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Weekend reading: Our greatest export, the Joneses

Weekend reading

Good reads from around the web.

Having re-embraced capitalism like only a 2,000-year old culture could do, the Chinese are also getting our traditional diseases of affluence.

No, not chronic obesity (yet) but the other kind of conspicuous consumption, and all its attendant evils.

That rich Chinese consumers like a bit of flash won’t come as a shock to anyone who has been following the earnings of companies with luxury brands.

While doomsters wonder how we’ll ever sell anything to China, firms like BMW, Tiffany and Burberry have been queuing up to load containers returning to Shanghai with our high end tat fanciest goods.

‘Keeping up with the Wangs’ researchers (genuinely!) call it.

Apparently the knock-on effects of judging yourself by your stuff versus your neighbours’ – as opposed to your devotion to the Glorious Chairman – is even affecting Chinese stock portfolios, the Wall Street Journal reports:

Compared to investors in the poorer provinces of China, those in the wealthiest provinces put more of their portfolios in stocks headquartered nearby (presumably because they aren’t tainted by proximity to the rural areas).

Wealthier Chinese investors also trade more in smaller stocks (perhaps because that makes them feel they are “in the know” relative to people who aren’t familiar with these names).

All this demand appears to have driven smaller stocks to steep prices, although high valuations haven’t discouraged wealthier Chinese from continuing to invest.

Quite the contrary: That seems to brand these stocks as a kind of luxury good, making them still more desirable.

Curious as these findings are, they won’t be wildly relevant to many of us (except perhaps Anthony Bolton, as he tries to pep up his flagging China trust). The Chinese stock market remains pretty tiny in the grand scheme of things.

No, this was the bit that struck me:

People in China’s richest provinces already report lower levels of happiness than those in the poorer areas. Extravagant housing prices, traffic jams, pollution and the pressure of constant social comparisons will do that to you.

Despite the sad universality of affluence and envy, I think China is probably a couple of decades away of being rich enough to afford to protest about it.

Then again, given China’s cavalier attitude to pinching our best ideas, perhaps Chinese anti-capitalism will soon go ironic full circle in Tiananmen Square?

From the money blogs

Book of the Week: It’s a few years old, but I’ve just re-read the Four-Hour Work Week and it still packs a disruptive punch. Inspiration for 2012!

Mainstream media money and investing

  • The coming shortage of equity investors – The Economist
  • Malkiel: The bond buyer’s dilemma – Wall Street Journal
  • Burton Malkiel’s non-random walk down Wall Street – Roth / CBS
  • Support Amazon, not your local bookstore – Slate
  • Can London survive as a financial hub? – Fortune
  • The world needs more crazy billionaires – Fortune
  • Time magazine’s person of the year: Bull sign! – Miyanville
  • ‘Web-only’ savings deals set to increase – FT
  • I still believe in China, says Bolton [big interview]FT
  • Paying mortgage cheaper than renting in most of UK – Telegraph
  • Celebrity-endorsed saving plans a rip-off, says Which?Telegraph
  • Does London need rent controls? – The Guardian

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{ 11 comments… add one }
  • 1 Faustus December 17, 2011, 2:34 pm

    The Telegraph article on rent v. mortgage costs is full of typical estate agent tosh. Such lazy and misleading thinking promoted in rags like the Mail/Telegraph helped to generate the house price bubble in the first place. It is true that rents in London are extortionate, but it is utterly bogus to say ‘there has never been a better time to buy’.

    First, the calculations are based on interest-only repayments, the kind of mortgage that is increasingly scarce, and is useless for comparing ‘affordability’ since most mortgagees will have to repay capital too. Second, the figures exclude depreciation (maintenance costs) and insurance which are the owner’s responsibility. Third, the figures exclude the opportunity costs of sinking a deposit into a house rather than investing it, and assume therefore ever continuing house price rises. Wishful thinking if ever there was some!

    Readers of this reckless piece would do well to compare with another story in this week’s press:

    http://www.guardian.co.uk/uk/feedarticle/9999926

  • 2 The Investor December 17, 2011, 2:44 pm

    @Faustus — Hah, don’t hold back. 😉 I would have said similar 6-7 years ago, but now I deliberately try to see both sides of the housing price debate as it’s cost me so dearly being wrong here in London and sitting out the whole boom and the damp squib of a bust.

