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Wake Up Time

Old 23rd Sep 2011, 18:02
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Wake Up Time


A quick synopsis of the financial markets, combined with an overview of the trade conditions (particularly here in China) suggest that the world as we know it is about to take a serious turn for the worse. Yesterday, Fedex announced that there has been a sharp drop-off in Asia originating tech shipments. Additionally, there is the mother of all credit crunches developing in China (those of you who are sitting on a profit in might be the time to get out!).

Europe: About to implode. The Greece situation is going to lead to a collapse in the Euro, and outright recession/depression. The large banks are technically insolvent with no mechanism to recapitalise them. The counterparty risk is unquantifiable, but certainly of a staggering scale.

USA: Screwed....politically and financially. There is no hope of avoiding a recession. This will trigger even higher levels of unemployment which will lead to yet another leg down in housing. The model is broken there with the bank stocks reaching record lows again and main economic companies (like Fedex etc) flashing warnings of a sudden and large world slowdown.

Asia: Living of an export bubble supported by easy Chinese money. The brakes are on and companies are closing suddenly and in large numbers. Suppliers and banks are not being repaid with unemployment starting to spike, leading to massive outbreaks in civil unrest. The follow on in HK will be dramatic and will result in 1997 like falls in economic activity and falls in housing prices.

Overview: No place to hide. CX will have to hunker down for the next several years. Any planned expansion will probably be put on hold. The next battle over pay and conditions will be fought from a much reduced position of strength on our part. Watch the weekly telex for indications of all the above stated ideas.

...hopefully i'm wrong...but 20 years of market study convince me that the sky really is about to fall. Good luck.
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Old 23rd Sep 2011, 19:58
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Air Profit . . .

...hopefully i'm wrong...but 20 years of market study convince me that the sky really is about to fall.
In order to achieve a higher reality level you may want to expand your market studies to encompass the last 70 years, with emphasis on WWII when the entire productive capacity of many nations was consumed in military weapons and logistics; when infrastructures were destroyed and when millions of displaced persons were foraging for food and shelter; . . .when superpower USA's debt was a whopping 109% of GDP!

Once you are able to digest this global calamity, then you may acquire some balance in your doomsday prognosis. In comparison, the WWII financial meltdown makes today's global recession appear rather tame. Note how quickly Europe and Japan had rebuilt their infrastructures and economies after near total destruction.

Do you think that people will suddenly stop eating imported Australian beef? Will people stop buying made-in China toys for their kids? Will women stop buying imported roses from Kenya? Will YOU stop living...?
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Old 23rd Sep 2011, 20:49
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Before, during and after WW2 the world had an ever increasing supply of cheap, easilly transportable liquid energy - OIL.

Still alot left, but at over $100 / barrel, it's expensive, and the demand for it is insatiable, especially India / China. We are at peak oil (or even past it) - oil supply is downhill from here.

No cheap energy, little or no economic growth.

Energy is THE problem - or the lack of CHEAP liquid energy, to be honest.

I agree the system may fail catastrophically soon. Globalisation is failing fast. "Interesting" times ahead, world-wide.

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Old 23rd Sep 2011, 20:56
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Flying lid.

China doesn't run on oil alone, Coal is a major factor and they will never run out of cheap coal, mainly because we (Australia) have so much of it.

Japan and Germany are before India, although I think India will catch up and over take those two.

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Old 23rd Sep 2011, 21:21
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When the recession will come, the oil price will probably drop well below the 100$ mark.
But then, I think we'd rather have a 3% growth and a barrel costing 120$, than a recession
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Old 23rd Sep 2011, 22:11
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Happy to post my synopsis and stand by it. Time will tell.

ps. Furball. I implied I have 20 years of experience studying and playing the markets, not that I am only considering the last '20 years of market action'....
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Old 23rd Sep 2011, 22:17
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A Bunch Of Chinese Manufacturing Bosses Just Defaulted And Fled Their Failing Businesses
Linette Lopez | Sep. 23, 2011, 12:41 PM

China's papers are calling it their "own subprime crises."
According to Shanghai Daily, 7 large business owners, mostly manufacturers, fled the city of Wenzhou on September 12th. They left thousands of employees jobless and hundreds of millions in unpaid debt.
This is one of the consequences of China's "black bank," the massive undergound banking system that has been growing at a dizzying pace since the government started tightening credit to curb inflation. Banks favor state-owned businesses when it comes to lending, so when private business owners need to take out a loan, they turn to the alternative, to the underground.
Going to the undergound has two consequences: For those who take out loans, it means having to pay much higher interest rates than they would if they borrowed legitimately. For the lender, it means that if a loan goes unpaid, there isn't much that can be done about it.
In other words, if business is bad for a business owner with an underground loan, they can just walk away. So they do.
One of the runaway employers is Hu Fulin, the owner of Zhejiang Center Group (ZCG). ZCG owns the most popular sun-glass company in China (they make 20 million pairs a year) and employed 3,000 people. He also invested in real estate and the renewable energy industry.
Hu is penniless now, but he owes his employees their August and September salaries (about $1.5 million), and he hasn't paid his suppliers either. The city government has set up a task force to figure out how to track all of Hu's loans and repay his debts.
It's rare that the authorities are able to catch bankrupt business owners before they leave town, but sometimes it happens. Zheng Zhuju, the 49 year old owner of a home appliance store, tried to skip Wenzhou leaving $43.8 million in unpaid, underground debt. She was arrested beforehand, though, and has been incarcerated since September 13th.
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Old 23rd Sep 2011, 22:21
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...and another

ROB ARNOTT: We're In The Worst Depression Since The Great Depression
Gus Lubin | Sep. 23, 2011, 7:10 AM | 7,531 | 29

Rob Arnott says we're in the worst depression since the Great Depression and the Fed may be making things worse.
Arnott, who oversees $80 billion at Research Affiliates, tells King World News:
When real interest rates are 2%-4% and inflation rates are 2%-4% you get a really nice peak where the average P/E ratio is north of 25 times earnings. The interesting thing is both of these numbers are within the control of the Fed, the Fed can control the rate of inflation and tacitly can therefore control the real rate of interest.
Where are we now? We have negative real interest rates. Okay, that’s pretty alarming. We also have inflation rates (if) correctly accounted, it’s probably in the 5%-7% range. If inflation kicks up another 1% or 2%...This creates some fairly serious downside risk for equities if the Fed continues on it’s current path.
Unfortunately I think they will, unfortunately enabling bad behavior is what they do to try to avoid an economic downturn. Well, the downturn is already here. Absent deficit spending, we’re already mired in the worst depression since the Great Depression.
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Old 23rd Sep 2011, 22:23
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....and one more

CHANOS: China's Property Bubble Is Hitting The Wall Right Now
Mike "Mish" Shedlock, Global Economic Trend Analysis | Sep. 21, 2011, 5:22 AM | 3,160 | 14

Chanos said that growth in China may be zero and that China has “European kind of numbers” when it comes to debt.

On how a Chinese property bubble will play out:
"I think that will be the surprise going into this year, and into 2012 - that it is not so strong. The property market is hitting the wall right now and things are decelerating. The CEO of Komatsu said last week that he is having trouble getting paid for his excavator sales in China. Developers are being squeezed. They're turning to the black market for lending, this shadow banking system that is growing by leaps and bounds like everything in China.
"Regulators over there are really trying to get their hands around the problem. In the meantime, local governments have every incentive to just keep the game going. So they will continue with these projects, continuing to borrow as the central government tries to rein it in."
Chanos on his long and short positions:
"We are short Chinese banks, the property developers, commodity companies that sell into China, anything related to property there is still a short."
"We are long the Macau casinos. It's our long corruption, short property play. We feel that there's American management and American accounting. They are growing at a faster rate even than the property developers."
On the IMF lowering growth estimates for China:
"A lot of people are assuming that half of all new loans in China are going to go bad. In fact, the Chinese government even said that last year relating to the local governments. If we assume that China will grow total credit this year between 30% to 40% of GDP, and half of that debt will go bad, that is 15% to 20%. Say the recoveries on that are 50%. That means that China, on an after write off basis, may not be growing at all. It may be having to simply write off some of this stuff in the future so its 9% growth may be zero."
Misleading Indicators

