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China: Bogus Boom by American Enterprise Institute For Public Research
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Google ads fun. A story about China and the banner at the top of the page is a mail order bride site. Pictures of the mail order brides are shown.
Google is good.
George Orwell
I'm not going beyond the first paragraph. Either the author doesn't know what he's talking about, or wrote something he got that has some 'Intent". Shanghai does not have two stock markets. China does, the Shanghai Exchange and the Shenzhen Exchange. This would be like saying, "New York's two stock markets, New York and Los Angeles". Also, both Exchanges saw their Indexes more than double, and Shenzhen does have a larger percentage gain.
Anyone can look for themselves, its easy to do. Hong Kong has about a 100% Gain from its Oct 27 Low, Intraday 10,676, Close 11,015---the High: 21,196 intraday, 21,074 close.
Shanghai Bottomed on our election day, Nov 4, '08, and had doubled, Shenzhen had a 2.4 fold increase, or call it a 140% gain---I wouldn't use the article for decision making. I'm tossing it
I had to check the aothor to see which end of the spectrum the AEI "Think Tank" is from, not surprised. There's been a lot of Jawboning about China recently. But I have to laugh when I hear such things as, "the PE @ 34 is far too high" re: China's Shanghai Index.
If we were to use the same Yardstick for the S&P 500, then they would have to put in print the S&P PE 143, and this is directly from the S&P website. I'll include a link I just googled. It does a pretty good job at explaining Earnings Historically. Excuse the length:
====================
http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_500/2,3,2,2,0,0,0,0,0,0,11,0,0,0,0,0.html
S&P 500 Statistics
P/E Ratio* 143.95As of July 31, 2009
*Based on As Reported Earnings.
========================================
based on the estimates for the current Q3, this would be the PE
2009 Q3TMT P/E Ratio (GAAP).......: 183.90
TMT P/E Ratio (Operating)..: 26.10
[[[ note: this author, Carl Swelin, uses TMT, instead of the more familiar TTM, but its the same thing; Twelve Months Trailing, instead of Trailing Twelve Months. Unless the Decimal Point gets moved Before the next QTR is reported, the PE on the S&P 500 will be in the 184 area, instead of the 18.4 PE After the Decimal Point gets moved ]]]
http://www.decisionpoint.com/TAC/SWENLIN.html
*************************** S&P 500 FUNDAMENTALS ****************************The real P/E for the S&P 500 is based on "as reported" or GAAP earnings
(calculated using Generally Accepted Accounting Principals), and it is the
standard for historical earnings comparisons. The normal range for the GAAP
P/E ratio is between 10 (undervalued) to 20 (overvalued).
Market cheerleaders invariably use "pro forma" or "operating earnings,"
which exclude some expenses and are deceptively optimistic. They are
useless and should be ignored.
The following are the most recently reported and projected twelve-month
trailing (TMT) earnings, quarterly earnings, and price/earnings ratios (P/Es)
according to Standard and Poors.
Different Kinds of P/E Ratios
The Real P/E for the S&P 500 is based on "as reported" or GAAP earnings (calculated using Generally Accepted Accounting Principals), and it is the standard for historical earnings comparisons. The normal range for the GAAP P/E ratio is between 10 (undervalued) to 20 (overvalued).
Standard & Poors has introduced a version called "core" earnings, which is more critical than GAAP (it expenses options) and will probably become the standard in the future.
Market cheerleaders invariably use "pro forma" or "operating earnings", which exclude some expenses and are deceptively optimistic. Operating earnings became popular in the 1990s as a result of the investment sales industry's desperation to justify impossibly high valuations. They are useless, ignore them. Well, you can try to ignore them, unfortunately the financial media primarily report operating earnings in about 90% of their coverage. Fortunately, the quote systems still report GAAP earnings -- at least I'm not aware of any exceptions to that.
You can also get the most recently reported and projected earnings and price/earnings ratios (P/Es) from the Standard & Poors spread sheet available for download from their web site.
Based upon projected GAAP earnings the following would be the approximateS&P 500 values at the cardinal points of the normal historical value range.
They are calculated simply by multiplying the GAAP EPS by 10, 15, and 20:
Est Est Est Est
2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1
Undervalued (SPX if P/E = 10): 69 77 55 364 386
Fair Value (SPX if P/E = 15): 103 116 82 547
579
Overvalued (SPX if P/E = 20): 137 155 109 729 772
Funny how China is stuck with billions and billions of unsecured fiatcos from the U.S.
Basically money lent to the U.S. to finance all the cars, boats, motorcycles, jet-skis, flat screen TV's, iPods, Blackberrys, boob job loans, and Botox injections we are currently enjoying.
Wonder why we don't simply default and leave them holding the bag?
We simply erase a huge chunk of debt, and China loses its trade surplus in one fell swoop.
Will be interesting to see what happens in a few years, as the current trend is simply unsustainable.
Default or debase... those are the choices. we can refuse to repay the debt to China or repay it with nearly worthless USD. There's no other way...
I think it will be interesting to see what happens by mid-November -- let alone a couple of years , heheh.
The problem is that if the US defaults who is going to buy their treasuries (tp)? If the US has no means of generating income (no manufacturing base) aside from selling treasuries, a default results in the collapse of the US economy in its entirety.
yup its a scam
The biggest Ponzi Scheme in the history of the world.
