by Phil Davis - September 15th, 2014 8:32 am
More bad news today.
China's Industrial Output is at its lowest level since the 2008 crash and Hong Kong stocks dropped 1%, the 7th consecutive down day over there and the Royal Economists at the Bank of Scotland slashed their forecast for China as worries rise that the world's second-largest economy is headed for another slowdown. Too bad for them, they are just catching up to what we told you a month ago, on 8/18, when I said in the morning post:
Chinese Banks' Loan-Loss Reserves have fallen to the the lowest levels in 3 years — We shorted India last week (EPI) and now FXI has got my mouth watering as a potentially good short. I'd feel better about taking up a short on FXI at $45, not $42 but the Jan $42/38 bear put spread is just $1.80 on the $4 spread and that makes it very interesting as it pays 122% on a less than 10% decline in the Chinese markets – a nice way to hedge your bullish China bets!
As we expected, there was a little more gas in the tank but now we're right back on track as the magical China story begins to show its age. The benchmark index for the Asian region, the MSCI All Countries Asia Ex-Japan in U.S. dollar terms, is down 2.2% since reaching the year's high earlier this month. Saturday's weak economic data—including news that August electricity output fell 2.2%—suggest that earlier government stimulus measures lack staying power.
"The economy is losing steam very quickly in August," said Macquarie Group economist Larry Hu. "Previously when they stimulated the economy, private companies followed, leading to a restocking cycle. But this time, the private sector is so cautious." "The IP number is a surprise because Premier Li talked in Tianjin about a quite stable situation," said Mizuho economist Shen Jianguang. "I think, very soon, they're reaching a moment of truth. If they don't ease, the economic deceleration will come much faster."…
by Phil Davis - August 27th, 2014 8:09 am
2,000.02 – We did it!!!
Unfortunately, we can't afford to pop the champagne because the 0.03 we spend on it would put us back under – so we'll watch and we'll wait another day before celebrating a milestone we've been expecting since last week (see "Will Jackson Hole Give Us S&P 2,000?") and we went with that TNA trade we discussed in yesterday's post to cover the expected bull run.
We also picked up long plays on BAC and DBA in our Live Member Chat Room and BAC has already rocketed on the settlement news but DBA is only just making the turn and still makes an excellent play that we'll be adding to our Buy List (Members Only) along with 10 more picks we'll be making this week.
As you can see from Dave Fry's SPY chart, we have set a new record for this decade for low volume on a full market day. Last Christmas Eve was 43M on a half day, for example, but the Christmas Eve before that was 53M and those were the lowest two days I could find before I got bored looking (very scientific).
Anyway, the point is that 38.9M is VERY LOW VOLUME – so low that paying attention to a dot on a chart that is drawn in such a light touch is just silly. That makes yesterday's jaunt over 2,000 completely meaningless and more so with the additional evidence of the intraday action which, as Dave notes, could not have been more manipulated.
This is why we have been pressing our bear bets. Even though we have peace in Gaza and peace in Ukraine (for today) and even though we've forgotten about Europe's negative GDP and China's plunging property prices and Ebola – we still couldn't find more than 38.9M buyers for SPY – that's just sad!
Speaking of China, last Monday, for FREE, right in the morning post, we picked the following on FXI:
We shorted India last week (EPI) and now FXI has got my mouth
by Phil Davis - August 18th, 2014 8:11 am
From Ferguson to Fallujah, America has spent the weekend kicking ass and taking names with the National Guard rushing in to put down the 99% in Missouri while in Mosul, we're bombing the Middle East's 99% off the dams and picking off the stragglers with high-tech drones – F*ck Yeah!
That, combined with what we can politely call a non-escalation of tensions in the Ukraine has sent the price of oil tumbling by 0.75 this morning, good for $750 per contract from our Friday short (and now we're long at $94 on /CLV4 for October) - F*ck Yeah! Index futures were up slightly in Asia but gathered steam in Europe and markets there are coming out of lunch up over 1% – even as the cease-fire in Gaza is about to end.
Meanwhile, over in Hong Kong, we got a powerful lesson in numbers as the 1.3Bn population of China is able to overwhelm that Island's 7M people (0.5% of China's population) at will and that will was exercised this weekend as China staged "Pro-Beijing" rallies that protested the "Occupy Central" rallies the bottom 99% of Hong Kong had been staging. Can anti-democracy rallies be far behind?
The anti-Occupy Central campaign's focus on the impact of civil disobedience has appealed to the pragmatism of many Hong Kong people. While many support democracy, they also just want to live their lives and go to work unimpeded. "We can't be optimistic at all—the pro-Beijing camp will control the entire list of candidates," said Joseph Cheng, a political-science professor and convener of the Alliance for True Democracy, a coalition of democratic parties supporting Occupy Central.
