Testy Tuesday – Tax Day Edition [16]
By Phil Davis of Phil's Stock World [17]
Time to pay your taxes.
But, fortunately, it's still not time to pay the piper for all that money we're borrowing to goose the economy. Well, goose may be too strong a term as 5 years and $5 Trillion Dollars into this mess, we're really only flatlined the GDP to where it was back in 2007.
Did you get your $5,000,000,000,000 worth? We know the top 0.01% sure did. We've made the World's Billionaires alone $1.4Tn richer than they were in 2009 – and it only cost 140M working Americans $37,714 each! That's how much $5Tn in additional debt has cost us – on top of the $2.5Tn we piled on fighting Iraq or Afghanistan for whatever reason it was we had to invade those guys.
Don't worry, it's all fair, each one of those Billionaires also owes the same $37,714 as you do – they feel your pain! Multiply that by 3.5 and that's your share of the National Debt [18], which is still growing by $500Bn a year, although that's 1/2 of how fast it was growing under Bush II. And, of course, we're not even counting the Fed's $4Tn of additional debt – because we still get to pretend that will all work itself out in the end.
Just like CHINA!! China's Central Bank has been trying to drain a little liquidity out of the system and it looks like that's already dropped GDP growth for the quarter down to 1.5% [19], nowhere near the 7.5% annual levels the Government was hoping for. That led Chinese stocks to fall about 1.5% this morning, led down by Financial and Commodity stocks.That's the reaction to M2 (money supply) GROWING by 12.1% instead of the 13.3% it was growing a month earlier [20] and despite $169Bn in loan growth.
[Chart by Dave Fry]
“Investors are a bit worried because M2 is quite low,” Zhang Haidong, an analyst at Tebon Securities Co., said by phone in Shanghai. “New loans may be better than expected by a little, but it’s still not considered good data; we still think liquidity is very tight.”
At the same time as liquidity is drying up and the economy is slowing, a massive housing glut is pushing Chinese real estate pricing to the brink of collapse [21]. If real estate prices collapse, the Chinese banks that have Trillions in loans out on all these empty buildings are in DEEP TROUBLE. Already, construction companies are being paid with unsold apartments [22] – signs of a top if ever there was one! Check out this picture – all the buildings on the right are unfinished in Yingkou:
Data in some of these smaller cities is scarce. But in 100 cities tracked by Nomura Holdings, 42% of those classified as Tier 3 and Tier 4 saw housing prices decline in March from February. Home construction in such cities is racing well ahead of population growth, says Beijing research firm Gavekal Dragonomics, as developers continue to build new projects without buyers.
The overall value of Chinese housing sold in the first two months of 2014 declined 5% from a year earlier, government statistics show. Private-sector data indicate the decline continued in March. The construction, sale and outfitting of apartments accounted for 23% of China's gross domestic product in 2013, that is up steeply from 10% in 2006 and is higher than American housing's share of GDP reached during the height of the U.S. housing boom in 2006, Moody's says [23].
The finances of some cities and developers are being affected. China's local governments depend on land sales to developers for about 40% of their revenue. Now those sales are bringing in less cash. After the city of Fenghua in eastern China cut the price of land, developer Zhejiang Xingrun Real Estate Co.—which had incurred higher land costs—found it tough to sell apartments and make payments on its debt, which the city website put at nearly $600 million. Municipal officials say they are trying to stave off a bankruptcy by the developer that could tarnish the city's reputation.
Further weakness could mean trouble for construction companies and appliance and commodity producers. Furniture and appliance sales in China have been slowing along with the weaker pace of apartment sales. Also potentially affected are businesses that use real estate as collateral to get new loans; China's banks rely on property holdings as the main collateral securing loans.
We remain "Cashy and Cautious" as it's hard to imagine a China melt-down being ignored by the rest of the World. With all the economic meddling by the Central Banksters, anything is possible but there's plenty of ways to make good money with our sidelined cash. Yesterday, for example, I noted we were shorting Oil Futures (/CL) at $104 in our morning post.
As you can see from the chart, we got a dip to $103.50 (up $500 per contract) mid-day, followed by another entry opportunity in the afternoon and then an easy ride back down to $103 – for another $1,000 per contract gain. We also have USO and SCO option plays, of course, from our Member Chat Room - as longer-term bets that oil won't hold $100.
What we care about today is whether the indexes hold our bounce lines (see yesterday's post for full explanation [24]) and we predicted the weak bounce lines for the day would be Dow 16,120, S&P 1,832, Nasdaq 4,075, NYSE 10,350 and Russell 1,125 and, what we actually got was: Dow 16,173, S&P 1,831, Nasdaq 4,023, NYSE 10,359 and Russell 1,115. On the whole, not a fantastic showing.
We'll be watching the S&P and NYSE very closely, as they are both right on their lines while the Russell and the Nasdaq, our usual leaders, still have a lot of work to do.
Keep in mind that we talk about China, Japan, the EU, the Ukraine, Income Disparity, Money Supply, Deficits, etc. to keep the MACRO picture in focus – it's not stuff that's immediately actionable – just the undercurrent the short-term market has to swim against. We strive to be patient investors and use those long-term developments to help us plant our trees for future growth – it also helps to keep us from being surprised when "suddenly" something blows up in the short-term.