jump to navigation

The Fed is day dreaming again July 17, 2017

Posted by hslu in Economics, stocks, Stocks.
Tags: , , , , ,
add a comment

Source: Deutsche Bank, Torsten Slok 

The Feds have been consistently optimistic about their ability to predict the arrival of inflation, hence the need to raise interest rate. This chart from Deutsche Bank’s Torsten Slok says it all. The mid points discussed in the chart refer to Fed’s famous dots which are Federal Reserve governors’ predictions of where interest rates will be in the future.

Btw, the Feds haven’t been able to predict the arrival of recessions in the past either. Ditto on asset bubbles and financial crisis.

If they were students in a school, they will get an F based on their records.

After all, the Feds governors are mere mortals. Fed’s recent rate hikes to fight the threat of inflation are probably nothing more than figments of Feds governors’ imaginations.

In engineering language, the governors pick a number from thin air before a board meeting, apply a fudge factor, consider historical trends, add their own intuitive judgement, pass it around for comments, make the necessary modification and call it their official predictions.

The bigger questions are:

  • Why are they so wrong in their predictions in the past,
  • Didn’t they learn from their past mistakes and apply one more adjustment, say a cross the board reduction of 40% to their guesstimates?
  • Does anyone in the financial world listen to them and use their numbers to make investments accordingly?
  • Should individual investors just ignore them all together?

Should these governors be replaced since they fail their tasks so many times?

敗家子沒折了 January 9, 2015

Posted by hslu in Economics, Energy, Global Affair, jobs, Oil, stocks.
Tags: ,
add a comment

I have said that American shale oil producers acted like 敗家子 because they tried everything they could to get shale oil out of the ground as fast as they physically can without considering the future or preserving some for the raining days.

https://hslu.wordpress.com/tag/敗家子/

https://hslu.wordpress.com/2014/11/29/saudis-weapon-of-mass-destruction/

In the process, these oil producers ran up a huge debt to fund a frantic drilling program because shale oil production rate drops like a rock once it begins production. As much as 40% annual decline, sometimes faster, forced them to drill longer and closer to each other, frack them with ever increasing pressure and prop the fractures up with more propants and chemicals.

In the mean time, they hired more roughnecks to run the rigs and hundreds of trucks to haul drilling and fracking equipment.

Oil production ramped up quickly along with company profits. CEO’s options were jacked up as company stocks ran through the roof. The happy 敗家子 saw their personal wealth blooming and everyone in the shale oil business was happy with the year end bonuses and the rising market value of their 401(k)s.

The media talks about the good time is here to stay and America will be the king of the world again. Production will surpass 10 million barrels per day and America will be the largest oil producing country in the world.

Again.

People who could only find jobs at local truck stops flipping burgers or at local 7-11 selling hot dogs, quit their $8 an hour job, drove to North Dakota, Texas and Pennsylvenia searching for $25 an hour career and a better life.

Around cities where shale oil boom started about 5 years ago, trailer homes spread out in the country side. Rent skyrocketed. Bars popping up everywhere. The oldest business was revived. Roads are crowded. Triffic lights were added at town center. Housing markets were hot and condo prices went tmup by 20, 30 or even 40% a year. Cities tried to catch up with more roads and increase civil services. Schools, hospitals and police stations were built as fast as they could.

Everyone was happy. The good time is rolling and it is here to stay as oil flows and flows while money just seemly coming down from the sky.

Then the bloom popped almost over night.

The price of WTI came down and down and down. $100. $90. $80. $70. And then $60. Analysts then stressed the psychologically important $50. Predicts come out every day on CNBC and even more on the Internet.

And boom, WTI is below $50.

Now what?

What will the 敗家子 do?

Not much but to watch the price of WTI drops futher and their stock price cut by 50, 60 and even 70%.

As for the shale oil bananza in the US, most of that will probably stay in the ground especially the marginal fields. Saudi will control the oil market and make sure shale oil will not be profitable again for at least a decade. Oil price will be kept within a range of $60 to $80 a barrel, just below the cost of most shale oil projects on a full cycle base.

