Yes Virginia...It's a Bubble...

[touchring]

Re: Yes Virginia...It's a Bubble...

bottom-fishing...huh?

3 months...ICBC down 15%, Tencent down 15%, Baidu down 25%

How about bottomfishing some gold stocks that are down like 80-90%?

[Thailandnotes]

Re: Yes Virginia...It's a Bubble...

The bank recommended 17 stocks for those willing to take a stab at “bottom-fishing”, recommending Baidu, ICBC, Tencent and Ping An.

bottom-fishing...huh?

3 months...ICBC down 15%, Tencent down 15%, Baidu down 25%

[GRG55]

Re: Yes Virginia...It's a Bubble...

Looks like they blinked. Again.

What a surprise

Even the much vaunted central planners in Beijing are having a wee difficulty restructuring the economy towards the ever elusive consumer.


...

Still trying, apparently

Citigroup braces for world recession, calls for Corbynomics QE in China

Citigroup's Willem Buiter says only a blitz of helicopter money from the central bank can stop China's economy crumbling now

By Ambrose Evans-Pritchard

6:45PM BST 28 Aug 2015

China has bungled its attempt to slow the economy gently and is sliding into “imminent recession”, threatening to take the world with it over coming months, Citigroup has warned.

Willem Buiter, the bank’s chief economist, said the country needs a major blast of fiscal spending financed by outright "helicopter" money from the bank to avert a deepening crisis.

Speaking on a panel at the Council of Foreign Relations in New York, Mr Buiter said the dollar will “go through the roof” if the US Federal Reserve lifts interest rates this year, compounding the crisis for emerging markets.

Professor Zhiwu Chen from Yale University told the same event that China will be doing well if it can contain its slow-motion crisis to mere stagnation for the next 10 years, given the dangerous levels of debt in the system.

“If the Chinese government is able to manage a Lost Decade with very low growth - or no growth - without an economic crisis, it will be a policy achievement,” he said.

Prof Chen said a Western-style financial collapse in China is “highly unlikely” since the banks are largely government-owned and losses will be absorbed by the state...

...“The only thing likely to stop it going into recession is a large consumption-oriented fiscal stimulus funded through the central government, preferably monetized by the People’s Bank of China. Despite the economy crying out for it, the Chinese leadership is not ready for this,” he said...

...Whether China really is in such dire straits is hotly contested, even within Citigroup itself. The bank’s equity team said the August sell-off on global markets is a typical late-cycle correction rather than the onset of a major downturn.

“Current equity and bond yields suggest that investors are shifting towards pricing in a global recession. While not complacent, we believe such fears are premature – it is too early to call the end of this six-year bull market,” it said.

The bank recommended 17 stocks for those willing to take a stab at “bottom-fishing”, recommending Baidu, ICBC, Tencent and Ping An.

China has already loosened fiscal policy after an unintended crunch earlier this year when reform of local government financing went awry, causing near paralysis for four months. Mr Buiter’s recession may have come and gone already...

...The government plans to pull forward a raft of spending projects scheduled for 2016, launching them this year instead.

This comes on top of a jump in fiscal spending by more than 13pc in the second half that was already planned.

These infrastructure works include water and sewage, low-income housing for migrant workers and railway construction. The share price of China Railway Rolling Stock soared 10pc in Shanghai on Friday before hitting the maximum daily limit.

China’s chief lever at this point is fiscal policy. Interest rate cuts and monetary stimulus risk setting off further capital flight, tightening liquidity...

...The 50 basis point cut in the reserve requirement ratio for banks this week added no net stimulus. It merely offset the damage already caused over the past two months by estimated outflows of $200bn, which reduces the multiplier effect of base money in China.

Prof Chen said a pattern has emerged where China’s economy weakens at the start of each year. Beijing then injects a shot of stimulus. Growth stabilizes in the late summer and then picks up in the Autumn.
The same cycle is now at work this year, but it is becoming progressively weaker as rising debt ratios slowly suffocate the economy.

Mr Buiter said the stock market crash in Shanghai and Shenzhen is a “sideshow”. The wealth effects are negligible since only one in 30 Chinese owns stocks. Companies do not rely on equity issuance to raise funds for investment...

