Wed, Dec 26, 2012 - Page 8

Mean reversion to blame

Given that I wasn’t alive before I was born and won’t be when I pass on, my life seems to be an experiment in avoiding death, the ultimate reversion to the mean. This has led me on a path toward investment for the future, since statistics say I’m too young to die.

Chinese firms listed on the US bourse are demonstrating how the truth — however ugly it may be — is always better than lies in an investing environment. Note how Muddy Waters Research Group short-sold shares before releasing a report detailing Sino-Forests’ accounting shortcomings, after which the stock tanked, and the firm was properly and promptly delisted amid fraud allegations.

It doesn’t bode well that accounting firm PricewaterhouseCoopers recently absolved itself from responsibility for one Chinese firm’s books and walked away. This is another example of reverting to the mean of honesty. Now, every Chinese company on the US bourse will face increased scrutiny, given that these companies’ books are considered “state secrets” of Chinese Communist Party leaders.

In terms of transparency and ease of doing business, Taiwan beats China in every category, as rated by many international analysts. Furthermore, it’s proven that plain dealings, monitored and fairly enforced by the rule of law and media, are actually the factors that precede the strength of a growing economy, whether national or personal in scale.

Taiwan’s African ally [Editor’s note: country not specified], now a net exporter of rice, is an encouraging example. Sadly, our diplomatic ally Haiti is still in the poverty doldrums after its devastating earthquake years ago. If local investors help Haiti’s economy grow when they’re not living in tent camps, as they are now, after another recent hurricane, then they will help Taiwan’s economy sometime in the future.

Taiwan should at least freely share its agricultural abundance, which includes organic fruit, vegetable, tea and mushroom farming technology and training. Like working families who live hand-to-mouth, any island country that imports most of its food and energy is doomed. Let’s help Haiti.

Many investors seem to ignore the nearly limitless extent of the shadow economy, which has tentacles reaching everywhere, the drug trade being one immoral example. The “war on drugs” has created only carcasses, not cures.

Regardless whether it’s doping scandals in sports, worldwide match-fixing or politicians front-running every stock trade before the public gets the information, the truth “will always win out.

To cite several examples, a whistleblower at HSBC Bank, alleging tax evasion, passed a CD of names on to world leaders. In sports, a top athlete was denigrated for profitably engaging in the world’s oldest profession. Distortions are everywhere.

China continues to build stadiums for a soccer league that doesn’t exist in a graft-based, centrally planned economy, which aren’t even available for local schools’ sporting events, a mystery to anyone who’s concerned about return on, not of, investment.

Despite my reputation as a “doomer,” I see great hope in the “Mayan transition” toward greater honesty and integrity, on an international, national and personal level. Get out of debt, people. Save cash and go long-term gold, and that means you, Taiwan’s central bank.

Debt is evil, and it leads to an increasing and catastrophic disconnect from the mean.

Torch Pratt

Greater Taichung