The reason for the Recession — simplified.
A naked and drunken woman boards a cab in London one night.
The Gujju driver keeps staring and does not start the cab.
Woman : Haven’t you ever seen a naked woman before ???
Gujju Driver : I am not staring at you lady ….. just wondering where you kept money to pay !!
The Moral : That is what most of the American and European banks failed to do. (i.e.) Assessing repayment capacity before taking exposure !!!
Long live Gujju enterprise…
Nothing notably new here from the man who has called for a Chinese crash in as little as 12 months. Now that the Chinese PMI came at the lowest level in 17 months (in line with the drop in the US ISM but completely the opposite of Europe’s PMI as everyone makes up their own data on the fly now with no rhyme or reason), Faber seems to have mellowed out a little on the Chinese end-play. He now sees the China government stepping in and prevent a collapse of the economy when needed, as the economy has dropped from a near 12% GDP growth to a collapse in the PMI in the span of a few months, even as Chinese banks lent another quarter trillion renminbi billion in July, and issued who knows how many hundreds of billions in CDOs to keep the ponzi afloat.
From Bloomberg TV:
On the cooling of China’s economy:
“I mean I’ve been arguing this year that the economy would inevitably slow down, because the impact of the stimulus would diminish. But having said that, the economy hasn’t crashed yet. It could still crash. But on the other hand, if you look at the performance of equities worldwide, it seems that the worse the economic news is, that the more the markets go up, because the market participants expect further easing measures, and maybe further stimulus. So altogether I would say it’s not going to be a disaster for stock investors yet. It’s interesting. The Chinese stock market began to discount the slowdown in economic growth actually precisely a year ago, in August, 2009. The market peaked out. And then drifted lower, but now that the bad news is essentially out, the market has started to rebound.”
On whether the property market is the biggest weakness in China:
“I’d like to make the following observation. We have a global economy, and an economy has different sectors. And you can have recession in some sectors of the economy. You can have a crash, say, in the property market, and you can have other sectors expanding. [Bolton: That’s the biggest weakness, right Marc, as far as you’re concerned, in the Chinese economy right now, it is the overheating in the property market?….] Well, I’m not sure. Because if they ease again, the speculation will go on. But we have credit problems in the property market undoubtedly. We have Ponzi schemes like loan sharking operations all over China. That’s a very dangerous. But what I would like to point out is that the agricultural sector, the rural sector in China and everywhere in the world is doing relatively well, because agricultural prices have started to rebound. And that was also seen in Thailand. In Thailand, new car sales are up very strongly.”
On whether the Chinese government will delay increasing interest rates this year:
“I think even if they increase it marginally it’s meaningless. Because interest rates are far below nominal GDP growth, and in my opinion far below inflation.”
China Total holding of US Treasuries: $755.4B v $789.6B prior
Japan Total Holdings of US Treasuries: $768.8B v $757.3B prior
Oil Exporters total Holdings of US Treasuries: $186.8B v $187.7B prior
Brazil holdings of US Treasuries $160.6B v $157.1B prior
Russia holdings of US Treasuries $118.5B v $128.1B prior
Hong Kong holdings of US Treasuries $152.9B v $146.2B prior
India holdings of US Treasuries: $29.6B v $31.6B prior
WASHINGTON (AP) — The government said Tuesday that foreign demand for U.S. Treasury securities fell by the largest amount on record in December with China reducing its holdings by $34.2 billion.
The reductions in holdings, if they continue, could force the government to make higher interest payments at a time that it is running record federal deficits.
The Treasury Department reported that foreign holdings of U.S. Treasury securities fell by $53 billion in December, surpassing the previous record of a $44.5 billion drop in April 2009.[…] (more…)
The great trades don’t require predictions. The Soros trade of going short the pound in 1992 was based on something that had already happened — an ongoing deep recession that made it inevitable that the U.K. would not maintain the high interest rates required by remaining in the E.R.M. Afterward, everyone said, “That was incredibly obvious.”
