Real estate rolling collapse
Middle class wipeout
Showing posts with label China. Show all posts
Showing posts with label China. Show all posts
Monday, August 15, 2022
Saturday, February 20, 2016
Financial Sarcasm Roundup for 02/20/16
It's always a great day at Alfidi Capital. It's even greater when I'm throwing sarcasm at the financial world.
China replaced its stock market regulator with a bank economist. Trading one type of loser for another will not repair foreign investors' lost confidence. The symbolism of a former central bank official watching stock movements is that capital markets must do the state's bidding. They could try putting a panda bear in charge. It would be more fun to watch than a human regulator and just as effective given the system's pervasive corruption.
US law enforcement and Apple are testing each other's legal patience. It looks like so much theater to me. Apple has cooperated with data subpoenas before. It's fairly easy to unlock iPhone data anyway. It's so easy, a caveman could do it. The latest case should not be such a big deal but Apple has to at least go through a few hysterical motions to please Silicon Valley's hard-core libertarians and data geeks. The data privacy crowd simply does not grok the "layer cake" messaging methods that federal regulators often employ with the finance sector, and now with the tech sector. I do not expect the data crowd of Star Wars fans and Bitcoin nut jobs to uncover such subtle public performances.
The heart of Yahoo's operation is going to the highest bidder. The board should fire the CEO for dragging this decision out so long. I would have kept the core business and sold off everything else, but the Yahoo board never asked me to become CEO. It's their loss. I will LOL if Microsoft emerges as the ultimate buyer, getting a bargain for what they should have acquired in 2008. Silicon Valley's smartest people sometimes do some really dumb things. It took a series of geniuses over a decade to destroy Yahoo when it could have been saved under Microsoft.
I still use Yahoo Finance because I like the details. It enhances my net worth. Dumb people in the Valley continue to dump capital into doomed tech startups. Laughing at them all will enhance my well-being.
China replaced its stock market regulator with a bank economist. Trading one type of loser for another will not repair foreign investors' lost confidence. The symbolism of a former central bank official watching stock movements is that capital markets must do the state's bidding. They could try putting a panda bear in charge. It would be more fun to watch than a human regulator and just as effective given the system's pervasive corruption.
US law enforcement and Apple are testing each other's legal patience. It looks like so much theater to me. Apple has cooperated with data subpoenas before. It's fairly easy to unlock iPhone data anyway. It's so easy, a caveman could do it. The latest case should not be such a big deal but Apple has to at least go through a few hysterical motions to please Silicon Valley's hard-core libertarians and data geeks. The data privacy crowd simply does not grok the "layer cake" messaging methods that federal regulators often employ with the finance sector, and now with the tech sector. I do not expect the data crowd of Star Wars fans and Bitcoin nut jobs to uncover such subtle public performances.
The heart of Yahoo's operation is going to the highest bidder. The board should fire the CEO for dragging this decision out so long. I would have kept the core business and sold off everything else, but the Yahoo board never asked me to become CEO. It's their loss. I will LOL if Microsoft emerges as the ultimate buyer, getting a bargain for what they should have acquired in 2008. Silicon Valley's smartest people sometimes do some really dumb things. It took a series of geniuses over a decade to destroy Yahoo when it could have been saved under Microsoft.
I still use Yahoo Finance because I like the details. It enhances my net worth. Dumb people in the Valley continue to dump capital into doomed tech startups. Laughing at them all will enhance my well-being.
Monday, February 15, 2016
Financial Sarcasm Roundup for 02/15/16
Happy Presidents Day, America. George Washington and Abraham Lincoln never imagined that the Internet would carry their noble messages to the far reaches of the globe. It also carries my sarcasm to those places.
Oil traders are getting more bullish. The bulls may have read my recent writings, or they may be figuring out that bankrupt oil producers can't pump forever before turning off wells. Oklahoma is drowning in liquid black gold and drillers are drowning in red ink. Consolidation this year means fewer slick operators selling flimflam and dry holes next year.
US consumers are spending again. People who went broke during the holidays are now counting pennies saved on lower gasoline prices. They spend those pennies with abandon. Watch your neighbors who aren't saving; they won't survive the onrushing recession. Their homes will be for sale upon foreclosure and I might be waiting with a check in hand.
Franklin Resources' Mark Mobius likes Chinese stock bargains. He misreads garbage as a bargain. Western investors who aren't from Asian bloodlines will never understand the false fronts that Asian financial markets present. Dopey fund managers are born to get clobbered after they buy Chinese state-sponsored Ponzi schemes.
Oil ministers will talk through their mutual pain. Expect lots of crying, wailing, and whining about an oil market that is out of control. Emerging markets got more than they expected when Saudi pumping wrecked their capital accounts. The major oil producers could have used their dollar reserves to diversify away from oil production in the face of UN COP21's coming wealth redistribution scheme. Instead they chose to maintain kleptocratic rentier states and defend their currencies. No one in the developed West should cry for the oil countries that proved too weak to stand up to the Saudis and make their own production cuts.
Presidents Day sales don't apply to political campaign contributions. A dollar for your favorite candidate does not go farther over a holiday weekend.
Oil traders are getting more bullish. The bulls may have read my recent writings, or they may be figuring out that bankrupt oil producers can't pump forever before turning off wells. Oklahoma is drowning in liquid black gold and drillers are drowning in red ink. Consolidation this year means fewer slick operators selling flimflam and dry holes next year.
US consumers are spending again. People who went broke during the holidays are now counting pennies saved on lower gasoline prices. They spend those pennies with abandon. Watch your neighbors who aren't saving; they won't survive the onrushing recession. Their homes will be for sale upon foreclosure and I might be waiting with a check in hand.
Franklin Resources' Mark Mobius likes Chinese stock bargains. He misreads garbage as a bargain. Western investors who aren't from Asian bloodlines will never understand the false fronts that Asian financial markets present. Dopey fund managers are born to get clobbered after they buy Chinese state-sponsored Ponzi schemes.
