Wednesday, 6 July 2016

Is China's Economic Growth Dead?

Much is being said about the slowing down of growth in the Chinese economy. In addition to the comments made on the direction of their slowing GDP growth there is also concerns of the reported debt levels and the many ghost cities being built. The questionis : Is China Economic growth dead?

The GDP in China between 1961-1964 moved from -27.3% to 18.3% which would be a 45.6% swing over a period of three years. When you examine the annual GDP growth rate of the Chinese economy you will realize that over the last fifty years the Chinese GDP oscillate in a swing like fashion with up and down periods. At a glance one would suspect that three to five years is a good metrics to anticipate a upward or downward movement of the GDP in the Chinese economy.

Over the last twenty years China's GDP has been hoving around the ten percentile (10%) an average with the lowest GDP in any one year being 7.3% in 2014. China has had more years above nine percent (9%) than lower GDP years below nine percent (9%). Speaking of lowest years, over the fifty years there were only eight separate years that Chinese economy experienced less than a five percent (5%) GDP growth and that is almost twenty five years (25) ago. World Bank data referenced.

Looking at those up and down swings, your next question should be, what accounts for this GDP mood swing in GDP China? These answers could be posited as provided could be possibly answer to these questions.

In 1978 Deng Xiaoping visited Singapore and saw the Singapore model of economic development and fell in love with what he saw. He went back home and decided to copy what he saw in Singapore and started building out housing for the Chinese population or what some would later call urban construction in building cities. The economic pundits call these cities ghost town because the scarce or parsed occupation of the existing stock of housing inventory. This stock of housing inventory is not existing in isolation to a long term plan economic growth strategy. Domestic growth will eventually pick up as the Chinese people move across the country's landscape to redeploy the population and its economic needs.

I would humble put to the economic pundits that during the Chinese cultural revolution in the 1950s there was a population shift from urban to rural. Since those years many ago, the Chinese people have been moving back and forth to the rural areas from the main cities to celebrate their holidays. There families remained there while the young strong members of the family went out to work in the cities and return with the money to sustain the family.

 Now the cities have come to the rural areas in the form of housing inventory and putting pressure on the rural land space generally reserved for agriculture to provide food security the concerns shift now to a larger problem. Food security has little or almost no guarantee without a strong water supply and that makes for a double whammy. So, again the Chinese government has chosen to follow best practice by looking at Israel's model of drip irrigation and agricultural practice to improve their own to assure themselves of the ability to feed themselves.

Building dams and resurrecting dried out lakes are just a few attempts at address the water issue which is a major national food security problem. The cleaning of the polluted rivers is becoming an issue to deal with thus making China more environmentally aware and compliant in its industrial practices.

Each economic transition or shift in China comes with an inevitable GDP swing of some sort. Beside the food security issues and the crisis with the water supply, the Chinese national debt also poses a treat and also account the GDP swing too. The Japanese spent their economic surplus on US acquisitions doing so with the intention to preserve their wealth, but you will notice that Chinese on the other hand has not copied that exact model, but instead has done something different though not totally. the Chinese have gone into the less developed economic with their cash and has secured long term deals to fund infrasture development where it suits them while at the same time invested some in the US. A case of not putting all the eggs in one basket.  Is this global diversifcation or what?

One post can not cover all my observations so I will stop here. Next time we may talk about the one thing in China that has not been experiencing the GDP swings. That is the military spending and the steadfast desire to defend the domestic territory. This time around the Great Wall of China is different and their Great Wall in the internet firewall they have in place.

Focus InSight:
So in summary, China's GDP economic swing may be a subject of its ability to redistribute its population and feed its people while at the same time defend its domestic territory and grow the economiy while it manages its national dedts.

Feel free to share and make comments.

Sunday, 12 June 2016

Is Earnings Growth a Strategy?

Warren Buffett simple strategy is one that speaks to earnings growth and his primary objective is to grow earnings.

He wants to know if after he puts in his money in a company at what point will he be getting it back, how certain he is of getting it back and how often will he be getting his money from the company.

It is the growth prospect of the company that is the most important thing and not the cigar butts businesses that no longer poses an appealing option for the troves of cash he currently generates which is something in the region of a $100 million a week.

So earnings growth is critical a strategy to explore given that he wants time to read, study and deliberate his next purchase.

Focus InSight: Earnings growth is a strategy.

Saturday, 14 May 2016

The Prosperity Formula

Michael Milken

Many years ago Michael Milken, a very bright man, went to prison for breaches of U.S securities law. He is now one of the leading organizer on medicine research on cancer himself a battling cancer survivor. I was introduced to him sometime in the 1980s, better known then as the "Junk Bond King".

I was impressed with his brilliance, and sometime after he was release from incarceration I continued to follow him through Milken Institute and Milken Foundation for which I'm a subscriber. I believe he is doing important work giving back to society. He has paid more than his price to society and he has also left a prize for the rest of society none better than the prosperity formula in my view. Of course, this is not to take anything away from the compounding interest and the others from Einstein and Pythagoras.

The formula he designed on prosperity goes a little something like this;

P= ∑FT;*(∑HC;+∑SC;+∑RA)

FT= Financial Technology
HC= Human Capital
SC= Social Capital
RA = Real Asset

I have given this formula much scrutiny and thoughts. I have found it to be very relevant to any success one desires to have in pursuit of prosperity.  The prosperity formula is important work and I think you should listen to Michael Milken explains it for you too.

In his operating years in the securities industry, he understood financial engineering and he also knew that with the right technical arrangement of capital he could make a real difference.

No prosperity can be achieved without human capital whether that form of capital comes in the form of skills, knowledge or ability of some kind. The aggregate of human capital compounded will sure make a difference, Nebuchadnezzar knew this very well when he set about building Babylon, he knew the power of people to the kingdom at that time and so did the United States of America as it grew over the years with people coming from around the world to form the great melting pot of skills and entrepreneurship. Humans can't achieve its objectives unless with some social contract of some sort, The is a different kind of capital.

The social capital in this formula for me is the agreement to abide by the rules of law no matter who you are. It is also the understanding that the common objective in achieving this one thing and that this one thing is agreed on in the direction we take collectively as a group or society. Not only are the financial technology, human capital and social capital important, but so is the real asset.

Real asset is critical to any leveraging ability that you may have. It is what the financial technology is more likely to be formed around to get the capital in the first place. Although it is on the back-end of the formula it is just as important as any other. The person who has this real asset does not necessarily have to be you, but if you bring whomever it is that has it to the table, that is the starting point. Real asset can be real estate o financial asset and either of the two will work.

The prosperity formula if applied with the summation of the four components, prosperity is sure to come your way.

Prosperity= ∑FT;*(∑HC;+∑SC;+∑RA).

Sunday, 28 February 2016

Copy Warren Buffett

Image result for warren buffett picture

On February 27, 2016 Warren Buffett published his chairman's letter for Berkshire Hathaway and in it he announced that this year he will webcast the annual shareholder's meeting for all to see what happens at the Mecca of Capitalism. I am looking forward to enjoying the field of questions , but more so the answers from Charlie Munger and Mr. Buffett.

Aside from the investment lessons dished by Mr. Buffett. I also enjoyed his comedic rant and his strong believe in the longevity of America while listing its many threats.

I am recommending you have a go at reading his writing and copy his thinking where you can and apply it where you are.

Warren Buffett chairman's letter: