Economic Blogs

Lindsey Forecast Dow Stocks Bull Market is Over

The Market Oracle - Tue, 29/07/2014 - 17:24
Regular readers will remember the column posted two weeks ago as well as last week’s column confirming the bearish forecast by showing the positive divergence in the VIX which is expected a market tops. It is important to be aware that George Lindsay admonished his newsletter subscribers that his methods were to be applied only to the Dow Jones Industrials index and not the broader indices. He explained this caveat that using the Dow (“or an even narrower index”) will avoid the constant turn-over of individual components in those broader indices.
Categories: Economic Blogs

Death of the U.S. Dollar? Gold an Inflation Hedge? Really?

The Market Oracle - Tue, 29/07/2014 - 17:18
Gary Tanashian writes: Take a look around the gold bull landscape and tell me how many of them are featuring a chart like this, showing the US dollar in a bullish short-term stance (to go with the weekly bullish stance we have noted for so long in the ‘Currencies’ segment).
Categories: Economic Blogs

We’re Ready to Profit in the Coming Gold Price Correction—Are You?

The Market Oracle - Tue, 29/07/2014 - 17:07
By Laurynas Vegys Sometimes I see an important economic or geopolitical event in screaming headlines and think: “That’s bullish for gold.” Or: “That’s bad news for copper.” But then metals prices move in the opposite direction from the one I was expecting. Doug Casey always tells us not to worry about the short-term fluctuations, but it’s still frustrating, and I find myself wondering why the price moved the way it did.
Categories: Economic Blogs

Collection nation: One out of three consumers have debts in collection over the past year. A total of 77 million Americans are having problems managing their debt. 22 million consumers have zero credit.

My Budget 360 - Tue, 29/07/2014 - 17:07
A recent report by the Urban Institute and Encore Capital Group’s Consumer Credit Research Institute has found some rather startling news about consumer debt in the United States. Over one third of consumers had some sort of debt in collection over the past year. Of course this coincides with the struggling employment growth that many […]
Categories: Economic Blogs

Their Economy Will Collapse, Including Ours

The Market Oracle - Tue, 29/07/2014 - 17:01
Harry Dent writes: Central bankers think they can keep their economy going by artificial stimulus until they hit escape velocity and grow at normal rates again — but they’re wrong. Here at Dent Research we hold a different view to what drives the economy. And central bankers are in for three big surprises ahead.
Categories: Economic Blogs

China’s Market Finally Looks Like a Buy

Financial Sense - Tue, 29/07/2014 - 17:00

Is China’s economy, the second largest in the world, a disaster coming down to a hard landing, which has been the popular forecast for four or five years now? Or is it merely slowing from unsustainable double-digit growth of more than 12% a few years ago, to a more reasonable and sustainable pace?

Categories: Economic Blogs

Respecting the Message of Bob Farrell’s Rule #7

Financial Sense - Tue, 29/07/2014 - 17:00

There are many successful investors who have accumulated decades of experience and have drilled down their pearls of wisdom to insightful lists. One such list, or ten rules to remember, comes from legendary investor Bob Farrell who spent decades at Merrill Lynch & Co. and retired as their chief stock market analyst in 1992.

Categories: Economic Blogs

Will Argentina’s Debt Crisis Rock the Global Markets?

Financial Sense - Tue, 29/07/2014 - 17:00

One of the recurring headlines adding to the “wall of worry” is the battle between U.S. hedge funds and the Argentina government over payment of the country’s bond debt stemming from the country’s 1998-2002 economic crisis.

Categories: Economic Blogs

How and Why the Chinese Are Buying Property Outside of China

Financial Sense - Tue, 29/07/2014 - 17:00

For some time, the Chinese government has been promoting the Yuan as a medium of international trade, and reducing the influence of the U.S. dollar. A pilot program was launched in 2009, and there have been...

Categories: Economic Blogs

Weekly Initial Jobless Claims and the S&P 500

Financial Sense - Tue, 29/07/2014 - 17:00

Weekly initial jobless claims fell 19k in the week ending July 18 to 284k. This represents a new cyclical low. The four-week moving average, used to smooth out this volatile series, also has fallen to new lows.