Oil ministers will talk through their mutual pain. Expect lots of crying, wailing, and whining about an oil market that is out of control. Emerging markets got more than they expected when Saudi pumping wrecked their capital accounts. The major oil producers could have used their dollar reserves to diversify away from oil production in the face of UN COP21's coming wealth redistribution scheme. Instead they chose to maintain kleptocratic rentier states and defend their currencies. No one in the developed West should cry for the oil countries that proved too weak to stand up to the Saudis and make their own production cuts.
Presidents Day sales don't apply to political campaign contributions. A dollar for your favorite candidate does not go farther over a holiday weekend.
Saturday, February 06, 2016
Financial Sarcasm Roundup for 02/06/16
We are well into 2016 and it doesn't feel much different from 2015. This situation cries out for remedy.
The tech stock crumble continues to drive the NASDAQ down. The whole enchilada is headed to its intrinsic value, which is somewhere north of zero. We can soon party like it's 1999 all over again, except valuations will be more like 2001. Pink slip parties will soon replace Silicon Valley's ubiquitous tech mixers. Come to think of it, those two kinds of parties are indistinguishable.
China wants to throw it down with the EU at the WTO. It's a bluff, like a male gorilla charging in the jungle. China has no intention of addressing any traded disputes in the WTO. It sees the TPP coming and wants no part of multilateral dispute resolution. Making noise at the WTO distracts is lip service to international norms that suckers in Western financial institutions will buy.
Twitter teases its users with a possible new algorithm. It won't matter whether Twitter make sits tweets more relevant, or longer, or more colorful. The horse named Medium has already left the barn. Ordinary schmucks who self-publish have multiple options now besides Twitter. I could go into a ton of reasons about why Twitter makes little sense but the biggest one is its inability to make a profit. It will make a good blog article later on, so stay tuned.
The 50th Super Bowl is tomorrow. Makers of snack chips, hot dogs, and chicken wings have probably had great sales for the past week. Americans should enjoy this while it lasts. Living beyond one's means makes overindulgence possible. I will probably stay home and get work done unless someone offers me free food and booze.
It would feel more like 2016 if we had a real market crash and recessions. That would really differentiate this year from 2015. I have waited so long for this to happen.
The tech stock crumble continues to drive the NASDAQ down. The whole enchilada is headed to its intrinsic value, which is somewhere north of zero. We can soon party like it's 1999 all over again, except valuations will be more like 2001. Pink slip parties will soon replace Silicon Valley's ubiquitous tech mixers. Come to think of it, those two kinds of parties are indistinguishable.
China wants to throw it down with the EU at the WTO. It's a bluff, like a male gorilla charging in the jungle. China has no intention of addressing any traded disputes in the WTO. It sees the TPP coming and wants no part of multilateral dispute resolution. Making noise at the WTO distracts is lip service to international norms that suckers in Western financial institutions will buy.
Twitter teases its users with a possible new algorithm. It won't matter whether Twitter make sits tweets more relevant, or longer, or more colorful. The horse named Medium has already left the barn. Ordinary schmucks who self-publish have multiple options now besides Twitter. I could go into a ton of reasons about why Twitter makes little sense but the biggest one is its inability to make a profit. It will make a good blog article later on, so stay tuned.
The 50th Super Bowl is tomorrow. Makers of snack chips, hot dogs, and chicken wings have probably had great sales for the past week. Americans should enjoy this while it lasts. Living beyond one's means makes overindulgence possible. I will probably stay home and get work done unless someone offers me free food and booze.
It would feel more like 2016 if we had a real market crash and recessions. That would really differentiate this year from 2015. I have waited so long for this to happen.
Friday, February 05, 2016
Financial Sarcasm Roundup for 02/05/16
I avoid watching politicians debate each other on TV because I have more important business tasks to accomplish. I realize I'm giving up a huge source of inspiration for sarcasm. Oh well, we can't have it all in life.
Here comes a new oil barrel tax to fund green technologies. The UN COP21 architects would be proud. I have no problem with this fee. It will destroy part of the US shale industry, but that's to be expected after years of overinvestment in wells that are only economically viable at higher oil prices. Kermit the Frog once said that it's not easy being green, but he didn't mean green energy.
The IMF lectures China on getting into better financial shape. Good luck with that one. China is flailing around for a workable economic policy. Beijing cannot admit that its Ponzi scheme is unraveling because it can't afford to frighten away the Western investors who were dumb enough to start trading the yuan onshore. The IMF can't afford to look bad after adding the yuan to its reserve basket. It all looks like two poker players in a televised tournament who know they can't bluff each other anymore but are still bluffing the audience.
The mortgage bond market just isn't much fun anymore. Taking the punch bowl away is good news for responsible homeowners because there will be fewer secondary bids for mortgage products that should not exist. Issuing paper backed by other paper is usually pretty dumb. Of course, if the Federal Reserve ever had to sell a big chunk of its MBS holdings, the banks would have to hire back MBS traders in a hurry. Catching a falling knife is usually pretty dumb.
More political debates are ahead. They won't mention any of the issues I blogged about here. That's too bad.
Here comes a new oil barrel tax to fund green technologies. The UN COP21 architects would be proud. I have no problem with this fee. It will destroy part of the US shale industry, but that's to be expected after years of overinvestment in wells that are only economically viable at higher oil prices. Kermit the Frog once said that it's not easy being green, but he didn't mean green energy.
The IMF lectures China on getting into better financial shape. Good luck with that one. China is flailing around for a workable economic policy. Beijing cannot admit that its Ponzi scheme is unraveling because it can't afford to frighten away the Western investors who were dumb enough to start trading the yuan onshore. The IMF can't afford to look bad after adding the yuan to its reserve basket. It all looks like two poker players in a televised tournament who know they can't bluff each other anymore but are still bluffing the audience.
The mortgage bond market just isn't much fun anymore. Taking the punch bowl away is good news for responsible homeowners because there will be fewer secondary bids for mortgage products that should not exist. Issuing paper backed by other paper is usually pretty dumb. Of course, if the Federal Reserve ever had to sell a big chunk of its MBS holdings, the banks would have to hire back MBS traders in a hurry. Catching a falling knife is usually pretty dumb.
More political debates are ahead. They won't mention any of the issues I blogged about here. That's too bad.
