CapitalistMarks » economic stimulus

China going bust?

scott — Mon, 31 Aug 2009 21:37:48 +0000

First of all, the headline today might seem weird for a country with a growing economy (maybe as much as 10% this year) and a stock market that has been up nearly 100% since the first of the year.

But let me give you some of the info behind the headline.

Interestingly, I heard an interview with a Chinese national on TV over the weekend. I wish I could tell you who and where but it has been lost in the flood of stuff I watched and read. The key was his statement about China’s lack of a social safety net for their working class citizens.

This discussion really woke me up. I was surprised, frankly, because this was the first time I have heard this particular issue brought up by an American news channel. But it is right and with the time I have spent in China I have seen first hand the horrible way they treat their work force (including pay, benefits and bonuses). Frankly I didn’t like having my products made their because I felt like I WAS TAKING ADVANTAGE. Truth is that it is the Chinese elite leaders who are the real culprits here.

How does this affect us?

We all know that America’s consumers have been driving the international markets for many decades. This is coming to a halt as savings have gone from literally negative to approaching double digits. Americans are feeling insecure (deservedly so) and are starting to put money away for a rainy day (or year or two). Consequently our economy has come to a screeching halt in the worst recession since the Great Depression. We are no longer feeding China’s export frenzy.

Of course this has had a tremendous impact on other countries which export goods to us. The more we save, the less we spend, the less goods fly off the shelves and the less imports there are.

China’s approach to dealing with the recession has been to flood different regions with billions of economic stimulus–most of which was intended to increase employment through important infrastructure projects. And it worked (unlike Obama’s stimulus so far). Their economy will definitely grow this year and the U.S. economy is likely to shrink 3-4%.

The positive impact of China’s stimulus has been a boon to their stock market, which doubled in $$ terms in the first 7 months of the year. But — and this is a big one — in August the Shanghai index fell 25% . . . 10% in just the last few days, including nearly 7% today alone! Those are scary numbers for those who have been ‘piling’ on in Chinese stocks.

Further, consider that shares in China’s markets trade at an average of 31 times trailing earnings which is more than twice that of the U.S. markets long-term average (around 15). Add to that the fact that traded Chinese companies have had earnings declines this year of around 20% and you have a possible (?) bubble — – –

Is it an early warning signal of a bust? Could be.

On top of all this, many economists believe (me included given the penchant for gambling in China) that the tremendous increase in bank loans encouraged by the Chinese government has resulted in at least some of the extra money that was pumped into the system going into stocks rather than for business purposes to grow GDP. Ouch! Their bankers may have to take a ‘time out.’

And now, thanks to the above mentioned interview, I can see the writing on the wall and further understand the real risks here. You see the average Chinese worker has no social safety net at ALL! No health insurance, no retirement, no job guarantees and no hope that their government is about to offer any. This means they MUST save for an uncertain future. And they are not about to go on a spending spree (not the majority anyway).

All this talk of the Chinese consumer stepping up to grow their economy into the world’s second biggest soon is smoke and mirrors right now as long as the employment benefits situation there remains the same. Sure there is a wealthy and growing upper middle class who will spend but they are a small percentage of the whole.

If you remember last week, I pointed out that 91% of all Chinese multi-millionaires are children of high ranking communist party elite. The old story of the rich get richer and the poor get poorer only multiplied by 1.3 billion people! There is something rotten in THAT woodpile!

The Chinese worker must save. The Chinese government will not continue their effective and costly infrastructure stimulus for much longer.

Then what.

A Chinese bubble will very likely burst. All because there is no incentive for the 500 million workers to spend their money at KFC let alone the local equivalent of Sears or Target.

What will the damage be? Surely a steep drop in their markets, but also the possibility of lower wages and lower raw materials for a while, and that could stimulate the export market once again and encourage American’s and Europeans to start buying again.

So the talk of America starting this whole thing might be lost in the future talk of China extending the problems with economic decline. And that just might help the big industrial nations who have suffered so much initially as Chinese goods get cheaper (and hopefully better — are Chinses Auto imports far off?).

