1.29.2011
Bamboo Scaffolding
China the Mother of All Grey Swans / Japan Past the Point of No Return - October 2010 - By Vitaliy Katsenelson
via scribd.com
Is China on the verge of imploding? Is the excess and idle capacity going to drag the entire country under, and with it the rest of the world?
Many very interesting points raised in this presentation from Vitaliy N. Katsenelson of Investment Management Associates.
China Permits Foreign Investment WFOEs in Medical Industry | China Briefing News
China Permits Foreign Investment WFOEs in Medical Industry
Dec. 14 – In a follow up to the piece we wrote last week on China opening up its medical industries to foreign investment, here we offer readers a direct translation of the pertinent text taken from Guobanfa [2010] No. 58 issued on November 26.
Article 5: Allowing overseas capital to establish medical institutions
Opening up shall be further deepened for medical institutions and investments in medical institutions by overseas capital shall be adjusted into permitted foreign-invested projects.
Overseas medical institutions, enterprises and other economic organizations shall be allowed to set up medical institutions through the form of joint ventures or cooperative joint ventures within China with Chinese medical institutions, enterprises and other economic organizations to gradually cancel restrictions over the proportion of equity held by overseas capital.
Eligible overseas capital may establish wholly-owned medical institutions within China on a pilot basis and restrictions shall be removed gradually.
Overseas capital may make investments in both for profit medical institutions and non-profit medical institutions.
Overseas capital shall be encouraged to establish medical institutions in the central and western parts of China.
Capital from Hong Kong SAR, Macau SAR and Taiwan region in establishing medical institutions in the mainland shall enjoy priority support policy in accordance with relevant provisions.
Article 6: Simplifying and standardizing examination and approval procedures for overseas capital making investments in medical institutions
The establishment of Sino-foreign joint venture medical institution and Sino-foreign cooperative joint venture medical institution shall examined and approved by health authorities and commerce authorities at the provincial level, among which the establishment of Chinese medicine hospital, Chinese and western medicine hospital and minority medicine hospital shall seek the opinions of Chinese medicine administration authorities at the provincial level.
The establishment of foreign wholly-owned medical institutions shall be examined and approved by the Ministry of Health and the Ministry of Commerce, among which the establishment of Chinese medicine hospitals, Chinese and western medicine hospitals and traditional Chinese medicine hospitals shall seek the opinions of the State Administration of Traditional Chinese Medicine. Specific measures shall be separately formulated by relevant authorities.
At present, foreign investment is only permitted (with very rare exceptions) in the form of Joint Ventures, however the circular states the equity amount in favor of the Chinese partner may now be reduced. Initial pilot schemes will be permitted for the establishment of WFOEs, while the promulgation of the application procedures is still being worked on.
Also within the circular are the provisions for more “social capital” to be made available for the reform of public hospitals. It dictates the circular is intended to “stably transform some public medical hospitals into non-public medical institutions, appropriately lower the proportion of public hospitals, promote the reasonable distribution of public hospitals and create the situation in which multiple investments are made in medical institutions,” effectively meaning the door has now opened for a class of private hospitals to be both funded from overseas to service the domestic market.
This circular paves the way for far easier access to the large medical care industry in China for foreign investors. Further information concerning this development and the implications for interested parties may be made to Richard Hoffmann, senior legal associate at Dezan Shira & Associates. The firm handles numerous clients in China’s health care and medical industry and can be contact at legal@dezshira.com.
Big news for the opening up of Chinese markets to foreign competition. It still probably makes little sense to try to operate on the mainland without a local partner, but a major step in policy regardless.
1.24.2011
U.S. and China Agree to New Public/Private Healthcare Partnership | China Briefing News
U.S. and China Agree to New Public/Private Healthcare Partnership
Jan. 20 – China and the United States announced a new public/private sector joint partnership yesterday focusing on the healthcare industry. The U.S. Trade and Development Agency, the U.S. Department of Health and Human Services and the U.S. Department of Commerce joined with China’s Ministries of Health and Commerce to announce their support for the establishment of the new organization.
