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Chinese Revolution…..Coming Soon?

Reuters Writes: Ditch the stats: China retailers don’t buy signs of recovery

 

HONG KONG (Reuters) – If things are really starting to look up for China’s economy, as a recent spate of better-than-expected government data seems to suggest, nobody appears to have told its biggest retailers.

A Reuters review of first-half earnings showed that more than 20 Chinese companies selling everything from footwear to food were not convinced the economic slowdown had bottomed out, and neither were their traditionally thrifty customers.

“The reality behind the numbers is gloomier,” said leading footwear retailer Belle International Holdings Ltd as a raft of data, supported by government statements, indicated the world’s second largest economy may be stabilizing after two years of slumping growth.

“There are uncertainties in future prospects as the economy is struggling with a difficult transition involving structural rebalancing and revamping the growth model,” said Belle, which has a market value of $11.6 billion and manages more than 18,000 retail outlets across 360 Chinese cities.

“As a defensive reaction, consumers are becoming more inclined to save and less willing to spend,” it added.

Economists have long doubted the accuracy of official economic data and this skepticism has increased as China plots a course towards consumption-led growth. The official retail sales measure, for example, counts a sale from when an item is shipped, rather than when it is actually sold.

The latest data, however, supports retailers’ complaints.  Read the rest of the article here

Listen, Chinese story is fairly easy to understand. Most of Chinese economic growth over the last decade came from massive infrastructure and real estate misallocation.  I say misallocation because there are literally empty cities in China.  If you haven’t already please watch this excellent report by 60 Minutes Here.

Now it is too late. China is left with huge misallocation that cannot just be dismissed. They must collapse. As the US Market slows down and shifts into recessionary environment over the next few years, as European Union continues to drag its feet in its own dysfunctional economic disaster,  I would expect Chinese export based economy to slow down significantly.

The most important question here, is what happens to the Chinese government when property prices finally collapse in China and Chinese families lose all of their multi-generational savings (something that every Chinese believes is impossible).  Of course, as financial professionals we must always look at the other side of the trade when 99% believes otherwise.

I believe we are in for some fireworks in China and fairly soon.  Within the next 5 years.  In fact, I believe we are in for a revolution in China as the government losses control.  One thing is for certain, it will be exciting to watch. 

If you can, please share our blog with your friends as we try to get traction. Gratitude!!! 

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The Secret Behind Upcoming European Union Breakup

Map-of-Europe

Bloomberg writes: German Jobless Unexpectedly Rises Even as Economy Grows

German unemployment unexpectedly increased in August for the first time in three months even as Europe’s largest economy expands.

The number of people out of work increased by a seasonally adjusted 7,000 to 2.95 million, the Nuremberg-based Federal Labor Agency said today. Economists predicted a decline by 5,000, according to the median of 25 estimates in a Bloomberg News survey. The adjusted jobless rate stayed at 6.8 percent, near a two-decade low.

The economy in Germany, which faces elections next month, is forecast to slow after growth was bolstered last quarter by a rebound from a colder-than-usual winter that curbed output. While the euro area, the nation’s largest export market, has emerged from its longest-ever recession, some companies are still cutting jobs as countries in the periphery of the region struggle to recover.

“If data that signal the economy will gather pace in the second half of the year are to be believed, there’s a good possibility that employment will increase and unemployment will drop next year,” said Jens Kramer, an economist at NordLB in Hanover. “In the euro area, there’s at least hope that the worst is behind us.”

I think the best way to look at Europe at this point in time in from Macro Economic perspective. 

Obviously Germany is by far the strongest economy in the region and the only reason European Union hasn’t collapsed yet. The rest of the countries there are in a big time mess. 

I do not believe the worst is yet over for Europe. Not by a long shot. The only reason you are seeing an improvement and better data coming out of Germany is the same reason you see it in the US. Massive amounts of liquidity in the system. 

What is quite shocking is how weak the recovery has been in the European Union region even though record amounts of capital were deployed to sustain it.

What will happen next is quite simple. 

As interest rates continue to increase on the global scale, as the US Stock market begins to go down, as emerging markets continue their decline….there won’t be any reason for European Union to recover. As a matter of fact, quite the opposite. As all stimulus disappears, expect most of the European Union to fall back into a depression environment.  

An eventual break up of the European Union is not out of the question. As a matter of fact, I would be surprised if it doesn’t happen over the next 5 years. 

If you can, please share our blog with your friends as we try to get traction. Gratitude!!!

 

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The Most Important Financial Story No One Is Talking About

10 Year Note Chart

 

The chart above doesn’t look like much, but it is hugely important. It is the chart for a 10 Year Treasury Note and I cannot stress enough just how important it is. There are 3 things here. 

