Dollar issuance by the United States is "out of control", leading to an inflation assault on China, the Chinese commerce minister said in comments reported on Tuesday.
"Because the United States’ issuance of dollars is out of control and international commodity prices are continuing to rise, China is being attacked by imported inflation. The uncertainties of this are causing firms big problems," Chen was quoted as saying by the official Xinhua news agency.
Chinese officials have criticised U.S. monetary policy as being too loose before, but rarely in such explicit language.
Two years on from the global financial crisis, the contrast with the rich world is striking. In the United States and Europe, growth is sluggish, a slump into outright deflation is a real risk and central banks look set to loosen policy further.
So the evidence is in: China is decoupled, influenced by, but ultimately independent from other major economies.
"The crisis was a test and China passed the test. Decoupling has become a much more solid thesis now than three years ago when we only talked about it hypothetically," said Qing Wang, Morgan Stanley’s chief economist for greater China.
Chinese Money Supply Numbers from People’s Bank of China
Money and Quasi Money Jan 2009 – 496135.31
Money and Quasi Money Sep 2010 – 696384.86
"Out Of Control" Monetary Expansion Irony
I am certainly not about to defend the Fed’s misguided policies, but the complaint from Chinese commerce minister that US monetary printing is "out of control" is the ultimate in "pot calling the kettle black" irony.
Over the past few weeks I have exchanged quite a few Emails regarding China with my friend "BC" who writes …
Total Chinese money supply is up over 4 times since ’03, a 17%/yr. rate at a doubling time of just 4 years; up 66% since Jan. ’08, a 19%/yr. rate at a doubling time of 43 months; and
The 100% certain sure thing in the market today is that QE-2 will come on November 3rd and that it will be decisive in its scope. Well I am not so sure any more.
-The Fed’s Beige Book from yesterday did not make a case for an economy that needed emergency measures. Yes there was some discussion about the weak housing market and soft loan demand. But we know that QE-2 is not going to fix those problems.
I am certain that the Fed reads Zero Hedge. But how much influence they have is a question. When it gets up to Time magazine however, it is another matter altogether. It is not possible for the Fed to avoid the collective roar that is coming from across the country at this point. If the Fed blunders with an unpopular QE-2 the results will be disastrous. Not only will the economy tank but the Fed will have lost a good chunk of its remaining credibility. The downside risks to Bernanke are enormous. I don’t think he believes he is in a popularity contest, but he does know he can’t run monetary policy with protesters outside his door. How much is he prepared to gamble given that he clearly does not have a consensus amongst his own board? He is an academic, not a gambler.
-Today St. Louis Fed Bullard made remarks to reporters that were a warning sign to me (and the market). He talked a much different game than what has been dished out of late. He made reference to a smaller program. Maybe less than $500billion (about half what is now in the street). He also threw out something that blew me away. He suggested that the 11/3 decision was in someway dependant on the Q3 GDP numbers that come out before the Fed meets. Bullard even “spun” the numbers on the hot side:
"it may come in a little stronger than the second quarter." So we have to keep our eye on that."
Bond traders shit in their pants and hit bids on long coupons. I like…
Bernanke critics are on the attack (Joe Raedle/Getty Images)
What is the most likely cause today of civil unrest? Immigration. Gay Marriage. Abortion. The Results of Election Day. The Mosque at Ground Zero. Nope.
Try the Federal Reserve. November 3rd is when the Federal Reserve’s next policy committee meeting ends, and if you thought this was just another boring money meeting you would be wrong. It could be the most important meeting in Fed history, maybe. The US central bank is expected to announce its next move to boost the faltering economic recovery. To say there has been considerable debate and anxiety among Fed watchers about what the central bank should do would be an understatement. Chairman Ben Bernanke has indicated in recent speeches that the central bank plans to try to drive down already low-interest rates by buying up long-term bonds. A number of people both inside the Fed and out believe this is the wrong move. But one website seems to believe that Ben’s plan might actually lead to armed conflict. Last week, the blog, Zerohedge wrote, paraphrasing a top economic forecaster David Rosenberg, that it believed the Fed’s plan is not only moronic, but "positions US society one step closer to civil war if not worse."
I’m not sure what "if not worse," is supposed to mean. But, with the Tea Party gaining followers, the idea of civil war over economic issues doesn’t seem that far-fetched these days. And Ron Paul definitely thinks the Fed should be ended. In TIME’s recent cover story on the militia movement many said these groups are powder kegs looking for a catalyst. So why not a Fed policy committee…
It looks like the Fed is already beginning to worry about the unintended consequences of QE2. In a speech earlier this week Richard Fisher discussed an important consequence of QE. He said:
“In my darkest moments, I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places.”