This is gonna be cool..
fuck yeah...can't wait!
Good thing wee held off on selling China the blueprints to the Stealth bombers. At least we'll be able to see them coming.
And the UFO blueprints.
I hear those are stored at Lockheed
Who do you think ended up with the F-117 that was downed over Serbia?
The Chinese and that is why we bombed their embassy "by mistake'. Remember that?
Let things turn ugly and some here will say that if China lost 100 billion to "unfair" trade from Australian ore peddlers then the US must have lost 3 or 4 trillion to Chinese copyright infringement, state sponsored industry and so forth and bill China for a trillion or two to even things up after liquidating all US debt. hahaha. After all, China led the way on this angle.
+10 Money shot comment right there! Bastards.
Think just one move ahead please!...when we walk into any store, there won't be anything of the cheap junk on the shelves we can afford..we'll need to wait until US prison labor instead of Chinese peasant labor can build something. Of course the Chinese economy is bogus; they'll send you to educaton camp with hard labor 'till you wished you just played your role. They can squeeze US 'till we can build it....Frankie Goes to Holywood, "Relax don't do it (when you want to come)"
This is the question: When a vendor-financing scheme goes bust, who is worse off? The vendor or the financer? The consumer? What?
I lived out in China for a while back in uni. I'm surprised they haven't put the whole sum of their foreign holdings on "black" in Macao.
Interesting. Especially when we see these reports coming out of such 'house organs' as AEI. This is like seeing an article in Foreign Affairs.
A trial balloon I think the phrase is.
China is too busy giving the US one great big colonoscopy with benefits. Look at the 2B investment in the PPIP for the "AAA" rated toxic waste. They get matching funds from Timmy and 6X guarantee from Sheila. Does anyone else see this as a problem-or am I missing something?
Income generating capabilities:
China = export
US = WRC
I suspect the US is the more unstable of the two.
China is a brutal dictatorship. Don't forget that. It is only peaceful because people are willing to sell their freedom in exchange for the windfall cash. That however, can change rapidly when the economy tanks. The country is a powder keg, and they know it. That is why they are still buying treasuries. If the US stops buying their goods the street protests will soon follow.
Furthermore, the US does have one stabilizing trait. 7 carrier groups circling the oceans. When push comes to shove, that is what reserve currency means.
And China has a new naval base in that bastion of democracy, Pakistan. Plus allies in Sudan, Burma, ...
But the US has 720 oversea bases around the globe
The US has stopped buying their goods. Next time you're in LA, go down to the port. All those empty containers are proof.
Which is precisely why the Chinese are scared. Their economy is completely based on the t-bill carry trade. Vendor financing at its ultimate extreme. The show can get very ugly for them, very quickly
Exports down 23% in July means our half of the parasitic-symbiotic relationship has already "defaulted." Yet . . .
if 80% of Wal-Mart's suppliers are Chinese, why not a similar drop in Wal-Mart revenues?
And it was me who came up with the line about "all that glitters is gold." Robert can't write his way out of paper bag unless he's really high and just finished yet another Tolkein read.
My understanding is all the containers on the west coast is the measure of the trade imbalance. Containers are shipped to us full, wait in harbour for goods to ship out. Am I wrong?
75% of the factories in the South are now closed and the workers have all gone back to their villages. Except they cant go back to growing food because they sold their farms before they left. To developers, mostly, who built condos no one in the village can afford.
China is so fucked.
Have we figured out how to run them on wind power yet?
How many FRN's will it take to buy a barrel of oil when they trigger our currency collapse, I wonder?
The Roman Legions only did Rome any good when they were being paid with something they could use.
Once the plug is pulled, all those carriers will become floating scrap so fast it will make your head spin. (Just look what happened to USSR's fleet)
Just something to consider. You may be right though.
You are of course correct. High tech equipment requires expensive maintenance and the US would only have a few years before things start to really malfunction.
I would like to point out something people seem to forget. Rome's decline was VERY gradual. They had 400 years of monetary / economic crisis before they collapsed (if you don't count Byzantium). A well established system, has a lot of running power just on inertia. Also remember that people have huge vested interests in keeping the system functioning. It is only when the system become extremely burdensome, that they let it fail. One last observation would also be that Rome was never really conquered, the Empire started to fall apart and allegiances shifted to local chieftains precisely because the central government was more of a burden than a benefit.
PS: It's not really "we". I'm not American, but I won't hold it against you. =)
Rome collapsed more or less completely in the 3rd century and split into three parts and all the big cities were decanted back into the countryside. When it finally reunited (and had a new currency) it was no longer classical pagan Rome but the Christian Empire of Constantine. The intervening 50 or so years were pretty cataclysmic.
US couldn't take VietNam when it had money....I fail to see how 7 carrier groups can push a meaningful reserve currency or anything useful..where would you land? how's your supply lines?..Rome anyone? Who clipped my denarius?
You mean the US couldn't take Vietnam and the USSR in Vietnam. Just as the USSR couldn't take Afghanistan and the US in Afghanistan. Those were both part of one larger war.
Thank you Charlie Wilson...;-)
The perpetual war for perpetual peace you must mean? Run US economy on foreign crude to insure huge chunk of GNP is spent in foreign domain to insure it can be stolen on the return trip or spent on circle-jerk supply chain insurance occupation control. Ignore hundred year supply of domestic natural gas because the above realpolik goes away.