Saudi will be happy with their $20/ barrel or below cost. They will see their market share bump up and OPEC will be the boss again. 

American 敗家子 will be broke. Some will bankrupt and American oil renaissance will fade into memory. Rig count will drop. Shale oil projects will be dropped. Finally pink slips will fly.

Plenty empty buildings will be standing still in the wind. Grass will grow. The good times will be a dream people talk about. Trucks will stop rolling down the street. Bars will be closed. Houses will remain half built. The roughnecks will go back to truck stops flipping burgers again. The boom will be over before people even know it had ended.

Not everything is lost though. Most of them will have a new car and a 72-month new car loan to pay off with their $8 an hour job.

The 1% Rule September 28, 2014

Posted by hslu in Debt and deficit, Economics, stocks, Taiwan.
Tags: , , ,
add a comment

Governments in Japan and Taiwan like to play fire with the stock markets.

BOJ is following an unwritten rule, called “the 1% rule” by traders, where it buys ETFs after the Topix index falls around 1% in the morning session. It artificially props up the Nikkei because it is still 58.34% from its all time high of 38,957.44 on December 29, 1989.

Taiwanese government likes to do that too and it has done it quite successfully. In fact, The Taiwanese government even uses the capital gains it made from the stock market to pay for federal deficits. In 2014, the capital gains will be NTD $50,000,000,000. The government does have a term for this money it makes from investors: 釋股預算. The stocks involved are: 合庫金, 兆豐金, 第一金, 台積電, 中鋼, 漢翔 and a few more technology stocks.

The reason for this unprecedented stock market maneuver is this: the Taiwanese government has to rely on debt financing to function. In fact, 馬英九’s government will be short of NTD $300,000,000,000 for its 2015 budget.

What I don’t know is who the suckers were in these transactions in the past and who the suckers are in the future when Taiwanese stocks go down eventually in the future.

You better be careful out there.

Will stock markets drop soon? August 13, 2014

Posted by hslu in Cold War, Economics, Energy, Global Affair, Gold, Military, Obama, Oil, Politics, Putin, stocks.
Tags: , , , , , , ,
add a comment

Are stock markets in denial? Will conflicts between Russia and Ukraine, or more fittingly Russia and the US or Putin and Obama, bring the five-year old bull market down?

The reason for the bear case is simple: Russia may engage Ukraine army or Kiev hard-right defenders militarily UNEXPECTEDLY.

Donetsk is an important city in Ukraine and the state where Donetsk is the capital is an industrial center of Ukraine. It is historically connected to Russia not Europe. Donetsk is an important industrial city with a million people. 750,000 have fled to Russia (an hour or so away from Russian border) and 150,000 have fled to somewhere else. The city is heavily damaged from Ukraine’s continuous bombing and it is essentially a ghost town now. Yet we don’t see any picture on American TV but the situation is widely reported in Europe and Russia.

I am sure you know why the killing and shelling are not front and center in Americans’ living room.

But that is not what the stock market cares about and we need to find out what’s going happen to the stock market if something does go wrong. We need to know what is going to happen when Russian’s 280 humanitarian trucks carrying relief material to Donetsk where pro-Russian fighters are still holding up against the hard right fighters (not Ukraine army.) There is no water. There is no electricity. There is no food. There is no essential supply. There are killings and dead people but Kiev doesn’t want the west to find out.

Russia wanted to send in supplies for people who are still in the city and those 1,500 pro-Russia fighters. Government in Kiev don’t want them in Ukraine territory.

Now, we have a problem in a day or two especially when Putin goes to Crimea tomorrow (Thursday.)