It certainly is working in the wrong places. While the Fed creates paper profits in stocks and bonds QE appears to also be influencing the price of commodities. Commodity prices have surged in recent weeks as the Fed has driven the dollar lower. What’s so pernicious here is the margin compression that Gaius discussed the other day. This is crucial because the margin recovery has been the single most important component of the equity market recovery.
What’s so interesting here is that Ben Bernanke might actually be creating a double headwind for the economy in the coming quarters. Not only is he reducing margins for many corporations, but because quantitative easing is inherently deflationary (because it replaces interest bearing assets with non-interest bearing assets) it is not helping aggregate demand. From the perspective of a corporation this means stagnant revenues and higher input costs. That will only increase the reluctance to hire.
Of course, the Fed thinks they can prop up particular markets and generate a “wealth effect” that is unsupported by the underlying fundamentals. Interestingly, in the long-run, Mr. Bernanke might be creating more damage than he even understands. But at least someone at the Fed is beginning to wonder if this strategy is viable.
Mr. Obama’s speech at the Cooper Union today was remarkably unsatisfying. It seemed to be given from weakness, and almost obsequious as the American President politely asked his largest campaign contributors to please stop flouting the law, defrauding the people and their customers, and spending millions per day lobbying the Congress to buy changes in the reform legislation to provide them with the ‘right regulators’ of their choice and convenient loopholes to render it ineffective.
The reform making its way through the Congress is unlikely to be effective given the process in place, despite the political kabuki dancebeing conducted by the Congress and the Banks.
The solution is to put simple and effective regulations in the hand of stronger, independent, ad highly capable regulators to bear on the financial services industry, and to understand that the regulations must evolve with a dynamicly evolving business. The idea that you can erect some impregnable and unchanging Maginot line against bank fraud is laughable, a farce.
As William K. Black disclosed in his testimony the other day, the regulators always had the power to shut down the frauds, and to resolve the financial crisis without having to give away billions. They lacked the will, and the motivation.
You want to wipe that smirk off Lloyd Blankfein’s face? Nominate Eliot Spitzer or Elizabeth Warren to be the head of the SEC, or the CFTC, and provide them with a adequate budget and a staff of financial experts and a few experienced prosectors.
Even with strong regulations, unless you have capable and motivated regulators, there are always ways to evade the rules, especially if they are complex and provide exceptions. The simpler they are, the stronger the regulations will be, provided they are flexible enough to be amended and expanded efficiently to match the changing and dynamic nature of the industry that they are overseeing.
This is not that difficult, and these jokers are not that smart, although part of their con is to paint themselves as the smartest, the best, and practically unstoppable.
The root of the US financial crisis is always and everywhere regulatory capture, political cronyism, and fraud. It really is that simple.
For some time now, the U.S. government, business leaders, and top economists have been trying to pressure China into allowing its own currency, the renminbi or yuan, to gain value versus the dollar. The thinking is that a higher yuan would make American products more competitive.
Meanwhile, China has been cautioning the U.S. that a free-floating yuan could result in a lose-lose situation in which both economies would be damaged.
We think our government should be careful what it wishes for. In particular, the U.S. should consider that China may be much more right about the U.S. economy than its own economy.
Let’s assume for the moment that the Chinese want the yuan to rise but know that a higher yuan will create havoc in the developed world.
Being highly intelligent, the Chinese know that they shouldn’t unilaterally let the yuan rise. If it did, China would be blamed for the fallout. Just like the hustler who wants the mark to feel like a victim of his own greed, China wants the revaluation of the yuan to look like an act of reluctant self-sacrifice which it does to appease U.S. demands.
It will look like self-sacrifice, thanks to people like noted short seller Jim
A good friend, and long-time reader, was kind enough to pass along these thoughts yesterday. Basically, the stars are starting to align for something really big to happen.
First, the Shanghai index peaked in August 2009 and had a secondary top in December 2009 (global demand slowing?). Many emerging markets are all negative year to date.
Second, gold peaked in the first week of December 2009 (and now breaking down) while the U.S. dollar index (the DXY) is breaking higher (Greece has not been resolved).
Third, TIPs (ETF) peaked the first week of December 2009 (and just broke to a new four month low).
Fourth, commodity prices peaked in the first week of January and appear to be rolling over. Head-and-shoulders top from October 2009 peak?
Fifth, could we be in for a March peak in equities? The NYSE new high list peaked six trading days ago. Recall that a market correction followed in October of last year and January of 2010 following similar peak in new highs.