[ProdigyofZen]

Re: Yes Virginia...It's a Bubble...

A long-term crash process with monetary policy mistakes.

[GRG55]

Re: Yes Virginia...It's a Bubble...

Record capital flight from China as industrial slump drags on

China's state media decries "unimaginably fierce resistance" to economic reforms, a sign that president Xi Jinping is becoming furious with incompetent party officials

By Ambrose Evans-Pritchard

8:00PM BST 21 Aug 2015

Capital outflows from China have surged to $190bn over the last seven weeks, forcing the authorities to intervene on an unprecedented scale to defend the Chinese currency.

The exodus of funds is draining liquidity from interbank markets and has pushed up overnight Shibor rates by 30 basis points in the last ten trading days, a sign of market stress.

Yang Zhao from Nomura said $90bn left the country in July. The pace has accelerated since the central bank (PBOC) shocked the markets by ditching its currency peg to the US dollar.

Capital flight for the first three weeks of August is already close to $100bn, despite draconian use of anti-terrorism and money-laundering laws to curb illicit flows.

Mr Zhao said the PBOC had intervened “very aggressively” to stabilise the currency and prevent the devaluation getting out of hand, but this automatically tightens monetary policy...

...The Caixin PMI survey slumped to 47.1, far below the boom-bust line of 50 and the lowest since March 2009. New export orders slid further to 46.0 while inventories are rising, a nasty cocktail...

...Capital outflows from emerging markets have reached $940bn since June 2014, according to NN Investment Partners. The damage from the EM crisis is ricocheting back into the US. High-yield bonds spreads have surged to three-year highs, rising to bankruptcy levels of 1100 basis points for energy companies.
It is unclear where China’s political system is now heading. The country is gripped by an anonymous article published in the state newspapers warning that the reform process faces “unimaginably fierce resistance”

Jonathan Fenby from Trusted Sources said the article is a sign that a furious President Xi Jinping is losing faith in his officials after a secret conclave of the party leadership in August. “Behind the confident front which he presents to China and the rest of the world, factionalism is still alive within the senior ranks,” he said...

...There is little doubt that the party committed grave policy errors over the winter months, culminating in the so-called “fiscal cliff” as a botched reform of local government finance caused spending to collapse. The question is whether the worst is over as the authorities launch another stop-go cycle.

Credit growth rose to a 31-month high in July, though a chunk of this is simply rolling over old debts to keep the game going.

Fiscal spending is picking up sharply as the new bond market finally comes on stream. Local governments issued almost $200bn of securities in June and July, a blistering catch-up pace...

[GRG55]

Re: Yes Virginia...It's a Bubble...

One of the other things I have posted a few times in the past is my firm belief that, contrary to popular political opinion in the USA, the Chinese currency is OVERvalued, and if it was allowed to free float it would decline, not rise, against the US$...

Last edited by GRG55; 06-14-13 at 07:31 PM.

Well it took a couple of more years, but the inevitable is finally underway:

China’s yuan may shed another 8% by end of 2016, says Barclays

Published: Aug 21, 2015 1:16 p.m. ET

Strategists at Barclays expect the yuan, also known as the renminbi, to weaken around 8% against the dollar over the next two years—and they expect it to drag most of the world’s currencies down with it.

That could mean more pain for stocks and for emerging-currencies, which have been hammered since the People’s Bank of China’s decision to devalue the yuan starting Aug. 11.

Barclays published wide-ranging revisions to all of their foreign currency forecasts.

According to Barclay’s outlook, downward pressure will be greatest for other Asian currencies—the analysts singled out the currencies of Taiwan, Korea and Malaysia as among the most vulnerable—as weakening economic growth scares off investors, who no longer want to shoulder the risk of funding large current-account deficits...

...The currencies of exporters like the Australian dollar, New Zealand dollar, South African rand will likely depreciate by 7% to 8% against the dollar by the middle of next year....

