What Coronavirus? Says the Market - My take on why central banks can still dictate the market and for how? long

‘Cognitive dissonance’ is the word the Guggenheim Partners Global CIO Minerd used when he described the disconnect between the economics and financial markets right now.  

For a long time now, financial markets have been living on ‘QE’. The program to buy up government debt using created money 1) has lowered the cost of borrowing for the economy 2) pushed investors to buy other financial assets as they are crowded out from government securities. Whether one liked it or not, the result has been clear. Central bank balance sheet expansion drives up market prices. Many have made comments similar to Minerd over the past 12 years and they were shrugged off. However, the coronavirus is making comments like this relevant again.

China, the world’s second largest economy at around 15% of global, has been devastated by the coronavirus, but the market still marches on. Many believe the disruption is temporary and things will go back to normal (V-shape recovery) so there is nothing to see.

Yet, behind the sanguine outlook lies the more important assumption, which is that central banks are always here to save the day. Therefore, bad coronavirus news is actually good news because it makes supportive central bank policies more likely. For instance, if the gets worse in China, perhaps China’s People’s Bank of China will cut interest rates to zero and do QE for the first time. To take it a step further, if the virus spreads to the US and it becomes a pandemic, then perhaps the Federal Reserve Bank will cut rates to zero and do QE for the fourth time. We, as people who may contract the virus and die, know that these certainly are not good outcomes, but if China does QE and US does QE4, you can bet the market will just rip up mechanically.

Given this outlandish, but perhaps probable, scenario, it is a good time to ask the big questions: why does QE still work, when would it stop working, and how long can this ‘cognitive dissonance’ last?  (working as in it drives up real asset prices)

Why does it still work?

1)      Globalization, Moore’s Law, aging demographics in the developed markets have kept inflation low. This allows central banks to use their powers without limits and push back.

Globalization allows goods, services, labor, and capital to flow so that things can be done as efficiently, if not as cheaply, as possible. Moore’s Law predicts that chips’ processing power doubles about every two years, this makes technology cheaper and more widely adopted. Aging demographics in the developed markets are the richest group. If they aren’t spending on goods to drive up prices, then who can move prices? In the end, central bank can keep on creating money to buy government securities, but as long as these factors are at full force, the consumer price index will stay low. This allows central banks to use their powers without limits and push back.

2)      High quality asset needs

There is a lot of wealth in the world ($240 tn in 2014), but not enough high quality assets (something that generates a return). Don’t blame it on the rich either, this is an everyday person problem. The rich actually can afford to buy risky assets since they have more than enough already. It is the middle class who are saving for their retirement/children’s education or relying on their insurance to help them that need high quality assets the most. When central banks are making prices go up, the ETFs, money managers, and insurance firms will follow, often times no questions asked.

3)      Asset holders cooperating supports paper profits

Even though trading is a zero-sum game, global investors have cooperated with each other. Instead of rushing to sell the asset to realize the paper profit at once, they understand that they are in it together. By taking turns to sell, nearly all existing investors can realize their profits over time.

4)      Wealth effect

The paper profits are not real until realized, but the asset holders’ spending on goods and services are real. The wealth effect, the increased spending from the financial asset market wealth, does improve conditions. As the economy improves from the spending, the high assets prices become a bit more justifiable.

How long can it last?

The short answer is when capitalism gets diluted, too many people get in on the QE secret, and when there are better things to invest in.

Based on the four reasons mentioned above, central banks’ easing would stop working when inflation increases and middle class savers get scared. Yet, these scenarios may only be temporary. For instance, inflation will pass as supply or demand adjusts, the market fear behind any asset dump will fade, and consumer sentiment will bottom out at some point. For things to really change, we may need to see fundamental changes in capitalism, investor behaviors, and market structures. 

1)      A global shift away from capitalism may lead to more sustained inflation. In other words, if the profit incentive goes away, it will take longer for producers to find cheaper, faster, and better ways to produce whatever that is in short supply. This will make it permanently more difficult for the central bank to respond to support the market.

