The ABC News Consumer Comfort Index continues to be abysmal at -49. Gallup.com shows little rebound in consumer spending and hiring; they are off their lows but not much. A newer firm, Consumer Metrics Institute, finds evidence of a mini-double dip (not a true recession). Nouriel Roubini is just beginning to rebound and some leveraged bear market securities recently underwent reverse splits, indicating to contrarians that the bull is tired.
The bull market is in debt-based solutions to problems of too much debt.
Not only are people not talking about their killing in precious metals at cocktail parties, the Rydex Investor Class of its mutual fund investing in precious metals, RYPMX, actually lost assets today, and its asset level of about $143 MM is near its low level of the past year. So I do not believe the public is fully engaged in gold investing, indicating that the technical target of $1350 for gold's next stop is do-able. Will another $100+ surge in the price of gold suck in the public? If that happens, let's see.
Given the lack of volume in stocks on the upmoves and rising volume on the downside, yours truly worries that last Thursday's discontinuous price action in stocks could be a harbinger of things to come before anyone thinks, just as the rising but small number of "fails" in auction rate securities in 2007 presaged the complete shutdown of that market in early 2008. Who knows, but with the S&P 500 yielding at most 2%, with 6% a tradional yield at market bottoms, who needs stocks?
Meanwhile, the simple moving average of silver for the past 40 weeks (200 days) has set an all time high in nominal dollars (for the past 30 years or so, ignoring the post-Hunt brothers craziness). The 150 day and 50 day smas have a ways to go, but for now, silver has passed an important hurdle. Its spot price is below its 2008 high, but when a long term moving average hits a high, it means that the asset has spent more time near its high than previously. China may already be in a post-bubble collapse (or it may not be) and commodities may be in for a big fall thereby, but silver is one step closer to joining gold in a breakout. Speculators should be aware that silver has the potential to collapse in price in a rout far more than most people think is likely to happen to gold.
All in all, prices are rising given that some of the excess credit "money" has been converted to transactional economic activity. Whether much of this activity represents productive use to create more growth is a very open question. Keynesians appear to believe that consumption for its own sake is to be celebrated. I beg to differ.
Methinks gold and perhaps silver have a long way to go before the public is sucked into a precious metals bubble. Of course, policy-makers could surprise on the free market side. But the Sun could rise in the west as well.
Copyright (C) Long Lake LLC 2010
Showing posts with label China bubble. Show all posts
Showing posts with label China bubble. Show all posts
Wednesday, May 12, 2010
Tuesday, May 11, 2010
China's Growling Bear and the Gold Standard
The Chinese stock market has led the U. S. market up and down the last few years. It is now in a bear market, with the main Shanghai index at 2647, down over 20% from last year's peak. Click HERE for a 5-year chart.
The index bottomed half a year before the U. S. index bottomed and topped out late last summer, and since then has put in a series of lower highs and lower lows.
A couple of weeks ago, a news item crossed that the largest property company in China reported sharply lower earnings. It just may be that China's real estate market has in fact entered its downturn. In that scenario, those who are waiting for the bubble to burst may be like the geniuses at our Fed, Congress and administration in 2007-8 who saw no end to housing-led prosperity.
In fact the new trend is more more expatriation from the U. S.
In this country, the mood amongst much of the cognoscenti and in the public is sour. Last year I reported that pro-Obama sentiment amongst anti-Bush, left-of-center financial bloggers I followed had sharply waned, when they saw that there was a Bush-Obama continuity re favoritism toward Big Finance. Now we read that Goldman Sachs went 63 for 63 in profitable trading days in Q1. Great quarter, guys!
New faces in the White House, similar Big Finance-friendly policies.
Money drives and is driven by policy. The trend toward truly unsound money accelerated in this country with the guns and butter policies of LBJ, who was merely implementing JFK's policies, the two most disastrous of which may have been: first, ignoring de Gaulle's warning not to get entangled militarily in Viet Nam, and second, letting government employees engage in collective bargaining.
In any case, the French called our bluff, Nixon took the U. S. fully off the gold standard, and now we see that the fiat emperor has no clothes. One current example is the comment by some commentator in Britain about the bank bailout (no, it's not a bailout of Greece) plan that the IMF "money" is more "solid" than the European commitment.
It's all funny "money". It's not "solid" at all. In theory it is possible for a wise, prudent country to run a system of fiat money. After all, the gold standard had its problems. But it's looking better than the alternatives day by day.
Copyright (C) Long Lake LLC 2010
The index bottomed half a year before the U. S. index bottomed and topped out late last summer, and since then has put in a series of lower highs and lower lows.
A couple of weeks ago, a news item crossed that the largest property company in China reported sharply lower earnings. It just may be that China's real estate market has in fact entered its downturn. In that scenario, those who are waiting for the bubble to burst may be like the geniuses at our Fed, Congress and administration in 2007-8 who saw no end to housing-led prosperity.
In fact the new trend is more more expatriation from the U. S.
In this country, the mood amongst much of the cognoscenti and in the public is sour. Last year I reported that pro-Obama sentiment amongst anti-Bush, left-of-center financial bloggers I followed had sharply waned, when they saw that there was a Bush-Obama continuity re favoritism toward Big Finance. Now we read that Goldman Sachs went 63 for 63 in profitable trading days in Q1. Great quarter, guys!
New faces in the White House, similar Big Finance-friendly policies.
Money drives and is driven by policy. The trend toward truly unsound money accelerated in this country with the guns and butter policies of LBJ, who was merely implementing JFK's policies, the two most disastrous of which may have been: first, ignoring de Gaulle's warning not to get entangled militarily in Viet Nam, and second, letting government employees engage in collective bargaining.
In any case, the French called our bluff, Nixon took the U. S. fully off the gold standard, and now we see that the fiat emperor has no clothes. One current example is the comment by some commentator in Britain about the bank bailout (no, it's not a bailout of Greece) plan that the IMF "money" is more "solid" than the European commitment.
