Market Manipulation Goes Global – Project-Syndicate 07-27-15

Salient to Investors:

Stephen Roach at Yale writes:

Market manipulation a la China is now standard operating procedure in policy circles around the world – the West just dresses up their manipulation in different clothes.

QE is essentially an aggressive effort to manipulate asset prices: whether it has succeeded is debatable along with central banks’ unsubstantiated claim that things would have been much worse had they not pursued QE.

China appears less focused on systemic risks to the real economy because wealth effects are significantly smaller in China, where private consumption is 36% of GDP, half that in more wealth-dependent economies like the US. By keeping its benchmark rate well above zero, the PBOC is better positioned than other central banks to maintain control over monetary policy and avoid the open-ended liquidity that is so addictive for frothy markets. China’s targeted equity-specific actions minimize the risk of financial contagion caused by liquidity spillovers into other asset markets.

Nearly 90% of the 12-month surge in the CSI 300 was concentrated in the 7 months following the Shanghai-Hong Kong Connect in November 2014, so speculators had little time to let the capital gains sink in. The likelihood of forced deleveraging of margin calls underscores the potential for a further slide once full trading resumes. The development of stable equity and bond markets is a high priority in China’s effort to promote a more diversified business-funding platform, so the equity collapse calls that effort into serious question.

Time and again, regulators, policymakers, and political leaders have condoned market excesses, a growth elixir when labor income is under constant global pressure. These bubbles always burst and the false prosperity is exposed.

Read the full article at http://www.project-syndicate.org/commentary/china-stock-market-bubble-intervention-by-stephen-s–roach-2015-07

Click here  to receive free email alerts of the latest forecasts.

 

The Last Bubble Standing – Amazon’s Same Day Trip Through The Casino – David Stockman’s Contra Corner 07-27-15

David Stockman writes:

Amazon’s valuation, its one day gain and last week’s Google gain are reminiscent of the days before the tech wreck 15 years ago. The 12 Big Cap Techs of 2000 saw their peak combined valuation of $3.8 trillion plunge to $875 billion a decade later, even as their sales and earnings continued to grow.

Amazon’s market cap boost by $40 billion in the seconds after its earnings release had nothing to do with Amazon but to robo-traders and fast money chasing one of the greatest bubbles still standing in the casino, raving about the performance of AWS, Amazon’s totally unrelated cloud computing services division.

AWS is valued at 110 times. However, Google, Microsoft, Oracle et al are not about to cede the cloud to Amazon. With no barriers to entry, no killer patents, no material brand equity, no irreproducible sales and service network expect prices to fall rapidly – Oracle’s Ellison has promised to cut prices by 90% and he has rarely failed to follow through on those kind of promises. The cloud is destined to become Microsoft’s entire franchise.

Amazon’s $250 billion market cap is a bubble and it is being valued at 109 times free cash flow. In 25 years it has never, ever generated any material free cash flow despite its $96 billion of LTM sales, or paid a dividend.

Amazon is not a la GE in the 1950s because it has never made a profit beyond occasional quarterly chump change, nor does Bezos seemingly plan to ever make one.

We are in the waning days of the third great central bank enabled bubble this century, a casino that is all about beanstalks which grow to the sky and sell-side gobbledygook.

Nothing from UBS, a serial swindler and confessed criminal organization (Sic), can be taken seriously.

Read the full article at http://davidstockmanscontracorner.com/the-last-bubble-standing-amazons-same-day-trip-through-the-casino/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Sunday+10+AM

Click here to receive free and immediate email alerts of the latest forecasts.

Eurozone outlook improves, International Monetary Fund says – BBC News 07-27-15

Salient to Investors:

The IMF said:

  • European growth will rise to 1.7% in 2016 versus 1.5% in 2015 thanks to falling oil prices, a weaker euro and ECB actions this year.
  • Europe remains vulnerable to shocks that could bring prolonged stagnation, like Greece or a moderate shock to confidence from lower expected future growth or heightened geopolitical tensions.
  • The growth outlook for the next 5 years is clouded by high unemployment, especially among the young, large corporate debt, rising non-performing bank loans.
  • Inflation will remain near zero in 2015 and rise to 1.1% in 2016.
  • The ECB’s asset-buying program has boosted confidence and improved financial conditions and should continue until at least September 2016.