2)      A spike in investor interest given the central bank support would drive prices into a bubble. If too many people get in on the QE secret, major stock indices will be driven up like Bitcoin or TESLA. This will lead to a bubble burst, before investors come back betting on central banks’ support. In the end, successive rounds of bubble burst will either lead to central banks or investors walking away. At that point, the stock market will still exist, but at levels much lower than the bubble period. 

3)      The invention of a new market could drive interest and capital away from the major stock markets today. In a world where lifestyle, culture, and technology have changed so quickly over the past decades, who is to say the middle class savers and wealthy’ investment preference wouldn’t’ change.

As for these fundamental changes, things are already gradually happening. First, the world is moving away from the raw form of capitalism. There is now growing scrutiny over businesses’ environmental, social, governance, moral, and cultural standards. It is possible that all these forces contribute to future inflation from a supply standpoint. As for the second point, there may never be too many who get in on the QE secret. It has already been mainstream for 12 years and inequality makes it hard for everyone to participate in the market. Third, while a new market seems unlikely, weirder things have happened. Bitcoin's market cap is $130 bn because enough people said so. The difficulty is for a new market to get to a sufficient size. In 2014, there was about $240 tn of wealth in the world (Marginal Revolution). Today, global equity markets add up to $50 tn (BofA), global debt markets is about $135 tn (150% of global GDP), and US and China’s housing market is about $75 tn (Economist, Goldman Sachs). Unless there is a credible new market that rivals major equity market, middle class savers' money will still flow there. 

Ultimately, for those wondering whether the ‘cognitive dissonance’ of the market can last, watch how the market is treating the producers and whether a new asset market is on the horizon.

 

Disclaimer: risks such as political checks on central bank powers, financial stability concerns, and any end of the world scenarios are all possible, but are excluded for the sake of this thought exercise.

Is Marie Kondo bad for the economy? A Thought Exercise on Global Demand

U.S. consumers spend, and the global economy depends on it. Though the 320 mn U.S. population is only about 4% of the global population, U.S. consumption represents 10.6% of global GDP, and this figure’s impact is understated since the rest of the world’s investments, exports, and consumption associated with U.S. consumption is excluded. So, if ‘Tidying Up with Marie Kondo,’ the new Netflix show that helps people combat hoarding embrace minimalism, becomes the new norm, does it mean the economy will suffer?

I believe the answer is no, but it requires advanced economies to sort out housing and emerging markets to figure out politics. With 7 bn in global population, there is no shortage of people who want to live the good life. Regardless of the different views on materialism and frugality and the different stages on Maslow’s hierarchy of needs, people want modern shelter, appliances, technology, and conveniences. However, the first problem is that increasingly those who have the means don’t need or want to spend. The second problem is that those who truly need don’t have the means to spend.

Let’s take Japan, the third largest economy in the world, for example. Japan’s elderly owns most of the wealth, but the lack of desires, retirement insecurities, or concerns for their kids’ future keep them from living it up. The problem underneath is Japan’s bad demographics. The country’s bad demographics, characterized by the rapidly aging population and low fertility rates, threaten the stability of the stability of the retirement system and the vibrancy of the economy and its future prospects.

As for what explains the bad demographics, I believe housing played a big role. Japan’s massive housing bubble made having children expensive, unreachable, and undesirable. Buying a home or paying rent is an option for a young individual, but having a stable home becomes more of a necessity for a couple looking to raise a family. As a result, when Japan’s housing price outpaced wage gains, it became rational for people to have fewer kids or forgo having kids.

Increasingly, this trend may play out in U.S. as well. The combination of the knowledge economy’s cluster effect and global wealth investing in U.S. cities have driven up housing prices in metropolitan cities. For instance, the tech jobs in San Francisco, the finance jobs in New York, and the biotech jobs in Boston draw young talents to these cities. This results in a cluster effect where the talent influx creates a bigger ecosystem for these jobs, which draws even more people to these cities. In addition to the increase in demand from the population growth, investors also add to those who wish to own a piece of these growing cities.

