The lazy days of summer trading continue. The Dow barely moved yesterday. Gold fell $15 an ounce – to be expected after the recent big move up.
We left Vancouver, where we were giving a speech at the Agora Financial Investment Symposium, only a few hours after getting there. On the airplane to Beijing we puzzled about time and place – trying to work out the movements of the Earth, the sun and the airplane.
The flight took 10 hours. From our fuzzy memory of the globe, China should be almost on the exact opposite side of the world from the US. So you would head north from Canada to go to China.
But the plane didn’t seem to be going north. It was going west… or northwest. Looking out the starboard window after midnight, we saw the warm glow of the sun over the Arctic.
At least, that’s what we thought we were looking at. But then the light failed. We must have been going away from the east… so we must have been going west.
You don’t mind if we take a moment work out these important celestial movements, do you, dear reader?
If you fly from one point to another you have to take into account that the place to which you are going does not stay put while you are going there.
There are 24 time zones on the Earth. A 10-hour flight gives the planet time to complete about 40% of a revolution. This means, obviously, your target airport must rotate through 10 time zones… or about 10,000 miles if it is on the equator… toward the east while you are in the air.
The airplane must, therefore, aim not for the place you are going but for the place it will be when you get there, a place far to the east of where it was when you left.
We’re not sure this has any importance to anyone other than pilots, but we found it interesting. And the same phenomenon happens in football and quarterbacking. You aim in front of your moving target.
Big Trouble in China
There is a parallel phenomenon in investing. You don’t really care what the price of gold is today; it’s what the price will be in six months… or six years… that matters.
Revolution is a fact of life. The planet revolves. The markets revolve round and round too.
So do economies…
We’re in China today. Want to know what is going on China? We don’t know but a lot of people think they do. Here’s Paul Krugman in the New York Times:
The signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.
And here’s Ben Levisohn in Barron’s:
Unlike three months ago, when investors were placing big bets that China’s policymakers would pump cash into the economy to spur growth, the markets seem to have accepted the fact that sluggish growth for the world’s second largest economy is its new normal.
Where will China be in six months… or six years?
It is impossible to know. Goldman Sachs slashed its estimates for China’s growth. But it has no better idea than Paul Krugman or anyone else. The Chinese could surprise us in either direction. The economy could fare worse than expected… or better.
But one thing does appear to be happening. After 20 years of spectacular growth, China is looking for a new way forward.
“It’s not enough just to open a factory in Shenzhen and make things for export,” explained a Chinese colleague. “The days of the entrepreneur who grew up under communism and then went on to become a billionaire are over.
“That was the first stage of China’s development. It was the entrepreneurs’ phase. And it happened right after Deng Xiaoping opened the economy up. Entrepreneurs took advantage of the opportunity, using low wages to make things for the developed countries.
“China’s wages are still low compared with the US or Europe. But they’re not low enough. And the developed countries are no longer looking to outsource their manufacturing to China anyway.
“The next phase will be different. No one knows what it will be. But it will be different. And yes there could be a revolution in China… but I doubt it. People are pretty happy with the last 20 years. They expect the next 20 will be good too.”