[Vnbiz] Not on Vietnam but may shed light on the inflation debate....a readers rsponse from

Tue Mar 4 12:42:57 PST 2008

Dear anh Craig & CACC,

Thanks for the post, Craig.  The facts may confuse people but the conclusion
is relatively clear: "Soon the monetary alarmists in China will see that
strength in Asian currencies, slowing money supply growth, a downturn in
export growth, soaring import price inflation, eroding trade balances, and
downside reversals taking place in output and GDP growth threaten far worse
negative consequences than they ever imagined (the least of which is placing
Asian equities in danger) and will reverse course once again."

I agree with the above analysis:  Basically the main problem at this point
is the weakening of the USD, which makes all Asian currencies appreciate in
value, which in turn makes Asian exports more expensive and therefore
reduces Asian exports. The reverse is true, Asian imports become more
expensive.  So we have here low export and high import, which will create
trade deficit and thus inflation pressure.

For Vietnam, I think lowering the price of the VND relatively the USD (as
Vietnam's State Bank has done) is a good move.  This would make Vietnamese
export more competitive and will increase export volume  (Whether the export
amount will increase is the result of the final math:  Export amount =
export volum x export price).  Let's hope that export amount may increase or
at least stay the same as last year.  (But if the USD continues to slide,
whether Vietnam can continue to lower is VND is another story).

At the same time, we need to reduce import.  Vietnam import a lot from China
(construction materials, household items), these imports will become much
more expensive, especially because the Chinese Yen is appreciating against
the USD.  I have proposed a luxury sales tax on luxury consumers items,
hoping that will reduce some imports.

Housing costs may increase because construction material imports increase in
price.  Gold price is also increasing, that may bring housing cost up along
too (psychology).  But housing, especially new housing is not a matter of
every day concern, so the pressure is not immediate.

The immediate pressure is food price for the population, especially for the
poor, which has the highest CPI increases.  I will repeat my proposal
here that the government uses the windfall profit gains from exporting crude
oil to offset the price of gasoline sold domestically.  That will take some
inflationary pressure off gasoline and food.

If the we have a high CPI increase, but the highest increase is in housing
and gold, and the lowest increase is in food and gasoline, then the majority
of the population will still be able to handle the situation well..

(I repeat my previous message about the stock market money here  I still
stick with my prediction that the VNINDEX will stabilize around 600 --
unless there is a psychological crash among investors, which is hard to
predict.  So chances are we won't have anymore "sudden" inflationary
pressure from the "stock crash.")

Have a great day!

Hoanh
 ___________

2008/3/4 Craig Stevenson <cstevenson2000 at gmail.com>:

> [ Vietnam Business Forum ]
>
>
> Hi all:
>
> Thought this might be of interest and shed some light on the inflation
> debate.
>
> It is a readers response to a posting on China Financial Markets by
> Dr/Professor Michael Pettis who, essentially teaches future Chinese
> Investment Bankers.
> The site for Dr Pettis' blog is: http://www.piaohaoreport.sampasite.com/
>
> Bio on Dr Pettis:
>
> **
>
> *Michael Pettis *is a professor at Peking University's Guanghua School of
> Management, where he specializes in Chinese financial markets.  He has also
> taught, from 2002 to 2004, at Tsinghua University's School of Economics and
> Management and, from 1992 to 2001, at Columbia University's Graduate School
> of Business.   He is a member of the board of directors of ABC-CA Fund
> Management Co., a Sino-French joint venture based in Shanghai.
>
>
>
> Pettis has worked on Wall Street in trading, capital markets, and
> corporate finance since 1987, when he joined the Sovereign Debt trading team
> at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001,
> Pettis worked at Bear Stearns, where he was Managing Director-Principal
> heading the Latin American Capital Markets and the Liability Management
> groups. He has also worked as a partner in a merchant banking boutique that
> specialized in securitizing Latin American assets and at Credit Suisse First
> Boston, where he headed the emerging markets trading team. Besides trading
> and capital markets, Pettis has been involved in sovereign advisory work,
> including for the Mexican government on the privatization of its banking
> system, the Republic of Macedonia on the restructuring of its international
> bank debt, and the South Korean Ministry of Finance on the restructuring of
> the country's commercial bank debt.
>
>
>
> Pettis is a member of the *Institute of Latin American Studies *Advisory
> Board at Columbia University as well as the Dean's Advisory Board at the
> School of Public and International Affairs.  He is the author of several
> books, including *The Volatility Machine: Emerging Economies and the
> Threat of Financial Collapse* (Oxford University Press, 2001).  He
> received an MBA in Finance in 1984 and an MIA in Development Economics in
> 1981, both from Columbia University.
>
>
>
> Anyway his post was discussing rising concerns over inflation and issues
> related to monetary policy and a reader wrote the following:
>
>  *"The tug of war between monetary alarmists and pro-growth members is by
> no means over. The pendulum will swing back to pro-growth once China's
> leadership realizes the alarming extent to which Asia's growth engine is
> sputtering, and that China has no special immunity to the accelerating
> regional fallout.
>
> Clearly, the impact of the slowdown in the US macro-economic scene
> combined with the deepening debacle in US credit derivative markets, is
> beginning to have a more pronounced impact on Asia. The breadth and extent
> of the negative fallout was completely underestimated by Asian leaders, and
> is much greater than is simply reflected by the action to date in equity
> markets.
>
> (Significantly, today every single one of the 33 sector indexes within the
> broader Topix Index posted a loss for the day. The share price of China
> Merchant Holdings, owner of stakes in China's five largest container ports
> plunged by (-) 7.5%, leading the Hang Seng to a (-) 3.3% loss for the day
> with every single stock in the 43 stock index posting a decline. Beijing
> Capital Land, China Overseas Land, and Gaungzhou R & F properties...three of
> the top mainland property developers, all fell by more than (-) 4% following
> brokerage house downgrades to the Chinese real-estate market, on the back of
> a decline in housing starts and home prices.)
>
> The suggestion that deflation in the US Housing and mortgage/credit
> derivatives market would not spill over into the high-flying Asian markets
> was a product of wishful thinking at best.
>
> Foreign (i.e. US) investors were huge sellers of stocks in Taiwan this
> morning, with net capital outflow from equities hitting 13.5 billion
> Taiwan dollars, following net selling of more than 5.3 billion on Friday.
>
> Asia collectively is now experiencing slowing growth in exports,
> industrial output, and GDP growth, accompanied by disinflation in money
> supply growth, along with intensifying appreciation in almost every Asian
> currency relative to the dollar.
>
> Moreover, inflation indicators throughout Asia reveal an upside
> acceleration in price pressure, despite the slowing export-output-GDP
> growth. Stagflation is appearing everywhere, spilling outward from its
> primary source (the US economy) secondary to hyper-easy Fed monetary policy,
> worsening deflation in the US housing market as well as within US consumer's
> balance sheet, and in terms of the global rise in commodity prices.
>
> The Bank of Japan released January's macro data revealing a worrying
> CONTRACTION in the monetary base, sliding back into deflationary territory.
> Current Account Balances declined, taking the year-year rate of contraction
> to (-) 14.4%. The number of new job applicants rose to 577,400 versus
> Decembers 398,800 while the number of job offers plunged to (-) 11.4%yr-yr. Japan's Purchasing Manager's Index also turned down while the CPI hit
> its highest level in a decade during December and January. The Nikkei's 2
> year exp-ma has reversed to the downside.
>
> Korean import prices rose to a (+) 21.2% yr-yr basis in January as
> compared to August 07 rate of (-) 0.7% when the Fed first began easing
> monetary policy in response to the credit crunch. Despite the Won's
> appreciation and rising exports, Korean trade balance has now turned from
> running a longstanding surplus to a deficit due to import price inflation.
> Korean equities appear on the brink of a technical breakdown below the 52
> week exp-ma.
>
> In Hong Kong there has been a notable erosion within the money supply
> trajectory and bank lending data. Although still nominally positive, what is
> important to note is that the trend has reversed. Both money supply and
> equities are caught up in disinflation.
>
> Money supply in Taiwan has experienced an outright contraction/collapse in
> January. Despite deflation in the money supply and appreciation in the
> currency, Taiwan's wholesale price inflation is soaring, hitting double
> digits rates.
>
> In Thailand, import growth has exploded to a new all time high on a yr-yr
> basis at nearly 50%, causing the country's trade surplus to vanish and turn
> to a deficit, just like South Korea's. Despite a strong currency, rising
> import prices have pushed Thailands CPI significantly higher, thus
> indirectly resulting in negative real interest rates, triggering the Baht to
> soar even higher....putting further downside pressure on the trade balance.
> The central bank dare not ease for fear of exacerbating the upward pressure
> in CPI.
>
> As Asian currencies appreciate against the dollar they will
> eventually/inevitably reach new historic "reverse crisis" levels. Whereas in
> 1997-98 export contraction and currency depreciation threatened to unleash
> disinflationary dominance in commodities, the reverse weakness in the USD
> and exploding Asian import dynamics will unleash hyperinflationary forces in
> the commodity sector, something that China is well on her way to
> experiencing.
>
> Lastly, consider the case of Singapore. M2 Money Supply growth rate has
> reversed, CPI is rapidly rising reaching a (+) 6.6 % yr-yr despite
> significant currency appreciation. Singapore's "official" overnight rate is
> 1%, thus real interest rates are a deeply negative (-) 560 basis
> points........but even this is not enough to support the stock market. In
> the face of rising inflation, slowing export growth, and the slowdown in the
> money supply expansion the market has fallen below its 52 week exp-ma and
> roa.
>
> Soon the monetary alarmists in China will see that strength in Asian
> currencies, slowing money supply growth, a downturn in export growth,
> soaring import price inflation, eroding trade balances, and downside
> reversals taking place in output and GDP growth threaten far worse negative
> consequences than they ever imagined (the least of which is placing Asian
> equities in danger) and will reverse course once again*."
>
> By kevinfischer2002 - Tue, 04 Mar 2008 03:55:34 GMT
>
> Not sure if this helps to clarify some issues or confound others but,
> where possible, enjoy,
>
> Craig
>
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-- 
Tran Dinh Hoanh, Esq., LLB, JD
Washington DC
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