“The economic and social development of any nation depends on the health and productivity of its people,” said U.S. Department of Health and Human Services Secretary Kathleen Sebelius. “This partnership builds on a strong foundation of bilateral cooperation in this critical sector of our economies.”
The American Chamber of Commerce in China (AmCham-China) was an early proponent of this partnership on the U.S. side and applauds its establishment.
The Healthcare Partnership Program follows two highly successful, existing public/private partnerships that operate under AmCham-China’s umbrella, namely the Aviation Cooperation Program and the Energy Cooperation Program.
“The Healthcare Partnership Program is a milestone in U.S.-China cooperation in healthcare and will strengthen the contribution of U.S. companies to China’s healthcare reforms,” said AmCham-China Chairman Ted Dean. “Public/private partnerships like the Healthcare Partnership Program are important examples of how the two countries can come together for mutual benefit.”
The new public/private partnership was announced as part of Chinese President Hu Jintao’s official state visit to the United States this week. The Healthcare Partnership Program will be headquartered in AmCham-China’s Beijing office.
China Briefing broke the news of foreign investment being allowed into China’s healthcare and medical industries six weeks ago. Foreign investors may now establish WFOEs in the sector, our full overview of the applicable regulations are contained in our article “China to Allow Foreign Capital into Medical Organizations” and a translation of the regulations in this piece, “Foreign Investment WFOEs in China’s Medical Industry.”
Dezan Shira & Associates have been advising foreign manufacturers and pharmaceutical companies about establishing a presence in the China market, and obtaining the pertinent licenses, since 1992. Please contact the firm for legal and tax advice concerning investments into this industry at info@dezshira.com, or download the firm’s brochure here.
11.03.2010
PIMCO | Mohamed El-Erian - We've Voted. What's Next For the Economy?
We've Voted. What's Next For the Economy?
- With the two chambers of Congress split between Democrats and Republicans, the conventional wisdom likely to be repeated over the next few weeks is that political gridlock is good for the economy. While often true, that is not the case today.
- Democrats and Republicans must meet in the middle to implement policies to deal with debt overhangs and structural rigidities.
- The economy needs political courage that transcends expediency in favor of long-term solutions on issues including housing reform, medium-term budget rules, pro-growth tax reforms, investments in physical and technological infrastructure, job retraining, greater support for education and scientific research, and better nets to protect the most vulnerable segments of society.
via pimco.com
Mohamed El-Erian, Co-CIO/CEO of PIMCO and the voice on the street that I trust utmost in times of uncertainty, casts a veil of uncertainty over the seemingly decisive electoral mandate claimed by the GOP in yesterday's triumph at the polls. The insurgent nature of the GOP movement, spearheaded by the Tea Baggers (Party), does not inspire hope in the prospects of overcoming the policy gridlock in DC that must be addressed before any fundamental changes can be made to the country's rapidly deteriorating long-term fiscal health with an aging population and public pension liabilities light-years beyond the tipping point of permanent insolvency.
Due to the "great age" of leverage, debt and credit entitlement, and the related surge in structural unemployment, the private sector is not in a position to control its own destiny. Emerging markets are rapidly eroding traditional economic and political competitive advantages enjoyed by the US. It is hard to disagree with El-Erian in his conclusion - the extreme nature of today's political discourse is ill-suited to tackling the pressing issues of our time.
Mid-term elections, QE and the markets: Tea and QE | The Economist
But there is also a nice irony at work. The tea party is opposed to massive government spending and bailouts. But QE is a way for the central bank to finance that government spending and to pump money into the banking sector. So on the day that the tea partiers may be celebrating, an unelected central bank will be carrying out a programme, probably totalling several hundred billion dollars, that will cut against everything the partiers stand for.
via economist.com
Buttonwood accurately foresaw the overwhelming victory of the Tea Baggers and we are now mere hours from the likely Federal Reserve announcement of QE2 and the resumption of the printing press. The irony observed in the above excerpt - that the Fed is poised to undermine everything the Tea Baggers fundamentally stand on through its independent monetary authority - is unlikely to be fully appreciated by the media as the day progresses. It will be interesting to see the response of the freshly invigorated GOP activists in the coming weeks leading up to their inauguration early next year. I suspect the radical tone will be subdued by political realities and market uncertainty, not to mention the radical shift in mindset that accompanies a transition from insurgent to incumbent.