It is all a big ‘circle’ of economic interests.

I think tomorrow and for the next few days I might write about the other BRIC countries and my expectations for their future. Stay tuned. Russia. India. Brazil. Coming up next (unless something else catches my fancy).

Toodaloo!

thanks to flickr’s numb3r for the photo

The dog days of summer. 2nd qtr GDP -1.0%.

scott — Fri, 31 Jul 2009 16:26:39 +0000

The old saying “sell in May and go away” would have led to disaster for investors in U.S. markets this summer. Depending on what happens today this month might be the July with the biggest increase in overall market values since 1989.

Typically these are the ‘dog days of summer’ — hot days filled with vacations and generally with little interest in markets. Not this year. The money managers have stayed home to work . . . and a good thing too!

News this am was good, better than expected. The second qtr GDP was -1% which is better than estimates (-1.5%) and substantially better than the revised 1st qtr of -6.5%.

A long time ago I predicted DOW 10,000 by June-July, clearly this isn’t going to happen but that 10,000 is less than 10% away. Closer than my critics would have thought. What about the DOW 13,000 I predicted for the end of the year? Still possible and I am sticking with it and would include a 12,000 mark as a hit.

However, as I pointed out last week this is going to be a roller-coaster ride and not a steep climb up Mt. Rainer. If you are a trader you are going to have at least one good chance to sell and buy at better prices (10% or so). But you had better be good at your timing and few are. If you are a long term investor just make sure you own good companies and go along for the ride.

Sadly, unemployment will continue to climb and the Democratic controlled government will continue the move leftward. This means higher taxes and inevitable inflation down the road. Further, and even more sadly, the Prez. and his posse are doing almost nothing about solving our long term energy import problems. Consequently oil prices are going to rise with the improving economy (minus employment of course since this will be a pure democratic jobless recovery).

Bottom line: enjoy the rest of summer with relatively low gas prices and improving markets.

Can I suggest a trip to Utah? Sure it is hotter than Hades here in July, but by tomorrow (August) the temps will be on their way down and you could spends weeks checking out our mountains, valleys, rivers, lakes and GOLF COURSES!!

Just in passing, the third qtr GDP should be positive and by the fourth qtr the recession will be declared dead. It has been longer than most post-war recessions already and it was especially ugly for those that lost jobs.

For those fortunate to still have jobs when it is over times will be good. For the unemployed I can only suggest you contact your Congressmen and the President to find out why their stimulus package did almost nothing for YOU!! Ask them what they are going to do for you TODAY!

thanks for the picture to flickr’s e0000

It’s the jobs, dummy! Unemployment is the only Macro thing that matters now!

scott — Thu, 09 Jul 2009 02:01:42 +0000

I guess I will have to keep harping on this issue until someone in D.C. gets it. VP Biden seems to be the only who is beginning to recognize that the stimulus package he and Obama railroaded through congress a few months ago is not working. He’s already talking about a 2nd stimulus package (the guy really is nuts!).

Look, BHO promised that the stimulus (upwards of $800 billion) was going to keep unemployment at or below 8%. Not even close, brother, can’t you see that now? Kinda like his promise that the stimulus also was going to ‘create or save’ a few million jobs . . . and what does he claim so far? Oh, about 150,000 jobs saved or created. That is nuttin’ compared to the 2 million jobs lost since he took office. That’s a 1,850,000 hole, dudes.

Bad news, right? Right! But, we sure as heck don’t need another stimulus now. We just need to grab what is left of the first one and start making it work the way it should have to begin with. We need more a new stimulus like we need more debt. NOT!

Put people to work, Mr. President. Do it like FDR did back in the ’30’s. If you have to, hire a few hundred thousand (starting tomorrow) to walk along our roads, highways and byways and clean the messes up. Pay them a decent wage and ‘change’ the country from the ground up. Then hire a bunch more to enforce the littering laws and start keeping America clean. Then hire a bunch of accountants to pay ‘em all. Get it?

