Margin Call Monday – Yuan Falls Limit Down to the Dollar
by Phil - April 25th, 2011 8:20 am
It’s amazing what the MSM ignores these days.
The PBOC raised the Yuan exchange by 0.0005 and that microscopic move set off a panic that dropped the Yuan it’s daily 0.5% limit against the Dollar – marking a huge and violent reversal to the recent trend and signaling that China’s usual tight control of their economy may be starting to unravel. Chinese banks scrambled to buy Dollars to meet a Central Bank rule that bars them from having Dollar short positions overnight but it’s doubtful that all were able to comply in that violent action.
The Shanghai Composite fell 1.5% this morning (Hong Kong was closed) but it does not show up in the charts on the WSJ’s main page nor is it mentioned on CNBC – perhaps because it conflicts with the weak-Dollar narrative they are using to drive the speculative commodity frenzy. Ignoring problems in China was a big theme of the summer of 2008 – as we rallied into the second biggest stock market collapse in history from Dow 11,000 in mid-July to 11,782 on Aug 11th and we were still testing 11,600 through Sept 1st but then things started going wrong as we broke below 11,000, then 10,000, then 9,000, then 8,000 – finally stopping at 7,500 (down 33%) on Nov 20th.
Special Report: How to Make Millions in Metal and Oil:
As I keep telling Members, we don’t have to be worried about missing a sell-off, it will be long and relentless when and if it comes as will the rise we get as inflation begins to kick in. Gold is now over $1,500 for a week and, before you waste money on gold – let’s look at an alternative: GLD is the ETF that tracks gold and, if you think Gold is going to $1,600 – rather than plunk $1,500 down on an ounce of gold to make 6.6% on a move up, you can buy the GLD $140/160 bull call spread for $790 (1 contract spread at $7.90). As GLD is currently at $146.74, that spread is currently $674 in the money and carried a $116 premium BUT – for about 1/2 the cost of an ounce of gold, if GLD gets to $160 (approximately $1,600 an ounce) then that spread is worth $2,000 – a $1,210 gain on that same $100 move up in gold!
What’s the catch?…
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DiggWhat, Me Worry Wednesday – Fitch Warns on China
by Phil - April 13th, 2011 7:57 am
The futures are bouncing!
Why are they bouncing? Why not? We went down and people love to buy those dips and that means they are just going to love this chart, courtesy of Barry Ritholtz’s team. We don’t get our next Case-Shiller data point until the 26th but we did get mortgage applications this week and they are down ANOTHER 6.7%. This is despite the fact that an average 30-year mortgage is still just 4.98%.
I know that we have been trained to ignore supply and demand in commodities as well as to pretend that all prices are inelastic and that American consumers will buy anything at any price because they are generally mindless sheep that you can lead into anything with the right jingle but, if they are not willing to buy a $250,000 home with a 5% mortgage – what’s going to happen when that mortgage is 6%?
At 5%, a $250,000 mortgage has a monthly payment of $1,342.05. At 6% that payment jumps up to $1,498.88 – 10.5% higher! At 7% it’s $1,663.26, 24% higher – that’s the "cost" of housing as rates tick higher but, of course, that will force housing prices even lower to compensate and the Fed will tell us that inflation is low because home prices will be falling faster than food prices are rising – so we have that to look forward to…
I mentioned yesterday that China tightened their rates and home prices in Beijing fell 26.7% in the month of March. I waited all day to read more about it in the WSJ or Bloomberg or to see them discussing this on CNBC but no – it’s not the kind of news they want you to hear so – for your own good, it is not mentioned. I had to find this news in Business China but it’s also in the China Daily and the People Daily but where it isn’t is in any US newspaper I’ve looked at and neither is there mention of the problem caused by giant-sized, irradiated Asians poking buildings with sticks! (just kidding).
