意，通常這些都是最強勁的趨勢。記得這句話：「市場總是在憂慮之牆上攀爬」（the market climbs on a wall of worry）。

問：你能降低風險，很重要是因為能夠建立一套嚴謹的論點。但一般投資人無法有洞見和足夠的資訊，是否就不要投資了？
有時虧損的原因裡，藏著翻身的機會
答：你知道嗎，這就是為什麼大部分業餘投資人把錢交給專業經理人，像我這樣（笑）。但有時候專業經理人也未必好。我想很多業餘投資人仍然可以學習，然後培養更高竿的技術，可以做得更好。
但最重要的是，投資人千萬不能成為一個賭徒，如果投入全部的家當，風險很高。你先做好功課，然後投資一部分，但拿來投資的部分，絕不可影響你的生活基礎。好比如果你是一個醫生，或者經營餐廳，你有固定收入，然後存起固定收入的一部分。一旦你能累積更多存款，你就可以冒點風險投資，但是不要做得太過分。

問：通常你怎麼設定進場時機？
答：普遍來說，我都是「先進場、再評估」。
我總是在尋找趨勢的破綻，趕在趨勢轉變之前先找到問題，並提早轉變做法，因此能夠很安心的持有手中的股票。反過來說，有時候我們發覺原先的論點已經錯得離譜，也會盡快退場，先出場再說。

問：你曾經提到，可以承受市場下跌20％的停損，為什麼是20％？
答：這是根據經驗來的，經驗告訴我能夠承受在市場下跌20％之內的損失。

問：許多人即便面臨損失卻做不到停損，你如何執行停損？有一套既定流程嗎？
答：當開始賠錢時，我變得格外小心，就可以降低風險。能夠徹底做到停損，我覺得要靠紀律加上經驗。
我自己沒有標準停損流程。如果事情發生跟我預先想的不一樣，而我也知道原因，並且也不影響原先的假設，這樣的損失反而成為額外的機會，我便會增加部位而非停損。總之，我要知道虧損的原因。

問：所以你的停損點設在20％？
答：不、不、不，不是停損在20％，20％是步步為營的結果。可能我的部分只受傷2％，我就開始減碼，我停損動作很快，但也很快再開始行動，加碼或者再度停損；然後我如果再錯，再砍2％，但我不會讓自己一次賠錢超過20％，通常我也不會犯那麼大的錯誤，如果我錯了八次，我就放棄了。

問：所以20％是一個過程？
答：對。因為如果我賠到20％才砍，那實際損失可能會高達30％。我不設停利，因為很難知道何時才夠

問：你經常提及不確定性跟恐懼，然後會停損，卻極少提及你的貪婪和停利點？
答：貪婪是天性，不用擔心。

問：每個人都很難避免貪婪，尤其像你這樣，賺了很多錢、打贏很多投資戰役。如何跟貪婪作戰？
答：我也很貪婪啊。我通常都做太猛、做過頭，然後受傷，然後才降低部位。所以當我成功，我通常尋求更大的風險，直到我風險太過，受了傷，再回來。

問：你不設停利點嗎？
答：我不設。因為很難知道什麼時候才足夠。
獲利了結的原因，通常都是因為有比舊想法更好的新想法出現，然後我就把持有一段時間、已獲利的舊部位賣掉。這就是我控制部位的方法。如果我沒有更好的想法，我極有可能會原地不動。

問：我們很好奇，當一九九七年你放空港幣時，是否也有放空新台幣？
答：我不記得了，應該沒有。

問：但曾有交易員很自豪的說，曾經接過你的空單？
答：我真的完全不記得了……，沒有、沒有。我們那時或許有，但絕對不是主要部位。

問：現在台灣有亞洲最低的本益比、寬鬆的貨幣政策，與中國之間有所謂「和平紅利」（peace dividend）題材，你認為是投資台灣的好時機嗎？
答：我想，的確有好事發生在台灣，尤其與中國之間的好題材，非常重要，這是值得投資的理由。
但是全球其他地方都出了問題，等於現在有兩股勢力交錯在台灣：內部有正面力量，但外面世界其他地方卻有負面影響。很難說哪一股勢力比較強，但相較於世界上其他市場，台灣是相對吸引力強的地區。

問：市場上有種說法是，或許台灣會有1997年香港回歸時同樣的好光景？
答：中國的確對台灣經濟有正面的效果，好比觀光數量增加、貿易量增加，這對台灣是很有正面幫助的事情。

【量子基金】
索羅斯擔任經理人時間長達40年，現在規模約130億美元，其中索羅斯家族資產佔了5成以上。
量子基金成立於1969年，前身為「雙鷹基金」，是一檔針對海外投資人設計的對沖基金。1973年，索羅斯與羅傑斯（Jim Rogers）合夥成立索羅斯基金管理公司，並擷取量子物理學家海森堡（Werner Heisenberg）的「測不準原理」，將基金更名為「量子基金」。該基金針對美國以外的海外投資個人募集，最低購買金額為100萬美元，人數以99人為限，第100名投資者是索羅斯自己。
量子基金的操作風格是「隨市場情況而定」，沒有固定操作原則，依照索羅斯個人操作取向分為3個時期。1969到1981年，操作風格謹慎，投資標的以個別公司和產業為主；1982到2000年，採用「3D到5D立體戰術」，也就是布局即將發生轉變的市場，以及連帶受影響的市場，一次投資3到5個目標。

讓股神巴菲特教你怎麼搶便宜

讓我們探討一下股神巴菲特的投資另類新思維。為什麼華倫‧巴菲特 (Warrant Buffet) 的財富可以從1956年暴增到現在的4000倍？！翻開巴菲特歷經的四次股市大跌：1973年到1974年的大跌，1987年的股災，2000年的網路泡沫化危機，以及去年席捲全球的次貸風暴。我們不難發現，巴菲特總是在股市大跌時，大舉出手企業隱含價值被市場嚴重低估的股票，這也是他奉為圭臬的危機入市新哲學。

巴菲特曾經公開宣佈要一生持有的三支股票為華盛頓郵報、Geico保險以及可口可樂。其中華盛頓郵報便是巴菲特在1973年和1974年股市暴跌40%後，進場揀的便宜貨，如今可是為他敲進700多倍的報酬率。第二次大股災發生在1987年10 月19 日，史上首稱黑色星期一，當天道瓊指數爆跌508 點，或者說下跌22.6%。但巴菲特卻又逆勢操作，於1988年開始買入可口可樂，陸續加碼到10億美元，至今股價成長50％以及每年豐厚的股利讓他天天笑口常開。

第三次大跌則是網路泡沫化。1999年之前是巴菲特最難熬的日子，因為堅持只投資自己熟悉、看得懂的產業，因此不投資任何的科技類股，當年績效只賺了0.5%，大大落後於大盤21%的漲幅。在錯失了科技類股飆漲的黃金歲月裡，世人指責巴菲特的投資策略過時了。但2000年科技業開始泡沫化危機，大盤跌掉一大半，巴菲特不但沒虧還賺了10%，看來『股神』的封號絕非浪得虛名。

第四次則是2007年的美國次貸危機，股市大跌將近38%。年報顯示巴菲特再度跳入「火坑」，買進160多億美元的股票，增幅至今近70%以上。他的做法啟發我們在全球抗通膨的背景下可以關注四大行業：
一、銀行業。巴菲特趁銀行業低迷大量買進，增持富國銀行(Wells Fargo)近30億美元、美國合眾銀行(US Bancorp)14億美元。銀行因為進出都是貨幣，所以只要管理得當，自然可以抗通膨。
二、消費品。巴菲特買了歐洲最大食品股Kraft 41億美元。巴菲特持有的食品、消費類股，如：Coca Cola、Gillette、箭牌口香糖(Arrow)，都有強大品牌可行市場定價能力。
三、醫藥。巴菲特藉弱勢美元之優勢積極佈局歐洲最大製藥廠GlaxoSmithKline 0.76億美元，增持法國最大藥廠Sanofi-Aventis 14億美元。同時也投資美國市值最大的聯合保健集團(United Health)，以及客戶數最多的偉彭保健公司(Well-Point)。回顧美國200年股市歷史，那些大型醫療股成長性相當不錯。
四、交通能源行業。巴菲特近幾年在電力和石油類股大規模做收購及投資。去年還買入鐵路公司柏靈頓北方聖大非公司(Burlington Northern Santa Fe)47億美元。