“Most of the great trades are incredibly obvious. It was the same in late 2007. In my mind, it was clear that the financial system was imploding and that most market participants hadn’t noticed.”
– Colm O’ Shea, Hedge Fund Market Wizards
Do you agree that the great trades are obvious? Why do so many market participants miss what is unfolding right before their eyes?
What are the elements in your process for observing, keeping tabs on, and exploiting major macro trends?
After dropping to a modest €134 million last week, ECB purchases of sovereign debt exploded tenfold in the last ended week to €1.384 billion, confirming that the ECB continues to bid up all Portuguese and Irish bonds available for sale, so the market does not crash. As Reuters notes, this is the highest weekly amount purchase since early July. Once again it is up to the European Fed-equivalent to be the buyer of only resort. And Europe’s continued central bank facilitated life support comes on the heels of the latest joke in recession timing: per Dow Jones, the Center for Economic Policy Research Monday said its Euro Area Business Cycle Dating Committee had determined that the currency area’s recession began in January 2008 and ended in April 2009, lasting a total of 15 months and reducing gross domestic product by 5.5%. Some recovery there, when half the PIIGS have no access to capital markets, have their Prime Ministers mocked during conference calls, and are fighting with an exchange rate last seen long before Greece, Portugal, Spain and Ireland had to be rescued. We wonder what the CEPR’s timing on the end of the European depression will end up being?
“The great trades don’t require predictions. The Soros trade of going short the pound in 1992 was based on something that had already happened — an ongoing deep recession that made it inevitable that the U.K. would not maintain the high interest rates required by remaining in the E.R.M. Afterward, everyone said, “That was incredibly obvious.”
“Most of the great trades are incredibly obvious. It was the same in late 2007. In my mind, it was clear that the financial system was imploding and that most market participants hadn’t noticed.”
– Colm O’ Shea, Hedge Fund Market Wizards
Goodbye, yellow brick road! (Doug Kass)
Could we have less talk about gloom and about doom in 2010? (Money)
Most people stink at market timing. Investors pull money out of stock funds (MarketWatch)
The Housing Crisis and Wall Street Shame (Robert Reich)
Are we coming out of recession? (Market Talk)
Get ready for half a recovery (New York Times)
I’m always suspicious about the market [but that doesn’t mean I don’t find opportunities] (Jutia)
Dangers of an overheated China (New York Times)
Brazil GDP to Grow 6.1% in 2010 (Bloomberg)
15 european banks now have assets larger than their domestic economies (Fund My Mutual Fund)
Correlation between the world’s tallest buildings and economic downturns (AlphaDinar)
Need a reminder? (Memorari)
RIP Mark Pittman (Bloomberg)
Life of a blogger (Slope Of Hope)
By Jim Jubak
I think investors are worried about the wrong kind of crisis in China.
Worry seems to focus on the possibility of an asset bubble and the chance that it will burst sometime in the next two to three months.
I’m more concerned about a slide into a crisis that will be an extension of the Great Recession. That slide could begin, I estimate, sometime in the next 12 to 18 months.
I understand the worry about the possibility of an asset bubble in China. After all, we’ve just been through two horrible asset bubbles — and busts — in the U.S. and global financial markets. And a Chinese bubble is a distinct possibility, one that should certainly figure into your investing strategy.
But China’s economy and political system are so different from ours in the U.S. and those in the rest of the developed world — and its relationship to the global financial market so unique — that I don’t think we’re headed toward any kind of replay of March 2000 or October 2007.
A bigger worry is a long-term slide into a lower-growth or no-growth world in which nations strive to beggar their neighbors and all portfolios slump. As crises go, it’s very different but ultimately just as painful for investors as the asset bubbles that draw all our attention now.
To paraphrase Leo Tolstoy in “Anna Karenina“: Happy bull markets are all alike; every unhappy bear market is unhappy in its own way.
