Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
FB is worth about $30. That's it and it's going to see that level before the dust clears.
Facebook Just Killed Its Experimental Apps Lab
http://fortune.com/2015/12/07/facebook-experimental-app-division-shut-down/
Oh and Oculus is a loser. How many gamers you think want to play VR ping pong that makes you sick to your stomach. When the reviews on their release in the Spring happen (if they even have the balls to release it that is) it's going to bury this stock. Even Zuckerburg admitted in the conference call that Oculus is YEARS away from a making them any money.
You think they're ever going to make money with WHATSAP? Think again. The minute they start putting ad content of there a stampede to ad free messenger apps like WeChat will begin.
If it's such a gold mine then explain why insiders are dumping shares like slop pots overboard. Not a one of them has actually purchased a share with cash since inception and as soon as shares are eligible for sale they are on the block?
They are all heading for the exits as fast as they can. They're running so fast it looks like a fire at Great White concert.
http://www.marketwatch.com/investing/stock/fb/insideractions
FB is a pig with lipstick.
Growth is not good. The quality of growth is even worse. When you're only adding a few million users now a quarter and the vast majority of them are Third World peasants on a cheap Android phone paying month to month, whose majority of their disposable income goes to pay for that luxury status symbol of a phone; that's not "adding business". That guy isn't worth a nickel to FB in advertising revenue.
FB's audience is mature. There's no real growth left. Everyone in the world who has money who is interested in social media is ALREADY ON IT. The growth left is in people who cannot really consume because they have no buying power.
FB is starting to feel really creepy to investors. Not only is Zuckerburg now moving into the realm of faux philanthropy to hide the bacon but the true nature of FB as a whole is becoming apparent. It's a surveillance platform and data mining company more than it is an advertising one. Why are they spending $BILLIONS$ on bringing "free internet" to Africa using RAYTHEON drones when the vast majority of those people in countries where there is no internet access are not "consumers"? Have you been to Africa? Have you been to the countries where they're planning on blanketing the place with wi-fi from the skies? I have and those people don't have money to spend. Right now they're making about $3 revenue per humanoid registered as a user in the world. Even if they added another 500M Africans to the mix they wouldn't be worth even $250M more in annual revenue and that's probably pushing it. What would that bring them up to $4.75 billion a year? Whoopee. Oh and growing that alone would be a damned long time in coming too.
India, same story. With only 20% of their people with internet access, the rest are shoeless peasants not worth a dime each and they too are all on mobile and lets face it, mobile ads SUCK and no one looks at them. Do you look at mobile ads? I sure as hell don't. I curse and hit the back button and so does everyone else. I don't shop on my phone. No one with money does. The only thing I EVER look for on mobile is a hotel and a restaurant on mobile if I'm on the road. You can forget me looking for anything else and honestly it's rarely ads that take me to websites for even that because I have my go-to sites I use to find hotels, airlines and look for restaurants most of the time. People in the third world are not globe trotting and booking rooms at the Hilton.
Mobile ads are a joke and advertisers are starting to figure that out. Read all the tech articles about it. Advertisers are not happy with results, not most of them. The few that make bank are the ones which can afford the best of full screen video ads which are expensive to produce and buy. Most of FB's revenue comes from smaller business and the metrics for those ads from the advertiser's point of view are not stellar. FB keeps charging more and more money for these ads to keep revenue looking good and people aren't getting their bang for their buck. Eventually the format is going to be downgraded in price because even if you do add 12,000 new sales personnel you can't sell something that doesn't work well after a while. FB has run on hype of promises which it isn't able to deliver to the client. Just go through all of the press releases over the years at how many different ways they've had to "tweak" their advertising methods. If it worked they wouldn't be desperately changing it around continuously attempting to get people to look at them.
