Tag: news

Up until a few years ago, conventional wisdom was that China would grow at nearly double digits as long as the eye could see. Then, however, something happened, and China’s 9% growth became 8%, then 7% and even lower, as suddenly the Politburo made it quite clear China would not chase growth at any cost, especially when the cost is trillions in bad debt and other NPLs, as we have explained time and again. The collapse in Chinese growth expectations is shown best on the following formerly hockeysticking chart of IMF’s revised Chinese growth projections which has completely collapsed in the past few years.

However, now that “7% is the new 9%” the world may have to brace for another major repricing of Chinese growth, one which would put it just above where the consensus, as wrong as it is as usual, sees US growth in the near future: a miserable 3.9% long-term growth rate!

According to the WSJ, citing a report by the business-research group the Conference Board, China’s growth will slow sharply during the coming decade to 3.9% as its productivity nose dives and the country’s leaders fail to push through tough measures to remake the economy, according to a report expected to come out Monday.

More:

The Conference Board forecasts that China’s annual growth will slow to an average of 5.5% between 2015 and 2019, compared with last year’s 7.7%. It will downshift further to an average of 3.9% between 2020 and 2025, according to the report.

 

The New York-based Conference Board argues that productivity in China is declining, in part because investments in infrastructure and real estate don’t have the payoff they once did. Meanwhile, government and Communist Party officials who don’t give market forces a large-enough role are stifling innovation.

 

“The state is too present in the market,” said David Hoffman, managing director of the Conference Board’s China center.

 

…

 

Such an outcome could batter an already fragile global recovery. But the report by the business-research group the Conference Board also finds that multinational companies in China would benefit. Lean times would give foreign firms more local talent to choose from. Foreign companies and investors could also expect “more hospitable” treatment from Communist Party and government officials and a wider selection of Chinese firms they could acquire, according to the report, which was shared with The Wall Street Journal.

 

Foreign companies should realize that China is in “a long, slow fall in economic growth,” the report said. “The competitive game has changed from one of investment-driven expansion to one of fighting for market share.”

Of course, there are many ways to spin the decline as a silver lining, but what is assured is social turmoil: recall that once upon a time the conventional wisdom was that China needs 9% growth just to keep pace with the natural growth rate of the population, the inbound province-to-city migration of the population, and keep everyone employed. Then the 9% became 8%, then it became 7%, and the fundamental reasoning for China’s historical supergrowth was quickly forgotten, because the last thing the world needs is a reminder that Chinese social instability is always just one mass civil riot away. A riot where mass unemployment would merely serve as a catalyst for. A riot of which what is going on in Hong Kong right now is merely a pleasant appetizer.

Sadly for China’s social instability, Chinese growth is going not only to 3.9% but much, much lower.

The reason? Quietly, over the past 5 years, China raked up an epic debt load, which by 2015 is expected to hit a whopping 252% of GDP, or a 100% of GDP increase in debt, just to keep its growth dynamo running. A dynamo which has now fizzled, as can be seen best in the Chinese housing bubble which as we have reported previously, has now burst, and China is desperate to keep imminent hard landing, as controlled as possible.

Here is Exhibit A.

Needless to say, this is an exhibit which China is very well aware of and is already taking measures, only not in the conventional Keynesian sense of issuing even more debt to fix a record debt problem, but somewhat more pragmatically, as we showed before in “China’s Rising ‘Working Class Insurrection’ Problem” and, more importantly, “Stunning Images Of Chinese Riot Police Training For A “Working Class Insurrection”.”

The good news for China at least, is that it is preparing for what it now quite well is the endgame. The bad news for all other Keynesian banana republics such as the US, is that when said insurrection comes, “nobody will have seen it coming.“

via Zero Hedge http://ift.tt/1Frr5kh Tyler Durden

For the first time in the 600(or so)-year history of Michelangelo’s masterpiece, Pope Francis has decided to rent out the Sistine Chapel for an $8000-per-head concert organized by Porsche. What makes this unprecedented action even more ‘interesting’ is the fact that The Vatican – in all its omnipotent wisdom – also made an announcement that it will be limiting the number of vistors (read ‘common folk’) allowed inside the chapel and as IBTimes reports, demanding vistors must be silent and cannot take photographs. So much for Pope Francis’ “poor Church of the poor.”

 

As IB Times reports,

Pope Francis has revealed that the Vatican will rent out the Sistine Chapel for a corporate event for the first

time in its 600-year history.

 

Porsche will hire the revered chapel, which is covered in Michelangelo’s stunning frescoes, and put on a private concert for 40 lucky – and high paying – guests. The concert, which takes place on Saturday, will be one stop on an exclusive tour of Rome organised by the car brand.