Categories: Economic Blogs

The U.S. and Russia Are Gas Giants

Financial Sense - Tue, 29/07/2014 - 17:00

In 2013 global natural gas production advanced 1.1% to a new all-time high of 328 billion cubic feet per day (Bcfd). Except for a one-year decline in 2008-2009, global gas production has risen fairly steadily for about three decades, and production has more than doubled during that time span...

Categories: Economic Blogs

Consensus Building for 2016 Stock Market Bubble, Crash

Financial Sense - Tue, 29/07/2014 - 17:00

The year 2016 will see a number of important events: the US presidential election, the Summer Olympics, and, according to a growing number of market analysts, another financial crisis.

Categories: Economic Blogs

Silver Prices – Megaphone Patterns

The Market Oracle - Tue, 29/07/2014 - 16:55
President Nixon closed the “gold window” in August 1971.  That decision enabled the exponential growth of debt, paper currencies, and prices.  A few examples:
Categories: Economic Blogs

Canadian Doctor Quarantines Himself Over Ebola Fears After Returning From Liberia

Zero Hedge - Tue, 29/07/2014 - 16:50

Earlier today we wondered, rhetorically, if the CDC was wrong when it stated, with confidence, that there is "little risk" for the Ebola virus to leave the African continent, and cross the Atlantic, landing in North America. We may have gotten the official refutation less than 6 hours later, when moments ago Canada's CTV reported that a Canadian doctor is in self-imposed quarantine after spending nearly a month in West Africa treating patients in the deadly Ebola outbreak that has claimed nearly 700 lives. "Dr. Azaria Marthyman of Victoria, B.C. was among a handful of Canadian health-care workers who traveled to Liberia, where the Ebola epidemic is currently raging. He was part of a North American team from the Christian relief organization Samaritan’s Purse." This is the same charity organization whose two US citizen members were previously reported to have caught the virus.

Dr. Azaria Marthyman of Victoria, B.C. is seen putting on protective
gear before treating Ebola patients in Liberia.

Dr. Marthyman worked at the agency’s facility in Liberia’s capital, Monrovia, before returning to Canada last Saturday. While he has not tested positive for the disease, he has quarantined himself as a precaution.

And immediately, the attempt to spin this as good news emerges: "Azaria is symptom-free right now and there is no chance of being contagious with Ebola if you are not exhibiting symptoms," Melissa Strickland, a spokesperson for Samaritan’s Purse, told CTV Vancouver Island.

That last statement may be worth a #timestamp, especially considering that one of Marthyman’s colleagues with Samaritan’s Purse, Dr. Kent Brantly, is confirmed infected. The 33-year-old married father of two children is undergoing intensive treatment for the disease, but has been able to speak with doctors and work on his computer.

From CTV:

Health care workers undergo rigorous decontamination processes to avoid infection.

 

“It takes about 45 minutes to suit up before going into the isolation area,” Marthyman said by telephone.

 

His journey to West Africa is not his first to an area ravaged by disease or disaster. Last year, he travelled to the Philippines to provide medical care to victims of Typhoon Haiyan. In 2010, he joined a medical team that treated patients affected by a cholera epidemic in Haiti.

 

In an interview prior to his trip to Haiti, the father of seven shared why he risks his life to help others.

 

“We have this slogan at home that we always say at the table, and it’s ‘do your share and let the love go around,’” Marthyman said.

We congratulate Dr. Marthyman for doing the right thing, and we certainly hope that all of his Ebola tests turn out negative.








Categories: Economic Blogs

Your Chance to Cash In on a Massive Infrastructure Overhaul

The Daily Reckoning - Tue, 29/07/2014 - 16:45

The Internet, and its user base of billions of people worldwide, is in the middle of a crisis — a bandwidth crunch that impacts us all.

