How Yuan Devaluation Will Play Out
The chart above is truly jaw dropping. I have written about China quite a few times last year. For instance, Is China About To Collapse – Drag Us All Down
Hedge fund manager Kyle Bass has a very good take on the same subject matter. A view worth studying.
Over the last ten years, China’s banking system has grown from less than $3 trillion to $34 trillion, equivalent to around 340% of Chinese GDP. To put it in perspective, the US banking system had about $16.5 trillion of assets heading into the financial crisis, equivalent to 100% of US GDP. “Credit has never grown faster or larger than it has in China over the past decade,” Bass wrote in a letter to investors dated February 10. There is no precedent.
He goes on to say….
What does this mean for Chinese banks? There is a bad answer and a worse answer. The bad answer is that Chinese bank capital – the equity buffer – is significantly overstated. A TBR requires much less capital to be set aside (only 2.5c as opposed to 11c for an on-balance sheet loan) at the time of origination (anyone thinking Fannie and Freddie?). Adjusting reported bank capital ratios for this effect changes reasonable 8-9% Core Tier 1 capital ratios (CT1) to undercapitalized 5-6% levels. Now, the worse news. TBRs are one of the biggest ticking time bombs in the Chinese banking system because they have been used to hide loan losses.
Finally…..
“One can make many assumptions regarding the collectability of such loans, but our takeaway is that the system is already full of massive losses,” he said. WMPs, TBRs, and the 8,000+ credit guaranty companies constitute the majority of China’s shadow banking system. This system has grown 600% in the last 3 years alone. This is where the first credit problems are emerging, away from the eyes of regulators. The Chinese government has the capacity and the willingness to do what it needs to do to prevent a banking system collapse. China will save its banks, and the renminbi will be the valve for normalization. It is what any and every government would do if put into a similar situation. China should stop listening to Kuroda, Lagarde, Stiglitz, and Lew and start thinking about how to save itself from the impending disaster in its banking system.
What does all of that mean?
China only has two options. An outright banking and economic blowup/collapse or substantial Yuan devaluation. Invest accordingly. The problem is, everyone is trying to devalue their own currency, with the FED/USD attempting to join the party this past week.
What You Ought To Know About Q-1 Earnings
3/21/2017 – A positive day with Dow Jones up 21 points (+0.12%) and the Nasdaq up 13 points (+0.28%)
In the past we have looked at how out of touch with reality today’s GAAP vs. non-GAAP earnings are. Case and point…..
- Carl Icahn: Earnings Are Shockingly Overinflated
- GAAP Earnings Collapse 18% As Valuations Approach “Insane Levels”
Here is the latest.
Companies haven’t fudged their numbers this much since the financial crisis
“The gap between GAAP (reported) and pro forma (adjusted) EPS continued to widen in 4Q, with the GAAP/Pro forma ratio of 0.74 still at its most extreme levels since 2009,” Bank of America Merrill Lynch’s Savita Subramanian said on Monday. “Trailing four-quarter (2015) GAAP EPS came in at $87 vs. $118 for pro forma EPS.”
And that goes to the heart of the matter. GAAP earnings are collapsing at the fastest pace since 2008 financial crisis. Meanwhile, stocks are still selling at historic “bubble” level valuations.
Once again, the market was selling at higher prices in 1929 and 2000 tops. We are now on par with 2007 top. We all know how all of that ended.
Now, an argument can be made that the US Economy and earnings are about to accelerate higher and resolve the imbalances above. Yet, I would like someone to explain to me exactly how that would happen.
Recall, most of the earning growth over the last few years, or since 2009, was liquidity driven (QE, zero interest rates, stock buybacks, etc). There very little evidence to suggest that we will miraculously recover.
For that to happen we would need to see productivity gains, new technologies, CAPEX and growing wages across corporate America. We are not seeing any of that. Again, what the FED did is it infused a dying patient (post 2008 economy) with massive amounts of “heroin and cocaine” in order to stimulate economic activity. Now that the effects of those drugs are wearing off, there is no fuel left.
What’s more, any more “stimulus” is likely to kill the patient. Invest accordingly.
This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.
(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. March 21st, 2016 InvestWithAlex.com
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Investment Grin Of The Day
Central Bank Mafia Goes All In…Stocks Rally…A Little
3/18/2016 – A positive day with the Dow Jones up 118 points (+0.68%) and the Nasdaq up 20 points (+0.43%).
The last two weeks were quite extraordinary. In a sense that all major central banks have gone “All In“. The Bank of Japan has already gone negative. China continues to devalue the Yuan while injecting more capital. Last week the ECB and Mario Draghi went all in. I wrote about it here……ECB & Draghi Go All In……Markets Yawn This week, Janet Yellen followed up with FED’s Stunning Admission
An independent observer might just inquire……What the hell is going on?
I think you will find most of the answers in this article.
Did central bankers make a secret deal to drive markets? This rumor says yes
Rumors are flourishing that global policy makers made a secret deal at the G-20 meeting in Shanghai late last month. This “Shanghai Accord” to weaken the greenback was aimed at calming the financial markets, which had gotten off to an awful start to the new year, according to the chatter.
That sounds about right. And the result? Most bulls are rejoicing….at least for the time being.
- Dow’s doing something it hasn’t done since 1933
- The Fed is crushing the dollar — and that’s great for stocks
- Cramer: Signs a massive rally could be coming
Wonderful……right? Not so fast.
- If No One Is Trading, Is It Really a Rally?
- Earnings season might spoil Yellen’s Goldilocks announcement
Basically, here is what you have to understand from all of the above.
- The Fed/ECB/BJ/PBOC have gone all in and then some. And what did that intervention get them? A weaker dollar (not by much) and a 2,000 point rally on the Dow (thus far).
- Yet, the fundamental reality remains the same. The worldwide economy and earnings are coming to a screeching halt while the stock market is selling at historic bubble valuation levels. As described in multiple previous posts on this blog.
As a result, the real question investors should be asking here is…..
What happens when earning decline and economy rolls over into a recessionary environment…… all while investors realize that stocks are selling at dizzying valuations levels and that central bankers have already gone “all in”???
I can think of quite a few scenarios, with none of them being too kind to today’s bulls.
This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.
(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. March 18th, 2016 InvestWithAlex.com
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Investment Wisdom Of The Day
Demeter Capital Weekly Report & COT
As you already know, Matt Demeter’s (Demeter Capital) weekly coverage concentrates on some of the most popular worldwide indices, futures, bonds, stocks, commodities and currencies. Matt’s work is some of the most accurate I have ever seen and it shows. The table below represents just a small portion of work available from Demeter Research. To learn more and to see Matt’s work in action, please Click Here.
Report Date: March 13th, 2016 (Including COT Reports).
For up to the minute long-term and short-term analysis on all of the markets below, please Click Here 
Just A Friendly Reminder From Carl Icahn
3/17/2016 – A positive day with the Dow Jones up 155 points (+0.89%) and the Nasdaq up 11 points (+0.23%)
Last time I published this video from Carl Icahn the stock market was putting in November 2015 top. I think this would be an opportune time to repeat the message. What he has to say about our financial markets is even more relevant today.
“God knows where this is going. It’s very dangerous and could be disastrous. It’s like a movie theater and somebody yells fire. There is only one little exit door. The exit door is fine when things are OK, but when they yell fire, they can’t get through the exit door…and there’s nobody to buy those junk bonds. Stocks are way overpriced.
I found myself agreeing with 95% of what he had to say and I command him for coming out and speaking his mind. If you participate in financial markets and/or care about what happens in the US, the video below is a MUST watch.
This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.
(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. March 17th, 2016 InvestWithAlex.com
Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!
Investment Grin Of The Day
FED’s Stunning Admission
After looking at the FED statement further I found it to be simply stunning. Not in terms of them telling us something that I haven’t covered on this blog before, but because they are no longer beating around the bush.
In their previous economic releases the FED suggested that they will base their interest rate decisions on exact data points such as inflation, employment, capacity utilization, etc…. Yesterday’s statement makes it clear, at least to me, that the FED is now entirely market dependent…..not data dependent.
Something I have said here before. The FED’s End Game Is Finally Unveiled.
And that indeed appears to be the case. What a sad state of affairs.
Click on the link above for the long version, but basically this spells eventual doom for our entire economic and financial system. Why? There is a fatal flaw with their plan. It only works until it doesn’t. It only works until the FED has any credibility left. The problem is, more and more people are beginning to realize how out of touch with reality these fools are.