These are what the stock market is worrying about:

What does Petro of Ukraine want to do? What message he gets from the US/Obama? Is Obama using Ukraine as a pawn to send a message to Putin? Is Obama’s recent insults to Russia/Russian male/Putin a prelude of war? Does Obama believe Putin will eventually back down in the face of all powerful American military might? Is Biden, who is said to have been given the job to handle the Ukraine crisis by Obama, mad? What is the exit plan for Obama/America? What outcome will America accept in the end? How far Obama will support Kiev?

We don’t know.

What will Putin do? Why is Putin going to Crimea? What if the trucks are stopped by Kiev/Ukraine at the boarder manned by the Red Cross? What if the pro-Ukraine force (not Ukraine army) starts shooting at the trucks? Why doesn’t Kiev want the trucks in? Are they afraid that the real picture of great destruction of Donetsk is revealed by the west? Will Putin send in fighter jets? Will Putin engage Russian military with Kiev? Will Putin shut in gas to Ukraine and Europe? Will Russia shut in oil supply to Ukraine and Europe? What if Kiev blocks the transportation of nat gas and oil to some European ciuntries some of which have to go through Ukraine?

The key question is: Will Putin announce this Thursday that Russia will send in Russian army if Kiev and Obama do not back down?

What’s important for us low life investors do?

Do we wait for the announcement from Putin? Do we believe that Obama has had enough of Putin’s humiliation in the past and he has drawn a red line on Ukraine. As such, will Obama not back down this time even risking a fight with Putin’s Russian army?

No wonder the stock market is in a holding pattern this last couple of days. EU will sink into recession if this conflict escalates. Russia’s economy will shrink. Oil will soar. Stock will tank.

So, what is the end game llike?

Cold war between Russia and US has now officially entered into a new chapter.

Is the market about to tank? July 29, 2014

Posted by hslu in Economics, stocks.
Tags: , ,
add a comment

Take a look of this chart and what do you see?

 Source: Bloomberg

The current stock market hasn’t had a 10% correction for more than 1,000 days now. I made this chart about 200 days ago and the chart suggests that the longer the market goes up without a 10% correction, the harder it will fall when one is coming.

There are four data points: 850 days: -19%; 1,250 days: -34%, 1,450 days: -22% and 2,950 days: -19%.
So, which one will the pending correction will be?
I don’t know but it is going to be painful.

 

 

Grandma Yellen, social media stocks and Greenspan July 15, 2014

Posted by hslu in Congress, Economics, stocks.
Tags: , ,
add a comment

It took 4 long years for the broad stock market to react to Greenspan’s famous ‘irrational exuberance‘ remark on December 5, 1995. Dow moved up 81% while the NASDAQ soared 200%.

Grandma Yellen today (7-14-2014) followed Greenspan’s footstep and tried to guide the stock market forward with the ‘substantially stretched’ comment on social media and biotech stocks.

IBB was down 2.2% at the close.

image

FB was down 1%.

image

Will Grandma Yellen beat Grandpa Greenspan’s record? We shall find out.

I wonder who gave Granma Yellen stock trading tips or was she watching CNBC ‘Squawk Box’ before her photo op in the Congress?

What will she say tomorrow in front of the Congress? Which industry will be in her cross hair tomorrow? May be I can short IBB if she mention the biotech stocks again.

LOL.

GM-扶不起的阿斗 May 16, 2014

Posted by hslu in Obama, stocks.
Tags: , ,
add a comment

Obama gave GM union billions of our tax dollars and bassically nationalized the bankrupted car company in the height of financial crisis. The once mighty car company was run to the ground by incompetent management and over compensated union workers. GM simply couldn’t compete with Japanese and Korean car companies like many other industries in the US. GM should be allowed to bankrupt but Obama and Democrats couldn’t let that happen. They need union votes. So, what did Obama and Democrsts did? They bought union’s votes using our money instead of their own money. This was and still is how politics is done in the US.

So, what do we get now? The same lousy company before the financial crisis with millions of cars being recalled these days. It’s like a 扶不起的阿斗。

The company is likely guilty of purposely hiding the defects from consumers and millions of Americans have bought their cars without being warned.