Sixth, despite signs of economic cooling in Q1 (around 2.5% growth and half the Q4 pace) and lower inflation expectations, the 10-year Treasury note yield is ratcheting up (in a destabilizing fashion) and devoid of any bearish economic data (for a range of technical/fund flow reasons as was the case in the summer of 2007 — we never said at the Grant’s conference in New York that it was going to be a straight line down). But in technical lingo, it does look as though the yield is breaking out from a triangle since the December 31, 2009 yield peak — go back to that period in December and January, 3.85% on the 10-year Treasury- note served at least three times to be major technical support — a break of that this time around would mean some serious near-term trouble (the nearby high closing level was 3.98% back on June 10,2009).
Commodities are a TAX. They are the worst kind of tax because they flatly (not progressively) charge every man woman and child in this country more money for the same food, fuel, shelter and clothing that they had to have last week in order to live. It doesn’t matter if those people are trying to save or trying to tighten their belts or trying to get out of debt – high commodity prices are a shake-down that rips money out of the pockets of the middle class and funnels it to the very, very small class of commodity producers, commodity speculators and the people who finance them and collect the fees.
Over 99% of the people in this country do not own mines or oil wells (and I’m not counting small farmers because they are literally raped by speculators and bankers, often leaving them worse-off than the consumers) or huge plantations and they do not buy futures contracts on margin with cash they borrow at prime plus 0.5% nor do they own tankers filled with 2M barrels of crude that they arbitrage along the crack spread, looking for an opportune moment to deliver their goods (hopefully during a crisis) at a maximum profit.
So 99% of the people in this country don’t even own a commodity ETF – they have no way to profit from high commodity prices and they need to eat, and they need to buy clothing and have shelter and they need fuel to heat or cool their homes and go from place to place. There is a word for people like that, at the bottom end of a transaction they have no control over – VICTIMS!
The American people are the victims of a $2.5Tn commodity scam - 50 times bigger than the Madoff scandal, pretty much one Madoff PER WEEK yet they sit there and take it because those same commodity pushers are major advertisers in the media – so there are no stories about it and the commodity pushers are massive campaign contributors with armies of lobbyists so our Government does nothing about it other than show up to parties and go on junkets. In fact, do you know who the single largest hoarder of oil was in the last decade? It was the US Government as George the Second purchased 240
Problems in China continue to mount. Money supply is growing rampantly out of control, property prices are in a bubble, exports are weak, commodity speculation is pervasive, and GDP growth is more of a mirage than real.
New local-currency loans totaled 294.8 billion yuan ($43.2 billion), compared with 253 billion yuan in October, according to data released by the People’s Bank of China on its Web site today. The median forecast of 19 economists in a Bloomberg News survey was 250 billion yuan.
M2, the broadest measure of money supply, rose a record 29.74 percent in November from a year earlier.
China’s banking regulator plans to slow new lending to between 7 trillion yuan and 8 trillion yuan next year, a person familiar with the matter said this week. China is trying to ensure that there is enough credit to support an economic recovery without increased risks of bad loans and asset bubbles.
“We believe slower credit growth in 2010 will be key to avoid a boom-bust scenario in the economy,” Wang Tao, a Beijing-based economist for UBS AG, said in a report.
The government “plans to control property prices by accelerating property investment and increasing supply,” economists Lu Ting and T.J. Bond said in an e-mailed note today. That contrasts with efforts in 2006 to cool prices by controlling investment, the economists said.
China Is Overbuilding Already
Note the insanity. China want to control prices by building more. It already has completely empty shopping centers, condos, and even a completely empty city.
China’s Empty City
That is an amazing video of a completely empty city.
China Has Trouble Maintaining Demand Growth
In spite of obvious speculation and overheating in the housing sector,
The reason why we remain skeptical over the sustainability — the operative word for investors — is because the U.S. economy (or the global economy for that matter) has yet to show any ability that it can stand on its own two feet without the constant use of government steroids. At a time when the U.S. government is running a 13% fiscal deficit-to-GDP ratio, it somehow has enough in the coffers to try and perpetuate a cycle of spending by inducing a populace in which 20% are already three-car families, to go out and buy a new car to support a shrinking industry at future taxpayer (or bondholder) expense.
Look at what happened in that first quarter GDP number — total GDP contracted around $30 billion at an annual rate, but when you strip out all the government activity, ranging from spending, to tax reductions, to benefit payouts, the decline exceeded $300 billion. In other words, without all the government intervention, the decline in GDP in 1Q would have been closer to an 8% annual rate, not 1%.
