China's communist rulers are going to now change the direction of their economy. This is why China's stocks keep suddenly tanking. Every time the investors hear news from the Forbidden Palace, they rightfully panic. The USA stock market is having fun because the Palace here supports bubbles and wants bubbles. Meanwhile, Japan's economic stats soar and their palace rulers talk about maybe, perhaps, letting the Japanese people buy stuff, but only a tiny bit. And Cerebus is in the news, buying up discounted mortgages from desperate mainstream funds.
Chinese Premier Wen Jiabao said on Thursday China's economy had developed satisfactorily in the first quarter of this year but "some key problems still remain".
In the first quarter, China's economy grew steadily and fast, farm production was stable, industrial restructuring made new progress and both the employment rate and people's incomes rose markedly, said Wen.
But "China found it difficult to raise grain output and farmers' incomes, the challenge of reducing energy consumptions and greenhouse gas emissions proved arduous, money and credit grew excessively, and fixed assets investment and the trade surplus continued to increase", said Wen.
To prevent the economy from overheating, the Chinese government should promptly take economic and legal measures and strengthen macro control.
Translation: interest rates will rise and taxes will go up. There are other goodies in the future and I expect the Chinese trying to make a killing in stocks to rush out and hide their wealth.
China should curb the fast growth in products that consume too much energy and lose no time in eliminating outdated production methods.
To prevent fixed assets investment from rebounding, stricter market access and environmental standards should be set for new construction projects and land use should continue to be tightened.
Facing excess liquidity, China should curb the excessive supply of money and credit, strengthen supervision of cross-border flows of short-term capital and improve foreign currency management.
Just when the USA thought the party would rage onwards, the Chinese leadership have made it perfectly clear, they intend to flip over the punch bowl. This is it! Curbing excessive supply of money and credit means raising interest rates. When Japan ceased loaning money at 0% and raised it to .5%, the entire world stock market system nearly collapsed! I was one of the few analysts to point out the real source of February's market downdraft.
The Japanese quickly re-established their super-weak yen/ super fake strong dollar scheme and everyone sighed happily and continued onwards. Yesterday, the Chinese panicked when they thought the government was going to clamp down on them. Then they relaxed only today, the government announced they WILL crack down on the investors!
After the markets closed. So, we have a weekend when several million Chinese investors will be talking wildly in various coffee or tea houses, worried sick. Monday is going to be a doozy, I believe.
The Chinese leaders are correct in trying to prevent their economy going into the boom/crash cycle heedlessly. But how to avoid the natural human tendency to go crazy and crash? This is the core problem of capitalism. Avoiding wild swings is very important because the crashes usually lead to wars and revolutions! And if anyone knows about revolutions, it is the communist leaders. This is the thing they fear above all others.
I visit the IMF regularily. Like the Treasury Department, they issue statements and hold press conferences that few attend. Well, it pays to read their stuff. The Japanese are very smug and if you click on the page and read the entire document, it oozes the happiness of some con artist pulling off a scam.
Since the present system benefits the Japanese political classes and the industrialists, the same crew that gave us WWII, they want it to run forever. The Japanese people seem content living miserable lives way below that of all other major industrial societies so the politicians have nothing to fear. Polls show the Japanese people are unhappy with the Liberal party but they feel a fatalism about change and have not alternatives! This lack of interest in the future is dangerous in the long run. Unable to fight for their rights, the Japanese people will sink into the same sort of poverty they had under the Shoguns before the Mejin revolution.
Plenty of other countries with few natural resources have imposed such an ugly system upon their people. Europeans want to live a happy life! So they manage this even while competing for foreign markets. The Chinese, too, want better lives. They aren't working like slaves so they can live in closets and own virtually nothing! They are also much more agitated and easily stirred into action! Which is why the government of China has to tread carefully unlike the brutes running Japan.
Asian shares rose after a record close on the Dow Jones Industrial Average eased concern a slump in China yesterday would precipitate a global sell-off.
China Mobile Ltd. and BHP Billiton Ltd., whose Chinese sales account for almost 20 percent of revenue, led today's advance.
``The fact that stocks in New York managed to avoid a plunge allayed fears that we were headed for a rout,'' said Mitsushige Akino, who oversees $468 million in assets at Ichiyoshi Investment Management Co. in Tokyo.
The Japanese worry about their giant neighbor a lot. So they vaccillate between insulting China and courting China. This lack of ability to manipulate China the same way them manipulate the USA troubles Japan. The Chinese still remember WWII even if the USA has totally forgotten what happened back then. So the Japanese can't trick the Chinese into bad deals with them! This is why I was totally outraged by our government refusing to side with China over the Yakusuni Shrine controversy: the Japanese wouldn't be treating us like servants today if we stood up to them!