It's all funny "money". It's not "solid" at all. In theory it is possible for a wise, prudent country to run a system of fiat money. After all, the gold standard had its problems. But it's looking better than the alternatives day by day.
Copyright (C) Long Lake LLC 2010
Thursday, April 8, 2010
China Said to Be on Treadmill to Hell rather than Stairway to Heaven
Bloomberg.com reports briefly on the gloomy, contrarian view of China in China on ‘Treadmill to Hell’ Amid Bubble, Chanos Says. Here are some excerpts:
China’s property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos.
The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said . . .
China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”
Property prices in China rose at the fastest pace in almost two years in February even after officials this year re-imposed a tax on homes sold within five years of their purchase to curb speculation and ordered banks to set aside more funds as reserves to cool lending. The boom in China’s real estate has fueled concern that China may face a collapse seen in Dubai that has hurt the ability of some of its companies to repay debt.
Since his January prediction, Chanos, the founder of Kynikos Associates Ltd, has been joined by Gloom, Doom & Boom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s property market.
Chinese state and local governments are among the most leveraged to property-related borrowings and the nation will “ultimately” have to nationalize a lot of the bad loans that will arise from the end of the bubble, Chanos said. . .
Chanos was one of the first investors to foresee the 2001 collapse of Houston-based energy company Enron Corp. The investor said he is short-selling Chinese developers as well as companies supplying building-related materials to the country . . .
China’s property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos.
The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said . . .
China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”
Property prices in China rose at the fastest pace in almost two years in February even after officials this year re-imposed a tax on homes sold within five years of their purchase to curb speculation and ordered banks to set aside more funds as reserves to cool lending. The boom in China’s real estate has fueled concern that China may face a collapse seen in Dubai that has hurt the ability of some of its companies to repay debt.
Since his January prediction, Chanos, the founder of Kynikos Associates Ltd, has been joined by Gloom, Doom & Boom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s property market.
Chinese state and local governments are among the most leveraged to property-related borrowings and the nation will “ultimately” have to nationalize a lot of the bad loans that will arise from the end of the bubble, Chanos said. . .
Chanos was one of the first investors to foresee the 2001 collapse of Houston-based energy company Enron Corp. The investor said he is short-selling Chinese developers as well as companies supplying building-related materials to the country . . .
That Mr. Chanos is joined by Ph. D.'s with real interest in bubbles such as Drs. Rogoff and Faber reminds me of the disclosure several months ago that George Soros, John Paulson, Paul Tudor Jones and David Einhorn all had turned bullish on physical gold. The further good news on that gold front was that Mr. Paulson was reported to have had little success in finding investors for his gold-oriented fund, even though he had substantial personal funds in it. This lack of investor interest proves that the gold market, while not guaranteed to move in any special direction, is nothing like the NASDAQ circa 1999. It may be at a bull market peak, but it is NOT in the late stages of that rare event called a bubble. Similarly, while Mr. Chanos is not predicting the national bankruptcy of China, he appears to be predicting a temporary major decline in the global market for certain raw materials such as copper.
If this scenario unfolds, it would be a deflationary event for the U. S. The effects on the price of the gold would be unclear, but given the bull market in gold since the credit crunch hit the U. S. in 2007, there is no evidence that this event would ultimately do anything other than weaken faith in governments and debt. It therefore would strengthen the fundamental case for gold even as it weakens certain commodities prices.
Long Lake LLC 2010
Sunday, March 14, 2010
China Banking Crisis Coming?
Bloomberg.com is reporting that China May Face ‘Massive’ Bank Bailouts After Stimulus Program.
One year ago the L. A. Times reported on a raft of empty, "see-through" office buildings in Beijing, built for political reasons. This article suggests that just as the academic and Big Finance economists who warned that the U. S. housing market had levitated into a bubble were proven correct, foreigners who have no first-hand knowledge of what's going on in China are wise to be cautious about its real prospects. From the article:
China may be forced to bail out banks that made loans for local-government projects under the unprecedented stimulus program unleashed in 2008, according to Citigroup Inc. and Northwestern University’s Victor Shih.
In a “worst-case scenario,” the non-performing loans of local-government investment vehicles could climb to 2.4 trillion yuan ($350 billion) by 2011, Shen Minggao, Citigroup’s Hong Kong-based chief economist for greater China, said yesterday.
“The most likely case is that the Chinese government will engineer a massive financial bailout of the financial sector,” said Shih, a professor who spent months researching borrowing by about 8,000 local government entities. . .
Shih was more pessimistic than Shen in an interview on Bloomberg Television in Hong Kong yesterday. He said that if the central government stops lending to the entities now, the cost of a bailout may already be “in the neighborhood” of 3 trillion yuan. . .
The article more briefly presents some other viewpoints and is worth reading by many investors, given China's role in the commodities market. If China cools off, all commodities price will tend to follow. If China actually experiences a bursting bubble, it's a look-out-below scenario at least for a while for a great many markets with the possible exception of gold, which one of these days may stop tracking the stock market.
The larger context of the above issues is that it is a fact that China went on a credit binge in the aftermath of the fall 2008 global financial crisis. The U. S. government has done the same with the collaboration of the Washington-based Federal Reserve Board (which for all practical purposes is a public-private entity with the emphasis on public and thus is currently best thought of as an arm of the Federal government and the privately-owned New York Federal Reserve Bank). Certainly Britain has moved almost in policy lockstep with America. The countries with better banking regulations such as Canada and Australia actually may have their own housing bubbles or at least significant booms. Japan has continued to print money.
In other words, major governments all over the world have responded to a crisis caused by too much debt by socializing the losses at the cost of new government borrowings. This means that the return of corporate profits is largely due to money-printing rather than corporate brilliance, the sudden implementation of major cost-saving measures (other than such examples as IBM slashing R&D expense), or organic growth.
Gallup.com's near-real time polling data show that hiring/not hiring remains mired where it was 16 months ago. The same % of people think the economy is poor as thought so 20 months ago.