Motor vehicle sales surged to a 10-month high in July — an annualized 11.2 million units compared with 9.7 million in June. The results largely reflect the “Cash for Clunkers” $1 billion program that ran out of money in barely more than a week.
THIS IS SO REMINISCENT OF WHAT HAPPENED IN LATE 2001/EARLY 2002
In the aftermath of 9-11, the Big Three unveiled 0% financing to rejuvenate auto sales, which were moribund at the time. So what happened was that motor vehicle sales soared from 16.1 million annualized units in September 2001 to 21.7 million in October — a 3,643% surge at an annual rate! Retail sales skyrocketed 6.6% that month (+116% at an annual rate), a record that holds today. We never came close to seeing 20.0 million units on auto sales again.
But what all these gimmicks do is bring forward consumption — they don’t “create” anything more than a brief spending splurge at the expense of future performance — the pattern gets distorted as opposed
“Nobody in Europe will be abandoned. Nobody in Europe will be excluded. Europe only succeeds if we work together.”
– Angela Merkel, December 15, 2010
“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. Believe me, it will be enough.”
– Mario Draghi, July 25, 2012
“We have to safeguard the spirit behind Schengen,” Mr Juncker told the European Parliament on Wednesday. “Yes, the Schengen system is partly comatose. But . . . a single currency does not exist if Schengen fails. It is one of the pillars of the construction of Europe.”
The IMF will add the yuan to its basket of reserve currencies, an international stamp of approval of the progress China has made integrating into a global economic system dominated for decades by the U.S., Europe and Japan.
It’s an unfortunate truth that, when people are worried about the future, they often put their faith in politicians to somehow make everything better.
Politicians, of course, are famous for promising panaceas for whatever is troubling voters, and they even invent new troubles to worry about, presenting themselves as the only ones who can solve these woes.
Not surprising then, that, over time, any nation may slowly deteriorate into a population of nebbishes who turn to their government to do their thinking for them and take responsibility for their futures.
Today offered a heavier than expected volume day post-holiday. The majority of this action was to the downside, but the Semiconductor Index bucked the trend. The latter index was able to push above its 200-day MA as it posted a relative advantage against the Nasdaq 100. While the Nasdaq and Nasdaq 100 suffered losses today, both will be helped by strength in the Semiconductor Index. All technicals for the Semiconductor Index are in the green, with a return of the MACD to a 'buy' trigger (above the bullish zero line - a bullish development).
The Nasdaq suffered a minor loss. It wasn't able to challenge the recent high, but it's close enough ...
Crude Oil is quite simply the most important commodity on the planet. But volatility with Crude Oil prices emerges every time there is conflict in oil producing nations or an economic slowdown.
And this has led to some pretty big swings in Crude Oil prices over the past several years.
But the latest swing lower is nearing a moment of truth. In fact, this decline may be the most important swing lower of the 2000’s.
Why? Because oil prices are currently testing a key price support level comprised of the 2004 breakout level (above the 1990 highs) and the 2009 price lows – see red circles and line. In fact, this price support area also marks the 23.6 Fibonacci support level (from the 1999 lows to 2008 highs). AND crude oil is as oversold as it was back at the 1999 price lows!
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As evidenced by the Greek, Chinese, and now Argentine 'jumps', the world remains increasingly aware of the inevitable worth of fiat currencies and fears the desperate acts of governments as the react to that reality (and is looking for alternatives).
This infographic explains the wide ranges of the Bitcoin universe, accompanied with quotes from some of its best-known business leaders.
Some weeks when I write this article there is little new to talk about from the prior week. It’s always the Fed, global QE, China growth, election chatter, oil prices, etc. And then there are times like this in which there is so much happening that I don’t know where to start. Of course, the biggest market-moving news came the weekend before last when Paris was put face-to-face with the depths of human depravity and savagery. And yet the stock market responded with its best week of the year. As a result, the key issues dominating the front page and election chatter have moved from the economy and jobs to national security and a real war (rather than police ...
1) The shares of one of my largest short positions (~3%), Exact Sciences, crashed by more than 46% yesterday. Below is the article I published this morning on SeekingAlpha, explaining why I think it’s still a great short and thus shorted more yesterday. Here’s a summary:
The U.S. Preventative Services Task Force’s Colorectal Cancer Screening Draft Recommendation issued yesterday is devastating for Exact Sciences’ only product, Cologuard.
I think this is the beginning of the end for the company.
My price target for the stock a year from now is $3, so I shorted more yes...
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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