We talk about Chinese censorship and control of information but what is this? If a Nigerian Rebel spits at a pipeline or if a Somali Pirate even glances in the direction of an oil tanker – it’s on the front page of the papers (sometimes before it…
China’s Coming Collapse
by ilene - March 9th, 2011 3:54 pm
The Middle Kingdom’s prosperity is an illusion. And when China finally falls, we’ll all feel the pain.
By Jason Kirby, Canadian Business Online (H/t David Gordon)
As fearmongering election campaign ads go, it’s hard to top the "Chinese Professor," which flickered across the Internet just before Americans went to the polls last fall. In the spot, set in a sleek Beijing lecture hall 20 years in the future, a sharply dressed Chinese instructor explains to his Asian students why previous empires, from Ancient Greece to the U.S.A., turned to dust. The Americans failed because they lost sight of their principles, he says in Mandarin, with subtitles. They overspent, overtaxed and over–borrowed. "Of course, we owned most of their debt," he cackles, as the class joins in. "So now they work for us."
If you missed the ad, put out by the conservative group Citizens Against Government Waste, no matter. The notion that China’s headed for superpower status at the expense of the United States has been repeated so often that many in the West now take it as an undisputable fact. With breathless enthusiasm economists predict China’s red–hot economy will power past America’s to become the world’s largest in just 15 years. Bookstore shelves are filled with titles like China’s Ascent and When China Rules the World: The End of the Western World and the Birth of a New Global Order, in which author Martin Jacques argues America is in denial about the fact China is its "usurper and ultimate replacement." Hollywood’s even getting in on the act with a remake of the 1980s Cold War paranoia flick Red Dawn, in which Soviet soldiers overran a Midwest American town. Only this time, the marauders are Chinese. Having conquered American capitalism, the People’s Liberation Army is coming for America’s Capitol, too.
It’s easy to find evidence that ostensibly confirms China’s unstoppable ascent. Try this: Go to Google News and type in "China," along with any laudatory adjective, then add the suffix "–est." Do so, and you’ll learn that China is building the world’s third–tallest skyscraper ("China usurps U.S. in skyscrapers"); it produces the smartest children ("Chinese students outperform U.S. in recent test") and now boasts of the world’s fastest trains ("China’s fastest train leaves rest of world behind"). This super–country narrative has become so pervasive that the majority of Americans take it for granted. At the end of last
…
US Dollar About to Lose Reserve Currency Status – Fact or Fantasy?
by ilene - March 1st, 2011 5:52 pm
Courtesy of Mish
A number of sites are commenting on a Bloomberg video in which El-Erian, PIMCO Co-CEO says "Dollar could lose its reserve currency status".
Bloomberg: "Mohammad what does a weak dollar signal to you, a dollar that can’t jump up here on a day like we’ve seen today?"
El-Erian: "It is a warning shot to America that we cannot simply assume flight to quality, flight to safety. That people are starting to worry about the fiscal situation in the U.S. They are starting to worry about the level of debt. They are starting to worry about what they hear about states and municipalities. So, I would take this as a warning shot that we cannot assume that we will maintain the standing of the reserve currency as we have in the past."
Reserve Currency Definition
Before we can debate whether or not the US will lose reserve currency standing, we must first define what it means.
Investopedia defines Reserve Currency as follows.
"A foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate."
I accept that definition. Unfortunately Investopedia rambles on with nonsense about the implications: "A large percentage of commodities, such as gold and oil, are usually priced in the reserve currency,causing other countries to hold this currency to pay for these goods."
That sentence is a widely believed fallacy. The reality is no country is obligated to hold dollars to buy goods denominated in dollars.
Currencies are Fungible
Currencies other that illiquid currencies with low or no trading volume (think of Yap Island stones or the Cuban Peso) are fungible. It is a trivial process to switch from one currency to another.
You can buy gold or silver in any country, and I assure you those transactions do not all take place in dollars. Thus, just because a commodity is widely priced in dollars does not mean it only trades in dollars.
That holds true for oil as well.
I keep pointing this out, unfortunately to no avail, that oil trades in Euros right now. There is no selling of Euros to buy dollars on the front causing the oil producers to trade dollars for euros on the back end. The oil states simply sell oil for a price in Euros and then hold Euros in their…
Fuggedaboutit Friday – Dip? I Didn’t See No Dip?
by Phil - February 25th, 2011 7:38 am
Dip Buyers of the World unite! You have nothing to lose but your 401Ks…
Ah, could there be a more thorough perversion of Marxist ideals than not only confiscating a portion of the workers’ wages but using that money to actually pay for the means of production in exchange for infinitesimal, powerless shares of ownership? It’s BRILLIANT but that’s the stock market, we had that back in 1848 when Marx penned his little Manifesto but what we didn’t have – what should really have old Karl rolling over in his grave today – is union busting. And it’s Union Busting by the Government no less!
While the hunt continues for runaway Democrats, state Senator, Robert Jauch, a longtime Wisconsin lawmaker, said Thursday that – despite rumors that some of his colleagues had returned to the state, "everybody is outside of Wisconsin . . . all of us." Jauch criticized what he called the "police state mentality" of Republicans in the Capitol and took issue with Walker’s assertions that Democrats who had fled the state were abandoning their duties. "I’m doing more from the Land of Lincoln to communicate with citizens in my district than he is," Jauch said, adding that the Senate Democrats talk regularly and are "trying to reach out through back channels to see what the solution could be. This governor has dug himself in – that’s very clear."
While the Capitalist tools at Forbes are already cracking the Cristal and celebrating the demise of unions, it is more likely that (like many hair-brained Republican schemes) – defeat will be snatched from the jaws of victory because, even if Walker’s Republicans don’t back down (and they will), they have already reignited the National Labor Movement in much the same way that 8 years of George Bush polarized the usually disorganized Democratic opposition and led to a rout in 2008. This is not about politics though, this is about investing and who will control the country in 2012 is indeed something to consider.
Another thing to consider is, if they do take away collective bargaining rights in Wisconsin – the next Global city you see erupting into riots may be the one by your house. That’s how pissed off the Democrats are now and you’d know this if you ever spoke to one or read one of their "liberal" publications, like the…
GTFO of the Week: China Making Plastic Rice
by ilene - February 3rd, 2011 3:32 am
Courtesy of Joshua M Brown, The Reformed Broker
Here’s your GTFO article of the week…
Fake Plastic Rice from China
According to the Korean-language “Weekly Hong Kong” (which many Vietnam websites are referencing as well), Singapore media claim that fake rice is being distributed in the Chinese town of Taiyuan, in Shaanxi province. This “rice” is a mix of potatoes, sweet potatoes, and plastic. It is formed by mixing the potatoes and sweet potatoes into the shape of rice grains, then adding industrial synthetic resins. Since the rice does not behave like normal rice, it stays hard even after it has been cooked. Such synthetic resins can also be very harmful if consumed.
A Chinese Restaurant Association official said that eating three bowls of this fake rice would be like eating one plastic bag. Due to the seriousness of the matter, he added that there would be an investigation of factories alleged to be producing the rice. Meanwhile, the low cost of the fake rice is allowing wholesalers to make large profits.
Can this possibly be true? Well, they put lead in childrens’ toys so what can we put past them after that?
Source:
China Makes Fake Rice From Plastic, Vietnam Reacts (Very Vietnam)
Stock World Weekly
by ilene - January 30th, 2011 8:23 am
Here’s this week’s Stock World Weekly. Enjoy! Comments welcome.