The need to keep the fake strong dollar going so the Japanese would feed us more super-cheap loans was way our government surrendered. This game is bad for the USA and as I have pointed out in the past, this can't be maintained much longer because frankly, our need for loans has outstripped the Bank of Japan's ability to manufacture the money needed since it depends on a huge and growing trade differential with Japan which is in their favor!
And despite the Japanese being very happy about this to the point of boasting to the IMF that all is well because their trade is increasing with the USA, the present system is working, no? But like all dynamic systems, this one requires more and more debt service to the USA to keep running so the return is always decreasing and the only way to keep this ball rolling is to have incredibly low interest rates in Japan while not allowing any Japanese people to access these loans! And it still won't work because these loans to the USA are flowing back to CHINA via their own trade surplus with the USA which now dwarf's Japan's!
H&R Block Inc., the largest tax preparer in the U.S., agreed to sell its money-losing subprime home-loan unit to Cerberus Capital Management LP.
Cerberus will pay the cash value of the tangible net assets of Option One Mortgage Corp. when the deal closes, less $300 million, H&R Block said in a statement today. Those assets totaled $1.27 billion as of Jan. 31, it said. H&R Block may also receive an additional cash payment.
The company said yesterday that Option One would cause a net loss in fiscal 2007, signaling a deal was near completion. H&R Block decided that an impairment charge ``materially greater'' than the unit's goodwill of $152.5 million is required, according to a regulatory filing.
Here is ground zero of the Japanese loan bubble mess caused by the Bank of Japan having super-low interest rates that are emphatically not allowed to flow to Japanese consumers. Namely, it flowed here and to encourage one-way trade with Japan, it was back-loaded onto houses and many people became speculators in real estate or ran up their debts to match the hysterical rise in housing values. But when China ceased imitating Japan last fall and put on the brakes, this is now imploding due to lack of money flowing into the system.
Worse, all the people directing this money have switched to loaning it to stock speculators and brokers and are now causing a stupid bubble in the DOW! Cerebus is buying these loan companies because the bigger organizations that have to report to the Feds can't hide losses. The fact that H&R Block is taking a huge $300 million dollar loss on this 'sale' is significant. They wanted a better deal but had to double the losses before they could unload these bad mortgages.
Cerebus will try to resell them to someone in Asia. After ditching $300 million bad properties. But everyone is looking at American loans as toxic waste so this will be tricky and the only way to pull this off is for world stocks to be rising and everyone thinking, we dodged the bullet.
Only Wen just shot this notion down in flames. China, not Japan, now sits at the apex of world trade and the USA, a client state, no longer sets any agendas. We are sneezing today because the Chinese communist leaders gave us a hankie.
From Brokers Outpost:
Just a note to tell you all how much I’ve enjoyed working with you. However, I sadly report that as of tomorrow Opteum Financial Services, LLC will be closing their doors. Pipelines currently in house will be worked and closed up to 5/31/07.I’ll be in touch with you about when and where I may reappear.Thanks for your business and hopefully we’ll work together again soon.
PS. This email will be shut down this evening. Use my cell if you need me.
Wholesale Account Executive
Opteum Financial Services, LLC
Yesterday, I went to Opteum's hedge fund site and it was a really crummy web page. I didn't photograph it so you can't see how stupid it looked. Today, it looks even dumber, heh. It's dead, Jim!
I also will note the insanity of the email from the lady running this division of Opteum: 'I'll be in touch whena and where I may reappear'? Hahaha. And this broad is shutting down her email service? I suppose she might send a postcard from Rio later!
Our country is being run by and for a bunch of lunatics who skirt legality and often end up in criminal enterprises. And frankly, I consider all hedge funds to be criminal organizations!
No rational argument can demonstrate that a stagnating home market and wages will force individuals to readjust their spending habit. If our national trade deficit is any indicator, we are only becoming more hungry on ways to finance our appetite via credit. The reason the subprime implosion is so crucial and important is because this funding source is now evaporating. Wall Street is not happy with Collateralizing any more funny money debt; the idea of mixing feces in a large sea of good money. Investors gathered that if the pool of funds was large enough, bad and risky debt would be hedged into the matter and mixed in to the point that any drop would be supported and not noticed. This was all in good when the subprime market was tiny. But given that we have over $1.2 trillion in subprime debt originated in the past two years, we are now swimming in a black pool of our own consumption.
In each bubble, there is a privilege being in the know. Those that have insight and the fortitude to jump out early make out like bandits. Examining insiders selling of companies like Toll and New Century Financial, we see that large percentages of top officers sold at peak prices in 2005 and 2006. In addition, selling out of these positions is easier than liquidating a piece of real estate which all subsequent monetary value is derived from; there is no NEW without housing and there is no Toll without people purchasing homes. Many wonder why bubbles go on longer than they should. Again this assumption relies on the fact that markets always act rationally. But in a mania, the market is anything but sane. Mania, as in acting without direction, highlights an amazing ability for stupid money to chase to stupid products by stupid people. It is inevitable that people will and are getting burned for their financial indiscretions. The media will portray these poor individuals as being burned by big bad corporations hungry for a profit. They came too late to the party and unfortunately they were not able to flip a 800 square foot home for $50,000 in 6 months. As we know from studying mob psychology if everyone around us is going crazy and we remain stable, we will start sensing that we are out of our mind. At some point we decide to join the mob and follow the herd.
This all interests me because people are unable to see where we stand, not even people who know we just went through a dangerous real estate bubble that is still blowing up in our faces. Namely, he, like a host of others, thinks the USA still has a long ways to go on this ride because we want to go shopping despite the home ATM machines breaking.
Sorry, but this is the end. Namely, for the last six years we have been 'living beyond our means' because we didn't want to knuckle under and pay for our wars, our huge homeland security blanket that is totally useless and for our inflation and loss of manufacturing capacity!
Instead, we already have passed through the Duesenberry principle and are now heading towards the next stage which is called 'economic collapse.' The party is not merely over, it was entirely a Duesenberry event: we have been losing ground since 1972 when we hit the USA's Hubbert Oil Peak! Instead of gearing up for a non-oil future we went insane when oil came in from Russia and elsewhere suddenly collapsing OPEC's pricing abilities.
Now we are approaching or are at the real global Hubbert Oil Peak and we are driving gas guzzlers and watching our last industries collapse, namely, the auto industry which is being hammered by the Japanese who have a one-two punch on us. And unions are dying, wages are dropping and this was hidden from us via the housing bubble.
So we are at the END, not the beginning, of the Duesenberry principle. We didn't change direction or our rate of consumption, we even INCREASED it as our economic condition continued to get worse and worse!
James Duesenberry (1949) proposes a consumption function which accounts for some adjustments for "habits" or "standards of living". Conventionally, if income falls, then consumption should fall proportionally with the marginal propensity to consume. Duesenberry rejected this: once consumption habits are acquired, it is hard to get rid of them. Thus, income shocks should have slightly different effects on consumption. Certain consumption habits are formed at high income levels which are not completely abandoned when income falls. This effect is captured in the following consumption function:
Ct = c0 + c1Yt-1 + c2Yt-1m
where Yt-1m is the maximum level of income before time period t. Thus, consumption habits acquired when income was at its highest influence present consumption decisions.
Unlike Duesenberry, Arthur Smithies's (1957) "ratchet" effects are actually applied to the investment function rather than to the consumption function and they also end up yielding cycles around a growth trend. However, we shall stick mainly to the Duesenberry consumption function and omit the Smithies ratchet - thus we presume the investment function has the same presumed to have the same properties as before (now without depreciation) so:
It = I0egt + b (Yt-1 - Yt-2)
thus, for goods market equilibrium:
Yt = c0 + I0egt + c1Yt-1 + c2Yt-1m + b (Yt-1 - Yt-2)
Our true collective 'income' level began to fall in 1972. We tried every trick in the fiscal book to keep up our post-WWII purchasing power which caused inflation and dislocation. We 'tamed' inflation by outsourcing all our major industries to China which has made our economic condition much, much worse! We then let the Japanese run this currency scheme with us, they pretending the dollar was worth much more than it really is worth in order to penetrate our markets and destroy our native industries.
And here we sit: at the tail end of a long, 30 year Duesenberry recklessness and all we have to show is a sea of red ink at every level. And the 'profits' we boast are as delicate as fairy's spider webs at sunrise, sparkling with the dew. Google is boasting a billion dollar profit off of clicks to its search engine!
This proves that Google is corrupt, by the way: they are being paid to put certain companies at the top of their search engine's work. I have noticed this the last five months, increasingly. I seldom use the first page anymore since 50% or more of the articles listed require PAY PER VIEW! This is disgusting. And obviously a scheme. JSTOR, for example, a company that puts on papers by universities, has lots of first page real estate in Google.
And this is symptomatic of all our economy: it depends upon the pretense customers are buying something even though many are unable to buy much of anything anymore. And our future is dark for we can't get rich advertising to each other! And if what we are advertising is merely stuff being imported, this makes things much, much, much worse.