Is China the Next Bubble to Burst?
Great debate in today’s NY Times Editorial page regarding China’s economy. On the one hand, you have investor James Chanos saying that China is a screaming short. Chanos states that it could be the next “Dubai times 1,000 – or worse” and boldly states that he is looking for every possible way to short China.
On the other hand, author Thomas L. Friedman states that he would never bet against China. His thesis can be summarized as: “Sure, China has problems and may have bounced back a bit too quickly. However, don’t bet against a centralized Chinese government that is thoughtful attacking problems (inflation) and has the resources (savings) and commitment to do so.”
Could both guys be right?
Short term, few would argue that China’s recovery may be a bit “too fast, too soon”. So the hedge fund manager Chanos may make some money taking a contrarian bet on China’s growth. However, few would argue against (and certainly not bet against) China’s growth engine.
The more interesting angle is the following. Does the US feel threatening by China’s growth prospects and success? Many in Washington DC and (Main Street, USA) are nervous that China’s success is coming from a country that is certainly NOT a democracy. China created the fastest growing economic engine with a mix of a tightly controlled communist regime AND capitalism. This contradicts some very basic, core US values. As Americans, we have been taught that these two (Communism and Capitalism) don’t go together. Does China success prove that our “models” are all wrong?
The US is certainly nervous and threatened by China’s success. I guess it’s OK to be nervous. But no American should be cheering for China to crash and burn. China’s growth may be the only thing that can bail us out of this global recession!
Healthcare Reform: Ditch The Public Option
Is “the public option” really we really want (or need) to fix our healthcare system? Think about it. Do we really want the Federal (or state) government running one of the biggest, most important industries in the US. (Healthcare is currently 16% of US GDP.) Show me one example where the government has been able to do that successfully? Medicare is an absolute disaster on all accounts. The US Postal Service? Amtrak? TSA?
What are we thinking? The public option is a bad idea.
Cancer Screens are Bad for You?! What??
Last week Dr. Otis Brawley, Chief Medical Officer of the American Cancer Society (ACS), said that the benefits of cancer screens, especially breast and prostate, have been overstated. His message is complex. However, the gist of Dr. Brawley’s message goes something like this: According to the ACS, PSA tests and mammograms can be a bad thing for two reasons: 1) PSA tests and mammograms are not very good screens for prostate and breast cancer, respectively. (Note, however, they are the only screens commercially available today.) 2) Wide spread cancer screening leads to overdiagnosis and overtreatment of patients who would be better off “watchful waiting” and not doing anything with their “benign” cancer.In the case of breast cancer, for every 100 women told they have breast cancer, 30 have cancers that are slow growing and unlikely to be life threatening. Thus, treating these patients would actually increase their risk rather than lower it. Similarly, 70 out of 100 men diagnosed with prostate cancer would be better off not undergoing treatment.I have two problems with Dr. Brawley’s message. 1) As a quantitative person, I believe that more knowledge/data is better than less. I do not subscribe to the “I am better off not knowing” philosophy. If I were the patient, I’d like to have as much information as possible about my illness. Thus, the idea that “screening is bad” is (in my book) offensive. I say this even if we safely assume that today’s screens are not ideal and will (hopefully get better) in the future. 2) Dr. Brawley’s timing is suspect. This smells like the beginning of Obamacare were services and screens will be rationed. I could scarily see insurance companies reading Dr. Brawley’s remarks and concluding that they will no longer pay for PSA tests and mammograms going forward. That would be a disaster for the US healthcare system and a huge step backwards.
Detroit to Obama: “More Money, Please!”
Today the US automakers are out asking for more money. (See my last posting dated Nov 10, 2008.) Talk about a giant sinkhole! The bottom line is that the auto industry is the most non-competitive (?) industry we currently have. Unfortunately, any money the Obama administration pours into this industry to try to “save” it will be wasted. Detroit doesn’t need a Band-Aid. It needs a serious overhaul, restructuring, and retooling so Detroit can start making cars that American want.
Re-engineering car designs is the easy part. (All we need to do is copy what Toyota has done.) The restructuring I am talking about requires significant layoffs and union busting. But let’s be realistic…Obama is no miracle man. He is human and a politician. No matter how well-intentioned, he is definitely not willing to commit political suicide by confronting the unions. There is no way Obama can (or will) stand idly while thousands of production workers get pink slips in Detroit.
So we are stuck with Washington ineffectively writing checks to Detroit which essentially amount to inefficient welfare.
Next Up for Some Bailout Money…Detroit!