Hope you didn’t buy a GM car since 2008.

Of course, the big question now is: will you or will you not buy GM at current price of about $34?

The answer is simple: No.

image

GM stock as of 5-16-2014.

BLIND leading the Blind March 21, 2014

Posted by hslu in Economics, Global Affair, Politics, stocks.
Tags: , , ,
add a comment

Look at this picture and tell me what you see.

A beacon of light above the entrance of a building with menecing clouds gathering in the sky in the background.
The building is the Federal Reserve building in Washington DC. The beacon of light gives out hope of chiarman Benanke or Yellen leading the US economy out of the recession into a bright future.

Benanke created QEs but they barely kept the US economy creeping along at ~2.2%. He knew his QEs made inequality in the US worse and he wanted to get taper started while he was still in the office.

Lo and behold, the moment he started taper in December 2013, the job market in November 2013 tanked: 74,000 new jobs vs. 200,000 expected. December’s number isn’t much better: 113,000 vs. 185,000. January 2014 saw 175,000 new job but still much lower than what is needed to absorb new entrants into the economy.

So what’s going on here? Do we have a recovery or do we not?

No wonder the beacon of light is’t very bright. The US economy is in the dark just like the cloud behind the building. The one who’s supposed to lead the economy out of the dark couldn’t see very far out either.

Read this from Yellon when she was pressed in the Q&E session to put a date on when the short rate will rise after QE ends:

I — I, you know, this is the kind of term it’s hard to define, but, you know, it probably means something on the order of around six months or that type of thing. But, you know, it depends — what the FOMC statement is saying is it depends what conditions are like at the time.”   

In plain English:

“Yes, it depends and I don’t know. What else do you want? Give me a break.”

It’s kind of blind leading the blind. And we are left in the dark to guess what’s going to happen next. For the emerging markets, I am sorry, you are on your own. The US federal Reserve only cares about what happens in the US. You countries can take care of your own problems: raise interest rate to 10+%, devalue your currencies, cut your federal budgets, reduce pension benefits, what ever. That’s your problem. Not mine.

That’s was Bernanke’s position. It will be Yellen’s too.

That’s simply not fair. The US government through its crony Wall Street too-big-to-fail investment banking firms and too-big-to-prosecute bank CEOs created the financial crisis in the first place. The Great Recession was instigated by the United States and QEs followed. Now QEs’ unintended consequences begin to surface and the US washes its hands and leave other nations to face the consequence on their own.

This is the classic behavior of a bully.

Up, Up and Away! March 21, 2014

Posted by hslu in Economics, Global Affair, Gold, stocks.
Tags: , , , , , , ,
1 comment so far

Something is happening at a breakneck speed since 2003 and, yes, you’ve guessed it: the rich get richer, and that’s exactly what Bernanke wanted with his now infamous QEs: trickle down economy.

For trickle down mechanism to work, two things have to happen: First, the rich has to get richer and, secondly, the rich has to spend their riches.

Worldwide 2014 there are:

  • 1,682 billionaires:up 82% since 2003;
  • 37,104 $100-millionaires:up 62% since 2003;
  • 167,000 $30-millionaires:up 59% since 2003.

There is no doubt that the first part of the trickle down puzzle is in place but the riches haven’t spent their money as much as it is needed to move the US economy to break free speed.

That’s why QE3 is still in progress now.

In the mean time, wages for the middle-income population have mostly been stagnant and many of them haven’t benefited by the rising stock and real estate markets because they don’t own that much stock to begin with. The values of their homes have barely moved back to the pre- great recession levels.  Few of them own any gold.

US median Household Income Dec 2007 - June 2013

The US economy has been limping along at 2% for the last 5 years.

Can we call this progress?

Yes, it is for the riches and it is the natural progression of capitalism. It is wealth distribution from the middle class to the top. That’s what is supposed to happen when capitalism is the rules of the game of the society. This has been the rules laid by the United States for other nations to follow for many decades in the past.