Andrew Walker at  BBC said the IMF is saying the eurozone needs more than just reform of the structure of the eurozone and effort from struggling members: it wants countries with excessive current account surpluses, like Germany and Netherlands, to invest more in infrastructure and to boost demand.

Read the full article at http://www.bbc.com/news/business-33669031

Click here to receive free and immediate email alerts of the latest forecasts.

Central Banks Have Shot Their Wad – Why The Casino Is In For A Rude Awakening, Part I – David Stockman’s Contra Corner 07-25-15

Salient to Investors:

David Stockman writes:

The central banks have shot their wad after increasing their aggregate balance sheet from $3 trillion to $22 trillion over the last 15 years, which falsified financial prices.

The coming deflation will bring a plunge in corporate profits and collapsing prices of vastly inflated risk asset classes. The Bloomberg commodity index will fall below the 100 index level as the cycle from asset accumulation and inflation to asset liquidation and deflation continues. The lagged effect of the project completion cycle causes excess capacity to continue to grow, meaning the plunge in commodity and industrial prices and profit margins has only just begun, and will fall for years to come. Production cuts and capacity liquidation in virtually every materials sector is being drastically delayed by the continuing availability of cheap finance, meaning prices and margins will be driven even lower than would otherwise be with excess capacity.

Central banks engineered massive household borrowing and consumption/housing spending in the developed economies which then ignited an export manufacturing boom in China et al which over-taxed the supply of raw materials as the commodity price boom peaked with $150 oil in July 2008. Governments and central banks then battled the plunge in consumer spending and liquidation of bad mortgages, excess inventories and over-stocked labor by triggering a second artificial economic boom in CapEx and infrastructure spending in China and the emerging markets. China’s total debt went from about 150% of its GDP in 2007 to nearly 300% of GDP today.

Central bankers drove interest rates towards zero to try to spur spending by the middle classes, already at peak debt, but instead generated a scramble for yield among money managers and capital outflows of $4-5 trillion into emerging market debt: the resulting tidal wave of capital investment caused a second surge of commodity prices which peaked in 2011-2013. The monetary expansion has left the developed world at peak household debt and the emerging markets drowning in excess capacity to produce commodities and industrial goods.

CapEx by the world’s top 40 miners rose from $18 billion in 2001 to $42 billion by 2008, paused during the financial crisis, and then rose to a peak $130 billion in 2013. New projects then halted, but big projects in the pipeline when commodity prices and profit margins began to roll-over in 2012, are being completed due to the sunk cost syndrome: thus on-line capacity continues to soar despite falling prices.

CapEx on oil and gas rose from $100 billion in 2000 to $400 billion in 2008 and to the peak at $700 billion in 2014. Lifting costs even for shale and tar sands are modest compared to the front-end capital investment so the response of production to plunging prices has been limited and will be substantially prolonged.

Steel capacity has doubled from 1.1 billion tons to over 2.3 billion tons during the past 15 years, far outstripping current demand. Excess capacity could easily reach 35%, or more than the combined steel industry of the US, Europe and Japan.

Thompson Reuters reports global CapEx for manufacturing, transport, construction, process industries and utilities rose from $450 billion in 1991 to $700 billion in 2001, a 4.5% annual rate, and to $2.6 trillion in 2013, a 12% annual rate.

Read the full article at http://davidstockmanscontracorner.com/central-banks-have-shot-their-wad-why-the-casino-is-in-for-a-rude-awakening-part-i/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Sunday+10+AM

Click here to receive free and immediate email alerts of the latest forecasts.

Capital exodus from China reaches $800bn as crisis deepens – The Telegraph 07-24-15

Salient to Investors:

China’s day of reckoning is delayed again as it is reverts to credit stimulus after attempts to engineer a stock market boom have failed. Economic growth will accelerate over the next few months, giving global commodity markets a brief reprieve.

Robin Brooks at Goldman Sachs estimates that capital outflows reached a record $224 billion in Q2 2015. Charles Dumas at Lombard Street Research says capital outflows reached $800 billion over the past year.

The Dutch CPB’s world trade index shows that shipping volumes have been negative in 4 of the past 5 months which is extremely rare and usually implies a global recession.

China suspended half the shares traded in Shanghai and Shenzhen, halted new floats, pressured 300 corporations into buying back their own shares, and hunted down short sellers. Caixin says the China Securities Finance Corporation owns an estimated $200 billion of Chinese stocks and has authority to buy a further $500 billion if necessary to prop up the market. Michael Pettis at Peking University says brute force has done the trick as equities have recovered.