10.29.2010
PIMCO's Bill Gross | Investment Outlook - Run Turkey, Run
Run Turkey, Run
- The Fed’s announcement of a renewed commitment to Quantitative Easing has been well telegraphed and the market’s reaction is likely to be subdued.
- We are in a “liquidity trap,” where interest rates or trillions in asset purchases may not stimulate borrowing or lending because consumer demand is just not there.
- The Fed’s announcement will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.
They say a country gets the politicians it deserves or perhaps it deserves the politicians it gets. Whatever the order, America is next in line, and as we go to the polls in a few short days it’s incumbent upon a sleepy and befuddled electorate to at least ask ourselves, “What’s going on here?” Democrat or Republican, Elephant or Donkey, nothing much ever seems to change. Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home. This isn’t a choice between chocolate and vanilla folks, it’s all rocky road: a few marshmallows to get you excited before the election, but with a lot of nuts to ruin the aftermath.
Each party’s campaign tactics remind me of airport terminals pre-9/11 when solicitors only yards apart would compete for the attention and dollars of travelers. “Save the Whales,” one would demand, while the other would pose as its evil twin – “Eat Whale Blubber,” the makeshift sign would read. It didn’t matter which slogan grabbed you, the end of the day’s results always produced a pot of money for them and the whales were neither saved nor eaten. American politics resemble an airline terminal with a huckster’s bowl waiting to be filled every two years.
And the paramount problem is not that we contribute so willingly or even so cluelessly, but that there are only two bowls to choose from. Thomas Friedman, the respected author of The World Is Flat, and a weekly New York Times Op-Ed author, recently suggested “ripping open this two-party duopoly and having it challenged by a serious third party” unencumbered by special interest megabucks. “We basically have two bankrupt parties, bankrupting the country,” was the explicit sentiment of his article, and I couldn’t agree more – whales or no whales. Was it relevant in 2004 that John Kerry was or was not an admirable “swift boat” commander? Will the absence of a mosque within several hundred yards of Ground Zero solve our deficit crisis? Is Christine O’Donnell really a witch? Did Meg Whitman employ an illegal maid? Who cares! We are being conned, folks; Democrats and Republicans alike. What have you really heard from either party that addresses America’s future instead of its prurient overnight fascination with scandal? Shame on them and of course, shame on us. We’re getting what we deserve. Vote NO in November – no to both parties. Vote NO to a two-party system that trades promises for dollars and hope for power, and leaves the American people high and dry.
There’s another important day next week and it rather coincidentally occurs on Wednesday – the day after Election Day – when either the Donkeys or the Elephants will be celebrating a return to power and the continuation of partisan bickering no matter who is in charge. Wednesday is the day when the Fed will announce a renewed commitment to Quantitative Easing – a polite form disguise for “writing checks.” The market will be interested in the amount (perhaps as much as an initial $500 billion) as well as the targeted objective (perhaps a muddied version of “2% inflation or bust!”). The announcement, however, has been well telegraphed and the market’s reaction is likely to be subdued. More important will be the answer to the long-term question of “will it work?” and perhaps its associated twin “will it create a bond market bubble?”
Whatever the conclusion, not only investors, but the American people should recognize that Wednesday, even more than Tuesday, represents a critical inflection point in determining our future prosperity. Of course we’ve tried it before, most recently in the aftermath of the Lehman crisis, during which the Fed wrote $1.5 trillion or so in “checks” to purchase Agency mortgages and a smattering of Treasuries. It might seem a tad dramatic then, to label QEII as “critical,” sort of like those airport hucksters, I suppose, that sold whale blubber for a living. But two years ago, there was the implicit assumption that the U.S. and its associated G-7 economies needed just an espresso or perhaps an Adderall or two to get back to normal. Normal just hasn’t happened yet, and economic historians such as Kenneth Rogoff and Carmen Reinhart have since alerted us that countries in the throes of delevering can take many, not several, years to return to a steady state.
