China Markets

In recent years foreign equity markets have trounced US equity markets. While the US equity markets have stayed effectively flat since 2000, many foreign markets, such as China, scored robust gains.

To many people, myself included, any time stocks rise at this rate without “fundamental” positive changes to the environment, it smells of a bubble. Remember prior to 2000 when the dot-com stocks were going to remain at a “permanently high level”, or that the economic cycle had been tamed? These thoughts were shattered when the NASDAQ swooned 78% from peak to trough during its brutal fall.

I run some individual stocks for my nieces and nephews at this site and let them select from a list of stocks; in recent years there has been a strong emphasis on these well performing overseas issues. One stock that had a meteoric rise was China Mobile – the largest wireless firm in China (and the world) – whose stock went from under $40 / share to over $100 / share in about a year – remember this stock had an enormous market capitalization to begin with and anytime a large company has this type of stock performance it is extremely abnormal. We took our winnings and left; the stock has subsequently dropped significantly.

This chart from the WSJ article “China Stocks, Once Frothy, Fall by Half in Six Months” shows clearly the runup in the China index from 2006 (near 1000) to almost 6000 in late 2007, down to near 3000 today (April 2008).

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More Real Estate Trouble in the Condo Market

My neighborhood, the River North area of Chicago, has seen an explosion of condominium developments over the last decade. Loft buildings and business warehouses were the first to be converted, and then purpose-built high rise condominiums began to populate the neighborhood. While Chicago likely isn’t at the same frenzy level as South Beach in Florida, we certainly have a vast overhang of unsold and in-process condominiums on the market right now. Below you can see some of the recent construction (not all condominiums, a lot of it is office space) including the Trump Tower (on the left) as well as other developments. The “beige” building in front has a forlorn “Condos” sign at the top.

Today I was reading the Sunday Chicago Tribune real estate section when I noticed an article titled “Credit Getting Even Tighter for Condominium Buyers”. If you own a condominium and are interested in its value or are consider buying a condominium I strongly suggest that you research this issue in greater depth.

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Energy Mess, Continued

UNRELIABLE SERVICE

Today’s Chicago Tribune carried an article reflecting a reality that will become more and more common as time goes by. The article is titled “Deerfield files suit against ComEd” in their Friday, April 18 edition. Deerfield is a suburb of Chicago and ComEd is the local electrical distribution company that provides power, a wholly owned subsidiary of Exelon. ComEd’s “solution” is to raise rates to fix the problem, while Exelon’s stock is at an all-time high due to the money that they make selling power that costs them very little to generate (our broken regulatory system in Illinois at work).

The city of Deerfield claims that their electrical supply is unreliable. They state that they have had 1,377 outages between 2000 and 2007 and only 13% of these outages were weather related. These outages typically caused flooding due to shut off sump pumps, food to become spoiled, and are a general nuisance.

This type of activity will grow more common in the future, since lack of continuity in generation causes a lot of the outages (poorly run and maintained distribution and transmission systems also contribute significantly to these outages). I wouldn’t be surprised if in the future homes had built-in back up generating capacity, especially high end homes, to insulate them from at least short term fluctuations in the grid.

NEW JERSEY NUCLEAR PLANT

New Jersey is also considering building another nuclear plant, their first plant since 1973, according to this article. While I applaud Corzine (their governor, the guy who got into a car accident without a seat belt & almost died) for trying to do this, the odds of this plant ever seeing the light of day are near zero. The NIMBY’s are already going nuts – from the article:

“Environmental groups were sharply critical of Mr. Corzine’s 15-year energy plan. Jeff Tittel, director of the New Jersey chapter of the Sierra Club, said the governor “needs to step up and lead New Jersey to a cleaner, greener future with more wind, solar and better energy efficiency goals.”

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Mamet & Human Nature

2nd Update:   (If anyone’s reading this far down).   Tom Stoppard on ’68.  

 The idea of the autonomy of the individual is echoed, I realise, all over the place in my writing. In The Coast of Utopia I was using 19th-century Russian philosopher Alexander Herzen’s own words about the English in the 19th century: “They don’t give asylum out of respect for the asylum seekers, but out of respect for themselves. They invented personal liberty without having any theories about it. They value liberty because it’s liberty.”