    One thing I definitely have changed in my thinking about is whether it’s fair to consider interest only mortgage payments when doing the comparison. I now think that’s the right way to do it. The capital repayment element is like committing to a saving scheme, albeit a saving scheme with a bonus option on house prices. Over the long-term, that option is likely to be at least mildly positive. Comparing a repayment mortgage to rent makes no sense — your landlord doesn’t rebate you a capital lump sum if you move out in a decade.

  • 3 Faustus December 17, 2011, 3:41 pm

    @TI

    I can appreciate the frustrations of being outside the property market – in the UK government economic policy seems to revolve around the view that if you don’t have property you are a second-rate citizen! Osborne’s bonkers scheme to have taxpayers subsidising first-time buyer defaults is a case in point.

    I suppose my gripe with using ‘interest-only’ repayments for comparison is that it is unrealistic for the housing lobby to then use this to talk about ‘affordability’ viz-a-viz rents, when capital repayments are an integral part of the costs one has to meet each month. It then becomes even more misleading when you exclude all the other charges that come when buying a house with leverage – mortgage fees, agent/surveyor’s fees, stamp duty, etc. Agency letting fees are a pain but nowhere near these costs, and you almost never see them factored into comparisons.

    The problem is that the press too often regurgitates media releases from the housing lobby without providing adequate analysis or challenging their misleading assumptions. From an investing perspective I suppose my fear is that the residential housing bubble has done lasting damage to the UK economy – the money that is sunk for years into unaffordable housing means less available to go on consumption or on productive assets.

    Enough of my soapbox – thanks as ever for providing a great weekly digest!

  • 4 The Investor December 17, 2011, 5:09 pm

    @Faustus — Completely agree with respect to the extra costs of owning versus renting, particularly wear and tear and significant maintenance. That’s also relevant when comparing house price indices, which of course don’t capture any of these costs, with share price indices, which are valuations of companies evaluated on the basis of their earnings/dividends *after* all such ongoing payments (in theory, anyway!)

  • 5 Moneyman December 18, 2011, 11:35 am

    Thanks again for the weekly thought-provoking reading list

    I liked Malkiel’s article, which led to:
    http://www.the-diy-income-investor.com/2011/12/random-walk-though-income-portfolio.html

    Also I found a free download of the 4-hour work week, which – as you say – is interesting reading (if not only because the writer is so clearly an unusual individual!)

    Time to get out of bed!

  • 6 The Investor December 18, 2011, 6:35 pm

    @Moneyman — Yes, he really challenges conventional thinking on working methods and life goals more more than the average money writer. I want to get more into this again in 2012!

  • 7 Ben December 18, 2011, 8:27 pm

    I’m not so into Ferris, for all his lifestyle antics, the business model underpinning it is to exploit poor people to sell complete tat (was it some sort of brain juice?) to idiots (maybe they got brighter after drinking it?). I’d argue thats not such a great way to spend your life even if it does only take a few hours a week.

    I don’t think hes out and out snake-oil like Kiyosaki but he’s not too far behind.

  • 8 The Investor December 18, 2011, 10:56 pm

    @ben — A fair comment, I felt something similar, though in Western societies an awful lot of what is sold would be tat to someone!

    I don’t think it detracts from his overall message though, or at least the impetus to shake things up a bit?

  • 9 Ben December 19, 2011, 9:45 am

    @investor

    i think he’s got a new one out how to be a chef in 4 hours a week or something along those lines – one for your xmas stocking maybe?

    happy christmas to all the monevators out there,

    heres to happy and healthy investors in 2012…

  • 10 david stuart December 19, 2011, 3:54 pm

    i switched to repayment mortgage after last endowment scandal—standard life wrote to me saying endowment wouldnt cover mortgage.should be mortgage free dec 2015.

    im on a single wage–remember bank telling me 2007 was time to get a bigger place or i would miss property ladder esculator.6x my wage.wish i had it on tape—turned down new mortgage.

    FSA annoucing new measures–is like a slap in the face to all those who never took on DEBT or produced FANTASY WAGE SLIPS.housing prices have rocketed.

    now first time buyers are students with high education fees or the jobs arent there.

  • 11 The Investor December 19, 2011, 4:38 pm

    @David Stuart — Agreed. I haven’t been a penny in debt since 1994, and I sat out the house price bubble on the grounds it was unsustainable. It’s very frustrating, but I am trying increasingly in life to look for opportunities instead of venting frustrations at what I agree is a reckless bias by governments.

    One big lesson is governments are elected by home owners, so you go short at your peril.

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