The Fed’s second round of QE, therefore, more closely resembles an attempted hypodermic straight to the economy’s heart than its mood elevator counterpart of 2009. If QEII cannot reflate capital markets, if it can’t produce 2% inflation and an assumed reduction of unemployment rates back towards historical levels, then it will be a long, painful slog back to prosperity. Perhaps, as a vocal contingent suggests, our paper-based foundation of wealth deserves to be buried, making a fresh start from admittedly lower levels. The Fed, on Wednesday, however, will decide that it is better to keep the patient on life support with an adrenaline injection and a following morphine drip than to risk its demise and ultimate rebirth in another form.
We at PIMCO join with Ben Bernanke in this diagnosis, but we will tell you, as perhaps he cannot, that the outcome is by no means certain. We are, as even some Fed Governors now publically admit, in a “liquidity trap,” where interest rates or trillions in QEII asset purchases may not stimulate borrowing or lending because consumer demand is just not there. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole. Just ask Japan. Ben Bernanke, however, will try – it is, to be honest, all he can do. He can’t raise or lower taxes, he can’t direct a fiscal thrust of infrastructure spending, he can’t change our educational system, he can’t force the Chinese to revalue their currency – it is all he can do, and as he proceeds, the dual questions of “will it work” and “will it create a bond market bubble” will be answered. We at PIMCO are not sure.
Still, while next Wednesday’s announcement will carry our qualified endorsement, I must admit it may be similar to a Turkey looking forward to a Thanksgiving Day celebration. Bondholders, while immediate beneficiaries, will likely eventually be delivered on a platter to more fortunate celebrants, be they financial asset classes more adaptable to inflation such as stocks or commodities, or perhaps the average American on Main Street who might benefit from a hoped-for rise in job growth or simply a boost in nominal wages, however deceptive the illusion. Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme. Public debt, actually, has always had a Ponzi-like characteristic. Granted, the U.S. has, at times, paid down its national debt, but there was always the assumption that as long as creditors could be found to roll over existing loans – and buy new ones – the game could keep going forever. Sovereign countries have always implicitly acknowledged that the existing debt would never be paid off because they would “grow” their way out of the apparent predicament, allowing future’s prosperity to continually pay for today’s finance.
Now, however, with growth in doubt, it seems that the Fed has taken Charles Ponzi one step further. Instead of simply paying for maturing debt with receipts from financial sector creditors – banks, insurance companies, surplus reserve nations and investment managers, to name the most significant – the Fed has joined the party itself. Rather than orchestrating the game from on high, it has jumped into the pond with the other swimmers. One and one-half trillion in checks were written in 2009, and trillions more lie ahead. The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort. There is no need – as with Charles Ponzi – to find an increasing amount of future gullibles, they will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not. This one is so unique that it requires a new name. I call it a Sammy scheme, in honor of Uncle Sam and the politicians (as well as its citizens) who have brought us to this critical moment in time. It is not a Bernanke scheme, because this is his only alternative and he shares no responsibility for its origin. It is a Sammy scheme – you and I, and the politicians that we elect every two years – deserve all the blame.
Still, as I’ve indicated, a Sammy scheme is temporarily, but not ultimately, a bondholder’s friend. It raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead-end where those prices can no longer go up. Having arrived at its destination, the market then offers near 0% returns and a picking of the creditor’s pocket via inflation and negative real interest rates. A similar fate, by the way, awaits stockholders, although their ability to adjust somewhat to rising inflation prevents such a startling conclusion. Last month I outlined the case for low asset returns in almost all categories, in part due to the end of the 30-year bull market in interest rates, a trend accentuated by QEII in which 2- and 3-year Treasury yields approach the 0% bound. Anyone for 1.10% 5-year Treasuries? Well, the Fed will buy them, but then what, and how will PIMCO tell the 500 billion investor dollars in the Total Return strategy and our equally valued 750 billion dollars of other assets that the Thanksgiving Day axe has finally arrived?