People in their mature audience are spending less and less time on FB. Some demographics the user interface time has dropped more than 20% in just the last year alone. FB was novel for a long time but users have reached fatigue point. It's become passe. The new has worn off and it's not surprising since FB for many people actually ends up creating more havoc in their lives than good. Plus another feature which was so attractive about FB was huge for people with narcissist tendencies. They just got off on counting FB likes. Every like for them was a release of dopamine in the brain. As user declines so do likes. As likes decline so does the dopamine. When the pigeon stops getting rewarded for pressing the bar, eventually the pigeon stops trying so much. Expect FB time to decline even further over the next year precipitously. I'd expect in another 24 months that the amount of time the average first world user spends on FB to be half that of what they did in 2013. Time is money, money is time and when they stop paying attention to it, ad revenue is going to plummet.
The younger generation isn't even really interested in it. Talk to most people under 25 and what do they use FB for? To connect with mom. Everyone else they connect with using another format. Go through your own FB news feed, go visit your friends pages and see how much they are posting these days as compared to a couple of years back. You'll see the trend. It's hard not to notice. Used to be I couldn't possibly keep up with the amount of stuff being posted on it. Now it's a piece of cake. FB cut their own throat when they started putting filters in to limit the amount of posts in news feeds from people you didn't connect with often. I'd expect in the next year or two they'll take those brakes back off to try to increase the amount of posts in news feeds again because quite frankly, after a while, the same old reposted photos of cats and dogs from people in your list gets pretty fucking boring.
FB had its time in the sun but it's already getting old.
The Rally Is Over, Sell Facebook Inc (FB) Stock Now!
Even the greats slip up from time to time
By John Divine, InvestorPlace Assistant Editor | Nov 30, 2015, 1:33 pm EST
If you’ve owned Facebook Inc (FB) stock for the entirety of the year, pat yourself on the back — you’ve done extremely well. Shares of the dominant social network are up more than 30% while the S&P 500 has managed a meager 1.2% return.
Now get out … get out of FB entirely. Or, at the very least, take some profit if you’ve got it, because the stock’s current levels are not sustainable.
There is a certain physics to the stock market, though Wall Street is admittedly governed more loosely than the trajectory of an asteroid or the entirely predictable orbit of our moon.
But there are still general rules in equities, and Facebook is not immune to them. FB has been flying too close to the sun, and sooner or later the wax in its wings will melt and the stock will plummet down to earth.
It’s Already Begun
I should note that I do believe Facebook will be with us for a long, long time, and the volume and quality of its data gives the company some extremely valuable and rare assets. That is, FB isn’t going to zero anytime soon, it’s just overvalued.
Trading at more than 36 times forward earnings, Wall Street is valuing FB at more than twice the 17.5 forward price-earnings multiple of the S&P 500. And traders are starting to realize something’s out of whack. After Facebook soared to all-time highs above $110 per share after third-quarter earnings, FB has been steadily slipping.
Its last closing price of $105.45 is awfully close to shares’ $102.78 50-day moving average, and at the time this article was written on Monday, shares were even closer to that dreaded $102.78 mark. If the FB stock price crosses its 50-day moving average on the downside, I expect we’ll see a flurry of selling that will bring shares even lower.
From a fundamental perspective, just where do investors think all the growth is gonna come from? FB already has 1.5 billion monthly active users, so any growth in its user base will be incremental and not very meaningful.
It’s also safe to assume that the majority of additional users from here on out will be from less developed areas, as a disproportionate percentage of the developed world is already using Facebook. In other words, users with a lot less money are worth far less to advertisers.
The hope for FB, then, is to squeeze as much out of first-world users as possible. But this is a tricky proposition, because it means that after FB has optimized its ads to the best of their ability, they’ll simply have to serve more ads if they want to grow.
Although Twitter’s (TWTR) problems are far more dire than Facebook’s, this is precisely the struggle that Twitter is dealing with now. Its user growth is almost nonexistent, and its platform is already entirely inundated with ads. The result is a series of sad, silly efforts to boost user engagement and a free-falling stock that’s down 30% in the last six months.
With interest rates likely to get a boost in December, I wouldn’t be surprised to see growth stocks like FB take a dive as investors adopt a more “risk-off” approach and shift their assets into more low-risk securities.
For Facebook at least, 2016 is not likely to look like 2015.
http://investorplace.com/2015/11/facebook-inc-fb-stock/#.VmC1byjVfok
Yeah you ought to be slappin' yourself if you're still buying this thing.
Even The Street threw it under the bus yesterday.
No one likes a CEO sleazebag who purports being a "philanthropist" whenever all it is about is tax sheltering. As if it weren't bad enough they were already off-shoring in the Caymans now you get this?
http://www.thestreet.com/story/13383612/1/sell-facebook-before-it-heads-lower-despite-zuckerberg-s-big-gift-charts-show.html?puc=yahoo&cm_ven=YAHOO
If you can read between the lines all these new third world users aren't worth much bank.
Couple this with the fact that Google is starting to stream app content; not eating up storage on devices and loading at much higher speeds than FB and you are about to see a big shift in where advertising revenue is spent.
http://www.fool.com/investing/general/2015/11/28/50-million-people-already-use-this-app-that-facebo.aspx?source=eogyholnk0000001&utm_source=yahoo&utm_medium=feed&utm_campaign=article
The Facebook Poor People Acquisition Department
http://www.ibtimes.com/facebook-bringing-instant-articles-more-emerging-markets-asia-internetorg-effort-2199408
• Facebook (NASDAQ:FB) Director Jan Koum on Monday announced the planned sale of 1,545,837 shares for $165.4 million.
Read More At Investor's Business Daily: http://news.investors.com/business/112715-782747-facebook-google-netflix-execs-lead-insider-deals.htm#ixzz3sjHTrGOs
Follow us: @IBDinvestors on Twitter | InvestorsBusinessDaily on Facebook
Soros unloads more than half his FB stock in Q3
http://news.investors.com/111715-781197-fb-baba-ba-airlines-soros-stake.htm?ven=yahoocp&src=aurlled&ven=yahoo
Social network considering changes after complaints from news outlets
Facebook Inc. is experimenting with new advertising approaches for its Instant Articles platform after publishers encountered challenges generating ad revenue because of restrictions imposed by the social network.
Instant Articles, which Facebook FB, -0.03% rolled out to all iPhone users last month, allows media companies to publish content directly to Facebook feeds instead of posting links to draw users back to their own websites. Twenty publishers are currently enrolled in the program.
The product is still in its infancy, but publishers including The Washington Post, New York Times and LittleThings.com are finding it difficult to extract as much revenue per article from Instant Articles as they do from pages on their own websites, according to people familiar with the situation.
That is because of the guidelines Facebook has laid down on the type and volume of ads publishers are allowed to sell. For example,only one “large banner” ad sized 320 x 250 pixels may be included for every 500 words of content. On their own mobile properties, publishers such as The Washington Post would typically include three or perhaps four of those ads alongside a 500-word article.
Facebook is also restricting the type of ads publishers may place in Instant Articles. It will not allow so-called “rich media” ads, the animated or interactive ads that appear across publishers’ sites. Publishers also aren’t permitted to sell Facebook-only campaigns, but instead must package Instant Articles with other inventory across their websites or other properties. As a result, publishers can’t sell ads in Instant Articles at a premium.
http://www.marketwatch.com/story/facebook-ad-restrictions-on-instant-articles-rile-publishers-2015-11-11
Buy, buy, buy if you can't read or do math!
Buy the crap out of it!
Facebook is Stealing Your Video Content and Ad Revenue
Eventually they are going to loose a huge chunk of this change.
http://www.socialmediatoday.com/social-business/facebook-stealing-your-video-content-and-ad-revenue#sthash.fQbEwHQD.dpuf
This company is a JOKE. They've sold no product in the two years + they've had product. We've had the whole NSA scandal and even with that they can't sell their encryption technology. This company is dead in the water even with all the Rear Admirals and CIA spooks they've got on board. It's ridiculous.
Products have been on the mkt for how long and still no sales? Ridiculous.
I know, it's a sit and wait to see if these numbnutz with all the brass on their chests or spook resumes can actually deliver on the business plan. I'm starting to think they've got no real pull.
Did you figure out what your average cost per stick was?
You are so right Lochute!
Patience and a prayer.
Did anyone here actually think that he was a completely independent operator working outside the system? I know I always had my doubts.
I think things are probably more precarious there than what little we can glean from the Western news publications have been saying. Even at that the MSM news on China is a bit more than overcast to say the least. Some of it is down right scary. I've always figured that if it's in Bloomberg then it's probably 3x worse than what is being reported. With this clip claiming 180,000 protests this year I think we can up the badness to 7-9x worse than anything Bloomberg et. al. are reporting about the nasties in the Chinese economy. Of course it doesn't take a rocket scientist to figure that out really. All need be to look at the the Baltic Dry Index and figure out that it's all going to shit and that the course at that point cannot be reversed.
Maybe I was right those years ago speculating that China had been set up like bowling pins? I know if I were a Central Banker I sure as hell would not want the Chinese or another other Asian nation on equal footing with the West and my kind. They are a foreign factor that needs to be dealt with decisively if those Central Bankers and their minions are to remain in power. I believe this even more so after 3 years of living in a middle of the road foreign culture which is far more Westernized than China or Japan ever thought of being. You just don't want people that different getting a real foothold because your understanding of them and what motivates them is not great enough to ever make a partnership. You need to be in control or you'll lose that control eventually. Therefore it is still my contention that the "planers" (overlords) have been maneuvering to push China over a cliff since long before the day they gave them their first contract to make widgets for America.
The only things that needs to be taken into consideration is this..................... how long ago did the Chinese figure out they were being set up and what have they done in the mean time to figure out a way to get out of that trap? Also, how effective is their escape plan going to be or did they truly never think they'd ever have to get out of this economic death spiral? That I doubt but stranger things have happened I suppose.
It's either that or their leaders have been part and parcel to the Keynesian war cycle since the get go and are all for the depopulations section on the Kondratieff wheel.
Of course they're everywhere but what is the real truth? Has Jones been a front since 1996 or has he been infiltrated as of late?
They should be in prison.
*SMH*
I don't know what to make of this thing.
They sold it to a start-up full of nobodies and movie producers to ensure that it would go NO WHERE.
EVER.
NEVER EVER anywhere.
Amazing how they just keep finding more and more oil. On top of that US demand is down around levels not seen in like 15 years as global demand continues to go in the toilet.
infuriating
I'm here I've just been tied up of late and not in a good way. :)~
That was a good one.
*tapping foot waiting impatiently*
Breaking!! Israel Lobbyist - better if we start the war with False Flag attack on Iran!
www.youtube.com/watch?v=PfoaLbbAix0&list=ULPfoaLbbAix0
I had a hard time believing this was NOT the Onion.
Oh f****** hell.
Huge farm with 2 units will be 80% powered by walnuts.
http://edition.cnn.com/video/?/video/us/2012/09/08/dnt-walnut-powered-farm.kovr
Is it possible to trust China even less than Bloomberg?
I bet their growth rate is worse than reported.
This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied - The Sequel
http://www.zerohedge.com/news/government-your-legal-right-redeem-your-money-market-account-has-been-denied-sequel
Agency Paper American International Group Bank of Japan Bank of New York Bank Run Barney Frank Ben Bernanke Ben Bernanke Breaking The Buck Bridgewater Capital Markets China Citadel Citigroup Commercial Paper Councils CRAP European Central Bank Fail Federal Reserve Federal Reserve Bank Federal Reserve Bank of New York fixed Goldman Sachs goldman sachs Hank Paulson Hank Paulson Henry Paulson Insider Trading International Monetary Fund Israel Japan JPMorgan Chase Krugman Lehman Managing Money Mark Pittman Market Crash Merrill Merrill Lynch Money On The Sidelines Moore Capital Morgan Stanley New Normal New York Fed None Paul Kanjorski Paul Volcker President's Working Group Prudential Quantitative Easing ratings Reserve Fund Reuters Reverse Repo SAC Securities and Exchange Commission Shadow Banking Swiss National Bank Trichet Volatility Yield Curve
Two years ago, in January 2010, Zero Hedge wrote "This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied" which became one of our most read stories of the year. The reason? Perhaps something to do with an implicit attempt at capital controls by the government on one of the primary forms of cash aggregation available: $2.7 trillion in US money market funds. The proximal catalyst back then were new proposed regulations seeking to pull one of these three core pillars (these being no volatility, instantaneous liquidity, and redeemability) from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal would give money market fund managers the option to "suspend redemptions to allow for the orderly liquidation of fund assets." In other words: an attempt to prevent money market runs (the same thing that crushed Lehman when the Reserve Fund broke the buck). This idea, which previously had been implicitly backed by the all important Group of 30 which is basically the shadow central planners of the world (don't believe us? check out the roster of current members), did not get too far, and was quickly forgotten. Until today, when the New York Fed decided to bring it back from the dead by publishing "The Minimum Balance At Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market FUnds". Now it is well known that any attempt to prevent a bank runs achieves nothing but merely accelerating just that (as Europe recently learned). But this coming from central planners - who never can accurately predict a rational response - is not surprising. What is surprising is that this proposal is reincarnated now. The question becomes: why now? What does the Fed know about market liquidity conditions that it does not want to share, and more importantly, is the Fed seeing a rapid deterioration in liquidity conditions in the future, that may and/or will prompt retail investors to pull their money in another Lehman-like bank run repeat?
Here is how the Fed frames the problem in the abstract:
This paper introduces a proposal for money market fund (MMF) reform that could mitigate systemic risks arising from these funds by protecting shareholders, such as retail investors, who do not redeem quickly from distressed funds. Our proposal would require that a small fraction of each MMF investor’s recent balances, called the “minimum balance at risk” (MBR), be demarcated to absorb losses if the fund is liquidated. Most regular transactions in the fund would be unaffected, but redemptions of the MBR would be delayed for thirty days. A key feature of the proposal is that large redemptions would subordinate a portion of an investor’s MBR, creating a disincentive to redeem if the fund is likely to have losses. In normal times, when the risk of MMF losses is remote, subordination would have little effect on incentives. We use empirical evidence, including new data on MMF losses from the U.S. Treasury and the Securities and Exchange Commission, to calibrate an MBR rule that would reduce the vulnerability of MMFs to runs and protect investors who do not redeem quickly in crises.
And further:
This paper proposes another approach to mitigating the vulnerability of MMFs to runs by introducing a “minimum balance at risk” (MBR) that could provide a disincentive to run from a troubled money fund. The MBR would be a small fraction (for example, 5 percent) of each shareholder’s recent balances that could be redeemed only with a delay. The delay would ensure that redeeming investors remain partially invested in the fund long enough (we suggest 30 days) to share in any imminent portfolio losses or costs of their redemptions. However, as long as an investor’s balance exceeds her MBR, the rule would have no effect on her transactions, and no portion of any redemption would be delayed if her remaining shares exceed her minimum balance.
The motivation for an MBR is to diminish the benefits of redeeming MMF shares quickly when a fund is in trouble and to reduce the potential costs that others’ redemptions impose on non?redeeming shareholders. Thus, the MBR would be an effective deterrent to runs because, in the event that an MMF breaks the buck (and only in such an event), the MBR would ensure a fairer allocation of losses among investors.
Importantly, an MBR rule also could be structured to create a disincentive for shareholders to redeem shares in a troubled MMF, and we show that such a disincentive is necessary for an MBR rule to be effective in slowing or stopping runs. In particular, we suggest a rule that would subordinate a portion of a redeeming shareholders’ MBR, so that the redeemer’s MBR absorbs losses before those of non?redeemers. Because the risk of losses in an MMF is usually remote, such a mechanism would have very little impact on redemption incentives in normal circumstances. However, if losses became more likely, the expected cost of redemptions would increase. Investors would still have the option to redeem, but they would face a choice between redeeming to preserve liquidity and staying in the fund to protect principal. Creating a disincentive for redemptions when a fund is under strain is critical in protecting MMFs from runs, since shareholders otherwise face powerful incentives to redeem in order to simultaneously preserve liquidity and avoid losses.
