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As in "once we start making content those will matter". Ignoring the massive issues they face wont change the reality of them.
Exactly. Nobody wants to listen to the voice of reason. I've had two different experiences with bubbles.
The first time was during the Dot Com bubble. I was called into to consult for a dot com starting up, a website for nurses. I sat there during the meeting and listened as they enthused over the feature-rich site, filled to the rafters with content. You name it, this site had it.
So at the end of the presentation, I flipped through the prospectus and asked, "Okay. Sounds great. Where's your revenue going to come from?" You would have thought that I had stood up, unzipped and urinated on the conference room table. I mean, I was the freaking killjoy in the room. Didn't I know that they had five million in investor capital? Didn't I understand a freaking thing? I respectfully declined the business and, a year later, they went under.
The other time was the real estate bubble. I was advising both a large mortgage-based bank and a number of developers. I was already worried about stunt mortgages, such as the 0% down, interest-only, and other kinds of mortgages. I was also noticing a difference in what kind of borrowers were coming into the market. Instead of people looking at a mortgage on a thirty-year note and deciding whether or not they could borrow the money, they were asking, "What's the biggest possible house I can get into for the smallest possible payment? ARM? I'll take it!"
What's more, the government was just egging things on and putting pressure on the banks to lend. I remember one senior underwriter telling me, "You know, it used to be when I turned someone down, I had to call the applicant. Now, I have to report to the government." Yes, there was serious pressure on lenders to lend, with charters being held hostage.
Of course, most banks were making hay, too. I was invited into another meeting where a Latino marketing specialist (A perfect legitimate field) presented to that same bank on how illegal aliens were the next great mortgage market. You read right. Illegal aliens. And as they guy ran through his powerpoint presentation, I watched all these bankers nod their heads in agreement. "Wait a minute," I thought to myself. "These guys are all about risk."
The lights came up and the presenter asked if there were any questions. I raised my hand and asked, "You mean you would recommend lending money to $250,000 to someone who could be deported the day after closing?" You would have thought I had asked the most terrible question possible.
You know what the most telling reply was? "Oh, CPG, we don't have to worry about that. Once we close the loan, we're just going to sell the paper upstream to someone else. They'll deal with the risk." After that meeting, I literally drove home and put our house on the market, because I knew things were spiraling out of control. Sold the house at the top of the market and bought a less expensive place on the equity.
I also had similar conversations with builders. These guys were just convinced the market was going to keep climbing with values going up 10-15% a year. In 2006, I told all four of my builder clients to stop developing, at least anything requiring a Jumbo loan. Only one guy decided to hold off. He's the only one in business today.
So when I look at the China thing, I see a lot of people kidding themselves. There's this childlike faith in a country that is doubling down on some very risky stuff, cutting corners in terms of financial reporting, and ignoring the people who point out the obvious . The demographics aren't there. The regulatory environment isn't there. The market isn't there. I just don't think it's going to end well at all.
I tried to have a conversation about China's problem with some Chinese nationals from China but they have only optimism that China will take over the world's super power from the US one day.
Issues about copying and innovation will be resolved eventually they say.
Exactly. Nobody wants to listen to the voice of reason. I've had two different experiences with bubbles.
The first time was during the Dot Com bubble. I was called into to consult for a dot com starting up, a website for nurses. I sat there during the meeting and listened as they enthused over the feature-rich site, filled to the rafters with content. You name it, this site had it.
So at the end of the presentation, I flipped through the prospectus and asked, "Okay. Sounds great. Where's your revenue going to come from?" You would have thought that I had stood up, unzipped and urinated on the conference room table. I mean, I was the freaking killjoy in the room. Didn't I know that they had five million in investor capital? Didn't I understand a freaking thing? I respectfully declined the business and, a year later, they went under.
The other time was the real estate bubble. I was advising both a large mortgage-based bank and a number of developers. I was already worried about stunt mortgages, such as the 0% down, interest-only, and other kinds of mortgages. I was also noticing a difference in what kind of borrowers were coming into the market. Instead of people looking at a mortgage on a thirty-year note and deciding whether or not they could borrow the money, they were asking, "What's the biggest possible house I can get into for the smallest possible payment? ARM? I'll take it!"
What's more, the government was just egging things on and putting pressure on the banks to lend. I remember one senior underwriter telling me, "You know, it used to be when I turned someone down, I had to call the applicant. Now, I have to report to the government." Yes, there was serious pressure on lenders to lend, with charters being held hostage.
