2009-09-29

First Foray into Hong Kong

I picked up some shares in China Rare Earth Holdings(0769.HK).
中國稀土控股有限公司
INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2009

Profit for the six months ended June 30 was HK$0.0148 versus HK$0.1568 a year ago.

Net cash was HK$860 million versus HK$355 million in current liabilities and HK$296 million in non-current liabilities.

Company reports HK$2.5 billion in equity versus HK$2.65 billion in market capitalization.

The stock recently rallied when a spurt in global markets coincided with China's intention to restrict rare earth exports. The limits actually hurt the firm, however, since it will not be able to sell to the highest bidder.

约翰默登—美联邦存款保险公司的大坑

可恶!——虚假的通货紧缩!

说到通货紧缩,我要说一个很离谱的事情。一般情况下,我实际上会站在那些承担通胀监控任务的官员们一边。通胀监控是一项很艰难的工作,所有人都会去批评你应该这样做,不应该那样做,事后诸葛亮。像享乐测量法、房屋租金等值等方法的原理我都能理解,即使我并不认同。我们总得设置规则,按规则行事吧。但最近这种混乱局面实在是太不光彩了。

好像美国劳工统计局准备在下周的消费物价指数中将800,000购车者按“旧车换现金”计划购车所获得的补贴当作汽车价格下降了4,500美元来计算。真的么?我纳的税怎么就不算?

此措施一石数鸟。它会降低用来调整本季度GDP的通胀率。非世界末日,但很讨厌。不过,真正重要的是消费物价指数是用来计算社保升幅和通货膨胀保值债券(简称TIPS)的利息的。

如果我试图使用这类会计戏法来欺骗某个客户,监管机构定会责令我关闭,将我起诉到法庭的。也应该如此!我们不会为了满足自身利益而刻意去修改规则。但劳工统计局却这么做了。应该马上将这项规则给否决掉。现实世界里的各种通缩力量已经够多了,没有必要再人为去制造。好,牢骚就发到这。现在来谈谈银行体系。

不要把坑越挖越深!

我办公室窗外正上演一幕与当前困扰世界的银行业危机很相似的情景。我在达拉斯一个祥和、安静的地区租了一套相当大的房子,去年将办公室迁了过来,这样办公、起居一起比较方便。除了省下很多(!)钱(省钱总是好事情)之外,上下班时间也全省了,我只需走下大厅,拐到房子后端的办公区就可以了,十秒钟。这样我和提凡尼每年可以节省下一个多月的行车时间。

然后,几周前,我安静的小区变得不再安静。在听完保罗-卡特尼的演唱会后的那个早上,我在酣睡中被吵醒,发现我的床几乎在振动。德克萨斯地震了?非也,好像是我的邻居想要造一间大房子,首先要把旧房给拆掉。后来数日,他们拆除的效率可谓相当之高,相当不安静。我们几乎可以感觉到屋子里的玻璃和其它物品在振动。

在搬掉一棵巨大的美洲山核桃树之后,他们开始在地块上靠近我房屋这端挖26个(!)25英尺深的洞,然后用铁和混凝土灌注支柱。他们计划建造一个面积相当大的地下室,那些经验丰富的建筑师们(都是特别好的人)希望确保地面不移动而给我的屋子造成问题。因此,连续三天,他们就在距离我的窗口差不多10英尺的地方钻洞,吵到不行(有一天,我就在这样的环境下写通讯)。

由于地块的其它边连接的是街道和胡同,不用担心会损害到房屋,他们没有在那些边上安设支柱。我没有想太多,这些人建造过本地区一些最大、最好的房屋,应该很有经验了。因为地下室要造得很大,他们接着开始挖一个大的坑。坑的面积要大过地下室的实际面积,这样你才有空间放框架来灌注混凝土,等等。然后你还得从一隅开始挖掘。在整个过程结束之时,地块的大部分面积都朝着胡同方向下倾。

然后天空乌云密布,施工人员们意识到要下雨了。(你可以开始作各种猜测!)他们采取了预防措施,在坑的各个边上都铺上一层厚厚的塑料来保持坑缘干燥。接着德州下起雨来。塑料从墙上脱落,洞临街那边的雨水开始流入坑中,一直涌向人行道下沿。可怜的施工人员匆匆赶来,想方设法减轻损害,但损害已经造成,连续三天降雨只令情况更加恶化。雨后的那天早上,我简直成了湖畔住宅的业主。靠近我房屋这边的那些支柱都已经裸露出来。

他们招来人员对大坑的四周进行紧急维修。怎么办呢?好像唯一能做的就是把坑填起来,然后重新来过,只是这次要在房产的四周都安上支柱。他们现在就是这么做的。可是,泥土都运走了,现在只能从房产的其它位置挖土来填坑,填完之后再挖。

在我看来,银行业危机的情况很相似。我们让我们的银行挖了一个大坑,但只在坑的一侧进行规范,靠拼凑一些系统来支撑证券化、信用违约掉期和整个影子银行系统。

然后大雨来袭,整个工程土崩瓦解。我们现在所做的就是填坑,设置规则来保持系统完整,为开始下一个建筑项目做准备。但因为旧土已被运走,(银行必须冲销掉数千亿美元的坏债),我们现在不得不去找新土来填坑。这个过程是很昂贵的。这提醒了我千万不要盖什么房子。

美联邦存款保险公司的大坑

现在,就让我们来看美国联邦存款保险公司正在隐现的一个大坑。机构风险分析(IRA)估计是美国国内最顶级的银行分析服务机构。他们的旗舰服务收取的费用在六位数以上。负责人克里斯-维纶是我的好友,也是缅因钓鱼之旅的同伴。他很大方地给我发来尚未向公众发布的一些新数据。您可以在这里抢先阅读。(www.institutionalriskanalytics.com

IRA从美联邦存款保险公司那里获取数据,并根据他们自己的风险参数进行处理。美联邦存款保险公司目前列入“观察”名单上的银行刚刚超过400家,但被IRA评为“F”的银行有2,256家。据他们预测,本周期内将有1,000多家银行面临倒闭或被收购。根据美联邦存款保险公司的数据,2009年迄今,全美总共有92家银行破产,2008年是25家。往后还有900家将面临同样的命运。哎唷!

我们现在谈论的是多少钱?评级为F的那些银行的保险资产总额为4.46万亿美元。本周期迄今,已被联邦存款保险公司接管的银行的损失比例已经达到25%!

来看IRA的两段评述:“此分析中的重要一点是,联邦存款保险公司的破产银行决议的损失估计大约是破产银行的资产总额的四分之一左右,比1980年到1995年间平均为11%的破产成本比例高出很多。对于美国银行在本轮信贷周期的损失比例最高可能达到多少,我司一贯认为有可能会达到1990年的两倍,或者,像国际货币基金组织指出的那样,大概是贷款总额的4%左右。截至2009年第二季度,所有受联邦存款保险公司保险的银行所持有的贷款和租赁物业总额有7.7万亿美元,因此,国际货币基金组织的估计暗示累计损失应在3,000亿美元以上。

“如果按照我们公司的内部假设,即大约有一半当前评级为‘F’的银行或大约1,000家银行将会破产或与其它机构合并,联邦存款保险公司的银行保险基金的损失大约会占到总资产的20-25%,那么,在整个信贷低迷时期,这些决议给联邦存款保险公司造成的成本可能会超过4,000-5,000亿美元。请记住,在做此震惊估计之时,我们忽略了评级高于‘F’的银行以及它们当中也有一些会破产的可能。并且,我们对于资产在100亿美元以上的大型美国银行在当前这轮信贷周期中的总的‘最糟估计’或者说‘可能的最大损失’是8,000亿美元。”