1. My timing work shows that what you are looking at is a multi-generational bottom in interest rates. It is unlikely that we see interest rates this low over the next 50-100 years. Stock market and interest rate history teaches us that much. 

2. While it doesn’t look like much, this benchmark interest rate moved from 1.43% in July of 2012 to about 2.80% today. That is a 100% increase in interest rates in just 12 months. That is a massive move by any measure and the largest of its kind in nearly 3 decades.    

3. The interest rates are just now starting their climb upwards. The trend has shifted and will continue upward for at least a few more decades. It will not be a straight line move and it will not be fast, but do anticipate a gradual increase from this point on. My timing work shows that these rates should accelerate to the upside after 2016 due to upcoming inflation. 

What does it all mean? In simple terms, this will have a huge negative impact on the overall US and Global economy, it will destroy the US housing bubble once and for all, it will suck down emerging markets (which is already happening). 

Why? Because the all of the above mentioned markets rely purely on extremely cheap finance and high liquidity. Once you take that away, the markets and the overall economy will start going down fast.

What should you do? This is what I would do as of today. 

  • Start liquidating your stock market portfolio. You can start buying back at much cheaper prices at 2016 bottom.
  • Lock in any loans you have (mortgage, business, personal) at current rates. 
  • Sell all of your real estate holdings if it makes financial sense and satisfies all of your lifestyle choices. Real estate will get completely crushed over the next 10 years.
  • Accumulate cash and keep it safe in short term treasury(1-6 month maturity). Keep rolling it over as interest rates increase.  When the next bottom in the stock market shows up (in 2016)….Go All In. 

If you can, please share our blog with your friends as we try to get traction. Gratitude!!!

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Did Hell Just Freeze Over? CNBC is Predicting a Stock Market Crash…

CNBC Writes: Prepare for the crash no one is predicting

Stock-Market-Drop

Stock market declines, especially the violent kind we refer to as “crashes,” are pretty hard to predict.

True, for every crash one or two visionaries emerge who called the market decline with unusual accuracy. In time, we generally conclude that these visionaries were more lucky than prescient, because there are no records of prognosticators who predict market crashes more than once.

But this time may be different.

The Federal Reserve has been propping up the stock market through its quantitative easing program that forced interest rates to all-time lows and drove investors out of bonds and into stocks.

But those days may be coming to an end.

Read the rest of the article here.

WOW, really CNBC, I am not sure what to think here. I thought that CNBC were perpetual bulls. One thing is for certain. If CNBC is predicting a crash, there won’t be one.

Here is the bottom line and what my mathematical/timing work is showing. There shouldn’t be a crash here. As a matter of fact, the next few years a quite boring.  The market will decline to the tune of 20-40% over the next two years, but it shouldn’t be anything drastic like a crash. As a matter of fact, the market is a little bit oversold here and I do anticipate a rebound.

See, who said I was always a bear?  

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Did the US Recession Already Start?

Well, actually and technically speaking, I believe that the US Economy never left the recession even though the stock market has appreciated well over 100% since the March of 2009 bottom.  Most of the gains where driven by technical reasons as well as massive infusion of capital into the system by the FED. Basically, everything had to appreciate in value.

Please watch this Lance Roberts, Charles Hugh Smith and Gordon T Long video sharing their research on the  question above through the use of 52 slides in this fast moving 43 minute video. I couldn’t agree more and it will soon become evident as the market begins its decline. 

 

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BitCoin. Crazy or Smart?

Bloomberg Writes: Bitcoin Spawns China Virtual IPOs as U.S. Scrutiny Grows

bitcoin_euro

Bitcoin craze is reaching new heighs in China.

Sun Minjie is a 28-year-old Internet worker who lives in Beijing. Eager to profit from growing demand for the digital currency, Sun has invested more than $3,000 in a company called 796 Xchange Ltd., an online exchange for trading stocks and other financial instruments related to Bitcoin, where initial public offerings are also being held.

He’s part of a small but growing group of investors in China who have put the country into contention with the U.S. as the biggest downloader of the virtual money that’s being used to buy a growing range of goods and services online. While intensified scrutiny by U.S. regulators casts doubt on the currency’s future there, China’s Bitcoin industry is expanding.

“What’s worrisome is that a lot of people could be just treating it as a speculative investment,” said Peter Pak, head of trading of BOCI Securities Ltd. in Hong Kong. “In China, the stock market, property and bond market are all not so good, so people get really excited when they hear of a new investment that generates high returns.”

Sun’s outlay of about 28 Bitcoins — or $3,108 — for more than 400 shares in 796 Xchange has returned about 46 percent since the stock’s Aug. 1 debut on the company’s own website. The benchmark Shanghai Composite Index (SHCOMP) has only gained about 2 percent during the same period.

Expensive to Crack’

Bitcoin is similar to other currencies — say, the Mexican peso — except it’s not controlled by any government and the total number is capped at about 21 million coins. Computer users can “mine” them by solving mathematical puzzles — uncovering the hidden series of letters and numbers that matches up with security keys specified by the computer programmers who invented Bitcoin in 2009. As more are mined, the puzzles get harder, and therefore more expensive to crack.

Sun turned to shares of Bitcoin companies after initially trying to mine the currency crunching algorithms on souped-up PCs at his office and home. He gave up after a month, concluding that his computers weren’t up to the task.

“Simple desktops can no longer dig them up,” he said.

Read the rest of the article here.

So, is Bitcoin a legitimate currency, a speculative investment or the future. This is a complex matter to discuss as there could be an infinite number of arguments made for or against it. However, here are some basic points to understand…. 

1. Understand that Bitcoin is a pure speculation at this stage. There is nothing to back it up and there is nothing to assign any sort of fundamental value to it.   As such, speculate away, but know that while it can appreciate significantly it can also go to zero in no time.

2. The US Government can crush it at will and at any time. Yes, I know it cannot be controlled by the government, it is independent and out there on the net. However, don’t be a fool.  As NSA just showed, the US Government basically controls the Internet and as such if it really wants to, it can destroy Bitcoin in hours through various means.

3. There is very little volume and the total value as a currency is very low. While it can be an advantage when the currency is going up, good luck trying to get out of it while it is heading down.  Plus, the fact that people in China see it as an investment vehicle now is a huge negative red flag.

Basically, there is no fundamental value to invest in Bitcoin at this stage. While it can appreciate significantly, know that all gains would be out of pure speculation.  There are no fundamentals to back it up.  On the flip side it can go to zero either because of the speculation or if the US Government decides (for whatever reason) to pull the plug on it.  I say it is too much risk if you value your money. 

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Stock market optimism is too high. Are You Ready?

bear_market1

Most market participants buy and sell at exactly the wrong time.  If you watch CNBC there was a parade of bulls in 2007 predicting DOW 20,000 within a year only to be replaced by a parade of bears predicting the end of the world at 2009 bottom. Simple human psychology.

Why is this important? Well, I am glad you have asked. 

As of early August 2013, various metrics measuring/showing investor sentiment indicate an optimistic extreme among market participants.  In fact, some optimistic views expressed wouldn’t be out of place on a space ship heading to Mars.

“This is a buying opportunity of a lifetime, this is the most powerful bull market since the World War II and there is a lot more upside to come” – some guy from a mental asylum on CNBC, August 6th. 

Since then the Dow dropped about 800 points, posting the worst weekly performance since the start of 2013. Yet, that’s just a speed bump for the eternal optimists.

On August 16, a Wharton professor of finance told CNBC, “I certainly wouldn’t throw in the towel. I’m still projecting Dow 16,000 to 17,000 by year end.”  

So, is this a great buying opportunity as most pundits on CNBC and in financial media claim? Are we on our way to DOW 20,000?

HELL NO SON. Get your head out of your ass and start thinking straight.  Here are just a few  facts you might want to consider……

  • Investor sentiment is way too high. Some indicators claim it is at historic levels of extreme kind of high.
  • The US Stock market is overpriced at these levels.
  • The is a lot of emerging market money flooding into the US Stock market looking for safety. This usually happens at exactly the wrong time.  There is no such thing as safety.
  • There is no fundamental case for the US stock market to go to Dow 17 or 20,000. Once again, it is extremely overpriced now.
  • The fundamental business environment for most US Corporation is starting to deteriorate substantially.
  • Interest rates are going higher and the FED has done everything they could up to now. No further stimulus will help and any additional stimulus will be marginal at best.  There is no stimulus velocity left in the system.
  • Technical picture is flashing warning signs and showing  that there is a high probability that the stock market is about to break down.
  • My timing work indicates that the bull run that started at 2009 bottom is coming to an end. The stock market must decline into its 2016 bottom. There is no way to stop the law of nature.

I can go on for another 20 or so points, but you get the idea.  You have been warned. Start positioning yourself for an upcoming decline now. 

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USA. Becoming a Nation of Part-Timers

part-time-jobs

Reuters writes:  Obamacare, tepid U.S. growth fuel part-time hiring

(Reuters) – U.S. businesses are hiring at a robust rate. The only problem is that three out of four of the nearly 1 million hires this year are part-time and many of the jobs are low-paid.