Write on!
I agree to disagree. If anything the bubble in RE & capacity in general will cause deflation. Once all of those market speculation driven hyper manufactures will realize that they do indeed have excess capacity and too much debt, trouble will start. They'll start undercutting prices ahead of each other just to survive. As the result, it will be one vicious whoever panic first survives deflationary cycle. This cycle will probably turn into the trade war, and will change the economic and trade landscape for a while. Hopefully we all will realize that unsustainable short period growth is not worth it. (FAT CHANCE with such a realization .)
I agree -- while real estate may be in overcapacity, but is agriculture? Are the food distribution networks? Is medicine production in overcapacity? etc.
I think U.S. will enter violent economic disintegration spasms -- soon (likely by end of 2009, certainly by 2010). These will probably be characterized by high volatility, bank failures, bank runs, currency crisis, etc. How this will effect China , I'm not sure. But I like your line of thinking.
fools have been predicting economic and social disintegration for the last 50 years (or more). just like people have been predicting the world will run out of ip addresses and everyone must start using IPv6 asap. blah blah blah ... yawn.
I don't disagree, except that this time the fundamentals are hard to ignore. What's the basis for your comment, other than it makes you feel better?
That may be true -- that there are always predictions of doom , just as there are always blind and foolish optimists -- but what facts do you dispute? That U-6 is 16.8% and rising? That global geopolitical tensions are 'hot'? That governments are increasingly corrupt and totalitarian? That stocks are projecting forward P/Es highest in a generation?
These are not positive signs. It is not a matter of opinion -- there are certain facts which are not in dispute. One must conclude that the process of 'demoralization' of America has become so sufficiently advanced that you can show people the facts -- in black and white -- yet they will deny black is black, and white is white! They will insist these are 'relative' -- and open to interpretation! What nonsense!
Dissolution and war are what follows when a people are sufficiently demoralized, and a culture is sufficiently obliterated. People no longer can tell up from down -- and they no longer care for the truth. They will argue facts as if they are opinions. . . even as the cold wind of reality knocks at their door. The American public are so hopelessly lost they can no longer act in their own best interests -- and this is precisely the objective of the elites.
Am I alone in thinking that it's a bit eerie that 2012 is around the corner from this crisis, which continues to worsen? I'm normally cynical when it comes to folks that are deemed to be clairvoyant, but 2012 corresponds with predictions from Nostradamus, the Bible, Edgar Cayce, and the Mayans.
I agree it is pretty eerie... I have read one book on the subject of 2012... and you sense at times that the events are falling into place.
The Mayans couldn't even predict their own collapse.
Nostradamus' hilariously vague and aimless "predictions" say whatever you want them to say.
Where does the Bible suggest an end of times in 2012?
Who the fuck is Edgar Cayce?
The Mayans couldn't even foresee their own collapse. Not that they "predicted" anything for 2012 anyway.
Nostradamus' hilariously vague "predictions" mean whatever you want them to mean.
Where does the Bible suggest anything happening in 2012?
However, it should be interesting to what which country is better able to deftly navigate the obstacles and control the public anger... China with a one-party system or the United States with a two-party system. I have great concerns that China will be able to outmaneuver us on all fronts... because right now our government can't get itself out of the paper bag it is in... which has been created by our two-party system plus the new third party called the TBTF Corporation Party led by none other than Lloyd Blankfien.
Wow...Project that is probably the absolute best comment I have seen on this site or anywhere else....simply badass...by all means please keep it up and I want to let you know I am copying, pasting, and e-mailing this comment to everyone I know....one word...BADASS!
In that vein, I have tried to have discussions with my peers about the S&P 500 p/e ratio, and its historical height. The arguments I get back are astonishing: you chose "as reported" instead of "operating earnings" (despite the fact that S&P's own website states that "operating earnings" are subject to variations and are not as trustworthy as "as reported" ; that this is unfair, since the earnings reports include massive, one time losses reported in 2008 Q3 and Q4, and this "distorts" the picture going forward.) Generally speaking, not only denial, but outright hostility to any suggestion that something is amiss. Yields much cognitive dissonance. Same criticism I got last August talking about the Fed's H3 report showing the banks were broke. "So what?" was one memorable reaction. 2 months later our primary lender implodes.
I would be very eager to see the experts at ZH weigh in on this debate - are we historically high on the S&P p/e ratios or not? If super high, what sustains them?
Good post. Those that state "operating earnings" as the measure to watch are ill-informed. Operating earnings do not flow through to the equity holders (they are stripped of depreciation, amortization, interest, tax etc.), and are therefore not a comparable metric of "earnings per share", or "PE".
The "operating earnings" multiple of the S&P500 is somewhere around 25x I believe. This is obscene, as historial "PE" ratios (with all the above mentioned line items stripped out) have been around 14x - 15x. The delta is massive.
The market is so, so over priced it is hilarious. Why would ANYBODY except a trader own one single share of anything right now? No dividends, almost no earnings, no cashflow....put your money in the safe!
"
by Project Mayhem
on Wed, 08/19/2009 - 22:13
#41932
"
TOTALLY AGREE !
