Will China make the same mistakes the U.S. did?

China enjoyed a year of staggering growth in its GNP and on its stock exchange board in 2009. Most economists believe 2010 will bring more of the same for the Chinese economy, for it seems as though getting money now is not much of a considerable issue for them. The Chinese government has poured $586 billion into a stimulus package aimed at spurring the growth of their economy.

Against the tide

Burgeoning new industries, ample natural resources and government support add up to a winning combination for most financial analysts. One investor, however, with a track record for predicting when big bubbles will burst, isn’t buying what the Chinese government is selling. Billionaire hedge-fund investor James S. Chanos sees a lot of holes in the narrative the Chinese government is spinning out. Chanos believes the Chinese are faking their numbers outright according to an article in the New York Times. He predicts the bust in the real estate sector in China will begin a debt and credit problem a 1000 times worse than Dubai’s late last year.
(See http://www.nytimes.com/2010/01/08/business/global/08chanos.html)

A strong track record

Chanos isn’t just any voice shouting above the crowd. He has a track record of being right when everyone else is going the other way. Chanos predicted the Enron fall, Tyco International’s demise, problems with the Boston Market restaurant chain, and the most recent downfall of home builders. Each time the experts predicted continued growth and prosperity, each time Chanos bet against them and won. Mainstream economists claim he lacks expertise regarding the Chinese economy and is not as familiar with the way it functions compared to Western economies. Chanos argues back that very few Westerners know much about the Chinese economy.

Debt is debt

Chanos bases his evaluations on excesses in credit much more than any excesses in valuation. In other words, he sees the rapid expansion of the Chinese economy as being too debt and credit dependent. Chanos believes that consumers are gaining access to credit far too easily, and this will eventually lead to a mountain of bad debt. Further, he does not believe the growth numbers that China is putting out. Communist governments have a history of putting out propaganda that is not necessarily based on realistic numbers. Much of the credit excess lies in the real estate sector according to Chanos, and this will lead to wide spread default when home buyers and investors can’t pat their notes.

Eerie similarities

Economic growth based on easy credit and hyper-valuation should set off alarm bells for anyone paying attention to the global economy in the past two years. Excesses in the real estate sector combined with abuses in the financial sector brought down the American economy along with more than 130 of its banks during that time period. The Chinese government pouring hundreds of billions into supporting growth in the housing market should give investors a feeling of dreaded familiarity. The Chinese seemed to be making the same mistakes the U.S. did, only they are putting money into a pre-bailout. When the artificial economy hits the fan, the Chinese will look very familiar to American investors.

(Photo Credit: http://www.flickr.com/photos/87913776@N00/ / CC BY 2.0)

The latest CFA Institute exam results are a sad tree for financial analysts worldwide.

One of the ways America can get itself back on track financially is to turn out a solid crop of new financial analysts who can apply sound principals to the way we manage our money, both personally and professionally. Payday loans are a short-term bridge, but sound budgeting is the long-term answer. All we have to do is turn out that crop of new graduates from the CFA Institute, right? They’ll take the reins.

Unless they aren’t making the grade

That’s what the CFA Institute is saying about the recent set of scores for the CFA exam. According to Businessweek, “the lowest percentage of candidates in four years passed the first level of the Chartered Financial Analyst exam, a designation that may offer an edge after the industry’s worst shakeout in at least three decades.” All told, 34 percent passed the Level 1 CFA exam. CFA exam topics range from ethics and securities to statement analysis and managing a portfolio. The concepts for study were developed by Benjamin Graham, a proponent of value investing who showed Warren Buffett the ropes.

Are we financially stupid?

Government spends money it doesn’t have. Tax revenues aren’t even a drop in the bucket for the hungry monster that is the national debt. CFA applicants are looking for a promised land of higher pay, greater respect and financial knowledge. Perhaps the largesse of America is rubbing off on them. Or maybe they aren’t studying the 300 hours the CFA Institute recommends for each test level. Yes, it’s a serious commitment, folks.

And they’re coming in waves

“Despite challenging economic conditions, more than 44,000 individuals around the world took the Level 1 exam in December,” said CFA Institute CEO John Rogers to Newsweek. “This is a remarkable testimony to the dedication of candidates to the CFA Program and to their commitment to excellence and integrity in the investment arena.”

I’d say a higher Level 1 pass rate would be a more remarkable testimony.

FYI: That 34 percent pass rate wasn’t just for America

The Americas, Europe, Middle East, Africa and Asia are included in that sobering statistic. Thirty-one countries offered the exam, and of the 44,000-plus, more than 20,000 came from the Asia region. As many financial service companies have slashed and burned jobs during this recession, there is a demand for the CFA Institute to certify new, cheaper employees.

I’ll tell you one thing: if any CFA Institute students missed out on CFA exam study time because of car trouble, they could have used payday loans to get back on the road to improving the global financial landscape.

Related Video:

Auto and mortgage loans require some homework before you apply. There are numerous secured and unsecured loan options out there. (Photo: picasaweb.google.com)

A review of credit scores must be done by the consumers planning to apply for either a mortgage loan or an auto loan. The credit scores of an individual are among the primary factors that decide the eligibility for the loan. While a good credit score can get you the loan easily, a bad score can either mean loans with exorbitant interest rates or even denial. A person can apply for a free credit report annually from any of the three main credit agencies. The report thus obtained will show the credit worthiness of the individual.

Types of Loans

Once the credit rating is determined, the next step is to decide on the type of loan to opt for. When it comes to mortgage loans, the consumers can choose from either a fixed rate mortgage loan or adjustable rate mortgage loan. Secured loans and unsecured loans are the two options that consumers have when it comes to auto loans. There is also the aspect of indirect and direct financing that needs to be considered. With so many options available, a thorough groundwork is needed to find a loan that best suits your budget and needs.

Budget Carefully

Consumers who are buying a house for the first time should especially keep this point in mind while making their decision. The monthly payment for the mortgage loan or auto loan should not exceed 30 percent of total monthly income. This will help provide a cushion during unforeseen circumstances. While there are loans programs that cap the limit at 31 percent, there are many others that allow consumers to go beyond this point. Hence, considering this carefully before making a final choice is a must.

Set Realistic Expectations

Setting sky-high expectations for the car and home under consideration is another common mistake that is made by many buyers who are purchasing these items for the first time. Most of them end up choosing houses in an expensive neighborhood and are willing to pay through the nose to own it. Though these might seem well within reach initially, you will begin to realize the pinch in a few months. This is the reason most financial analysts recommend chalking out expectations from your house or car and then comparing it against the budget allotted for it. In addition to this, take the eligibility limit into account too. Considering these factors beforehand will also help avoid disappointments.

Compare the Details

Consumers applying for mortgage or auto loans should get quotes from more than one financial institution. Since these loans are the biggest loans one might ever borrow in the lifetime, comparing these quotes with each other allows them to weigh the pros and cons of each quote carefully before arriving at a decision.

Apply for Unsecured Loans HERE