去年秋季还有将近600亿美元,联邦存款保险公司的储备今天已经被支取到只剩下大约100亿美元了(除去保留资金之后),16年最低。快速浏览联邦存款保险公司的数据可以看到,那些储备相对他们现在承保的存款数额来说显得很不足。对于其承保的每一美元资产,联邦存款保险公司大概只有一美分的十分之二的资产来支持。看下面这张来自凯西研究机构的图表。

联邦存款保险公司可以借到1,000亿美元的紧急资金,到2010年结束,还能再借到5,000亿美元。但这些钱都是要还回去的。还记得20年前在储贷危机中损失掉的资金么?当时,联邦存款保险公司只需借150亿美元。我们现在仍在偿还那笔30年期的贷款。

联邦存款保险公司有两个选择可以在短期内补充其保险基金:它可以向银行收取更高的费用,或者采取更为激进的办法,向美国财政部借钱。它已经征收了超过50亿美元的“特别费用”。

现在,让我们暂时撇开这个问题,稍后还会再谈到。

经济发展需要信贷市场的发展。信贷萎缩就预示着经济后退了。但如今各家银行都被迫去筹集资金,意味着很多银行不得不削减贷款。首先,让我们来看一张有关过去五年里银行贷款总额的图表。注意,贷款总额在2008年底曾出现过突增,这是因为商业票据变得很难获得,企业都用尽了它们的信用额度。自那以后,银行开始减少贷款。

下一张图还是银行贷款总额,但追溯到了1947年。请注意,贷款的增长一直以来都是相对平稳的,只在衰退期间有一些衡量偏移,从未像去年那样下降得那么严重。而数据显示,银行打算继续减少贷款风险,因为它们需要的是增加资本(至少大量有问题的银行都是这种情况)。

消费信贷下降了。银行削减了企业尚未使用的信用额度。我还可以继续说下去,不过您已经知道大概情况是怎样的了。还记得美联储为让银行能发放贷款而用来购买有毒资产的那笔资金么?它们现在越来越多地使用那笔资金来购买房利美和房地美的贷款,并将利息存起来,以提高它们的利润率。

为什么要筹资?因为它们的贷款损失很高,而且还在不断上升。看下面这张来自北方信托机构(Northern Trust)的图表。该图表显示消费贷款损失正在不断上升,到目前为止还不见有封顶迹象。曲线还在往上升。商业银行的房地产贷款的情况也一样,违约率已经超过9%了。这些乃银行保留在自家账簿上的贷款。

所有人都知道下一个悬念将是商业房地产贷款,坏账冲销规模可能会高达4,000亿美元。这将迫使一些银行破产,其它银行将被迫承受损失。

现在,让我们回到联邦存款保险公司。该机构主管席拉-贝尔(Sheila Bair)已经强调,联邦存款保险公司不会向国会请求注资。这表示,如上文指出的,联邦存款保险公司将不得不使用它们的信用额度,或要求增加“一次性”特别费用。

如果联邦存款保险公司借这笔钱(可能性很高),它们将不得不提高向成员银行收取的政府担保利率。要偿还的3,000-4,000亿美元呢?必须将利率提得相当高,由正在为筹资和利润在苦苦挣扎的银行去承担。

这将长时间给美国银行造成巨大的利润流失,使它们更难增加需要的资本。但这是不可避免的。注定要倒闭的僵尸银行必须淘汰,由更强大的机构进行接管,这样信贷方能恢复增长。但是,这不会在一夜之间实现。需要时间。

我现在谈论的是美国的银行,但这是整个发达世界的共同问题。须要筹资减贷的银行增长不了信贷,从而,拖累增长。信贷萎缩将形成一股强大的通缩力量。而且这还没有考虑到影子银行系统的破灭。

是的,从统计上来讲,经济在本季度、可能还有下个季度都会显现增长。但是失业率仍在上升,收入在下降。我们下周会谈到这个内容。

我们将迎来一次非常疲弱、无就业增长的复苏,而且,经济陷入二次衰退的可能性相当高。股市已经预好GDP和企业利润会迎来一次陡峭的V型复苏了。对此,我完全不确信。

2009-09-28

2009-09-27

There is no Social Security surplus

In the article, Social Security strained by early retirements, there's a repetition of an old canard, the SS trust fund.
The deficits - $10 billion in 2010 and $9 billion in 2011 - won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.
The "surplus" came from the Federal government borrowing money from Social Security. It is the same as if you took money out of your personal retirement account and put an IOU in its place. The deficits won't affect payments to retirees because no politician will vote to cut Social Security. The cuts will have to come from other parts of the budget...if there was a sane budget. Instead, the government will borrow more.

Hope & Change: Youth Unemployment

Youth support for Obama? Epic Fail.
The unemployment rate for young Americans has exploded to 52.2 percent -- a post-World War II high, according to the Labor Dept. -- meaning millions of Americans are staring at the likelihood that their lifetime earning potential will be diminished and, combined with the predicted slow economic recovery, their transition into productive members of society could be put on hold for an extended period of time.

And worse, without a clear economic recovery plan aimed at creating entry-level jobs, the odds of many of these young adults -- aged 16 to 24, excluding students -- getting a job and moving out of their parents' houses are long. Young workers have been among the hardest hit during the current recession -- in which a total of 9.5 million jobs have been lost.
And a nice minimum wage hike, courtesy of the Democrats and moderate Republicans, kicked in just in time this summer.
Back in 2007, before the current recession began, Congress passed a bill to increase the minimum wage, which was then $5.15 an hour, three times over three years.

Some economists believe that the Friday increase couldn't be happening at a worse time. The U.S. economy lost nearly 3.4 million jobs in the first half of 2009, which is more than the 3.1 million lost in all of 2008.

Suzanne Clain, professor and living wage expert at the Villanova School of Business in Pennsylvania, said that increasing the minimum wage would create additional financial hardships for employers, driving the nationwide unemployment rate above its current 9.5%.

"My feeling is that increasing the minimum wage is going to put additional strain on the economy," she said. "Additional jobs will be lost as a result. It puts stress on employers who are currently having very small profit margins."

Clain conducted an analysis showing that the 13 states with the highest minimum wage -- exceeding the upcoming federal minimum of $7.25 an hour -- experienced higher unemployment levels than the other 37 states. She said the unemployment rates were higher by an average of between 1.75% and 2% in those 13 states during the three-month period ending in May.

"Raising minimum wage rates will generally discourage businesses from employing people," Clain said. "We're already suffering from a downturn phase."
EPIC FAIL!

2009-09-26

Socionomics Watch—Currency Trading

Small Investors Make Big Bets on Currencies There's the bubble effect, where investors who can't make money in stocks have turned to the leverage available in the currency market. If there's a sign that the bubble still has room to burst, this may be it. More interesting is the comparison to Wiemar Germany. As the mark weakened, more and more people turned to currency trading. Eventually, most of the country's currency traders were short their own currency.
The heightened interest in currency trading comes as the dollar is sagging. On Friday, it fell below 90 yen for the first time since early this year. Since April, the yen has gained nearly 12% on the dollar. The euro is pressing up against $1.50, a level it last attained in August 2008.

Investors are typically attracted to currency trading because of the vast leverage available -- as much as 500 to 1. That allows an investor to put up just a few hundred dollars of capital to make a bet of tens or hundreds of thousands of dollars. For example, at 200:1 leverage, common in the industry, a $500 investment controls a standard-sized $100,000 block of cash.

But leverage also points to the risk of currency trading. Depending on how much leverage is deployed, a move of just half a penny in the euro/dollar pair, the most popular pair among currency traders, "would eat up your entire capital," says Brian Dolan, chief currency strategist at Forex.com.