 

The Vatican has not divulged how much it will earn from the event, but the five-day tour of Italy’s capital, arranged by the Porsche Travel Club, costs up to €5,000 a head, meaning an overall intake of €200,000, reported The Telegraph.

 

The concert will be performed by a choir from the Accademia di Santa Cecilia in Rome, which traces its origins back to the 16th century. Participants will then sit down to a meal in the midst of the Vatican Museum, “surrounded by masterpieces by world-famous artists such as Michelangelo and Raphael”.

 

“It’s a one-off event and a once-in-a-lifetime opportunity,” a spokeswoman for the Porsche Travel Club told The Telegraph. “It will be the highlight of the trip.”

 

Proceeds from the event will go to charities working with the poor and homeless.

 

But the unprecedented news has been accompanied by an announcement that the Vatican will limit the number of visitors allowed inside the chapel, where visitors must be silent and cannot take photographs, to six million a year, amid fears that the frescoes are being damaged by the breath and sweat of so many tourists.

 

The Sistine Chapel receives 25,000 visitors a day and its primary function is to be the site of the Papal conclave, the process by which a new Pope is selected.

*  *  *

Inequality, Schminequality…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/0hwkSctzYtU/story01.htm Tyler Durden

There is a common adage that “book learning” is not the same as “street smarts.” In the case of economics PhDs like Janet Yellen, we could adapt this to say that “theory” is not the same as “reality.”

Janet Yellen is a career academic. This is not necessarily a bad thing. Career academics play a critical role in terms of both research and teaching future generations of leaders.

However, unlike most career academics, Janet Yellen is in charge of the US economy. In this light, one has to ask aloud, “why would you put someone with absolutely zero experience in creating jobs, growing a business, lending money, hiring, firing, etc. in charge of the US economy.”

Has Yellen ever had to personally decide whether or not to expand a business? Has Yellen ever had to develop a marketing campaign to increase sales? Has she ever had to concern herself with employment benefits for her staff?

Let’s take the other component of the Fed’s work, the financial markets, into consideration. Has Yellen ever managed a portfolio of any significant size? Has she ever guided a trading team? Has she ever even run a bank? Has she ever had to unwind a bankrupt institution?

The answer to all of these is no. And yet, we’re supposed to entrust her to guide the economy. This would be like asking someone who has never even run a 5K but has read a lot of books on running to win the New York marathon.

We do not mean to pick on Yellen in particular. Indeed, she is not unique in her total lack of qualifications for the job of Fed Chair.

Bernanke was another career academic with next to no real world experience. We’ve since discovered that ALL of his theories on economics misguided. Indeed it is difficult to find a single economic metric that has improved since 2008 other than household net worth which has largely been driven by gains in the stock market.

1)   The labor participation rate is virtually the same.

2)   Median incomes have fallen.

3)   Real unemployment (not the phony official number) is only marginally better.

4)   Costs of living are significantly higher.

And yet, Bernanke spent over $4 trillion trying to prove his misguided theories. It was the single most expensive academic study ever performed. Unfortunately it punished billions of people (the Fed’s inflationary policies lead to record food prices which incited starvation and civil unrest globally).

Not once during the five year period between 2008 and 2013 when he retired, did Bernanke change course. Any normal person would have reconsidered their positions after $1 trillion or $2 trillion didn’t do the trick. The Arab spring, record high food prices, food stamp usage and the like would also have given most folks pause. Not Bernanke. And apparently not Yellen either (she was the Fed’s second in command for most of Bernanke’s tenure).

We all know how this will work out: another, even larger crisis is looming on the horizon. And this time around, the Fed has already used up virtually all of its ammo. When and how it will hit, no one knows. But the fact that a mere 10% drop in stock prices from RECORD HIGHS was enough to induce panic around the globe should tell you all you need to know about the fragility of the financial system.

Be warned…

 

If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

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Best Regards

Phoenix Capital Research

 

 

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/85tHBRivljQ/story01.htm Phoenix Capital Research

Excerpted from John Hussman's Weekly Market Comment,

Abrupt market losses typically reflect compressed risk premiums that are then joined by a shift toward increased risk aversion by investors. In market cycles across history, we find that the distinction between an overvalued market that continues to become more overvalued, and an overvalued market is vulnerable to a crash, often comes down to a subtle but measurable shift in the preference or aversion of investors toward risk – a shift that we infer from the quality of market action across a wide range of internals. Valuations give us information about the expected long-term compensation that investors can expect in return for accepting market risk. But what creates an immediate danger of air-pockets, free-falls and crashes is a shift toward risk aversion in an environment where risk premiums are inadequate. One of the best measures of investor risk preferences, in our view, is the uniformity or dispersion of market action across a wide variety of stocks, industries, and security types.

