Posts Tagged ‘malinvestment’

A SELF SUSTAINING RECOVERY? NOT YET.

A SELF SUSTAINING RECOVERY? NOT YET.

Bull standing on pile of coins, snorting

Courtesy of The Pragmatic Capitalist 

Richard Koo’s latest commentary is not quite as wildly bullish as equity investors have gotten in recent weeks and I fully agree with his outlook.  The markets are pricing in a self sustaining organic recovery and I still believe we have anything but that.  While we are still very constructive on the economy in H1 (and likely into Q3), I believe we are still mired in a balance sheet recession that is simply being papered over by extraordinary amounts of government spending.  In essence, the government has implemented a massive private sector crediting of accounts while their balance sheets remain highly indebted and continue to be worked down.  Richard Koo agrees.  Mr. Koo notes that the lending market is actually not improving at all:

“From borrower’s perspective, credit crunch is worsening Amid a severe nationwide credit crunch, the Fed is now actively listening to borrowers and trying to build a close cooperative relationship with the National Federation of Independent Business (NFIB), a leading small business organization. This is a major, unprecedented change. Traditionally, the Fed paid little attention to the views of borrowers, and as a result there were no data series like the index of banks’ willingness to lend as seen by the borrowers found in the Bank of Japan’s Tankan survey. Without input from borrowers, the Fed tended to administer policy based solely on the views of lenders—ie, the financial sector.”

koo1 A SELF SUSTAINING RECOVERY?  NOT YET.

“Like the Bank of Japan, the NFIB has been asking borrowers for their views on banks’ willingness to lend for many years. The relevant question asks businesses whether they find it easier or harder to obtain bank loans than they did three months ago. Recent numbers are deep in negative territory, indicating that banks are much more reluctant to lend than they were three months ago. This suggests that the credit crunch is not over and in fact is growing worse.

Koo elaborates on the deep weakness in the credit markets by claiming that mark to market would result in widespread banking bankruptcies if they were forced to actually mark these assets down to their true values:

“If US authorities were to require banks to mark their commercial real estate loans to market today, lending to this sector would be extinguished, triggering a chain of


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Seeing Through the Fog of Funny Money Policymaking

Seeing Through the Fog of Funny Money Policymaking

Lighthouse in fog, night (Digital)

Courtesy of Michael Panzner at Financial Armageddon

OK, let’s go through this one more time. Despite what we keep hearing from the politicians and moneymen, things are not getting better. Yes, we have seen the economic equivalent of a dead cat bounce — how could we not, given the trillions that have been thrown at the system — but it is simply not sustainable.

The reality is that we’ve just careened through decades of overborrowing and malinvestment, which created an array of dangerous imbalances and undermined our nation’s economic foundations. Now that the party is over, the wreckage is going to weigh on our prospects for years, if not decades.

Unfortunately, those who live in a bubble (i.e., Washington) or who’ve come to depend on them (e.g., Wall Street) have not seen through the fog of funny money policymaking. But as Bloomberg reports in "Americans Grow More Pessimistic on Economy, Nation’s Direction," the average Joe (and Jane) seem to have their eyes wide open when it comes to today’s depressing reality.

BloombergSurvey 
[Click on table to enlarge]

Americans have grown gloomier about both the economy and the nation’s direction over the past three months even as the U.S. shows signs of moving from recession to recovery.

Almost half the people now feel less financially secure than when President Barack Obama took office in January, a Bloomberg National Poll shows.

Those concerns have put consumers in a miserly mood as they head to the mall for holiday shopping, with half the country planning to spend less on gifts than last year and few buyers willing to run up credit-card debt for Christmas.

“The recession may be over, but the administration seems to be losing the battle when it comes to winning the hearts and minds of Americans,” says Chris Rupkey, chief financial economist for Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “This is important because the spending of consumers is the main factor that will turn the economic recovery into a self- sustaining one.”

Obama yesterday addressed anxiety over the economy with a speech proposing new spending on the nation’s transportation system, tax credits to spur hiring by small businesses and incentives to make homes more energy efficient.

Unemployment in November stood at 10 percent, a drop from 10.2 percent in


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Of Bubbles and Busts: Which Way for China?

Jesse, at Le Cafe, reports on the bubble made in China.  (If you missed my interview with Jesse, it’s posted here and here, my space on Seeking Alpha.) – Ilene

Of Bubbles and Busts: Which Way for China?

Courtesy of Jesse’s Café Américain

"Mischief springs from the power which the monied interest derives from a paper currency which they are able to control, and from the multitude of corporations with exclusive privileges…which are employed for their benefit." Andrew Jackson

While the crowd has been chortling over the anticipated decline and fall of the American Empire, they may also be overlooking the dangerously unstable bubble in China, and the implications for that phenomenon when the global economy shifts again.

Shanghai Stock Exchange There has been little doubt in our minds for a long time that China was in an impressive growth cycle that was fueled by overly cheap money and a spectacular equity bubble. This is why we posted that documentary about the Crash of 1929 yesterday, in commemoration of the 80th anniversary of Black Thursday. The collapse of bubbles will not be in the US alone, and the description and atmosphere as described in that film sounds much more like China today than it does the US.

The reasoning behind this is fairly straightforward.

It may be hard to remember from the current lofty heights of the ‘China miracle’ but their economy was a train wreck in the latter part of the 20th century. Prior to 1980 the state owned People’s Bank controlled all the financial resources of the command driven economy. The government created State Chartered Banks (SCB’s) in the 1980′s, but their business activities were still driven by state policy initiatives, and they quickly became burdened by bad debts. A speculative push and some tax breaks for foreign direct investment helped to further distort the economy, which led to a severe domestic slump, with banks burdened by Non-Performing Loans. But it was still a centralized economic regime, with a reminder served by the brutal suppression of the student demonstrations in Tiananmen Square in 1989.

