Friday Five

1. Yesterday I wrote about the positive aspects of the Chinese revaluation of the Yuan, today let me highlight the bad side of the deal for US investors.

The Chinese have a massive current account surplus, they had a peg to the dollar so they used to buy massive amounts of US Treasury bonds, this depressed interest rates in the US and allowed debt ridden US consumers to borrow more and buy more at cheap interest rates. A lot of these US consumers buy based on the monthly payment the debt requires, as the interest rate goes down, so does the payment allowing the balance of the debt consumers can handle to grow. Consumers took this extra debt and bought the asset they though would always go up: real estate.

If the Chinese don't buy US debt, interest rates have to go up to entice investors to buy the debt, if this happens real estate becomes less affordable to consumers, putting pressure on real estate prices. In short, the revaluation of the Yuan could be the catalyst that moves interest rates up and real estate prices down.

2. Yesterday UPS reported earnings up 21% from last year, Union Pacific's earnings were up 47%. Both were based in part on higher shipping volume. Strong evidence the economy continues to grow.

3. At all levels of government tax receipts are up surprising government officials and improving the budget picture.

This reminds us of two things: governments generally don't understand business (in part because many of the people in government have never worked in a business) and that most taxes are paid by rich people.

Tax receipts from payroll withholdings have been stable, it is higher quarterly filings (generally filed by the richest American) that have driven increased tax receipts higher at the federal level. It is the growth of the economy, stimulated by lower tax rates, that have increased tax receipts.

4. Most people now consider the Kansas education funding "crisis" over. However the real crisis is the fact that, like their counterparts in other states, Kansas students have a rather dismal academic record when compared to their counterparts in other nations, especially Asian nations.

Now is the time for legislators, and leaders who care about quality of the education our children receive to lead a meaningful debate about how to improve education. Unfortunately the issue is often reduced to a funding debate, when the real problem is much more.

I will be happy to publish a guest column or details of any plan anyone wants to put forward.

5. In an attempt to morph into a party of "values" Democrat Senator Hillary Clinton will be investigating sex scenes in Take-Two Interactive's Rock Star Games' Grand Theft Auto: San Andreas. This officially makes Hillary Clinton the biggest sucker since Tipper Gore.

GTASA has been on the market for about a year, sold more than 5 million copies and has recently seen sales falling. If you ran a video game publisher that made a living publishing edgy games, how would you stimulate sales? Leak a surprise modifcation? Get a New York Senator in a fit? Get every mom in America wound up about it? Make your game must have, adult only, forbidden fruit for every 12 year old with a PlayStation? Yeah, you would consider that plan, and it would work.


Timothy Burger
timothyb {at} timothyburger.com