What is the next after the health care bill?

After year-long debate, the health care bill is now finally in the ink. Temporarily putting what the content of the bill aside, the poll results of the Dems doesn't seem to be good. Pres. Obama's support rate plummeted according to CNN. Also considering no Rep vote for the bill, the November midterm election is expected to be fierce. Such expectation is certainly within calculation on both sides. So in economical stand point, what is the next?

The most obvious on the bipartisan fight is that cooperation in other bills, such as the unemployment benefit bills, will be harder and longer. As a major stake on the table before November, these are going to be dragging issues on the macro economy. The Fed seemed changed their tones in economical assessment that the lower rate policy will be maintained for a while rather than that it would pull slowly shown in last meeting. Emphasis like this is more close to political than pure economical assurance.

Next to it, as it is not very easy and efficient to pass more bills on the Capital Hill, the administration would seek more administrative approaches within its rein such as China's currency. It is widely supported by both parties and other economical entities, e.g., IMF, that China should raise their currency. If the goal is reached before November, the administration certainly gets credits as it is more than currency but also million of jobs that can be re-gained. Likely following the suit, EU would press ahead about the rate too.

Based on these two factors, we should be cautious in the upcoming a few months. If the Yuan rises, Chinese exporting companies would face huge pressure and uncertainty (is the currency hike done or will slide further). For instance, STP and YGE should be avoided in the near term.

A manufacturing view of the recovery

China, the world manufacturing plant, is undergoing a severe shortage of workers so that many businesses are difficulties to meet their newly signed orders. This problem is not only happening in the coastal provinces but also a nationwide. Thinking deep what causes of this problem, we think we should be cautious about the recovery down the road, especially after a 70% rebound in the equity market.

First, workers in China are cautious about the openings because most of factories only hire short term workers even though the pay is higher. Employers look for short term workers because most of the orders are short term, refill type of orders. Usually long term projects would require manufacturing at the end of last end but this shortage doesn't come in that time frame. Such employers are in double squeeze: on one hand, they need to hire workers. On the other, workers, if available, are asking more. So the final outcome is less profit. They are also uncertain if there are longer-term order down the road.

Second, most workers in China are from poorer provinces in the West and Central. As China tries to balance off resource, many of farmers-turn-workers just want to stay at home. The transportation at during the Chinese New Year just isn't an easy problem to handle. In addition to that, many separated families aren't looking for more as money brought is dwindling when inflation is rising quickly. So availability of low cost workers becomes a past tense.

Third, pay for experienced workers has reached to a high level. For workers with 7-8 years experiences, they most likely ask $10,000/yr. It is costly compared to a couple years ago. But factories have not, or do not have resource to, upgraded their equipment to synchronize increase of workers' skill set and salary requirement.

Finally, the currency argument will likely bring a handful of razor-margin manufacturers into bankruptcy. China has to change the rate when they are ready after their stress tests. No matter what tactics and procedures to be used, it is going to get some or many out of the game.

Therefore, we should be cautious on what nature of this recovery is. Regardless of the demand side, i.e., long stable versus short spike, the supply side will have problem. There are just too opaque to conclude that the recovery is sustainable. At the same time, considering many multinational companies' profit in the last few quarters were strongly driven by the Chinese market, we should be further cautious about the strength and duration.

BIDU flies higher than GOOG?

Bidu mainly operates in China. Its web page is in Chinese. The stock price popped to $569 on Friday that is higher than GOOG's 560. The hike of course is under the speculation the GOOG will retreat from China due to the argument with the Chinese government on censorship. Analysts then projects Bidu will take over GOOG's 30% market share and extrapolate what BIDU's price should be.

There are two questions, one is less uncertain than the other. GOOG is very likely withdraw from China at the end of April. One evidence is that GOOG posted highly sensitive photos on their website. Such action doesn't indicate the negotiation going well. Also, the cross bottom line action will expedite Chinese forcing GOOG's withdraw. This question is less uncertain.

The other question is how much BIDU can fill GOOG's hole? Among GOOG's 30% Chinese market share, it is questionable that BIDU's Chinese platform can take them over completely. Don't forget, there are other search engines in China, like Sina's iAsk that incensed to grab market shares. Also, monopoly doesn't work very well as new search engine company will come out to fight for the pie. So 30% growth projection is overestimated and therefore it is overpriced.

Another side note, most Internet foreign companies' fate such as Yahoo!, EBay, Google, doesn't look as sweet as auto companies like Ford and GM. This is mostly because of an unseen force from the government. Internet isn't playing a key role in China's core development strategy. Besides, it is not capital intensive investment compared to auto industry. When the Chinese parties gain enough experience and accumulate enough brain power, capital shift to the second. It is true that most foreign companies don't know much local policies and culture. But also there is huge advantage from the government to favor local companies. China is a big market and is worth second look.

Where will the housing market go?

The housing market got a shot last Oct/Nov before the incentive package expires then lost strength after the incentive got extended. Now that the end of the second deadline is near, what will the market be?

Certainly there is some who had missed or not wanted the first incentive want to catch the ride. The question is, however, what would happen after the incentive? It seems like there is no more on the road as the Fed tries to unwind the stimulus. Immediate impact is that APR will go up, that is payment goes up. Who will take over houses from currently investing driven market given that the unemployment is holding steadily?

It is true that foreclosure is still high but had kept a lid on it, same as house values. The only thing goes up is property tax. Such correlation also occurs the high unemployment scenario. The outlook seems dark. But we have to think out side of the box, if the box is defined as "high unemployment will ruin everything".

The thinking is, "what if the unemployment drops, what will recover first and quickest?"

Unemployment, no doubt at all, will drop in the next quarter after bills passed to boosted up hiring. Questions were asked what would be after these bills expired. Simple, employment will either prevent foreclosure or encourage investments, in equity or real estate. This at least will kick off a positive tide regardless of what next. Also remember we haven't seen both investment in equity and real estate booming at the same time. These binary always flip flops between them. Given that the equity market strong recovery last year and uncertainty ahead, investors may look other options other than Treasury's and bonds such as real estate, which is definitely at the bottom now. Brave and savvy investors.

So be optimistic about the housing market. Like others, the time will come.