Of course, most banks were making hay, too. I was invited into another meeting where a Latino marketing specialist (A perfect legitimate field) presented to that same bank on how illegal aliens were the next great mortgage market. You read right. Illegal aliens. And as they guy ran through his powerpoint presentation, I watched all these bankers nod their heads in agreement. "Wait a minute," I thought to myself. "These guys are all about risk."
The lights came up and the presenter asked if there were any questions. I raised my hand and asked, "You mean you would recommend lending money to $250,000 to someone who could be deported the day after closing?" You would have thought I had asked the most terrible question possible.
You know what the most telling reply was? "Oh, CPG, we don't have to worry about that. Once we close the loan, we're just going to sell the paper upstream to someone else. They'll deal with the risk." After that meeting, I literally drove home and put our house on the market, because I knew things were spiraling out of control. Sold the house at the top of the market and bought a less expensive place on the equity.
I also had similar conversations with builders. These guys were just convinced the market was going to keep climbing with values going up 10-15% a year. In 2006, I told all four of my builder clients to stop developing, at least anything requiring a Jumbo loan. Only one guy decided to hold off. He's the only one in business today.
So when I look at the China thing, I see a lot of people kidding themselves. There's this childlike faith in a country that is doubling down on some very risky stuff, cutting corners in terms of financial reporting, and ignoring the people who point out the obvious . The demographics aren't there. The regulatory environment isn't there. The market isn't there. I just don't think it's going to end well at all.
I disagree. China has lots of cards. If one or two fall, they still have many other cards.
I disagree. China has lots of cards. If one or two fall, they still have many other cards.
Based on what? They have other cards. But those are all part of a house of cards that constitutes the jury-rigged financial system combined with a very bad demographic trend. It affects everything. Financing for business. Real estate. Investment. Acquisition of raw materials.
Look, if you want to believe that, okay. But the demographic problem isn't just one thing. It's huge, something that cannot just be shrugged off, especially when you realize that China is going to have a very tough time moving to a post-industrial economy AND deal with years of state-driven malinvestment. Nope. China has some very hard history ahead of it starting very soon.
China has two cards, the US dollars they own and their manufacturing capability. That is it. They are behind the 8 ball on many very basic issues like food, water, environment and demographics.
China has two cards, the US dollars they own and their manufacturing capability. That is it. They are behind the 8 ball on many very basic issues like food, water, environment and demographics.
They have another card, that is their people. And if the Chinese central command plays their cards right, in a generation China will have huge consumer potential. And as we know here in the USA, consumerism is a large part of economic success.
If I owe you some money then that is my problem. If I owe you millions then its your problem.
That reminds me of the Turkish joke, about the man who was tossing and turning in the middle of the night, and his wife asked what's the matter He said "I owe our neighbor Mustafa 100,000 lira, due tomorrow, and I have no money to pay him". His wife goes to the open window and yells out "Hey, Mustafa, my husband has no money to pay you tomorrow. Now it is your problem. We are going to sleep. Goodnight."
They have another card, that is their people. And if the Chinese central command plays their cards right, in a generation China will have huge consumer potential. And as we know here in the USA, consumerism is a large part of economic success.
You keep talking about the next generation in complete denial of the demographic *hitstorm that's about to hit that country. The next generation will be dealing with a huge imbalance between working-age Chinese and elderly Chinese. It is going to be tremendous and suck up enormous amounts of money. What's more, China simply does not have the sophisticated investment instruments for retirement that the United States has. The key to wealth in China has been to invest in real estate, yet the Chinese real estate bubble is very well documented at this point. The only remaining question is when it's going to pop.
Ongoing innovation is the driver of the United States' economic success. The average middle-class Chinese will likely never have anywhere close to the buying power of the average middle-class American. Not in this century, anyway. Maybe ever.
You keep talking about the next generation in complete denial of the demographic *hitstorm that's about to hit that country. The next generation will be dealing with a huge imbalance between working-age Chinese and elderly Chinese. It is going to be tremendous and suck up enormous amounts of money. What's more, China simply does not have the sophisticated investment instruments for retirement that the United States has. The key to wealth in China has been to invest in real estate, yet the Chinese real estate bubble is very well documented at this point. The only remaining question is when it's going to pop.
Ongoing innovation is the driver of the United States' economic success. The average middle-class Chinese will likely never have anywhere close to the buying power of the average middle-class American. Not in this century, anyway. Maybe ever.
Sure. They will have internal economic turmoil as we with our own Medicare/SS. But overall when China presents itself and the world another billion consumers, grand things will happen. And yes they will have to manufacture huge numbers of Yuan for themselves and the world. That will take time. I might not see it for myself, but I would think it closer to a generation than 100 years.
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We gave you a 2000 year head start. Now let's see whatyagot!