We will tell them this. Certain Turkeys receive a Thanksgiving pardon or they just run faster than others! We intend PIMCO to be one of the chosen gobblers. We haven’t been around for 35+ years and not figured out a way to avoid the November axe. We are a survivor and our clients are not going to be Turkeys on a platter. You may not be strutting around the barnyard as briskly as you used to – those near 10% annualized yields in stocks and bonds are a thing of the past – but you’re gonna be around next year, and then the next, and the next. Interest rates may be rock bottom, but there are other ways – what we call “safe spread” ways –to beat the axe without taking a lot of risk: developing/emerging market debt with higher yields and non-dollar denominations is one way; high quality global corporate bonds are another. Even U.S. Agency mortgages yielding 200 basis points more than those 1% Treasuries, qualify as “safe spreads.” While our “safe spread” terminology offers no guarantees, it is designed to let you sleep at night with less interest rate volatility. The Fed wants to buy, so come on, Ben Bernanke, show us your best and perhaps last moves on Wednesday next. You are doing what you have to do, and it may or may not work. But either way it will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.
If a country gets the politicians it deserves, then the same can be said of an investor – you’re gonna get what you deserve. Vote No to Republican and Democratic turkeys on Tuesday and Yes to PIMCO on Wednesday. We hope to be your global investment authority for a new era of “SAFE spread” with lower interest rate duration and price risk, and still reasonably high potential returns. For us, and hopefully you, Turkey Day may have to be postponed indefinitely.
William H. Gross
Managing Director
via pimco.com
Bill Gross goes off on the FOMC and the federal government generally in his monthly newsletter, blasting the imminent "QEII" as the largest Ponzi Scheme in history, offering up the new term of "Sammy Scheme" to describe the Federal Reserve's strategy for pumping new life into the economy.
The most important point Gross is making, in my opinion, is that QE is really code for "writing checks", and check writing in the trillions is in fact inflationary. As the manager of the world's largest bond fund, Gross makes very clear that QE is not the bondholder's friend, because it raises bond prices to create the illusion of high returns. However, prices will eventually reach a point where they can no longer rise any further, at which point the market offers near 0% returns and "picking of the creditor's pocket via inflation and negative real interest rates."
10.28.2010
Currency War Digest
- John Taylor Parallel's Current Situation to WWII, Predicts Global Debt Structure Could Collapse (Zero Hedge)
- Risk Lightens Amid Latest Shots in Currency War (FT)
- General Bernanke and the Currency War of 2010 (Forbes)
- The Most Dangerous Effect of a Currency War is not Hyperinflation or Hyperdeflation (BusinessInsider)
- Who Would Win a Currency War? (Time Magazine)
- Martin Wolf: US Victory in Currency War Assured (IPEZone)
- Too much focus on the Yuan? (VoxEU)
- A currency war the US can't win (VoxEU)
- The Novelist Who Predicted the Currency War (Reformed Broker)
The book is called Super Sad True Love Story and it was written by Gary Shteyngart. If the name sounds familiar, he is the brilliant and hilarious writer who gave us Absurdistan a few years back, one of my favorite books of the last decade. In SSTLS, Shteyngart introduces us to our own world a few years into the futur e. The US dollar has been devalued (several times) and citizens keep up with the state of our decaying empire on CrisisNet, a news service available on the mobile devices that have become almost like actual human appendages. The nation is seemingly held hostage while awaiting a visit from the Chinese Central Banker, a reviled figure who is essentially superior to our President.
9.21.2010
And Then There Was One: Tiny Tim All Alone...
Bloomberg just broke the news that Larry Summers, Director of the National Economic Council, is expected to leave the White House following the November elections. This leaves Timothy Geithner as the sole remaining member of the original foursome guiding the Administration's economic policy.
Poor Timothy. Its never fun being the last person standing when the music stops, but something tells me that Mr Geithner will do his boy scout best to continue throwing bucket after bucket overboard as the Titanic (US Government) continues is
slow decent permanently underwater.
Poor Timothy. Its never fun being the last person standing when the music stops, but something tells me that Mr Geithner will do his boy scout best to continue throwing bucket after bucket overboard as the Titanic (US Government) continues is
slow decent permanently underwater.