..."Furthermore, if Fed policymakers are dissuaded from policy firming due to risks from China, it is even more likely that other major central banks’ policies will push back tightening or move toward outright easing,” Barclays said.

China’s yuan has been steady all week, prompting some currency strategists to speculate that policy makers in Beijing have kept it pegged despite ceding more control over its valuation to market forces.

At a news conference last week, PBOC Deputy Governor Yi Gang denied that the central bank intends to push the yuan lower, saying further weakness would be inconsistent with the currency’s fundamental value. [MRDA ]

[Thailandnotes]

Re: Yes Virginia...It's a Bubble...

I have a hard time keeping Schiff and Trump straight.

[don]

Re: Yes Virginia...It's a Bubble...

by Peter Schiff via Euro Pacific Capital,

The past four years or so have been extremely frustrating for investors like me who have structured their portfolios around the belief that the current experiments in central bank stimulus, the anti-business drift in Washington, and America's mediocre economy and unresolved debt issues would push down the value of the dollar, push up commodity prices, and favor assets in economies with relatively low debt levels and higher GDP growth. But since the beginning of 2011, the Dow Jones Industrial Average has rallied 67% while the rest of the world has been largely stuck in the mud. This dominance is reminiscent of the four years from the end of 1996 to the end of 2000, when the Dow rallied 54% while overseas markets languished. Although past performance is no guarantee of future results, a casual look back at how the U.S. out-performance trend played out the last time it had occurred should give investors much to think about.

The late 1990s was the original "Goldilocks" era of U.S. economic history, one in which all the inputs seemed to offer investors the best of all possible worlds. The Clinton Administration and the first Republican-controlled Congress in a generation had implemented policies that lowered taxes, eased business conditions, and encouraged business investment. But, more importantly, the Federal Reserve was led by Alan Greenspan, whose efforts to orchestrate smooth sailing on Wall Street led many to dub Mr. Greenspan "The Maestro."

Towards the end of the 1990's, Greenspan worked hard to insulate the markets from some of the more negative developments in global finance. These included the Asian Debt Crisis of 1997 and the Russian debt default of 1998. But the most telling policy move of the Greenspan Fed in the late 1990's was its response to the rapid demise of hedge fund Long term Capital Management (LTCM), whose strategy of heavily leveraged arbitrage backfired spectacularly in 1998. Greenspan engineered a $3.6 billion bailout and forced sale of LTCM to a consortium of Wall Street firms. The intervention was an enormous relief to LTCM shareholders but, more importantly, it provided a precedent that the Fed had Wall Street's back.

Not surprisingly, the 1990s became one of the longest sustained bull markets on record. But in the latter part of the decade the markets really started to climb in an unprecedented trajectory. As the bubble began inflating in earnest Greenspan was reluctant to follow the dictum that the Fed's job was to remove the punch bowl before the party got out of hand. Instead he argued that the Fed shouldn't prevent bubbles from forming, but simply to clean up the mess after they burst.

But while U.S. markets were taking off, the rest of the world was languishing, or worse:



Created by EPC using data from Bloomberg
All returns are currency-adjusted

But then a very funny thing happened. In March 2000, the music stopped and the dotcom bubble finally burst, sending the Nasdaq down nearly 50% by the end of the year, and a staggering 70% by September 2001. When investors got back into the market their values had changed. They now favored low valuations, real revenue growth, understandable business models, high dividends, and low debt. They came to find those features in the non-dollar investments that they had been avoiding.

Over the seven years that began at the end of 2000 and lasted until the end of 2007 the S&P 500 inched upwards by just 11%, for an average annual return of only 1.6%. But over that time frame the world index (which includes everything except the U.S.) was up 72%. The emerging markets, which had suffered the most during the four prior years, were up a staggering 273%. See table below:



Created by EPC using data from Bloomberg
All returns are currency-adjusted

Not surprisingly, the markets and asset classes that had been decimated by the Asian debt and currency crises, delivered stunning results. South Korea, which was only up 10% in the four years prior, was up 312% from 2001-2007. Brazil, which had fallen by 4%, notched a 407% return, and Indonesia, which had fallen by 50%, skyrocketed by 745%.

The period was also a great time for gold and gold stocks. The earlier four years had offered nothing but misery for investors like me who had been convinced that the Greenspan policies would undermine the dollar, shake confidence in fiat currency, and drive investors into gold. Instead, gold fell 26% (to a 20-year low), and shares of gold mining companies fell a stunning 65%.

But when the gold market turned in 2001, it turned hard. From 2001 - 2007, the dollar retreated by nearly 18% (FRED, FRB St. Louis), while gold shot up by 206%, and shares of gold miners surged 512%. As it turned out, we weren't wrong about the impact of the Fed's easy money, just too early.

2010 - 2014

In recent years, investors who have looked to avoid the dollar and the high-debt developed economies have encountered many of the same frustrations that they encountered in the late 1990s. Foreign markets, energy, commodities and gold have gone nowhere while the dollar and U.S. markets have surged as they did in 1997-2000.



Created by EPC using data from Bloomberg
All returns are currency-adjusted

It is said history may not repeat, but it often rhymes. If so, there may be a financial sonnet brewing. There are reasons to believe that relative returns globally will turn around now much as they did back in 2000. Perhaps even more decisively.

Just as they had back in the late 1990's, investors appear to be ignoring flashing red flags. In its Business and Finance Outlook 2015, the Organization for Economic Cooperation and Development (OECD), a body that could not be characterized as a harbinger of doom, highlighted some of the issues that should be concerning the markets. Reuters provides this summary of the report's conclusions:

• Encouraged by years of central bank easing, investors are plowing too much cash into unproductive and increasingly speculative investments while shunning businesses building economic growth.

• There is a growing divergence between investors rushing into ever riskier assets while companies remain too risk-averse to make investments.

• Investors are rewarding corporate managers focused on share-buybacks, dividends, mergers and acquisitions rather than those CEOS betting on long-term investment in research and development.

While these trends have been occurring around the world, they have become most pronounced in the U.S., making valuations disproportionately high relative to other markets. As we mentioned in a prior newsletter, looking at current valuations through a long term lens provides needed perspective. One of the best ways to do that is with the Cyclically-Adjusted-Price-to-Earnings (CAPE) ratio, which is also known as the Shiller Ratio (named after its developer, the Nobel prize-winning economist Robert Shiller).Using 2014 year-end CAPE ratios that average earnings over a trailing 10-year period, the global valuation imbalances become evident:



As of the end of 2014, the S&P 500 had a CAPE ratio of well over 27, at least 75% higher than the MSCI World Index of around 15. (High valuations are also on evidence in Japan, where similar monetary stimulus programs are underway). On a country by country basis, the U.S. has a CAPE that is at least 40% higher than Canada, 58% higher than Germany, 68% higher than Australia, 90% higher than New Zealand, Finland and Singapore, and well over 100% higher than South Korea and Norway. Yet these markets, despite the strong domestic economic fundamentals that we feel exist, are rarely mentioned as priority investment targets by the mainstream asset management firms.
In addition, U.S. stocks currently offer some of the lowest dividend yields to compensate investors for the higher valuations (see chart above). The current estimated 1.87% annual dividend yield for the S&P 500 is far below the current annual dividend yields of Australia, New Zealand, Finland and Norway.

If a dramatic shock occurs as it did in 2000, will investors again turn away from high leverage and high valuations to seek more modestly valued investments? Then, as now, we believe those types of assets can more readily be found in non-dollar markets.

Another similarity between then and now is the propensity to confuse an asset bubble for genuine economic growth.The dotcom craze of the 1990s painted a false picture of prosperity that was doomed to end badly once market forces corrected for the mal-investments. When that did occur, and stock prices fell sharply, the Fed responded by blowing up an even bigger bubble in real estate. When that larger bubble burst in 2008, the result was not just recession, but the largest financial crisis since the Great Depression.

But once again investors have mistaken a bubble for a recovery, only this time the bubble is much larger and the "recovery" much smaller. The middling 2% GDP growth we are currently experiencing is approximately half of what we saw in the late 1990s. In reality, the Fed has prevented market forces from solving acute structural problems while producing the mother of all bubbles in stocks, bonds, and real estate. A return to monetary normalcy is impossible without pricking those bubbles. Soon the markets will be faced with the unpleasant reality that the U.S. economy may now be so addicted to monetary heroine that another round of quantitative easing will be necessary to keep the bubble from deflating.

The current rally in U.S. stocks has gone on for nearly four full years without a 10% correction. Given that high asset prices are one of the pillars that support this weak economy, it is likely that the Fed will unleash another round of QE as soon as the market starts to fall in earnest. The realization that the markets are dependent on Fed life support should seal the dollar's fate. Once the dollar turns, a process that in my opinion began in April of this year, so too should the fortunes of U.S. markets relative to foreign markets. If I am right, we may be about to embark on what could become the single most substantial period of out-performance of foreign verses domestic markets.

While the party in the 1990s ended badly, the festivities currently underway may end in outright disaster. The party-goers may not just awaken with hangovers, but with missing teeth, no memories, and Mike Tyson's tiger in their hotel room.

[GRG55]

Re: Yes Virginia...It's a Bubble...

Thank gawd China still has 7% official growth in the economy as a whole. Where would the world be otherwise

Seems to me the PBOC should call Janet and inquire how to promote the origination and bundling of subprime auto loans. I Yuan.na new car.

China Slashes Vehicle Sales Forecast to 3% Amid Stocks Rout

July 10, 2015 — 12:32 AM MDT

[Bloomberg] China slashed its forecast for vehicle sales in the world’s largest market, projecting deliveries to expand at the slowest pace in four years amid a stock-market rout that threatens to dent consumer sentiment.

Total vehicle deliveries including trucks and buses will probably rise by 3 percent this year, down from the 7 percent projected in January, the China Association of Automobile Manufacturers said Friday. That would be the smallest increase since 2011, when the government unwound stimulus measures unleashed in the wake of the global financial crisis.

Global automakers such as Volkswagen AG and General Motors Co. are now growing slower in China, where they have spent billions to build factories, than in their home markets. With the recent stock market rout wiping out $3.9 trillion of value and economic growth continuing to moderate, concerns are rising that demand will slow further even as more auto factories are completed...

...The revised forecast comes as Volkswagen, the biggest foreign carmaker by sales in China, became the latest company to extend financial assistance to its dealers...

...China will see more manufacturing capacity added even with sales slowing. Hyundai Motor Co. is building two more plants in China by next year, while Renault SA has a factory set to open in the first half of next year. Fiat SpA is set to start making Jeeps in China later this year.

Earlier this week, Cui Dongshu, secretary-general of the Passenger Car Association, a separate trade group, described the stock-market rout that turned a world-beating boom into a bust as a “meat grinder” that destroyed wealth that might otherwise be spent on new cars...

...Price cuts by both foreign and local brands in the past months have done little to spur demand. A survey by MNI Indicators showing the proportion of consumers who planned to buy a car shrinking last month, while inventory was at levels that indicate low market demand for nine consecutive months.

[shiny!]

Re: Yes Virginia...It's a Bubble...

Hola all...long time...

Are there any boil the ocean pieces from EJ subsequent to the 2013 review and 2014 forecast on the front page? I can't tell if that's the last article, or if there are some hidden behind the pay wall that aren't referenced in the public spaces. TIA

No big articles, but EJ participates in conversations behind the paywall when he has something to say.

[WDCRob]

Re: Yes Virginia...It's a Bubble...

Hola all...long time...

Are there any boil the ocean pieces from EJ subsequent to the 2013 review and 2014 forecast on the front page? I can't tell if that's the last article, or if there are some hidden behind the pay wall that aren't referenced in the public spaces. TIA

[WDCRob]

Re: Kaisa on Brink of Dollar Default Spooks World’s Money Managers

Hola all...long time...