In the end, the high home prices reduce these residents’ disposable income in the short-run and may reduce their willingness to have children in the long-run. While wage gains and home prices ebb and flow, these advanced economies’ demand becomes permanently impacted once demographic takes a dip. As a result, housing plays a big role on why advanced economies may decide to spend less than they are able to.

As for the second problem, emerging markets’ messy politics often prevent them from achieving their full potential. China is a poster boy on how politics matter. Since Deng opened up China with a single-minded focus on pursuing growth, China has been on a tear. In the past decades, China has lifted close to 800 mn of its 1.3 bn population out of poverty. Growth inducing policies allowed people to get jobs and buy things to improve their quality of life. However, things may be starting to slow in China.

Automobile sales contracted for the first time in 20 years and smartphone sales have been falling for over a year now. This doesn’t mean that China is running into a wall or a crisis, but it does mean that it is important for other emerging market to take over the baton for demand. The difficulty is that there are few countries can match China’s size and trajectory for growth. Messy politics have kept other large emerging markets such as Brazil, India, and Indonesia from achieving their full growth potential. Politics matter because bad policies prevent technology and organizations from maximize productivity and full utilizations of their land, labor, and capital.

China Automobile Sales (mn of units)  

China Smartphone Shipments (mn of units)

As I see it, there are five ways to tackle the two problems so that Marie Kondo doesn’t become the new scape goat for a global economic slowdown.

1. Transfer money from the haves to the haves-nots in the advanced economies and emerging markets for them to spend.
2. Lend money to the haves-nots in the advanced economies and the emerging markets for them to spend.
3. Encourage investments in financial securities and discourage investments in real estate.
4. Loosen building and zoning laws and adopt accelerated building techniques to meet housing demand.
5. Influence emerging markets to pursue better growth policies and achieve more global economic coordination for mutual gains.

However, not all of these solutions are feasible, practical, or advised. First, transferring money is not productive and will be lobbied hard against. Second, lending money to those who can’t payback results in high non-performing loans at best and another economic crisis at worst. Third, channeling wealth from real estate is possible, but the current homeowners will become unhappy voters. Fourth, turning every desirable metropolitan city into dense concrete jungles of stacked modular apartments works on paper, but not in practice. This leaves the last option, which is also the best out of all the potential solutions.

The difficulty here lies in the world’s current state of political economy. As politicians around the world see global economy as a zero-sum game (maybe globalization or the winner-takes-all development has indeed turned it into a zero-sum game), this also makes the last option unlikely. 

So, what will happen and will Marie Kondo become the scapegoat? I don’t think so, but may be it is not impossible. 

How Technology Has Disrupted the NBA and What Does It Mean?

Technology changes everything, including in basketball. While I have only watched basketball since the mid-2000s, I can’t help but to notice the effects of technology disruptions in the past 10 years alone. Like all disruptions, it creates winners and losers. This thought motivated me to tally the effects and see if there are lessons to help me navigate the changes in my own field as well.

Well, here are my observations below and my conclusion comes at the end.

1. More 3 pointers and faster pace.

Competing against streaming, the golden age of TV, to apps, NBA evolved to garner viewers (and also win games). The league average 3 pointer field goal attempts increased from 18.1 in 2007 to 28.7 in 2017. Likewise, the league average possessions per 48 games increased from 92.4 to 97.8 in the same period.

Winner – J.J Redick signing a 1 year $23 million a year deal with the Philadelphia 76ers. Making 3 pointers help.

Loser – Roy Hibbert went from an All-Star in 2014 to a 2^nd round draft pick trade piece in 2016 and out of the league in 2017. Being 7’2 and setting good screens don’t help anymore.

2. Social media.

Facebook, Instagram, snapchat, twitter, etc have given players and participants a platform and access unlike anything we have seen before. Charles Barkley even said young players are forming super teams of social media. There is no taboo in talking to each other when one can bypass calling each other’s household.

Winner – ESPN Columnist Adrian Wojnarwowski’s name has become synonymous with NBA break news. His tweets during the free agency season has been termed “Woj bombs.” 

