 | | The Daily Reckoning | Thursday, May 31, 2012 |
- Is China going to save the financial world...again?
- The “alphabet-soup” that is the economic recovery...
- Plus, Bill Bonner on sinking markets and the “dumb money” that keeps them afloat...
-------------------------------------------------------
Europe is the last place your attention should be right now...
When Greece’s debt crisis first shook the world in 2010, people were so preoccupied by headlines about Europe many of them missed out on the big early gains being generated by America’s explosive shale boom...
Now that same distraction could cause them to miss out on an even bigger moneymaking opportunity.
Forget about France, Germany, Greece and Spain for a moment — something far more unexpected, important and life changing is about take place right here at home...
Click here now to see what it is.
|  | | | | China to the Rescue...Again? | | |  | | Joel Bowman | Departing momentarily from Montevideo, Uruguay...
Look out below!
Dow down 26 points...885 for the month. Gold at $1,564 per ounce...off a hundred bucks since May Day. And crude fell too, down into the mid-80s.
The world is slowing down...but we’ve gotta hurry up!
That’s right. No time for meandering missives today, Fellow Reckoner. We’re a long way late to cross a very wide river...which is to say, our ferry back over the Rio del la Plata is about to depart. We’ll tell you all about our little border run in tomorrow’s issue but, for now, we gotsta run!
But just before we do, a quick mention of the work our colleagues are doing over at the Chinese edition of The Daily Reckoning (yes, we have a Chinese edition...no kidding).
According to an email we received from our China H.Q. just this morning, Li Ka-shing — one of China’s wealthiest businessmen — is betting against a “hard landing” in the Middle Kingdom’s real estate market. This is all news to us.
“Li Ka-shing Stays Long on Mainland Property,” reads the headline of a story penned by Dee Woo, a contributing editor for our Chinese edition. At a spritely 83 years of age, Li — known in Hong Kong as “Superman” — has an estimated net worth of $25 billion. According to Woo, Li is moving full speed ahead with his massive property development in China.
Could the “synchronized global slowdown” we’ve been writing about be a false alarm? Might the voracious Chinese economy just save the world...again?
We doubt it...but the Li Ka-shing article gained plenty of traction just the same, being republished at wenxuecity.com — a site read by many affluent Chinese. If you’re interested in brushing up on the ol’ Mandarin, you can read the article here. Or you can find a poorly translated English version here.
Ok, this boat’s really about to leave...
| | | | | |
| | The Daily Reckoning Presents | | The Z-Shaped Recovery | | |  | | Dan Amoss | The recovering US economy is not recovering...and neither are the economies of Europe and China.
As the chart above shows very clearly, manufacturing activity in the Eurozone has already slumped to recessionary levels, while US manufacturing activity is merely muddling along.
“New signs of a global slowdown are darkening the economic outlook,” the Wall Street Journal reports. “The US reported that businesses were slowing their orders of computers, aircraft, machinery and other long-lasting goods. Measures of business sentiment in Europe slipped, and reports from purchasing managers at manufacturers around the globe turned down. Among them, China, the world’s second- largest economy, registered its seventh straight drop in an important manufacturing index.”
Apparently, “flat” is the new “up”...exactly as Bill Bonner has predicted numerous times in this column during the last few years.
“When the recession of ’09 hit,” Bill remarked recently, “economists and pundits wondered what shape the recovery would be. V? or W? We said it would be an L. Down...then dragging across the floor for a very long time.
“A real recovery was ‘impossible,’ we said, choosing our words recklessly...but correctly. It was impossible for a debt-soaked economy to recover until the debt had been squeezed out, we said. Well, here we are, 5 years after the crisis hit, and we’re still at the bottom of the L. Debt is still being wrung out of the private sector...while the feds pour it on the public sector as fast as they can.”
Very true. In fact, without the federal government’s “beautification tactics,” the economy’s trajectory might look more like a “Z” than an “L.”
Without transfer payments — i.e. handouts — from the federal government, household incomes have barely recovered from the lows of 2009. The chart below shows the official measure of real disposable personal income (in blue). The red line is the same number, excluding transfer payments. The growing gap between the two numbers since 2008 shows the extent to which overall personal income relies on government handouts.
Incomes from actual employment are stagnating for many reasons. Perhaps the most obvious reason is most of the jobs being “created” today are of lower quality than the jobs lost. The next chart includes data from the BLS household survey. The official number of full-time jobs remains well below the 2007 peak, while the number of part-time jobs is making new all-time highs:
Obviously, part-time jobs do not deliver the same paychecks as full- time jobs. But incomes are also stagnating for the following, yet largely unacknowledged, reason: The US economy now requires steady doses of monetary inflation to prop up unsustainable mountains of debt. The Fed feels it must force interest rates lower to make these debts easier to service. In 2008, the towering mountain of debt was in the private banking system. But the federal government is building up a mountain of debt that makes the private sector’s look like a molehill.
Soaring government debt usually invites hyper-inflation to the party. The Bernanke Fed last week announced that it plans to print as much money as necessary to keep its preferred measure of consumer prices rising at a steady 2% rate — regardless of trends in private sector productivity.
Put another way, the Welfare State and Federal Reserve are, in effect, seizing part of the private sector’s productivity gains. The result: Stagnating living standards. The benefits of innovation and expanded production aren’t accruing to consumers in the form of lower prices and to workers in the form of higher wages. Thanks to the Fed and ever-growing government budgets, prices will be much higher than they otherwise would have been...and employment growth will be much lower.
The inflationary actions of the Fed and the ECB, which investors today view as helpful, will ultimately destroy shareholder value at many companies. The mechanics of loose money flooding the banking system provides a feeling of euphoria (for a little while). Then the hangover comes when this monetary inflation boosts operating costs and compresses profit margins at the businesses that underlie the stocks in the S&P 500.
But the news is not all bad. Gold loves inflation.
Regards,
Dan Amoss
for The Daily Reckoning
Editor’s Note: Z-shaped... L-shaped... V-shaped... No matter what alphabetical form the so-called “recovery” decides to take, you’ll certainly want to be prepared. And we think we’ve found just the book to help...
Addison Wiggin just released his new Little Book of the Shrinking Dollar, and it’s already making quite an impression...
“I strongly recommend this book,” wrote Chuck Butler, President of EverBank World Markets, in his Daily Pfennig newsletter yesterday. “And at [254] small pages,” he added, “it’s a quick read. It’s all spelled out for you. Things I’ve talked about for years, and now it’s right here in a great book!”
The Gloom, Boom and Doom Report’s Dr. Marc Faber had this to say: “The Little Book of the Shrinking Dollar is not an academic paper published by some ignorant economists. Not only does Addison convincingly and disturbingly argue that ‘every paper currency in the history of civilization has eventually lost its entire value,’ but he also offers ways to protect our wealth.”
Long story short, this book is making waves. You owe it to yourself to read it. In fact, we think it’s so important, we’ll actually give you a copy... Free! Click here now to grab yours before it’s too late.
| | | | | And now over to Bill Bonner, with the rest of today’s reckoning from Baltimore, Maryland... | | Were it Not for Dumb Money... | | |  | | Bill Bonner | Thank God for dumb money!
What would the world be without chumps? Suckers? Bagmen and patsies?
Who would buy a ladies handbag for $1,500? Or blue-jeans for $150? Who would buy an oversized show-off pickup...or a $4 million McMansion?
Who would buy Facebook?
The Facebook IPO seemed to attract dumb money. Billions of it. Investors thought they could buy it at the offer price and get an almost guaranteed “pop.” They thought the fix was in.
They were right. Trouble was, the fixers ‘f’ed up. The fix was broken even before the market opened. Smart insiders were supposed to sell their shares — which they got in the IPO — to the dumb outsiders on the open market. But so many investors had gotten shares at the IPO price, and hoped to get out at a higher price, there wasn’t enough dumb money to take their shares. Everybody lost money...with the stock falling to $28 yesterday.
It made us think more about what a vital role dumb money plays in our economy. More below...
For now, a Wall Street Journal headline yesterday announced that the housing crunch was over. But when we read the details, we discovered that prices were still falling! Housing prices in the US dipped again in the first quarter of this year. Not much...but they were down. And in March, not adjusted for seasonal variations, house prices fell 2.6% from the year before. As “The Big Picture” puts it: “Case Shiller: The housing bear market has not turned.”
The stock market might give you the wrong impression too. House- builder stocks are selling at relatively high prices. Pulte sells for 15 times earnings. Toll is at 33 times earnings. Seems a little odd to us. Housing starts are only about half their level of 10 years ago. Why would investors think these builders deserve growth- stock prices?
