Asia | timiacono.com - Part 3

Given the remarkable increase in the number of stock trading accounts and soaring margin debt in China over the last year or two, stories such as the one below about a farmer losing his life savings (and then some) should be expected, but, after seeing this man’s distress and learning of the dollar amounts and approach involved, it is a little surprising.

Investing his entire stake of $164K in one company and then being extended $1 million in margin probably weren’t the best moves Yang Cheng could have made.

Clearly, the government should have provided some basic instruction about investing in stocks when they began their effort to promote stock ownership. Maybe they did and he thought he knew better – the only thing missing from this sordid tale is the claim that Yang Cheng at one point was worth $4 million, or something like that.

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Wither Russia? Oo-Yeh!

John McCain’s quip that Russia is “a gas station masquerading as a country” appears to be more true every day as a failed attempt to prop up the ruble with a rate hike from 10.5 percent to 17 percent is now seen by FOREX markets as sign of desperation rather than strength, leading to more selling of the ruble as the oil price continues to move lower.

This Washington Post story put the two side-by-side as shown below (does anyone care about Ukraine anymore?) as they detailed how doomed the Russian economy is.

According to this Moscow Times report, the Russian people may already be adapting to the new currency realities – as they did in the 1990s – via the reintroduction of:

the u.e. — which stands for the Russian words “uslovnaya yedinitsa,” or “conditional unit” and is pronounced “oo-yeh”

This is a currency unit pegged to the dollar aimed at keeping retailers from having to replace price tags on a daily (if not hourly) basis. About the only thing that seems certain at this point is that this will probably get worse before it gets better.

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The Japanese are Turning Japanese

In case you hadn’t heard about Japan’s horrific third quarter GDP numbers, the chart below via this BBC report should aid in understanding why the financial world is again baffled by the failure of central bank largess to impact the real economy in the desired fashion.

Analysts were expecting a growth rate of +2 percent and what they got was -2 percent, surprisingly fitting the widely accepted definition of a recession (two consecutive quarters of contraction). This sort of thing seems to happen a lot in Japan.

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Russia Continues to Buy Gold

While their total is likely dwarfed by what goes unreported in China, the Russian central bank was, by far, the biggest buyer of gold during the third quarter as shown below in the World Gold Council’s latest report on Gold Demand Trends.

I suppose if I were Vladimir Putin here in 2014, I’d be trading in U.S. dollars for gold too, particularly given the developments in Ukraine so far this year and after the metal’s price has fallen to such low levels in recent weeks.

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The Rise of China, the Decline of Japan

From this item the other day at the Wall Street Journal’s Real Time Economics blog comes the graphic below from a recent IMF study that shows how the rest of Asia has become increasingly dependent upon China, rather than Japan, for exports.

In cases such as Australia and New Zealand, the change is profound.

Of course, since some of these are large percent changes from a small base such as in the Philippines, the data can be a bit misleading, however when countries like Taiwan reduce their exports to Japan by two-thirds while quadrupling their exports to China, that’s huge.

It’s no wonder that China feels the need to flex its muscles from time to time and you can’t help but wonder how things will work out in Japan over the long run, given their dramatic rise, fall, and then stagnation over the last four or five decades.

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