You may have read a slightly different variation of this article before. I wrote the original article a couple of months ago, however, Foreign Policy magazine wanted to republish it. I added some new examples, explained a few things slightly better (hopefully), and updated statistical data which did not change much: Chinese monetary base is exploding, GDP growth is accelerating, Chinese US dollar reserves topped $2.2 trillion and exports keep collapsing. Now China is very serious about using their hard earned US dollars for “buying American” companies (they must have read the President’s memo).
Financial commentators are obsessively debating whether the recent rise in the Chinese stock market means there’s a bubble — and if so, when it’s going to burst. My take? Who cares! What happens to the broader Chinese economy is what we should really be watching. It will have a far-reaching impact on the rest of the world — much more far-reaching than a decline in stocks.
Despite everything, the Chinese economy has shown incredible resilience recently. Although its biggest customers — the United States and Europe — are struggling (to say the least) and its exports are down more than 20 percent, China is still spitting out economic growth numbers as if there weren’t a worry in the world. The most recent estimate put annual growth at nearly 8 percent.
Is the Chinese economy operating in a different economic reality? Will it continue to grow, no matter what the global economy is doing?
The answer to both questions is no. China’s fortunes over the past decade are reminiscent of Lucent Technologies in the 1990s. Lucent sold computer equipment to dot-coms. At first, its growth was natural, the result of selling goods to traditional, cash-generating companies. After opportunities with cash-generating customers dried out, it moved to start-ups — and its growth became slightly artificial. These dot-coms were able to buy Lucent’s equipment only by raising money through private equity and equity markets, since their business models didn’t factor in the necessity of cash-flow generation.
Funds to buy Lucent’s equipment quickly dried up, and its growth should have decelerated or declined. Instead, Lucent offered its own financing to dot-coms by borrowing and lending money on the cheap to finance…
“We’re not gonna make it, are we ? People, I mean.”
“It is in your nature to destroy yourselves.”
“Yeah. Major drag, huh ?”
From James Cameron’s ‘Terminator 2: Judgment Day’.
Here is a thought experiment. It is January 2000. The last wild Pyrenean ibex has been found dead, squashed by a tree. America Online has just announced an agreement to buy Time Warner for $162 billion – the largest corporate merger in history. It is all very exciting. Suddenly, a sourceless wind rises; papers blow across t...
With the three-day Memorial Day weekend in the immediate offing, the S&P 500 spent the day in semi-vacation mode. The intraday high-low trading range of 0.29% was the smallest of the year. The peak coincided, not surprisingly, with Janet Yellen's "Outlook for the Economy" speech at 1 PM. In her speech, Ms. Yellen discounted economic projections with a rather stunning self-abnegation, especially so in coming from a Fed Chair.
"Of course, the outlook for the economy, as always, is highly uncertain. I am describing the outlook that I see as most likely, but based on many years of making economic projections, I can assure you that any specific projection I write down will turn out to be wrong, perhaps markedly so." [bolding added b...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Understanding the new normal of a business model is key to the success of any company. The managment of companies need to adapt to the changing demand, but first they must recognize what changes are taking place. Big Pharma's business model is changing rapidly, and much like the airline industry, there will be but a handful of pharma companies left at the end of this path.
Most Big Pharma companies have traditionally done everything from research and development (R&D) through to commercialisation themselves. Research was proprietary, and diseases were cherry picked on the back of academic research that was done using NIH grants. This was in the heyday of research, where multiple companies had drugs for the same target (Mevocor, Zocor, Crestor, Lipitor), and could reap the rewards on multiple scales. However, in the c...
Stocks closed last week on a strong note, with the S&P 500 notching a new high, despite lackluster economic data and growth. I have been suggesting in previous articles that stocks appeared to be coiling for a significant move but that the ingredients were not yet in place for either a major breakout or a corrective selloff. However, bulls appear to be losing patience awaiting their next definitive catalyst, and the higher-likelihood upside move may now be underway. Yet despite the bullish technical picture, this week’s fundamentals-based Outlook rankings look even more defensive.
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Bitcoin, the virtual digital currency, has been called the future of banking, a dangerous fad, and almost everything in between, but we're finally about to get some solid data to help settle the debate.
On Monday, the Nasdaq (NDAQ) stock exchange said it would ...
Chris Kimble likes the idea of shorting the US dollar if it bounces higher. Phil's likes the dollar better long here. These views are not inconsistent, actually, the dollar could bounce and drop again. We'll be watching.
Phil writes: If the Fed begins to tighten OR if Greece defaults OR if China begins to fall apart OR if Japan begins to unwind, then the Dollar could move 10% higher. Without any of those things happening – you still have the Fed pursuing a relatively stronger currency policy than the rest of the G8. So, if anything, I think the pressure should be up, not down.
UNLESS that 95 line does ultimately fail (as opposed to this being bullish consolidation at the prior breakout point), then I'd prefer to sell the UUP Jan $25 puts for $0.85 and buy the Sept $24 call...
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.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
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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