Please consider China Stocks Advance Most in Four Weeks as Leading Indicator Shows Growth
China’s stocks rose, sending the benchmark index to its biggest gain in four weeks, after a gauge of economic indicators signaled growth is withstanding Europe’s debt crisis and faltering expansion in the U.S.
“Valuations have reached a bottom, leaving limited room for further declines,” said Mei Luwu, a fund manager at Lion Fund Management Co., which oversees more than $7.8 billion. “Volatility will rise in the market as investors bet on the timing of a rebound.”
The index “signals a continuation of economic expansion through the end of this year,” Jing Sima, the board’s New York- based economist, said in a statement. “The rate of economic growth will be slower in 2011 than last year.”
The IMF estimates the Chinese economy will grow 9.5 percent this year, down from a forecast of 9.6 percent in June, and 9 percent in 2012. The fund lowered its estimate for world growth this year to 4 percent from the previous 4.3 percent forecast.
Expect Huge China Slowdown

Developers not getting paid, coupled with excessive and unsustainable credit growth, trumps alleged leading indicators.

For another view on the coming slowdown in China, please consider Michael Pettis: Long-Term Outlook for China, Europe, and the World; 12 Global Predictions.

Pettis, unlike Chanos does not foresee a China "crash" but at a minimum, those expecting huge growth certainly will not get it.

Here are 12 predictions by Pettis (Please see article for detailed explanations regarding China).
To summarize, my predictions are:

BRICs and other developing countries have not decoupled in any meaningful sense, and once the current liquidity-driven investment boom subsides the developing world will be hit hard by the global crisis.
Over the next two years Chinese household consumption will continue declining as a share of GDP.
Chinese debt levels will continue to rise quickly over the rest of this year and next.
Chinese growth will begin to slow sharply by 2013-14 and will hit an average of 3% well before the end of the decade.
Any decline in GDP growth will disproportionately affect investment and so the demand for non-food commodities.
If the PBoC resists interest rate cuts as inflation declines, China may even begin slowing in 2012.
Much slower growth in China will not lead to social unrest if China meaningfully rebalances.
Within three years Beijing will be seriously examining large-scale privatization as part of its adjustment policy.
European politics will continue to deteriorate rapidly and the major political parties will either become increasingly radicalized or marginalized.
Spain and several countries, perhaps even Italy (but probably not France) will be forced to leave the euro and restructure their debt with significant debt forgiveness.
Germany will stubbornly (and foolishly) refuse to bear its share of the burden of the European adjustment, and the subsequent retaliation by the deficit countries will cause German growth to drop to zero or negative for many years.
Trade protection sentiment in the US will rise inexorably and unemployment stays high for a few more years.
Valuations Not at Bottom

In the face of coming writedowns, alleged "cheap" valuations will likely get much cheaper.

As Minyanville's Peter Atwater is fond of saying "At the top of every credit cycle, the Income Statement is the Past, the Balance Sheet is the Future"

Atwater's statement applied to "financial institutions", but Ponzi financing is everywhere you look in China and the ripple effect will hit every company just as happened in the US credit bust (soon to be resumed).

Income only counts if you get it. Developers not getting paid is a huge warning sign.

Last edited by Air Profit; 24th Sep 2011 at 07:50.
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Old 23rd Sep 2011, 23:14
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If you are that good at 'playing the market' Profit, what are you doing posting on an anonymous pilots' bulletin board; or are you posting from your yacht in Monaco and doing it for 'charity'?

(I ask a similar question to all 'financial advisors')
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Old 24th Sep 2011, 00:41
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"The one who believes in infinite growth in a finite world is either a madman or an economist"
Seems like it yet again takes a catastrophe for people to realise.
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Old 24th Sep 2011, 01:55
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Capt Dart

I am not sure that AP is posting financial advice, as much as his view.

We all have views on what is going to happen in the next 20 years, whether or not we actually realise it. We use those views to do things like choose our fidelity allocations.

Some (perhaps most) believe that tomorrow will be the same as today, ad infinitum. Others believe that there will be increased growth, yet others think there will be some significant issues, economically speaking.

If you have a good strong look at say the last 300 years, you will see that economies and currencies ebb and flow, with significant booms and upsets every so often. Most of these upsets occur after a prolonged period of currency manipulation by governments; conversly, periods of stability follow times when currencies have been strong and stable (read not "fiat").

In the past it was considered good housekeeping to prepare for disasters, whether they are floods or famine.

I think AP is merely giving you his view that the time for some preparation has arrived again.