Loser/Winner – Eric Bledsoe. After a disastrous start to the Phoenix Sun’s season and the firing of head coach, Bledsoe tweeted “I don’t wanna be here.” It led to a $10,000 fine from the NBA and benching, but it worked out in the end. He got sent to a good team in the Milwaukee Bucks. He got himself fired from his job, but he also got him to an even better job.

Loser – D’ Angelo Russell’s leaked snapchat video of his then Laker teammate Nick Young’s cheating confession led to Young and Iggy Azalea’s broken engagement and his expulsion from the team.

3. Content Platforms.

The strong network effects of social media content sharing and high smartphone penetrations have given life to content producers across multiple platforms. The days when sports content creation is limited to papers, radio shows, and TV are long gone.

Winner (Youtube Entertainers) – Brandon Armstrong’s basketball impersonations under BdotAdot5 has led to invitations to NBA All Star Weekend’s celebrity games and appearances on the Jimmy Kimmel Show.  ChrisSmoove’s NBA 2K video game playing led to his collaboration videos with NBA players Tony Parker and John Wall. He is also selling T-shirts based on his catch phrases.

Winner (Youtube Video Editors)- The Frishberg brothers’ basketball mixes on Youtube under Maxmillion711 has garnered him over 45,000 subscribers and over 20 million views. He has also become an in-demand editor for a number of sports organizations. There are also lots of NBA highlight reel editors who constantly play a mouse and cat game with Youtube over copyrights issues.

Winner (Podcasters) – Bloomberg’s article on Dunc’d On, a basketball podcast by Duncan and Leroux, says it all. These two NBA outsiders quit their law professions to produce between 5-15 hours of content each week and they are commercially profitable. Podcasts from active/former NBA players, J.J Redick, Randy Foye, Richard Jefferson, Channing Frye, etc have also become a thing.

Winner (New Media Groups and Writers) – Bill Simmon’s The Ringer, Lebron James and Maverick Carter’s The Uninterrupted, and Nate Silver’s FiveThirtyEight have all found success with or without the affiliation of large media organizations.

Losers – other content creators. There are only so much eye balls to go around and the competition is fiercer than ever.

4. Big Data. 

Sports analytics have been around since econometrics and popularized since Michael Lewis’ Money Ball, but the NBA is undergoing a big data revolution, credit the abundant hardware, software, and human resources.

Winner – Noah, a sensor technology company, used to track basketball shooting is employed by the Toronto Raptors to help players train. NBA has hosted its 2^nd annual hackathon in 2017 to promote and recruit basketball analytics talents. Houston Rockets GM Daryl Morey has long been a proponent of sports analytics. He co-founded the MIT Sloan Sports Analytics Conference and may get the last laugh one of these days if his Houston Rockets wins the championship.  

Loser – Coaches, scouts, trainers, and managers from the last generation. Also, Charles Barkley, a long and strong opponent of analytics.

After going through all the winners and losers, I did learn several things about industry changes and career paths. 

Don’t be stubborn and ignore trends.

If you are on the court, learn how to shoot some 3s. If you are behind the scenes or on the sidelines, know some analytics. It is fine to recognize one’s limited aptitude for whatever is trending and focus on one’s strength, but it is important to stay relevant and literate.

Stay alert and seize the window of democratized opportunities.

Successful basketball content producers seized the leveled playing field created a path despite their lack of degree or access. The window of democratized opportunities is limited because the first mover advantage disappears and new barriers to entry are inevitably rebuilt. When seizing opportunities, there is a balance between preparing and acting. Don’t go in unprepared, but don’t act only when you are 100% prepared because by then it is too late.

Build on what makes you unique, including what you might perceive as your disadvantage.

Reading Bloomberg’s coverage on Dunc’ed On, I learned that Duncan and Leroux leveraged their lawyer background into being experts on NBA’s Collective Bargaining Agreement, a key puzzle in understanding NBA salaries, trades, and teams.