Way back in my JH days, I learned in my 公民 classes that, according to 国父孫中山; Dr. Sun Yat-sen, that one of the ill effects of capitalism is inequality of personal wealth between the haves and have-nots. Sure enough, inequality is at its utmost extreme in the United States because the single most important objective of capitalism is the accumulation of profits. With unlimited hot money provided by Bernanke, the riches on Wall Street and other places in the world, sure had a good friend in the most important position in the world.

I kept wondering that when will the inflation time bomb explode?

Blame Bernanke on inequality in US January 28, 2014

Posted by hslu in Economics, Health Insurance, jobs, Obama, Obamacare, Politics, stocks, Taiwan.
Tags: , , , , ,
add a comment

Bernanke’s QEs did little to stimulate the US economy. He added $3.2 trillion to Fed’s balance sheet which grew the US economy ~2.2% per annum since 2009; a little better than inflation. U6 dropped from ~17% to ~14%. Millions of people got out of the labor market. They moved from the unemployment line to the food stamp line.

So what happen to that $3.2 trillion? Some returned to the Fed and earned 0.25% risk free for the dealer banks. The rest of that hot money pumped up stock markets all over the world and housing markets in many cities in the US.

US stock market went up 175% since the 2009 low. It was up about 30% in 2013 alone.

Housing prices in Las Vegas, Phoenix, SF, San Jose, Miami, etc., have gone up by double digits for a few years in a row.

Let me ask you this:

Who benefited from the $3.2 trillion?

The rich guys. They owns most of the stocks.

Gates made $6 billion in 2013 alone and he was worth $67 billion in 2013. Buffett made $7.5 billion in 2013 and was worth $53.5 billion in 2013. Others such as hedge fund managers and Wall Street investment bankers also made millions of dollars since 2009.

Who got rich from the Booming housing markets?

The rich guys. Again.

Millions of former home owners are renters in 2013 and will remain so in 2014. The homes they used to own went back to banks. Banks sold these foreclosed homes to individual investors and hedge funds who borrowed from banks at ultra low interest rates thanks to Bernanke’s QEs.

This outcome doesn’t come from the left field. It was by design.

Bernanke engineered the largest wealth transfer in America’s history: he robbed from the poor and the middle class and handed them over to the rich; people who own most of the stocks and big  houses.

In other words, the gap between the rich and everyone elso got bigger thanks to Bernanke. And he is washing his hands and leave the mess, or 爛攤子, to the next chairman.

This is inequality that everyone from the US to Europe to Taiwan is talking about.

Bernanke wanted A trickle down economy. It didn’t happen. The poor got poorer and the rich got richer.

Everybody knows that the mostbdirect and efficient way to narrow the inequality gap is to engineer a crush of DJIA and bring down the runaway housing market.

That’s govrrnment’s job and Obama is good at it.

He started Obamacare. Health insurance companies will lose money because they canceled millions of policies because they didn’t meet Obamacare’s requirements. In return, they got the old and the sick instead. Unsurance companies are in trouble.

He raised salaries of millions of contract workers to the federal government. Companies which hired these people will make less. Companies who don’t work for the federal government will feel the wage pressure and wages will perk up in time. Companies will make kess.

He’ll probably use his pen to sign an executive order or some kind of  regulation (his words, not mine) to raise the minimum wage. Democrat controlled governments will follow Obama and some (DC) have done it already. Businesses all over the US will see their margin squeezed. Some will hire less. Few will close. Economy will suffer and stock market will come down because earnings will suffer.

What follows next will be the housing market because one who doesn’t have a job will not buy any house.

That’s wealth transfer in reverse direction.

Well, there we go again.

What government gives you, government will take it away. The rich can move their money to foreign countries, look for loopholes or change their investment to avoid IRS’s knife. They have wealth managers who do nothing but that.

The middle class is stuck. They will always be the loyal servants to the 47% until they become one of the 47%.

%d bloggers like this: