Posts Tagged ‘credit expansion’

Misguided Love Affair with China; China’s Massive Monetary Expansion and Crackup Boom

Misguided Love Affair with China; China’s Massive Monetary Expansion and Crackup Boom

Courtesy of Mish 

Earth with Ying and Yang symbols

China is pointing the finger at the US, complaining about "Out of Control" US dollar Printing by the Fed.

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.

Decoupling Theories Renewed 

I will get to loose monetary policy in just a bit, but first consider More than decoupled, China is in league of its own

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


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Small Business Trends – Yet Another Disaster

Small Business Trends – Yet Another Disaster

Courtesy of Mish

Neither the treasury market nor small business trends reflect the incessant optimism of the stock market. These will eventually align, when I do not know.

Please consider NFIB Small Business Economic Trends for August 2010.

OPTIMISM INDEX

The Index of Small Business Optimism lost 0.9 points in July following a sharp decline in June. The persistence of Index readings below 90 is unprecedented in survey history. The performance of the economy is mediocre at best, given the extent of the decline over the past two years. Pent up demand should be immense but it is not triggering a rapid pickup in economic activity. Ninety (90) percent of the decline this month resulted from deterioration in the outlook for business conditions in the next six months. Owners have no confidence that economic policies will “fix” the economy.

LABOR MARKETS

Ten (10) percent (seasonally adjusted) reported unfilled job openings, up one point from June but historically very weak. Over the next three months, nine percent plan to increase employment (down one point), and 10 percent plan to reduce their workforce (up two points), yielding a seasonally adjusted net two percent of owners planning to create new jobs, up one point from June and positive for the third time in 22 months.

CAPITAL SPENDING

The frequency of reported capital outlays over the past six months fell one point to 45 percent of all firms, one point above the 35 year record low reached most recently in December 2009. The percent of owners planning to make capital expenditures over the next few months fell one point to 18 percent, two points above the 35 year record low. Five percent characterized the current period as a good time to expand facilities, down one point. But a net negative 15 percent expect business conditions to improve over the next six months, down nine points from June and 23 points from May.

INVENTORIES AND SALES

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months lost one point, falling to a net negative 16 percent, 18 points better than June 2009 but indicative of very weak customer activity. Widespread price cutting continued to contribute to reports of lower nominal sales. The net percent of owners expecting real sales gained a point over June, rising to


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Will Quantitative Easing Spur Inflation? Job Creation? Credit Expansion? Do Anything?

Will Quantitative Easing Spur Inflation? Job Creation? Credit Expansion? Do Anything?

Courtesy of Mish 

St. Louis Fed James Bullard’s proposal to start "quantitative easing" is creating a stir. Chris Ciovacco at Ciovacco Capital Management (and many others) propose the Fed can and will use quantitative easing to induce inflation. I disagree.

The following are snips from Chris Ciovacco’s article, Reading Between The Lines: James Bullard’s Seven Faces of “The Peril” followed by my point-by-point replies.

The titles in "bold red" below are questions Chris Ciovacco proposed and answered. My answers are quite different.

What could all this mean to me and my investments?

Chris Ciovacco: Let’s start with quantitative easing, where the Federal Reserve buys Treasury bonds. Using a hypothetical example to illustrate the basic concepts, assume a typical American citizen has some Treasury Bond certificates in a shoebox under their bed. If the Fed offers to buy those bonds, they will be exchanging paper money, not currently in circulation, for a bond certificate. After the transaction, the American citizen has newly printed money and the Fed now has a bond certificate. It is easy to see in this example the Fed has increased the money supply by buying the bonds. The Treasury Bond represents an IOU from the U.S. Government. When the Fed buys bonds in the open market, it is like the government buying back its own IOU with newly created money. This is about as close to pure money printing as it gets.

Mish: The typical American citizen does not have Treasury Bond certificates in a shoebox, under their bed, or anywhere else. Those who do have treasury bonds, more than likely have them in a mutual fund portfolio or treasury EFF and they probably do not even realize they have them. The very few who hold treasury bonds outright, are highly unlikely to sell them.

How is this policy any different from lowering interest rates or increasing bank reserves?