Are there any boil the ocean pieces from EJ subsequent to the 2013 review and 2014 forecast on the front page? I can't tell if that's the last article, or if there are some hidden behind the pay wall that aren't referenced in the public spaces. TIA

[ProdigyofZen]

Re: Kaisa on Brink of Dollar Default Spooks World’s Money Managers

"The interest rate and RRR cuts, will help stabilise growth, adjust structures and lower social financing costs", the central bank said. Going forward, the central bank will continue to implement prudent monetary policy, use various policy tools to strengthen and improve marco-prudential management, optimise policy combinations and create neutral and appropriate monetary and financial environments for economic adjustments and upgrading."

Macro-prudential, there is that phrase again. I fear the translation of said phrase is "micro management of the economy by the central bank"

At least the PBoC has 485 bps to go before it hits ZIRP. Lots of room to inflate asset prices unlike Western central banks.

What do they say, the rise and fall of civilizations can be observed in it's rate of interest?

[GRG55]

Re: Kaisa on Brink of Dollar Default Spooks World’s Money Managers

Yes indeed. That is why I prefer to try to track these themes on a single thread or I will sometime resurrect an old, dormant thread and update. Whether it is China, the crisis in Europe, housing in California or, now, Canada, or most other macro economic situations, they all tend to last longer and inflate much larger than any of us could have imagined. It's useful to be able to look back at the discussions and see what we can learn that will help us profit from greater understanding and investing appropriately.

As for China growing >7% at this moment...I have my doubts, and there is some evidence that number too is now inflated.

7%. Really??

Hands up anyone who can spot the difference between the PBOC and The Fed.


PBOC cuts Chinese interest rates again

Sat 27 Jun 2015 11:02:45 GMT

The People's Bank of China has today again lowered its interest rates in a bid to stimulate the economy

• 1 year benchmark lending rate cut by 25 bps to 4.85%
• 1 year benchmark deposit rate cut by 25 bps to 2.0%
• reserve requirement ratio (RRR) for banks lending to farm sector and SMEs lowered by 50 bps

PBOC said

"The interest rate and RRR cuts, will help stabilise growth, adjust structures and lower social financing costs", the central bank said. Going forward, the central bank will continue to implement prudent monetary policy, use various policy tools to strengthen and improve marco-prudential management, optimise policy combinations and create neutral and appropriate monetary and financial environments for economic adjustments and upgrading."

The PBOC last cut rates, also by 25 bps on May 10...


China central bank eases policy again to support economy

BEIJING |
REUTERS/

Sat Jun 27, 2015 9:00am EDT

China's central bank cut lending rates for the fourth time since November and trimmed the amount of cash that some banks must hold as reserves, stepping up efforts to support an economy that is headed for its poorest performance in a quarter century.

Saturday's combined easing highlights Beijing's concerns that money isn't flowing to some of the most-needed sectors in the economy and that stubbornly high borrowing costs that could fuel bankruptcies and job losses. The last time the central bank simultaneously cut interest rates and reserve requirements was at the height of the global financial crisis in late 2008.

The latest move could also be aimed at comforting investors following a 20 percent plunge in the country's stock markets over the last two weeks, some analysts said.

"The simultaneous cuts in interest rates and reserve requirement is a forceful move, indicating the downward pressure on the economy is very big,” said Xu Hongcai, senior economist at the China Centre for International Economic Exchanges (CCIEE), a Beijing-based think-tank.

"The monetary policy adjustment will also help curb sharp fluctuations in the stock market."...

[lektrode]

Re: California Bubbly: Riding the Wave

zippy-do-dah bunking . . . .

talk about yer couch-surfing potential...

One thing to understand about California housing is that boom and busts are central to the market. It is fascinating from a psychological standpoint that today, many think that California housing is a simple and safe bet. ....

But if you want to buy, here is a nice and bright home in Highland Park:



.....
In 2011 the Zestimate on this place was $366,000. Now you “need” to pay $240,000 more but for what? .

well.. 600grand is still cheaper than anything over in santa monica or the south bay...

kinda chump change, eh - unless one is into soul surfin - never mind if yer lookin for the Real Deal, aka THE Banzai Pipeline

The ventures - PIPELINE

nice one! - but this is a MUCH BETTER version (of one of my faves):



even if ole dicky boy is/was no match - even in his best days - for stevie ray, IMHO