My point is that unemployment at 9.5% is sure not going to be the peak. We still have a at least 6-8 months left of job losses and maybe more (the recession is a long way from over and unemployment is ALWAYS a trailing/lagging indicator).

All the ‘back-end’ loaded spending of the current stimulus package is not going to help the 20+ million that will be out of decent jobs soon. That is all (oh, wait, there’s the DEBT too!) BHO and his crowd of Democratic ‘leaders’ are going to leave us with before they get ousted just like Bush and his cronies were.

Look, BHO, sit down with your solid majority in the House and Senate and figure out a way to grab the stimulus money that hasn’t already been spent ($600+ billion or so) and put it to work, putting people to work. Give folk a chance to earn money the old-fashioned way “by working for it” and you’d be surprised at how fast the ‘Republican’s’ recession would crumble.

Give and man a fish and he eats fish for a day. Give a man a handout and he spends it on a Big Mac or Whopper.

Teach a man to fish, or make him work for something and . . . and . . . you’ve just created a JOB! Doesn’t take a genius.

I was a really big Obama fan until about a month ago. Not so much now. He’s gone from potentially celebrated to a real celebrity. His Dem buds too!

Stop it for reals guys and gals.

BHO’s gotta go to work and figure out how to keep the one promise American workers really relied on when they voted for him. Finding, creating or saving their jobs!

We need clean roads, new bridges, levees, dams, airports (or at least runways and terminals) and a whole bunch of other infrastructure (some of it really seminal stuff such as renewable energy and energy independence projects).

I won’t stop slamming this until he gets it right.

Hope its soon and long before I lose my job (and yours too).

Better contact your Congressman(www.usa.gov/Contact/Elected.shtml ) and also start sending notes to the Whitehouse (www.whitehouse.gov/CONTACT/) because Obama and the Dems don’t get it yet. Oh, and give them a link to this site and maybe even send them a copy of this blog.

Jobs, Jobs, Jobs, Jobs . . .

Let me know what you think. Because if you don’t think this is real, critical and right . . . then you are as nuts as our ‘leaders’ and you will deserve your 6 months of unemployment checks in the future.

President Obama, why don’t you trust us?

scott — Sat, 04 Jul 2009 02:53:54 +0000

President Obama is missing America’s real strengths and the rest of us should remind him.

Why is this important?

Because the President is getting caught up in the ‘celebrity’ of the presidency and losing track of what’s really important.

It starts with the fact that he is limiting press access to insiders he approves of and manipulating his TV image. BHO loves to seem spontaneous and instantly reflective, but the appearances are too frequently manufactured.

We all know, by now, that he is addicted to use of teleprompters (and he is skilled enough to make it seem he is speaking ‘off the cuff’ ). We also know now that he manipulates his press conferences so that pre-approved questions from pre-approved questioners are asked (so he and his staff have well-prepared ‘canned’ answers).

How can we know what our President really thinks, what he really believes, if we can’t see unrehearsed reaction to genuine issues?

This whole manipulation of the system (a change he has made for the worse) is beginning to wear on his well-manicured image.

Yes, he is intelligent.

Yes, he is charismatic (how much of this is artificial?).

Yes, he loves playing basketball (this weighs heavily in his favour in my opinion).

Yes, he wants America’s image overseas to improve (and we have a long way to go thanks to Bush and his cronies).

Yes, he wants America to be a better place for just about everyone (wait — detainees now held in Guantanamo as well?).

And, yes, he is a heck of a lot better (on the surface) than what we are used to.

But, we may not be getting what we paid for and we may not be getting the changes many voted for.

Why?

Because, Obama is relying on what he thinks the strengths of our great nation are and this makes him seem much less beligerent, less confident and dangerously submissive (to his fellow democrats in congress and more than a few nations who wish us no good).

There is a point where any politician has to stop trying to be nice/popular and get serious or even downright onery.