Once market internals begin breaking down in the face of prior overvalued, overbought, overbullish conditions, abrupt and severe market losses have often followed in short order. That’s the narrative of the overvalued 1929, 1973, and 1987 market peaks and the plunges that followed; it’s a dynamic that we warned about in real-time in 2000 and 2007; and it’s one that has emerged in recent weeks (see Ingredients of A Market Crash). Until we observe an improvement in market internals, I suspect that the present instance may be resolved in a similar way. As I’ve frequently noted, the worst market return/risk profiles we identify are associated with an early deterioration in market internals following severely overvalued, overbought, overbullish conditions.

With respect to Federal Reserve policy, keep in mind the central distinction between 2000-2002 and 2007-2009 (when the stock market lost half of its value despite persistent and aggressive Federal Reserve easing), and the half-cycle since 2009 (when Fed easing relentlessly pushed overvalued, overbought, overbullish conditions to increasingly severe and uncorrected extremes): creating a mountain of low- or zero-interest rate base money is supportive of risky assets primarily when low- or zero-interest rate risk-free money is considered an inferior holding compared with risky assets. When the risk preference of investors shifts to risk aversion, Fed easing has provided little support for prices (see Following the Fed to 50% Flops), which is why we believe it is essential to read those preferences out of the quality of market action.

Our most important lessons in the half-cycle since 2009 are not that overvaluation and overextended syndromes can be safely ignored. Historically, we know that these conditions are associated with disappointing subsequent market returns, on average, across history. Rather, the most important lessons center on the criteria that distinguish when these concerns may be temporarily ignored by investors from points when they matter with a vengeance. In other words, our lessons center on criteria that partition a bucket of historical conditions that are negative on average into two parts: one subset that is fairly inoffensive, and another subset that is downright brutal. Central to those criteria are factors such as deterioration in the uniformity of market internals, widening credit spreads, and other measures of growing risk aversion. Once that shift occurs, market declines often bear little proportion to whatever news item investors might latch onto in order to explain the losses.

As Didier Sornette pointed out more than a decade ago in Why Stock Markets Crash, “the underlying cause of a crash will be found in the preceding months or years, in the progressively increasing build-up of market cooperativity, or effective interactions between investors, often translating into accelerating ascent of the market price (the bubble). According to this ‘critical’ point of view, the specific manner by which prices collapsed is not the most important problem: a crash occurs because the market has entered an unstable phase and any small disturbance or process may have triggered the instability. Think of a ruler held up vertically on your finger: this very unstable position will lead eventually to its collapse, as a result of a small (or an absence of adequate) motion of your hand or due to any tiny whiff of air. The collapse is fundamentally due to the unstable position; the instantaneous cause of the collapse is secondary. In the same vein, the growth of the sensitivity and the growing instability of the market close to such a critical point may explain why attempts to unravel the local origin of the crash have been so diverse. Essentially, anything would work once the system is ripe… exogenous, or external, shocks only serve as triggering factors. As a consequence, the origin of crashes is much more subtle than often thought, as it is constructed progressively by the market as a whole, as a self-organizing process. In this sense, the true cause of a crash could be termed a systemic instability.”

Keep in mind that even terribly hostile market environments do not resolve into uninterrupted declines. Even the 1929 and 1987 crashes began with initial losses of 10-12% that were then punctuated by hard advances that recovered about half of those losses before failing again. The period surrounding the 2000 bubble peak included a series of 10% declines and recoveries. The 2007 top began with a plunge as market internals deteriorated materially (see Market Internals Go Negative) followed by a recovery to a marginal new high in October that failed to restore those internals. One also tends to see increasing day-to-day volatility, and a tendency for large moves to occur in sequence.

An interesting feature of the recent air-pocket in stock prices is that many observers characterize the depth of the recent selloff as meaningful. What we’ve seen in recent weeks is very minor in a historical, full-cycle context. The market has not experienced even a single 3% down day in nearly 3 years. The chart below shows the cumulative number of 3% down-days in the Dow Jones Industrial Average over the prior 750 trading sessions, in data over the past century. It’s certainly not an indicator that we would use in isolation, but in given current valuations and the recent deterioration in market internals, we should not be surprised if this absence of large daily losses is short-lived.