The latest group coming to Washington looking for a bailout is the Detroit automakers. GM, Chrysler and Ford are all losing money at record pace and (some say) at risk of bankruptcy. The Obama administration has a huge dilemma on its hands – what to do about one of the most uncompetitive industries in America? (And if they save Detroit, when will the bailout madness end? What about the airlines? They need help too.)
The reality is that GM, Ford and Chrysler may be “too big to fail”, and Washington may have no choice but to step in and save the autos. Not doing so would be politically, economically, and strategically unimaginable. However, I would challenge Washington only to use taxpayer money to bail out the industry if it demands that real, strategic change is made to get the US auto manufacturers competitive again. The biggest mistake we can make is to give the auto industry what they (and the unions) are looking for – a blank check. There’s no way we should do that!
Any government led bailout needs to demand real, apolitical change. These companies need new leadership willing and able to make dramatic changes. Close plants that are inefficient and producing cars that no one no longer wants. Demand stringent requirements on fuel efficiency on all new vehicles. Get rid of the unions and their uncompetitive demands. And, yes, downsize the companies so they can operate more efficiently.
The obvious downside to all these changes is layoffs, major layoffs. This will not be easy. (And sadly the reason Washington may not have the guts to do the right thing.) But if significant change is not made, we will waste a lot of taxpayer money and find ourselves dealing with this mess again – very shortly.
One final point…let’s make sure we bail out the creditors of the automakers and not the equity holders. It would be a crime if our bailout funds helped get the Ford family and the big shots at Cerberus out of the mess they got themselves (and all of us) in to.
Election Chip Shots
1) Tonight’s VP debate has to be the most anticipated VP debate in history. I actually think Palin won’t come across as a complete moron. She might do OK. I am worried about Biden. He might shoot himself in the foot several times tonight. The man is smart and impressive, but he can’t shut up.
2) McCain is losing steam. There’s no way he can effectively market himself as the “anti-Bush”. Obama’s “we can’t afford four more years” message is being heard. Look for Obama to pull away. Look for McCain to get nasty as it becomes evident that he is losing in the polls. Obama will win handily. Nice try McCain.
3) And to all you Republicans out there: don’t be too depressed when Obama wins. The best part of an Obama/Biden campaign is that at least Hillary won’t be able to for president in 2012. And let’s face it…by 2016 she’ll be too old to run.
Reaction to last Friday’s First Presidential Debate
A few thoughts come to mind. “Boring.” “A waste of time”. “Politicians doing what they do best.”
I admire both McCain and Obama as men with great integrity. I thought both were “different” than your typical politician. However, last night they sure sounded like your run-of-the-mill politicians.
In a critique of the debate on NPR a political expert was quoted as saying: “Both candidates both did great. Neither one really screwed up.” Since when is “not screwing up” equivalent to doing a good job and serving the American interests? I guess that’s politics for you.
Reaction to the Failure of Congressional Approval for the Bailout
US citizens should wake up and realize how fragile our economy is right now. This bail out is much bigger than just supporting the “fat cats”. If we let the banking system freeze up, we will all feel the grip of a global Depression. We will become Japan or revert back to the US in 1929 all over again.So much for “country first”. “Politics first and country second” is more like it. However, it also shows that Bush’s plea to get this done was meaningless. Bush isn’t a “lame duck” president. He’s a “dead duck” president.Finally, what does all this mean for November 4th ? I think this fiasco just handed Obama-Biden the White House. The country is so disgusted with the Bush Administration that McCain cannot and will not be able to adequately distance himself from his party. McCain, you are guilty by association. Try as you might, you can’t erase that “R” from your forehead. You will lose the election. And by the way…Obama, you are screwed. After winning the White House you are inheriting a bankrupt, ‘recessioned’ country that has serious domestic and international problems which have no quick fix.
47 Days to Go
With 47 days left to go until the election, let me state three obvious points:
1) A lot can happen in 47 days. It feels like the “quiet before the storm” and it really hasn’t gotten ugly yet. We all know it’s going to get ugly real fast.
2) What issue is going to be first and foremost on the minds of Americans come November 4th? If it’s the economy, Obama wins. If it’s national security, McCain wins. If the election took place today, the economy is first and foremost on everyone’s mind so I would give the nod to Obama. I don’t think McCain gives a credible argument that he’s the change engine the country needs. If in the next 47 days, the US encounters a credible terrorist threat that rattles us, McCain will win.
3) The Palin story is getting old. Nominating Palin as VP was a genius strategy by the GOP. Just think. For 30 days, no one has discussed any real issues. They (we) have been distracted by all this Palin gossip. That was a good thing for McCain as he allowed him to stay neck and neck with Obama.