Obama sees America as strong because of our nuclear arsenal, our finacial system (broken as it is), our currency (weak as it is), and our historical reputation as a leader in important areas of international dispute.

Hence it seems he feels no need to continue to strengthen our defenses, to improve our financial system (with limited regulation and intelligent oversight), to change the way we do business (i.e. get rid of offensive and crude partisan politics lead by attack dogs — Pelosi, Reid, Emanuel).

The truth is our real strengths are the uniquely social aspects of our political, social and economic system: our elementary schools, our universities, our obsession with technology (the good and the bad), our National Parks, our faith in God (and charity, wisdom, knowledge, etc.), our lust for education, and ____ (you fill in the blank).

We have no reason, as a nation, to believe we are better, stronger or ‘more right’, than any other nation. We can, or should, agree on that in this new flat world. But we have every reason to believe that we can again be a leader through example.

This goes for our everchanging form of capitalism, for our proven but still developing political system (we need term limits), to our willingness to sacrifice when the need arises and the cause seems right (what would Europe or Asia look like today but for American blood shed on their behalf). . . though we don’t get it right very often it seems lately.

Mostly, though, our strength is in the combined wisdom and intelligence of 300 million citizens. That means you and I. The collective ‘we’ I often refer to.

These strengths need to be both understood and relied upon by our President (and it would be nice if Congress got it too). We (the people) can make proper decisions if we are given proper choices. This goes for the economy, health care and even energy independence.

We are still willing to make sacrifices too. Just not useless ones that are dictated by an ‘elite’ leadership (serving more than two terms) who are overwhelmed by their own importance and perceived talents.

President Obama is going to miss a wonderful opportunity to make real change during the current crises of confidence and stature that America is going through. Emanuel, his trusted advisor has said that he should not fail to take advantage of every crisis. But in some cases he must.

Truth is Obama and his minions are going ‘one crisis too far’ at the present time. The effort to change (in many ways poorly) our energy and environmental reality is too much.

As the press, bloggers, and the public begin to see how much damage can be done when decisions are made quickly and with far too many ‘pet’ projects/concepts/ideologies thrown in — well, then the Democrat ‘emperors’ will be seen to be without clothes.

By over-reaching on this one issue, Obama’s great promise could be undone. The other promises he has made (many of them genuinely wonderful) will be suspect and hence fail.

Obama’s celebrity, which he embraces far too willingly, is drawing his attention from important issues. Obama’s feeling of invincibility (especially with the filibuster proof Senate now that Frankin won in Minnesota) is an illusion. Obama’s belief that every other nation (foe and friend alike) will accept his openness and ‘regret’ for past behaviour as a national standard is going to backfire.

America has to be strong: militarily, economically, politically, morally, and ethically. “We’ know that and ‘we’ support that.

Start listening to the people Mr President. Start following the polls a little more carefully. Start seeking true bi-partisan input on every important decision. Start asking the right questions and start giving genuine and ‘off the cuff’ responses to ours.

Most of all stop trying to be so popular and such a celebrity. Stop all the travel, talk shows, interviews and visits with your ‘favorites.’ Spend some real time in the oval office doing some real work. When I was starting my own business I worked 90 hours weeks and sometimes put in more time. Real hard, committed, dedicated work. I know many others who have done the same. That is what we need from our leader(s).

Mr. President, start prioritizing the big changes you (we) want and focus on one (maximum two) at a time.

That is all we can handle. That is all we can afford. That is all we want.

You might be surprised, BHO, by what happens in three years if you don’t start paying attention to the truly important parts of the job!!

‘We’ might be surprised too (and disappointed).

How long to recovery? How about NOW!

scott — Mon, 13 Apr 2009 17:27:32 +0000

I have heard (and read) a lot lately about how long a?recovery from the currrent economic crisis (recession) will take.? The ‘pan-dits’ (pundits with perpetually negative views–about 90% of those on TV and radio) have given us the discouraging estimates of anywhere from 2-3 years to 20 years or more.

Don’t believe it.

It is happening NOW!? In earlier posts I stuck out my neck and predicted an early?recovery of the markets (as in stock).? That seemed pretty aggressive a month or two ago.? No longer.? Markets are leading indicators.? A five week run on the positive side seemed unthinkable six weeks ago.? A 25% gain in that period was dream-stuff.? Now it is real and building.? A further 25% will put the Dow Industrials at the 10,000 level I wrote about as the target for June.?

Not so unthinkable is it?

Why is this all happening?? Is it the incredible stimulus and bailouts invested by our government?? Not really.? Only a tiny (and I mean a miniscule tiny here) of those have had time to take affect.? Capitalism works, without all the outside intervention, and we are watching it go on its merry way.

The markets are like a pendulum, and a wild one at that.? Almost always we can expect the market pendulum to swing (way) too far one way or the other.? This is caused by the herd mentality of our populace, enhance by far-out predicitions from the media.? This pendulum effect is far worse today than fifty years ago.? Blame that on the media, the internet, the Congress, the Fed (Reserve), the Treasury (Department), your local newspapers (if you have any left).

I remember once in college, I got to a class a little early and a couple of students were waiting outside the door.? I joined them, not even thinking about it.? After ten minutes the entire class was waiting.? Pretty soon the Professor arrived and started waiting too.? After ten more minutes someone thought to open the door and look inside.? The room was empty.? What a bunch of morons! And sheep.? These are the same people we are ‘following’ today.

Jeez Louise, how I wish we all thunk (plural of think in my odd universe) for ourselves.?That would be?cool, fool.

Yet, economically the tide is turning, the pendulum has started the move back, and it will pick up speed.? The new administration has stopped ‘nay saying’ and started to be more encouraging . . . on all fronts.? Confidence in building.? Spending will pick up and the economy will get back on track.? A whole bunch of American sheep will be piling on soon (most of them too late to enjoy the full benefits of the current upward?move).?

Follow the ‘crowd thoery’ and watch with wonder.? I won’t trouble you with analysis of all the leading indicators but they are swinging the right way too.? This I will reconfirm: Dow 10,000 by June.? Positive GDP growth in the third quarter for sure (I actually think we can see positive GDP in this, the second, qaurter).

The recovery has started.? The stimulus helped, primarily because it gave people hope and then confidence.? Did we need it?? Probably (but not for the reasons you think).? Do we need all the ‘rest’ of it now?? Probably not (let the free markets take over).?

It will take two years or so for all the stimulus and bailouts to take affect.? We will be far into the next expansion by then and frankly all that extra spending (investing) will be wasted.

I wish we could pull a bunch of the spending off the table.? Possible, and not likely.??When has Congress ever made a timely AND?right decision?? I read about one on December 8, 1941 . . . haven’t heard of one since.? Need I remind you that we need TERM LIMITS!? That would be the best change of all.

Stimulus?? Bailouts?? Tax cuts?? Deficit spending?? Fiscal and monetary action?? That’s the old news.? The new news is refininancing at much lower?rates, buying homes at 75% of their value from two years ago (and at rates as low as 4.5% for 30 years),?people saving for rainy days (and hopefully putting some of that savings into good equities?that will help protect against the coming inflation (yikes!).?On top of all that we stood up to the pirates and pulled a John Wayne on them!? Way to go BHO.? So!

Doctor, the patient is alive and well, just give him a few months to start running again.?

I’m fully invested and I don’t care about the ups and downs the market will experience in the next year or so.? But, I am sure it will be a good 50% or more higher in a year than it is right now.? I’ll hang on for that gain and count myself lucky to have had the opportunity.? By the way I bought some oil trackers and so as oil goes up (as it will) my profits will more than pay for the extra cost of gas.

This next year is going to be fun, exciting and provide a myriad of opportunities to the confident and brave.?

Cautionary note:? by 2010 inflation could be a bugaboo, by 2011 it will be awful (double digits is possible).? Then watch out for a whole new set of problems.

Ain’t life fun?

Thanks for the flick photo to army.mil