Taiwan Economy Discussion

It’s good to have diversified assets. Even more important to have 401K. But what I said is true.

Piketty’s Capital argues that the role of capital in the economy, after falling during the Depression and two world wars, is set to recover to the high levels of the 19th and early 20th centuries. According to Piketty, wealth will accumulate amid slowing economic growth to push up the capital-to-GDP ratio in the economy, which will then cause an increase in capital’s share of income – and growing inequality.

In contrast, Rognlie finds that a rising capital-to-GDP ratio is most likely to result in a fall in capital’s share of income, since the net rate of return on capital will fall by an even larger proportion than the capital-to-GDP ratio rises. Outside of housing, postwar changes in the value of the capital stock have not led to parallel changes in capital’s share of income. In fact, the value of the capital stock relative to private income reached its highs in the late 1970s and early 1980s, when capital’s share of income was near a low.
Deciphering the fall and rise in the net capital share

The benefit is not paying rent. You get equity. Nobody promised people a guaranteed value increase at the obscene rates of increase we see worldwide backstopped by taxpayers in some cases.

Speculators are getting a well deserved surprise in Canada, USA, China, and now potentially Taiwan that owning property doesn’t mean a guaranteed cha ching

https://www.ft.com/content/972c543a-eb8d-4f31-8407-418d7b70e7da

Take Taiwan. It has invested a ton in US bonds. A ton. Its holdings of foreign exchange reserves — mostly in bonds — and overseas fixed income securities together total $1.7tn. That’s more than 200 per cent of the country’s GDP, more than five times the size of the entire domestic Taiwanese bond market, and roughly the equivalent of all of Pimco’s fixed income funds.

As a result, the insurance industry in Taiwan — and given its enormous size, the whole Taiwanese economy — is exposed to three distinct risks. The first is obviously the currency mismatch itself. If the US dollar depreciates relative to the Taiwanese dollar, the insurance companies can face massive losses as their assets depreciate relative to their liabilities. The second is the cost of hedging some of that FX exposure. Although selling US dollars on a forward basis can insulate insurers from movements in the spot exchange rate, those positions can be costly to maintain. The third is the performance of those foreign assets, in particular their exposure to interest rates. As many now know only too well, rapidly rising interest rates can generate substantial mark-to-market losses on big bond portfolios. That was true for SVB and others, but Taiwan is distinct in the scale of its exposure, not to local interest rates, but to US interest rates.

Ticking timebomb.
U.S. rates over long term will continue going up.
Reminds me of all the stupid Taiwan financial firms who bought into MBS and other crap securities in the lead up to the 2008 financial crisis and didn’t hedge.

We’ll see.

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