Since the Internet boom of the 1990s, Internet infrastructure has not had a major upgrade in carrying capacity. Now, for the first time in more than a decade, we are on the edge of an immense spending cycle aimed at upgrading those “old pipes”.

The critical shift in standard that needs to take place to keep those “pipes” from clogging is from decade-old 10G (10-gigabit) bandwidth capacities to the faster, higher-capacity 100G network — also known as 100G Ethernet. This new network bandwidth will become a global standard, running underground from city-to-city and undersea from continent-to-continent.

As with all creative destruction, there will be victims and beneficiaries. Luckily for you, this new spending cycle will be a multiyear benefit for one particular group: fiber optic networking companies.

You see, the fast lane of the information superhighway travels on pulses of light, moving primarily through fiber-optic cables and secondly through satellite.

America’s favorite sport is coming to grips with the need to embrace new technology that connects its fans.

Over long distances — and increasingly over short ones — fiber-optic technology supplies the communications medium of choice. Here’s why fiber-optic networking and equipment suppliers will be one of the best tech trades of the decade …

The Three Big Drivers of Big Data

There are three big drivers of traffic in big data…

The first is video distribution.

Google’s YouTube, Hulu, and Netflix have helped video become the biggest single consumer of bandwidth capacity in the network. For one thing, these platforms keep adding higher quantities of video to their services. But the video content has improved in quality as well. High definition video doubles bandwidth, and emerging 3-D video formats doubles it yet again.

The second driver of the bandwidth crunch is voice.

Leaving aside the fact that programs like Skype, FaceTime and Google Chat combine high bandwidth video with their phone calls; communications are becoming more and more international. Such long distances demand more reliability. Moving alongside voice is also music, which is digitized and broadcasted through popular apps like Pandora, Spotify, and more.

Last of our big three bandwidth users is data.

Cloud computing, or the migration of software and computing services from independent networks to online providers, is the big kahuna when it comes to data. When we store our data in cloud-based data centers, it’s channeled over vast geographical areas in order to maintain resilience and closeness to end-users. That means that when we plug into the Internet, The Cloud must be able to accommodate incoming traffic from anywhere and everywhere.

There are, of course, less obvious contributors to the bandwidth crisis.

Machine-to-machine communications contribute automatically. Smart grids such as connected utility-metering systems use a lot of bandwidth too. Remote monitoring services are tied to hospitals, schools and security systems. And then there are the ever-populating point-of-sale retail terminals of the variety you use in the “self-checkout” line at the grocery store.

The point is: big data cannot be stopped. And somebody is going to need to build Internet infrastructure that can handle all the growth. At this rate, bandwidth infrastructure will become as important as road, water and electricity systems within the next decade.

NFL Stadiums Embrace Tech

I’m not the only one saying that either. America’s favorite sport is coming to grips with the need to embrace new technology that connects its fans.

According to CNN,

“Stadium owners and operators need to get their hands on the fact that they need to put in Wi-Fi like they need to put in plumbing.”

Think about it. When you’re at a game, sweep the crowd and see how many people are using their smartphones. People are constantly keeping track of the score, updating their fantasy football picks, forwarding highlights, sharing moments and chattering through social media …

And if you don’t see this, it’s because the stadium you’re in can’t handle the web traffic!

About a dozen stadiums in the U.S. have Wi-Fi capability, and about 20 have Wi-Fi in certain areas. Most operate on service provided by Verizon and/or AT&T.

The problem is that these cellular carriers may not be able to handle the bandwidth at their current capacity.

That’s not good news for some of the biggest telecom operators, like AT&T (T), Verizon (VZ), British Telecom (BT) and China Mobile (CHL). “Each year, the carriers look for ways to innovate and get greater productivity,” affirms Andrew Schmitt, an optical analyst at Infonetics Research. “Moving to 100G is a big jump, but they have to do it to remain competitive.”

In addition to the big operators, wholesale telecom carriers such as Level 3 Communications (LVLT) and Internet network service providers like Equinix (EQIX) have the same problem.