In short, while China did promise to give Hong Kong the right to vote – they never said they wouldn't stuff the ballot boxes or put up candidates that were nothing more than two different flavors of the same puppets. "If we are buying fruit, don't give us three rotten oranges to choose from," one of the activists said. Oh wait, that might have been our own election coverage – it's so hard to keep these totalitarian regimes straight…
by Phil Davis - July 1st, 2014 7:50 am
And, by another, I mean another $340Bn that the Fed paid out to their Bankster buddies in "Reverse Repo" purchases at the end of the month. That's right, the Fed essentially bought THE ENTIRE STOCK MARKET (in terms of transaction value) from the banks over the last few days of June and THAT injection of cash is how they kept the rally going into the end of the quarter.
As you can see from the NY Fed's own chart (via Dave Fry and Zero Hedge), this kind of charity buying isn't unusual for the Fed – more like Standard Operating Procedure to inflate equity prices into the end of each quarter. Does it work? Sure, look at the results:
As you can see - as the market gets more and more expensive, it takes more and more money to push it higher. Also note the Fed tweaked (hopefully not twerked – there's an image of Yellen I don't want burned in my mind!) their timing to move it close and closer to the very last day, to maximize their bang for the buck.
UNFORTUNATELY, as you can see from the S&P chart above, these effects are short-term and demand a correction in the not too distant future.
What's very interesting is that our stimulus theory is still holding up. We developed this back in 2012, through observation of the effect of Central Banksters market meddling on Global Equities and it turns out that $10Bn per quarter buys 1 S&P point. Look how perfectly that aligns on the chart!
Bill Dudley, New York Fed president, warned last month that if use of the repo facility were to grow too quickly it might “result in a large amount of disintermediation out of banks through money market funds and other financial intermediaries into the facility. This could encourage further enlargement of the shadow banking system.”
by Phil Davis - June 27th, 2014 8:14 am
I forgot to talk about something important yesterday.
Turkey was caught FAKING their trade data, with Prime Minister Erdogan, working with Economic Minister Caglayan LAST YEAR to manipulate their $800Bn economy by sending gold overseas to boost their export numbers. How a team that included Turkey’s economy minister sought to manage the current account deficit, as the gap is called, by juicing exports to Iran is laid out in a 300-page document prepared by Turkish investigators in 2013. Caglayan and his collaborators also came away with tens of millions of dollars in bribes, according to the document, which has been cited in parliament by opposition lawmakers.
That's how things are being done in the World's 18th-largest economy and, notice CHINA (3rd) is one of the countries participating in this scam, as is Iran (21st) and Dubai in the UAE (30th). We already know China is involved in all sorts of economic manipulation, including building entire empty cities just to boost their GDP numbers. China, in fact, is in the midst of another set of scandals, with tens of Billions (GS estimates $160Bn) in bank loans backed by silver and copper collarteral that does not, in fact, exist (maybe they "got it" from Turkey?).
by Phil Davis - April 28th, 2012 6:57 am
Have you seen this?
Frontline did this very good documentary and I'd file it under "those who forget the past are CONDEMNED to repeat it" – let's all TRY not to repeat the mistakes of 2008… "Wall Street got bailed out and Main Street didn't" is the quote that neatly sums up the present situation. Wall Street and the top 10% of this country – of this World – are partying like it's 1999 while the bottom 90% continue to languish in the worst Recession since the Great Depression.
Despite a myriad of worrying data, the Corporate Media is in full-blown promotional mode – pushing stocks as if it were modern snake oil – the panacea that will cure all your ills. We often forget that essentially ALL of our news sources are publicly traded companies and have a vested interest in the stock market going higher. Hell, we have an interest in that too, as our longer-term virtual porfolios are entirely bullish - but that shouldn't preclude us from making a realistic assessment of the CURRENT situation, should it?
Caterpillar, 3M, United Technologies and ABB are among the manufacturers that have reported weak performances in China in the first quarter as economic growth has slowed nearly to a three-year low. Caterpillar’s sales in China fell between $250 million and $300 million in the first quarter, pushing the company, the world’s largest maker of earth-moving equipment, to export to other countries a large share of the equipment it made in China.
Concerns about China overshadowed better-than-expected earnings at the company, which is based in Peoria, Illinois, and led investors to push the stock down 5 percent Wednesday, which was great for us as CAT was on our Long Put List.
ABB, a maker of power equipment, reported profits in the past week that were below analysts’ expectations, caused by weak Chinese demand. “It was a very slow start to the year for China. China in January was extremely weak,” ABB’s chief financial officer, Michel Demaré, said Wednesday.
“Our business in China is off to a slow start,” said Gregory J. Hayes, the chief financial officer of United Technologies, whose Otis arm is the world’s biggest maker of elevators. The unit’s China sales dropped 9 percent in the first quarter. “The ongoing government…
by Phil Davis - 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!
by Phil Davis - April 13th, 2011 7:57 am
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…
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.
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
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…