We’ll wait for the big discounts. After all, there are some 18 million empty housing units in the US. At present rates of building, new household formation and immigration, it will take decades to work off the inventory.
Business Insider: “Another housing collapse is coming soon.”
As you know, dear reader, we think the whole world economy is going into a slump. Britain is already in recession. Euroland is probably in recession or close to it. That’s the world’s biggest economic region right there. America is sinking too. Japan has been up — largely because of all the post Fukushima rebuilding — but it won’t hold up long if its customers cut back.
American consumers already seem to anticipate a pullback.
“US consumer confidence falls unexpectedly in May,” reports The Financial Times.
“Consumers were less positive...” the FT continued.
Hardly surprising, is it?
A report earlier in the week told us that soldiers returning from service in Iraq or Afghanistan were going on disability at twice the rate of those who did their service in the Gulf War. Why? They can’t find jobs, says the reporter.
They can’t find jobs because the economy is not recovering. And now the stock market, the oil market, the gold market are all catching on. And the bond market too.
“Gold investors rush for the exits,” says The Wall Street Journal.
And here’s Bloomberg on the bond market:
Treasury Yields Tumble to Records...
Treasury 10-year note yields fell to a record low as investors sought refuge from the deteriorating credit conditions of European sovereign borrowers.
The benchmark yield reached 1.6085 percent, less than its previous all-time low of 1.6714 percent on Sept. 23, as Spain struggled to recapitalize its banks and Italian bonds fell as the country sold less than its target at a debt auction. The Federal Reserve announced Sept. 21 that it would buy $400 billion of longer-term Treasuries, funding the purchases with sales of shorter-term notes, in an effort to bolster the US economy and spur jobs growth.
Benchmark 10-year note yields fell 12 basis points to 1.62 percent at 5:02 p.m. New York time after touching the lowest in Fed figures beginning in 1953. The 1.75 percent note due May 2022 added 1 1/8, or $11.25 per $1,000 face amount, to 101 5/32, according to Bloomberg Bond Trader prices. The yield drop was the biggest for the benchmark note since April. | As for stocks...Marc Faber:
“There are more and more stocks that are breaking down — economic sensitive stocks and companies that cater to the high-end,” he said. “That suggests to me the economy is likely to weaken and the huge asset run is likely to come to an end with significant asset deflation.” | Stock prices...bond yields...housing — all going down. Where are the chumps when you need them?
And more thoughts...
The trouble with chumps is that they are unreliable. You count on them to buy Facebook, for example. And then, the patsies don’t seem to get the message. They sell!
“Investors bet against Facebook,” reports The Wall Street Journal.
And poor Zuckerberg. The man was knocked off the richest-of-the-rich list. Bloomberg has that story:
Zuckerberg Drops Off Billionaires Index as Facebook Falls
Mark Zuckerberg, Facebook (FB) Inc.’s co- founder and chief executive officer, is no longer one of the world’s 40 richest people.
The 28-year-old’s fortune fell to $14.7 billion yesterday from $16.2 billion on May 25, as shares of the world’s largest social- networking company dropped 9.6 percent. They slipped another 2.3 percent today to $28.19. That extended the stock’s losses to 26 percent from the worst-performing large initial public offering in the past decade and cut Zuckerberg’s net worth to $14.4 billion. | Typically, lottery and IPO winners have dumb money. Sports stars often have dumb money too. Of course, a lot of wealthy people — the ‘patsy rich’ — have money so dumb it should be forcibly sterilized.
When poor people get money it is usually dumb money. They don’t know what to do with it. So, they do dumb things. That’s why they’re poor. They pay more than they should...often for things that aren’t worth buying at all. Fancy cars...fancy houses...fancy restaurants... They think the idea is to get rid of money. Usually, they part company with their loot quickly...and they’re poor again.
People think the rich are different. They think the rich are smart about money. But very often, it ain’t so.
Wall Street is a sophisticated industry. It has developed products that appeal to every taste and every budget. It’s good at separating the poor and middle classes from their money; they put their dough into mutual funds and Facebook shares. They’re even better at separating the rich from their money. Why? The rich have more money to lose.
More tomorrow...
Regards,
Bill Bonner
for The Daily Reckoning
----------------------------------------
Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com
| |  | | | | 
| 
The Daily Reckoning U.S. Edition
No comments:
Post a Comment
Keep a civil tongue.