"Nailed it on the head" would be an understatement.
Please consider starting your own blog so the world
can easily read you instead of bits and pieces from
other blog's discussion threads.
No offence meant ZH, but this guy is on par if not
higher I've noticed by reading his comments for awhile.
p.s. Just to be clear, I am not predicting doom, just changes. China will probably pop and won't be able to grow 10% annually. (defying gravity might be extremely painful.) Us, we won't be able to consume 120% + of our income the way we did in the last 10 years plus the recovery might be prolonged by spinning out of control deflation. I am talking about +/- 2% annual growth for the next five years. Plus, eventually we will see the trade wars, similar but to a larger extend that with Japan in the mid 80's. This time, it's everyone against everyone on the trade issues. ; )
p.s. I wish to be wrong, I wish to wake up tomorrow and ZH telling us, it's all one insane & F. dream but.. let's get real. We can only fix and learn from our mistakes by facing the reality rather than escaping from it.
And the reality is, one of the largest green shoots might shortly look nothin gmore than a paper dragon.
color me sooooo not shocked here. LULZ!
Tyler, see the attached WSJ article discussing the challenges of investigating HFT. Bottom line, there is no one on their staff that can handle this kind of investigation. It appears that could use your help!
The SEC's examination of the trading tactics comes as the agency is under pressure to prove to Congress and investors that it is up to the job many say it failed to do in the lead-up to the financial crisis.
Fighting to preserve the SEC's pre-eminent place in the regulatory order, Chairman Mary Schapiro has ramped up enforcement efforts and quickly responded to complaints of market inequities. In response to criticism after the agency's oversight of investment banks that collapsed and its failure to detect the multibillion-dollar investment fraud pulled off by money manager Bernard Madoff, she created new positions geared toward recruiting on Wall Street to help the agency better understand what is going on in the markets on a real-time basis.
In recent statements, commission officials have admitted they lack the tools to do the same kind of data-intensive surveillance as the self regulators. In prepared remarks to Congress last month, Ms. Schapiro said the SEC was "seeking to develop systems to mine data from multiple sources."
"We are enhancing training for our staff and also recruiting additional professionals with expertise in securities trading, portfolio management, valuation, forensic accounting, information security, derivatives and synthetic products and risk management," she told Congress.
The SEC is expected as soon as next month to issue a rule-making proposal on flash orders, which give equities and options traders on some exchanges an early look at orders before they are routed to other markets. Critics say flash trading can hurt market transparency and can give a leg up to certain traders.
The staff also is considering rules to root out unfair advantages to traders in dark pools, automated trading venues in which orders are matched without displaying all quotes publicly.
In proposing the rule, the SEC is expected to solicit comments and meet with proponents and opponents of flash orders and dark pools. But the agency hasn't collected market data that would allow it to follow a trail of flash quotes and analyze their true impact on share prices and trade executions, according to people familiar with the agency's progress.
"Although the SEC receives many filings of different sorts, it does very little to collect significant data, analyze it, and then disseminate it to other government agencies and the marketplace," said Harvey Pitt, a former SEC chairman, in an email to The Wall Street Journal. He said he expected to make a similar push when he was appointed in 2001, but those plans were derailed by the Sept. 11, 2001, terrorist attacks and the Enron and WorldCom scandals.
"This can lead to ill-informed markets, and ill-informed markets can lead to panic when things get rough, as we've seen over the past year-and-a-half," Mr. Pitt said.
The agency toyed with its own surveillance in 1980 when it deployed the Market Oversight Surveillance System, a computer program that plugged the SEC into mounds of trading data being generated by newly electronic markets.
The exchanges, which had policed themselves, complained bitterly that MOSS usurped their authority, according to media accounts. The SEC ultimately extracted promises that the exchanges would beef up their ability to police trades across markets and discontinued its own surveillance system in fiscal year 1985, according to SEC documents.
Today the SEC still requires the exchanges to conduct their own market surveillance, and it closely monitors the adequacy of the programs through inspections. NYSE Euronext's regulatory arm conducts a review of its New York Stock Exchange, while Finra polices the trades on Nasdaq and the over-the-counter markets.
A large portion of the trades is generated by high-frequency traders, whose computers scan the markets for profit-making opportunities and make rapid-fire trades to lock in gains. Finra has its own constantly evolving computer code that sifts the data for suspect patterns. When anomalies are found, alerts are sent to analysts in Rockville, Md, says Tom Gira, who heads Finra's market regulation department.
"The alerts -- that's our bread and butter," Mr. Gira says. "It's all technology. So much of the market is technology now."
At any time, Mr. Gira says, Finra's analysts are conducting 3,000 investigations spurred by the alerts. Each year, 250 to 300 investigations result in formal charges of securities law violations, he says.
The SEC's enforcement division also is developing its own screening system. Earlier this month, the new chief of enforcement, Robert Khuzami, told New York City lawyers, "We expect to build some of our own technological tools and screening programs to ferret out suspicious trading activity."
Still, those changes don't do much to assuage critics who think the SEC leads first with enforcement and then with analysis. Industry representatives and former SEC officials say the conflict has at times chilled frank conversations between firms and the regulator, inhibiting the SEC's ability to obtain real-time information.