Xi Jinping’s 2013 pledge to let market forces play the decisive role in the economy is broken and his failure to see through this reform strategy is fatal for China’s economy.

In 2012, the World Bank and China’s Development Research Center warned that China’s 30-yr growth model was obsolete and that the low-hanging fruit of state-driven industrialization had been picked.

Capital Economics, Oxford Economics, and Lombard Street Research say China’s true economic growth rate is currently below 4%.

China produced more cement between 2011 and 2013 than the US in the entire 20th century.

China’s ratio of private credit to GDP has jumped sixfold to 160% of GDP since 2007, and far beyond any safe level for a developing economy.

Adam Slater at Oxford Economics says easing measures since late 2014 have not kept pace with tightening conditions and if China wants to quickly ease monetary conditions, then exchange rate depreciation would be the obvious way to go. However this would anger Washington and risk a beggar-thy-neighbor currency war across Asia.

 

Read the full article at http://www.telegraph.co.uk/finance/economics/11756858/Capital-exodus-from-China-reaches-800bn-as-crisis-deepens.html

Click here to receive free and immediate email alerts of the latest forecasts.

Barack Obama Tells Another Whopper – He Did Not Create 12.8 Million Jobs – David Stockman’s Contra Corner 07-05-15

Salient to Investors:

David Stockman writes:

  • Total non-farm labor hours are no higher than in Q4, 2007 and only 1% higher than in the spring of 2000, meaning we have added virtually no new employment to the US economy over 2 business cycles.
  • Over the 29 quarters after the 1990 business cycle peak (Q2, 1990 to Q3, 1997) non-farm labor hours increased by 12% and after the 1981 peak (Q3, 1981 to Q4, 1988) increased by 17%.
  • Worse, we keep replacing high productivity hours in the full-time jobs sector for low-skill, low-pay jobs in bars, restaurants, Wal-Marts and temp agencies.
  • The number of full-time jobs in energy and mining, construction, manufacturing, white-collar professions, business management and services, IT, transportation/distribution and finance, insurance and real estate is 1.7 million below their level of December 2007 and lower than in 2000.
  • The Keynesian Fed is fueling serial financial bubbles, causing a temporary lift in the discretionary incomes of the top 10% of households, which own 85% of the financial assets, and the next 10-20% which feed off their winnings. The result is the leisure and hospitality sectors boom, creating many jobs for bar tenders, waiters, bellhops, etc. which mostly are 26 hours per week and $14 per hour. As soon as the financial bubble bursts, these jobs quickly disappear.
  • The 12.3 million manufacturing jobs reported for June was 10% below the level of December 2007, and nearly 30% lower than in January 2000. The 19.6 million high-productivity, high-pay goods producing jobs in energy, mining, manufacturing and construction in June was 5 million lower than in January 2000. No wonder the median real household income has declined by 7% over the last 15 years.
  • BLS reports health, education and social services generated another 48,000 jobs in June versus the 42,000 monthly average for the sector since 2000. But these jobs pay on average only $35k a year and are almost entirely fiscally dependent on a public sector that is broke and a public debt that keep ballooning.

Read the full article at http://davidstockmanscontracorner.com/barrack-obama-tells-another-whopper-he-did-not-create-12-8-million-jobs/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Saturday+9+AM

Click here to receive free and immediate email alerts of the latest forecasts.

Pension Funds Hunting Yield Return to Bonds Tied to Risky Loans – BloombergBusiness -7-22-15

Salient to Investors:

Citigroup said pension funds bought 8% of the top-rated US CLOs, which slice high-yield loans into securities with varying risks , and 7% of the riskier mezzanine notes in Half1, 2015, versus minimal amounts a few years ago. Pension purchases accounting for 26% of new top-rated debt in the smaller European market.

Maggie Wang at Citigroup said the asset class performed tremendously well through the crisis, with less than 1% of speculative-grade slices defaulting.

Banks bought 38% of AAA rated US securities sold through June, their lowest amount since the 2008 financial crisis and down from 85% in 2012. Banks bought 9% of mezzanine CLO notes sold this year, a post-crisis low, and down from 35% in 2012.

Asset managers bought 35% of the top-rated debt this year, and insurers bought 17%.