Then there are the tech giants such as Amazon (AMZN), Microsoft (MSFT) and Google (GOOG). Each must invest heavily to build and expand massive data networks. For three consecutive quarters, for example, the king of search spent over $1 billion on data centers and servers.

Such companies have proved they are willing to spend billions to hold existing customers and claim new market share. They have no choice but to upgrade their networks to 100G speeds in the future.

The Internet’s present infrastructure was not built with the intention of being the chief conduit to deliver all this data, voice and video content.

We have no choice. We must make the switch.

The 100G expansion will favor innovators who are ahead of the game

Here is a list of companies for you to check out that are all competing in this sector:

Ciena (NASDAQ: CIEN), JDSU Uniphase Corp (NASDAQ: JDSU)., Finisar Corporation (NASDAQ: FNSR), Infinera (NASDAQ: INFN)…

Smaller ones include Oclaro, Inc (NASDAQ: OCLR) and NeoPhotonics Corp (NYSE: NPTN).

The 100G expansion will favor innovators who are ahead of the game, and weaker competitors will be increasingly disrupted and weeded out of the industry. The past decade has seen fiber optic networking companies consolidate, with more consolidation expected as different vendors compete for the new network standard.

That’s why it’s so important to be ahead of the game with the most disruptive tech and most disruptive business model going forward.

Don’t worry. We’ll continue this theme in your future issues.

Best,

Josh Grasmick
for Tomorrow in Review

Ed. Note: The overhaul of the existing fiber-optic infrastructure will be a huge boon for a handful of lucky tech companies. To make sure you get in on the ground floor of this emerging trend, sign up for the FREE Tomorrow in Review email edition.

Categories: Economic Blogs

Hard Work and External Help: How to Successfully Conduct Macroeconomic Adjustment With Official Assistance

RGE Analysts' EconoMonitor - Tue, 29/07/2014 - 16:30
What are the factors that ensure a successful and durable completion of a financial assistance programme? Past experience with IMF-supported adjustment programmes underlines the importance of external conditions but also of fiscal consolidation, financial repair and structural reforms. These findings vindicate the strategy pursued in recent adjustment programmes in the euro area: putting the fiscal [...]
Categories: Economic Blogs

How Bitcoin Can Simplify Your Dinner Plans

The Daily Reckoning - Tue, 29/07/2014 - 16:30

A great technology solves a problem that we didn’t know we had. It makes us aware of deprivations we didn’t know existed until we discover the new thing. Once discovered, we can’t go back.

People in the 1950s, for example, never missed the smart phone. They were pleased to have a phone at all. But today, we would never revert, not even to one-year-old technology. It was this way with electricity and railroads and printing all the way back to the wheel and fire.

So too with Bitcoin. People sometimes ask why we need a new payment system and new form of private money. The current system works just fine. That’s what they think until they use Bitcoin. Once they do, they wonder how the world can put up with such a slow, expensive, intrusive, fragile, and old-fashioned system as the dollar nexus.

It doesn’t matter how the check is divided or if it is divided at all. The entire problem of check splitting goes away.

Investor Peter Schiff pointed this out to me recently. He has been a Bitcoin skeptic. Then he saw how his own clients can transfer funds while on the phone at near-zero cost without going through banks or other institutions. He was dazzled and thrilled. After you experience that, the ground seems to shift.

Here’s my latest example, drawn from a regular experience we’ve all had. You go to dinner or a bar with a group of 8 or 10 people. Early in the night, people are happy and living it up. Drinks, appetizers, more drinks, more snacks, shots, desserts, more drinks, whoo hoo! Life doesn’t get any better than this!

Oh but wait. There is the matter of the bill. No one has mentioned this before. At this point in the evening, you start noticing that people drift to the exits to step outside for a smoke. Maybe it is deliberate, or maybe it is not. But regardless, it seems inevitable that by the time the check arrives, the crowd is oddly thinned out. They are avoiding what is always an uncomfortable scene.

You could divide the check but no server appreciates having to do this, and then you get the complication of who is paying for whom. So the total amount usually arrives in one check. It’s less complicated this way. But when it arrives, you can’t just stare at it on the table, as if it were poisonous. At this point, someone, SOMEONE, must accept it or at least pick it up.

Let’s just say you are kind of a natural leader and the bill lands in your lap somehow. That’s when the problems begin. You need to collect from everyone present. Not everyone has cash. A few people will point out that they only have a credit card, and since you don’t accept credit cards — individuals don’t accept credit cards, only institutions — they will just have to owe you or they will “pick up the tab next time,” which, of course they never do.

Some people have some cash but not enough. If you pick up the tab with a credit card and start collecting cash — based on people’s estimates of how much they have consumed — it is a universal law that you will be short on funds. You will collect a third to half as much as you need.

Then you face that great dilemma. Do you do the math and start dunning people? Talk about a downer. Everyone will leave vaguely annoyed at you. In my experience, what happens is that one person ends up paying and collecting a fraction of the cash necessary to pay the whole table. When this reality dawns on everyone — “I’ve got it covered” — people immediately act like it is a wonderful act of generosity, thanked their benefactor, and move on with the night.

This scene is repeated thousands or millions of times every night. It is actually a serious source of quiet conflict and feeds resentments that can last and last. For those who have figured out the racket, they avoid it and actually try not to find themselves in large groups for fear of the great struggle over the bill.

The entire trouble seems like a deeply human conflict, but actually it traces to technological limitations. First, individuals have no way to pay other people on the spot except through cash of which they rarely carry in the right amounts. Second, individuals have no way to accept non-cash payments at the moment — no one is going to write a check under these conditions — so you end up with debts and vaguely made and unfulfilled promises.

No one is really trying to rip off anyone else or sponge off their neighbor, even if it seems to end up that way. It’s all about the tools we use to make payments. Until recently, we have lacked the means to carry flexible amounts of instantly transferable funds that can be moved at low cost from person to person without invoking the services of some third party agency that doesn’t really serve individuals.

Now you might be thinking that there is PayPal. There is. But then you have to get an email address, and you have to pay some fairly high fees, and the service isn’t really set up for casual friend-to-friend payments. It can happen but not without some difficulty.

The other night I was out with friends at a Bitcoin conference. At this event, most everyone had a Bitcoin wallet. When the check came, it was super easy and wonderfully fun. You hold up your phone, scan the QR code, and send or receive whatever amounts are necessary to pay what you need to pay. The process is a delight.

This works even if the establishment doesn’t accept Bitcoin. One person accepts the bill and everyone else pays via Bitcoin. No more excuses about lacking cash or promises to pay later.

The whole problem of the shared check is solved right there on the spot. People have every incentive to pay the right amount, since you aren’t shoving cash around but creating a permanent record of a transaction. They can do so instantly. They can do this without paying notable transactions fees. Everyone leaves happy. It doesn’t matter how the check is divided or if it is divided at all. The entire problem of check splitting goes away.

You might think, oh, this check-splitting problem is just a silly annoyance, not a serious problem. In fact, it is a persistent issue that affects friendships, otherwise tight communities, and ruins social networks. It’s a case in which you don’t really know the source of the problem until you see the solution in operation.

Once you see the solution [to a problem]… you see a huge array of applications for it.

Once you see the solution — a method for transferring value person-to-person instantly at near-zero cost without using a third-party intermediary — you see a huge array of applications for it.

I’m now thinking back to a scene from my childhood in which my father and his father argued over the check at a restaurant. No one had cash. Each had a credit card, so it was an all-or-nothing deal. This was not a polite argument. It became worse and worse. Eventually it became physical, as each man grabbed the check from the other man. It was angry and awful, and oddly traumatizing for a young son to witness.

How much nicer this would have been if they could have quietly and effortlessly exchanged value through their smartphones. My dad could have paid Bitcoin to his dad, and if his dad objected, he could have sent it back. Pretty simple, all with a smile. This would have been charming and delightful, an exercise in exchange and generosity.

So many human problems have their roots in technological failings. Think of how much late or lost mail made a mess before the age of email, or how many family conflicts were related to fighting over the use of the same phone. Solve the technological problem and you make life better for everyone.

Bitcoin can be this way. Once it enters into regular use, we’ll all be amazed that we ever managed without it.

Sincerely,

Jeffrey Tucker
for The Daily Reckoning

P.S. If you see Bitcoin as only another type of money, then you’re “missing the forest for the trees.” As more and more entrepreneurs find different uses for it, its value grows. Not only can it help you transfer money with someone directly over the phone with practically zero fees, but it could also help you tap into an underground system that can help protect your wealth. Readers of today’s issue of Laissez Faire Today were given a unique chance to gain access to this underground banking system, and reap all the potential benefits it offers. Sign up for the FREE Laissez Faire Today email edition, right here, and make sure you never miss another great opportunity like this.

This article originally appeared here on Liberty.me.

Categories: Economic Blogs

Is Hong Kong-US Dollar Link About To End? HKMA Buys $715 Million To Support Peg

Zero Hedge - Tue, 29/07/2014 - 16:28

Yesterday saw something quite unusual in the New York trading session. The Hong Kong Monetary Authority bought $715 million (selling HKD) in the FX markets to manage its currency peg, injecting the money into the banking system (and expanding its balance sheet) to prevent HKD from rising above its permitted range. HKMA projects its balance sheet to grow to the end of July, but as Simon Black (of Sovereign Man blog) notes, this could well be the start of a bigger shift - an end to the US Dollar peg..."The US is no longer the undisputed superpower it once was. The US dollar is dragging them down. Hong Kong is easily strong enough to stand on its own."

 

HKMA's balance sheet is surging - HKD demand pressuring peg, thus buying USD (and selling HKD) to manage peg...

 

Is this the beginning of the end of the HKD peg to the US Dollar? (via Simon Black of Sovereign Man blog)

It was a different world in 1983.

 

Michael Jackson invented the Moonwalk. Return of the Jedi opened in theaters across the world. IBM released its most advanced personal computer yet– the XT, with a standard 10 megabyte hard drive.

 

And after nearly a decade of eratic swings and collapses, the Hong Kong government pegged its currency (the Hong Kong dollar) to the US dollar at a rate of 7.80 HKD per USD.

 

This was a big move for Hong Kong. The Hong Kong dollar had originally been backed by silver until 1935 when, facing a shortage of precious metals, they pegged it to the British pound.

 

This made sense in 1935 as the British pound sterling was still (barely) the world’s top reserve currency.

 

But things changed. In 1972, Hong Kong broke from the pound and adopted a new peg to the US dollar.

 

This didn’t last either. After just two years, the US government’s rising debt and inflation forced Hong Kong to abandon the US dollar peg.

 

At that point Hong Kong was well-known and stable… so why bother pegging the currency at all? The HKD floated freely in the marketplace, just like any other currency.

 

It went well for them at first. But by the early 1980s, the Hong Kong dollar had become much weaker due to jitters over the island’s reunification with China.

 

Finally, in 1983, they re-established a peg with the US dollar. And at the time, this probably made a lot of sense.

 

In 1983, Fed Chairman Paul Volker had established tremendous international credibility, both for the US dollar as well as the Federal Reserve. And most of all, Hong Kong was in need of a strong anchor.

 

But 31 years later the world is entirely different.

 

Michael Jackson is no longer with us. The world has sat through three completely lame Star Wars prequel movies. Even the cheapest mobile phone has more storage capacity than the IBM XT.

 

And both the Fed’s and America’s credibility have waned.

 

Today Hong Kong is one of the world’s richest economies. When compared with the US, nearly every objective fundamental about Hong Kong’s economy is stronger.

 

Its fiscal balances are higher. The government runs a budget surplus. Government debt is a rounding error. It’s a night and day difference. There’s no reason why these two currencies should be linked.

 

Theoretically, Hong Kong’s currency should be much stronger than the peg allows. But its purchasing power is being artificially supressed.

 

This means that residents of Hong Kong pay more for products and services than they should, including basic staples like food (90% of which is imported).