Also, it reminded me of what I read about Kyrie Irving and Xi Jingping. Kyrie said he developed his acrobatic layups because he grew up playing on a hoop with a broken backboard. He joked that he imagines how much better he would have been if he played on a good hoop. However, my thoughts are the opposite. It is precisely because of the broken backboard, he developed his now unstoppable acrobatic layups. Similarly, Xi learned from his disadvantaged youth and turned it into a strength. “Many of Xi’s generation agree that when their schooling stopped and they learned to survive on their wits, they developed emotional toughness and independence of thought. Xi later reflected on his ability to listen to other points of view without necessarily bowing to them. I had to learn to enjoy having my errors pointed out to me, but not to be swayed too much by that. Just because so-and-so says something, I’m not going to start weighing every cost and benefit. I’m not going to lose my appetite over it.” (quote =/= endorsement)

Moon, Stars, Wage Growth Next?

We all know the cliched saying, "always aim for the moon, even if you miss, you will land amongst the stars." This saying usually applies to parents who are trying to motivate their children, but it is increasingly taking shape in the economic and finance world. I got the idea reading the diplomat's coverage of the World Bank President, Dr. Kim. Dr. Kim aimed for the moon with his "3-by-5 pledge." He states that he aims to treat 3 mn people in developing countries with an anti- HIV/AIDS drug by 2005 during his tenure at the UN. The pledge ended up being unfulfilled, but the 3 mn target is reached in 2007, earlier than previous expected. Kim says his policies worked because "you have to set a really difficult target and then have that really difficult target change the way you do your work.” He has employed the same philosophy at the World Bank, but tackling poverty's causes and effects simultaneously is a very difficult challenge. Needless to say, he has yet to "land amongst the stars" at the World Bank.


This idea has also played out in industrial policies. South Korea's Park Chung Hee implemented policies that led to Korea's future industrial dominance. South Korea is now market leaders in steel, shipbuilding, autos, chemicals, and electronics. By striving to reach difficult output or export targets, chaebols were pressured to make significant breakthroughs in short amounts of time. This achievement did not come easily since the foreigners, importers, consumers, and laborers' interests were sacrificed in the process, but they did it. Though they often missed out on short term targets, the difficult goal helped them move with more urgency in improving their operations, technology, and management. This all sounds well and good, but China under Mao was a different story. Ambitious targets to beat US and UK in steel output during the Great Leap Forward led to disastrous outcomes. Drunk with hopes of a new China, wishes for a egalitarian society, and spells of Mao's cult of personality, people dived into this project with fervor. Seemingly overnight, useful bicycles, cookware, and machinery were dumped into giant furnaces and turned into giant heaps of metal crap. Great Leap Forward's bold goals were equivalent to aiming for mars, but China did not land among the moon or the stars, it landed into an era of shortage, starvation, and social upheaval.

Increasingly, this idea has expanded to foreign currency and inflation. Taiwan, the lagger in the four Asian tigers, has failed to meaningfully upgrade its manufacturing industries. Sure TSMC is a big name, but Taiwan has performed below its potential and created fewer competitive firms than expected. One criticism is that the central banks' cheap currency policy has shielded exporters from competition and deprived them of the urgency to upgrade. Recently the central bank has even released a 33 page report responding to a magazine critical on the central bank and its foreign exchange policy. In Japan, academics like Paul Krugman are calling for a 4% inflation target in Japan; the higher inflation rate is expected to help reflation policies since a failure to hit the target will still result in inflation higher than that of today's 0.7%. This policy also gives the government cover for much bigger forms of monetary policies. These talks seem tantalizing, but foreign currency and inflation targets are complicated and policy makers will always err on the side of caution. Considering it is difficult enough to maintain the status quo rather than improve the current situation, do not expect much aiming for the moon.

One part where the cliched saying may evolve next to is in wage hikes. Seeds planted from the 2008 financial crisis has grown to many social movements. From the on start of the Occupy Wall Street movement to Bernie Sanders and Donald Trumps' rise, economic inequality has played a big role. At the moment, given US's high debt and overall political leaning, wage hikes rather than welfare is a more realistic situation. In a country built by self-sufficient and dreamer immigrants, working to help one escape poverty is an acceptable narrative. As the likes of Wal-Mart laud the positive business effects in paying their employees' above market wage and Dimon announces wage hikes at JP Morgan, more meaningful wage hikes has gradually turned into expectation. Furthermore, as cities around the country, from LA to SF to NYC aim to raise wages to $15 an hour, this movement just keeps on growing.


