Thursday, October 9, 2008

The Thoughts of Andy Xie

October 17, 2005
Housing market: America's 'weakest link'

Morgan Stanley economist Andy Xie believes a global housing crash is a serious possibility.

"Either you have a big adjustment like a 20 percent or 30 percent decline, or you have a big recession, or you have a slow decline in property prices or several years of no growth," said Xie, based in Hong Kong.

Hindsight has been very kind.

October 12, 2006
Morgan Stanley Fallout From Andy Xie Costs More Jobs (Update1)

Xie, a Shanghai-born economist who worked at Morgan Stanley for nine years, sent the e-mail to his colleagues after attending the International Monetary Fund and World Bank annual meetings last month in the Southeast Asian island state. The economist questioned why Singapore was chosen to host the conference, and said delegates ``were competing with each other to praise Singapore as the success story of globalization.''

``Actually, Singapore's success came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials,'' Xie wrote in the e-mail. ``Indonesia has no money. So Singapore isn't doing well.''

Based on the stock price of Morgan Stanley today, I'm guessing he's not all that upset over losing his job for speaking his mind in what was intended to be an internal e-mail. Call me silly but perhaps the entire "success story of globalization" is being called into question right now.

Apr 30, 2007
Andy Xie warns of China crash

"I think it's going to be bust very soon," Xie said, adding that a combination of excess liquidity, rising inflation and rich valuations would result in a global crash soon.

"People will be surprised. When the end comes, it's going to be pretty bad," Xie added.

I think it is safe to say, using hindsight, that most investors were surprised and it's been pretty bad.

So what's Andy Xie saying now?

October 8, 2008

Obama or McCain: The Dollar Will Weaken

The US property-cum-credit bubble results from a desire to maintain a living standard higher than its fundamentals could support. The bursting of the bubble should have made the US face up to reality. But it is not doing so. The current administration is using the central bank to lend to failing financial institutions to keep them alive. Unless political changes lead to a different approach, the US will likely stagnate, like Japan in the 1990s, and with the added problem of inflation.

Since my blog is named Illusion of Prosperity, it is probably not needing a huge leap of faith to guess where I stand on that prediction.

The policies that both Democrats and Republicans have promised in their campaigns are not really addressing the fundamental problems. One US politician recently asked me what I thought the US should do. I opined that the US should spend less and produce more. With the policy circle talking up another fiscal stimulus package, my idea took him by surprise. But the US got into the current situation by spending too much money – how can spending more solve the problem? Both parties are promising more money for healthcare and education, bailouts for delinquent mortgage borrowers, and tax cuts; exactly the opposite of what’s required.

As stagflation takes hold, the US will become much more defensive with regard to globalization. The Doha Round of free trade talks failed due to opposition from developing countries. The next US government won’t do anything to revive it. Further, it may back away from existing free trade arrangements, such as the North America Free Trade Agreement (NAFTA) between Canada, Mexico, and the US. The direction on free trade is clearly backwards.

Since stagflation is in my name as a seemingly permanent fixture, you can pretty much bet that I believe in that outlook as well.

Regardless of who wins, it will be extremely difficult to turn the economy around. The US has been living in a debt bubble. Greenspan kept interest rates continually low during his 18-year reign at the Fed, didn’t rigorously regulate derivatives, and tolerated the subprime surge. Wall Street concocted complex products with assumed, not real, reduction in risk, and sold them to credulous investors. But this bubble-conducive environment wouldn’t necessarily have led to a bubble unless American households were eager to borrow.

Once again, no big leap of faith needed.

The US economy is facing its biggest crisis since the Great Depression, one that will require considerable sacrifice to solve. But politicians are talking the other way and promising more goodies. The dollar is the fallback plan. Printing money spreads the pain for all dollar holders, and many are foreigners. This is the last tool that the US has to not pay the full cost on. Eventually, foreigners will realize this and run. When the dollar goes into free-fall, America will finally have to wake up to reality.

I suspected the American dream would soon become a nightmare when I started this blog late last summer. Want to bet that I've changed my mind? I'll give you 50 to 1 odds and I'll even allow you to use 30 to 1 leverage to sweeten the deal. I will need to see the money up front though. This is the New America. I don't want to assume any counterparty risk on the off chance you lose.


Anonymous said...


Fired for speaking the truth. Sad, but not suprising.

Wall street's behaviour is a direct parallel with the actions of the German citizenry during WWII. People knew what was happening, especially with the Jews. They looked the other way though.

Disgracefully bad leadership.

Stagflationary Mark said...


Whether it is true or not is immaterial to me. He offered an unpopular opinion and was fired.

CEO complaints about the board shows need for candor

“Everyone always agrees with me, and that makes me uneasy.”

John Mack (Morgan Stanley's CEO) apparently should have been especially uneasy, using the power of hindsight.

Anonymous said...

Whether it is true or not is immaterial to me. He offered an unpopular opinion and was fired.

That's more accurate.

But I do see wall street as a pack of self serving liars. They don't have clients, they have marks. How is it that amateurs (visitors not necessarily the bloggers) on numerous blogs could spot the credit, housing and stock bubbles but wall street couldn't?

What a sham. They have caused real hardship.

Stagflationary Mark said...


But I do see wall street as a pack of self serving liars.

I propose making Wall Street a new branch of government. I'm probably not the first to think of it though. We could call it Constreet. Later we could merge it with Congress. It could then be called Constress.

For what it is worth, I'm experiencing constress right now. Then again, it's nothing like what silver investors are feeling. It just dropped below $10 an ounce (well below its March $20 "safe haven" high).