 

But after three decades, things are starting to get interesting.

 

Just recently the Hong Kong dollar hit the upper limit of its allowable range– exactly 7.7500. And the Hong Kong Monetary Authority has had to spend billions of dollars to defend the peg.

 

The reasons are unclear, though it’s entirely possible that investors are attacking the peg, similar to what happened to the pound back in the 1990s. We could be in the early stages of such an assault.

 

Even if not, it’s time for a change.

 

These currency pegs are not set in stone; Hong Kong has changed its own peg several times. And the basic fundamentals which led them to the US dollar in 1983 have changed completely.

 

The US is no longer the undisputed superpower it once was. The US dollar is dragging them down. Hong Kong is easily strong enough to stand on its own.

 

Bottom line, there’s no longer any benefit in maintaining the peg. Yet the costs (inflation, asset bubbles) are too high. This will eventually right itself.

 

For the last several years, we’ve been recommending that our readers hold Hong Kong dollars– especially if you normally hold US dollars.

 

The currency is still pegged to a very narrow band, so the most it would fluctuate is 1.27%.

 

But if the Hong Kong government revalues the Hong Kong dollar, the gain could easily be 30% or more if they simply revalue to the level of the renminbi.

 

Given the limited downside risk, this is a very safe bet to make.

 

The best way to do it? Open a bank account in Asia.

*  *  *

Between China unveiling stealth QE, the strengthening of CNY and now the upward pressure on HKD, something is afoot under the surface as The Fed nears the end of QE.








Categories: Economic Blogs

Why China Couldn't Care Less About Its Stock Market

Zero Hedge - Tue, 29/07/2014 - 15:59

Following the latest liquidity injections by the PBOC (set to make 2014 the biggest credit creation year since Lehman), countless bailouts of insolvent companies by Beijing and local governments despite promises there would be no bailouts, and what some have dubbed is an actual Chinese QE, all making it quite clear that China was clearly not serious when it threatened to burst the housing bubble (it hoped it could do a "controlled landing"; it failed which means full steam ahead onto the inevitable NPL collapse), Chinese stocks have clearly responded by jumping higher with the Shanghai Composite spiking to its highest in 7 months.

This in turn has brought the permabullish Chinese penguins out of hiding, who, having been wrong on the Shanghai Composite for 6 years, now see a sudden resurgence in the Chinese stock market. Their thinking is predictable: like the US stock market is to the Fed's "wealth effect", so China's would be to the PBOC, right?

Wrong.

The reason: while in the US the bulk of America's $67 trillion in household wealth is in financial assets, read the S&P 500, with only 28% of wealth invested in real estate (according to the latest Flow of Funds reports), in China the wealth distribution is a mirror image, with a negligible amount of wealth invested in stocks and the bulk of household wealth invested in real estate. By bulk we mean a whopping 75%!

From Xinhua:

About one percent of Chinese households own one-third of the nation's wealth, raising concerns about income inequality in the world's most populous country, according to a study by Peking University.

 

Chinese households on average had a net worth of 439,000 yuan (about 71,000 U.S. dollars) in 2012, up 17 percent from the 2010 level, the university's Institute of Social Science Survey said Friday in its latest report on China's livelihood development.

 

However, income inequality rose rapidly during the period, the report said, as the top one percent of Chinese households held more than one-third of the nation's wealth, while 25 percent of households at the bottom owned only 10 percent of the country's property value.

 

The researchers based their main analysis on 2012 data from the China Family Panel Studies, a large-scale survey project conducted by the institute.

 

The report showed about 74.7 percent of Chinese household wealth came from owning real estate.

Which confirms what we have been saying for years namely that "to China housing is like the stock market to the US: both mission-critical bubbles designed to give a sense of comfort and boost the "wealth effect"."

The allocation of household wealth to real estate is shown in the chart below, but the message is clear: when it comes to chasing China's latest and greatest bubble reflation, focus on real estate; nobody cares about Chinese stocks.








Categories: Economic Blogs
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