Write to Tom McGinty at tom.mcginty@wsj.com and Kara Scannell at kara.scannell@wsj.com
Printed
Tyler, see the attached WSJ article discussing the challenges of investigating HFT. Bottom line, there is no one on their staff that can handle this kind of investigation. It appears that could use your help!
The SEC's examination of the trading tactics comes as the agency is under pressure to prove to Congress and investors that it is up to the job many say it failed to do in the lead-up to the financial crisis.
Fighting to preserve the SEC's pre-eminent place in the regulatory order, Chairman Mary Schapiro has ramped up enforcement efforts and quickly responded to complaints of market inequities. In response to criticism after the agency's oversight of investment banks that collapsed and its failure to detect the multibillion-dollar investment fraud pulled off by money manager Bernard Madoff, she created new positions geared toward recruiting on Wall Street to help the agency better understand what is going on in the markets on a real-time basis.
In recent statements, commission officials have admitted they lack the tools to do the same kind of data-intensive surveillance as the self regulators. In prepared remarks to Congress last month, Ms. Schapiro said the SEC was "seeking to develop systems to mine data from multiple sources."
"We are enhancing training for our staff and also recruiting additional professionals with expertise in securities trading, portfolio management, valuation, forensic accounting, information security, derivatives and synthetic products and risk management," she told Congress.
The SEC is expected as soon as next month to issue a rule-making proposal on flash orders, which give equities and options traders on some exchanges an early look at orders before they are routed to other markets. Critics say flash trading can hurt market transparency and can give a leg up to certain traders.
The staff also is considering rules to root out unfair advantages to traders in dark pools, automated trading venues in which orders are matched without displaying all quotes publicly.
In proposing the rule, the SEC is expected to solicit comments and meet with proponents and opponents of flash orders and dark pools. But the agency hasn't collected market data that would allow it to follow a trail of flash quotes and analyze their true impact on share prices and trade executions, according to people familiar with the agency's progress.
"Although the SEC receives many filings of different sorts, it does very little to collect significant data, analyze it, and then disseminate it to other government agencies and the marketplace," said Harvey Pitt, a former SEC chairman, in an email to The Wall Street Journal. He said he expected to make a similar push when he was appointed in 2001, but those plans were derailed by the Sept. 11, 2001, terrorist attacks and the Enron and WorldCom scandals.
"This can lead to ill-informed markets, and ill-informed markets can lead to panic when things get rough, as we've seen over the past year-and-a-half," Mr. Pitt said.
The agency toyed with its own surveillance in 1980 when it deployed the Market Oversight Surveillance System, a computer program that plugged the SEC into mounds of trading data being generated by newly electronic markets.
The exchanges, which had policed themselves, complained bitterly that MOSS usurped their authority, according to media accounts. The SEC ultimately extracted promises that the exchanges would beef up their ability to police trades across markets and discontinued its own surveillance system in fiscal year 1985, according to SEC documents.
Today the SEC still requires the exchanges to conduct their own market surveillance, and it closely monitors the adequacy of the programs through inspections. NYSE Euronext's regulatory arm conducts a review of its New York Stock Exchange, while Finra polices the trades on Nasdaq and the over-the-counter markets.
A large portion of the trades is generated by high-frequency traders, whose computers scan the markets for profit-making opportunities and make rapid-fire trades to lock in gains. Finra has its own constantly evolving computer code that sifts the data for suspect patterns. When anomalies are found, alerts are sent to analysts in Rockville, Md, says Tom Gira, who heads Finra's market regulation department.
"The alerts -- that's our bread and butter," Mr. Gira says. "It's all technology. So much of the market is technology now."
At any time, Mr. Gira says, Finra's analysts are conducting 3,000 investigations spurred by the alerts. Each year, 250 to 300 investigations result in formal charges of securities law violations, he says.
The SEC's enforcement division also is developing its own screening system. Earlier this month, the new chief of enforcement, Robert Khuzami, told New York City lawyers, "We expect to build some of our own technological tools and screening programs to ferret out suspicious trading activity."
Still, those changes don't do much to assuage critics who think the SEC leads first with enforcement and then with analysis. Industry representatives and former SEC officials say the conflict has at times chilled frank conversations between firms and the regulator, inhibiting the SEC's ability to obtain real-time information.
Write to Tom McGinty at tom.mcginty@wsj.com and Kara Scannell at kara.scannell@wsj.com
Printed
but then what
d
good articles; my newest bookmarked finance site ..http://www..
hat tip: finance news & finance opinions
The French aristocracy was able to carry on the party despite bankruptcy for 3 generations. The Revolution occurred when the middle class wouldn't front the money for the secret police anymore. Same in Tzarist Russia. Probably same story with Kim Jong Il.
Point is that parting the curtain and exposing the sham doesn't have to mean instant collapse of an ongoing power. There are too many forces that support the status quo. Until that too fails.
All true, but then again the Eastern Bloc unravelled remarkably quickly. There are examples both ways. If I had to bet, I'd say that we're already at least a full generation into the unravelling. No bets. Just a hunch.
agreed.
Please enlighten me on the New Order?
I think the question now is what if it does not fail? If most people across the world believe in an illusion, that is defacto reality. Economics is not physics, it is a set of invented rules about exchange of goods on top of another set of made up rules (society). There is no true reality behind it, no steady state it must always return to. Perhaps we have evolved as a society, what many call postmodernist, to where we realize the objective is usually the subjective and therefore reality is always an illusion so why not stay in a nicer illusion?
is that something on the order of "the primary role of government is to pretend to fail?"