I mention large down-days for a reason. A market crash comprises of a series of one-day losses that may be large, but are not particularly extraordinary in and of themselves. The problem is that they tend to occur in sequence rather than independently. In the chart above, you’ll notice that the cumulative total of 3%+ down days often spikes nearly vertically from zero, meaning that large down days tend to cluster. We may wish to believe that a 25-30% market plunge has zero probability since we know that the probability of a one-day loss of several percent is quite low, making a whole series of them seemingly impossible. But that view overlooks the tendency of large losses to occur in succession. It also overlooks the tendency for monetary easing to support stocks only when low- or zero-interest risk-free assets are considered inferior holdings in comparison to risky ones.

In Didier Sornette’s words, analyzing a crash in terms of individual daily returns “is like a mammoth that has been dissected in pieces without memory of the connection between the parts… Independence between successive returns is remarkably well verified most of the time. However, it may be that large drops may not be independent. In other words, there may be ‘bursts of dependence’ … leading to possibly extraordinarily large cumulative losses.”

In short, recent weeks have seen a strenuously overbought record high in the S&P 500 featuring the most lopsided bullish sentiment (Investor’s Intelligence) since 1987, coupled with increasing divergence and deterioration across a wide range of market internals, including small-capitalization stocks, junk debt, market breadth, and other measures. With compressed risk premiums now joined by indications of increasing risk aversion, we remain concerned that risk premiums will normalize not gradually but in spikes, as is their historical tendency.

via Zero Hedge http://ift.tt/1uu41ss Tyler Durden

Confused why one second the market is down 1%, and then moments later, upon returning from the bathroom, one finds it up by the same amount on negligible volume? Simple: there continues to be zero liquidity. Although, not just in equities, but in bonds as well, something this website – and the TBAC and Citi’s Matt King – has warned for over year. It is the lack of bond liquidity that led to last week’s dramatic surge in bond prices as Bloomberg noticed overnight.

So for those curious just how bad bond liquidity is now, here is JPM’s Nikolaos Panigirtzoglou with the explanation:

For the safest bond markets, bid-ask spreads typically remain very narrow in good times and bad, and shifts in liquidity conditions are best captured by changes in market depth. Our fixed income research measures market depth by averaging the size of the three best bids and offers each day for key markets. Figure 3 shows two such measures, for 10-year cash Treasuries (market depth measured in $mn) and German Bund futures (market depth measured in number of contracts). Again, these measures appear consistent with deterioration in market depth i.e. the ability to transact in size without impacting market prices too much. The recent deterioration in market depth has been more acute for USTs than Bunds, also evidenced by the large daily moves in UST yields in recent days.

 

Yeah, ok. Nothing new: wondering who the culprit is, look no further than the Fed which now owns 35% of all 10 Year equivalents across the curve, a liquidity shortfall for everyone else that will only get worse if and when the Fed embarks on QE4 (just a matter of time), as we explained last May in “Desperately Seeking $11.2 Trillion In Collateral, Or How “Modern Money” Really Works.”

But what about equities: turns out here things are worse. Much worse. About 40% worse according to JPM’s take of CME data:

An alternative liquidity measure comes from the CME, which reports a quarterly measure of “market depth”, that is, the transaction cost of trading in reasonable size across a selection of futures markets (e.g. for Mini S&P500 futures, 500 contracts lot). This measure shows how deep the market is in terms of the quantity of orders resting on the best bid and best offer, i.e. number of contracts at best bid-ask spread in the limit order book. The quarterly change in this measure between June and September as % of its average over the past three years is shown in Figure 4. Over the past quarter there has been significant deterioration in the market depth for S&P500 and Crude Oil futures but an improvement for agricultural commodity futures. There has been no material change in the market depth for FX, i.e. euro and yen futures contracts, over the past quarter. The market depth metric for these contracts continues to be at the very top of the past three years’ range.

 

JPM’s sugarcoated conclusion: “Market depth metrics appear to have deteriorated across all asset classes.” Which is perfectly ok when the market is rising: it means that tiny buying volume can lead to outsized returns. Where it becomes a huge problem, as last week showed, is when the central planners lose control, for whatever reason, and the market finally sells off. That’s when one’s faith in St. Janet and the CTRL-Priory of Eccles is truly tested.

via Zero Hedge http://ift.tt/1uu41Zv Tyler Durden

The WHO is coming under increasing scrutiny over its response to the the deadly epidemic. As The BBC reports, after stating that the death toll has hit 4,555 worldwide, a leaked internal document shows “nearly everyone involved in the outbreak response failed to see some fairly plain writing on the wall.” There are a few tidbits of good news this weekend: the Spanish patient’s test returned negative, 48 “at-risk” people in Dallas have been cleared, and Nigeria has been declared “ebola-free”. Sadly, the bad news keeps coming: the virus has spread to new regions of Guinea (affecting mining operations), Moodys warns the economic legacy will linger, IMF slashes growth forecasts for Africa, and most critically, MSF doctors are at their breaking point: “The epidemic is still getting worse… I don’t see a light at the end of the tunnel.” Lastly, Harvard has imposed a travel ban from Ebola-affected nations.

• *EBOLA CASES TOTAL 9,216, WHO SAYS
• *EBOLA DEATHS TOTAL 4,555 AS OF OCT. 14, WHO SAYS

As The BBC reports, the WHO is under fire over response to epidemic,

Although a flu pandemic was expected, Ebola was most definitely not expected in Liberia, Guinea or Sierra Leone. The virus had never been seen in West Africa before.

 

So when the first cases were reported in March there was no big WHO machine ready to roll. As it turns out, West Africa’s Ebola outbreak actually began in Guinea last December and seems to have gone almost unnoticed for three months.

 

“Nobody knew that this disease called Ebola would be possible in such parts of Africa,” said Dr Isabelle Nuttall, the WHO’s Director of Global Capacities, Alert and Response.

 

“The speed of reaction was initially determined by the fact that the disease was not known to occur in this part of Africa.”

 

…

 

on 1 April, the WHO’s senior communications officer, Gregory Hartl, suggested that MSF was scaremongering.

 

“We need to be very careful about how we characterise something which is up until now an outbreak with sporadic cases,” he said.

 

“What we are dealing with is an outbreak of limited geographic area and only a few chains of transmission.”

 

…

 

An embarrassing internal WHO document, leaked to the Associated Press last week, indicates senior WHO officials know mistakes have been made, suggesting “nearly everyone involved in the outbreak response failed to see some fairly plain writing on the wall”.

*  *  *

As Bloomberg reports, front-line doctors are at their breaking points,

“I don’t see a light at the end of the tunnel,” said Lucey, a physician and professor from Georgetown University who is halfway through a five-week tour in Liberia with Medecins Sans Frontieres, the medical charity known in English as Doctors Without Borders. “The epidemic is still getting worse,” he said by phone between shifts.

 

…

 

MSF has been the first — and often only — line of defense against Ebola in West Africa. The group raised the alarm on March 31, months ahead of the World Health Organization. Now, after treating almost a third of the roughly 9,000 confirmed Ebola cases in Africa — and faced with a WHO warning of perhaps 10,000 new infections a week by December — MSF is reaching its limits.

 

“They are at the breaking point,” said Vinh-Kim Nguyen, a professor at the School of Public Health at the University of Montreal who has volunteered for a West African tour with MSF.

*  *  *

The Good News…

• WHO declares Nigeria Ebola-free
• Spain Ebola patient may be free of virus after negative test
• Dallas sees 48 people cleared of Ebola risk after monitoring
• White House said to seek additional funds to fight Ebola spread

President Barack Obama is preparing to ask Congress for additional funds to combat Ebola, a move that could shift some political pressure from the White House to lawmakers in the last two weeks before midterm elections.

The Bad News…

• Heineken sends Sierra Leone staff home as Ebola shuts bars
• IMF cuts Africa growth forecast amid Ebola virus, insecurity
• U.S. Ebola protocol revision includes full-body suits: AP
• Ebola economic legacy to linger after crisis, Moody’s reports
• Ebola spreads to new regions in Guinea near AngloGold mine

The Ebola virus spread to two new regions in Guinea, including an area where an AngloGold Ashanti Ltd. mine is located.

 

The place that reported infections in the Siguiri area is 30 kilometers (19 miles) from the Johannesburg-based company’s facility, the Ministry of Health and AngloGold said in statements yesterday. Employees haven’t been infected and operations continue, the mining company said.

 

…

 

“We continue to strengthen surveillance and we conduct daily monitoring checks on all employees,” AngloGold spokesman Chris Nthite said in an e-mailed response to questions. “Some of our employees live in Siguiri.”

*  *  *

And finally, as Breitbart reports, Harvard has imposed a travel ban…

Harvard University has imposed an effective travel ban on Ebola-striken countries, requiring students, faculty, and staff to obtain official permission from the university administration before traveling to affected parts of West Africa, and possibly staying off campus for 21 days after returning to the U.S. from those countries.

 

The severe restrictions at Harvard, reported early Monday by the Harvard Crimson, “expand on those detailed in August that asked for Harvard students, faculty, and staff to avoid nonessential travel to the three countries.” The new restrictions also exceed any guidelines imposed by the U.S. government.

*  *  *

So the PhDs’ think we need a travel ban? Wonder what Ron Klain thinks?

via Zero Hedge http://ift.tt/1Fr2ufE Tyler Durden