Despots, dictators, and power hungry presidents arise in an atmosphere of fear, scarce resources, hopelessness, and misery. As the power of the central government grows the freedoms, liberties and rights of the people are diminished and ultimately relinquished.
“Whenever the economic life of a nation becomes precarious, the central government is forced to assume additional responsibilities for the general welfare. It must work out elaborate plans for dealing with a critical situation; it must impose ever greater restrictions upon the activities of its subjects; and if, as is very likely, worsening economic conditions result in political unrest, or open rebellion, the central government must intervene to preserve public order and its own authority. More and more power is thus concentrated in the hands of the executives and their bureaucratic managers.” – Aldous Huxley – Brave New World Revisited – 1958
To China housing is like the stock market to the US: both mission-critical bubbles designed to give a sense of comfort and boost the "wealth effect"
Overnight markets have been a continuation of the relative peace observed yesterday before the onslaught of key data later in the week, with the biggest mover standing out as the USDJPY, which briefly touched 102 before sliding lower then recouping losses. This sent the Nikkei 225 up 0.57% despite absolutely atrocious Japanese household spending data, coupled with a major deterioration in employment: at this rate if Abenomics doesn't fix the economy it just may destroy it. Aside from that the last 24 hours could be summed as having a lot of noise but not a lot of excitement. This was best illustrated by the S&P500’s (+0.03%) performance which was the second smallest gain YTD. And while the SHCOMP is starting to fade its recent euphoria and China was up only 0.24%, Europe continues to cower in the shade of Russian sanctions as both German Bund yields rose to record highs, and Portugal's BES tumbled by 10% once again to 1 week lows. Today Europe is expected to formally reveal its latest Russian sanctions, which should in turn push Europe's already teetering economy back over the edge.
While the epidemic of law enforcement theft is problematic throughout the country (see these egregious examples from Tennessee and Michigan), it appears Texas has a particularly keen love affair with the practice. Not only did last year’s story take place in Texas, today’s highlighted episode also takes place in the Lone Star State. This time in a town of 150 people called Estelline, which earns more than 89% of its gross revenues from traffic fines and forfeitures. In other words, from theft.
“Property companies are facing huge debt burdens,” said Sun Binbin, a bond analyst at China Merchants Securities Co. in Shanghai. “If the regulator hadn’t eased, there probably would have been more defaults.” Or, translated: if the companies weren't allowed to "fix" their huge debt burdens with even more debt, it would have been a complete catastrophe.
What a difference a weekend makes... After offering $2 billion for Trulia last week (and seeing its share soar), Zillow has decided that $3.5 billion worth of its bubblicious paper money-stock is the right price for its real estate marketing and income-less competitor Zillow. Of course, on the back of near-record short interest the stock has exploded higher once again this morning and is now up over 60% from before last week's offer. We suspect the word 'synergy' will be used heavily (and not the word 'layoff') but in the interests of helping our fellow man, we present the combined firm's income statement...
Does it feel like you're poorer? There is a simple reason why - you are! According to a new study by the Russell Sage Foundation, the inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36% decline... Welcome to America's Lost Decade.
If one wants to identify bubbles, one must perforce study monetary conditions. The comparison of historical data on valuations and other ancillary factors can only take one so far. The problem is that in times of strongly inflationary policy, the economy's price structure becomes thoroughly distorted, and that therefore a great many “data” can no longer be regarded as reliable... Most of the time, it's the eventual slowdown of money supply growth that brings a bubble to its knees.
Two quick quick anecdotes about the new (ab)normal.
Grab your popcorn as The Socialist Singularity comes to be... We are sure Steve Liesman will ask his 'economics reporter' questions while cow-towing to his glorious leader's position on job-destroying 'minimum wage' increases, unpatriotic (though legal) inversions, Fed-driven inequality, and the massive and unprecedented divergence between "bubble" markets and the minions that make it up... always remember "debt-is-good" but "hope-is-better."
Somehow this makes perfect sense: Zillow's stock is up over 22% on news that it will acquire rival real estate company Trulia for $2 billion. Trulia is up 32%, which is about half in absolute terms of the $1 billion Zillow's market cap has grown by in the past few moments to $6 billion. Imagine if it had paid even more for Trulia? And the piece de resistance: Neither company is currently profitable on an annual basis - the combined net income of the two companies is... zero. Two wrongs do not make a right, or rather didn't. And then the new normal came around...
We warned 4 months ago that the UK especially should be fearful of sanctioning Russia and biting the hand that feeds its real estate recovery. However, it appears Cameron's ire has got the better of him, as The Telegraph reports, allies of Vladimir Putin are understood to be moving assets after British demands to punish the Russian president’s 'cronies' in the wake of the Malaysia Airlines disaster in Ukraine. The EU said Tuesday (albeit somewhat confusingly) that it had agreed to draw up a list of Russians who will face sanctions but the UK government refused to say which 'oligarchs' were being targeted as it was fearful of the risk of 'asset flight'. It appears that backfired...
IMF Cuts US GDP From 2.0% To 1.7% As US Retail Sales Forecast Slashed From 4.1% To 3.6%: Winter BlamedSubmitted by Tyler Durden on 07/23/2014 12:05 -0400
This is what happens when a priced to perfection global economy (and well beyond perfection based on the S&P 500) runs into the utterly and completely unpredictable and unforseeable "harsh winter weather."
Those keeping track and hoping the second default would finally hit have to hold their breath again after yet another last minute bailout has now made a complete mockery of China's "deliberate" intentions to clear up the rot plaguing its bond market. As Reuters reports, Huatong avoided a "landmark bond default at the last minute on Wednesday, raising enough funds to pay off both principal and interest on a 400 million yuan ($64.51 million) bond." Who bailed it out? Why the same government which continues to say one thing and do something totally different.
- Here come the gates which we predicted in 2010: SEC Is Set to Approve Money-Fund Rules (WSJ)
- Dick's cuts 400 jobs as golf now less popular (MW)
- Kerry arrives in Israel, pushes for peace (Reuters)
- Pay Penalty Haunts Recession Grads as U.S. Economy Mends (BBG)
- Appeals Courts Issue Conflicting Rulings on Health-Law Subsidies (WSJ)
- Rebel Stronghold Donetsk Holds Breath as Shellfire Mounts (BBG)
- Business executive wins Georgia Republican runoff in U.S. Senate race (Reuters)
- Five held in China food scandal probe, including head of Shanghai Husi Food (Reuters)
- Jobs Hold Sway Over Yellen-Carney as Central Banks Splinter (BBG)