2009-09-25

OTB Portfolio Update 2009/09/25

Red across the board today with Fannie (FNM) and Freddie (FRE) down more than 3%.
Portfolio lost 2%, and is down 3.4% since inception. AIG is the only gainer, up 18% since inception. AIG currently accounts for 24% of the portfolio.

Crash Comparison Update 2009/09/25

2009-09-24

Do or Die Time: Crash Comparison Update 2009/09/24

In 1930, "tomorrow" saw a nearly 5% drop.

Evidence of inflation?

A debt or credit system cannot inflate unless there is trust—credit derives from the Latin word for trust. Nobody lends unless they expect to be paid back, but while we normally think of trust in terms of moral character, it also applies to simple math. One can fully trust a person or institution, but not believe that they have the capacity to repay a debt.

This is the lynchpin of the deflationist argument. There can be no inflation unless consumers and financial institutions believe that taking on more debt will lead to better economic outcomes. Without this, new debt will not enter the system except via U.S. government borrowing.

A way to restart the system is via inflation. Inflation eats away the value of the debt, increasing the likelihood of repayment. Once the threshold for system-wide "trust in repayment" is breached, inflation will commence with a new debt binge.

There's a catch-22 though. If people don't borrow, there won't be inflation in a credit based economy. The government must use another method to generate inflation: print money.

Fiat currency is faith based. It is worth what we believe it is worth. Right now, trust in currency is high and trust in debt is low. The government can transfer trust in currency to trust in debt by destroying the currency via printing.

What is the Federal Reserve doing? They are printing at the fastest level since the Y2K scare:

Table 3

Number of Notes Printed
(millions per calendar year)


Denomination

2008 Estimated

2009 Budget

Percent change 2009B/2008E
$13,404.82,745.6-19.4
$20.00.00.0
$51,267.2780.8-38.4
$10966.4140.8-85.4
$20409.6876.8114.1
$5060.8300.8394.7
$1001,296.02,172.867.7
Total7,404.87,017.6-5.2



There's a definite shift towards bills with greater face value, but the Fed will have to print a lot more to generate inflation.

More Protectionism

Paper Is Next Front in China Trade Fight

This is building to a direct confrontation. They'll keep trying with small stuff and then one side will make a misstep.

2009-09-23

Do or Die: Crash Comparison Update 2009/09/23


Chinese credit, real estate in trouble


Credit card debt on which payments are delayed by six months or longer totalled 5.8 billion yuan at the end of June, up 131.3 percent year-on-year and up 16.2 percent from the end of March, the People's Bank of China said in a Sept. 16 statement. Credit card payments are closely watched during weak economies for signs of distress among consumers. At the end of June, about one Chinese out of eight owned a credit card, the statement said.
Elsewhere:
In Shanghai, sales in the second week of September fell 10 percent week-on-week, while supply rose 84 percent, according to property consultants Centaline China.
In Guangzhou, sales dropped 30 percent in the second week of September, while supply grew by 73 percent, Centaline said.
“金九”落空 一线城市住房成交量继续下滑
另据中原住宅监测系统数据显示,9月第二周,全国一线城市成交量环比继续下滑,广州、上海两地分别下降了三成和一成。同时,上海、深圳、广州三个城市商品住房存量环比均微幅上涨。其中上海、广州新增商品住房供应面积分别比上周增加了73%和84%。

2009-09-22

Crash Comparison Update 2009/09/22

As currently drawn, chart will terminate on October 13.

OTB Portfolio Update: 3 PM Fail

The OTB portfolio was on the way to big gains until 3 PM, when AIG plunged from $50 to under $46 at the close. It dragged the portfolio down 0.6% on the day, lowering the inception return to 1.86%.

2009-09-21

Denninger lays out the debt picture

Get over to Market Ticker and read this post. Denninger does something that I can't recall having seen before—he shows where the debt comes from in each decade since the 1950s. This is important because a lot of folks point to the 1980s as the problem for debt, but in reality, most of that debt was business debt. It definitely reached a level that worried many, and several economic "prophets" forecast a Depression around 1990, but it never happened. What emerges in the 1990s and then explodes in the 2000s is financial debt (with government spiking at the end).

Denninger's latest theme is the spread between debt growth and GDP growth. If debt grows faster than GDP, it must later be balanced by GDP growing faster than debt. The last time GDP grew faster than debt? 1993. That's why OTB (Obama, Turbo Tim, Bernanke) need to defend the moribund banks and government corporations, but I repeat myself. Denninger lays it out:
THE ONLY WAY TO REPAIR THE FINANCIAL SYSTEM IS TO DRIVE THE PONZI INDICATOR POSITIVE AND HOLD IT THERE FOR A PERIOD OF MANY YEARS. THAT REQUIRES EITHER MASSIVE INCREASES IN GDP (IMPOSSIBLE GIVEN DEBT LOAD) OR MASSIVE DECREASES IN OUTSTANDING DEBT. SINCE WE CANNOT PAY DOWN THAT DEBT AS PROVED BY THE RAMPING DELINQUENCY AND DEFAULT RATES THE BAD DEBT THAT IS CURRENTLY BEING HIDDEN BY THE BANKS AND OTHER FINANCIAL INSTITUTIONS MUST BE FORCED INTO THE OPEN AND DEFAULTED.

Do you now recognize WHY Bernanke and the other so-called "economists" who have said (some of them under oath!) that "they never saw it coming", "subprime is contained", "housing prices represent fundamental strength in our economy" and other outrageous falsehoods?

Do you now understand why they're still spewing absolutely FALSE prognostications related to our economic outlook?

Google Wave

I was trying to work out the trend lines on the Shanghai Composite and in my searches I came across a post on Google Wave by Jason Kolb. Very cool, and makes me wonder how the Chinese government will deal with it, since it promises an intermediary-free Internet experience.
Let's take a step back and think about this for a second. I'll probably do another post just on the addressing scheme at some point because it's so key, but it's worth a brief recap.
Right now I cannot send text directly to your instant message account (unless you're using an XMPP-based client), I have to send the message to your IM server which relays the message to you.
I cannot send audio directly to your phone, the phone company has to route it there.
I cannot share a picture directly with your Facebook account, I have to sent it to Facebook first to be carried on to you.
I can't send a file directly to you, I have to put it on a share or email it to you.
(Not to mention the fact that these are all disconnected, you can't combine these into a single message stream. XMPP addresses that problem very nicely, as the wave client shows.)

XMPP removes these intermediaries from the network. Social networks and proprietary transports no longer have an exclusive license to deliver content, the clients talk directly to one another.

Do you see the difference? There are no longer social networks or any other type of networks required to relay the communication, we are now down to exactly 3 components:
1. Clients
2. Storage
3. Applications

Socionomics Watch—Steel

This isn't a look at social mood, but a "history rhymes" comparison.
From News from 1930, September 15:
The great debate: Bears argue that past month's rally has already discounted the mild improvement in business, and that decline in steel production in past week indicates weakness. Bulls counter that steel decline was due to Labor Day, that August steel and car loading figures show more than seasonal improvement, and that recent retail figures and company outlooks have been improved. On the technical side, bulls believe the recent rally has “definitely broken” the downtrend since last Sept., indicating future support should come in well above the June bottom of 212.
Here's news from September 21, 2009: Steel traders Call for Lower Prices from Producers
Steel prices have fallen since August and many traders have lost money on products purchased under contract at higher than current market prices.

The contract price of cold-rolled steel for October delivery from Baosteel, for example, is 6,300 yuan per ton, compared with a market price of about 5,600 yuan per ton, Liu Changqing, chairman of Beijing Lange Baiziwan Steel Market, said.