The stock market has bounced and hiring has lagged, just as predicted by Reinhard and Rogoff's research into banking crises ("This Time Is Different" is their ironically-titled book on the subject).
Almost every economist, investor and day trader "knows" that we are in a sweet spot of the investing cycle, with the economy due to turn up while the Fed remains easy, valuations are (allegedly) cheap to reasonable, and that happy days will be here again so that there will be gullible investors to sell overpriced stock to. Even hard-headed Andrew Smithers has sounded a softer tone, despite his own research showing that historically, this is a miserable time to be in the general stock market.
While Bloomberg is reporting that only now has American investor optimism replaced pessimism, my own review of Value Line's stock charts shows no bargains. Whether or not they have been optimistic, stock prices are "too high" or at least too high for current profits, asset value and dividends in my view for most individual issues, with the "junk" the worst buys.
MCD is my current favorite of the quality stuff, based on various chart patterns, recent operational news, and other criteria. Of greatest importance is that while it has not quite traded above its all-time high of mid-2008, its 50-day and 200-day moving averages are both at all-time highs. So this recent move to $65 and above is well-supported. This thinking worked out well for gold last summer. Even if MCD doesn't go up in price, its yield beats cash and is close to that of a 10-year Treasury and is likely to rise steadiliy in the future.
A few working days ago, I spoke favorably of long Treasuries for a trade (TLT). I closed that trade out with a small profit Friday. TLT went up a little more after I sold it. Any government as powerful as the U. S. government can keep supplying enough bonds to the market to overwhelm the possibility of meaningful price appreciation. It appears as though this administration, with the support of Congress, means to do just that. Perhaps by November, China will be seen to have a bursting bubble, a Perot-like zeal to shrink our Federal deficit will have gained real power in the elections, and Treasuries can surge up in price (down in yield) as David Rosenberg has been forecasting for some time.
Thus a core holding in Treasuries is reasonable, but it should be in direct ownership of bonds, not in a perpetual fund that in theory could provide zero nominal return indefinitely. The Japan scenario remains a realistic possibility for the U. S., which would surprise almost everyone, perhaps even the Japanese.
Copyright (C) Long Lake LLC 2010
One year ago the L. A. Times reported on a raft of empty, "see-through" office buildings in Beijing, built for political reasons. This article suggests that just as the academic and Big Finance economists who warned that the U. S. housing market had levitated into a bubble were proven correct, foreigners who have no first-hand knowledge of what's going on in China are wise to be cautious about its real prospects. From the article:
China may be forced to bail out banks that made loans for local-government projects under the unprecedented stimulus program unleashed in 2008, according to Citigroup Inc. and Northwestern University’s Victor Shih.
In a “worst-case scenario,” the non-performing loans of local-government investment vehicles could climb to 2.4 trillion yuan ($350 billion) by 2011, Shen Minggao, Citigroup’s Hong Kong-based chief economist for greater China, said yesterday.
“The most likely case is that the Chinese government will engineer a massive financial bailout of the financial sector,” said Shih, a professor who spent months researching borrowing by about 8,000 local government entities. . .
Shih was more pessimistic than Shen in an interview on Bloomberg Television in Hong Kong yesterday. He said that if the central government stops lending to the entities now, the cost of a bailout may already be “in the neighborhood” of 3 trillion yuan. . .
The article more briefly presents some other viewpoints and is worth reading by many investors, given China's role in the commodities market. If China cools off, all commodities price will tend to follow. If China actually experiences a bursting bubble, it's a look-out-below scenario at least for a while for a great many markets with the possible exception of gold, which one of these days may stop tracking the stock market.
The larger context of the above issues is that it is a fact that China went on a credit binge in the aftermath of the fall 2008 global financial crisis. The U. S. government has done the same with the collaboration of the Washington-based Federal Reserve Board (which for all practical purposes is a public-private entity with the emphasis on public and thus is currently best thought of as an arm of the Federal government and the privately-owned New York Federal Reserve Bank). Certainly Britain has moved almost in policy lockstep with America. The countries with better banking regulations such as Canada and Australia actually may have their own housing bubbles or at least significant booms. Japan has continued to print money.
In other words, major governments all over the world have responded to a crisis caused by too much debt by socializing the losses at the cost of new government borrowings. This means that the return of corporate profits is largely due to money-printing rather than corporate brilliance, the sudden implementation of major cost-saving measures (other than such examples as IBM slashing R&D expense), or organic growth.
Gallup.com's near-real time polling data show that hiring/not hiring remains mired where it was 16 months ago. The same % of people think the economy is poor as thought so 20 months ago.
The stock market has bounced and hiring has lagged, just as predicted by Reinhard and Rogoff's research into banking crises ("This Time Is Different" is their ironically-titled book on the subject).
Almost every economist, investor and day trader "knows" that we are in a sweet spot of the investing cycle, with the economy due to turn up while the Fed remains easy, valuations are (allegedly) cheap to reasonable, and that happy days will be here again so that there will be gullible investors to sell overpriced stock to. Even hard-headed Andrew Smithers has sounded a softer tone, despite his own research showing that historically, this is a miserable time to be in the general stock market.
While Bloomberg is reporting that only now has American investor optimism replaced pessimism, my own review of Value Line's stock charts shows no bargains. Whether or not they have been optimistic, stock prices are "too high" or at least too high for current profits, asset value and dividends in my view for most individual issues, with the "junk" the worst buys.
MCD is my current favorite of the quality stuff, based on various chart patterns, recent operational news, and other criteria. Of greatest importance is that while it has not quite traded above its all-time high of mid-2008, its 50-day and 200-day moving averages are both at all-time highs. So this recent move to $65 and above is well-supported. This thinking worked out well for gold last summer. Even if MCD doesn't go up in price, its yield beats cash and is close to that of a 10-year Treasury and is likely to rise steadiliy in the future.
