Hussman takes on Wall Street insanity and horrific governmental interventionist policies.
Read More Click Here Dec 4, 2011 Have We Avoided A Recession?
Frankly, I am concerned that Wall Street is becoming little more than a glorified crack house. Day after day, the sole focus of Wall Street is on more sugar, stronger sugar, Big Bazookas of sugar, unlimited sugar, and anything that will get somebody to deliver the sugar faster. This is like offering a lollipop to quiet down a 2-year old throwing a tantrum, and expecting that the result will be fewer tantrums.
What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth. By preventing the natural discipline of the markets to impose losses on poor stewards of capital, and to impose interest rates high enough to force debtors to allocate the capital usefully, the world’s policy makers are increasingly wrecking the prospects for long-term economic growth. The world’s standard of living (what we can consume for the work we do) is intimately tied to its productivity (what we can produce for the work we do). That productivity requires our scarce savings to be allocated to productive physical capital, and to productive human capital (primarily education).
Nietzsche famously said “What does not kill me makes me stronger.” The corollary is “What constantly rescues me makes me weaker.” The world will only stop looking for bailouts when policy makers stop handing them out.
Wall Street’s pattern of dependency foreshadows the inevitable. Between China’s real estate bubble, Japan’s debt and European bankrupt nations the writing is on the wall. The silver lining is that mankind is much more resilient than our leaders give us credit. The recovery can begin as soon as we allow markets instead of bureaucrats to allocate capital.
China’s massive real estate and unregulated credit bubbles are in the process of deflating. I do not expect China to reach a bottom for many years as the bad debt and misallocated resources work their ways through the system. The havoc they will bring to the global economy will be prominently felt in natural resource based economies such as Canada and Australia. Given Canadian housing prices and debt levels, Canadians can expect to catch up to the US in economic pain.
“House prices have increased by about 10-fold in the past decade in cities like Shanghai and Beijing. How come the property market cannot withstand a 30% housing price drop now?” Yi asked.
To read the more visit:www.atimes.com
Ordos, possilby the worst ghost city in the Chinese real estate bubble, can be considered a leading indicator of things to come in other cities. Real estate sales have plummeted and prices appaer to be crashing. The boom-to-bust has exposed the rampant black market lending as debtors feel threatened by creditors.
To avoid facing creditors’ ravage, debtors have taken to deliberatly going to jail for protection. According to The Australian, Chinese debtors are opting for impaired driving charges.
Few would opt willingly for the bleak interior of a Chinese prison but, for a growing number of debtors in Ordos, these are desperate times. A frenzy of black-market lending, speculative property investment, Ponzi schemes and fraud has begun to spray toxicity everywhere.
To read more visit: www.theaustralian.com
Just another example of the lunacy of the European project.
EU officials concluded that, following a three-year investigation, there was no evidence to prove the previously undisputed fact.
Producers of bottled water are now forbidden by law from making the claim and will face a two-year jail sentence if they defy the edict, which comes into force in the UK next month.
Last night, critics claimed the EU was at odds with both science and common sense. Conservative MEP Roger Helmer said: “This is stupidity writ large.
“The euro is burning, the EU is falling apart and yet here they are: highly-paid, highly-pensioned officials worrying about the obvious qualities of water and trying to deny us the right to say what is patently true.
“If ever there were an episode which demonstrates the folly of the great European project then this is it.”
To read more visit: www.telegraph.co.uk
China’s true debt crisis is starting to reveal itself as its real estate market cools. Any prolonged downturn in real estate will have serious global ramifications.
“The land market is cooling down so quickly — it’s as if all the property developers vanished overnight,” said an official at the department that handles government land sales for Changsha, a central Chinese city of 7 million.
“Without income from land sales, where can we get enough money to build roads, schools, hospitals and other projects that Beijing ordered us to do?” asked a man surnamed Wang who works at Changsha’s land auction centre.
To read more visit: www.moneycontrol.com
China’s economic and credit explosion of the last five years appears to be imploding. The ramifications for the rest of the world are huge, in particular, resource dependent nations. Europeans can also forget about depending on China’s relatively poor population to support massive purchases of Euro bonds.
BOSTON (MarketWatch) — Forget Greece. Forget Italy. Forget “Occupy Wall Street.”
The really ominous news right now?
China.
It’s been the juggernaut carrying us all year. But Albert Edwards at SG Securities says the world’s second biggest economy is a “freak” and it’s starting to go berzerk.
Bad news.
What’s going wrong? How? Here are some troubling signs:
The housing bubble is finally bursting.
To read more visit: www.marketwatch.com
Canadians credit-market debt to disposable income is setting new records again as high house prices, emergency interest rates, and still historically loose lending standards encourage unhealthy leveraging. At a time when another global recession is likely to hit, the financial risks to Canadians are enormous.
…One indicator of recent weakness was new data Tuesday showing Canadians fell deeper into debt, and lost household wealth during the difficult second quarter.
The period saw stock markets tumble, eroding the value of Canadians’ investments and undermining the so-called wealth effect that underpins consumer confidence.
Statistics Canada said household net worth fell 0.3 per cent to $184,300, the first decline in a year. Meanwhile, household debt to income rose to a record 151 per cent.
The situation likely got worse in August, when financial markets suffered an even bigger setback from growing unease over European and U.S. deficits and debt….
To read more visit: www.ctv.ca
Evan Osnos relects on Huang Nubo’s purchase of 75,000 acres of land in Iceland.
There comes a moment in every economic boom—whether it was the Texas oil boom in the seventies or Japan’s surge in the eighties or the Silicon Valley bubble of the nineties—when things get a bit weird. In retrospect, people like to point out that signs of overreach were always there, but of course they aren’t until they are. It’s hard to know how China’s Iceland moment will look someday: Will it be simply a quirky milestone on the continued ascent? Or will we look back on the last days of summer, 2011, as the moment when the ball reached the apex of its arc and paused, weightless for a moment, before beginning its fall?
To read more visit: www.newyorker.com
Iceland defied the EU when its banking crisis hit and let its banks default. While Greece, Ireland, Portugal, Spain, and Italy will continue to suffer under their current and upcoming nationalized debts, Iceland paints a rosier economic picture.
Iceland, where a 2008 banking implosion left bond investors trying to recoup $85 billion, can now boast a lower risk of default than the average for the European Union. The central bank signaled this month it may continue to raise rates to support the currency as the U.S. and the euro area resort to emergency easing to keep their economies afloat. Iceland’s rate rise comes as investors are turning to emerging markets to tap into faster growth rates and lower debt levels.
The Icelandic krona strengthened for a second day, rising 0.3 percent to 113.14 per dollar as of 9:33 a.m. London time.
To read more visit: www.bloomberg.com
Muddy Waters appears to have been correct about Sino-Forest fraud.
Canada’s top securities regulator on Friday accused a Chinese forestry company of fraudulently inflating its revenue and exaggerating the extent of its timber holdings.
The regulator suspended trading for 15 days in shares of the company, Sino-Forest, which trades on the Toronto Stock Exchange. But its directive came amid some confusion. The Ontario Securities Commission at first took the very unusual step of ordering five directors and officers of Sino-Forest to resign — only to rescind that demand just hours later.
To read more visit: www.dealbook.nytimes.com
