Reading list Sep 08

How about starting with an old post I wrote 14 months ago?

Pushing Ginnie Mae to China (當中國系水魚)

Question: did Mr Jackson know something we didn't know 14 months ago? (note especially how he talked about "the same credit risk")


now the reading list

The Red Cliff review was ranked top in Douban

Random thoughts on sub-prime and the intervention

video via incoherent thoughts

Some thoughts:

1) In a closed system, matters are conserved.

If the total amount of monetary supply (the ultimate source of demand) and goods (in this case real estate and hence its derivatives, i.e. structured financal products) do not change, the "equilibrium" price should be a constant.
i.e. whether it is $700bn or $70tr, whatever term attached to this fund, is not going to change the "equilibirum" price. what it will do though, is to re-distributed wealth through intervention, in this case, from the pockets of good investors to those of bad investors.

2) But the system is never really at its equilibirum point (it was above equilibirum for most of the past 3 years), though statistically it should spend most of the time around the equilibirum point. So the rationale for governemnt intervention is that it could fall way below the equilibrium price if no action is taken. The question follows, if that is the case, wouldn't some hedge fund start to buy in or are they all stupid?

3) Intervention: if the government should invene when the market is way below the equilibrium point, should it intervene when it is way above? -- i.e., to protect the average investors from buying at an overpriced point? why wasn't a similar amount given to the hedge funds who short the market 2 years ago?

4) HK 1998 vs USA 2008. 

The intervention in HK worked in 1998 (judging solely on results, ignoring issues such as market ethnic and proper governance) because IT WAS UNDERPRICED. Had the HK government intervened a few days early, it could have lost the gamble. Had it intervened a few days later, it could have profited more! It succeed not because it acted right, it succeed because it waited long enough and the price/timing was right.

The HK goverment was betting against a group of investors, who [might have] erred. We know how much it was paying for each piece of asset it acquired. We do not know whether the US government is betting against a group of speculator, or just the market ("gravity") -- see below.

For the $700bn plan, there is not a single indication of the price point the US government will enter. Since it is about structured financial products, the actual value of the goods could be zero. The only way this would work is, to restricted the fund to apply strictly to buying up properties, i.e. the underlying assets for these products, not the products themselves; real estates to be more specific if it has to, or something similar.

5) How do we know where the equilibrium point is? If we believe in statistics and the market force. the "equilibirum" (US) housing price should be around the average of the past 10 (or 15?) years, adjusted for inflation. 

Today, it is quite clear that it is out of the 'reasonable' bound. To be out of bound (and for a safe entry with taxpayers' money) the price should be about as far below the average as it had been once above that average (i.e. the around peak of the market)

e.g. (for those who believes in technical analysis there is a simple estimate -- though far from rigorous) Take the Case-Shiller Index (SPCSUSA), it moved between 85.71 and 185.45 for the past 10 years, the mid-point being around 135. The 2008 Q2 value was 155.32, today it is probably much closer to the mid-point of 135. To justify a value that is "way-below equilibirum" the index needs to fall signifcantly below 135, e.g., perhaps a bit more than 1 standard deviation.
(maybe adds inflation which had been low until very recently)
-- the same applies for those who want to invest his own money into real estate.


Entropy - what a difference a day made

It takes almost a whole month to clear up the sky between July 20 and mid August.

Now it takes less than a week to mess it totally up. This is the photo of the same location one day ago. My 'wishful thinking' was crushed, mercilessly. What a difference a day made... sigh

This is the second law of thermodynamic (and the concept of entropy) -- a simply illustration is that a drop of ink could dye a whole bathtub in seconds, but it is very hard to separate the ink and the rest of the water. To reverse the damage it takes energy, a lot more energy. e.g. days of thunderstorms for the smog, but in most cases the force of nature is not in place. (for that inked bathtub one can distill the water with a large 'coffee machine' very carefully)

This show what the challenge of undoing the pollution in China (and for that matter the rest of the world as well) will be.


Beijing Impressions

Clear sky on September 26, one week after normal traffic resumed.
1) Since the end of the Olympic (yes, during the 16 days of the Olympic, most of it was still either raining or misty, but visible changes, i.e. blue sky, emerged only towards the last few days), the sky has been largely blue.

The best days were between Aug 20-Sep 20, I had thought. What surprised me is that the sky had been particularly clear AFTER the Paralympic (i.e. normal traffic jam resumed after September 20)! Perhaps there is a time lag of about 15-25 days between the government measures and the results (traffic control started on July 20 but clear sky refused to emerge until almost a week after Olympic Opening, or a month after July 20)

There are a few possible reasons behind what made the sky blue
a) The weather -- it had been cooled and there had been rains in the past few days, washing away the smog, or the fall often presents clear sky as temperature cools down (but this does not explain the sky between 1995-2007)
b) Traffic is only part of the problems, the factories (and perahps others) contributed more to the haze (but then many factories resumed work, I suppose)
c) There is a time lag between the cause and effect as mentioned above (and it takes quite a few days to accumulate or clear the smog) -- perhaps the most plausible answer
d) (my wishful thinking) perhaps something permanent has been done (factory migration, etc) catalyzed by the Olympic -- wishful thinking are usually the less likely

2) I went to one of the most famed (and popular) restaurant a while ago. It is called Na Jia Xiao Guan (That little restaurant, literally). Very nice "indoor courtyard" setting with great food, reasonable price, unlike the notorious Lan Club which is a blatant rip-off targetting ex-pat. It is located on the street just behind Lan.