A few working days ago, I spoke favorably of long Treasuries for a trade (TLT). I closed that trade out with a small profit Friday. TLT went up a little more after I sold it. Any government as powerful as the U. S. government can keep supplying enough bonds to the market to overwhelm the possibility of meaningful price appreciation. It appears as though this administration, with the support of Congress, means to do just that. Perhaps by November, China will be seen to have a bursting bubble, a Perot-like zeal to shrink our Federal deficit will have gained real power in the elections, and Treasuries can surge up in price (down in yield) as David Rosenberg has been forecasting for some time.
Thus a core holding in Treasuries is reasonable, but it should be in direct ownership of bonds, not in a perpetual fund that in theory could provide zero nominal return indefinitely. The Japan scenario remains a realistic possibility for the U. S., which would surprise almost everyone, perhaps even the Japanese.
Copyright (C) Long Lake LLC 2010
Saturday, March 6, 2010
MSM Forever Enabling Bubbles
The New York Times describes a China real estate boom that appears to have reached bubble-icious stage or at least something approaching that. In the same fashion in which previously sensible writers, editors and publications gave the Internet stock lunacy respect simply because prices kept on rising, the title of this article gives the Chinese lunacy respect. The article is titled Market Defies Fear of Real Estate Bubble in China. It's hard even to cite one quote. The entire article describes an unreal state, even ignoring memories from the 1980s and before when China was a poor agrarian society.
Please read the article. The text is fine; the title is just one more example of how the mainstream media (MSM) enables the formation and especially perpetuation of obvious overvalued situations. The title is clearly factually incorrect. The "market" is defying nothing. In a bubble or near-bubble, the rise in prices is the defining characteristic. A better title that would alert the reader to the writer's point would have been, for instance, "Evidence of Real Estate Bubble in China". Pick your title; the exact words don't matter. By using the language the Times did, though, it leads one to think of "playing" along in a (pseudo)-contrarian fashion.
Also please remember that the greatest growth story of the 19th century was the buildout of the U. S. and Canada. Routinely, foreigninvestors in the U. S. lost their shirts as financial collapses occurred despite the long-term growth curve. In China's instance, this is not comparable to the growth of the gigantic virgin territory of North America north of Mexico. It is an old, tired land that has grown with command and control procedures, inadequate concern for the environment, and dubious manufacturing controls. We do not hear about the large number of violent protests. The government is a kleptocracy, so far as I can tell. Income distribution is said to be more unequal than here.
If you want to invest in the China growth story in all its China-centric and global manifestations, first please ask yourself whether you are ready to be a long-term holder if the current boom collapses as so many others have over the centuries.
I for one prefer stories I understand and can actually evaluate firsthand, such as by walking into a Dollar Tree (one day I might just do that), Ross Stores or Marshalls; by dealing with Chubb; or by checking out an Apple store or learning how to actually use my IMac.
After protecting one's downside (backside?), the secret to successful investing is no secret. For those of us with no access to material nonpublic information, going with a reasonably valued asset that appears to have the right combination of improving fundamentals and that is rising in the estimation of the market is a strategy that continues to work. Finding those assets, whether they be markets such as gold or the stock market writ large, or whether they are individual stocks or specific opportunities such as an undervalued bond, takes work. If you don't enjoy doing so or have no talent for that sort of avocation, fuggedaboutit. Just avoid probably overvalued, over-hyped situations such as the China story and you will probably be fine and can spend your spare time doing this you like and/or are truly good at.
Copyright (C) Long Lake LLC 2010
Please read the article. The text is fine; the title is just one more example of how the mainstream media (MSM) enables the formation and especially perpetuation of obvious overvalued situations. The title is clearly factually incorrect. The "market" is defying nothing. In a bubble or near-bubble, the rise in prices is the defining characteristic. A better title that would alert the reader to the writer's point would have been, for instance, "Evidence of Real Estate Bubble in China". Pick your title; the exact words don't matter. By using the language the Times did, though, it leads one to think of "playing" along in a (pseudo)-contrarian fashion.
Also please remember that the greatest growth story of the 19th century was the buildout of the U. S. and Canada. Routinely, foreigninvestors in the U. S. lost their shirts as financial collapses occurred despite the long-term growth curve. In China's instance, this is not comparable to the growth of the gigantic virgin territory of North America north of Mexico. It is an old, tired land that has grown with command and control procedures, inadequate concern for the environment, and dubious manufacturing controls. We do not hear about the large number of violent protests. The government is a kleptocracy, so far as I can tell. Income distribution is said to be more unequal than here.
If you want to invest in the China growth story in all its China-centric and global manifestations, first please ask yourself whether you are ready to be a long-term holder if the current boom collapses as so many others have over the centuries.
I for one prefer stories I understand and can actually evaluate firsthand, such as by walking into a Dollar Tree (one day I might just do that), Ross Stores or Marshalls; by dealing with Chubb; or by checking out an Apple store or learning how to actually use my IMac.
After protecting one's downside (backside?), the secret to successful investing is no secret. For those of us with no access to material nonpublic information, going with a reasonably valued asset that appears to have the right combination of improving fundamentals and that is rising in the estimation of the market is a strategy that continues to work. Finding those assets, whether they be markets such as gold or the stock market writ large, or whether they are individual stocks or specific opportunities such as an undervalued bond, takes work. If you don't enjoy doing so or have no talent for that sort of avocation, fuggedaboutit. Just avoid probably overvalued, over-hyped situations such as the China story and you will probably be fine and can spend your spare time doing this you like and/or are truly good at.
Copyright (C) Long Lake LLC 2010
Thursday, January 7, 2010
Chinese Being Taken Out?
The noted short-seller Jim Chanos is being profiled in the New York Times as bearish on China, in Contrarian Investor Predicts Economic Crash in China. The title actually says it all. Jim Rogers is quoted derisively against Mr. Chanos' thinking. This blog has reported throughout 2009 about empty office buildings, malls etc., in China and even one empty new city just waiting for people to occupy and work in it.
