Friday, April 24, 2015

China: Short Term Disaster - Long Term Opportunity

The Chinese stock market has been moving in an upward parabolic surge for many months now. The trouble is their economic growth is not. For those that still care that stock prices are backed by something based in reality (and there are few people left who do), the following chart should be troubling. LEI stands for Leading Economic Indicators:

A large part of the fuel behind China's stock market rally has been the steady decline in real estate prices. Hot money has moved from purchasing brand new unoccupied apartments to the surging stock market in hopes of catching the next wave.

China's public and private debt has grown from $2 trillion in 2000 to over $28 trillion as of last year.

This debt growth has supercharged their economic growth with their GDP approaching $10 trillion in size.

I believe even though China will own the 21st century they are approaching their first major Minsky Moment of their magical growth story. Their debt burden will soon reach the point where it will either slow the economy drastically or push them into a crisis.

Remember that while the United States was the economic growth story of the 20th century the country endured the Great Depression in the early 1930's, which paved the way for the peak period of prosperity in the 1950's and 1960's (American prosperity has been in a slow decline since and will soon enter a free fall collapse).

If someone told me I could only buy one market, put my shares in a time capsule, and wake up 30 years from now I would purchase Chinese stocks. If someone asked me what market I would like to purchase and hold for the next year I would be far more interested in Brazilian shares.

For more see: China's Stock Market Continues To Soar: Selling Opportunity?

Sunday, April 19, 2015

Stanley Druckenmiller Bloomberg Interview

For more see: Stanley Druckenmiller On Credit Markets, Financial Markets & Deja Vu

Why Are Average Americans Not Purchasing U.S. Stocks?

We hear continuously from financial advisors the average American has not returned to buying U.S. stocks, which is a bullish sign because there is "money on the sidelines." A recent poll by the Wall Street Journal found it is indeed true that most Americans are not purchasing U.S. stocks, but the most common reason cited is not because they are afraid of the market.

"Nearly seven years after the Panic of 2008, and six years after a massive rally started, more Americans are out of the stock market than in it, according to a new survey from Bankrate finds, and for younger investors the numbers are even more lopsided.
About 52% of Americans are not investing in the stock market, the survey found, and it’s not necessarily that they still don’t trust the market. It’s because they simply don’t have the money. Fully 53% of people who aren’t in the market now said they weren’t investing in the market because they didn’t have the funds to do so. A study from the National Institute on Retirement Security found that 45% of working-age households had no retirement savings at all; among the 55-64 age group, the average was only $12,000."
So if individuals are not pushing this market higher who is? As we have discussed in depth over the past few years it is institutional funds, central banks, banks, hedge funds and corporations themselves. Yes, companies are buying back their own shares (many using debt to make the purchases). Sounds like a ponzi scheme? Well, let's just say that it will not end well.

More from the Wall Street Journal:

The value of new share repurchase programs authorized by companies stood at $257 billion in the first quarter, the strongest start to the year for buyback programs on record, according to a report by Birinyi Associates Inc.
At the current pace, stock buyback authorizations are set to total $1 trillion this year, blowing past 2007’s record of $863 billion, according to Birinyi. And that count doesn’t include General Electric Co.’s $50 billion buyback program announced last week, which ties with Apple Inc.’s as the largest share repurchase program ever announced.