Despite this trend, there is no lack of opposition. Citing price and quantity crosses featured in economic 101 courses , economists believe that wage hikes will decrease overall employment. This economic law is sensible and logical, but the price and quantity cross is not everything. The supply and demand curves are dynamic and next to impossible to capture in frameworks that assumes "ceteris paribus," or everything else the same. However, the louder the critics sound off alarms on wage hikes' negative effect on employment, the less likely cities and corps will stand idly watching their jobs flow out or payroll bloats up. In anticipation of wages hikes' effect on lower employment, cities and companies may compensate for this by adjusting policies to create more opportunities or productivity. Local governments may remove previous red tabs; companies may use new methods to increase productivity. Overall, despite the set backs, perhaps the wage hikes will be a disruptive force that leads to positive shifts in the supply and demand curves rather than a mere change in the price and quantity cross points. I do not have a good way to validate this narrative one way or another, but I do wonder if wage policy will become the next hot bed for the "aim for the moon and land amongst stars" philosophy.

Inflection Point

Now approaching the year end, many countries or institutions are beginning to choose their word of the year. For Oxford Dictionary, it chose an Emoji for 2015. For Japan, the Prime Minister will choose the Kanji of the year. For the finance community, my vote definitely goes toward China.

South China Sea, RMB revaluation, AIIB and One Road One Belt aside, people ultimately just care about the economy. Policy makers, economists, investors, and businessmen all want China to continue its high growth, if not just stable growth. Some claim that China needs its high growth to maintain government legitimacy and avoid social unrest. some say China needs its high growth to keep the debt fueled economic churning and avoid a financial crisis. Some even cite neuro scientists who say people lack the ability to process large numbers. As a result, the pressure for high GDP growth is unwarranted since the additional GDP added through China’s 2014 7% GDP is equivalent to 15% GDP in 2010 terms.

However, just because making things bigger is hard to achieve or difficult to grasp, does that mean people stop trying? For the most part, I believe the answer is no. This explains why the world has so many policy makers, central bankers, economists, investment bankers, and businessmen finding what I call the inflection point.

These inflection point determines the point in which the input no longer contributes or no longer effectively contributes to the output. This is the point of diminishing marginal return. I believe at the end of the day, that is what every economic planning agent is trying to do.

Policy makers run models to find the optimal tax rate to maximize tax revenue. This optimal tax rate may be close to the the maximum tax the government can levy on its workers without disincentivizing them to stop working altogether. This rate bears huge implications and have great butterfly effects; it influences the subsequent welfare policies, public investments, technological progress, asset prices, and debt management. For instance, the amount of tax revenue influences how much a country can borrow. A country needs to borrow enough to keep the government running (if it cannot generate enough through taxes, which is the case for nearly all countries), but its debt burden also cannot be so large that it crushes its people’s economic sentiment.

Central bankers run models to conduct the optimal monetary policy to maximize growth or price stability. This optimal monetary policy, money printing or draining through the form of central bank asset purchases and sales. During times of inflation, it needs an interest rate high enough to squash inflation, but hopefully not so high that the economy crashes. During times of deflation, it needs an interest rate low enough that generates demand, but hopefully not so low that the system breaks down in the form of banking deposit outflows or bad loans.

Investment bankers run models to find the best debt structure to help a company find the cheapest money for whatever it wants to do. The optimal debt structure helps the company take advantage of whatever the tax codes and capital markets throw at the company, resulting in money that can contribute to greater growth, market share, revenue, or anything else.

I believe the same inflection point idea applies to people, too. People want the optimal debt structure, one where they can borrow to finance their education and home without feeling squashed and hopeless. People want the optimal tax rate so they can vote for the political candidates who share their aligned values without the fear of extortionary taxes.