12 Economic Collapse Scenarios That We Could Potentially See In 2011
by ilene - January 20th, 2011 12:56 pm
Courtesy of Michael Snyder at Economic Collapse
What could cause an economic collapse in 2011? Well, unfortunately there are quite a few "nightmare scenarios" that could plunge the entire globe into another massive financial crisis. The United States, Japan and most of the nations in Europe are absolutely drowning in debt. The Federal Reserve continues to play reckless games with the U.S. dollar. The price of oil is skyrocketing and the global price of food just hit a new record high. Food riots are already breaking out all over the world. Meanwhile, the rampant fraud and corruption going on in world financial markets is starting to be exposed and the whole house of cards could come crashing down at any time. Most Americans have no idea that a horrific economic collapse could happen at literally any time. There is no way that all of this debt and all of this financial corruption is sustainable. At some point we are going to reach a moment of "total system failure".
So will it be soon? Let’s hope not. Let’s certainly hope that it does not happen in 2011. Many of us need more time to prepare. Most of our families and friends need more time to prepare. Once this thing implodes there isn’t going to be an opportunity to have a "do over". We simply will not be able to put the toothpaste back into the tube again.
So we had all better be getting prepared for hard times. The following are 12 economic collapse scenarios that we could potentially see in 2011….
#1 U.S. debt could become a massive crisis at any moment. China is saying all of the right things at the moment, but many analysts are openly worried about what could happen if China suddenly decides to start dumping all of the U.S. debt that they have accumulated. Right now about the only thing keeping U.S. government finances going is the ability to borrow gigantic amounts of money at extremely low interest rates. If anything upsets that paradigm, it could potentially have enormous consequences for the entire world financial system.
#2 Speaking of threats to the global financial system, it turns out that "quantitative easing 2" has had the exact opposite effect that Ben Bernanke planned for it to have. Bernanke insisted that the main goal of QE2 was to lower interest rates, but instead all it has done is…
Jobs Loss Tuesday – Will We Survive?
by Phil - January 18th, 2011 8:29 am
I already sent out an Alert to Members this morning.
Obviously, with the Steve Jobs situation, everyone is wondering how to play things. At the time (7:03) I thought the fact that AAPL was only down 3.7%, at $335, seemed fake and ridiculous – but what else is new in this market? Our position was to short pretty much everything as the Nas futures were all the way back to 2,310, which was not even down half a point from Friday’s close and some simple math tells us that AAPL is over 20% of the Nasdaq so a 5% drop in AAPL will take the Nasdaq down 1% while a 20% drop in AAPL will take the Nasdaq down 4% – right back to the 50 DMA at 2,640 and that seems like a reasonable pullback – especially when you consider that 2% of the current 2,755 was a result of Friday’s ridiculous rally.
Surely at least we would expect the loss of Steve Jobs to AT LEAST put the Nasdaq back to Friday’s open at 2,730 (2,300 in the futures) but I’ll be very surprised if we don’t at least test that 50 DMA so that will be our watch line for the week. Oddly enough, we had been discussing Steve Jobs’ health as one of the key unpriced market risks last Thursday, when I said to Members (in response to why I preferred a very defensive AAPL spread to holding the stock):
AAPL/Iflan – As I said to Maya, I like my above AAPL trade better than cash but I do not like AAPL stock better than cash because you can only sell 10% worth of protection and that caps your gains at 10% (and we can do better with cash) and it also doesn’t cover the risk of Steve Jobs catching a cold or just coughing on stage, which could cost you 20% very quickly.
In fact, concerns of AAPL and Jobs’ health were the premise for pressing our QID bets in February (see our $10,000 Virtual Portfolio Review), where I said at the time: "QID/Drum – Well since we were saved from doom on USO I got brave and went for a DD on the QID Feb $10s (now .82) and I think that’s worth the risk into expiration and the following weekend. Same goes for waiting on the…
Stock World Weekly
by ilene - January 2nd, 2011 8:18 am
Here’s the latest Stock World Weekly Newsletter, New Year’s Edition.
Feedback welcome — please leave comments, we value your input. - Ilene
Picture credit: William Banzai7
For Stock World Weekly archives, click here.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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