Thursday, February 04, 2016
Financial Sarcasm Roundup for 02/04/16
The US Congress does not feel like rushing through a review of the Trans-Pacific Partnership. It is unusual to see lawmakers take their time with important legislation. They typically pass major lobby-backed items in record time, like the Affordable Care Act. "We have to pass the bill so we can see what's in it," or something like that. There's no time to lose when there's money on the table gathering dust.
Vanguard can now buy a bigger block of Chinese A-shares than ever before. Suckers! If you don't know who the mark is in a group of people, it means you are the mark. Western investors keep falling for any China story, whether it was the bull market everyone thought they could ride to planetary dominance or distressed-value bargain investing. Investors raised in Anglo-West cultures, where anti-corruption auditing and property rights are norms, simply cannot fathom that those traits do not characterize the Chinese economy.
The corporate bond market's signals have analysts scratching their heads. Dumb analysts don't realize that the US economy has been truly stagnant since the 2008 financial crisis, with overstated GDP growth and understated unemployment and inflation. National policies to avoid mortgage defaults and backstop corporate credit have only postponed the inevitable crack-up. No one on Wall Street wants to admit that the bond market is toast because that would have investors running for the exits. A whole bunch of careers and firms are bound to implode.
Vanguard can now buy a bigger block of Chinese A-shares than ever before. Suckers! If you don't know who the mark is in a group of people, it means you are the mark. Western investors keep falling for any China story, whether it was the bull market everyone thought they could ride to planetary dominance or distressed-value bargain investing. Investors raised in Anglo-West cultures, where anti-corruption auditing and property rights are norms, simply cannot fathom that those traits do not characterize the Chinese economy.
The corporate bond market's signals have analysts scratching their heads. Dumb analysts don't realize that the US economy has been truly stagnant since the 2008 financial crisis, with overstated GDP growth and understated unemployment and inflation. National policies to avoid mortgage defaults and backstop corporate credit have only postponed the inevitable crack-up. No one on Wall Street wants to admit that the bond market is toast because that would have investors running for the exits. A whole bunch of careers and firms are bound to implode.
Wednesday, February 03, 2016
Financial Sarcasm Roundup for 02/03/16
Groundhog Day came and went without any animals feeling Jungian existential angst. Climate change has more impact than a rodent's shadow on winter's length.
The ECB lowers expectations for more monetary stimulus. It could mean anything, or nothing. The ECB now mimics the Fed as it discovers it has the ability to move stock markets and resolve bad banks' balance sheets. Central banks don't make policy errors anymore. They send "layer cake" messages in a bifurcated economy. Retail investors will hear something about selling bonds that may have peaked in value. European bond fund managers will hear something about not expecting support for their asset valuations. Crying then begins in earnest in bond fund boardrooms.
The UK must wonder if the BOE plans for negative interest rates. "I say, Jeeves, is that a minus sign in your savings account? Why yes, it is indeed, old bean. Good God, man, such poppycock used to be confined to less dignified countries like our former colonies. Oh, fiddlesticks. This calls for a shot of brandy." BTW folks, anyone who wants to pull another George Soros move and attack the British pound should watch how far the BOE tries to push this NIRP speculation.
China will keep cutting banks' reserve ratios. It's just like getting a haircut every month until you're forced to go bald, and then the barber scalps you. Forget about responsible bank stewardship. That just flew out the window in a desperate search for capital to prop up China's failing stock and property markets. I guess Beijing couldn't entice enough Western banks to launch onshore yuan trading branches. There are plenty of suckers in both the West and China who will try to catch falling knives behind a bamboo curtain.
Your average groundhog does not follow the financial markets as closely as I do. That's another bragging point for Alfidi Capital.
The ECB lowers expectations for more monetary stimulus. It could mean anything, or nothing. The ECB now mimics the Fed as it discovers it has the ability to move stock markets and resolve bad banks' balance sheets. Central banks don't make policy errors anymore. They send "layer cake" messages in a bifurcated economy. Retail investors will hear something about selling bonds that may have peaked in value. European bond fund managers will hear something about not expecting support for their asset valuations. Crying then begins in earnest in bond fund boardrooms.
The UK must wonder if the BOE plans for negative interest rates. "I say, Jeeves, is that a minus sign in your savings account? Why yes, it is indeed, old bean. Good God, man, such poppycock used to be confined to less dignified countries like our former colonies. Oh, fiddlesticks. This calls for a shot of brandy." BTW folks, anyone who wants to pull another George Soros move and attack the British pound should watch how far the BOE tries to push this NIRP speculation.
China will keep cutting banks' reserve ratios. It's just like getting a haircut every month until you're forced to go bald, and then the barber scalps you. Forget about responsible bank stewardship. That just flew out the window in a desperate search for capital to prop up China's failing stock and property markets. I guess Beijing couldn't entice enough Western banks to launch onshore yuan trading branches. There are plenty of suckers in both the West and China who will try to catch falling knives behind a bamboo curtain.
Your average groundhog does not follow the financial markets as closely as I do. That's another bragging point for Alfidi Capital.
Monday, February 01, 2016
Financial Sarcasm Roundup for 02/01/16
It's time for caucuses in Iowa. If sarcasm were a Presidential qualifier, I'm certain that my name would be at the top of the ballot.
JP Morgan is jumping on the blockchain bandwagon. All aboard! You all know I've trashed Bitcoin many times but the blockchain tech that succeeds it may be worth a look. The SIFI banks doing this will have to completely own their particular blockchain tech and disallow developers from forking it. They will also have to reserve a significant amount of data center space in case the hashes get out of hand. I suspect the world's central banks will have to standardize some part of a blockchain's code for money transfers. The whole movement risks turning into spaghetti code if central banks don't get involved.
China wants more foreign banks to trade its currency. It's a fun way to celebrate the yuan's new IMF reserve currency status. More importantly, it's a clever way to entice foreign banks to pump fresh currency into China so the PBOC can postpone the economy's day of reckoning. A stronger yuan means less PBOC money printing and less immediate stress on China's currency reserves. Have fun while it lasts, Beijing. The game will be up pretty soon. Foreign banks won't be happy to find out that empty real estate developments and shadow wealth management products are their currency trading counterparties' collateral.
The OMB is ready to review the US DOL's fiduciary rule for retirement advisers. Well, that sure took long enough. I blogged about this proposed rule in 2015 and I am all in favor of tighter controls. The industry's claimed concerns about stronger rules forcing them to drop smaller, less profitable clients are baloney. Automation is reducing the cost of servicing small clients to zero. Robo-advisers can implement fiduciary rules automatically. I want OMB and the rest of the administration to turn the screws on the retirement plan sector and make greedy brokerages howl with the pain of fiduciary compliance. That will force them to fire more humans and accelerate the automation shift.
May the most sarcastic candidate win. That would be me, of course, in any election year. Always vote your conscience, America.
JP Morgan is jumping on the blockchain bandwagon. All aboard! You all know I've trashed Bitcoin many times but the blockchain tech that succeeds it may be worth a look. The SIFI banks doing this will have to completely own their particular blockchain tech and disallow developers from forking it. They will also have to reserve a significant amount of data center space in case the hashes get out of hand. I suspect the world's central banks will have to standardize some part of a blockchain's code for money transfers. The whole movement risks turning into spaghetti code if central banks don't get involved.
China wants more foreign banks to trade its currency. It's a fun way to celebrate the yuan's new IMF reserve currency status. More importantly, it's a clever way to entice foreign banks to pump fresh currency into China so the PBOC can postpone the economy's day of reckoning. A stronger yuan means less PBOC money printing and less immediate stress on China's currency reserves. Have fun while it lasts, Beijing. The game will be up pretty soon. Foreign banks won't be happy to find out that empty real estate developments and shadow wealth management products are their currency trading counterparties' collateral.
The OMB is ready to review the US DOL's fiduciary rule for retirement advisers. Well, that sure took long enough. I blogged about this proposed rule in 2015 and I am all in favor of tighter controls. The industry's claimed concerns about stronger rules forcing them to drop smaller, less profitable clients are baloney. Automation is reducing the cost of servicing small clients to zero. Robo-advisers can implement fiduciary rules automatically. I want OMB and the rest of the administration to turn the screws on the retirement plan sector and make greedy brokerages howl with the pain of fiduciary compliance. That will force them to fire more humans and accelerate the automation shift.
May the most sarcastic candidate win. That would be me, of course, in any election year. Always vote your conscience, America.
Sunday, January 31, 2016
The Limerick of Finance for 01/31/16
Chinese copycats steal at will
Cheap knock-offs still give them a thrill
They make a quick buck
Counting only on luck
Cashing in on some grey market bill
Cheap knock-offs still give them a thrill
They make a quick buck
Counting only on luck
Cashing in on some grey market bill
China's Shanzhai Economy Mocks Innovation
China has a long tradition of "shanzhai" knock-off goods. Companies shamelessly copying global brands without compensation or even attribution contribute to China's poor reputation for quality manufacturing and intellectual property (IP) protection. Shanzhai extends to more than just brand image. It permeates every aspect of China's allegedly miraculous growth, including real property and government statistics. Its persistence poses risks to Western investors who underestimate China's resistance to cultural change.
PwC republished Booz's 2009 report regarding shanzhai as an innovative phenomenon. It may have appeared innovative when China was trying to convince the West that its booming production would translate into what we would recognize as an advanced economy. Things never worked out that way. Breakneck production without the rule of law to protect innovation eventually turns off international investors.
China somehow managed to fool amateur observers into thinking that everything would be okay once it grew out of its wild frontier phase. The Atlantic in 2014 interpreted shanzhai as an evolutionary crowdsourced ecosystem for innovation. Silicon Valley would recognize innovation without IP protection or market share as an invitation to further piracy. The Wall Street Journal had a similar analytical lapse in 2009, more from a political and cultural standpoint. Astute observers integrate social and political trends into economic analysis if they understand those trends from a native perspective.
Native mainland Chinese have not developed the legal and political traditions the Anglo-West relies upon to protect property rights, including IP. Some Chinese innovator making shanzhai wearable tech is unconcerned with the product quality or global branding that leads to defensible market share. They're still in it for the fast buck because they cannot count on legal protection outside China or political protection within China. Western observers who cannot see shanzhai through Chinese eyes would find this inscrutable. Personal connections through "guanxi" matter more than rules and laws. The Chinese Commonwealth "bamboo network" diaspora matters more than sovereign trade agreements. The West continues to misinterpret these concepts by pretending to see in China what it wants to see in its own culture.
Shanzhai has metastasized beyond consumer goods into real property. Freakonomics noted in 2013 how shanzhai skyscrapers copy other popular building designs. Run a Google image search of China's property boom to see entire cities containing replicas of Paris' Eiffel Tower, quaint European town squares, and parts of Manhattan. China's government economic statistics have long been unreliable, according to descriptions of the Keqiang Index. Replacing that index with something the UNDP or WTO can audit would be a sound step. Instead, the WSJ reported in 2015 that China's State Council would replace the Keqiang Index with measures tracking quality of life. The state is acting in the spirit of shanzhai innovation, copying Western ideas wholesale without grokking how enforcing laws means breaking personal ties.
The shanzhai apotheosis is a huge red flag for US investors with exposure to China. Mainland China's economic growth is more mirage than reality, notwithstanding CSIS's "Broken Abacus" 2015 nonsense that China's economy is bigger than what it self-reports. Try reconciling national-level economic data with provincial-level data and see how China's national authorities guide subordinate governments into supporting its fabrications. Investors betting on US-traded instruments for Chinese stocks or ETFs are gambling that reality will eventually catch up to fantasy. Shanzhai's continued dominance of Chinese business culture makes that a poor gamble.
Full disclosure: No positions in any Chinese investments. BTW, I have corrected the spelling of "shanzhai" after publishing this article.
PwC republished Booz's 2009 report regarding shanzhai as an innovative phenomenon. It may have appeared innovative when China was trying to convince the West that its booming production would translate into what we would recognize as an advanced economy. Things never worked out that way. Breakneck production without the rule of law to protect innovation eventually turns off international investors.
China somehow managed to fool amateur observers into thinking that everything would be okay once it grew out of its wild frontier phase. The Atlantic in 2014 interpreted shanzhai as an evolutionary crowdsourced ecosystem for innovation. Silicon Valley would recognize innovation without IP protection or market share as an invitation to further piracy. The Wall Street Journal had a similar analytical lapse in 2009, more from a political and cultural standpoint. Astute observers integrate social and political trends into economic analysis if they understand those trends from a native perspective.
Native mainland Chinese have not developed the legal and political traditions the Anglo-West relies upon to protect property rights, including IP. Some Chinese innovator making shanzhai wearable tech is unconcerned with the product quality or global branding that leads to defensible market share. They're still in it for the fast buck because they cannot count on legal protection outside China or political protection within China. Western observers who cannot see shanzhai through Chinese eyes would find this inscrutable. Personal connections through "guanxi" matter more than rules and laws. The Chinese Commonwealth "bamboo network" diaspora matters more than sovereign trade agreements. The West continues to misinterpret these concepts by pretending to see in China what it wants to see in its own culture.
Shanzhai has metastasized beyond consumer goods into real property. Freakonomics noted in 2013 how shanzhai skyscrapers copy other popular building designs. Run a Google image search of China's property boom to see entire cities containing replicas of Paris' Eiffel Tower, quaint European town squares, and parts of Manhattan. China's government economic statistics have long been unreliable, according to descriptions of the Keqiang Index. Replacing that index with something the UNDP or WTO can audit would be a sound step. Instead, the WSJ reported in 2015 that China's State Council would replace the Keqiang Index with measures tracking quality of life. The state is acting in the spirit of shanzhai innovation, copying Western ideas wholesale without grokking how enforcing laws means breaking personal ties.
The shanzhai apotheosis is a huge red flag for US investors with exposure to China. Mainland China's economic growth is more mirage than reality, notwithstanding CSIS's "Broken Abacus" 2015 nonsense that China's economy is bigger than what it self-reports. Try reconciling national-level economic data with provincial-level data and see how China's national authorities guide subordinate governments into supporting its fabrications. Investors betting on US-traded instruments for Chinese stocks or ETFs are gambling that reality will eventually catch up to fantasy. Shanzhai's continued dominance of Chinese business culture makes that a poor gamble.
Full disclosure: No positions in any Chinese investments. BTW, I have corrected the spelling of "shanzhai" after publishing this article.
Thursday, January 28, 2016
Financial Sarcasm Roundup for 01/28/16
Hatred and love are powerful emotions. Sarcasm is not an emotion but it may be even more powerful.
The Federal Reserve made markets nervous yesterday. I say tough luck for wimpy stock market experts. Big players have had it too easy with ZIRP subsidizing their gambling. Moving toward a more historically normal interest rate environment means crybaby institutional investors will lose money. Just look at the confused commentary coming from Wall Street's idiots. They don't remember what normal feels like and their bond trading desks are full of Millennial whipper-snappers who think credit is always free.
The US Treasury alerts us to derivatives clearinghouse risks. That sure throws some cold water on the theory that transparency and mark-to-market pricing would make derivatives less threatening to the economy. The Fed and SEC have planned for trading halts and fund backstops. Now they need to think about liquidity backstops for clearinghouses. I suspect that will be a bridge too far in a crisis, so AIG-style instant firm resolutions will be the preferred risk mitigation tactic instead.
China's statistics chief is in trouble. Beijing couldn't keep their numbers frauds hidden forever and now they need a public scapegoat in true Manchurian style. The news may fool a few Western investment firms (the ones that don't understand China) into thinking things will get better when the head stats guy is replaced. A couple of high-profile career terminations won't stop the Chinese stock market's slide.
I try really hard not to hate people, even if they deserve it. Hateful people deserve sarcasm instead.
The Federal Reserve made markets nervous yesterday. I say tough luck for wimpy stock market experts. Big players have had it too easy with ZIRP subsidizing their gambling. Moving toward a more historically normal interest rate environment means crybaby institutional investors will lose money. Just look at the confused commentary coming from Wall Street's idiots. They don't remember what normal feels like and their bond trading desks are full of Millennial whipper-snappers who think credit is always free.
The US Treasury alerts us to derivatives clearinghouse risks. That sure throws some cold water on the theory that transparency and mark-to-market pricing would make derivatives less threatening to the economy. The Fed and SEC have planned for trading halts and fund backstops. Now they need to think about liquidity backstops for clearinghouses. I suspect that will be a bridge too far in a crisis, so AIG-style instant firm resolutions will be the preferred risk mitigation tactic instead.
China's statistics chief is in trouble. Beijing couldn't keep their numbers frauds hidden forever and now they need a public scapegoat in true Manchurian style. The news may fool a few Western investment firms (the ones that don't understand China) into thinking things will get better when the head stats guy is replaced. A couple of high-profile career terminations won't stop the Chinese stock market's slide.
I try really hard not to hate people, even if they deserve it. Hateful people deserve sarcasm instead.
Friday, January 08, 2016
China Eats Into Its Foreign Exchange Reserves
China's government and central bankers should worry about running out of money. More specifically, it is running down its reserves of other countries' currencies stored up after years of current account surpluses. December's monthly drawdown was the biggest ever. Continued reserve declines reflect an increasingly futile campaign to support the yuan's value. China's private sector takes note and reduces its US dollar-based liabilities. Private companies do not wish to be stuck with debt denominated in US dollars that will be more costly to repay as the yuan sinks.
The yuan's membership in the IMF's list of reserve currencies is a privilege for economically successful countries. It is not an entitlement based on a country's share of the globe's human population or land area. Beijing secured the yuan's status with the IMF after years of publishing very questionable economic statistics that inflated its national track record. Sustaining the yuan's new status requires spending forex reserves to stall its depreciation. Beijing is now in a race against time it cannot win. Its currency reserves will probably run out before it can build both honest statistics and truly consumer-driven economic growth.
The People's Bank of China is now learning the same painful lesson its Swiss counterpart learned in recent years. The difference is that the Swiss tried to drive their currency's value down while the Chinese are holding their own currency up. Switzerland's attempt to suppress the Swiss franc's value was not worth the effort of buying other currencies. Currency market interventions have ruinous effects on central bank balance sheets. Central banks only have so much ammunition to expend in currency wars, and they now fight losing battles against the rest of the world.