That's his view. You need to make your own.
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Old 24th Sep 2011, 02:25
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Governments will simply give in to quantitative easing, printing more money into the system, pushing up hard asset prices like employment area real estate. Timing the plays may be a good idea, but it's the steady hand that wins the game, keep your debt minimal, dollar cost average, enjoy that you have net worth and a job. Get on with things and enjoy your remaining years on this planet... it goes fast.
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Old 24th Sep 2011, 05:26
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Jed: Captain Dart:

ps. Dart, good job 'all' your passengers don't ask you about how competent you are to fly airplanes....

pps. I never said I was 'good' at playing the markets.... (do try and read a bit more carefully next time...?).

Last edited by Air Profit; 24th Sep 2011 at 05:43.
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Old 24th Sep 2011, 05:38
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Hey Dart. You seem pretty good at missing the point. Jed was correct, Profit was simply offering an opinion, not giving ANY advice (other than HK property...which anybody with a pulse can see is probably due for a drop). I think the articles posted by Profit seem to provide pretty good evidence to support his opinion. How about you, things looking pretty good through your rose coloured glasses??
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Old 24th Sep 2011, 07:04
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Well, most of us already heard about AP's delusional "worldview" regarding his magic invisible friends with superpowers, our 6000-year-old Earth, dead people disappearing to live again in his magic invisible post-life place, etc.

Delusional people tend to interpret things to suit their delusion, just as with shamans, tarot cards, horoscopes, bibles, etc.

Markets go up, and markets go down. Economies boom, and economies bust. Players at Macau make money, then lose more. To those who don't get that, or need to rely on a fortune teller with AP's "worldview" to get it, well, good luck!

In the meantime, there is plenty of money to be made when markets go down, too. Doing it that way just depends on your "worldview!"

Have a nice day!
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Old 24th Sep 2011, 07:13
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Europe’s problem is that no one knows who’s in charge

It’s no good calling for leadership if none of the EU leaders has the authority to act.

By Charles Moore

8:02PM BST 23 Sep 2011

When the euro began, it proved difficult to agree on the design of the banknotes. In the end, its founders settled on pictures of bridges. British pound notes signify the national bank’s quantity of money (originally a weight of sterling silver) under the authority of the sovereign (the Queen). Euro notes are much vaguer. They express an aspiration. Those bridges represent man’s attempt to link what is naturally separate.

Now the bridges are cracking, and it turns out that it isn’t really anyone’s job to pin them together. Something called the troika – the European Commission, the European Central Bank and the International Monetary Fund – is handling the crisis, but the very fact that these three entities have to be triple-yoked indicates the problem. The only power that actually might be able to do something is Germany, and it seems paralysed.

Since this is a financial crisis, most of what you read about it is expressed in financial terms. Will the ECB buy up more bonds from distressed member states? Will the European Financial Stability Facility increase? Will the eurozone create a fiscal union? All perfectly reasonable questions in themselves, but they fail to ask the prior question, which is political, not economic: “Who’s in charge?”

The posh word for this question is “sovereignty”, and we Eurosceptics have been attacked more violently for worrying about it than for any of our other sins.

In a fierce and timely pamphlet, Guilty Men, published yesterday by the Centre for Policy Studies, Peter Oborne and Frances Weaver expose all the people who excoriated us doubters and insisted that the euro would work. They quote Chris Patten, former Tory chairman, Governor of Hong Kong, European Commissioner, and now the new chairman of the BBC. In a lecture at the time of the euro’s beginning, Lord Patten said that sovereignty, “in the sense of unfettered freedom of action, is a nonsense”. “A man naked, hungry and alone in the middle of the Sahara desert,” he went on, “is free in the sense that no one can tell him what to do. He is sovereign, then. But he is also doomed.”