Update:  Henniger on Mamet’s essay (WSJ  video).  

Original post:   David Mamet

began reading not only the economics of Thomas Sowell (our greatest contemporary philosopher) but Milton Friedman, Paul Johnson, and Shelby Steele, and a host of conservative writers, and found that I agreed with them: a free-market understanding of the world meshes more perfectly with my experience than that idealistic vision I called liberalism.

He describes his conversion in the Village Voice. His picture of Bush still has elements of BDS, but he has begun to examine his experience and finds the best keys to understanding it seem to lie on the right. As some (some critical) commentors note, his work indicated he might be moving that way. (Certainly a television series about the professional & home life of a special forces unit might indicate that.) And certainly a playwright worth his salt might be interested in how character actually acts – an inadequacy that some of the more ideological playwrights of our time demonstrate rather nicely. But it was life that had forced him to look again at his beliefs.

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Stupidity–Communist-Style and Capitalist-Style

There’s an old story about a Soviet-era factory that made bathtubs. Plant management was measured on the total tonnage of output produced–and valves & faucets don’t add much to the weight, certainly not compared with the difficulty of manufacturing them. So the factory simply made and shipped thousands of bathtubs, without valves or faucets.

The above story may be apocryphal, but the writer “Viktor Suvorov” tells an even worse one, based on his personal experience. At the time, he was working on a communal farm in Russia:

The General Secretary of the Party set a task: there must be a sharp rise in agricultural output. So the whole country reflected on how best to achieve this magnificent aim.

The fertilizer plant serving the communes in Suvorov’s area resolved to do its part:

A vast meeting, thousands strong, complete with brass bands, speeches, placards, and banners, was urgently called at the local Chemical Combine. To a man, they shouted slogans, applauded, chanted patriotic songs. After that meeting, a competitive economy drive was launched at the Chemical Combine to harvest raw materials and energy resources.

The drive lasted all winter, and in the spring, on Lenin’s birthday, all the workers came in and worked without pay, making extra fertilizer from the materials that had been saved…several thousand tons of liquid nitrogen fertilizer, which they patriotically decided to hand over, free of charge, to the Region’s collective farms.

The local communes were told that all fertilizer must be picked up in 24 hours–the factory’s product tanks were full, and if the bonus fertilizer was not removed, production would come to a standstill. Suvorov was the truck driver for his collective, and it was his task to go to the plant and pick up the farm’s allocation. Problem: the truck could only carry 1.5 tons at a time, and a round-trip to the plant would take about 10 hours. The commune’s allocation was 150 tons. There was also a shortage of fuel for the truck. And Suvorov knew that if he didn’t complete his mission, the director of the commune would be replaced. While the man was not to everybody’s liking, his expected replacement was much worse.

What to do?

When Suvorov arrived at the plant with his truck, he saw that the other communal farms had faced the same problem, and had hit on a solution.

There was a long queue of trucks of different makes, dimensions, and colours standing outside the Chemical Combine. But the queue was moving fast. I soon discovered that lorries, which had only a moment before been loaded, were already returning and taking up new places in the queue. Every one of these lorries ostensibly needed many hours to deliver its valuable load to its destination and then to return. But they rejoined the queue in a matter of minutes. Then came my turn. My tanks were rapidly filled with the foul-smelling liquid, and the man in charge marked down on his list that my native kolkhoz had just received the first one and a half tons of fertilizer. I drove my lorry out through the Combine’s gates and followed the group of lorries which had loaded up before mine. All of them, as if at a word of command, turned off the road and descended a steep slope toward the river Dneiper. I did the same. In no time at all, they had emptied their tanks. I did the same. Over the smotth surface of the great river, the cradle of Russian civiliztion, slowly spread a huge poisonous, yellow, stinking stain.

The great fertilizer production drive was undoubtedly marked down in government records as a tremendous success.

Don’t be too smug, though, fellow capitalists. My next example of institutional stupidity comes from the American private sector.

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