The yuan's membership in the IMF's list of reserve currencies is a privilege for economically successful countries. It is not an entitlement based on a country's share of the globe's human population or land area. Beijing secured the yuan's status with the IMF after years of publishing very questionable economic statistics that inflated its national track record. Sustaining the yuan's new status requires spending forex reserves to stall its depreciation. Beijing is now in a race against time it cannot win. Its currency reserves will probably run out before it can build both honest statistics and truly consumer-driven economic growth.
The People's Bank of China is now learning the same painful lesson its Swiss counterpart learned in recent years. The difference is that the Swiss tried to drive their currency's value down while the Chinese are holding their own currency up. Switzerland's attempt to suppress the Swiss franc's value was not worth the effort of buying other currencies. Currency market interventions have ruinous effects on central bank balance sheets. Central banks only have so much ammunition to expend in currency wars, and they now fight losing battles against the rest of the world.
Thursday, January 07, 2016
The Haiku of Finance for 01/07/16
China selloff wave
Markets down both there and here
More stock pain coming
Markets down both there and here
More stock pain coming
China Triggers US Stock Avalanche
Any stock market watchers who peeked out of their caves this week noticed that the economic slowdown in China is triggering a stock market selloff there, which in turn triggered a market selloff here in the US. Collapsing world commodity prices indicated that stock markets had overestimated basic industrial demand. The Baltic Dry Index's massive decline in 2015 should have told people what was coming.
I read through some financial news headlines this week. Wall Street's court stenographers quoted the usual mutual fund managers' nonsense about how this is expected, and how it's a buying opportunity, and of course how US stocks are poised for success. What a pile of baloney. The sociopaths and trust fund kids running those active management strategies are privately kicking themselves. A slew of hedge funds, distressed debt funds, and multi-strategy fund shops are doomed to close. Leverage is going to bite these idiots hard.
The only sane voice this week was George Soros, who repeated an oft-heard warning that central bank policies have endangered the world's financial systems. No one listened to me when I gave this warning many times in the past few years. Hardly anyone listened to the few other financial experts who gave the same warning. Someone may listen to George Soros now. Everyone who doesn't listen will be on the wrong side of some seriously winning market trades.
I would very much like this stock market avalanche to continue until the DJIA is under 3000. Many stupid investment professionals deserve to buried under their losses. The bloom coming off Wall Street's rose will be gone for a decade after the dust settles. Watch out below.
I read through some financial news headlines this week. Wall Street's court stenographers quoted the usual mutual fund managers' nonsense about how this is expected, and how it's a buying opportunity, and of course how US stocks are poised for success. What a pile of baloney. The sociopaths and trust fund kids running those active management strategies are privately kicking themselves. A slew of hedge funds, distressed debt funds, and multi-strategy fund shops are doomed to close. Leverage is going to bite these idiots hard.
The only sane voice this week was George Soros, who repeated an oft-heard warning that central bank policies have endangered the world's financial systems. No one listened to me when I gave this warning many times in the past few years. Hardly anyone listened to the few other financial experts who gave the same warning. Someone may listen to George Soros now. Everyone who doesn't listen will be on the wrong side of some seriously winning market trades.
I would very much like this stock market avalanche to continue until the DJIA is under 3000. Many stupid investment professionals deserve to buried under their losses. The bloom coming off Wall Street's rose will be gone for a decade after the dust settles. Watch out below.
Sunday, December 27, 2015
Figuring Out Aoxing Pharmaceutical's Future
Aoxing Pharmaceutical (ticker AXN) is one of those Chinese drug companies that wanted a US stock market listing. Such listings are a smart move if a thriving foreign company wants to raise capital here or expand operations beyond its home country. Either option will now face an uphill climb after some December news items about the company.
The company's CFO announced his resignation on December 4, 2015. That is not always a bad sign for a company aiming for a new growth phase, but consider some context. The resignation follows a report on December 2 that Pommerantz LLP is investigating alleged claims of Securities Exchange Act violations, and a December 3 report that Bronstein, Gewirtz & Grossman is also investigating Aoxing. It's hard to tell whether the allegations are substantial or simply a routine investor argument with management. Growing companies can experience these events in isolation, but investigations preceding a key resignation are a concern. Investors deserve an explanation but the company's web page reveals no news releases as of today responding to the law firms' allegations.
At first glance, Aoxing's profit margin of 22.83% and operating margin of 35.8% should indicate health. These measures don't square with the company's five-year average ROA of -18.68% and five-year average ROE of -50.75%. Aoxing's 2015 financial results show a sudden reversal of fortune after net losses in 2013 and 2014. Significantly higher gross revenue helped in 2015, in spite of persistently rising total liabilities and several negative changes in operating cash flows. Aoxing's SEC 10-Q filing dated November 13, 2015 notes in its MD+A how a shift in sales strategy from a third-party agent network to direct sales drove revenue growth. The strategy's reliance on independent direct sales will face challenges as China's drug distribution market changes.
Reviewing English-language reports on China's drug market reveals reasons to be concerned about any young Chinese drug company's ability to grow. AT Kearney's "China's Pharmaceutical Distribution: Poised for Change" reveals a fragmented distribution market and poor supply chain visibility. The US FDA's country director for China testified in 2014 about how hard US drug regulators are working to ensure Chinese drug exports meet US standards. Aoxing's future success in distribution will depend very much on securing healthy relationships with the three or four Chinese companies that will likely absorb much of the country's drug distribution network during consolidation.
Pharmaceutical companies with strong IP portfolios can tolerate high debt/equity leverage because their drug patents are supposed to be money makers. Aoxing's leverage will test US markets' tolerance if the company cannot sustain its net income improvement into 2016. The market is already showing its concern as the price of AXN fell from US$2.20 on June 8 to $0.92 on December 24. The company cannot blame this share price disappointment entirely on China's currency devaluation. Investors have a right to wonder how Aoxing responds to its US legal critics and China's changing drug distribution landscape.
Full disclosure: No position in AXN at this time.
The company's CFO announced his resignation on December 4, 2015. That is not always a bad sign for a company aiming for a new growth phase, but consider some context. The resignation follows a report on December 2 that Pommerantz LLP is investigating alleged claims of Securities Exchange Act violations, and a December 3 report that Bronstein, Gewirtz & Grossman is also investigating Aoxing. It's hard to tell whether the allegations are substantial or simply a routine investor argument with management. Growing companies can experience these events in isolation, but investigations preceding a key resignation are a concern. Investors deserve an explanation but the company's web page reveals no news releases as of today responding to the law firms' allegations.
At first glance, Aoxing's profit margin of 22.83% and operating margin of 35.8% should indicate health. These measures don't square with the company's five-year average ROA of -18.68% and five-year average ROE of -50.75%. Aoxing's 2015 financial results show a sudden reversal of fortune after net losses in 2013 and 2014. Significantly higher gross revenue helped in 2015, in spite of persistently rising total liabilities and several negative changes in operating cash flows. Aoxing's SEC 10-Q filing dated November 13, 2015 notes in its MD+A how a shift in sales strategy from a third-party agent network to direct sales drove revenue growth. The strategy's reliance on independent direct sales will face challenges as China's drug distribution market changes.
Reviewing English-language reports on China's drug market reveals reasons to be concerned about any young Chinese drug company's ability to grow. AT Kearney's "China's Pharmaceutical Distribution: Poised for Change" reveals a fragmented distribution market and poor supply chain visibility. The US FDA's country director for China testified in 2014 about how hard US drug regulators are working to ensure Chinese drug exports meet US standards. Aoxing's future success in distribution will depend very much on securing healthy relationships with the three or four Chinese companies that will likely absorb much of the country's drug distribution network during consolidation.
Pharmaceutical companies with strong IP portfolios can tolerate high debt/equity leverage because their drug patents are supposed to be money makers. Aoxing's leverage will test US markets' tolerance if the company cannot sustain its net income improvement into 2016. The market is already showing its concern as the price of AXN fell from US$2.20 on June 8 to $0.92 on December 24. The company cannot blame this share price disappointment entirely on China's currency devaluation. Investors have a right to wonder how Aoxing responds to its US legal critics and China's changing drug distribution landscape.
Full disclosure: No position in AXN at this time.
Monday, December 07, 2015
Financial Sarcasm Roundup for 12/07/15
Forbes thinks we should buy stocks before the Federal Reserve raises its interest rate target. Some editors forgot to mention that even a slightly higher cost of capital will force companies with weak balance sheets into serious trouble. I shake my head whenever a media publication that is obviously not a licensed brokerage purports to give financial advice to readers whose personal situations it cannot know. There's more to bank stocks than book value. Buying one without knowing its Texas ratio or capital adequacy ratio is like buying a pig in a poke.
Lower oil prices offer some support to long-term bond prices. I'll believe that correlation holds when someone shows me data for a time series longer than 48 hours. Interest rates still govern the yield curve in every country with a bond market. Any rise in the Fed's target rate means oil loses its hold on bond prices and the long end of the curve comes under downward pressure. It must be a slow news day when bond traders need to swallow an argument for tracking oil prices instead of the risk-free rate of return. I never ignore sovereign credit risk, but that concern escapes bond fund managers who take their eye off the ball and get distracted by oil.
I have noticed lots of mixed reactions lately about the IMF's acceptance of the Chinese yuan as a reserve currency. There's always an echo chamber blathering about how this is some harbinger of China's renewed rise to world dominance. Gimme a break already. When China matches the US's ranks on various data indexes for development and the rule of law, it will be trustworthy as a regional hegemon. I think a lot of the noise about the yuan is driven by portfolio managers who would like their Chinese positions to be more liquid in case they have to sell out quickly. Chinese elites buying vacation homes in California are already selling out.
Once again, there is no financial advice to be found at Alfidi Capital. I don't write this way to help anyone. I amuse myself when nutty market events are on my radar.
Lower oil prices offer some support to long-term bond prices. I'll believe that correlation holds when someone shows me data for a time series longer than 48 hours. Interest rates still govern the yield curve in every country with a bond market. Any rise in the Fed's target rate means oil loses its hold on bond prices and the long end of the curve comes under downward pressure. It must be a slow news day when bond traders need to swallow an argument for tracking oil prices instead of the risk-free rate of return. I never ignore sovereign credit risk, but that concern escapes bond fund managers who take their eye off the ball and get distracted by oil.
I have noticed lots of mixed reactions lately about the IMF's acceptance of the Chinese yuan as a reserve currency. There's always an echo chamber blathering about how this is some harbinger of China's renewed rise to world dominance. Gimme a break already. When China matches the US's ranks on various data indexes for development and the rule of law, it will be trustworthy as a regional hegemon. I think a lot of the noise about the yuan is driven by portfolio managers who would like their Chinese positions to be more liquid in case they have to sell out quickly. Chinese elites buying vacation homes in California are already selling out.
Once again, there is no financial advice to be found at Alfidi Capital. I don't write this way to help anyone. I amuse myself when nutty market events are on my radar.
Monday, November 09, 2015
Financial Sarcasm Roundup for 11/09/15
More Americans might be tuned in to my sarcasm if they weren't watching Monday Night Football or some cable TV movie. I might get more traffic if I convert my periodic sarcasm blast into a Netflix series.
One asset management firm thinks Chinese debt benefits from China's recession. The tortured logic right there just baffles me. Devaluing the yuan means a yuan-denominated bond's payment stream to Western investors will be worth less, not more. Buying notes issued by Chinese real estate developers means investors are hurt more by further crashes in a very inflated sector. Some money managers just can't let go of a thesis that no longer matches reality. The next bullish bet could be on wax paper rather than yuan paper, because it easily wraps fish from the live fish market. See, this investment thesis stuff is really easy.
China and the Middle East have an insatiable appetite for natural gas. The West is converting to locally available renewable energy while the developing world becomes even more dependent on hydrocarbons from beyond their borders. Addictions typically end badly. Going cold turkey in a couple of decades won't be an option for developing countries facing bad demographics.
Many European bankers are about to be jobless. Think of the fun they can have becoming tour guides for rich Chinese and Russian expatriates. The fired bankers didn't move fast enough to raise capital cushions. Now they can raise money for the Middle Eastern refugees flooding Europe. Grab those tin cups and hit the street corners in Munich and Prague. Bank CEOs can only fake the ECB's stress tests for so long. The money they save on compensation goes into the rainy day crisis buffer.
