The Lawrence Chan Blog

A controversial TedTalk from Nick Hanauer. It is so sensitive that it is pulled from TedTalk website.

Time magazine have a piece on this talk, Was Nick Hanauer’s TED Talk on Income Inequality Too Rich for Rich People?

I do not totally agree with the point of view of Mr. Hanauer.

He raised a valid challenge on the inequality issue with lower tax rate on the rich people and that it has not resulted in improvement in job creation. His understanding that the middle class people is the actual fuel in driving the economy is also plausible.

Two things he mentioned on corporations are definitely true. First, corporations always try their best to minimize the need of expensive labour resources. Second, when labour resources cannot be avoided, corporations tend to seek for the place with the lowest total labour cost to hire workers.

Mr. Hanauer’s point of view is biased because of his experience in profitable companies does not represent the nature of all businesses. It is also not possible to have middle class families to spend more money as a group when middle class the concept itself is disappearing in every part of the world.

Taxing more on the rich people will not necessarily transfer those money into creating more middle class people. It may as well be transferred into the hands of another group of rich people who work closely with the governments. No offense intended, but just increasing tax on the rich is not a solution.

I see the real issue is not just a matter of rich being taxed unfairly, it is the treatment of capital in such naive way by the governments that highlights how out-dated the politicians are. Throughout history, it is those economies with middle class families coming from owners of small to medium size companies that have the better overall growth and stability. Yet, these small to medium size business owners are the ones hated most by both right-wing and left-wing political parties. The right-wing politicians are in bed with big corporations to crush the small businesses while the left-wing politicians mistaken the small business owners as capitalist pigs in the same class as the large corporation evil-doers.

By allowing big corporations to exist in part of the economy that is best serviced by small to medium size businesses, the governments around the world routinely destroy the small to medium size businesses that are the essential engines of their economies. The original middle class population has now mostly disappeared.

The replacement middle class coming from the big corporations do not have the same characteristics like the original. The new middle class mainly coming from big corporations do not have independent survivability as their existence is a function of the big corporations.

There is no real solution to resolve this problem.

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Bernanke’s speech today (July 10, 2013) essential tells us one and only one thing – the Fed must react to the strengthening US dollar. No matter what he says or whatever is printed in the minutes does not matter. What matters is that US dollar strengthening kills the mark up in various economic measures hence affecting the mandate of Fed.

As I said before, the crashing of Japanese yen by BOJ and Japanese government will induce a reverse effect on the worldwide financial markets. Bennie has to react by talking down US dollar now or 3rd quarter corporate earnings will be a total disaster.

The problem now is that the hands of Fed are really tied. They do not have the authorities to increase monthly POMO to a higher level. In reality Fed needs to boost POMO by at least 50% (i.e. 120+ billion dollars per month in POMO) to counter the effect caused by BOJ’s trashing of yen. Unless US government is going to raise the debt ceiling significantly now, Fed does not have the room to nudge its books to allow for the necessary increase.

This is the defining the moment of world economy.

If Fed just talks and no action this month, the consequence will likely be very damaging.

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Reported by Reuters today, Japan plans to switch inflation gauge; may up pressure on BOJ, the Japanese government is going to exclude energy prices from its inflationary measure, which already excluded prices on human essentials like food, etc.

Japan is not the first government that changes its economic data and inflation metrics to create room for inflationary economic policies. United States is very famous for making sure its economic data has nothing to do with reality. The problem, however, is that Japan is a tightly knitted economic system. Its economy reacts violently to any stimulus and its people suffers greatly and immediately to the capital flows. If Japanese government really proceed with this change, social unrest will likely be inevitable in near future.

I am closely monitoring the development of this because it will affect how fast money will be flowing in and out of Japan which directly impact the currency markets. My take is that it is likely to cause a boost to US dollar initially. The dynamic economic system however will backfire with a fatal blow to the European bond markets and likely induce a collapse in various fast rising markets.

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My new ebook 5 Things You Must Know To Beat The Stock Market is now available from Amazon in Kindle format.

I am hosting a 1 day free download event this Thursday (July 11, 2013) at Amazon.

Remember to get your copy absolutely free on Thursday!

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Something to think about, hedgies underperforming S&P by a wide margin.

http://www.zerohedge.com/news/2013-07-08/after-june-rout-average-hedgie-returning-25-2013-underperforming-sp-80

It is not that the hedge funds are not trying because I know they want to do better. The problem is their ability to react to the current environment is greatly restricted.

Another issue pointed out in the article that funds using computer models to select buy/sell targets are in deep red is something very difficult to resolve as there is no real preceding historical environment where the central bankers keep pumping money into the financial system.

It is a market environment that change much faster than most hedge funds are created for.

Time for a new breed of hedgies?

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