As for to China, President Xi and Premier Li are looking to find the optimal interest rates, optimal tax rates, optimal industry mix, and optimal capitalist system to help China weather through its difficulties. Regardless of whether it will be able to achieve its goal, the GDP treadmill pressure may always be there. “Bigger, louder, and more teeth,” those word echoed in Jurassic World relate to our world. Countries want bigger GDPs, companies want bigger market shares, revenues, or both, investors want bigger EPS, and workers want more money.

My last point, considering how difficult and stressful it is to find the inflection point during our busy work days, it is now a good time to think about the optimal work life balance that gives you a full and happy life. Happy Thanksgiving and Happy Holidays!

China Watching

“If you think of the Chinese as yellow-skinned people of a totally different race from us, you probably will never get to know them” –The Pocket Guide to China

In 1943, the US Army handed out military pamphlets to the GIs stationed in China. Fighting side by side with the Chinese, the government promoted cultural exchange to strengthen its alliance. At the time, China was a military strategic partner and not much more. 70 years later, the need to understand China has increased far beyond just to the GIs. As the most populous nation, the second biggest economy, and the fourth largest country, China now demands the U.S.’s attention.

Though much has changed about the views toward China, the increased attention did not necessarily translate to increased understanding. As if staring at a piece of abstract art, Americans are watching, but most do not know what to watch for. They struggle to understand its complex political economy, dense language, and seemingly insulated society. Despite the increased media coverage, language studies, and travel opportunities, not much seems to make sense. Yet, as most Americans just scratch their head and stare at the piece, the American China watchers have been making the most out of it.

Ever since China became a global interest after its leader, Deng Xiao Ping, decreed “to get rich is glorious,” marking the shift to capitalism, the world has been eager to enter China. Since then, the newfound attention has created a need for bridges to connect the East and West. The West wanted to access the cheap labor, navigate the government, and more recently, break into the market; the East wanted to attract the foreign technology, management, and capital. As for these experts, they sought an adventure and have reinvented their careers as China insiders. With backgrounds in international affairs, economics, or journalism, American expats use their academic training to analyze evidences and recommend actions. Through reading dense academic research papers, conducting insider interviews, and visiting firms and agencies in on-site due diligence trips , they figure out the specific ins and outs of China and present their findings to clients, news outlets, conferences, and publishers.  Ranging from topics such as the financial system, business law and practices, government structure, to foreign relations, their detailed research has helped firms and governments vie for economic and political interests.  Adept at turning muddled data and into clear cut action plans, they have excelled at institutions, think-tanks, consulting firms, or investment research firms.

As experts, they fulfill useful, if not expensive, roles. Given China’s presence, clients are willing to go to great lengths for the insider economic, political, and cultural developments since each detail bears great significance to foreign relations, businesses, and investments. As a result, the high demand from clients and the low supply of experts have allowed them to capitalize on the first mover advantage and monopolize the market. They have the knowledge and the world is willing to pay for it. With fees up to $13,000 per newsletter subscription annually and opportunities at TV networks, conferences, and publishers, these savvy, entrepreneurial expats have been able to make a good living out of their roles.

Yet before such opportunities, they were just like any other American who stared idly at the abstract art piece of China. It all began with their challenge to explore the unknown. For many, the journey began with study abroad, English teaching, or company assignments. Throughout the years, while their American peers trickled back to the U.S. for home, for the better living standards, or the comfortable familiarity, the China watchers stayed behind. Driven by their curiosity, zest, and hard work, they caught up on their lack of cultural and language understanding and created a life for themselves abroad. Undaunted by the media portrayal, the language barrier, and the inherent career risks, they took the risk and sought the adventure.

For instance, Bill Bishop, the blogger of Sinocism, has reinvented his career as an online journalist. Having starting out his career as a business executive, Bishop gave up on climbing the corporate ladder and pursued his undergraduate Chinese studies interest. Decades later, he has blossomed as an online Journalist with his blog. Sinocism is a newsletter that compiles important China news stories to more than 12,000 investors, policy makers, and diplomats. By providing timely economic and political insights, Bishop has gained credibility and followers. His growing influence has allowed him to write for the New York Times as well as being named one of the top 100 foreign policy “Twitterati” by the Foreign Policy Magazine. Having the foresight to anticipate for his 12,000 subscribers’ demand, he is now one of the preeminent western bloggers in China. Now, as Bishop writes from his apartment in Beijing, his words influence companies, investors, and policy makers worldwide.

