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

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.

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.

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.

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.

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。

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.