綜合上述，我們不難發現股神巴菲特的搶便宜大招數就是在股市信心低迷時危機入市。巴菲特敢，相信我們更敢！

巴菲特專訪 - 再三說看好中國

在濃烈的北京奧運氛圍中，「股神」沃倫．巴菲特22日在接受美國CNBC電視台采訪時，再三談到對中國行情的看好。

巴菲特透露，不久前他曾報價5億美元想購買一只中國股票，但是遭到拒絕。

第一財經日報報道，巴菲特沒有透露這只股票的名稱和行業，但肯定地說，「這是一筆非常棒的交易，在環境適合的時候，你會看到我們在那里大規模投資。」

他特別提到因為目前中國的外資政策限制，還不能在中國內地隨意購買股票。此前，巴菲特也是5億美元入股中石油，獲利35億美元後，瀟灑抽身。

這次采訪是CNBC的「SQUAWK BOX」欄目8月22日在伯克希爾．哈撒韋公司（Berkshire Hathaway）的總部所在地奧馬哈進行的，采訪持續了3個小時。

不擔心中國前景

談到在中國的投資前景，巴菲特提到，他的Iscar大連公司開業差不多一年了，工程進展迅速。「但我更喜歡購買證券，及購買我喜歡的公司，兩件事情我都可能做。如果我們在未來幾年在那里無所作為，我會很驚訝。」巴菲特說。

2007年，巴菲特帶領他所投資的以色列切割刀具公司Iscar在大連投資了2785萬美元，用以開設大連公司，目標是成為亞洲最大的宇航及汽車工業專用刀具生產基地。

很多經濟學家擔心，中國隨著全球經濟增長減慢，發展速度也會放緩。但巴菲特絲毫沒有這樣的擔憂，認為中國的經濟會發展得不錯。

巴菲特認為未來10年、20年內，中國和印度將在現在的基礎上取得長足的發展。「所以，我真的不是非常擔心它們未來的發展是否將會遇到突然的幹擾或其他，我也無法預測。如果我能預測，我仍然希望能以適當的價格，在適當的時候收購一些好的企業。」

「誰知道中國經濟是否會過熱、通脹嚴重或其他什麼問題？」巴菲特強調他不擔心不重要和不可知的事情。中國和美國一樣，未來半年或一年發生什麼真的並不重要，關鍵是未來10年會發生什麼。

「我們要讓事情變好，而事實是，中國會做得更好。因為他們起步較低，但是在過去的20年學到了大量的商業智慧，以及如何釋放人的潛能。後面這一點美國較早前就學會了，但中國正在非常非常快速地掌握。」他說。

奧運期間，他並沒有來到中國，而是守在電視機前，聽別人解說賽況。談到奧運，巴菲特說：「在奧運會之前我就相信中國，而且他們也的確呈現了一場精彩絕倫的奧運盛會。他們有一群非常非常聰明的人，他們十分認真地要辦一屆精彩盛會，他們必將完成任務。」

記者問他，既然如此看好中國的情景，是否也在考慮現階段有必要嘗試學習普通話了。巴菲特幽默地說：「不，不，我甚至不會去嘗試吃中國菜。如果我不能在中國找到個麥當勞解決問題，我就很麻煩了。」

華爾街成「裸泳者的海灘」

在這場對巴菲特的采訪前夜，一部名為《I.O.U.S.A.》的紀錄片在全美公映。影片提醒美國人，如果美國聯邦政府背負的53萬億美元債務繼續「滾雪球」，一場經濟災難將會降臨美國。

這部紀錄片由黑石創始人皮特．彼得森投資拍攝，巴菲特在其中接受了訪談。紀錄片片名由I.O.U.和U.S.A.兩節加而成，前一節I.O.U.系英文「我欠你」發音簡寫，意為「借據」；後一節U.S.A.系「美利堅合國」縮寫，特指美國聯邦政府。

在接受CNBC采訪時，巴菲特說，他並不同意影片中的很多結論，但他贊同在大選之前來考慮這些問題。

「我曾說過只有當潮水退去，你才知道誰在裸泳。」巴菲特說，「好了，現在我們看到華爾街簡直成了各式各樣裸泳者的海灘。」

美國的次貸危機隨著今年6月、7月的房屋抵押貸款重構越來越深，並且有進一步蔓延到信用卡領域的可能。巴菲特認為，這場危機正在變得更長和更深，但誰也不知道什麼時候會好轉。「從現在起未來5年美國經濟可能會好一些，但最近5個月不一定。」

次貸危機的餘波將繼續給金融業和整個經濟帶來困難。他說，他本人領導的投資公司伯克希爾．哈撒韋公司的房產開發業務也因面臨融資問題而進程放緩。

談及「兩房」時，巴菲特表示，房利美和房地美兩家住房抵押貸款融資大戶因為太大而不會輕易破產，但這並不意味著這兩家公司的股票持有者能保住收益。他預言，鑒於房利美和房地美存在的問題正在不斷加劇，聯邦政府最終將不得不出手援助。

「房地美曾宣稱是穩定的，房利美曾說他們每年利潤將增加15%。」巴菲特說，「任何大型金融機構如果這樣告訴你們，那他們一定是想欺騙你（giving you a line of baloney）。」

巴菲特還抨擊了政府對於房利美和房地美的監管。「1992年國會專門成立了OFHEO，用來監管房利美和房地美。這個擁有200名員工和每年8000 萬美元預算的機構，每年寫100頁的報告來說這兩個公司是如何的好。但當事情爆發後，他們寫了340～350頁的報告來檢查哪里出了問題，他們抱怨管理層，抱怨主管、審計機構，但他們就是不說自己的問題。」

另外，巴菲特還認為，未來將會有更多的銀行破產，尤其是那些深陷房地產領域的銀行。不過，聯邦儲蓄保險公司可為銀行儲戶提供存款保險將防止銀行出現擠兌。

在談到投資方面時，巴菲特指出，從另一個角度看，美國經濟目前的困境為投資者創造了更好的投資機會，因為美國公司和企業的股票比一年前「更具吸引力」。

巴菲特在訪談中還稱，已有人邀請伯克希爾．哈撒韋做大規模交易。還有更多人懇請伯克希爾．哈撒韋收購困境中的企業。巴菲特稱其最近數月增持了美國運通或富國銀行股份，但未指明是哪一家。

奧巴馬是禍是福？

好多人唔滿意
根據Bill Bishop資料，1977至79年美國四百三十五個國會議員中，40％係溫和派；2003至05年已急速下降至10％。根據賓州大學政治科學Diana Mutz調查，有23％美國人對政治好不滿，最不滿嘅階級係教育程度中學或以下，最少不滿係博士。即美國中下層社會對依家嘅政治狀況好不滿，呢個就係點解奧巴馬提出改變後，受到咁熱烈反應嘅理由。
可以話2000年至今美國中產及下層社會對依家嘅社會狀況極之不滿，相信呢個同經濟表現有關。美國人口統計局公布，美國中產家庭年收入由2000至07年從58500美元下降到56000美元。呢個係美國戰後首次經濟循環周期完畢時（2000年係科網股高潮、去年係道指另一高潮），美國中產家庭收入唔及上一次！過去八年美國中產家庭收入喺度下跌緊，財富向1％人口集中；去年美國1％人口收入係近八十年內最高（只有1929較2007年高）。美國GDP過去八年仍按3％年度速度上升，但去年美國中產家庭收入反而唔及2000年，唔怪之得大部分人希望改變。

美國7月份CPI上升5.6％，係十七年內最大嘅升幅，相信同政府6月份退稅有關。7月寄出支票較6月少一半，相信8月份CPI升幅將少過7月份，唔排除CPI升幅喺7月見頂。Hyun Song Shin係普林斯頓大學經濟系教授，佢認為美國金融危機正進入第二階段（第一階段係撥備5000幾億美元時）。第二階段將公布信貸蝕咗1萬億美元，開始影響日常經濟。未來十二個月美國GDP增長率將受呢D因素影響。

美國物業市場由2006年第三季至家吓唔見咗17000億美元市值；加上油價由7月至今已回落25％、金價今年3月至今亦回落20％，大部分商品價格亦喺度回落緊，通縮壓力正逐漸浮現。

OECD曾研究稅與經濟增長（Taxes and Economic Growth），證明稅率愈高，愈不利經濟增長。過去十八個月三十個OECD國家中有九個減稅，全球三十個國家減稅。八十年代英國同美國經濟開始復甦部分理由亦係減稅。今年參議員Dorgan主張向油公司抽重稅不幸畀奧巴馬支持，並計劃擴展到美國企業海外收益上（美國企業海外收益只要唔滙返美國，係唔使畀美國稅，令美國企業可將海外利潤再投資。如滙返美國就要抽39.03％稅。未來唔理係咪滙返去一律要抽39.03％稅。擔心美國企業將減少海外投資，將資金調返美國）。7月15日起美元滙價回升係咪美國企業開始擔心奧巴馬當選；向大企業加重稅務負擔短期有利（例如資金回流、美元滙價上升），長期不利（因未來企業純利升幅下降）。