In 1994 China tried to cure the serious problems in their domestic economy by devaluing the yuan from 5 to 8.3 to the US dollar in order to facilitate an export driven recovery. That is a 40% devaluation! All your costs were just marked…
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Chinese officials warn banks about reckless lending

Chinese officials warn banks about reckless lending


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Kimble Charting Solutions

Tech Leader Facing Important Long-Term Breakout Test!

Courtesy of Chris Kimble

Since the 2009 lows, Semiconductors have been taken a leadership role as they have far outpaced the gains of the S&P 500.

Gains since the 2009 lows; SOXX Index = +821% S&P 500 = +273%.

The SOXX index has spent the majority of the past 10-years inside of rising channel (1), which first started at the  2009 lows.

As the SOXX index is testing the top of this 10-year rising channel, it is also testing its Fibonacci 423% extension level of its 2001 highs and 2009 lows at (2).

This leading index would send a positive message t...



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Zero Hedge

Global Stocks Slide After Apple Guidance Cut Is "Wake Up Call" To Zombified Investors

Courtesy of ZeroHedge View original post here.

Two weeks ago, when looking at the supply-chain crippling consequences of the Coronavirus epidemic, we asked "Is Tech About To Suffer A "Dot Com" Bubble Collapse?" and concluded that "It's now all in China's hands" noting that "...while the market leaders did not disappoint in the last quarter of 2019 when stocks exploded higher with the blessing of the Fed's QE4, what abou...



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Phil's Favorites

Bloomberg Has Built a Star Wars Machine to Try to Steal the Democratic Nomination

Courtesy of Pam Martens

Michael Bloomberg

Billionaire Michael Bloomberg is used to getting his way. After serving two terms as New York City’s Mayor as a Republican, he used his own vast stash of cash to repeal term limits and give himself another four-year term, running as an Independent. Now he has promised to do the unprecedented: spend $1 billion of his own money to install himself as President of the United States, running on the Democratic ticket.

Bloomberg’s campaign increasingly resembles an octopus with money gushing out of its tentacles into anything and everything that will inject Mic...



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Insider Scoop

AMX Buys Fellow Alabama Company Powell, Adds Reefer Capacity

Courtesy of Benzinga

Alabama Motor Express will push deeper into the refrigerated business with purchase of Powell Transport Solutions.

The acquisition, announced earlier this week, will bring 35 refrigerated trailers to AMX, the company said in a statement. A spokeswoman for AMX, in response to questions submitted by FreightWaves, said the company's business is currently about 10% refrigerated. The AMX fleet before the acquisition was 210 trailers, she said.

Powell's business is 100% refrigerated, according to the...



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Biotech & Health

Coronavirus: the blow to the Chinese economy could be felt for years

 

Coronavirus: the blow to the Chinese economy could be felt for years

Courtesy of Chusu He, Coventry University

Investors are still being fairly complacent about the novel coronavirus. After the number of new daily cases suddenly shot up to more than 15,000 on February 12 following more than a week of decline, there were some jitters in the markets. With Chinese authorities saying the increase was due to a decision to broaden the definition for diagnosing people, there were falls in the region of 1% in European markets, and smaller retrenchments in Asia and North America.

It is...



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Members' Corner

How to Stop Bill Barr

 

How to Stop Bill Barr

We must remove this cancer on our democracy.

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

...



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The Technical Traders

Is The Technology Sector Setting Up For A Crash? Part I

Courtesy of Technical Traders

One thing that continues to amaze our research team is the total scale and scope of the Capital Shift which is taking place across the globe.  For almost 5+ years, foreign investors have been piling into the US stock market chasing the stronger US dollar and continued advancement of US share prices. It is almost like there is no other place on the planet that will allow investors to pool capital into such a variety of strong assets while protecting against foreign capital risks.  Yet the one big question remains – when will a price reversion event hit the US stock
market?

So many researchers, even our team of researchers, believe we have found the keys to unloc...



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ValueWalk

Russell 2000 Index (RUT) hits an almost one-month high

By Gorilla Trades. Originally published at ValueWalk.

Ad the Russell 2000 Index (INDEXRUSSELL: RUT) hit an almost one-month high today, commenting on today’s trading Gorilla Trades strategist Ken Berman said:

Q4 2019 hedge fund letters, conferences and more

Russell 2000 Index (INDEXRUSSELL: RUT) Outperforms Large-Cap Benchmarks

While the overnight session was nothing short of scary stocks held on to most of yesterday's gains and small-caps even extended their winning streak. The Russell 2000 Index (INDEXRUSSELL: RUT) hit an almost one-month high today, finishing higher for the fourth day in a row while outperforming the large-cap benchmarks, and since the Volatility...



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Chart School

Dow theory warning from the Utilities Index

Courtesy of Read the Ticker

Charles Dow died in 1902, and the investors should thank him for his ever lasting Dow Theory Analysis.

Carrying on this blog theme looking at the Utility stocks. Previous post.
Dow Jones Utility index could trade like the FANGs
Formula for when the Great Stock Market Rally ends



You can learn about Dow Theory here

This post is concerned wi...

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Digital Currencies

Bitcoin Price May Hit $27K All-Time High By Summer, Predicts Fundstrat's Tom Lee

Courtesy of ZeroHedge View original post here.

Authored by William Suberg via CoinTelegraph.com,

Bitcoin is primed for average gains of almost 200% over the next six months, one of its best-known supporters has told mainstream media. 

...



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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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In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

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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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About Ilene:

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