Socionomics Watch—Theft

Interesting article on restaurant decor theft: Restaurants encounter a rash of decor thievery
Some social mood commentary:
“I wanted to make a beautiful statement,” she said.

In recent months, however, customers at the bakery/cafe started pulling crystals off the chandelier and either taking them home or leaving them in the restroom. It happened so often that the fixture's metal skeleton began to show.

Brook took the chandelier down, an experience she called “heartbreaking.”
“People are just so brazen,” she said.

...
“In 18 years, that's the first bad experience I've had,” said T'afia owner/chef Monica Pope, who has improved her security since the thefts took place.

In many instances, the worst part of the theft is not the value of the item taken, but the emotionally toll on the owner. It feels like a kick in the gut.

“Restaurant owners are hospitality-driven people,” observed Shine.

Independent restaurateurs often create an ambiance resembling their personality, he said. “Coming to their restaurant is like coming to their home.

“When you take something from it, you're taking a part of them. It hurts and makes you angry,” he said.

...
The print was stolen in broad daylight, an act of boldness that startled Jones. Someone could have easily witnessed it, she said: “I wish to God it had been me. It's just infuriating.”

She wonders if she should remove all of her personal items from Ouisie's, “but I don't want to.”

...
A theft like that makes “you angry,” Goode said. “Unfortunately, being in this business, you're open to it happening.”

He has no plans to remove any of his artifacts from his restaurant, however.

“We're not gonna let one or two bad apples ruin it for everybody else,” Goode said.
Even if this isn't really news, why is the newspaper covering this now, and why did Drudge link to it?

OTB Portfolio Update 2009/09/21

A 21% rally in AIG and gains for every holding except Bank of America (BAC) lifted the OTB Portfolio to a 7.97% gain and into positive territory since inception, up 2.47%. Freddie Mac (FRE) is 0.5% above its initial position value of $200, while AIG is up 28% and has delivered essentially all the portfolio's gains.

Crash Comparison Update 2009/09/21

Dow 1930 versus S&P 500 2009. Note that a day-to-day match up would have the 2009 chart terminating on October 13, which leaves 16 trading days. I have not and do not anticipate a one-to-one correlation.

2009-09-19

Socionomics Watch—Everybody's Farming

I read this news a few weeks ago: FarmVille Leads Top 25 Facebook Games
Zynga's social game FarmVille doubled the amount of monthly active users month-on-month, attracting 33.4 million monthly active users on Facebook, far exceeding any other title during the period, according to a new chart published on Inside Social Games.

Social game developer Zynga released the virtual farming title on June 19, and last month claimed the game is currently the "largest and fastest growing social game."

The next-closest game from a monthly active user standpoint during the period was another Zynga game, Mafia Wars, which attracted 18.7 million monthly active users on Facebook, up from 15.22 million the prior month.

In FarmVille, players create and manage virtual farms, and stay connected to friends through the Facebook social network. They can also purchase virtual items such as plants, animals, and buildings. Zynga said the game has attracted over 1 million new daily active users per week on average.
At the link, there's a chart of the most popular games. Number three is another farming game, Farm Town. The Wall Street Journal Digits blog has more info on Farmville. GamesBeat also covers Farmville.

This phenomenon isn't just in the United States. Facebook has users all over the world of course, but it turns out that many QQ users are playing farming games in China.

Here's an article discussing how players can steal other farmers' food in the game.网络游戏“开心农场”,玩的居然是“偷”和“抢” Some players wake up at night to loot farms, and the game is popular enough that there's a discussion of how parents should approach this issue with young children. Here's another on the issue of stealing in the game. “偷菜游戏”怎成了白领的精神家园? Most Chinese articles I found were concerned with the morality in these games.

Use of the game undoubtedly has its own socionomic component. Since it has become the most popular game, it may be that peak popularity has already arrived. Nevertheless, the fact that at least two of the largest countries in the world have turned to farming games may hold some evidence of social mood. In many people's minds, farming is a more simplistic way of life. In China, a very sizable minority of the population is still engaged in farming, but the romantic notion of farming remains in the minds of city dwellers.

2009-09-18

OTB Portfolio Update 2009/09/17

Down 0.66% today and 5.10% since inception. I should have added Lehman (LEHMQ) because it was up from $0.11 on Friday last week to $0.20 on Friday. I'm sure Obama, Turbo and Bernanke would argue that if we add Lehman in there, the returns look much better.

But I have some standards! No pink sheets. Sorry guys.

Crash Comparison Update 2009/09/17


1937 is looking better all the time, but there's still the chance that the global monetary printing, unseen in 1930, is causing the extreme rise.

2009-09-17

The Political-Financial Complex

Blog: The Circulation of Real Estate Investment
房地产是个好媒介
The Chinese government benefits from the real estate bubble because it owns much of the land in China. The banking-consumer-developer relationship terminates with land purchases from the government. The only major downside with this system is that it causes the government to favor land shortages and high prices. However, the Chinese system has nothing on the bubble that grew in the United States.

In America, the financial system plays the role of real estate. Money moves between the banks, consumers and business, and the system terminates when government takes its slice through direct taxes on income and payroll. If the banks falter, consumers and business have less money, thus pay fewer taxes, and the government must shrink in absolute terms and quite possibly in relative terms as well. That's why we're seeing the desperate attempt to restart the system and/or increase government power, a la Hoover and FDR in the 1930s, if that fails. In order to keep its income up, government must increase the debt. If consumers won't do it, government will.

Karl Denninger discusses the end game here and updates it here.

China Derivatives War: Legal avenue discovered?

Opening Salvo in a Brutal Derivatives Battle
What's worthy of attention is that these 31 licenses only let SOEs trade commodities on overseas exchange markets; none authorized derivatives trading.

And contracts between foreign investment banks and SOEs on the matter of derivatives trading are flawed. Some transactions took place before contracts were signed. A knowledgeable source said if SOEs find evidence of unauthorized trading, they can seek legal protection. Any transaction settled before a contract is signed can be nullified the rest.

Yang Xusheng, a lawyer and partner at the firm King & Wood, said a standard agreement called an ISDA (International Swaps and Derivatives Association) agreement is required for any derivatives trade on an exchange market. In addition, the two parties must sign a schedule and confirmation.

A source close to the SASAC investigation said ISDA agreements were not signed for a large number of the Chinese transactions at the root of the dispute because SOEs could not agree on deal details with investment banks.

"Our judgment is that if there is a lawsuit" over SOE payment defaults "each side has a 50 percent chance of winning," said a source at one SOE.
Caijing cites a Wall Street Journal article that claims the derivatives losses amount to $2 billion, split across several firms.

Crash Comparison September 17

Here's the original chart I posted, which marked September 17 as the last day before the slide.

2009-09-16

Crash Comparison Update 2009/09/16

Divergence is widening.

Internationalized yuan to take time

中国金融官员称人民币国际化不应操之过急
China should promote the internationalization of the yuan in a pragmatic fashion and at a controllable pace, foreign exchange officials said Sept. 15.

Progress may be slow in the early stages, but will accelerate once trading and settlement arrangements are in place, said Fang Xinghai, director of the Shanghai Finance Office.

The yuan will not replace the U.S. dollar as the world's primary reserve currency or enjoy similar international status as U.S economic strength will continue to grow, he said.
“现在我们要做的,就是让那些愿意用人民币进行交易的公司机构,不要受到体制的限制,为他们打通渠道。”方星海说,至于市场在多大程度上会选择人民币,这并不取决于货币当局的意志。
The untranslated part left out of the English summary says that the government will open channels for trade companies to use renminbi, and the market will decide to what extent the currency is used, not the monetary authorities.

Andy Xie: Lessons from Japan

What We Can Learn as Japan's Economy Sinks
We can learn much from Japan's experience. The global economy -- mainly the Anglo-Saxon economy -- is facing the consequences of a massive credit bubble. The remedies most governments have embraced are to keep interest rates low and fiscal deficits high. These are the same policies Japan pursued after its bubble burst nearly two decades ago. How today's bubble economies are treating bankruptcies and bad debt is shockingly similar to what was seen in Japan. The United States and others have suspended mark-to-market accounting rules to let banks stay afloat despite large amounts of toxic assets. It's the same "let them earn their way back" strategy that Japan pursued. The strategy fails to work because it keeps an economy weak, limiting the earning power of financial institutions.

As the global economy is again showing signs of growth in the third quarter, most governments are celebrating the effectiveness of their policies. Yet Japan's experience forces us to pause: Its economy experienced many such growth bounces over the past two decades, but was unable to sustain any of them. The problem was Japan only used stimulus, not restructuring, to cope with the bursting of its bubble. After the demise of any big bubble, serious structural problems that hamper economic growth remain. Stimulus can only provide short-term support that makes structural reform possible. When policymakers celebrate the short-term impact of stimulus and forget structural reforms, economies slump again. I think the Anglo-Saxon economies will dip again next year.

2009-09-15

Crash Comparison Update 2009/09/15

See the first post for background information.

OTB Portfolio Update 2009/09/15

AIG down 5.62% and Citigroup down 8.85%
Portfolio down 4.42% on the day; down 7.19% since inception.

Socionomics Alert!

NY Daily News covers the fashions for next spring: Fashion Week runways show off some of sexiest designs yet Monday. There's a video of one designer's spring line, but most of the pics are in the paper. Nevertheless, Amy Diluna makes it clear what's on tap:
It was hot in the city Monday, but not just because of the blazing September sun.

So much heat was coming off the runways, next spring's gonna be seriously, seriously sexy.

There were sky-high hemlines, blazing orange and red hues and clothes so clingy it's a good time to take out stock in Spanx. (The skirts were so distractingly short at Jill Stuart, anyone in the front row got a little TMI.)

Aside from those unwelcome gyno glimpses, most designers pulled off the supershort silhouette and managed to make the micro majorly appealing.
You'd think there was a bull market on or something.

Small and medium enterprises getting credit

Good news for China's economy: Half of Total Lending Goes to SMEs
"It's also the first time that the growth rate of loans to SMEs has exceeded that of total corporate loans," Yang said.

Five stated-owned commercial banks and 12 joint stock lenders established special divisions to serve SMEs in the first six months, he said, adding that the 17 financial institutions extended 72 percent of total SME loans during the period.
上半年全国中小企业贷款占比超“半壁江山”
今年以来,银监会放宽了中小商业银行准入条件;推进新型金融机构建设,计划在未来三年内设立新型农村金融机构1294家,主要分布在农业占比高于全国平均水平的县域、中西部地区、金融机构网点覆盖率低的县域,以及国家级、省级贫困县和中小企业活跃县域。此外,为中小企业提供金融服务的担保体系、金融产品体系、统计体系等也在不断完善。
  杨家才向《财经》记者表示,目前中小企业融资的最大难点,首先是中小企业的信用体系不完善,企业本身的信息缺失,难以证明自己的信用。其次,支持中小企业融资的财税体系还有待完善。杨家才说,目前中小企业享受的财税政策与大型企业一样,但企业的贷款不良率方面,小企业达13%,中小企业为4.5%,而大企业只有1%。如果税收政策方面能给予中小企业贷款业务的营业税减免,就可以解决银行给中小企业贷款的后顾之忧。

2009-09-14

OTB Portfolio Update 2009/09/14

AIG up 9.48%, lifting the portfolio 1.92%
AIG is the only winning position at the moment, up 9.07%
Portfolio is down 2.89% since inception.

New Crash Comparison

Now folks are looking at 1937-1938.

Socionomics Watch—China Edition

Needle attacks in China
No one has been infected, poisoned or otherwise harmed by the needle attacks that are terrorizing citizens in Urumqi, the capital of the troubled Xinjiang region.

The official China Daily newspaper quoted Qian Jun, the director of China's Disease Control and Biological Security Office, saying: ``Although no radioactive or toxic substances were found, some patients showed various levels of anxiety and depression and have been recommended for psychological counselling.''

The findings appear to confirm growing suspicions that the needle attacks in Urumqi were minor annoyances compared to the panic they sowed in a population already jumpy after a summer blighted by the worst ethnic violence seen in China in recent years.

The last official count, on Sept. 4, had 531 people reported stabbed by needle-toting villains, but only 171 with puncture marks to prove it.

The government news agency Xinhua quoted Wang Wenxian, a Urumqi police officer, saying: ``The needle stabbings did not cause serious damage to the victims' health, but they caused public panic.''
The panic should be over now that three people have been sentenced to jail for 7 to 15 years. One woman stabbed a woman in the butt, and two others used a needle to hold up a cab driver. All three are drug users, and Weigers.

What I'd like to know is when the attacks occurred. The woman stabbing sounds like it could be random violence with a weapon on hand, while the hold up makes me question whether it occurred before or after news of the attack got out. For public safety purposes, however, putting any needle wielders in jail should calm the populace. Han Chinese recently protested in force over the government's inability to protect them from needle attacks.

2009-09-13

Japanese traders don't like the idea of a trade war

Nikkei is down 2.50% in morning trading and the yen and dollar are rallying. Although Japan is a surplus country that will be hurt by a widening trade war, the yen rallies during deleveraging.

The trade war may be the rally killer the bears have been waiting for.

Trade War Bullish for Dollar, Bearish for Economy & Markets

Unless the sides step back from their latest moves, a full on trade war between the U.S. and China is underway. It's widely believed Obama stated the row with a ruling against Chinese tires in order to please union members, who are needed for the healthcare fight. China responded with an investigation of poultry and autos.
Here's the FT take; here's Bloomberg.

Markets can react in any number of ways in the short-run, but when this news is digested I believe it will be dollar positive. The United States is still a trade deficit nation and a drop in world trade will hurt the surplus nations more than the deficit nations. The supply of dollars in the global economy will slow and this will help the dollar for a time being. Of course, in the very long-run, it is negative for the dollar because it accelerates the final stage of removing the U.S. dollar as a reserve currency.

For the economy, more bad news for union workers and everyone else too. This will trigger lower stock prices and perhaps another round of deleveraging, which should also be bullish for the dollar.

2009-09-11

Protectionism Continues

Obama to impose tariffs on Chinese tires
President Barack Obama on Friday slapped punitive tariffs on all car and light truck tires entering the United States from China in a decision that could anger the strategically important Asian powerhouse but placate union supporters important to his health care push at home.
There may be no public repercussions, but there will be a price.

OTB Portfolio Update 2009/09/11

Down 1.82% today and 4.72% since inception.

Crash Comparison Update 2009/09/11

2009-09-10

Socionomics Watch

New York’s Tavern on the Green Files for Bankruptcy
The bankrupt partnership listed assets and debts of as much as $50 million each in a filing yesterday in U.S. Bankruptcy Court in Manhattan, with more than 200 creditors. It said it probably won’t have enough to pay unsecured creditors, after deducting expenses and exempt property.

Financial Crisis

“The filing was the result of two factors -- the extreme financial distress brought on by the current financial crisis and the City of New York’s decision not to renew our lease,” Tavern on the Green Chief Executive Officer Jennifer Oz LeRoy said in a statement.