I am one of the people who does not think that China is necessarily such a giant. It may come to be that, but I have a suspicion--not a fixed belief--that it is an economic catspaw of the West and Big Finance. I don't trust a thing about its economic data except that it appears true that the mother of all credit booms has been going on there to rescue a bad situation.
At home, it appears incredible that much speculation centers around a strong employment number to be reported tomorrow. The arguments against that are numerous. First, the FOMC statement this week was, sadly, strong that the employment situation is likely to remain weak for quite some time. Second, the ADP number, which tracks the national number and covers more businesses than the Labor Dept.'s Establishment survey, was down 85,000 jobs for December. Third, the Gallup.com data on spending and jobs remains mired near its worst numbers of one year ago. Fourth, Discover was out yesterday with its December U. S. Spending Monitor, which showed the following:
The Discover U.S. Spending Monitor fell 3.3 points in December to 83.0 (based out of 100). The decline was primarily driven by a big decrease in post- holiday spending intentions from consumers. While the decrease in spending intentions was anticipated, consumers showed little improvement in economic confidence in December and they grew slightly more pessimistic about their finances. These contributing factors leave the Monitor's index standing at a nine-month low.
Overall, 57 percent of consumers rated the economy as poor, a 2-point improvement from November. Forty-eight percent of consumers felt economic conditions were getting worse, 1 point better than November. The number of consumers rating their finances as poor went up a point to 26 percent. Half of consumers now think their finances are getting worse.
Monitor-Low 43% Have Money Left Over After Paying Monthly Bills
While a lift in holiday sales was good news for retailers, a record number of consumers found little to cheer about when paying the monthly bills. Only 43 percent, a Monitor-low, expected to have money left over after paying the monthly bills. This is the second time in three months the Monitor has broken a new low in this category, breaking October's previous low of 44 percent.
Middle-income consumers were the biggest contributors to the decline. Only 44 percent of them planned on having money left over, 15 points lower than in November. Lower-income consumers showed only a 1-point decline and upper-income consumers showed a 3-point decline.
Furthermore, 26 percent of those consumers who do have money left over said they would have less money left over than the previous month, a 12-month high.
Middle-Income Consumers See Little Change in the Economy, Grow More Concerned Over Finances
Fifty-six percent of middle-income consumers rated the economy as poor in December, unchanged from November. Lower and upper-income consumers rating the economy as poor actually dropped 2 and 3 points respectively.
Middle-income consumers also viewed their finances differently from lower and upper-income consumers. Forty-four percent felt their finances were getting worse, a 6-point increase from November.
On the other hand, bank stocks are on fire, the SPY looks to be in the early stages of a technical breakout from the rounded top it was tracing for the past 10 months, and selected deep discount retailers have found business absolutely booming. These include TJX, Ross Stores, and Family Dollar. Presumably Dollar Tree, which unlike the others did not report on recent sales this week, is participating in the growth in low-end retailing. TJX, ROST and DLTR are all at or just near record stock prices, all having set these records in 2009.
It is these sorts of stocks that are the soundest and most likely to resist the next downturn, in my opinion, with no guarantees. Record sales, earnings and stock price. And unfortunately good prospects.
What appears to be happening on the labor front is that there are fewer layoffs but those who are laid off are languishing a record period of time without being rehired. In the stock market and real economy, it is impossible for Government and the Fed to inject such massive amounts of funds into the real economy and not see some result. I suspect that all that has happened is that Federal deficits are matched by increased sales and profits in the private sector, and that if there were a unified societal budget, business stinks in the good old U. S. of A.
And should China collapse, that would have unpredictable effects at home.
Copyright (C) Long Lake LLC 2010
I am one of the people who does not think that China is necessarily such a giant. It may come to be that, but I have a suspicion--not a fixed belief--that it is an economic catspaw of the West and Big Finance. I don't trust a thing about its economic data except that it appears true that the mother of all credit booms has been going on there to rescue a bad situation.
At home, it appears incredible that much speculation centers around a strong employment number to be reported tomorrow. The arguments against that are numerous. First, the FOMC statement this week was, sadly, strong that the employment situation is likely to remain weak for quite some time. Second, the ADP number, which tracks the national number and covers more businesses than the Labor Dept.'s Establishment survey, was down 85,000 jobs for December. Third, the Gallup.com data on spending and jobs remains mired near its worst numbers of one year ago. Fourth, Discover was out yesterday with its December U. S. Spending Monitor, which showed the following:
The Discover U.S. Spending Monitor fell 3.3 points in December to 83.0 (based out of 100). The decline was primarily driven by a big decrease in post- holiday spending intentions from consumers. While the decrease in spending intentions was anticipated, consumers showed little improvement in economic confidence in December and they grew slightly more pessimistic about their finances. These contributing factors leave the Monitor's index standing at a nine-month low.
Overall, 57 percent of consumers rated the economy as poor, a 2-point improvement from November. Forty-eight percent of consumers felt economic conditions were getting worse, 1 point better than November. The number of consumers rating their finances as poor went up a point to 26 percent. Half of consumers now think their finances are getting worse.
Monitor-Low 43% Have Money Left Over After Paying Monthly Bills
While a lift in holiday sales was good news for retailers, a record number of consumers found little to cheer about when paying the monthly bills. Only 43 percent, a Monitor-low, expected to have money left over after paying the monthly bills. This is the second time in three months the Monitor has broken a new low in this category, breaking October's previous low of 44 percent.
Middle-income consumers were the biggest contributors to the decline. Only 44 percent of them planned on having money left over, 15 points lower than in November. Lower-income consumers showed only a 1-point decline and upper-income consumers showed a 3-point decline.
Furthermore, 26 percent of those consumers who do have money left over said they would have less money left over than the previous month, a 12-month high.
Middle-Income Consumers See Little Change in the Economy, Grow More Concerned Over Finances
Fifty-six percent of middle-income consumers rated the economy as poor in December, unchanged from November. Lower and upper-income consumers rating the economy as poor actually dropped 2 and 3 points respectively.
