Big Bubble Brutally Bursts ... Bringing Bankruptcies, Bond Busts
How quickly emerging markets’ fortunes have turned. Not long ago, they were touted as the salvation of the world economy – the dynamic engines of growth that would take over as the economies of the United States and Europe sputtered. Economists at Citigroup, McKinsey, PricewaterhouseCoopers, and elsewhere were predicting an era of broad and sustained growth from Asia to Africa. But now the emerging-market blues are back. This is not the first time that developing countries have been hit hard by abrupt mood swings in global financial markets. The surprise is that we are surprised. Economists, in particular, should have learned a few fundamental lessons long ago...
Who says the only thing bankers are good at is relying on (then blaming) S&P and Moody's research reports to justify their investments in worthless toxic subprime, then levering up beyond all known limits and putting on unbelievably risky trades in hopes of striking it rich or blowing up and getting bailed out by taxpayers. According to Bloomberg "these young bankers are trying to save the world."
- Nelson Mandela: 1918-2013 (Reuters)
- South Africans Flock to Nelson Mandela’s Home to Mourn His Death (BBG)
- Hillary Clinton or Joe Biden? Obama says won't choose between them for 2016 (Reuters)
- Fukushima water tanks: leaky and built with illegal labor (Reuters)
- Sears Holdings Files to Spin Off Lands' End Business (WSJ)
- Way cleared for landmark global trade deal (FT)
- U.S. Oil Prices Fall Sharply as Glut Forms on Gulf Coast (WSJ)
- German Factory Orders Decline in Sign of Uneven Recovery (BBG)
- FCC Unlikely to Bless a Comcast-TWC Deal: Regulator (WSJ)
Gold prices pulled back this morning as traders booked gains and stagnant physical demand had the yellow metal out of favour. Recent confirmation by Janet Yellen that she will continue Bernanke's loose monetary policy lifted gold, but tapering appears priced into the metal already.
"We already live in a financial economy in which the debt and capital markets exceed the value of the real economy by far," Marc Faber explains to Germany's Finanzen100, "and that's before the current formation of bubbles." His most ominous warning, and one that fits perfectly with the seeming insanity of Federal Reserve (and all developed market central banks) is that "the next time a bubble bursts, then the capitalist economic system as we know will falter."
Yeah, I know... It's different this time!
- Despite budget win, Obama has weak hand with Congress (Reuters)
- Carney Brings In McKinsey for Bank of England Strategy Rethink (BBG)
- Bill Gates Buys Stake in Spanish Construction Company FCC (WSJ)
- Jerusalem Mayor Barkat Seeks New Term in Race Arabs Sitting Out (BBG)
- J.P. Morgan Aimed to Limit Damage (WSJ)
- EU Lawmakers Reject Draghi Call for Bank Bondholder Clemency (BBG)
- Wall Street Profits May Halve in Second Half (WSJ)
- Petrobras-led group wins Brazil oil auction with minimum bid (Reuters)
- Apple to Refresh IPads Amid Challenges for Tablet Share (BBG)
- Italy plans to offer guarantees on govt bond derivatives (Reuters)
- Berkshire Beats Apple as Favorite Stock of Tiger 21 Group (BBG)
Crashing luxury sales in China is a hard-to-swallow concept for the industry.
Barack Obama promised to fundamentally transform America, and when it comes to health care he has definitely kept his promise. As a result of Obamacare, health care spending is up, health insurance premiums are up, the number of hours Americans are working is down and employer-based health insurance is becoming an endangered species. Of course employer-based health insurance will not disappear completely any time soon, but it has been steadily shrinking for over a decade, and Obamacare will greatly accelerate that decline. So Americans are going to pay more, get worse care, have more paperwork and a more complicated system, and they are likely to die younger too? Wow, that sounds like a great deal.
"It's not worth shopping in China," said one disgruntled middle-class Chinese consumer, adding, "If you can wait, do it elsewhere." The reason is simple - massive price inflation. As the WSJ reports, clothing and other apparel is on average 70% more expensive for consumers in China than in the US. Government taxes and import tariffs are to blame for some of the price discrepancy, but, the WSJ goes on to note, for years the burgeoning Chinese middle class also seemed willing to pay more for products with consumer cachet, particularly imported goods - especially given the easy availability of credit. But today more Chinese consumers are pushing back, weary of sticker shock - and enlightened by the ability to compare prices elsewhere, thanks to the Internet - and China is starting to crack down on over-zealous pricing.
The only thing more ominous for the world than a Hindenburg Omen sighting is a Bilderberg Group meeting. The concentration of politicians and business leaders has meant the organisation, founded at the Bilderberg Hotel near Arnhem in 1954, has faced accusations of secrecy. Meetings take place behind closed doors, with a ban on journalists. We suspect the agenda (how the US and Europe can promote growth, the way 'big data' is changing 'almost everything', the challenges facing the continent of Africa, and the threat of cyber warfare) has been somewhat re-arranged as market volatility picks up and the status quo begins to quake once again. The annual gathering of the royalty, statesmen, and business leaders, conspiratorially believed to run the world (snubbing their Illuminati peers and Freemason fellows), will take place this week at the Grove Hotel in London, England. The Telegraph provides the full list of attendees below - for those autogrpah seekers - including Britain's George Osborne, US' Henry Kissinger, Peter Sutherland (the chairman of Goldman Sachs), the Fed's Kevin Warsh, Jeff Bezos?, Peter Thiel, Italy's Mario Monti, and Spain's de Guindos.
A 'second Economic Miracle' and other psychedelic feats, but inconvenient data gets in the way.
While the global 'central-bank-inspired' wealth effect has benefited the uber-rich more than anyone else, it seems China's burgeoning middle class is more than happy to 'settle' for mediocrity in their fascination with luxury goods. As Bloomberg notes, the demand for diamonds is so heavy (and less discriminatory) that the price of lower-quality gems has surged as the price of high-quality 'flawless' diamonds has been very subdued. Since the US equity market lows in March 2009, the best quality diamonds have appreciated by around 5-7% whereas the lower-quality 'imperfect' stones have gained over 35%. As one Antwerp dealer noted, "the cultural taboo of having to buy the finest diamonds is broken," as the 'snob effect' has disappeared. China (retail sales up 18%) surpassed Japan in 2011 to become the biggest diamond consuming nation behind the US but it would appear we need to add a 5th 'C' to the famous diamond ranking" clarity, cut, color, carat, and cheapness. Simply put, another dealer noted, "people have latched on to the fact that when you buy a lower quality diamond, there is not always a big difference in appearance."