Market Talk

Some day China is going to crack open like Humpty Dumpty. Some day, all the games the Chinese play with their economy, with their currency, with their officials statistics, with their populace, are going to come unglued.

We have previously alerted you to the fact that even senior Chinese officials acknowledge in private that the countries GDP numbers are not to be trusted. Now, a former senior executive at the People’s Bank has published a scathing indictment of the economy and leadership, in a state-controlled publication no less.

From the FT:

Look, I’m pessimistic. I get it. The more I see others discounting any risks to the economy, both U.S. and global, the more convinced I get that those people are wrong. Just seems like I’ve heard this song before.

To that end, here’s a list of 10 reasons to be cautious about 2011 if you’re investing in stocks, or anything else for that matter, from Gluskin Sheff’s David Rosenberg. (And for whatever reason, the ten thing reminded me of the Latin Playboys’ song “Ten Believers.” “Eight, nine will never know; ten believers in a row.”) Clip it out, hold onto it, tape it to the refrigerator or wherever it is you make your investment decisions. Or just chuck it and get onto the “drought is over” bandwagon.

Don’t say we didn’t give you anything for Christmas. From Rosenberg:

TEN REASONS TO BE CAUTIOUS FOR THE 2011 MARKET OUTLOOK:

1. In Barron’s look-ahead piece, not one strategist sees the prospect for a market decline. This is called group-think. Moreover, the percentage of brokerage house analysts and economists to raise their 2011 GDP forecasts has risen substantially. Out of 49 economists surveyed, 35 say the U.S. economy will outperform the already upwardly revised GDP forecasts, only 14 say we will underperform. This is capitulation of historical proportions.

The last time S&P yields were around this level was in the summer of 2000, and we know what happened shortly after that.

2. The weekly fund flow data from the ICI showed not only massive outflows, but in aggregate, retail investors withdrew a RECORD net $8.6 billion from bond funds during the week ended December 15 (on top of the $1.7 billion of outflows in the prior week). Maybe now all the bond bears will shut their traps over this “bond-bubble” nonsense.

3. Investors Intelligence now shows the bull share heading up to 58.8% from 55.8% a week ago, and the bear share is up to 20.6% from 20.5%. So bullish sentiment has now reached a new high for the year and is now the highest since 2007 ― just ahead of the market slide.

4. It may pay to have a look at Dow 1929-1949 analog lined up with January 2000. We are getting very close to the May 1940 sell-off when Germany invaded France. As a loyal reader and trusted friend notified us yesterday, “fighting” war may be similar to the sovereign debt war raging in Europe today. (Have a look at the jarring article on page 20 of today’s FT — Germany is not immune to the contagion gripping Europe.)

Continue reading…

It is not technocratic economists who will win the day and pull us out of our cul-de-sac, but angry Irishmen and Spaniards who challenge, on moral terms, the right of German bankers to impose vast deadweight costs on current activity because they lent greedily into what might easily have been recognized as a property and credit bubble.

- Steve Randy Waldman, Interfluidity

I’ll tell you a secret: when the Irish crisis was at its worst (so-far worst, I suppose would be accurate,) I quietly hoped that somebody in Ireland would make some kind of stand that would scuttle all the bailouts, all the forced concessions, that would really expose the bankers to the losses sitting on their balance sheets, and once and for all get this crisis to where it must eventually go: recognizing losses wherever they lie, clearing out all the bad bets and lifting the governmental protections from the favored classes.

It didn’t happen. So far, at least. Hey, it didn’t happen here in the U.S. either, and the biggest problem with the credit crisis is that it remains so far unresolved. The Fed, two administrations and now two Congresses merely succumbed to pressure from the banking lobby, threw trillions at the system, saved the banks from their own recklessness, codified the notion of too-big-to-fail, and put the weight of all the bailouts on the backs of the taxpayers. But it didn’t solve any of the underlying problems.

That’s how I read the last three years. That’s why I don’t buy all this recovery talk.

Now, I’m no economist. I’m just an untrained journalist. But it doesn’t take a Ph.D. in economics or political science to understand that something very, very wrong went down. The argument sold to us at the time — that while distasteful, the bailouts were necessary to prevent a wider melt-down — hasn’t exactly held its own against the weight of time, as fully 10% of the work force remains unemployed, as even more millions are stuck in low-paying part-time jobs, as millions more are seeing their wages held down, all while Wall Street returns to its free-wheeling and massively profitable ways

Meanwhile, the debt bombs haven’t been defused, they’ve just been move up the ladder, from individuals and corporations to central banks and sovereign states.

Continue reading…

Sorry for the light posting; thin staff here this morning.

Lot of data out there today, most of it jibbing with the party line these days, the only line it seems, that the economy’s getting better, the American consumer is back, and well, it’s time to get back into stocks, silly!

That NY Times article linked to above is almost too much to bear.

The last-minute holiday surge is heralding the return of the American consumer, who is shedding the recession’s thrifty ways and rediscovering the pleasure of shopping.

The malls are jammed, parking lots snarled and sales expected to stay strong in the few remaining days before Christmas.

Are they ever empty the week before Christmas? Honestly, can you realistically take what is traditionally the busiest time of the year for consumer spending, look at jammed malls and crowded parking lots, and draw the conclusion that the consumer is back? You can, but you shouldn’t. Gluskin Sheff’s David Rosenberg paints it thusly:

So people are loosening their purse strings during the holiday season and journalists are going to use that as a commentary on how the entire thing is playing out or how it will continue to play out. Let’s wait and see what happens in the next few months as the bills come in and the reality of deflating home values and inflating gas prices start to sink in.

Yes, there’s going to be payroll-tax holiday, so we’ll all get a little extra cash in our paychecks starting in January. I’m looking forward to it as much as everybody else. But I’m also looking crude oil prices pushing $91/barrels, and seeing prices at the pump creep toward $3/gallon, in New Jersey at least, where gas is cheap — give us a break, it’s the only thing that is cheap in the Garden State — I know it’s already over $3 elsewhere. I don’t know if you’ve been watching commodities lately, but you may want to start, because they’re all going up.

Unemployment is near 10% — and let’s not kid ourselves, realistically it’s above that. Add in all the people who are working only part-time because companies don’t want to hire full-timers, and the 99ers who’ve fallen off the labor rolls into oblivion, and you’ve got a very large part of the labor force under direct pressure. Those poor folks are also exerting indirect pressure on the rest of the work force, since all those available workers are helping companies hold off on hiking wages.

The Fed wanted to create inflation, and they’re creating it. Deflation is still an issue, because I believe, and clearly the Fed believes, that if the central bank takes its foot off the pedal, prices will start dropping. But right now, we’re seeing things like corn, cotton, oil all rising. While wages are going broadly nowhere.

So why would anybody draw the conclusion that the consumer is “back?”