Nice! A Reinhardt reference!
Prior to ZH, EC was one of my favorite free reads every day.
Keep up the fantastic work TD and team. You're doing righteous things here.
china = black hole but understand the rest of the world will not let any crash occur, the whole system is fixed, govt's are fighting a great global depression with more fight than all wars ever fought... eventually it will end and when it does it will be really ugly or more bubbles will be formed but as with all bubbles they will pop
The notion that the US cannot afford to default on a portion of its debt is false. We are the world power. If we owe money we will take it out of the cost of saving one's butt from the bad guys.
We are going to default but, it will be called debasing. The concern is not the value of the dollar after the debasing but is what price to peg gold. What is the cost to tax receipts if the US pegs gold at $ 500.00 per once in October. Reportable capital losses could put a significant dent in budgeted revenues.
Oh yes, I forgot, there is a request by the treasury to increase the national debt limit. As the analysts say, it has been priced in.
The US is *a* world power but how long? Without foreignors buying US debt the US cannot pay its bills including feeding its soldiers. As well, the main purchaser of US debt (China) was one of the "bad guys" for most of the time the US existed. The US needs China more than China needs the US.
You are ignoring the fact that the US still has a ton of wealth within its own borders. China needs a stable US more than the US needs a stable China. Likewise, China needs a non-aggressive US more than the US needs a non-aggressive China. At least for the next 20 or so years. Note that the one thing the US still makes domestically, and in spades, are advanced military weapons. That skill is far more important than being able to produce cheap plastic goods.
The USSR made lots of advanced military weapons, but it didn't save them. A powerful economy is what supports a powerful military.
Assuming your thesis of China needing a stable US is true, what could they do about it? Not get out of the dollar?
US corporations rule the world. The elite rule the world through corporations, most of which are domiciled in the US.
The Fed is buying Treasuries, no longer China, through dummy entities offshore.
There are $600 trillion in derivatives, it is one side of the double entry accounting system and it defies belief. But then, I ask myself if it is $600 trillion could we just continue to add zeros into infinity and will it matter? If we can, our system is pure genius.
China only knows satisfying US consumer demands, being provided with the designs, and then producing cheaply - their economy is completely export to the US based. We are their largest customer, how upset can they be that we shipped all our manufacturing jobs over to them to develop their industry but we hit a downturn in consumer spending because we offshored many of our jobs - to their benefit. I suspect they are all standing around looking at each other right now waiting for a corporation to tell them what to do. In addition, I have a theory that instead of buying treasuries they are actively buying our equities through dark pools to try and stimulate US consumer confidence with US government approval.
We are in bad shape, but we shipped much of our toxic assets overseas in trojan horse AAA securities. They are much worse off than the US, we outsmarted them and it could lead to war.
"They are much worse off than the US, we outsmarted them and it could lead to war."
I fear it is probable; social unrest will be the instigator, and war will be the detraction.
I doubt this. Not only because the US is already over-extended in Afghanistan, Pakistan and Iraq, but it's a whole different world now. Other than the Vietnam war, most of the people alive in the US don't know the sacrifices that come with war. 60- 70% of the population is obese and physically unable to contribute to a world wide war, even if the government could re-enact conscription.
The only solution to the US debt situation is to devalue the debt, collapse the dollar and go bankrupt. From the ashes of that it has to recover it's manufacturing base and return to generating income. It will be the loss of the WRC label but honestly having the WRC has only allowed the US to get fat - it hasn't done this country any real good.
Why is China bad guy. The US and 7 other western countries jointly invaded China and the Bri even forced Chinese to consume and be addicted to opium at one point.
For the record I put no value judgment on China, and just outlined what I felt were major geo-political considerations.
China no bad guy, other than lack of political and religious freedom which is a humanity issue, china no good guy either.
I generally agree with this article, but it's lazy journalism of the worst kind to say "(Russia's) stock market has struggled as well", just to prove a point. It has not - it's up 50% this year.
I generally agree with this article, but it's lazy journalism of the worst kind to say "(Russia's) stock market has struggled as well", just to prove a point. It has not - it's up 50% this year.
We have universal ubiquitous bogus booms. With $600 trillion in derivatives, if you laid dollars end to end you could go back and forth from the earth to the sun 3 times. The sun is 93 million miles away, about the same distance between economic reality and financial markets.
So what I am about to tell you might come as a shock, but it is all just an illusion. With double entry accounting they have been able to set up crap corps to take the crap side of the double sided entry (AIG, Fannie, Freddie, etc), and create imaginary wealth with the other side. It only exists in your mind, if you are willing to accept paper money. It doesn't matter if you rake leaves today and unrake them the next as long as there is activity - Keynes. I would like to think our lives and economic activities have meaning.
I heard the followiing info the other day. If you had a trillion dollars you could spent a million dollars every day starting at year "0" and you would still have 277 million dollars money left to spend.
I generally agree with this article, but it's lazy journalism of the worst kind to say that Russia's stock market has struggled as well this year. It has not - it's up ~50% YTD, certainly better than the Hang Seng.