Middle-income consumers also viewed their finances differently from lower and upper-income consumers. Forty-four percent felt their finances were getting worse, a 6-point increase from November.
On the other hand, bank stocks are on fire, the SPY looks to be in the early stages of a technical breakout from the rounded top it was tracing for the past 10 months, and selected deep discount retailers have found business absolutely booming. These include TJX, Ross Stores, and Family Dollar. Presumably Dollar Tree, which unlike the others did not report on recent sales this week, is participating in the growth in low-end retailing. TJX, ROST and DLTR are all at or just near record stock prices, all having set these records in 2009.
It is these sorts of stocks that are the soundest and most likely to resist the next downturn, in my opinion, with no guarantees. Record sales, earnings and stock price. And unfortunately good prospects.
What appears to be happening on the labor front is that there are fewer layoffs but those who are laid off are languishing a record period of time without being rehired. In the stock market and real economy, it is impossible for Government and the Fed to inject such massive amounts of funds into the real economy and not see some result. I suspect that all that has happened is that Federal deficits are matched by increased sales and profits in the private sector, and that if there were a unified societal budget, business stinks in the good old U. S. of A.
And should China collapse, that would have unpredictable effects at home.
Copyright (C) Long Lake LLC 2010
Saturday, December 19, 2009
What Chinese Pig Farmers Have to Do with Fannie Mae, AIG and Goldman Sachs
The New York Times is running a concise review of financial companies that are to one degree or another wards of the Feds. It is horrifying. Here are excerpts from 4 Big Mortgage Backers Swim in Ocean of Debt:
Even as the biggest banks repay their government debt in what is being heralded as a successful rescue program, four troubled giants of the financial world remain on government life support.
These companies, the American International Group, Fannie Mae, Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state.
And the total risk they pose to the taxpayer far exceeds that of the big banks. Fannie and Freddie, in the final days of the year, are even said to be negotiating with the Treasury about greatly expanding the money available to them. . .
Fannie Mae recently warned, for example, that it could not pay the dividends it owes the Treasury, so “future dividend payments will be effectively funded with equity drawn from the Treasury.”
It would appear that Fannie Mae is involved in a Ponzi scheme with the Treasury.
All the above and almost all of the point of the entire article relates to the old Irving Fisher/Austrian economics point of too much aggregate debt. As debt levels in the West relative to the size of the economy have risen over the past 3 decades, secular economic growth has slowed and Treasury borrowing rates have fallen concomitant with decreased private demand for funds (e.g., decreased perceived real investment opportunities for the private sector).
From an investment standpoint, the opposite of debt is ownership, and an opposite of paper money is hard money AKA gold (and silver?), and by extension other physical goods known as commodities. But what happens when ownership of hard money occurs due to borrowing paper money (in electronic form)? One has a confusing situation. The mistrusted fiat money sector is used, on the margin with leverage, to purchase a form of insurance against itself. Logical? I think not. Yet ultimately gold is gold, nothing more or less. It just sits there, not tarnishing even after centuries at the bottom of the sea. It can't pull an AIG and have one obscure division ruin the entire entity or morph from an auto manufacturer to a finance company with a manufacturing subsidiary, as GM effectively did. It also can't become Apple Inc. Gold should be the ultimate non-get rich quick asset, a topic addressed next.
Mish has a compelling, must-read article that addresses this in China Faces Crash Scenario, which in turn references what strikes me as a credible article by a man named Brent Cook titled Pig Farmers are Making Brent Nervous. Here are excerpts from the latter:
Before getting into to the relationship between copper and pork products, I want to draw your attention to what makes me nervous, have a look at these photos from China. They are excerpted from a China Central Television Channel (CCTV) program documenting private speculation and hoarding of metals throughout the country. According to an associate of mine at an Asia-focused hedge fund who was just in China, “It’s pervasive; people are piling this stuff up in their backyards."
He Jinbi from Maike (metal trading company). He told CCTV they saw many farmers in Guangdong province stocking more than 100 tonnes of aluminium at home. These people used to raise geese for living.
Because the interest rate is too low in China. Many farmers could make hundreds of RMB profits per tonne, with dozens of Rmb per tonne cost of interests. They use their existing inventories to borrow more from banks. Banks are very 'happy' to lend to them. . .
A September 17 Bloomberg story by Singapore-based Glenys Sim reports that “Private investors in China, the world’s largest metals user, have stockpiled ‘substantial’ quantities of copper as the government ramps up stimulus spending to spur the economy.” The article points out that pig farmers and other speculators have amassed in the order of 50,000 tonnes of copper. That is about half the level of inventories tallied by the Shanghai Futures Exchange."
Mr. Cook goes on to state flatly:
What is obvious is that gold and now base metals have become speculative investments that in addition to being bought as hedges against inflation and a falling US dollar are the latest get rich quick scheme. . .
I remain cautious and somewhat concerned by what appears to be hot and fickle money jumping into a sector that is apparently taking its cue from pig farmers.
Only for reasons of space have I ignored the rest of Mish's article, which has several linked articles.
The Brent Cook article states that banks are happy to lend to pig farmers for commodity speculation. Here is an online dictionary's definition of a bank:
"an institution for receiving, lending, exchanging, and safeguarding money and, in some cases, issuing notes and transacting other financial business."
Note the word "safeguarding". Your "money" in the "bank" is not safe except at the most conservative institutions. It would appear that much of the global economy has been, through overt governmental and business policy and by governmental neglect as well, subjugated to the traders, middlemen and salespeople who benefit from volatility with government bailouts as a given.
When what should be an uncorrelated asset--gold--trades up hard and down hard due to the same leverage that it should be insurance against, what you have is a mess. My guess--just a guess-- is that central banks need "money" and those in countries that have lots of gold, such as the U. S., France and Germany are more than happy to see gold's price trend higher, because this provides a larger capital base on which to continue to support the economic basket cases of their economies, so that unlike past years, official policy may work in favor of gold owners, not against them.