Faltering economic growth at home and abroad and concern that President Barack Obama’s signature health care law will drive up business costs are behind the wariness about taking on full-time staff, executives at staffing and payroll firms say.

Employers say part-timers offer them flexibility. If the economy picks up, they can quickly offer full-time work. If orders dry up, they know costs are under control. It also helps them to curb costs they might face under the Affordable Care Act, also known as Obamacare.

Yep, exactly. Companies must be crazy to start hiring full time workers in this environment. The only time it would make sense if the economy is surging higher and unemployment is low. Neither one is the case, nor will it be any time soon.

This can all become a less-than-virtuous cycle as new employees, who are mainly in lower wage businesses such as retail and food services, do not have the disposable income to drive demand for goods and services.

Some economists, however, say the surge in reliance on part-time workers will fade as the economy strengthens and businesses gain more certainty over how they will be impacted by Obamacare.

Keep dreaming. The only place this economy is going is down the toilet. You cannot define the law of physics and mathematics forever.  

Executives at several staffing firms told Reuters that the law, which requires employers with 50 or more full-time workers to provide healthcare coverage or incur penalties, was a frequently cited factor in requests for part-time workers. A decision to delay the mandate until 2015 has not made much of a difference in hiring decisions, they added.

“Us and other people are hiring part-time because we don’t know what the costs are going to be to hire full-time,” said Steven Raz, founder of Cornerstone Search Group, a staffing firm in Parsippany, New Jersey. “We are being cautious.”

Everyone knows the costs of hiring full-time right now. That cost is “Too Expensive”

Raz said his company started seeing a rise in part-time positions in late 2012 and the trend gathered steam early this year. He estimates his firm has seen an increase of between 10 percent and 15 percent compared with last year.

Other staffing firms have also noted a shift.

“They have put some of the full-time positions on hold and are hiring part-time employees so they won’t have to pay out the benefits,” said Client Staffing Solutions’ Darin Hovendick. “There is so much uncertainty. It’s really tough to design a budget when you don’t know the final cost involved

Rest of the article here:

The bottom line is this. This Obamacare law is idiotic.  Any law that adds costs and uncertainty to any company in a bear market or downshifting economy is simply stupid. The output is very clear…. 

  • Companies will hire very few  full time workers.
  • Companies will start firing full time workers and replacing them with part time workers.  So, even if you have a stable full time job now (in the private sector), count your lucky stars if you still have one 5-10 years from now.

Simple as that. America is about to become a nation of part timers. Thank you  President Obama. 

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Egypt about to stabilize? The stock market says YES.

Business Week Writes: Egypt’s Markets Are Strangely Stable

More than 1,000 people have died in Egypt in the past six days, but you’d never know it to look at the Egyptian stock market. Since June 30, the first day of mass protests that contributed to the downfall of President Mohamed Mursi, the country’s two main stock market indexes are up 12 percent.

Not only that, but the rates the Egyptian government has to pay to attract buyers for its bonds have fallen slightly—a sign that global investors aren’t panicking and demanding higher yields. The yield on one-year government bills today was 12.9 percent, down from 14.9 percent in late June.

Pretty surprising considering that much of the nation is paralyzed by a violent confrontation between the military-backed government and supporters of the deposed Islamist president.

 

This is another perfect example of why most people have a wrong understanding of how the stock market works. Most people believe that news and events drive stock market and individual stock prices up or down.   However, quite the opposite is true.

For example,  if we look at the situation in Egypt today based on the news reports we would assume that Egypt is on the brink of a civil war and as such their stock market values and their currency should be collapsing while their bond yields should be surging. Yet, quite the opposite is true.

Stock prices predict the future, not react to existing news or events.  Typically the values you see today predict a couple of months (sometimes years) into the future.  While news events do have a hand in changing values on short term basis, their overall impact is minuscule.

So, will there be a civil war in Egypt? The stock market sends us a clear answer at least for now….NO AND THINGS ARE ABOUT TO STABILIZE. 

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The Long Awaited Decline In The US Stock Market Is Most Likely Here

 

stock market chart

You very well know my position that I believe that the market has topped or in the topping process and will decline into 2016 bottom from this point, to the tune of 20-40%. What is interesting at this juncture is that we are looking for a technical confirmation that it is indeed true.

At least in the short term the market is a little bit oversold. I would wait for a technical pullback to the upside and then wait for the resumption of the bear market. I think we are a few weeks away from any such technical confirmation, but it pays to know exactly where we are.  

My timing work shows that there is a slight possibility (about 20%) that this bull run will end in March of 2014. However, even if such is the case, the market won’t go that much higher here.