Smartphone Sales Declining?

Two side-by-side stories in the Wall Street Journal this morning might be a straw in the wind. In one Nokia’s smartphone sales are showing a down-turn; in the other, similar results are reported for Samsung. Is this market finally maturing? I note that new technologies have their own well-known cyclicality. When they are in their growth phases, they resemble bubbles. When they mature, the media always sound as if some kind of End Time has arrived. See for instance this article in the Wall Street Journal, dated April 11, 2013, “Computer Sales in Free Fall” (link). The chart shown does have an alarming aspect—until you realize that the down-ward trend is that of growth. When a market is mature, growth will tend to match that of an economy, not that of a bubble. And then the great leaders of an industry begin gradually divesting of the product to those who will keep selling them for many, many, many years to come. At a profit—but not at the kind of profit that lifts stocks. A recent example is IBM selling its network server unit to Lenovo of China (link).

China and Real Estate

Both the Wall Street Journal and the New York Times this morning noted moves by the Chinese  Government to puncture that country’s real estate bubble. The moves, which include a 20 percent capital gains tax on real estate sold, had immediate (if perhaps only temporary) effects on property prices and the stock market, particularly the stocks of developers. China is also planning to make it more costly for people to buy second homes. Wider efforts, reported by the WSJ, aim at shifting growth from exports to internal consumption, which would require raising household incomes.

Perhaps it is already too late for China, but for the moment the center there still holds—meaning that government can act rapidly and decisively to protect the welfare of most of the population. I qualify this by using the word “perhaps” because the dissolving acids of the “free market” may already have penetrated the top communist elite enough for things to end badly. A while back I read a novel by a Chinese writer set in modern Shanghai; the book strongly suggested that a Commie-Capitalist Complex (as in the sense of a Military-Industrial Complex here) is already on the verge of grasping power. If so, look out.

The longer-term historical patterns in China suggest, however, a cycling between “virtuous” authoritarianism, the decay of the ruling element, the outbreak of civil war—the winner of which, under the Mandate of Heaven, once more takes charge and rules virtuously. Virtuous rule means that the government holds down the very forces that the free market releases. Another way to put this is that China is habituated to authoritarian rule over millennia. When that weakens, somebody is on the take. We shall see. What comes next? Another cultural revolution? Or will the twenty-first be the Chinese Century. If so, I feel for the ordinary Chinese. They will be ever more affluent but less and less content. And slouching toward China, as toward all other countries too, is the Rough Beast of the Post-Fossil Age. When it arrives, a cultural revolution in China is a dead certainty.

A Decade in Housing

One way of looking at the housing bubble is to see how much economic activity it first stimulated and how much of it we then lost. In this industry the U.S. Bureau of the Census avoids words like “shipments”—homes are not exactly shipped. The Bureau talks instead of “Value of Business Done.” Herewith then a graphic that shows this value from 1997 through the year 2000.

The big kid on the block is the single-family home, a category that also includes townhouses of the kind that, while they touch, a full wall separates the two residences from roof to the lowest basement, if any; the little brother is multi-unit residential construction; it includes apartment houses, condos, and the like.

The Bureau only reports on these two sectors in Economic Census years (they end in 2 or 7). I’ve rendered values for those years in black—and then, to get a proper curve, I’ve extrapolated the other points using percentage changes to housing starts—which are reported every year, indeed every month.

Interesting picture, this one. The multi-unit sector shows how the single-family sector would have performed had the bubble never come. The pattern is visible in the upper curve from 1997 through 2001. Then the speculation suddenly set in. Single-family rose like a rocket. Of added interest here is that the construction industry itself—if not yet the whole world, knew that things were badly off. The bubble here peaks three years before it bursts, in the financial sector, in 2008. The dark fairy suddenly swooped down in 2005—and the industry had to give it all back again—and more.

Now we constantly hear the innovators, progressives, and the cool asking, when others are leery of going upstairs, never mind all the way, “Hey, what century is this, doll? Hey, this is the twenty! first!”  The idiots, alas, are always saying that. Before the dot.com bubble people thought that fundamental economic laws had been suspended inside the dizzying heights of cyberspace. Not so.

Whatever the century, we may be dead certain. Somebody will try to get something for nothing. Both those who seductively whisper and those who yield to temptation must eventually—pay up. Here’s how it looked in housing. And the sobriety will last until this bubble sinks from memory and some other crazy “innovation” takes somebody to the cleaners. Next time.