On the other hand, every other commodity, including silver and platinum, are for official purposes all the same: industrial commodities. They are imports for the powers in the G7 and G20 and all things being equal, lower prices are better for their economies than are higher ones.
To summarize, the post-Cold War economic stability of the West of the 1990s is definitely gone.
Whatever price gold and stocks had then is mostly of historical relevance. The U. S. is going the route of Japan with weak, giant financial institutions, politically-motivated infrastructure spending paid for with borrowed funds and a carry trade currency. The economy built on outsourcing, China, may well be in the late stages of a complex financial bubble, and the world's largest economy is being propped up by taxpayers borrowing in part at zero percent interest rates (but with massive re-financing risk as this borrowing is short-term), and Goldman, Sachs and other trading companies are as happy as Chinese pig farmers.
The only theme an investor can follow is that the powers that be don't care about you. In fact, they want your money. Thus American homeowners have systematically been turned into renters for the most part. How to preserve capital adjusted for "flation" has been deliberately been made so complex that the average person has better odds, perhaps, in Vegas than playing our markets. "They" have made it overly complex. Your job is to keep it simple and keep your eyes open and your hand on your wallet. Emulate not Chinese pig farmers. Whether precious metals and other ETFs are the Western equivalent of copper and aluminum in their yards is unclear. More than ever in modern financial times, you never know.
Copyright (C) Long Lake LLC 2009
Even as the biggest banks repay their government debt in what is being heralded as a successful rescue program, four troubled giants of the financial world remain on government life support.
These companies, the American International Group, Fannie Mae, Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state.
And the total risk they pose to the taxpayer far exceeds that of the big banks. Fannie and Freddie, in the final days of the year, are even said to be negotiating with the Treasury about greatly expanding the money available to them. . .
Fannie Mae recently warned, for example, that it could not pay the dividends it owes the Treasury, so “future dividend payments will be effectively funded with equity drawn from the Treasury.”
It would appear that Fannie Mae is involved in a Ponzi scheme with the Treasury.
All the above and almost all of the point of the entire article relates to the old Irving Fisher/Austrian economics point of too much aggregate debt. As debt levels in the West relative to the size of the economy have risen over the past 3 decades, secular economic growth has slowed and Treasury borrowing rates have fallen concomitant with decreased private demand for funds (e.g., decreased perceived real investment opportunities for the private sector).
From an investment standpoint, the opposite of debt is ownership, and an opposite of paper money is hard money AKA gold (and silver?), and by extension other physical goods known as commodities. But what happens when ownership of hard money occurs due to borrowing paper money (in electronic form)? One has a confusing situation. The mistrusted fiat money sector is used, on the margin with leverage, to purchase a form of insurance against itself. Logical? I think not. Yet ultimately gold is gold, nothing more or less. It just sits there, not tarnishing even after centuries at the bottom of the sea. It can't pull an AIG and have one obscure division ruin the entire entity or morph from an auto manufacturer to a finance company with a manufacturing subsidiary, as GM effectively did. It also can't become Apple Inc. Gold should be the ultimate non-get rich quick asset, a topic addressed next.
Mish has a compelling, must-read article that addresses this in China Faces Crash Scenario, which in turn references what strikes me as a credible article by a man named Brent Cook titled Pig Farmers are Making Brent Nervous. Here are excerpts from the latter:
Before getting into to the relationship between copper and pork products, I want to draw your attention to what makes me nervous, have a look at these photos from China. They are excerpted from a China Central Television Channel (CCTV) program documenting private speculation and hoarding of metals throughout the country. According to an associate of mine at an Asia-focused hedge fund who was just in China, “It’s pervasive; people are piling this stuff up in their backyards."
He Jinbi from Maike (metal trading company). He told CCTV they saw many farmers in Guangdong province stocking more than 100 tonnes of aluminium at home. These people used to raise geese for living.
Because the interest rate is too low in China. Many farmers could make hundreds of RMB profits per tonne, with dozens of Rmb per tonne cost of interests. They use their existing inventories to borrow more from banks. Banks are very 'happy' to lend to them. . .
A September 17 Bloomberg story by Singapore-based Glenys Sim reports that “Private investors in China, the world’s largest metals user, have stockpiled ‘substantial’ quantities of copper as the government ramps up stimulus spending to spur the economy.” The article points out that pig farmers and other speculators have amassed in the order of 50,000 tonnes of copper. That is about half the level of inventories tallied by the Shanghai Futures Exchange."
Mr. Cook goes on to state flatly:
What is obvious is that gold and now base metals have become speculative investments that in addition to being bought as hedges against inflation and a falling US dollar are the latest get rich quick scheme. . .
I remain cautious and somewhat concerned by what appears to be hot and fickle money jumping into a sector that is apparently taking its cue from pig farmers.
Only for reasons of space have I ignored the rest of Mish's article, which has several linked articles.
The Brent Cook article states that banks are happy to lend to pig farmers for commodity speculation. Here is an online dictionary's definition of a bank:
"an institution for receiving, lending, exchanging, and safeguarding money and, in some cases, issuing notes and transacting other financial business."
Note the word "safeguarding". Your "money" in the "bank" is not safe except at the most conservative institutions. It would appear that much of the global economy has been, through overt governmental and business policy and by governmental neglect as well, subjugated to the traders, middlemen and salespeople who benefit from volatility with government bailouts as a given.
When what should be an uncorrelated asset--gold--trades up hard and down hard due to the same leverage that it should be insurance against, what you have is a mess. My guess--just a guess-- is that central banks need "money" and those in countries that have lots of gold, such as the U. S., France and Germany are more than happy to see gold's price trend higher, because this provides a larger capital base on which to continue to support the economic basket cases of their economies, so that unlike past years, official policy may work in favor of gold owners, not against them.