Nicholas Consonery from Eurasia Group, a political risk consultant firm, also seized opportunities based on his Chinese interest. Complementing his Asian studies degree from George Washing University and Furman University with a language program in China, Consonery expanded his horizons. Pouring through hours of classes, rote memorization, and uncomfortable practices, he mastered Mandarin. Since then, he has worked as a private equity analyst in Tianjin, a US consulate member in Shanghai, a security risk analyst in Washington D.C, and now as a top senior analyst at Eurasia Group. As a regular expert commentator on networks such as Bloomberg, CNBC, and Fox and contributor on the New York Times and the Wall Street Journal, he has capitalized on China’s growing prominence. More than just an interest, Consonery has developed a career all during his 20s and 30s.

In addition to natural China enthusiasts, Michael Pettis, an established Wall Street trader also joined in on the ride. Sparked by an interest in emerging markets, Pettis gave up his Wall Street Managing Director position for opportunities in China. Though he had little expertise in China, Pettis capitalized on his education, transferred his skillsets, and became the University of Peking finance professor and an influential blogger. On a day to day basis, he teaches finance, observes economic patterns, theorizes future developments, and provide commentaries on the future. Frequently quoted by finance magazines and praised by the Wall Street Journal as a “brilliant economic thinker,” he leads the pact of the China watching community with his timely insights. Furthermore, as a punk rock enthusiast, he has also taken on the challenge to support and develop the local music scene. As the owner of the Beijing’s punk night club, D22, he creates opportunities for local bands, as well as his sponsored Chinese band, Carsick Cars, to play. Though he is still known for his finance, his passion and involvement in the local music scene is notable. Taking risks and living large in China, Pettis carved out a new life in China.

While most China watching community members are a fan of China, such is not the requirement. Carson Block, the founder of Muddy Waters, is far from a China enthusiast. As a lawyer by training, Block is wary of China’s “too good to be true” economic stories. As a result, he founded Muddy Waters, a due diligence investment research company aimed at detecting fraudulent accounting practices at Chinese companies. Having assembled a team in China to track the company’s deliveries, accuracy of its inventory, store sales number, among other numbers, Block seeks to catch the cheaters for the investors. Furthermore, using his own research to make trades himself, Block has achieved solid returns on his short selling. With each report capable of dropping a stock drop down to 50%, investors have rushed to sign up for what he has to say and conflicting Chinese business owners have supposedly issued death threats. Block’s innovative idea instantly made himself a finance household name and redefined his career.

China’s economic boom has shifted the world’s attention and enabled these experts’ careers. Having the foresight to recognize China’s growing importance and the courage to take the risk, they have reinvented their careers.  Though so far they have been successful bridges to the East and West, this all may become ephemeral. As time goes on, more and more will join in the China watching community and their time being the world’s China consultant is limited. Within decades, their roles may be replaced or eliminated as China becomes more outward looking and the world becomes more globalized. Furthermore, time will also test the validity of their insights as the future unfolds. However, these expats’ lives are not wasted and bear greater meanings. Beyond the service they provide and the bridge they built across the east and west, what may be most valuable is their success story in China. More than their acquired, learned ability to navigate within the complexity of the Chinese government, language, and culture, it is their drive, risk-taking, and entrepreneurship that allowed them to create new lives abroad. Inheriting early pioneers’ sense for adventures, they have set out a good example for the future to follow. Tearing down national borders, cultural differences, and xenophobic tensions, they showed that it is still possible today to break out for adventures. For this generation of China watchers, they have fulfilled their needs of improving China’s transparency and connecting the East and West, but their most important contribution is the reminder that the world is still full of unknowns and adventures and rewards await those who have the drive, risk-taking, and entrepreneurship to follow.