Given that all the leading candidates for Global Hegemon are hastening down paths of self-destruction, perhaps there will be no global hegemon dominating the 21st century.
While the rest of the world is focused on what any given "developed" (or Chinese) central bank will do to continue the relentless liquidity-driven rally to new record highs, China has bigger problems as it continues to scramble in its attempts to figure out how to halt the slow motion housing crash that has now firmly gripped the nation. So firmly, that according to overnight data from the National Bureau of Statistics, monthly house prices dropped in some 68 of 70 tracked cities, the most in over three years, since January 2011 when the government changed the way it compiles the data.
"It’s not hard to reach the conclusion that so many investors feel good not because things are good but because investors have been seduced into feeling good - otherwise known as “the wealth effect.” We really are far along in re-creating the markets of 2007, which felt great but were deeply unstable when shocks started to pile up. Even Janet Yellen sees “pockets of increasing risk-taking” in the markets, yet she has made clear that she won’t raise rates to fight incipient bubbles. For all of our sakes, we really wish she would."
Eritrea - a tiny, mostly unheard-of country in East Africa - taxes its citizens who live abroad. Nearly every other country in the world bases its tax system on residency rather than citizenship. This practice has been condemned as “extortion” and a "repressive" measure by an 'authoritarian' government by the media. In Resolution 2023, the UN Security Council condemned Eritrea for "using extortion, threats of violence, fraud and other illicit means to collect taxes outside of Eritrea from its nationals." You may be thinking, "What's the controversy? Eritrea is getting criticized, and rightly so.” But there's another country that does the same...
When a former Goldman executive and the prior head of its housing research team comes out with a shocking analysis so contrary to what the same individual would do in his "former life" when he would be extolling the "inevitable" rise of home prices from here to eternity and beyond, and also throw in an open letter to none other than president Obama, predicting at least a 15% crash in home prices in the next three years, a move which would without debt catalyze the next US recession, it is time to pay attention. Meet Joshua Pollard, who in February 2009 took over coverage of US Housing at Goldman Sachs. His point, in short: "House prices are 12% overvalued today. They have already started to decline. Today’s misvaluation matches the excess of 2006-07, just before the Great Recession... 5 of the last 7 US recessions were led by a weakening housing market... I am lamentably confident that home prices will fall by 15% within three years." Or, as some may call it, crash.
The Fed consistently managed the Fed Funds rates to keep oil prices steady, even when it required mid-teens interest rates and back-to-back recessions in 1980-1982. Since US Fed Funds rates were managed to preserve US creditors’ and oil exporters’ purchasing power in oil terms, the system proved acceptable to most nations. While the Petrodollar arrangement worked well for nearly thirty years, the arrangement began to wobble beginning around 2002-04...
In our era of omnipotent central banks worshipped by the Status Quo, we have a goddess of financial transitions--Janus Yellen, the two-faced chair/deity of the Federal Reserve - to usher in the Great Transition from risk-on to risk-off.
Veteran investor Marc Faber, author of The Gloom, Boom and Doom Report, reiterated the need for gold in a diversified portfolio when interviewed on CNBC. "Now, I want to be diversified, I want to own some gold, I want to own some shares, I own the most in Asia, and some in Europe because I think in Europe there’s still better value than in the US, and I own some bonds and cash and real estate."
UPDATE: It appears the exodus is beginning - China FDI -14% YoY (vs +0.8% exp.)
As China's shift to a consumer economy progresses based on the urbanization of its agrarian 'poor' population, an odd thing is happening at the other end of the demographic wealth spectrum. As WSJ reports, nearly half of wealthy Chinese are planning to move to another country within the next five years, according to a new Barclays survey. The top reasons 47% of these individuals - with net worths over $1.5 billion - cite for fleeing China include educational and employment opportunities, economic security, and climate. Ironically, none mentioned 'running away from potential prosecution for graft'.
Japan's broad TOPIX index is lower this evening after the holiday weekend - following a six-day rise - led by Real Estate, Mining, and Banking sectors as traders suggest "the mood is to hold back ahead of the Fed meeting." China's dismal data and comments about no imminent rate cut have done nothing to tamp down enthusiasm for Shanghai Composite stocks as the Chinese government "unveiled guidelines to support the development of the stock market, pledging to make blue chips bigger and stronger and more actively traded," though HKSE is delayed for now due to Typhoon warnings. MSCI Asia-Pac is down at the open for the 9th day in a row - the longest losing streak since 2002.
Just like the US and the EU, Switzerland at the federal level is ruled by a group of elites who are more concerned with their own status, well-being, and international reputation than with the good of the country. The gold referendum, if it is successful, will be a slap in the face to those elites. The Swiss people appreciate the work their forefathers put into building up large gold reserves, a respected currency, and a strong, independent banking system. They do not want to see centuries of struggle squandered by a central bank. The results of the November referendum may be a bellwether, indicating just how strong popular movements can be in establishing central bank accountability and returning gold to a monetary role.
Glance in the rear-view mirror and say goodbye to the Era of Wishful Thinking. In this weird liminal time since the so-called Crash of 2008 leadership has depended on lies and subterfuges to prop up the illusion of resilience. The lies, frauds, and cons run between the axis of Wall Street and Washington had two fatal consequences with still-lagging effects: 1) They destroyed the capacity for markets to establish the real price of anything - rendering markets useless; 2) They disabled capital formation to the degree that we might not have the money to rebuild an economy to replace the “financialized” matrix of rackets that currently pretends to function. A lot of observers have been waiting for the moment when the fog of pretense lifts and exposes all the broken machinery within. We may be so close now that you can smell it.
Something appears to have changed not only because the USDJPY is not some 100 pips higher overnight on, well, nothing but because the S&P, which is treading water, has yet to spike on no volume reasons unknown. That something may be algos which are too confused to buy ahead of this week's Fed announcement which may or may not have some notable changes in language or the Scottish referendum on the 18th. Or it could simply be that algos are no longer allowed to openly manipulate and rig the market on the CME as of today now that "disruptive market practices" are banned (why weren't they before)? In any case, keep a close eye on the market today: not all is at it has been for a while, unless of course it is still just a little early and the rigging algos (which haven't gotten the Rule 575 memo of course) haven't woken up just yet.
When you see the headlines touting strong retail sales, you need to consider what you are actually seeing in the real world. RadioShack will be filing for bankruptcy within months. Wet Seal will follow. Sears is about two years from a bankruptcy filing. JC Penney’s turnaround is a sham. They continue to lose hundreds of millions every quarter and will be filing for bankruptcy within the next couple years. Target and Wal-Mart continue to post awful sales results and have stopped expanding. And as you drive around in your leased BMW, you see more Space Available signs than operating outlets in every strip center in America.
China may need to expand its goalseek template to include the other far more important measure of Chinese economic activity, such as Industrial production, retail sales, fixed investment, and even more importantly - such key output indicators as Cement, Steel and Electricity, because based on numbers released overnight, the Q2 Chinese recovery is now history (as the credit impulse of the most recent PBOC generosity has faded, something we have discussed in the past), and the economy has ground to the biggest crawl it has experienced since the Lehman crash. What's worse, and what we predicted would happen when we observed the collapse in Chinese commodity prices ten days ago, capex, i.e. fixed investment, grew at the slowest pace in the 21st century: the number of 16.5% was the lowest since 2001, and suggests that the commodity deflation problem is only going to get worse from here.