1980年列根上台為美國經濟帶來重大改變；引發咗1982至2007年美股超級大牛市。明年奧巴馬如上台同樣帶嚟重大改變，令美國經濟返番去六十、七十年代。改變唔係次次都向好嘅方向改變，有時係向壞嘅方向改變。奧巴馬主張嘅改變可令美元滙價短期上升，但對美股則回落，六十五天後如果佢當選，明年美股冇眼睇。

六十年代後期美國國會通過Alternative Minimum Tax法案，向有錢人抽重稅。隨住通貨膨脹上升令愈嚟愈多美國人進入上述法案嘅範圍。喺六十年代擁有25萬美元就算係有錢人，到八十年代擁有25萬美元嘅人又點算係有錢人？結果美國人將大量資金流向海外避稅，令美國經濟由六十年代後期開始停滯不前；明年起美國將重蹈覆轍。2000年起美國中產階級收入唔升反跌，1％有錢人財富卻大幅上升，的確幾令群眾氣憤。奧巴馬提出改變深得中產階級嘅心；站喺投資者立場，上述嘅改變幾令人擔心。

The Elusive Bottom

We aren’t past the halfway point of this recession
My sense is that we probably aren’t even past the halfway point yet of this recession, the credit losses or the house price deflation. Looking at whether equities may have bottomed or not on an intermediate basis, maybe the recent action to the negative side was an important inflection. In terms of what I do, which is trying to tie the macro into the markets, I have a very tough time believing that we have reached anything close to a fundamental low, either in the S&P 500 or in the long-bond yield, for that matter.

300-point rallies in the Dow happen in bear markets
We’re in a very confusing atmosphere. People didn’t really know what to make of a 300-point rally in the Dow the other day, but my main message was that 300point rallies from the Dow don’t happen in bull markets. In fact, they never happened in the bull market from October ‘02 to October ‘07, but it has happened 6 times in this bear market and happened 12 times in the last bear market. You don’t get moves like that in bull markets. As Rich Bernstein has said time and again, “This is the hallmark of a recession and a hallmark of a bear market.”

How can there be recession with GDP still positive?
We are at a crossroad in the economy. The 2Q GDP numbers recently came in at plus 1.9%. The details of the number left a little to be desired, but it was still a positive number. Turn on CNBC, and everybody says, “How can there possibly be a recession with GDP positive?”

Employment has been down seven months in a row
The very next day we got nonfarm payrolls. It prints down 51,000 and frankly, it doesn’t matter whether it was below or above Wall Street expectations. The bottom line is that employment is down seven months in a row. In 60 years of sifting through the data here, that’s never happened before without the economy being in a classic recession.

GDP is useful but it has its limitations
I think the point that has to be made as an economist talking to a group of portfolio managers or FAs or investors, it is important to convey to clients that there is a lot of noise out there. GDP is useful, but it has its limitations. First, GDP is going to get revised. We thought we had a plus 0.6 in the fourth quarter; all of a sudden, it’s minus 0.2. Twenty percent of GDP is government. So, you really can’t fully concentrate on GDP when a fifth of it is state, local and federal government, unless you’re trading defense stocks.

You’ll miss a lot of action waiting for GDP to go negative
More to the point, if you’re waiting as an investor for GDP to actually turn negative, you’re going to miss a lot of action along the way. I think the best example is to just go back to Japan. They had a real estate bubble that turned bust and they had their own credit contraction back in the early 1990s. Guess what; Japan didn’t post its first back-to-back contraction of real GDP until the second half of 1993. By the time the back-to-back negative that people seem to be waiting for happened, the Nikkei had already plunged 50%, the 10-year JGB yield rallied 300 basis points, and the Bank of Japan had cut the overnight rate 500 basis points, which said a thing or two about the efficacy of using the traditional monetary policy response of cutting interest rates into a credit contraction (as we’re now finding out here in the US).

Dating the recession is a very scientific process
The point is we can’t make the assumption that we’ve avoided a recessionary condition in the economy, just because we have so far managed to avoid back-toback quarters of negative GDP. I’m just telling you as the economist that it is basically irrelevant. The only body that officially makes the call on the broad contours - when the recession started, when it ends, when the expansion starts, when it ends - is the National Bureau of Economic Research, the NBER. It’s a very scientific process. It’s not a gut check or a judgment call.

We should actually be welcoming the recession call
When they make the determination - it’s very interesting, by the way - when they make the announcement that the recession began, when they actually date it for us, traditionally we’re a month away from the recession actually ending. The announcement, in fact, is going to be a rather cathartic event, something we should actually welcome happening, but so far they are still taking their sweet time in making the proclamation.

Four factors used to determine recession
1) Employment
The NBER relies on four different variables. The first is employment. Now I’ve told you before; employment is down seven months in a row. Does employment go in the GDP? The answer is no. Is it correlated? Yes. Does it help grow the business cycle? Of course.

2) Industrial production
The next variable is industrial production. Does that go into GDP? The answer is no. Does it help grow the business cycle? The answer is yes. This is a number that comes from the Fed. The GDP comes from the Commerce Department. It’s a very important variable.

3) Real personal income net government transfers
The next variable, the third one, is real personal income excluding government transfers. This metric is now down four months in a row. Does personal income go into GDP? The answer is no; of course, it doesn’t. GDP is all about spending. Personal income goes into gross domestic income, which is another chart of the national accounts.

4) Real sales activity
The fourth variable and the only variable that actually feeds into GDP is real sales activity in manufacturing, retail and wholesale sectors.

Recession probably started in January
When I take a look at these four key indicators that define the broad contours of the business cycle, they all peaked and began to roll over sometime between October of last year and February of this year. I am convinced that when the NBER does make the final proclamation, it will tell us a that recession officially began in January. Of course, to any market person, this would make perfect sense, because of when the S&P 500 peaked. It did a double top into October, right when it usually does, before a recession begins.

This recession won’t end before mid-2009, in our view
Now I’m just giving you the rearview mirror. What’s most important to you folks is let’s look through the front window and see when this recession is going to end. The tea leaves that I’m reading at this point in time show that this recession is not ending any time before the mid part of 2009, which would mean that, if you’re looking for, not the Mary Ann Bartels intermediate bottoms, but the fundamental bottom, I don’t think you can expect to see it before February or March of next year, if I’m correct on when this recession ends. Historically the S&P 500 troughs four months before the economy actually hits its bottom point.

Profit as a share of GDP was at unheard of levels
The next question, of course, is what levels are we talking about? Again, I’m going to take what I do, which is earnings, and then talk about the appropriate multiple. What is the appropriate multiple at the low in a recession? In terms of earnings, I think that we have to understand where we’re coming from in this cycle. We’re coming from a situation where, because of all the leverage in the system, profits in the share of GDP went into this recession and bear market at 14% of GDP, which is unheard of. That’s never happened before. A lot of the reason why profits soared was because everybody turned to financials. There was this tremendous amount of leverage, and that accounted for half of just about everything in the cycle from GDP growth to employment to profits.

The profits share of GDP, again, as a proxy for margins, is now down to 12%. Think about that for a second. This terrible earnings recession so far has taken the share of profits from 14% down to 12%. The question is, if I’m right on a recession, where does the profit share of GDP go to at a recession trough? Well, consistently it goes to 7%.

We could get below $50 on operating earnings
Even the economists who are predicting a recession are going say, “Playing in a little recession, on average, troughs go down 25%.” The problem this time is that we have to overlay the revenue decline that actually comes from a recession with a much more significant margin, considering the levels from which we headed into this bear market and recession. So when I’m talking about that historically, what’s normal in a recession is that this profit share equals to 7% and we started at 14%, we are talking about a 25% decline in earnings. We can be talking about something closer to 50% peak to trough. The peak is $90 on a full-quarter trailing basis. It’s not beyond the realm of possibilities that we get below $50 in operating earnings. The first call consensus numbers is $105 earnings for next year. I give the odds of that happening at exactly 0.0%.

There is a good chance we test the 2002 lows
Now, I’m not at $50 for next year. We’re at $63 for operating EPS, but that means that the answer is no, I don’t feel that we’re too low on earnings. Usually you slap a historical trough multiple on in a recession. But typically, during a recession coupled with a credit crunch, the multiple bottoms at 12. You’re at a 12 multiple with $63 in earnings and you’re going to ask the question, “Are you talking about the possibility that we can actually test the … 2002 lows?” And the answer is that it is certainly not outside the realm of the possible. I’m not making that forecast, but what I am telling you is that there is a good chance that that could happen.