Chris Ciovacco: Lowering interest rates and flooding the banking system with cash has one major drawback; if the banks won’t issue loans or customers do not want to take out loans, the low rates and excess bank reserves do little to expand the supply of money in the real economy. Therefore, these policies can fall into the "pushing on a rope" category. Quantitative easing, or Fed purchases of Treasury bonds, injects cash directly into…
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Red Flags for the Economy

Red Flags for the Economy

Courtesy of MIKE WHITNEY at CounterPunch

Bonds are signaling that the recovery is in trouble. The yield on the 10-year Treasury (2.97 percent) has fallen to levels not seen since the peak of the crisis while the yield on the two-year note has dropped to historic lows. This is a sign of extreme pessimism. Investors are scared and moving into liquid assets. Their confidence has begun to wane. Economist John Maynard Keynes examined the issue of confidence in his masterpiece "The General Theory of Employment, Interest and Money." He says:

"The state of long-term expectation, upon which our decisions are based, does not solely depend, therefore, on the most probable forecast we can make. It also depends on the confidence with which we make this forecast — on how highly we rate the likelihood of our best forecast turning out quite wrong….The state of confidence, as they term it, is a matter to which practical men always pay the closest and most anxious attention."

Volatility, high unemployment, and a collapsing housing market are eroding investor confidence and adding to the gloominess. Economists who make their projections on the data alone, should revisit Keynes. Confidence matters. Businesses and households have started to hoard and the cycle of deleveraging is still in its early stages. Obama’s fiscal stimulus will run out just months after the Fed has ended its bond purchasing program. That’s bound to shrink the money supply and lead to tighter credit. Soon, wages will contract and the CPI will turn from disinflation to outright deflation. Aggregate demand will weaken as households and consumers are forced to increase personal savings. Here’s how Paul Krugman sums it up:

"We are now, I fear, in the early stages of a third depression….And this third depression will be primarily a failure of policy. Around the world … governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. … After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

"I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between


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The Trashing of Iceland By Private Banks, and Its Efforts at an Economic Renaissance

The Trashing of Iceland By Private Banks, and Its Efforts at an Economic Renaissance

Iceland, Jokulsarlon Lagoon with icebergs

Courtesy of JESSE’S CAFÉ AMÉRICAIN

Iceland represents an interesting situation. Most people are not very familiar with it. With only 300,000 inhabitants, Iceland certainly fits the description of a ‘microcosm.’ The story of the privatization of the Icelandic banks, and the ensuing orgy of credit expansion and fraud, is well worth some attention.

Banks that are private sometimes should be allowed to fail. One might consider saving the depositors, especially if it is a fraud, and certainly if the accounts are explicitly insured, but the creditors and investors should be wiped out, utterly and completely. This is the only way to wring moral hazard out of the system. This of course should be accompanied by vigorous and aggressive investigations for fraud, and prosecutions if the evidence indicates for indictment. I would follow those perpetrators to the ends of the earth, seeking their extradition, to insure that justice was done. These people are little better than traitors to their country and their people.

We tend to treat these sorts of banking frauds far too lightly. They are like poison to the system, because they not only involve the theft of funds, but the destruction of the confidence and integrity which permits the social system to function.

Their reform movement and new approaches to banking in Iceland are hopeful signs. They should not even think about joining the EU, or taking any loans for their banks.

They might also consider relieving the Social Democrats of power, because it sounds as if they are not interested in serving the people. The only question I would have is, "Why are they still in office, and not out on the street looking for employment?"

Iceland Jails Bankers and Sues Accounting Firms - AFP

The IceSave Dispute - Wikipedia

UK Slowly Strangled Iceland Says Ex-Central Banker - Bloomberg

h/t to Anonymous

While not mentioned in the video, the implications of the recent Icelandic Supreme Court’s decision on the illegality of loans indexed to foreign currency baskets may be significant.

Under the provisions of the IMF Articles of Agreement, courts of other member states, including the US, UK and the Netherlands, are presumably/arguably barred from reaching a different conclusion. See, Article VIII, Section 2(b):

(b) Exchange contracts which involve the currency of any member and which are contrary to the


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Merkel Tells Obama To Stuff It

Merkel Tells Obama To Stuff It

Courtesy of Karl Denninger at The Market Ticker 

This ought to get interesting….

Referring to the G20 summit in Canada next weekend, Merkel said in a videotaped message that "we are going to discuss when to quit the phase of short-term measures and go on to lasting budget consolidation."

Such a move was "urgently necessary, in the view of the Europeans and particularly of Germany," she said.