It is almost impossible to make dinner reservation, but early lunch are usually wide open. (this applies to many other restaurants, e.g. Da Dong)

The "Courtyard"
What I want to say about is not something like a food critique, but about how radical Chinese capitalism and hence management style could become. As illustrated by this customer feedback card, where you have the photos of all staff (including the manager) and you can pick any card to vote. In US I suppose this might lead to law suit from the employee(?)

The score card of Najiaxiaoguan
It follows that the service is very good, as is for many other restaurants in mainland China.

3) This picture is taken in a Hutong, which are plentiful in Beijing. The old residence had been utilizing the soil and space to plant various kind of agricultural products (like the Hulu / gourd / "zuchini" in this picture). One thing I had been wondering was why 99% of the trees on our streets (worldwide) do not bear fruit. I reckon that cleaning the ground may be a problem, but still ... here the Beijing residents did it inside the Hutongs.

Hutong agriculture


And the Gold Medal goes to ...... score 2563mg!

The old lady finally sang, announcing that 22 out of 109 companies has melamine adulterated milk powder.

Rank, Company, adulterated sample/total sample, mg of melamine per kg milk powder
1. shijiazhuang sanlu 11/11 2563mg
2. shanghai panda  3/5, 619
3. qingdao shengyuan 8/17, 150
4. shan fucheng 4/13, 141.6
5. jiangxi hero 2/2, 98.6
6. baoji huining 1/1,  79.17
Megnniu ranks 7th, with 3 out of 28 samples doped, of which the worst has 68.2mg/kg
Yili has 1 out of 35 sample with problem, at 12mg -- i can buy the farmer adulteration excuse for Yili, even Mengniu. But for Sanlu, "kill me first" (打死也不信). btw, I wonder if the government would release the numbers for all the 11 Sanlu samples. If they are all as high, many more officials in Hebei will (should) lose their Wusha Hat.

It is pretty clear, from the cencentration of melamine figures that Sanlu adulterated melamine in the production process. The milk collectors might also be guilty of adulterating melamine, but the amount of melamine will never reach such concentration, nor did any other factory went that far. 2563mg/kg=2.563/1000 or 0.2563%!!!. I wonder if there is any real protein at all. This explains why only Sanlu had caused visible symptoms at such a wide extent.


品牌   抽样数 不合格数  三聚氰胺最高含量
  1. 三鹿      11       11       每公斤2563毫克
  2. 熊猫      5        3        每公斤619毫克
  3. 圣元      17       8        每公斤150毫克
  4. 古城      13       4        每公斤141.6毫克
  5. 英雄      2        2        每公斤98.6毫克
  6. 惠民       1       1        每公斤79.17毫克
  7. 蒙牛       28      3        每公斤68.2毫克
  8. 可琪       1       1        每公斤67.94毫克
  9. 广东雅士利  30     8        每公斤53.4毫克
  10. 南山       3      1        每公斤53.4毫克
       11. 麒麟       1      1        每公斤31.74毫克
  12. 山西雅士利 4      2        每公斤26.3毫克
  13 金必士      2      2        每公斤18毫克
  14 施恩        20    14        每公斤17毫克
  15 金鼎        3      1         每公斤16.2毫克
  16 伊利        35     1        每公斤12毫克
  17 奥美多      16     6        每公斤10.7毫克
  18 艾克丁      3      1        每公斤4.8毫克
  19 育宝        3      1        每公斤3.73毫克
  20 磊磊        3      3        每公斤1.2毫克
  21 宝安力      1      1        每公斤0.21毫克
  22 聪尔壮      1      1        每公斤0.09毫克


LHC opponents sides with the See-See-P

Following some mis-guided pseudo-scientist's advice, there has been a law suit against a science project, the LHC near Geneva, Switzerland. And they had used See-see-P's argument that Rights = right to survive, and that the experiment is threatening to create a black hole which would engulf the whole earth, and therefore violates their rights to survive.

Fine, maybe they do agree with the government in China and maybe that is what 'rights' mean. I could go along with that, sort of. But the point is, there is a law in physics called energy conservation, and it takes much larger amount of energy to create a black hole large enough to engulf this world.

Related links: 


Maps: Caucasus, Georgia

How Russia occupied the Caucasus in early 1800s.
The ethnic Caucasus
The linguistic Caucasus
Topographic / political
Topographic / elevation