If your currency is the world reserve currency. Is it not hard to default? All those dollars floating around in the world would come rushing back to America. It would cause chaos would it not and this would cause other countries to quit using the U.S. treasuries as their currency reserve.
This would then be a double whammy on the U.S. as everyone in the world would be trying to buy something of real value (commodities) with their dollars.
You can see why China want to start an alternate world currency reserve before the dollar crashes.
Have you guys seen the charts on some gold miners such as ngd? It seems as though gold may move here.
http://goldstocktrades.wordpress.com/2009/08/19/getting-close-to-a-major...
Factual inaccuracy: Foreign capital investments in China have decline 8 straight months.
Dollarization is the issue.
The Russians and the Chinese, et al, are hugely dollarized economies.
THAT'S the heartache.
It's moving away from dollarization that confounds all.
Those caught in a "dollar trap" will one day wake up and decide to write off their dollar holdings. Until they get the stones to do so, they are indentured servants to Ben & Co.
Agreed, the real question is who's going to be the first one to the plate to sell? I get the distinct impression that they're all dancing around the fire right now waiting for someone else to start. Every serious dip in the dxy has to be bringing that decision closer.
my .02
The first one out is the winner.
To use the word bogus and boom in the same sentence with Chinese economy is an oxymoron. Remember this is still a communist country at heart. The SOE's are all by and large bogus. The country is a nightmare to manage politcally, let alone economically and its geography is a second obstlacle to any cohesion.
So...your guess is as good as AEI's. Not downing them, it is just a mugs game.
Boy, the SSE chart really looks orderly compared to the S&P. Didn't our leaders promise us orderly markets?
I feel really good about everything that is happening in the world, and I know tomorrow will be even better.
Don't let them piss on your parade. They're only trying to make you unhappy with their bleeding heart tales of woe and misery. Fuck them. Fuck them all.
I feel really good about everything that is happening in the world, and I know tomorrow will be even better.
Don't let them piss on your parade. They're only trying to make you unhappy with their bleeding heart tales of woe and misery. Fuck them. Fuck them all.
I feel really good about everything that is happening in the world, and I know tomorrow will be even better.
Don't let them piss on your parade. They're only trying to make you unhappy with their bleeding heart tales of woe and misery. Fuck them. Fuck them all.
I feel really good about everything that is happening in the world, and I know tomorrow will be even better.
Don't let them piss on your parade. They're only trying to make you unhappy with their bleeding heart tales of woe and misery. Fuck them. Fuck them all.
I feel really good about everything that is happening in the world, and I know tomorrow will be even better.
Don't let them piss on your parade. They're only trying to make you unhappy with their bleeding heart tales of woe and misery. Fuck them. Fuck them all.
Tyler, if you're going to read anything about China, stick with Andy Xie.
http://english.caijing.com.cn/2009-08-20/110227359.html
That was a really good article on blowing bubbles... thanks for the link.
"A pure bubble tied to excess liquidity that affects one or many financial assets cannot last long. Its multiplier effect on the broad economy is limited."
The stimulus and liquidity that has been put in the system to inflate yet one more bubble is clearly not working... even CNBC was talking this morning about the White House working on a second stimulus package... I can hardly wait for more unnecessary road repairs to commence in Spring 2010.
The Chinese economy is based on a few simple concepts, all geared toward the CP maintaining its self-appointed, answerable-to-no-one hold on power and privilege.
Concept One: Produce domestically created junk like screwdrivers whose blades are made from solder, or giant spongy hands with your team's logo that say "We're Number One", or funny hats with mini-solar chips attached to a fan (which flood the border into countries such as Burma, Thailand (via), Vietnam, Bangladesh (via), Siberia, etc.). Couple this flotsam with "export quality" jetsam like plastic bags, toys (lead painted and otherwise), pet food (poison and otherwise), socks (one Chinese city alone produces 9 billion pairs of socks per year, enough for 1 1/2 pairs per human, or about five pairs per sock-wearing human) and other t-shirt and carnival prize-type goodies, hopefully which use tons of melamanine.
Concept Two: Steal. Ignore international copyright and patent law, knowing no one really dares to upset you by calling you on it. (In a neighboring country I can buy a DVD with 12 movies on it---including Public Enemies, Transformers, etc.---for 80 cents). A few years back (do a FOIA request if you doubt this) Chinese Government operatives stole the source code for Windows from the hotel room of a visiting Microsoft executive; MSFT chose not to protest. Even some locally produced high tech or value added goods in China are only possible because of Chinese industrial espionage, including items in the fields of electronics, software, pharmaceuticals, and materials manufacturing. (Anybody ever look at the Chinese mock-up of its soon-to-be-built Space Shuttle?). Sadly, even after stealing a lot of technology, many manufactured goods are ineffecive or dangerous counterfeits, such as drugs, aircraft engine parts, etc. Beware.
Concept Three: Entice FDI by talking up pie-in-the-sky dreams of 1.35 billion potential consumers, thereby bringing foreign technology and expertise into the country so it is far easier to steal (Concept Two). As needed, assist foreign executives and decision makers in getting their tubes cleaned by China's finest maidens, while making sure these dalliances are documented in IMAX quality with Dolby Surroundsound, since they might be needed in future "negotiations".
Concept Four: When things turn bad, drag out the old straw man as a focus for the masses' frustration. Japan is an old stand-by, but the white devil US can also serve this purpose, as can India. Like the Pillars on the plain of Arafat at which Moslem pilgrims toss stones during the Hajj, having a foreign devil against whom anger can be directed saves wear and tear on the CP and its officials. Concurrent with this, remind the masses that they are living in the Middle Kingdom no less, and dredge out that old saw about the "5000 year Glorious History", or the urban myth about the Great Rock Pile being "the only man-made object visible from space (sic)". One wonders how the Chinese would know this. For the time being, all of this works to keep up pride in the Motherland.
Concept Five: When all else fails, gamble. As another poster said somewhere, put the whole wad on "black" at the wheel in Macau. In China's case, this comes in the form of the $580 billion Angelo Mozilo Autograph Model Stimulus, where there is no such thing as a bad loan or an unworthy borrower.
Nice comments. You could add the recent hosting of the Olympics to this and the number of gold and silver medals the chinese won. All of those fireworks may have represented the climax of their economic boom, the analogy is that now maybe it is time to spoon with the US. Whisper sweet nothings in our ear, pump our stock market, take us out to dinner, show some interest by buying our treasury paper art, make us feel confident and strong again and let us save up enough for a second date.
China just dumped $4 trillion into its economy, most of which went to feed the insane housing bubble.
My neighborhood in Beijing's 5th ring has about 10% occupancy but the prices aren't coming down and they're still building more! Because the officials gets kickbacks for every apartment building that goes up.
At this point the Chinese are even dumber than we are.
Your carriers are funded by the assets and countries you are trashing. Hypocrisy at the highest level.
Even Stratfor is now questioning the validity of the Chinese economy, the boom and how long it will last and the prognosis is not good. Stratfor carries far more weight in my area than any economist or journalist could ever hope to have.
China, to use the words of Tony Montana, is one big p*ssy ready to be f*cked. They are keeping their economy "afloat" via cheap money and the creation of asset bubbles. We all know how that story ends.
In China if you decide to build it, it will count and to create demand, hell, you just give the tickets away.
It doesn't take an idiot to raze a Potemkin village.
if china is bogus australia is toastus
God I love this site.
I'm not sure which is better, the article or the amazing comments. Keep up the good work.
How much real value is their under the soil in Iraq?
Maybe the US can sort out it's little fiasco with that.
There was a post-war analysis of Iraq oil reserves in their western desert that put them in number 2 in world reserves. It has not been confirmed by drilling.
About 2 or 3 years ago, there was a government official in a remote canton (I want to say it was to the far southwest, but I'm not certain) who commented being told from above what his economic results were going to be for the coming year (quarter?). I think it was in the Economist, but again, my memory is too shaky to recall precisely.
They have certain objectives and targets to reach. Call it a three month plan for example. The officials are unsure what would happen if they can't reach the desired results, so they often falsify their reports. This is unnecessary, because sticking to facts might actually save them later.
Yeah, Marc Faber was saying the other day that China is the only government that knows what it's GDP will be 2 years in advance: 8%, 8%, 8%
He said it is really like 2% this year.
If exports are 30% of the Chinese economy and are down 20%, that's a -6% impact on GDP. So to get to +8% GDP, the other 70% of the economy has to have a +14% impact on GDP, i.e. the Chinese economy excluding exports must have a 20% growth rate to get to 8% GDP for the entire economy. How plausible is that?
Madoff-like returns in China...pass it on. Maybe if you do the right thing they'll let you in....the great gypsy trick..partners in crime, until Thanksgiving when the Black Swan comes to pay your bill for the free food.
About 2 or 3 years ago, there was a government official in a remote canton (I want to say it was to the far southwest, but I'm not certain) who commented being told from above what his economic results were going to be for the coming year (quarter?).
Sounds like GE and other U.S. companies that for years produced smooth earnings growth every quarter out of a bunch of cyclical businesses.
Is that an add for Chna girls for sale at the top of the page? LOL - there are millions of them. Supply is not an issue. Get 'em before inflation hits.
Before you laugh at the ad too much, you should be aware that the next great bull market---one cannot even call it a bubble---is in Chinese females.
Because of the "One Child Policy" and the Chinese penchant for male heirs (along with readily available ultrasound and abortion) China has LOTS more males births than female births. By 2020, China will have 30,000,000 more males of marrying age than females. That's a lot of lonely, hormone-filled boys, which presents its own set of problems. At that time, the Princess will be back, and she'll be able to call her own price.
When China pops, then all that speculative money will be repatriated in the US or lost to money heaven. That's the key these markets-keep pushing the speculative money into a bubble to reflate money supply/credit. These things usually end badly-especially for the wage-slaves. China already threatening to hold a floor on stocks and prices if it implodes. Sound familiar? You think they would have learned.
China is just the manufacturing arm for the US. If we tank-they tank.
They already did..the tank is under the rug right now.
Agree with 42013, especially 3rd paragraph. I'd like to add that a lot of the soldiers for the Iraq war were young people that couldn't find a job so the military looked pretty good, a weekend a month and 2 weeks a year and get free college. Surprise. NO jobs here especially w/benefits, join the army,navy etc.I believe their is an alternate reality,that is better informed as to what's gonna happen than the one I'm living in. Great writing PM, thanks Frank