Obama urged the world’s leading economies Friday to avoid scaling back government spending too quickly or risk derailing the global recovery.

Heh heh heh….

Oh Mr. President?  Yes, you Mr. Obama.

Chancellor Merkel appears to have figured out the meaning of this graph:

That is, more than two years of attempting to force credit creation to expand, thereby once-again restarting the Ponzi Scheme, has failed.

All further exercises in this vein will do is make the damage worse, exactly as I said it would in 2007 initially.

"Our highest priority in Toronto must be to safeguard and strengthen the recovery," Obama said in the letter dated June 16, but released Friday amid concerns about the pace of the global recovery.

There is no recovery Mr. President.  There has not been and will not be until the speculators and banksters that have taken on excessive debt, either as creditors or debtors, are forced to disgorge same.

The below chart lays forth the wasteland you are creating:

You (and you predecessor, George Bush) have replaced 11% of final demand (in the form of GDP) with deficit spending.  You have no credible plan to stop doing it as final private demand has failed to rebound, just as it did not in the 2003-2007 years and thus George Bush was unable to withdraw his bogus "stimulus" measures.

You are now trapped in an exponentially-deteriorating credit picture Mr. President.  The only question remaining is whether you and your idiot "advisors" will recognize this and act in time to prevent the destruction of the political system of The United States.

There is no means by which you can avoid the pain and adjustment that has to be taken.  It is not possible, mathematically, to continue to increase the total systemic indebtedness, irrespective of the manipulations and games you attempt to pull on the body politic.

Angela Merkel and the rest of the EU have come to recognize that the…
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The Fed’s Low Interest Rates are Hurting Us

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The Fed’s Low Interest Rates are Hurting Us

Federal Reserve, low interest ratesCourtesy of Tom Burger at Applying the Lessons of Free Market Economics

I would have thought that two back to back boom/bust cycles would have our Federal Reserve governors rethinking their dogma, but that does not seem to be the case. A federal funds rate of 1% created the housing bubble which is still rendering our banking system insolvent, throwing large numbers of people onto the unemployment rolls, and generally producing the most significant economic recession since the Great Depression.

So what is the Fed’s prescription for our current ailments? Well, with this recession much more serious than the 2002 experience, the Fed has now dropped the federal funds rate to a record low of between 0% and .25%. Will these low interest rates help the economy recover from this deep recession? Will they cure our current difficulties and generate healthy new growth?

Based on my reading of economic principles, the answer is no. In fact, I believe our Federal Reserve is setting us up for more economic heartburn. Consider this quote from Marc Faber, an exceptionally astute, international economic commentator:

"This is where I have the greatest problem with US economic policy makers. I don’t think they have ever recognised that the excessive, credit-driven expansion of the US economy was unsustainable in the long run and that, sooner or later, the current crisis was inevitable. But not only that! … US economic policy makers are attempting to restore economic growth through essentially the same policies; … In fact, I would argue that the large fiscal deficits and easy monetary policies will make sustainable, healthy economic growth next to impossible."

Marc Faber, The Gloom, Boom & Doom Report, July 9, 2009

In Are Low Interest Rates Beneficial, I explained why a naturally falling interest rate is indicative of a healthy, progressing economy. Let’s now explore the nature of an artificially depressed interest rate, and why it harms us.

To Reduce Interest Rates, a Central Bank Floods the Economy with New Money

A central bank cannot just declare a lower interest rate. If our Fed, for example, could just forcibly reduce interest rates on loans to below market levels, we would find more people wanting to borrow and fewer people wanting to make loans —…
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And Again, More Black Shoots (Earnings)

And Again, More Black Shoots (Earnings)

green shoots or black shootsCourtesy of Karl Denninger at The Market Ticker


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Insider Scoop

'Psyched': Hawaii Considers Resolution For Shrooms, Champignon Eyes Ketamine Products

Courtesy of Benzinga

Psyched is a bi-monthly column covering the most important developments in the industry of medicinal psychedelics. We hope you follow us periodically as we report on the growth of this exciting new industry.

Champignon Brands Buys IP Company and Adds Ketamine and New Formulations To Its Portfolio

On March 19, Champignon Brands Inc. (CSE: SHRM) (OTC: SHRMF), a Canadian healt...



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Zero Hedge

Going Down With The Ship: After Raging At Moody's For Downgrade To Deep Junk, Masa Son Pledges 40% Of SoftBank Stake To Lenders

Courtesy of ZeroHedge View original post here.