Read the full article at http://www.bloomberg.com/news/articles/2015-07-22/pension-funds-hunting-yield-return-to-bonds-tied-to-risky-loans

Click here to receive free and immediate email alerts of the latest forecasts.

What does China’s stock market crash tell us? – BBC 07-22-15

Salient to Investors:

Linda Yueh at Oxford University said:

  • The Chinese stock market is not very important to ordinary Chinese because at most only 50 million households invest in it, and they average less than 10 to 15% of their assets.
  • Retail investors follow the herd so volatility is endemic in the Chinese stock market. The Chinese stock market is still up on the year so could as easily rise further as fall further.

Dong Tao at Credit Suisse said:

  • Chinese government was complicit in the rising speculation in China’s stock market.
  • The Chinese economy depends more on bank lending than most developed economies so when the banks refused to lend over the last 3 years the government encouraged retail investors: however this diverted money from the real economy and back into the stock market.
  • Beijing cannot intervene in the market forever.

Kerry Brown at the University of Sydney said:

  • China is really defending making Shanghai the financial center of the future and the stock market the heart of China’s economic reforms. China wants to be an aspirational economy, not just the world’s sweatshop. China can tolerate the market collapsing, but not the idea that one of its keys to becoming an aspirational economy does not work.
  • The market collapse is not a massive blow, but raises many questions. Socialism with Chinese characteristics is a paradox.

Ning Wang at Arizona State University said:

  • The Chinese financial sector is one of the weakest links in their economy, and is still badly controlled by the government.
  • Since Mao, the role of the state has declined a lot, and consistently. More than 85% of Chinese believe they will be better off under a market economy and so endorse it. The game is not over and hopefully the Chinese government will learn from this.
  • A modern market economy needs the state to creates rules that are at least transparent and in line with the way the market works itself.

Read the full article at http://www.bbc.com/news/business-33540763

Click here to receive free and immediate email alerts of the latest forecasts.

Commodities Collapsed Just Before The Last Stock Market Crash – So Guess What Is Happening Right Now? – The Economic Collapse 07-22-15

Salient to Investors:

Michael Snyder writes:

  • Global debt is at record highs, too big to fail banks have never been more reckless, and global financial markets have never been more primed for a collapse. Most people lack the patience to wait for long-term trends to play out so if the stock market is not crashing today, they think that everything must be fine.
  • Commodity prices crashed a few months ahead of the financial crisis of 2008, and we are seeing a repeat. The Bloomberg Commodity Index is down 26% over the past 12 months to a 13-year low. Copper, iron ore, aluminum, zinc, nickel, lead, tin and lumber prices are leading indicators and their falling prices are forecasting a global economic meltdown. The FTSE 350 Mining Index dropped to the lowest since 2009 this week. Gold and copper are near the lowest in at least 5 years, and crude oil is down to $50.
  • The Australian and Canadian dollars are at 6-year lows, and the Brazilian real is at a 10-year low all vs. the US dollar – all commodity resource nation currencies. The Indian rupee is at a 17-year low vs. the US dollar because manufacturing is slowing, and if Americans are not buying, the Indians, Chinese, Vietnamese are not making things.
  • The junk bond market collapsed a few months before the last stock market crash and junk bonds are starting to collapse again.

Andy Pfaff at MitonOptimal calls the commodity bear market a train wreck in slow motion.

Marc Faber at The Gloom, Boom & Doom Report sees a stock market decline of easily 20% to 40% and cites the growing number of companies trading below their 200-day moving average, stock declines leading advances, and the high number of new 12-month lows.

Read the full article at http://theeconomiccollapseblog.com/archives/commodities-collapsed-just-before-the-last-stock-market-crash-so-guess-what-is-happening-right-now

Click here to receive free and immediate email alerts of the latest forecasts.

What Happened The Last Time The Mainstream Media Unleashed The Anti-Gold Artillery – Zero Hedge 07-21-15

Salient to Investors:

Tyler Durden writes:

  • Jason Zweig at the Wall Street Journal recently described gold as “like a pet rock” and said owning gold was an act of faith.
  • An article by Floyd Norris in The New York Times in 1999 slamming gold was followed by a 650% rise in the price of gold over the next 12 years and by Greenspan last year calling gold the premier currency, unmatched by any fiat currency, including the dollar.

Read the full article at http://www.zerohedge.com/news/2015-07-20/what-happened-last-time-mainstream-media-slammed-gold

Click here to receive free and immediate email alerts of the latest forecasts.