Archive - Aug 2015

"Much like buying other pricey items such as cars, houses or jewelry, you’re now able to finance goods (borrow money) from a credit company as long as you agree to pay it all back, with interest. Partnering with AFFIRM, Flight Club kicks such as the ”Fragment” Air Jordan 1 is at $123.01 USD a month, while the Nike Air MAG is at $702.90 USD a month."

Too big to control, too volatile to be predictable, and too full of contradictions to achieve stability, China is a society that is on the edge of coming completely unglued. And so, appealing to the typical American conceit that nothing that ever happens to us is our own fault, scapegoating is a reflection of widespread economic ignorance. For the reality is that the policies of our own rulers limn those of the Chinese: pump-priming the currency, flooding the US economy with money, and creating massive bubbles is something they learned from us. And those policies are having the same effect here as they are having in China.

Why does one need a handheld flamethrower, you ask? Here are some "ideas" from the Ion Productions' official XM42 website: 1) start your bonfire from across the yard, 2) kill the weeds between your cracks in style, 3) clearing snow/ice, 4) controlled burns/ground-clearing of foliage, 5) insect control.

In the current deluge of wannabe leaders clamoring for attention and trying to convince us that they are the boss who should be applying rules to us, it strikes me that all of them are looking backward and none are looking forward. So, since none of this crowd is going to venture anywhere outside of their hermetically sealed status quo, we’d like to offer an example of something a real leader might say...

The question we appear to be getting answered this week is, as Grant's Interest Rate Observer's Jim Grant so poetically explains, "how much of this paper moon market is real, and how much is governmental whipped cream?" In this brief but, as usual, perfectly to the point interview with Reason.com's Matt Welch, Grant asks (and answers), "are prices meant to be imposed from on high, or discovered by individuals acting spontaneously in markets?" noting that, while many readers here may know the answer, "they’re regrettably in the minority." The always entertaining Grant then goes on to discuss the underlying causes of the recent market turbulence, why we don’t really "have interest rates anymore."

The idea of a change towards a domestic consumption-driven economy is being revealed as a woeful disaster. You can’t magically turn into a consumer-based economy by blowing bubbles first in property and then in stocks, and hope people’s profits in both will make them spend. Because the whole endeavor was based from the get-go on huge increases in debt, the just as predictable outcome is, and will be even much more, that people count their losses and spend much less in the local economy. While those with remaining spending power purchase property in the US, Britain, Australia. And go live there too, where they feel safe(r). I fear for the Chinese citizen. Not so much for Xi and Li. They will get what they deserve.

News That Matters

In the past week, ever since the Fed's FOMC minutes which sent the S&P tumbling from 2100 to their lows in the overnight session, some 13% lower, the US economy underwent the functional equivalent of a 15 bps rate hike, or more than half the rate hike that the Fed has been so terrified to engage in for years.

One might argue that the success of 15-year-old Brady Olsen - aka Deez Nuts - from Wallingford, Iowa, embodies more than simply a successful lampooning of the American political system. There are legitimate reasons to view this development as the opening salvo in an upheaval of the way Americans elect presidents. Does this sound hyperbolic? Let me take it a step further: Deez Nuts is actually critically important for the future of the country... and here’s why...

"Can you believe how fiscally irresponsible 'those' other guys are?"

With China's equity bubble now squarely in the rearview and the stock market crash making headlines the world over, Beijing is out for blood in a desperate attempt to find a scapegoat for a market rout that has rattled the country to the core. In what is perhaps a worrying sign of things to come, overnight China arrested a journalist and a top investment banker for "spreading fake trading information" and "illegal trading", respectively.

From both and fundamental and technical viewpoint, there is mounting evidence that the current decline might just be sending a signal that there is more going on here than just an "overdue correction in a bull market." While it is too soon to know for sure, there seems to be little risk in being more conservative within portfolio allocations currently until the market environment clears. However, the proverbial "elephant" is margin debt.

As the ashes of the China's scorched equity markets lay smoldering at the feet of the plunge protection national team which finally gave up on rescuing the market after CNY900 billion proved inadequate to arrest the slide, and on the heels of the PBoC’s latest effort to staunch the bleeding by resorting to yet more policy rate cuts, we bring you the full, annotated SHCOMP market and policy timeline courtesy of Bloomberg.

Gross: China selling long Treasuries ????

— Janus Capital (@JanusCapital) August 26, 2015

Damn It Janet!