Last October, in the aftermath of the WeWork and Uber fiasco, we asked if SoftBank, that chronic seed (and not so seed) investor in cash-incinerating zerocorns startups would be "The Bubble Era's "Short Of The Century." Subsequent events have only made our query more pressing: with the global economy frozen, with social distancing and self-quarantine now a mandatory part of life...



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Phil's Favorites

Stimulus package will remain half-baked unless local governments get more of the dough

 

Stimulus package will remain half-baked unless local governments get more of the dough

People still need baked goods even during a lockdown. Frederic Brown/AFP via Getty Images

Courtesy of Stephanie Leiser, University of Michigan

Lawmakers are pinning their hopes on a US$2 trillion package to prop up the U.S. economy and provide relief to individuals and business ravaged by the coronavirus. ...



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The Technical Traders

These Index Charts Will Calm You Down

Courtesy of Technical Traders

I put together this video that will calm you down, because knowing where are within the stock market cycles, and the economy makes all the difference.

This is the worst time to be starting a business that’s for sure. I have talked about this is past videos and events I attended that bear markets are fantastic opportunities if you can retain your capital until late in the bear market cycle. If you can do this, you will find countless opportunities to invest money. From buying businesses, franchises, real estate, equipment, and stocks at a considerable discount that would make today’s prices look ridiculous (which they are).

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Kimble Charting Solutions

Broadest Of All Stock Indices Testing Critical Support, Says Joe Friday!

Courtesy of Chris Kimble

One of the broadest indices in the states remains in a long-term bullish trend, where a critical support test is in play.

The chart looks at the Wilshire 5000 on a monthly basis over the past 35-years.

The index has spent the majority of the past three decades inside of rising channel (1). It hit the top of this multi-decade channel to start off the year, where it created a monthly bearish reversal pattern.

Weakness the past 2-months has the index testing rising support and the December 2018 lows at (2).

Joe...



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Biotech/COVID-19

Coronavirus treatments and vaccines - research on 3 types of antivirals and 10 different vaccines is being fast-tracked

 

Coronavirus treatments and vaccines – research on 3 types of antivirals and 10 different vaccines is being fast-tracked

Scientific research on the novel coronavirus has progressed at unprecedented speed. Mongkolchon Akesin / Shutterstock

Courtesy of Ignacio López-Goñi, Universidad de Navarra

Just three months after China first notified the World Health Organization about a deadly new coronavirus, studies of numerous antiviral t...



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Chart School

Cycle Trading - Funny when it comes due

Courtesy of Read the Ticker

Non believers of cycles become fast believers when the heat of the moment is upon them.

Just has we have birthdays, so does the market, regular cycles of time and price. The market news of the cycle turn may change each time, but the time is regular. Markets are not a random walk.


Success comes from strategy and the execution of a plan.















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Digital Currencies

Bitcoin Tested As A Safe Haven After Biggest Stock Crash Since 2009

Courtesy of ZeroHedge View original post here.

Authored by Horus Hughes via CoinTelegraph.com,

Gold and Bitcoin react to global panic

Amid all of yesterday's chaos in bond, commodity, and stock markets, with the yield on the 10-year US Treasury note dropping below 0.5% for the first time in history - a strong indicator that investors are desperately looking for safe harbors - two supposed safe-havens in 'alternative currencies' behaved qui...



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Members' Corner

Bloody Mob Sh*t: An Interview with Lincoln's Bible

 

Bloody Mob Sh*t: An Interview with Lincoln's Bible

We talk Trump, Mogilevich, Epstein, Giuliani, Fred Trump, Roy Cohn, and more.

Courtesy of Greg Olear at PREVAIL, author of Dirty Rubles: An Introduction to Trump/Russia

(Originally published on Feb. 21, 20.)

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ValueWalk

Entrepreneurial activity and business ownership on the rise

By Jacob Wolinsky. Originally published at ValueWalk.

Indicating strong health of entrepreneurship, both entrepreneurial activity and established business ownership in the United States have trended upwards over the past 19 years, according to the 2019/2020 Global Entrepreneurship Monitor Global Report, released March 3rd in Miami at the GEM Annual Meeting.

Q4 2019 hedge fund letters, conferences and more

The Benefit Of Entrepreneurial Activity ...

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Promotions

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TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

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About Phil:

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...

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