My sarcasm is way more entertaining than whatever is on television right now. Tune in again next time for another blast from Alfidi Capital.
One asset management firm thinks Chinese debt benefits from China's recession. The tortured logic right there just baffles me. Devaluing the yuan means a yuan-denominated bond's payment stream to Western investors will be worth less, not more. Buying notes issued by Chinese real estate developers means investors are hurt more by further crashes in a very inflated sector. Some money managers just can't let go of a thesis that no longer matches reality. The next bullish bet could be on wax paper rather than yuan paper, because it easily wraps fish from the live fish market. See, this investment thesis stuff is really easy.
China and the Middle East have an insatiable appetite for natural gas. The West is converting to locally available renewable energy while the developing world becomes even more dependent on hydrocarbons from beyond their borders. Addictions typically end badly. Going cold turkey in a couple of decades won't be an option for developing countries facing bad demographics.
Many European bankers are about to be jobless. Think of the fun they can have becoming tour guides for rich Chinese and Russian expatriates. The fired bankers didn't move fast enough to raise capital cushions. Now they can raise money for the Middle Eastern refugees flooding Europe. Grab those tin cups and hit the street corners in Munich and Prague. Bank CEOs can only fake the ECB's stress tests for so long. The money they save on compensation goes into the rainy day crisis buffer.
My sarcasm is way more entertaining than whatever is on television right now. Tune in again next time for another blast from Alfidi Capital.
Saturday, October 24, 2015
Financial Sarcasm Roundup for 10/24/15
I don't know whether it's possible to be sarcastic without offending somebody. Alfidi Capital isn't about sexism anymore but it's still difficult to find nice things to say about the human race. If anyone can find the happy medium between human progress and human deficiencies, it would be me, Yours Truly, the greatest Supreme Super-Genius the world has ever known.
The new consensus among the Federal Reserve's camp followers is that a rate hike probably won't happen this year. It sure looked like something was going to happen a few months ago when the Fed was leaking talking points. Either the gaggle of yahoos running the FOMC is so divided in their thinking that they can't get their leaks straight, or they care so little about how a rate hike will affect the economy that they don't mind confused messaging. I would clean up the Eccles building forthwith if I was over there. I would be like Hercules cleaning out the Augean stables.
Chinese experts predict continued growth for their economy. Someone over at that central bank missed the meeting where the lies about economic forecasts are supposed to be coordinated with lies about past results. Remember the Keqiang Index? Don't worry if you forgot it, because China's own economists are forgetting it too. It's hard to keep the lying up when natural resource exporters like Australia report dropoffs in ore shipments to China. Maybe the Chinese could start exporting baloney to drive their continued growth. Their economists are getting pretty good at spewing it.
Airbnb's business model is on the municipal ballot in San Francisco. The company's business model is at risk and it fought back with some snarky ads that caused a minor sandstorm. Elitist San Franciscans don't mind looking down their noses at less enlightened parts of the country. When a local company gores a few sacred cows by noting how its taxes could fund some of The City's most precious entitlements, people get upset. Well, fellow Frisco people, you've had it coming. If you act like spoiled children then don't be surprised when someone calls you out.
I think a lot of the sensitivity over the Airbnb ads comes from old money San Franciscans' dislike of Airbnb's nouveau riche status. Pedigreed people don't like upstarts tweaking their noses on their home turf. That would be like me attending the SF Opera and Symphony opening night galas and refusing to genuflect when some hoity-toity type tells me I don't belong there. Oh yeah, I've done that. I voted early in these elections and one of my votes was against the ballot measure that would have hurt Airbnb. Cheap tourists may be hurting established hotels, but their demand for unused apartments drives up demand for new housing.
I just threw dirt at the Federal Reserve, the People's Republic of China, and the city of San Francisco. Not once did I use any language that could possibly be construed as sexist. I call that progress.
The new consensus among the Federal Reserve's camp followers is that a rate hike probably won't happen this year. It sure looked like something was going to happen a few months ago when the Fed was leaking talking points. Either the gaggle of yahoos running the FOMC is so divided in their thinking that they can't get their leaks straight, or they care so little about how a rate hike will affect the economy that they don't mind confused messaging. I would clean up the Eccles building forthwith if I was over there. I would be like Hercules cleaning out the Augean stables.
Chinese experts predict continued growth for their economy. Someone over at that central bank missed the meeting where the lies about economic forecasts are supposed to be coordinated with lies about past results. Remember the Keqiang Index? Don't worry if you forgot it, because China's own economists are forgetting it too. It's hard to keep the lying up when natural resource exporters like Australia report dropoffs in ore shipments to China. Maybe the Chinese could start exporting baloney to drive their continued growth. Their economists are getting pretty good at spewing it.
Airbnb's business model is on the municipal ballot in San Francisco. The company's business model is at risk and it fought back with some snarky ads that caused a minor sandstorm. Elitist San Franciscans don't mind looking down their noses at less enlightened parts of the country. When a local company gores a few sacred cows by noting how its taxes could fund some of The City's most precious entitlements, people get upset. Well, fellow Frisco people, you've had it coming. If you act like spoiled children then don't be surprised when someone calls you out.
I think a lot of the sensitivity over the Airbnb ads comes from old money San Franciscans' dislike of Airbnb's nouveau riche status. Pedigreed people don't like upstarts tweaking their noses on their home turf. That would be like me attending the SF Opera and Symphony opening night galas and refusing to genuflect when some hoity-toity type tells me I don't belong there. Oh yeah, I've done that. I voted early in these elections and one of my votes was against the ballot measure that would have hurt Airbnb. Cheap tourists may be hurting established hotels, but their demand for unused apartments drives up demand for new housing.
I just threw dirt at the Federal Reserve, the People's Republic of China, and the city of San Francisco. Not once did I use any language that could possibly be construed as sexist. I call that progress.
Sunday, October 18, 2015
The Limerick of Finance for 10/18/15
China likes California's train deal
Early bid shows competitive zeal
State must still raise more cash
So the project won't crash
Major money will make the plan real
Early bid shows competitive zeal
State must still raise more cash
So the project won't crash
Major money will make the plan real
Subscribe to:
Posts (Atom)