Having defined sovereignty in this way, Patten was then easily able to prove that it was a useless concept – better for Britain to allow such empty freedom to be circumscribed in order to “achieve some other benefit”. But this is not what sovereignty means. It means those institutions and people who, in any political community, have ultimate authority – who is Caesar, as Jesus put it when asked about paying the tribute money.
That authority relates, of course, to power, but it is not only a matter of power, but also of legitimacy. It requires consent, which, in modern times, usually means democratic consent. In Britain, sovereignty is supposed to reside in what constitutional historians call “the Crown in Parliament”. Those of us who stuck by this concept were called little Englanders, xenophobes, bigots. But all we were really doing was insisting on those basic answers which you need before you embark on an awfully big adventure. Our questions were mocked and the answers never came.
In 1998, when the euro was brewing, I was invited to give a speech about it to the Institute of Directors. I looked up the European Commission’s Q & A booklet on the subject. To the question, “Will full economic and monetary union spell the end of my country’s right to determine its own economic policy?”, it replied, “Yes and no”. “Surely the right answer, from the pro-EMU point of view,” I said in my speech, “has to be an unequivocal 'yes’. Otherwise there will be different Caesars for different things with their powers undefined or, worse, different Caesars for the same things. In the long run, that is not possible.” Because of that original “yes and no”, half of the eurozone economy is now on the brink of collapse.
So this week, when everyone, including our Prime Minister and the head of the IMF, calls for political leadership, it cannot be provided. This is not because the leaders are not much cop (though they aren’t), but because they lack the necessary authority. The eurozone is suffering from a sovereign debt crisis, because no one is sure who is sovereign. Within an area united under the same currency some government debt – in the most extreme form, that of Greece – is toxic. Other government debt – above all, that of Germany – is fine. Greece finds herself neither sovereign, nor free, nor, to use the Patten phrase, achieving “some other benefit”. She is up the creek without a paddle, and so, quite possibly, are Portugal, Spain, Ireland, Italy, and more.
The Euro-visionaries such as Jacques Delors did not mind avoiding the question of sovereignty. Indeed, they almost rejoiced in it. They had wanted political union and failed to get it. So they hoped that, by pushing through economic and monetary union, they would make political union inevitable. If only they could get enough people into the room, they reasoned, they would find that they would not want to leave.
What they refused to contemplate was what is now happening. In 1997, William Hague predicted that being in the euro would be like “being trapped in a burning building with no exits”. He was attacked for his “half-way-out extremism” (Hugo Young), but today the acrid smoke from that fire is billowing across the markets. You can hear the screams of those trapped inside.
The crisis today is indeed worse than what followed the collapse of Lehman Brothers in 2008. People make bright suggestions for how the problems of the eurozone could be sorted out. These all depend on the idea that reform can be agreed and enforced. Given that treaty change can take years, and markets can collapse in hours, this seems improbable.
But there is a much deeper problem than one of time. In a really beautiful cutting from 1997, Oborne and Weaver find Lionel Barber, now the editor of the Financial Times, quoting with approval some words of Dominique Strauss-Kahn, then the French finance minister. Strauss-Kahn was attacking Britain for staying out of the euro. “Monetary union,” he said, “is like a marriage… People who are married do not want other people in the bedroom”: poor old Britain would find herself locked out. Subsequent events suggest that Mr Strauss-Kahn’s own bedrooms are rather less exclusive than he implied, but the assumption behind what he said was that the diplomatic marriage of France and Germany would ensure all was well. This turns out to be quite untrue. Diplomacy cannot create a nation, or even a looser political community, such as a United States of Europe. For that, you need the agreement of citizens. Such agreement has never seemed more remote in the history of the European Union than it does today.
It is not beyond Germany’s financial power to rescue the ailing eurozone countries. But the increase in political power for Germany which such a rescue implies is surely way beyond what most of the people of Europe would accept. The Germans do not want it either: in agreeing to create the ECB, they willed the means, but not the end. Now that the end is nigh, they are terrified.
What Europe faces, then, is a disaster that was predictable – and predicted – and is now unavoidable. In the process, millions will lose their jobs, an entire generation will miss the opportunities which their parents enjoyed, and blood will probably be shed. The rulers of Europe have never been so wrong since the late 1930s.
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Old 24th Sep 2011, 07:16
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We are long the Macau casinos. It's our long corruption, short property play.
Love it. Chanos has it nailed.
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Old 24th Sep 2011, 07:31
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Skillet. Is 'everything' in your world reflected in your obviously troubled soul and conscience? Are you able to comment on ANYTHING without showing your rather narrow-minded obsession with discrediting your maker...?
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Old 24th Sep 2011, 08:00
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Devil I agree with AP

Although markets may find an interim ( 2-3month low) soon that is but the first leg down of markets that will plummet more disastrously than they did in 2008.

Final bottom in about 4-5 years. Dow below 1000, S&P500 to around 150
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