The restaurant will continue to operate during the reorganization, she said. Discussions between Poll and LeRoy representatives include ways to keep operating after Poll takes over on Jan. 1 and begins to renovate, said Shelley Clark, a spokeswoman for Jennifer LeRoy.

“We’re working out those things,” she said.
It's been awhile since we had a high profile bankruptcy and this one will echo.

OTB Portfolio Update 2009/09/10

The Obama/Turbo/Bernanke Portfolio was flat today, up just 0.26%
Losses in AIG offset gains elsewhere.
Portfolio is down 2.96% since inception.

Crash Comparison Update 2009/09/10

2009-09-09

Crash Comparison Update 2009/09/09

OTB Portfolio Update 2009/09/09

8.5% rebound in AIG lifts the OTB Portfolio 2.61% Only Citigroup was down on the day.
At $967.85, the portfolio is down 3.21% since inception.
Thanks to today's move, AIG moved ahead of Citigroup as the largest portfolio position.

2009-09-08

OTB Portfolio Update 2009/09/07

AIG sank 10% today, leading the decline in the OTB Portfolio.
Portfolio value is now $943.21, current top holding is Citigroup at $202.16, Fannie Mae is at the bottom, at $176.22.

America's slow motion collapse

Social Security is broke. It had a $6 billion deficit in August.
SS is the mother of all systemic risks. Even the debate on this topic brings risk. It will expose an additional $7trillion unfunded liability. Another reason for holders of dollars to worry.

There is no fix to this. Raising taxes is a dead end. Age warfare is a possible social consequence. The really bad news is that no one will touch this for another year. By then it might be too late.
This is why listening to Obama, Democrats and Republicans arguing about healthcare is a waste of time. America does have one solution:
US citizens in rush for offshore tax advice
The US Internal Revenue Service said that the deal underscored the US government’s determination to clamp down on tax evasion.

A Senate committee has estimated that the parking of assets offshore costs the US $100bn in lost taxes each year.

New IRS guidelines for individuals with untaxed offshore assets were announced on March 23.

By coming forward voluntarily, many taxpayers who are not already being investigated by the IRS can cap their liability at six years of back taxes, interest and penalties – and avoid possible criminal prosecution.

Suzanne Reisman, a London-based US private client lawyer, said the IRS deadline was particularly relevant for Americans living in low-tax jurisdictions such as Asia.

Americans living in Britain and other relatively high-tax countries were less likely to owe the IRS money, although those who had neglected to file returns were urged to get their affairs in order.She estimated “tens of thousands” of Americans living abroad had inadvertently fallen foul of the rules.
Just as with the Swiss tax deal, this one off event will lead to less investment in America, more sheltering of income, and more Americans moving overseas. Once the one time collection wears off, the long-run revenue curve of the government will be permanently lowered.

Just another reason to avoid companies that rely on the U.S. consumer.

Baosteel cuts October prices

Deflation?
Baosteel said hot-rolled carbon product prices were cut by 300 yuan a ton, with hot-rolled low-carbon products falling by 200 yuan and, and cold-rolled prepainted steel sheet down 350 yuan.

Steel plate and most cold-rolled products remained unchanged, traders who work with Baosteel told Caijing.

Hu Yanping, an analyst from consultancy Umetal, told Caijing that the price cut reflects growing competition in the hot-rolled steel segment which is used mostly by the machinery industry, a sector which has not yet fully recovered from the economic downturn.

The company raised prices for three consecutive months beginning June.

However, the market has been on a downward slide since early August. The MySpic Index, consultant Mysteel's weekly monitor of domestic steel prices, fell from 165 on Aug. 7 to 134 on Sept. 4.

Mysteel analyst Xu Xiangchun said Baosteel still has room to cut prices further, as its prices are still far higher than the average market rate.
通货紧缩?宝钢下调10月钢价
《财经》记者从宝钢贸易商处获悉,9月7日,宝钢出台2009年10月碳钢产品出厂价格政策,在9月价格基础上,热轧品种中普碳钢下调300元/吨;低碳钢下调200元/吨;热轧酸洗下调300元/吨;彩涂普遍下调350元/吨;冷轧、热镀锌、电镀锌、镀铝锌、电工钢以及宽厚板的价格维持不变。

谢国忠: 美元向好 / 美元中兴

美元向好 / 美元中兴
除了利率,从2011年起,资金也将从新兴经济体流向美国。新兴经济体资产膨胀是靠一股势头得以维持的。一旦这个势头停止,投资者将会认识到, 即使考虑到其增长潜力较高,新兴经济体的资产价格仍要远远高于美国。然后,资本流动将发生逆转,和1996年至1997年发生的情况类似。美元长期疲软曾 将资本逐向新兴经济体,并使其资本市场在很长一段时期内都充满了泡沫。大多数投机者认为,泡沫将一直持续下去,然而,当美元步入牛市,灾难也就来了。很显 然,几乎每一个新兴经济体届时都将陷入危机。如果说另一轮新兴市场危机可能会在2012年出现,我对此毫不惊讶。
The cyclical bull market for the dollar may last for two to three years. It could bounce up by 20%. The dollar index may reach 100 during the period. It would be similar to the dollar’s situation in the early 1980s. The Fed raised interest rate massively to tame inflation. Even though the US economy wasn’t that strong and the fiscal deficit was large and increasing, the dollar rose substantially until the 1985 Plaza Accord. The coming dollar bull market may even be shorter.
货币的价值是相对于其他货币而言的。美国的情况并不是独一无二的。在欧洲和日本,老龄化都是影响经济的主要因素。由于这些国家较高的家庭储蓄足 以支付其巨额财政赤字,因此,其货币相对强劲。然而,未来可能并非如此。日本的财政赤字已经达到其国内生产总值的200%。欧洲国家约为100%。只要这 些赤字还能够用国内储蓄抵补,政府就可以继续增加财政赤字,并通过保持低利率来掩藏过重的财政负担。低利率必须辅之以强势货币。但是,从长期来看,强势货 币将造成经济疲软。因此,未来其收入及储蓄都将相对较低。在未来十年中,欧洲和日本可能需要通过发行货币来撑起赤字,这将导致其货币疲软。

  老龄化是拖累币值的主要力量。恶性通货膨胀可能会散播到世界各地。由于美元长期前景不妙,这将同时不利于其他货币。在持有货币的时候,我们必须保持警惕。但是,目前不用急于将纸币变为其他形式的资产。在许多国家,股票和资产被严重高估,尤其是中国。对于被高估的资产来说,货币仍然相对便宜。但是,当泡沫破裂的时候,不要忘了将资金转成股票和房地产

Andy Xie sees Dollar Index hitting 100 in coming rally

Andy Xie's latest Dollar improving says the greenback could stage a major rally due to the Federal Reserve lifting interest rates to 5% in order to combat inflation.
In addition to the interest rate, capital will flow from emerging economies to the US starting in 2011. The asset inflation in the emerging economies is sustained by momentum. As soon as the momentum stops, investors will realize that asset prices in the emerging economies are much higher than in the US even taking into account their higher growth potential. Capital flow will reverse then. It would be similar to what happened in 1996-97. A long period of weak dollar before drove capital into emerging economies and caused their asset markets to stay bubbly for a long time. Most speculators thought that the bubbly situation would last forever. The catastrophe came when the dollar went into a bull market. Virtually every emerging economy went into a crisis. I wouldn’t be surprised that another bout of emerging market crisis may occur in 2012.

The cyclical bull market for the dollar may last for two to three years. It could bounce up by 20%. The dollar index may reach 100 during the period. It would be similar to the dollar’s situation in the early 1980s. The Fed raised interest rate massively to tame inflation. Even though the US economy wasn’t that strong and the fiscal deficit was large and increasing, the dollar rose substantially until the 1985 Plaza Accord. The coming dollar bull market may even be shorter.
Andy Xie also believes that the problem with healthcare is overconsumption, not lack of insurance, and this could harm the U.S. economy:
The root cause of the US healthcare problem is its incentive system: patients demand expensive services as they don’t need to pay for it, hospitals, doctors and drug suppliers overcharge price-insensitive patients, and insurance companies keep raising premium to cover escalating costs. McKinsey Global Institute documented in its recent report (‘Accounting for the Cost of Healthcare in the United States’, January 2007) that one third of the US healthcare expenditure was due to high input costs -doctors, nurses, etc. are paid more than in other countries-and inefficiencies. In a system with cost socialized and benefit individualized, overpricing and inefficiencies are inevitable.

The demographic trend will make the healthcare cost more daunting in future. The healthcare cost rises exponentially with age. As the US’s baby boomers retire, the healthcare cost would rise even faster. The US fiscal balance is heading for a catastrophe. It is possible that the US could experience hyperinflation at some point.
He concludes that investors shouldn't jump from money to stocks and properties yet, but rather wait for the bubble to burst.

2009-09-07

Paychecks Kill

Interesting study that finds mortality increases when income checks are received. This makes intuitive sense, people go out and spend their money when they get it, getting into traffic accidents, etc. Why it is interesting is because if the government, for instance, sends out a check that must be repaid later (for example, stimulus checks), then with the little to no economic benefit comes a rise in mortality.

It also shows that researchers have way too much time on their hands.

The Short-Term Mortality Consequences of Income Receipt

Cheng Siwei Warns on Dollar & China Bubble

"If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.

China's reserves are more than – $2 trillion, the world's largest.

"Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added.

The comments suggest that China has become the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction.
The last paragraph is Ambrose Evens-Pritchard's opinion.
"Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down."
Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets.
"This is where Greenspan went wrong from 2000 to 2004," he said. "He thought everything was alright because inflation was low, but assets absorbed the liquidity."

U.S. Could Become a Third World Country

Similarities with the Great Depression? Even Nobel Laureates are getting on board:
Although the authors support the Federal Reserve's moves to slash interest rates to just above zero and embark on quantitative easing, pumping cash directly into the system, they warn that greater intervention could set the US back further. Rowley says: "It is also not impossible that the US will experience the kind of economic collapse from first to Third World status experienced by Argentina under the national-socialist governance of Juan Peron."
Barack Obama accused of making 'Depression' mistakes
From an article by one of the authors, Charles K. Rowley:
The US economy suffers from a growing culture of indebtedness that has increasingly contaminated the federal government since 2001 and has spilled over dramatically into private household behaviour. The combination of the ill-conceived fiscal-furnace fired by President Bush and the US Congress and the reckless monetary-furnace fired by Alan Greenspan and Ben Bernanke throughout the period 2001-2007, created unsustainable housing market and stock market bubbles whose collapse brought on the financial crisis and economic contraction of 2008-2009.
This is a perfect example of why Obama's poll numbers are plunging. The public has completely shifted mood. There is debt revulsion among the people, but the politicians were elected before the mood shift. Politicians, including Republicans, are out of touch with their constituents because in the words of Dick Cheney, they believe "deficits don't matter". Deficits don't matter when the public is on a debt binge; deficits matter when the public wants a balanced budget.

Here's a link to their paper:Economic Contractions in the United States:
A Failure of Government

2009-09-06

Socionomics Alert

This is anecdotal, so no siren. But what a great comment on ZeroHedge illustrating deflationary thinking:

by Andy Dufresne
on Mon, 09/07/2009 - 00:53
#60907

Prechter is too extreme of a comparison (I know nothing about waves, other than the ocean)... I am in the deflation first/inflation next camp, I haven't seen the reeeaal deflation yet

by I need more cowbell
on Mon, 09/07/2009 - 01:14
#60922

I did for the first time today, Andy. I mentioned to my wife, " Wow, Pottery Barn is having a 75% off Labor Day sale".

Her reponse was, "So?"
That ,muchacas, is deflation.
Emphasis mine.

Bad Loans Piling Up

Caijing has the story: Post-Lending Boom Blues for China's Banks
First-half data from regulators shows the banking industry had offered an optimistic picture of decreasing balances and NPL ratios. But the picture seems suspicious. One reason is that the astronomical increase in lending helped decrease NPL ratios.
In the housing bubble, the later year subprime loans became non-performing sooner because they were lower quality. When will the latest loans begin showing up as NPLs?
For example, CCB's report said its NPLs in the first half decreased by 6.67 billion yuan. However, the bank also said it had recovered 19.6 billion yuan from older NPLs in the first half.

Bank of China's interim first-half report said its NPL basket contracted by 10 billion yuan. BOC President Li Lihui said the bank recovered 12.6 billion yuan and wrote off 3.8 billion yuan worth of NPLs.

If other measures such as restructurings, acquisitions and mergers are taken into consideration, it could be said that BOC absorbed a total 22.6 billion yuan in NPLs.
NPLs decreased less than the write-off of old NPLs, i.e. the number of NPLs increased in the first half.
Liao Qiang, a financial analyst at Standard & Poor's, said the overall quality of loan clients worsened while client numbers increased during the loan campaign. Many loan applicants who failed bank criteria tests were approved anyway, Liao said.

A senior analyst from a commercial bank said: "The problems of new loans will not emerge until two years pass. Due to massive levels of capital on the market, many enterprises can still hang on and, therefore, a large outbreak of NPLs will be delayed."

The analyst also said NPLs would have surfaced already if not for the Chinese government's spending this year through a 4 trillion yuan economic stimulus package.

"Governments are playing an important role in supporting many projects," a banking source said. "Without government support, many projects would not sustain themselves with their own capital."
There's the estimate on the NPLs. Immediately without government support, but maybe in two years time. From the numbers above, it's clear that some problems already exist in the loan portfolios, probably due to difficult economic conditions, without even counting the low quality loans made in the past five months. And what about earnings?
CMB and CITIC blamed their poor performances on decreasing interest rate differentials. CMB's differential fell 1.42 percent while CITIC's declined 1 percent, although both were higher than the industry average.

The central bank cut benchmark interest rates five times in 2008. That was followed by a loosening of bank lending limits, lowering loan costs and narrowing the rate gaps between bank borrowing and lending.
Profits are tougher to come by, but more reserves will be necessary to cover growing NPLs.
However, the industry rate differential is not likely to bounce back to the original – and now enviable -- 3.5 percent. According to an analysis by China International Capital Corp. Ltd., listed banks' interest rate differentials, if the benchmark interest rate keeps steady, are expected to increase 8 basis points to 2.43 percent in 2010 and 2 basis points to 2.45 percent in 2011.

And any upward trend would depend on a stable increase in interest revenue from borrowers – a situation that appears difficult considering the change in China's loan climate since June.
Lower profits, higher reserves and growing NPLs. The next wave of stimulus in China, should there be another wave, will not come via the banking system.

2009-09-05

Excellent Prechter Interview

From the Financial Sense Newshour with Jim Puplava.

Prechter on Deflaton

I wonder WHO on Earth would have faith in the US administration. Certainly, not someone who thinks!



More great stuff from Marc Faber. Here's another interview on Indian television where he discusses different markets around the world:


Faber says a correction in oil and materials stocks is already underway, they are below May/June peaks.
I'd also like to point out that the Euro has been trading in a very narrow range against the US dollar. Since June we are at the same level essentially, around 1.4300. And I believe in the next 10 days to 2 weeks, we'll get big moves in markets and I wouldn`t be surprised if the dollar would for a change strengthen and equity markets would correct and possibly quite meaningfully so.

Socionomics Watch

Who Should Get Credit for a Recovery? The article closes by acknowledging that no one will want credit for a jobless, high unemployment, slow growth economy.

2009-09-04

Chains You Can Believe In

You read that right folks: in 3 generations, deficits will reach an unfathomable 50% of GDP! Obama's legacy is to effectively enslave America to its creditor interests.
The CRFB Sees Locusts, Plagues And Lots And Lots Of Budget "Impossibilities" In America's Future

Crash Comparison Update 2009/09/04

It looks as though the stock market is starting to move inverse to the 1930 market. Both long and short charts today.


Metro NY Homes Are Much Cheaper Today

according to Bruce Krasting.
In 2006 a house not too far from mine came on the market at a very rich price. $2.7mm for a five bedroom home on four acres. It was a nice place. At the time I thought it was way over priced, but I was praying it would sell. That comp would have put money in the pockets of all the neighbors.

It didn’t sell, and then 2007 happened. There was not much price erosion that year. But there were no sales either. So that house sat on the market. The price was lowered several times through 07 and 08. The RE agents let it be know that the seller was “negotiable” at every new sales price. Nothing sold in 2008.

The house was sold this week. It was a short sale. The sale price was $600,000. Less than 25% of its asking price three years ago.

The owners had a total of $1.8mm on the house. A $1.2mm 1st lien and a $600,000 second. I don’t know how the sale proceeds were divided up. The 1st got less than 50% of principal. The 2nd probably got pennies. The loans had been in default for more than a year, so the $90k in arrears were wiped out. An absolute disaster for the lenders.

The new buyer is solid. He shopped for a mortgage on the property for three months. They finally got a mortgage with an advance rate of only $417,000. This number is the Agency limit; therefore the only lender out there was Fannie Mae. This comes to an advance rate of 70%. The buyer had the $183k required down payment so the deal got done.

There are hundreds of $1 million homes within a few miles of this property. This morning they are all worth 40% less.
As seen on Zero Hedge.

Bubble News of the Day

Shanda Plans IPO For Games Unit
Spinning of the games business of Shanda Interactive seems like a weird idea: there’s not much else to Shanda other than games; the business accounts for more than 95% of the parent company’s revenue.

2009-09-03

Hong Kong Demands Delivery of Gold

Hong Kong recalls gold reserves, touts high-security vault
Hong Kong is pulling all its physical gold holdings from depositories in London, transferring them to a high-security depository newly built at the city's airport, in a move that won praise from local traders Thursday.

The facility, industry professionals said, would support Hong Kong's emergence as a Swiss-style trading hub for bullion and would lessen London's status as a key settlement-and-storage center.
Interesting. Very interesting.

2009-09-02

Shenzhen Real Estate Prices....Unreal

Caijing has the story:
New home prices in Shenzhen rose 18.6 percent month-on-month in August, the sixth straight monthly gain, while sales by floor area fell 29.7 percent from a month earlier, real estate consultancy DTZ said in a report on Sept. 1.

Sales in August totalled 386,000 square meters in the southern Chinese city, at an average price of 18,830 yuan per square meter, the report said.

The decline in sales was due to weaker supply and demand, DTZ said.
深圳8月新房成交持续价涨量跌
国际房地产顾问公司DTZ戴德梁行9月1日发布的报告显示,深圳8月新建商品住宅成交量环比减少29.73%,成交面积仅38.6万平方米。与此同时,新房均价达18830元/平方米,环比上涨18.61%,这是今年3月以来连续六个月上涨,并且环比涨幅最大。

2009-09-01

OTB Portfolio Update 2009/09/01 Close

Down 14.25% to $931.27, led by 20.6% drop in AIG and 17% drops in Fannie and Freddie.

OTB need to TARP it up! Paging Turbo Timmy!

Crash Comparison Update 2009/09/01

The 2009 chart may be converging with 1930 if this is more than a one-day move:
But if the Japan rally scenario is right, it means divergence is more likely...or the mother of all U.S. dollar rallies.

Crucial Technical Moment?

From what I'm reading, the chartists seem to agree that the markets are at a technical crossroads. Here's Careful, Bears!! from Tim Knight and Do Or Die! from Evil Speculator, who wonders if this signals the commencement of an Elliot Wave Primary 3 wave. Wave three of five is the most powerful and delivers the largest gains or losses, depending on the direction.

S&P 500 & Nikkei 225 Correlation

This weekend I posted a chart of the S&P 500 and Nikkei 225 that lined up Japan 1980 to U.S. 1990. It turns out, the graph wasn't the whole story. Here's the total information:
The chart compares the Nikkei 225 in USD (that is, what an American or dollar investor would gain if they bought the Nikkei 225) and the S&P 500 Index in the dollar index (foreigners total return).

What this means is that if the dollar rallied 40% and the S&P 500 Index went nowhere, it would generate a rally that would match the climb in the Nikkei. This crucial piece of data was left out of the previous chart.

From Safe Haven:
Assuming a relationship similar to what Japan went through, the S&P 500 in DXY terms could well rise another 40% pretty much from now until mid-December 2010. Importantly, this is in DXY terms, so if the U.S. dollar were to rally 20% and the S&P 500 17% (as it's multiplied), that would do it. If the market were to only rally to the lower trend line in the... chart, then the total upside would be 33%, split between the U.S. dollar and the equity market.

The Merrill strategists went further, constructing an equally-weighted index of all markets that have crashed more than 45% since 1970 plus the U.S. stock market crash in 1930 and then averaged the recoveries from these crashes (referred to as 'Historical Peak-Trough Index'). They found that strong "relief rallies" are common and that, should this pattern hold for the S&P 500, then it should experience a further 40% appreciation by the end of 2009.
There's another chart of the second scenario.

However, Safe Haven goes on to speculate about record highs in precious metals...which is possible if the market gains purely in nominal price appreciation. If the dollar dropped, equities would have to rise even further, which would certainly be bullish for precious metals.

Since I lean in the deflationist camp at the moment, the more likely scenario is that gold holds up much better than other assets. A serious bout of deflation would take out a few more big name banks and support gold prices. For pound, euro and other foreign currency investors, gold would hit new all-time highs.

OTB Portfolio Update 2009/09/01

I neglected to update yesterday, but the portfolio was down along with the market, to $1088.54.

Too bad I didn't add LEHMQ, Lehman Brothers pink sheet stock. It added another 27% yesterday and opened 25% higher this morning. Since Lehman was allowed to go bankrupt, however, it really can't be considered part of the OTB economy.

August Performance

Index

August %

YTD %

S&P 500 TR

3.61

14.97

MSCI EAFE

5.16

21.14

上海 Shanghai

-21.80

46.51

Fund



Entertain. Trends

0.31

20.96

Green Dragon

-0.25

28.84

Best of Funds

-2.64

5.20

Pharma & Dogs

-1.04

5.89

China Fund

-0.85

11.28

Software Security

-2.37

25.43

Yield to Me

-0.81

11.52

Catch a Falling Knife

-5.54

-46.74


I went heavily bearish in my Best of Funds, with large positions in TLT, UUP, FXY, plus multiple positions in inverse ETFs such as FXP, SRS, SKF, EEV, QID, DTO, etc. It started paying off at the end of August, but I'm ready to reverse if the market climbs higher.

China Fund also has a large neutral position plus bearish with heavy FXP exposure.

Other portfolios have raised cash or moved to more defensive holdings.