On the other hand, every other commodity, including silver and platinum, are for official purposes all the same: industrial commodities. They are imports for the powers in the G7 and G20 and all things being equal, lower prices are better for their economies than are higher ones.
To summarize, the post-Cold War economic stability of the West of the 1990s is definitely gone.
Whatever price gold and stocks had then is mostly of historical relevance. The U. S. is going the route of Japan with weak, giant financial institutions, politically-motivated infrastructure spending paid for with borrowed funds and a carry trade currency. The economy built on outsourcing, China, may well be in the late stages of a complex financial bubble, and the world's largest economy is being propped up by taxpayers borrowing in part at zero percent interest rates (but with massive re-financing risk as this borrowing is short-term), and Goldman, Sachs and other trading companies are as happy as Chinese pig farmers.
The only theme an investor can follow is that the powers that be don't care about you. In fact, they want your money. Thus American homeowners have systematically been turned into renters for the most part. How to preserve capital adjusted for "flation" has been deliberately been made so complex that the average person has better odds, perhaps, in Vegas than playing our markets. "They" have made it overly complex. Your job is to keep it simple and keep your eyes open and your hand on your wallet. Emulate not Chinese pig farmers. Whether precious metals and other ETFs are the Western equivalent of copper and aluminum in their yards is unclear. More than ever in modern financial times, you never know.
Copyright (C) Long Lake LLC 2009
Saturday, August 29, 2009
Words to the Wise
Bloomberg.com is running a lengthy piece on China and its stock market that is not a great read, but has a quote that leads the thoughtful observer to be wary of what's going on in the Great Reflation. From China Stocks Cheapest to Analyst Targets After Slump:
While banks can provide 300 billion yuan to 400 billion yuan of new loans a month, that “may not be enough for the market to be reassured that’s enough to keep pushing prices higher,” Green (an "analyst") said.
Scary. (Not to mention the title of the article, which in an almost insane manner justifies stock prices on the basis of what "analysts" project the stock to sell for in the future. Talk about self-fulfilling prophecies! This is NASDAQ 1999 stuff--the worst mispricing of securities I have ever heard of.)
We have seen a great orgy of both creation of new credit and government guarantees of existing credit. As with "cash for clunkers", this will pull consumption forward, but it creates no wealth. And the U. S. has explicitly gone the New Deal route of raising prices by destroying existing product; for every new car sold under "clunkers", one was destroyed; even the engine parts could have been reused.
Trying to re-blow a burst bubble is, as with chewing gum splattered over one's face, messy and difficult stuff.
Meanwhile, one week ago, EBR pointed out some interesting bullish historical technical patterns regarding the long Treasury bond and contrarian rationales for why it could be an asset poised for capital gains as well as income, focusing on a proxy for it, the ETF TLT. As if the gods of the market were reading this blog, TLT closed about 3 points up on the week (over a 3% gain). The 10-year is challenging resistance at 3.40-3.43%; no opinion about its chances of success, especially in the very slow week upcoming.
The ECRI Weekly Leading Index Growth Rate rose to its highest level since May 1971, attesting to the rationale for the massive stock rally since March. What happened then in the midst of that structural bear market for bonds? The stock market promptly fell 15% and was down adjusted for inflation one year later. The long bond was mostly stable to down in yield (up in price) for almost a year and half later (despite all the money printing, war action, etc.) Past could be prologue.
The frenzied interest and action in dividendless financial stocks such as AIG, C, Fannie/Freddie, Ambac, etc., and the poor action in high-quality dividend-paying companies such as MCD and Northern Trust (NTRS), is a divergence of which EBR disapproves. It correlates with the speculation going on in China and the quote at the top of this post explaining that speculation.
Longer term, quality will out, and uninformed speculation and excessive credit creation will reap what they have sown.
Copyright (C) Long Lake LLC 2009
While banks can provide 300 billion yuan to 400 billion yuan of new loans a month, that “may not be enough for the market to be reassured that’s enough to keep pushing prices higher,” Green (an "analyst") said.
Scary. (Not to mention the title of the article, which in an almost insane manner justifies stock prices on the basis of what "analysts" project the stock to sell for in the future. Talk about self-fulfilling prophecies! This is NASDAQ 1999 stuff--the worst mispricing of securities I have ever heard of.)
We have seen a great orgy of both creation of new credit and government guarantees of existing credit. As with "cash for clunkers", this will pull consumption forward, but it creates no wealth. And the U. S. has explicitly gone the New Deal route of raising prices by destroying existing product; for every new car sold under "clunkers", one was destroyed; even the engine parts could have been reused.
Trying to re-blow a burst bubble is, as with chewing gum splattered over one's face, messy and difficult stuff.
Meanwhile, one week ago, EBR pointed out some interesting bullish historical technical patterns regarding the long Treasury bond and contrarian rationales for why it could be an asset poised for capital gains as well as income, focusing on a proxy for it, the ETF TLT. As if the gods of the market were reading this blog, TLT closed about 3 points up on the week (over a 3% gain). The 10-year is challenging resistance at 3.40-3.43%; no opinion about its chances of success, especially in the very slow week upcoming.
The ECRI Weekly Leading Index Growth Rate rose to its highest level since May 1971, attesting to the rationale for the massive stock rally since March. What happened then in the midst of that structural bear market for bonds? The stock market promptly fell 15% and was down adjusted for inflation one year later. The long bond was mostly stable to down in yield (up in price) for almost a year and half later (despite all the money printing, war action, etc.) Past could be prologue.
The frenzied interest and action in dividendless financial stocks such as AIG, C, Fannie/Freddie, Ambac, etc., and the poor action in high-quality dividend-paying companies such as MCD and Northern Trust (NTRS), is a divergence of which EBR disapproves. It correlates with the speculation going on in China and the quote at the top of this post explaining that speculation.
Longer term, quality will out, and uninformed speculation and excessive credit creation will reap what they have sown.
Copyright (C) Long Lake LLC 2009
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