9.20.2010
Global Macro News 9.20.2010
Asia-Pacific
Japan intervenes to devalue the Yen (FT.com)
In Depth Report: Japanese Intervention (FT.com)
USD/JPY Weekly Outlook Sept 20-24 (Forex Crunch)
China: What do the "good" trade numbers tell us? (China Financial Markets)
Are There More Middle-Class Households in India or in China? (Next Big Future)
EU
Poland Ready To Take "Brutal" Steps on Foreign Currency Loans (Bloomberg)
Hungarian Forint Touches Record Low (ForexBlog)
Hungary faces downgrade of debt to junk status (Bloomberg)
US
Federal Reserve Resumes Open Market Operations (Federal Reserve Bank of New York)
End of Recession / No End of Private Sector Deleveraging (EconompicData)
The Only Part That Mattered In Obama's Telethon (Market Ticker)
Ask Not Whether Governments Will Default, but How (Safe Haven)
El-Erian on the interesting week ahead (FT Alphaville)
Entitlements, Taxes, Inequality and Three-Way Class Warfare (Of Two Minds)
Japan intervenes to devalue the Yen (FT.com)
In Depth Report: Japanese Intervention (FT.com)
USD/JPY Weekly Outlook Sept 20-24 (Forex Crunch)
China: What do the "good" trade numbers tell us? (China Financial Markets)
Are There More Middle-Class Households in India or in China? (Next Big Future)
EU
Poland Ready To Take "Brutal" Steps on Foreign Currency Loans (Bloomberg)
Hungarian Forint Touches Record Low (ForexBlog)
Hungary faces downgrade of debt to junk status (Bloomberg)
US
Federal Reserve Resumes Open Market Operations (Federal Reserve Bank of New York)
End of Recession / No End of Private Sector Deleveraging (EconompicData)
The Only Part That Mattered In Obama's Telethon (Market Ticker)
Ask Not Whether Governments Will Default, but How (Safe Haven)
El-Erian on the interesting week ahead (FT Alphaville)
Entitlements, Taxes, Inequality and Three-Way Class Warfare (Of Two Minds)
9.03.2010
Signet Launches Global UCITS Fund of Funds (via @citywire) #ucits
Signet makes a very wise move launching a fund of ucits hedge funds based in Dublin. The Signet Multi-Strategy Fund is a UCITS III fund and will compete with Morgan Stanley, which recent launched its own ucits fund of funds (FoFs) platform, which intends to launch 1-2 new sub-funds every few weeks for the indefinite future. Domiciles like Ireland, Luxembourg and Malta are offering onshore funds a virtually cost-free environment for launching sub-funds. In Lux it costs approximately $2000 in regulatory fees for the first 25 sub-funds setup funds and about $1400 for all funds after 25 without limitation. There is a clear opportunity for an innovative FoFs to do exciting things in the retail UCITS space...
Amplify’d from citywire.co.uk
Signet Launches Global UCITS Fund of Funds
by Matthew Goodburn on Sep 02, 2010 at 19:07
Fund-of-hedge-funds management and advisory group Signet is launching its first UCITS-compliant fund of funds for its institutional and private-bank clients.
The London and Switzerland-based group which runs some $1.4 billion of assets, said the Signet Multi-Strategy Fund would offer weekly liquidity amd would be able to allocate to around 15 hedge funds globally, in line with the limits set under UCITS III guidelines.
The Dublin-domiciled fund is intended for investors in the UK, continental Europe and Asia.
As with Signet’s other funds of funds, the new fund will aim to produce consistent, low-volatility returns largely uncorrelated with traditional markets.
Tim Gardner, Signet’s global head of sales, said: 'Our clients have asked for, and we have delivered, a genuine fund of UCITS hedge funds - not a wrapper or an index. Because the underlying funds will be UCITS-regulated, they will be subject to strict limits on leverage and liquidity.'
obert Marquardt, said: 'As the number of UCITS hedge funds has increased
The firm's founder, Robert Marquardt, said: 'As the number of UCITS hedge funds has increased exponentially, research and risk management have become critically important, and the best funds-of-funds distinguish themselves in both these areas. Our experienced team performs precisely the same thorough due diligence on these funds as it does for our other funds.'
He added: 'The fund will be flexible in terms of strategy. It will allocate mainly to long/short equity and fixed income, but also to multi-strategy, global macro, and other strategies – always keeping UCITS guidelines in mind.'
See this Amp at http://bit.ly/bkXRIS
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