We are in a secular bear market
With that being respectful to the fact, I believe we’re in a secular bear market. I don’t even think that’s an opinion anymore. I think it’s a stylized fact. If you saw it, Rich Bernstein put out his performance asset mix table. Out of all the asset classes, stocks, cash, bonds, commodities, the only one to have a negative inflation-adjusted return over the past 10 years is the S&P 500. So I think we have to be honest about this. If it’s something like a 1929 and 1955 or 1966, 1982 type of secular bear market, I think this one actually started in 2000, it doesn’t mean that you don’t get cyclical bull markets along the way. We actually had a cyclical bull market in the context of a secular bear market that actually took the S&P to a new high. Of course, as I said before, half of that was unprecedented leverage, the stone process of unwinding.

I think that it is important now to recognize for our clients that we have a cyclical bear market being overlaid into a secular bear market. I think the message that we’re trying to send is that there is a different investing style and strategy for every part of the business cycle. One part of the business cycle is all about adding … data and risk to maximize your turns. Then there are times when it is all about preserving your capital and focusing on income, earnings, stability and dividend growth. I think that’s where we have been, and I firmly believe that’s where we will continue to be, at least over the course of the next 12 months.

Chapter 1 was the end of the res construction bubble
When I look at where we are in this book, and we continue to write chapters in this book and it is a book; this is an epic period. We are living through history. People will be writing about this in the future, no different than they wrote about the 1920s and the 1930s. Chapter one of the book was the end of the residential construction bubble, which I would tag as the first quarter of 2006, when housing started to peak and began to roll over at 2.3 million units. I continue to look back at that, 2.3 million units.

The natural level of demographic demand for housing in this country is annual demand of 1.45 million units. From 2003 until 2007, builders added on average nearly 2 million residential units per year, or 30% more, than the natural demand could absorb, because, of course, we were in a new paradigm. So the builders were building homes and condos as if we had the same demographics as the 1970s when the Boomers were buying their first refrigerator. This is a case of Global Crossing meeting D.R. Horton, and we are paying the price for that, even today.

Chapter two was the end of the home price bubble
Chapter two of the book was the end of the home-price bubble, and I would date that to the first quarter of 2007 when the Case-Shiller Index began to deflate year over year. Now, I want to make this point, and I want to make this point emphatically. Home prices in this country on average rose 20% per year for six years. That has never happened before. When you take a look at home prices in real terms, they’re still more than 30% higher today than they were when this mania morphed into a bubble back in 2001. So to those people who are thinking that we’re only 5% away from the low, I’d say I don’t think so. Make no mistake that there is going to be more deflation in home prices ahead - I think significant deflation - just as Freddie Mac put us on notice yesterday.

Chapter three was the end of the credit cycle
The third chapter was the end of the credit cycle, which, again, I would tag at exactly a year ago. I think the way we have to look at this, and we’re talking about how this affects our ability to navigate the portfolio and manage the macro forecast. This cycle saw the end of a 20-year secular credit expansion that went absolutely parabolic in the last 6 years and accounted for half the growth in just about every segment that’s forecast.

Chapter four was the end of the employment cycle
This is very big stuff and it’s taking on different forms. We have the end of the credit cycle as chapter three. Chapter four was the end of the employment cycle, which I discussed earlier, which started in December of 2007.

Chapter 5 is the first consumer recession since 1990-91
We’re heading into chapter five, and chapter five is the onset of the first consumer recession since 1990-91. I would argue this could end up being very similar to that six-quarter consumer recession that we endured from 1973-75. There are differences, but there are similarities. A lot of people like to compare this to 199091, because of the real estate flavor and the credit crunch, but there is actually a lot more going on that compares it to 1975.

I was around in the 1980s, and I remember that it played out very similarly. What people called resilience and people called contained and people called decoupling were all very pleasant euphemisms for lags. That’s what they are; they’re lags. There are built-in lags. Housing peaked in 1988, rolled over, the credit crunch intensified in 1989 when RTC got into real action. Then 1990 … two years after housing peaked, we had this very surprising consumer recession that caught even the Fed off guard.

The Four Horsemen
I wrote a report late last year titled The Four Horsemen. It was a regretful choice of words, because I kept on fielding questions as to whether or not I was, in fact, calling for the end of the world. I got to a point where my answer was “Just wait; it’s going to get worse than that.” In any event, who are the four horsemen? The four horsemen are credit contraction, deflation of both housing and equities, and that happened in the mid-1970s. Usually you’ll get one or the other. To have both housing and equities deflate on the household balance sheet, we’re talking about $30 trillion of assets. Half the assets on the household balance sheet are compressing dramatically right now. That last happened in the mid-1970s. We got credit contraction. We got deflation on the asset side of the household balance sheet that’s forcing the savings rate higher. We have employment, which I mentioned before.

Of course, food and energy - and, again, not just energy, but energy and food - and food is a bigger deal. Food is 15% of the household budget; energy is 10%. That’s a quarter of the household budget constrained by food and energy. Food is going to come down at a slower rate than energy will, but it’s already too late.

Oil prices are going down because demand is going down
People are saying to me all the time, “Gee, aren’t you going to turn more bullish with oil prices going down?” Well, oil prices are going down, because for the first time in this cycle it took $145 to break the back of the consumer. Quite amazing that it took that long, but it has happened. So we’re seeing true demand destruction in energy at a rate we haven’t seen in almost two decades.

It’s something to get an oil price decline that’s predicated on a new oil supply. I would keep that as a de facto exogenous tax cut; but when you’re getting oil price declines because of recessionary pressures cutting into energy demand, it’s no different than what happened in late 2000. That was the last time we had oil peel off as much as it is right now. I think it would have been a bit of a mistake for the economists at the end of 2000 to say, “Ah-ha, oil is coming down; I’m going to raise my 2001 GDP forecast.” You have to take a look at the reason why oil is going down, and the reason is not because of supply. The reason is because consumer demand is starting to go down. Again, the last time you had food and energy deviating so much from the long-run norm was in the mid-1970s.

Cash flow drain to household sector is $800 billion
When I take a look at the four horsemen and I try to come up with a number, the number I’m trying to come up with is a cash flow number. What is the cash flow drain on the household sector from the four horsemen in the coming year? The answer is $800 billion. So Uncle Sam, give me six more of those tax stimulus plans. That is a huge number. It’s equivalent to 12% of discretionary spending, which, by the way, is exactly the peak-to-trough decline in real consumer cyclical spending back in that 1973 to 1975 recession. The S&P 500 goes down peak to trough not by 20%, but more like 40%.

Three markers to turn us bullish
In terms of what are some of the markers that I’m weighing down to turn more bullish? I think this is very important. I look at not so much where am I going to be wrong, but looking at what are the things that will turn me more positive? There are three markers that I have laid down. The first marker is the personal savings rate. I have to see the personal savings rate go back to the pre-bubbles, normalized levels, which was 8%. I’m not talking about the Jurassic period here. I’m talking about where we were in the late 1980s and the early 1990s, before the last two bubbles. That’s why I said plural.

We had a tech stock bubble followed very quickly by a housing bubble. This had tremendous implications for perceived net worth and perceived future asset growth of the household sector. It had monumental impact on how people spent their after-tax income. That’s why we got to a point last year where briefly the savings rate got to negative for the first time since the 1920s. There was a belief system that we could retire on our assets, and now these assets are deflating and people’s expectations of how they’re going to retire is going to force that savings rate higher. That’s going to be very disinflationary, by the way.

I think it’s important to note that, in 2002, as the tech sector was deflating, Greenspan and Bernanke decided that it was a good idea to re-slate the housing stock as an antidote to the deflation in the tech capital stock. This is almost a piece of Mary Shelley’s Frankenstein; we built the monster, now we have to tear it down. I don’t know what else is left. We’ve had an equity bubble followed by a housing bubble, followed by a credit bubble. I don’t think there are any more rabbits in the hat to create the next bubble, unless that bubble is going to be in Treasuries, and maybe that is, in fact, going to happen. It’s pretty clear that the Fed is going to be concentrating a lot more in the future on non-traditional measures to ease monetary conditions, and not just cutting the Fed fund rate. Part of that may be reflating by expanding its balance sheet, which means that it’s not just talk. The Fed is actually going to add to its balance sheet, and that’s exactly what happened.

1) Need to see the savings rate go to eight percent
With the Bank of Japan and the operations they conducted back in the 1990s, this is just stuff to consider for the future. Let me just say that a savings rate of 8% would leave me feeling very good about the fact that we would have gone to a level of pent-up demand that would help us embark on the next bull market and economic expansion. That’s going to take quite a bit of time. This is a process. This a process we’re talking, even after the recession ends, that’s going to be an elongated recovery, as there was in the early 1990s, after that asset cycle. Remember, the recession might have ended in November 2001, but that did not give you a “get out of jail free” card as an equity investor, and certainly the recovery was a good two years away, even if the recession technically ended at the end of 2001. I’m talking about the markers that will turn me bullish for the next cycle. An eight percent savings rate, to me, would be a very critical launching pad.

2) Months supply below eight months
What else? Well, I doubt that anything is really going to bottom, including the financials, until we’re convinced that house prices have hit bottom. For that we have to look at the inventory to sales ratio, and there are different measures. There is the new inventory, which is a 10-month supply. There’s the resale; that’s 11-month supply. When I take a look at the Census Bureau data, which includes total vacant units for sale, single-family, condo, it’s more like 17-month supply. We need to include everything, including foreclosed properties. I have to see that number sliced in half. I have to see it down below eight months supply before I’ll be convinced home prices don’t bottom, at least the second derivatives start to turn positive. I have to see that metric at the eight-month supply. I’m keeping a very close eye on it. That will make me feel a lot more comfortable with turning bullish for the next cycle.

3) Interest coverage ratio has to come down to 10.5%
The third and last marker comes down to the household balance sheet. What I’m referring to here is interest coverage in the household sector. We have a record debt-income ratio, but that’s a stop-to-flow concept. I’m talking about interest coverage, how much are principal and interest payments from the record debt absorbing out of household income? It is 14.1%. It’s at a near-record high. We have never been in a recession with this metric at this level. So, that means there are too many things that are levels we’ve never seen before. The whole thing about economic bottling is you run the rest of it based on the past, and there are so many things that we’re entering into this thing that I’ve never seen before.

There is, I’d have to admit, a wide dispersion around the forecast I am providing. What I am really trying to do is put things into a certain perspective. What I know, being an economist, is that in some sense you’re a glorified historian. So when I take a look at the chart of interest coverage in the household sector, what do I see? I see that after the recession of the early 1980s, this interest coverage ratio got down to 10.5% by 1982 and, voila, that was the touch-off point for a multi-year bull market and economic expansion.

Then we had the recession of the early 1990s, and what do you know? In 1992, interest coverage went down to 10.5% again. That was the launching pad for a multi-year bull market and economic expansion. We’re 14.1% in this metric today. I know this historical record tells me that there is something about a 10.5% ratio that is a very cathartic event. The problem is that to get there from here would require the elimination of $2 trillion of household debt. So, maybe when NYU’s Nouriel Roubini talks about that the total losses could be up to $2 trillion, maybe he’s not talking through a paper bag.

Frugality is going to set in
As far as I know, there are only two ways to eliminate debt. You either walk away from it, which people obviously are doing, which is why we got these write-downs and these foreclosures, or you pay it down. I think people with a FICO score that they are concerned about are going to pay that down. That means that the savings rate is going to be forced higher. This, again, is going to be very, very disinflationary. It means that fashions are going to change. It means frugality is going to set in. We’re going to be living in smaller houses, driving smaller cars and living more frugally. It’s not going to be the end of the world; it’s going to be a necessary process to truly embark on getting the balance sheets down to more comfortable levels so that we can actually embark on the next cycle.

Intense deleveraging in the banking sector
The whole thing about being an economist is that you’re being requested to model behavior. What I found recently was three signs of significant changes in behavior. We obviously know of at least one investment bank that is taking aggressive action to sell assets and to deleverage. That’s going to force a lot of action in other parts of the industry. What we’re talking about here is intensified deleveraging in the banking sector.

Inventories cut by $62 billion despite tax stimulus
What else did we see? Well, those GDP numbers were just fascinating when you dig through them. Think about it for a second. How did businesses respond to the biggest tax stimulus of all time? They cut their inventory by $62 billion. Can you fathom that? Instead of boosting production as a result of the stimulus, they just allowed the stimulus to absorb past production. We already know that the inventory component went down another five points based on the July ISM number, so this inventory liquidation process is continuing.

Savings rate boosted despite stimulus too
Alan Greenspan cut his teeth on inventory investment cycles. So banks are deleveraging, and companies are liquidating inventories. How did households respond to the biggest tax stimulus of all time? They boosted their savings rate from 0.3% in the first quarter to 2.6% in the second quarter, which is only the third steepest increase in the savings rate in any given quarter in the past 55 years. Now you probably didn’t read that in the front page of The Wall Street Journal, but I find that to be a very relevant statistic.

So we have financial sector deleveraging. We have business sector inventory liquidation overlaid with the households boosting their savings rate. These are new themes, and the theme is about getting small. That’s going to play very well into Rich Bernstein’s decision two months ago to allocate an extra 15 percentage points to his fixed income portfolio. Now we’re talking about fixed income. We’re talking about bonds that are high quality and have non-callable protection.

Nominal GDP growth has highest correlation with yields
I’ll tell you that the really key forecast next year coming from the economics department here is the nominal GDP, nominal, price times quantity, because we’re calling for nominal GDP growth next year to average 1.5%. That is going to be very bullish for sectors that have proven earnings stability and reliable dividend growth, and it’s going to be very bullish for bonds. I say that, because I know that the critical driving factor for bonds is not fiscal deficits. It’s not the dollar and, guess what, it’s not commodities. Nominal GDP growth has the highest correlation. People look and they say, “Four percent 10-year note; who’d want to touch it?” The reality is that nominal GDP growth this year is averaging 4%. The fact that the 10-year note is averaging 4% is not really a big mystery, if you’re looking at the macro underpinnings.

Now, if I’m right on 1.5% nominal GDP growth for next year, all I can tell you is that the last time we had a condition like that was in 1958. All I can tell you is that 1958, the funds rate averaged to 1.5% and the 10-year note averaged 3%. If you’re going to ask me if we have a realistic chance of going back and retesting the June 2003 lows and the 10-year note or the March 2008 lows and the 10-year note, I firmly believe that’s going to happen. I believe that’s going to also provide you with very handsome total returns.

Looking for clues in past downturns

IT is a forgone conclusion that we are entering a period of economic slowdown. Or perhaps, the signs have been there for some months but people are now finally choosing not to be in denial.

For five straight years between 2003 and 2007, companies in Singapore have been registering robust growth in revenues and earnings. The past few years can almost be described as a golden era for corporates where demand for their products was strong and costs were low, be it financing costs, or raw materials costs or even staff costs.

This has led to soaring profits. But things took an about-turn in the last 12 months. Oil and other raw material prices shot through the roof. The economic outlook is now very uncertain with companies not creating as many jobs. Against that backdrop, consumers have turned cautious and are tightening their belts. Consequently, demand has softened. So companies are hit on both ends, weaker demand and higher costs.

In the current environment, it is inevitable that earnings will decline. But by how much?

I thought it would be illuminating if we could go back to the last two downturns we’ve gone through and see what kind of impact the economic slowdown had on corporate earnings.

I used the Straits Times Index component stocks, since they are fairly representative of the economy. And I only used companies which have operating records going as far back as 1995. There were 18 of them and their financial records were downloaded from Bloomberg.

They are: City Developments, Cosco Corp, DBS Group, Fraser & Neave, Genting International, Hongkong Land, Jardine Cycle and Carriage, Jardine Strategic, Keppel Corp, Keppel Land, Noble Group, NOL, OCBC Bank, Singapore Airlines, SembCorp Marine, Singapore Press Holdings, SingTel and United Overseas Bank.

Back in 1995, the 18 companies had a combined revenue of $38.2 billion. Operating profit and net profit came to $8.2 billion and $6.4 billion respectively. As at 2007, the corresponding numbers were $143.8 billion, $20.6 billion and $22.2 billion.

During the past 12 years, revenue had grown by a compounded rate of 11.7 per cent a year, while profits grew by 11 per cent a year.

The year 1996 continued to be a good one, and the aggregate revenue rose 12 per cent while net earnings climbed 19 per cent.

Then came 1997, the second half of which marked the start of the Asian financial crisis. By the end of that year, the combined net profit of the 18 companies had fallen by 18 per cent. There was however still growth in the top line, with revenue expanding by 9 per cent.

The Asian crisis played itself out, and while it did, people were getting gloomier. By the end of 1998, net earnings fell a whopping 39 per cent. Still, revenue managed to edge up by 4 per cent.

Exactly a year after the Asian crisis started, the economies in the region staged a strong rebound - helped in no small part by the Internet boom that was taking place in the US.

The despair a year ago was replaced by euphoria by end of 1999. And for that year, the 18 companies’ net earnings more than doubled from the year before. In other words, the profit decline of the two prior years had been clawed back, and the aggregate profits of $8.3 billion in 1999 was about 8 per cent higher than the $7.7 billion chalked up in 1996.

The good times carried on until 2000, even though the air was slowly being let out of the Internet or dotcom bubble by early 2000.

And to make matters worse, US came under terrorist attacks in 2001 and the world became a much darker place. In 2001, the aggregate net earnings plunged by 36 per cent, and the following year, by another 12 per cent.

But just like the Asian crisis a four years earlier, when the recovery came, earnings came roaring back. In 2003, earnings surged 96 per cent and the following year, by another 76 per cent.

Net earnings growth in the subsequent three years were not as dramatic, although those years saw an acceleration of revenue growth.

It could be that the profits came from non-cash items like revaluation of certain assets, or the companies actually disposed of some of their assets at a profit. These disposals were one-off events and not part of the companies’ normal operations.

So as can be seen, in the previous two cycles, earnings decline span over two years.

The two-year earnings decline duration confirmed the finding of an analysis by Citigroup’s global strategy team.

The analysts studied MSCI Global Earnings Index over the last 35 years. They found that earnings weakness takes place over extended periods of time. They are not normally a one or two quarter event. They have averaged just over two years, they said. ‘The longest, in the early 1990s, lasted nearly four years. The shortest decline was in the late 1990s, but that still took over a year.

‘With earnings having peaked at the end of November 2007 the current period of weakness would look to have only just started if history is any guide,’ they said in a report in early June.

And on average, the peak to trough decline is 25 per cent. The two most severe declines were in early 1990s and early 2000s. Earnings fell by over 35 per cent. While the former was over an extended time frame, the latter, the most severe decline of them all, was of relatively short duration, they noted.

The Citigroup analysts said that historically, earnings have peaked well after the economic cycle and have not troughed until the economy is into recovery mode.

But for the current cycle, the peak in earnings occurred much earlier, in fact even before the global economy has really started to slow.

This is because the massive writedowns that have led to a collapse in the financial sector’s earnings have been brought about largely by non-cyclical factors, principally financial engineering and leverage, so the normal lagged relationship has not applied this time, they said.

Sector-wise, not all experienced earnings declines during periods of global weakness. Defensive sectors continued to see growth regardless of the harshness of the economic downturn, they said. ‘Utilities and health care sector earnings have always risen. Consumer staples earnings fell only once. Cyclical sectors have borne the brunt of declines. The commodity sectors have been particularly weak. Energy’s average decline has been 30 per cent and Materials 35 per cent. ‘Elsewhere amongst the cyclicals, declines have averaged around 20 per cent.’

So based on past cycles, global corporate earnings could fall anywhere between 10 per cent and 40 per cent going forward. The average has been 25 per cent.

Another approach is to look at the likely impact if return on equity (ROE) were to return to long-term average levels or collapse to previous trough levels.

Global ROE hit 35-year highs (16.1 per cent) last summer, driven by leverage in the financials sector, record profit margins, a shrinking equity base and an extremely robust global economy.

Despite falling since then, it still remains at historically elevated levels. Reverting the ROE to its 10-, 20- and 30-year averages, which range between 11.8 per cent and 12.6 per cent, would result in earnings declines of 22-27 per cent from last November’s peak.

But ROEs usually fall below averages, said the Citigroup analysts. If they fall to previous troughs, which have been between 8 per cent and 11 per cent, earnings would decline anywhere between 30 per cent and 50 per cent, averaging just over 40 per cent. ‘On this basis, the risks to earnings remain substantial,’ they said.

But in the report, Citi said it was of the opinion that the current earnings downturn could turn out to be a relatively mild one. ‘How could we be wrong?,’ the analysts asked. ‘There are some obvious reasons,’ they said. These include a more severe and extended economic slowdown, with emerging economy resilience proving temporary, a collapse in commodity prices, stronger-than-expected cost pressures and the credit crunch evolving into a more systemic financial crisis.

Are there already signs that some of the scenarios mentioned are starting to emerge? Perhaps, hence investors definitely have to be vigilant.

The worst, it seems, may not be over yet.

Richard Russell On The Market

It’s OK to be confused. It happens to me all the time. I receive about 20 advisory reports ever week, and in my 50 years in this business I can’t ever remember such utter confusion (or let’s call it differences of opinions). Many leading economists can’t even agree as to whether we’re in a recession or not.

And yes, the news is awful. The best economists in the nation are warning of bad things to come. Lower house prices, rising home inventories, hundreds of local banks fated to go under, Europe slowing down, foreign stock indices crumbling, commodities collapsing. You want bad news and even worse predictions, they’re a dime a dozen.

Ah, but nobody has the ultimate answer to this one — has the stock market discounted the worst — or not? On this crucial count, nobody has the answer to this trillion dollar question. Nobody.

There are any number of good arguments as to why we’re in a bear market or a bull market. I want to review some of the evidence on either side of the puzzle.

First, volatility is currently high — the VIX has been running over the 20 level for months on end. High volatility is a characteristic of bear markets. High volatility is usually a result of huge differences in opinions. One day the bulls run the stock market higher, the next day the bears hammer it down. In bull markets, volatility tends to be on the low side. Big-move days are rarer, and the advances tend to be steady and relatively calm. High volatility is a bear market characteristic. So score one for the bears.

Last week saw the Dow up over 300 points on two separate days. But those big surges did not have the power that typical advances have, following the turn up from a bear market bottom. Neither of last week’s 300-point Dow advances was a 90% up-day. The market acted more like an oversold bounce with added short covering. Score another for the bears.

Investor’s seem to be somewhat discouraged but not panicked and not desperate. At true bear market bottoms sentiment tends to be black-bearish. We haven’t been there yet.

All the above are in favor of the bear market designation. The action has not been typical bull market action. If we are in a bear market, then following the current rally, the market will turn down again to test, and probably violate, the July l4 lows (Dow 10962.44).
……………………………………..

Following are the bull’s arguments (the bull stance is that the decline from the 2007 highs was a deceptive and atypical correction in an ongoing bull market).

Following their January 17 lows, the D-J Transportation Average rallied, then backed off, but the Transports never even hinted of confirming the series of new lows set by the D-J Industrial Average. As of last Friday, the Transports closed a huge 1075 points above their January 17 low of 4140.29. This is hardly bear market action. As a matter of fact, as of last Friday the Transports were only 231 points below their all-time high recorded in July 2007.

The recent bull market advance started in October 2002 at Dow 7286. The advance carried the to Dow 14164 in October 2007. The 50% or halfway level of that entire advance comes in at 10725. According to the 50% Principle, it would be bullish if the Dow on any and all declines holds above 10725, the halfway level.

On July 15 the Dow declined to 10962.54. That decline halted exactly 237 points ABOVE the 10725 or 50% level. Was that a coincidence? Or was the market trying to tell us something? Was the fact that the Dow halted its decline 237 points above the 10725 level a significant (but unpublicized) bullish act?

Below we see a Point&Figure chart of the very broad Wilshire 5000 stock index. I’ve been directing subscribers’ attentions to this chart. Note that the Wilshire plummeted to a low at the 12250 box. From there it rallied up to the 13150 box. In fact, the Wilshire rallied to the 13150 box twice, and each time it was turned back. Note the tight consolidation. Then last week the Wilshire (last column of green boxes) broke out to the upside. Following the obvious consolidation, I have to consider last week’s breakout as bullish. And the rally continued today. The 13150 level on the Wilshire should now represent support on any further weakness. Price action trumps all other considerations. Give the bulls a gold ring and a cigar. Well, at least so far.

I’ll be honest. I am impressed by the Lowry’s argument that suggests that the July 15was not a legitimate bottom for this market.

But I’m also impressed by the bullish arguments that I laid out in the section above. Very frankly, I can’t come to a firm conclusion as to whether we’re dealing with a bull or a bear market. Sometimes you just have to wait and allow the market to tell its story. Remember, we may be in a hurry, but the market never is.

Fred Hickey, who writes the great “The High-Tech Strategist” report, expects the market to fool everybody and head down while at the same time he expects gold to head higher. My old buddy, Joe Granville, who’s been great at calling the shots, now expects the market to head higher into the Dow 1200s.

Martin Pring is an old-timer; he wrote one of the classic books on technical analysis. Below is the opening of a recent report that he wrote — Published by Pring Turner, here is the opening:

“Yes, the financial news gets worse every day. Yes, the average stock is down more than 25% over the past thirteen months. Yes, the housing market is still reeling and foreclosure activity is rising. Yes, the price of gas is skyrocketing. And yes, this too will pass, and the economy and stock market will begin a new expansion and sustainable bull market, as all business cycles have.

“Over our several decades of investment management experience, we have witnessed many business cycle recessions and stock market declines. They all have one thing in common. In the midst of the most negative financial news, the stock market (fulfilling its role as an accurate leading economic indicator) begins to move higher in anticipation of the next economic recovery. We believe the market has more than discounted all the bad news out there and is putting the finishing touches on the bottoming process for stocks. Yes, a significant advance is set to begin that will take stocks much higher in the year ahead.” (Thanks to David Fuller of FullerMoney out of London for the above).

Me, I’m going to stay largely in cash and gold for a while, but I’ll keep adding top-quality dividend-paying stocks to the compounding portfolios that I manage (stocks added — GE, JNJ, PG, MCD).

A Value Investor Looks At China

What do Starbucks and China have in common? A lot! Both got us hooked on consumption: one of fancy, expensive caffeinated liquids; the other on cheap foreign made goods. Both have defied the conventional wisdom - they grew faster and longer than common sense told us was possible. They also share another striking commonality: both are suffering from late stage growth obesity (LSGO).

The Starbucks story
With the beautiful benefit of hindsight we know what happened to Starbucks - it grew too fast, opened too many stores, and sacrificed its own standards to meet unrealistic targets. The company first claimed that it only had a few hundred stores that it needed to close, and then the few hundred spilled into six hundred. Weak consumer spending will likely push Starbucks to re-examine its store count again, doubling or tripling the store closures.

Starbucks percentage of new stores growth in 2007 was only slightly lower than it was in 1999. But in 1999 it had 2,000 stores; in 2007 it was pushing a 10,000 company owned stores mark. Let’s put this in perspective: in 1999 Starbucks opened 447 stores - 1.8 stores per working day; in 2007 that number more than tripled to 1,403 stores a year - 5.5 stores per working day. At this level of growth physical limitations come in: there is only so much real estate that fits a company’s criteria at a certain point in time. Management started sacrificing on the quality of their decisions, compromises were made that were unthinkable several years before. Stores were opened too close to each other or on the wrong side of the street, expensive leases were signed, they even hired baristas that would have fit in better at McDonalds - you get the idea.

Unfortunately the present and the future will pay for the decisions of the past: stores will need to be closed, long-term leases terminated, charges taken, corporate costs created in hopes of high growth eliminated, and corporate culture of partnership strained by barista layoffs.

Starbucks needs to go on a permanent growth diet (at least in the US), and realize that it has the metabolism of a 37 year old and can digest fewer new stores. By tightening its standards for opening new stores the company will be on the way to recovery, though at slower growth. Starbucks is blessed with financial strength, capable management and unbelievable brand. If management admits to themselves that the heydays of growth are behind, recovery should be fairly painless. Starbucks generates tremendous operating cash flows, which in the past were completely consumed by opening new stores. If the company were to go on the LSGO diet, its capital expenditures would decline and free cash flows balloon - the value unlocked.

But this discussion is not about Starbucks, it is about what is taking place in China.

The Great China story
The benefit of hindsight that provides clarity in analysis of Starbucks today is not there for China, at least not yet. But if you were to open your mind and look past today’s cheery newspaper headlines you’d see that China is suffering from a severe case of LSGO.

Ten for ten. Since 1998 its GDP has grown at about a 10% annual real growth rate, and its economy more than tripled in size (in real terms). There were no recessions, just expansion - the Chinese miracle growth? The origins of China’s tremendous growth are well known: large population migrating from low (farming) to higher productivity (manufacturing) activity, cheap labor, a capitalism-friendlier communist government, and insatiable demand from the US and the rest of the developed world for cheap goods.

Unlike Starbucks - a private enterprise that has free market principles deeply inbred in its DNA - China is a communist country. Though it is moving towards free market capitalism, it is not there yet. The rule of law is weak, the country infested with corruption, and due to central planning and tight government control of the banking system capital is often allocated based on cronyism (or political relationships) not merit.

Prolonged high growth in this environment results in inefficiencies that are compounded year after year. In other words, though the growth is high, the quality of growth is low, thus asset allocation decisions are likely to be poor. The ten year super-high growth marathon put China at high risk, actually more likely of a certainty, of a severe case of LSGO.

From today’s perch we can only guess of the consequences of LSGO, but we’ll gain that clarity after the fact - a luxury we don’t have. Newspapers that are praising the Chinese growth miracle today will write exposes on what went and is going wrong in China.

I have absolutely no facts to back up what I am about to say, but it is not hard to imagine future stories about poverty stricken farmers that moved to big cities for a better life and found despair; or that inland migration (from farming to factories) only brings a onetime productivity jump as poorly educated farmers-turned-factory-workers add little to productivity improvements afterwards; or how weak and debt ridden the financial system is; or the devastating impact that pollution has on health and productivity; or how the biggest shopping mall in the world, that happens to be in China, is almost completely empty.

Oh wait, the story about the shopping mall is not a figment of my imagination (I am not that good) but has already taken place. In 2005 NY Times ran an article titled China, New Land of Shoppers, Builds Malls on Gigantic Scale, it talked about the biggest shopping mall in the world that happened to be in Dongguan, China. The article said:

“Not long ago, shopping in China consisted mostly of lining up to entreat surly clerks to accept cash in exchange for ugly merchandise that did not fit. But now, Chinese have started to embrace America’s modern “shop till you drop” ethos and are in the midst of a buy-at-the-mall frenzy…. by 2010, China is expected to be home to at least 7 of the world’s 10 largest malls… Already, four shopping malls in China are larger than the Mall of America. Two, including the South China Mall, are bigger than the West Edmonton Mall in Alberta, which just surrendered its status as the world’s largest to an enormous retail center in Beijing.” (emphasis added)

Fast forward three years and you find a very different story: the biggest mall in the world - the South China mall, with space for fifteen hundred stores, only has a dozen stores open for business - it is empty. Shoppers never materialized. Billions of dollars have been wasted.

Analyzing the Chinese economy while it is growing at superfast rates is like analyzing a credit card company or a mortgage originator during an economic expansion - all you see is reward - the growth. But the defaults - the risk - are masked by a healthy economy and constantly increasing new business that is profitable at first. The true colors of that growth only appear after the economy slows down and new accounts mature. (In fact, the banks or credit card companies in the U.S. that showed the lowest loan growth during last expansionary cycle have a lot fewer credit problems than those that did - U.S. Bank Co comes to mind here.)

The consequences of LSGO are likely to be very painful for China. As of today we don’t know how much of the recent growth came from wasteful, unproductive growth. Only after a slowdown will the true problems surface.

The Speed. What makes things even worse is that China cannot afford a slow down. I discussed this in the past but it is worth repeating. The Chinese economy is like the bus from the movie “Speed”. In the movie the bus is wired by a villain (played by Dennis Hopper) with explosives, and will explode if its speed drops below 50 miles per hour. The Chinese economy has 1.3 billion unsuspecting people on board. It could blow if economic growth drops below its historical pace.

A combination of high financial and operation leverage sprinkled with past high growth rates will send this economy into a severe recession if growth rates slow down. Let me explain:

High operational leverage. China has become a de facto manufacturer for the world. With the exception of food products, it is difficult finding a product that was not, at least in part, manufactured in China. Industrial production accounts for 49% of GDP, double the rate of most developed nations (i.e. industrial production for the United States is 20.5 % of GDP, UK 18.2% , and Japan 26.5%).

Chinese miracle growth is largely driven by the manufacturing sector; historically its industrial production grew at a faster rate than GDP. The manufacturing industry is very capital intensive. Building factories requires a large upfront investment. High commodity prices and rapid wage inflation has driven those costs up. Once a factory is built the costs of running it are to a large degree independent of the utilization level - they are fixed - a classical definition of operational leverage. On top of these factors, laying-off workers is a politically sensitive process in China, which creates another layer of fixed costs.

High financial leverage. Debt is the instrument of choice in China. Due to a lack of equity-fund- raising alternatives (their stock market is very young), bank debt and underground finance companies that charge very high interest rates are the predominate sources of capital in China - this generates a great degree of financial leverage. (Though according to my friend Bill Mann, The Motley Fool’s advisor of Global Gains newsletter, a frequent visitor to China, state owned enterprises are much more leveraged than private enterprises.)

Total operational leverage. Large piles of debt (financial leverage) combined with high fixed costs (operational leverage) create a very high total operational leverage.

Total operational leverage in China is elevated further as factories are built to accommodate future demand - this is a classical byproduct of LGSO. It is a human tendency to draw straight lines and thus making linear projections from the past into the future. During the fast growth period the angle of the straight lines is tilted upward, causing an over investment in fixed assets, as inability to keep up with demand may cause manufacturers to lose valuable customers. (Fear of over investment is overrun by fear of losing customers.)

