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Friday, October 23, 2009

China's growth...8.9%!

Compared by the same period last year, the economy grew at 8.9%. This is all hodge podge news, really. For example, is it real growth or simply nominal growth? Or, is the real growth based on factors that are endogenous to China, or dependent on real value to be returned in the long or short term from external partners?

FT Report: "China growth underlines rapid rebound!"

If they are dependent on western consumers, I don't see how they escape the real value trap; i.e., the trap that you may have sold a good at a nominal profit and also at a minor real price profit, but reap valueless returns compared to real price terms on what the good may be worth or in turn. Or, on the other end, the price of a good you purchased at the same pricing differentials, but value would be seeped away in the short term, leaving the buyer with short term debt and liquidity problems- all in the same time, making larger nominal gains, mixed in with minor real gains, valueless in terms of medium term or long term benefits.

For example, a company buys a stock at 20% more its nominal value in the market and actually makes a minor profit of 5% the real value. However, the price drops on that good by 50% in the short term, leaving the buyer strapped for cash and with no idea on how to offload the good to reap his profits back all at a higher nominal price of inflation.

A slight nuance to the value trap, just added the notion of nominal to real value depreciation.
Value Trap Investopedia definition
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