patrick.net

Peter, I must cede to your wisdom

Do not cede to the void. I have no wisdom. Just words.

BTW, I am interested in those currencies because Norway, Australia and NZ are rich in commodities. And the Swissland has fondue. :)

I do not know. My tiny brain is overloading.

One question: can China use the peg as an excuse to buy up currencies of its export competitors, thus driving up their prices and removing their competitiveness?

Zeta, I am not going to comment. The moment I make a prediction, the reverse will happen. (Not long after Bond bears waved their white flag, bond prices started to fall. This is the way of the Collective Unconscious to punish the talkative.) :)

Veritas, I agree with with except

This is NOT consistent with the governing policies of the PRC. They tend to handle dissent poorly. Remember Li Peng is the guy who “green lighted” the Tianamen massacre.

My impression is that the Chinese government is pro-wealth so long as it power is not challenged. I seriously doubt that they see the middle class wealth as dissent. I think they will actually see improving economics as a reinforcer of their power because happy and complacent people are much easier to control, so long as growth remains sustainable.

Veritas, you have a point. I do expect instability over the intermediate term.

Veritas
I just met a woman today who is raising a female child adopted from China. She told me that all the unmarried men in China are starting to form gangs because they don't have anything else to do. Off topic but interesting.

I shouldn't say ALL the unmarried men. But you get the point.

SactoQt, that would be very bad.

Peter
I really don't know much about it. But can you imagine so many young men with no one to marry? I do wonder what the long term consequences will be.

I do wonder what the long term consequences will be.

No doubt some will turn to various forms of fundamentalism.

You're probably right, but in this case I would have to hope you're wrong.

Since we are talking about the Chinese economy, how do you think this kind of instability will affect the world economy in the future?

You’re probably right, but in this case I would have to hope you’re wrong.

I certainly hope that I am wrong too.

Perhaps they can marry someone from neighoring west asian countries?

Perhaps they can marry someone from neighoring west asian countries?

Let's hope they are considered "acceptable marrying material."

Since we are talking about the Chinese economy, how do you think this kind of instability will affect the world economy in the future?

Instability is never a good think for the world economy. A country with more than 1 billion people is going to make a lot of impact.

One thing though, policy decisions are extremely efficient in China. I do have faith that they can solve the problem without resorting to war.

Veritas, have you consider the possibility that the "re-peg to basket" is a scheme to further depress the value of RMB?

Although the initial revaluation result in a gain of about 2%, they now have the flexibility to "choose" appreciation and depreciation against various currencies so long as the peg to the sum remains relatively constant. This re-peg to a basket of currencies is a very clever strategic move.

Veritas, now you are being dramatic.

Strategic nuclear weapons will never be used against another nuclear nation. It will forever remain a threat and only a threat.

I agree, but it does bring parties to the table, like Pakistan and India.

Absolutely. We only need to worry about nukes from terrorists.

Anyway, I think China's posession of nukes did played a major part in their emergence as a economic power.

Maybe they are sensing Europe and Asia would become more important export destination than US in future.

Or they now have a way to depress its value against the dollar without relying on US assets. The Chinese rarely makes a wrong long term strategic move.

Oil is the black gold. I do expect oil conflicts among economic powers. Let's hope that nuclear fusion can give some hope.

With this in mind I expect bay area prices to fall at least 10% in the August to December time frame.

This is a more daring prediction than mine! :)

I hereby reaffirm my October prediction.

By the end of the October, I expect certain credit/financial market events will give convincing evidence that a real estate crash is imminent.

Peter,

Looks like you might have called it. Given how wrong I've been the last few years, I think I prefer to prophesy after the event...

What do you think about my previous posting on the allocation of capital between various index funds? Like I said, I want boring, diversified and inexpensive rather than exciting, high potential and pricey. I'm a bit ashamed to admit that VFINX is my kind of thing. Plunk it in and forget about it for 20 years. I guess where this strategy really loses is in its lack of leverage. But it makes up for it with its lack of antacid buying.

Swing... Set. Through.

Cheers,
prat

_smile_

From ben's:

http://tinyurl.com/drt2l

Cheers,
prat

Jack Says:
Re: China currency….Looks like its time for another new thread HARM!

It looks like you guys already have a good start on the topic right here, but what the heck... Here you go:

"The China Syndrome"

Switch to the next blog (latest one) so I don't have to bounce to this one - please?

Prat, I think index investing is cool. It should work out fine.

I am just a bit wary of mutual funds. But I am wary of a lot of things including 401K and IRA. So please ignore me.

:)

I am wary of a lot of things including 401K and IRA

Peter, if you don't put any money into retirement accounts, what do you use as a write-off? My IRA/403b is about all I've got tax-deduction wise (no mortgage, no kids). Plus, with IRAs (and most 401/403s) you get to invest it pretty much any way you want to.

Peter, if you don’t put any money into retirement accounts, what do you use as a write-off?

I know... I am just uncomfortable with the idea of not having access to my money for decades. A lot of things can happen in a few decades.

Also, you cannot short or sell uncoved options in IRA/401K accounts. Most importantly, all such accounts are US-based so all investments are ultimately USD denominated . (I know of the internation mutual funds option, but your account is still paid in USD.)

Peter P: "I am just a bit wary of mutual funds."

Even passive index funds like vanguard? I like the strategy: its tough to beat the market without a lot of insider knowledge (which most people lack), so why not attack the area we can control: costs. 18 basis points. Tough to beat.

Peter P: "Also, you cannot short or sell uncoved options in IRA/401K accounts."

Why on *God's* earth would you do that, unless you wanted to make investing a full time job? _smile_

See y'all in the next thread.

Cheers,
prat

Why on *God’s* earth would you do that, unless you wanted to make investing a full time job?

That's what my accountant said. :)

It is difficult to get short-side exposure on IRA and 401K though.

You can withdraw money from an IRA/401k earlier if you need, there are just consequences. Also, some will let you take loans out against it.

The consequences (include that of loaning against the account) is too severe for me to fathom.

I know that a tax-deferred account provides superior compounded return but somehow my guts go not feel right about it.

I thought if you take a loan out against your 401k, then you have to pay it back with interest, and there is no penalty. To me, that sounds pretty good, considering your 401k plan pockets the interest.

But I thought the interest will be taxed. And if you somehow change employer, you will have to pay off the loan in full or pay the penalty. Maybe I am wrong, I don't know.

If you’re in the situation where you need all your money before 59.5, you’re screwed anyways.

Not if I intend to move the money offshore before 59.5 for whatever reason though.

I believe you are correct about paying back the loan at termination of employment. Otherwise I believe it is considered a distribution and subject to the penalty and income tax.

The interest that you pay to your 401k is not tax deductible. However, when you withdraw that money it will be taxed. So by borrowing from yourself you convert after-tax income to future taxable income.

How would you be able to move the money offshore?

But I gotta say, if you tell people you believe in renting AND you are skeptical of 401k/IRA’s, then most people will definitely think you’re views are backwards!

Perhaps they are. ;)

It is difficult for me to come up with a logical argument, and I do not expect you to agree with me on this. Trust me, I am lucky to have a tax accountant that agrees with me on this.

How would you be able to move the money offshore?

With tax-deferred accounts, I could not. This is one reason why I am very skeptical.

So by borrowing from yourself you convert after-tax income to future taxable income.

Hence double taxed. ;)

Yes. Double taxed eventually.

You mentioned moving the money offshore before 59.5 -- How can you do this without a taxable withdrawal?

You mentioned moving the money offshore before 59.5 — How can you do this without a taxable withdrawal?

It is not possible. So I am not very comfortable about it.