This type of thinking results in tremendous overcapacity when demand cools. Here is an example: let’s say a company saw demand for its widgets rise 10% year after year. It builds a new factory to accommodate future demand, let’s say five years. It will likely model a 10% annual increase in demand as well. But what if demand comes in at 6% a year over the next five years? This will translate into overcapacity - not 4% but 20% (4% per year times five years). Suddenly you don’t need to build factories or add capacity for awhile.

This greatly leveraged growth is terrific as long as the economy continues to grow at a fast pace: sales rise, costs rise at a slower rate (in large they are fixed) - margins expand - the beauty of leverage. However, leverage is not so sweet and soft when sales decline. Overcapacity is a death sentence in the manufacturing (fixed costs) world. As companies face overcapacity or slowdown in demand, they try to stimulate sales by cutting prices, which in part lead to price wars (similar to what we observed in the U.S. between Sprint, MCI and AT&T in the long distance business during the mid 90s) and to a fatal deflation. Sales decline, costs remain the same - margins collapse.

The weakness in the US and European economies will temper demand for Chinese made goods. China is already showing first signs of slow down - inflation is increasing and rate of real growth is decreasing.

It gets worse: high commodity prices
Chinese demand for stuff (oil, metals, machinery etc…) has a tremendous impact on commodities, driving their prices many fold. High (and rising) commodity prices are negative for developed world economies but they are catastrophic to developing economies - they bring comparatively higher inflation and often stagflation. Here is why:

Inflation is sourced from two broad categories: commodities (stuff) and wages. Emerging markets are twice as cursed when it comes to inflation:

Commodity prices (less shipping costs and government controls - the Chinese government limits price increases on certain commodities, but we know that doesn’t work in the long-term) are the same around the world. Thus the U.S. and China will see a similar increase in commodity prices (at least in dollar terms). But the commodity component represents a larger portion of the total product cost in China than in the U.S., as wages in China are a less significant component of a total cost. For instance, bread baked in the U.S. and China will require the same amount of wheat and wheat will cost as much. But baker wages will be significantly larger in the U.S. than in China and will result in a much higher cost of the finished product. Therefore, a spike in wheat prices will have a larger impact on the loaf of bread in China than in the US.
Wage inflation: the US and Europe have little wage inflation, as rising unemployment has diminished the already weak bargaining power of the labor force, keeping wages in check. Economic expansion has put significant upward pressure on wages inflation in China (and India as well).
In combination, these two factors were responsible for inflation in high single digits in China, double the rate of inflation in the U.S.

China is not the cheapest place in the world to manufacture, not anymore. To its benefit, cheaper countries (Singapore, Vietnam etc…) are not big enough to steal a significant amount of capacity and the US in many cases doesn’t have the needed infrastructure to bring manufacturing back. Appreciation in the renminbi and high oil prices (which are driving shipping rates up, placing a significant premium on the distance factor) are making Chinese produced goods even less attractive. Something has to give: either the U.S. will consume less or China will keep prices low to stimulate the demand, swallowing the loss, or a combination of both.

It gets even worse…
I constantly catch myself wanting to say “the story only gets worse”, but unfortunately it does. The US and Europe can cope with energy and food inflation a lot better than China and other developing nations, as we spend a lot less on food and energy as a percent of our income and have a lot more discretionary income. (Just take a look at magazine section in the book store. There is probably a fishing magazine for the left handed fishermen.)

Though the Chinese consume a lot less gasoline than Americans. They don’t have as many cars and don’t drive as much, but they do have stomachs - they eat. High energy prices have translated in food inflation that in China runs in the high teens. The average American family spends only 15% of their household budget on food, whereas the Chinese spend 37% . Maybe this is one of the reasons their shopping malls are empty. People that pay high gasoline prices but are full don’t riot, but hungry people do. The current situation raises political risk in China and also the chances that government (social) intervention will rise. This also puts in doubt the significant development of a Chinese middle class, at least in the near future.

When I wrote an article for Financial Times in May discussing risks in stuff stocks (commodities, energy and industrials) I called today’s environment “a global commodity bubble”. I was imprecise, after a conversation with the brilliant Ed Easterling of Crestmont Research (by the way, Ed wrote “Unexpected Returns” - a must read) and reading a wonderful interview with James Montier by Kate Welling, I’d like use James’ more precise definition of today’s environment: a “global growth expectations” bubble. After all, it is the supply demand (to a large degree) that was responsible for this unprecedented growth in “stuff”, shifting the mentality of the market into “this time is different” gear. It is not.

In the past “stuff” stocks were cyclical, their margins played a very predictable foxtrot of bouncing together with the whims of the US economy. Today they are behaving if as Google is their middle name - their sales are climbing in double digits, margins keep expanding and now they are called “growth” stocks. They are not. It is just Chinese late stage growth obesity, which has disproportionately impacted the demand for stuff, creating an expectation that the “growth story” will continue forever. Nothing is forever. Starbucks discovered that and so will China. China is likely to have a bright future, but it doesn’t consist of straight to the sky growth trajectories.

Implications. Demand for commodities will decline, while more supply from past investments (there is a significant lag) will be coming to the market - they’ll come crushing down to earth. Companies that make stuff will suffer, their margins are at multi-multi-multi-year highs, margins pendulum will swing the other way, to the other extreme. Suddenly they won’t appear to be as cheap. (Take a look at my January Barron’s article in which I discuss the risk in corporate margins and May Financial Times article which explores China and stuff stocks.)

GMO’s Jeremy Grantham sees prolonged credit crisis

The credit crisis that has ravaged world markets since last summer will fester for years and result in anemic economic growth in Japan, the United States and most of Europe through 2009, according to an influential Wall Street investor.

A combination of tighter global lending standards, rooted in mounting mortgage defaults, and falling U.S. and European home prices could eat deeply into already slowing growth worldwide, Jeremy Grantham, chairman and market strategist of money manager GMO LLC, said in an interview late Tuesday.

Grantham, who had warned of the danger that the U.S. housing market posed long before others, said the current credit crisis has “got many more tentacles… than the ones we’ve seen over the last 30 years.”

“We are in a recessionary phase that will last perhaps two and two and a half years,” said Grantham, who helps oversee about $126 billion in assets at GMO.

“It will be, interestingly, unlike anything else we’ve seen.”

Grantham, often called a “perma-bear” for his dour view on U.S. equities, correctly predicted a crash two months before the technology bubble burst in 2000.

His outlook for the environment now is grim, if not dire.

He recommends investors hold cash, and if they must be invested, he favors large-cap U.S. equities.

The United States and other economies might not be savaged by negative quarters of growth, but the sentiment will be “quite novel in feel without the theatrical aspect of a real nose-dive. With any luck… we won’t have them,” he said.

Rising asset prices and a credit binge that drove the U.S. economy for 25 years is over and won’t return for years to come, he said. That “end of an era” will slow economic growth and force both U.S. consumers and companies to readjust, Grantham added.

“We had a debt bubble in almost every nook and cranny, and in different times they are deflating,” he said. Now, the world is dealing with the secondary effects of slowing consumer and corporate consumption, Grantham said.

Central bankers, who have been “really quite incompetent,” will do everything possible to prevent a vicious cycle downward of lower consumption and lower production, he said.

Grantham, who is amazed at how smart investors failed to see the housing bubble and ensuing crisis, is also surprised by those who express little concern about China’s centrally planned economy and the strong likelihood of slower growth.

“Why have they become wonderful economists?” Grantham said. “What they have done is they have become wonderfully lucky like the rest of us.”

The odds that China, a major driver of global economic growth this decade, will stumble seem extremely high, he said. A Chinese downturn would send shockwaves through many economies that depend on its voracious demand for raw materials.

A third effect of weaker production and eventually rising unemployment in the United States, Europe and Japan, and even in some emerging countries, also will take its toll.

Added together, a more prolonged and painful recession than anyone has imagined will occur, an economic downturn that will come closer in global reach to anything the world has seen since the Great Depression, Grantham said.

“The possibility of it becoming very serious on a global basis is very much higher than 2001, 2002,” he said. “That’s the scary part.”

Where should investors hide? Grantham said large-cap U.S. stocks provide “an absolute guaranteed no-brainer.”

“Their profit margins are the only profit margins in any group we look at anywhere that aren’t measurably above average at all,” he explained. “Everything else, the profit margins are way over average globally, including emerging markets — very
vulnerable, hugely mean-reverting,” he warned.

Grantham said they have lagged other asset classes over the past six years: “They’ve been left behind, exactly the time you would need them.”