Basically, according to the Fed, the minimum balance would make the financial system more fair, reduce systemic risk and protect smaller investors who can be left with losses if larger investors in their fund withdraw cash first. The proposal would require a "small fraction" of each fund investor's recent balances to be segregated into a sinking fund to absorb losses if the fund is liquidated. Subsequently redemptions of these minimum balances at risk would be delayed for 30 days, "creating a disincentive to redeem if the fund is likely to have losses." In other words: socialized losses. Where have we seen this before?
But the real definition of what the Fed is suggesting is: capital controls. Once this proposal is implemented, the Fed, or some other regulator, will effectively have full control over how much money market cash is withdrawable from the system at any given moment. At $2.7 trillion in total, one can see why the Fed is suddenly concerned about this critical liquidity and capital buffer.
The problem is that just as we said over two years ago, a brute force attempt to preserve a liquidity buffer is guaranteed to fail, as MMF participants will simply quietly pull their money out at the convenience when they can, not when they have to. Europe had to learn this the hard way - only after Draghi cut the deposit rates to 0% did virtually every European money market fund become irrelevant overnight, resulting in a massive pull of cash from the MMF industry. However, instead of going into equities as the Group of 30 and other central planners had hoped, the hundreds of billions of euros merely shifted into already negative nominal rate fixed income instruments. And who can blame them: money market capital does not seek return on capital but return of capital, to borrow Bill Gross' favorite line.
Another clue as to why the Fed is once again suddenly interested in money markets comes from an article we wrote back in September 2009: "Rumored Source Of Reverse Repo Liquidity: Not Bank Reserves But Money Market Funds" in which we said that, "the Chairman is rumored to be considering money market funds as a liquidity source. Reuters points out that the Fed would thus have recourse to around $4-500 billion, and maybe more, of the $3.5 trillion sloshing in "money on the sidelines", roughly the same amount as MMs had just before the Lehman implosion."
In a nutshell, money market funds (much more on this below), have always been one of the most hated liquidity intermediaries by the central planners: they don't go into stocks, they don't go into bonds, they just sit there, collecting no interest, but more importantly, are inert, and can not be incorporated into the rehypothecation architecture of shadow banking.
And perhaps that is precisely why the Fed is pulling the scab off an old sore. Recall that for the past year, our primary contention has been that the core reason for all developed world problems is the gradual disappearance of good collateral and money good assets.
Even if the MMF cash were to shift, preemptively, into bonds, or any other "safe" investments, the assets backing the cash can them enter the traditional-shadow liquidity system and buy time: the only real goal at this point. In the process, the cash itself would be "securitized" and provide at least a year or so in additional breathing room for a system that has essentially run out of good liquidity, and in Europe, out of any collateral.
Expect more and more efforts to disgorge the $2.7 triliion in money market funds as the world gets closer and closer to D-Day. And what happens with MMF, will then progress to all other real asset classes as the government truly spreads out its capital controls wings.
* * *
For a more nuanced read through of the implications of money market redemption denials, we suggest rereading our analysis of precisely this topic from January 2010. Just keep in mind: in the interim we have had two and a half years of ZIRP and NIRP based asset depletion, which means that the marginal requirement to get MMF cash "back" into the system is now higher than ever.
This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied
When Henry Paulson publishes his long-awaited memoirs, the one section that will be of most interest to readers, will be the former Goldmanite and Secretary of the Treasury's recollection of what, in his opinion, was the most unpredictable and dire consequence of letting Lehman fail (letting his former employer become the number one undisputed Fixed Income trading entity in the world was quite predictable... plus we doubt it will be a major topic of discussion in Hank's book). We would venture to guess that the Reserve money market fund breaking the buck will be at the very top of the list, as the ensuing "run on the electronic bank" was precisely the 21st century equivalent of what happened to banks in physical form, during the early days of the Geat Depression. Had the lack of confidence in the system persisted for a few more hours, the entire financial world would have likely collapsed, as was so vividly recalled by Rep. Paul Kanjorski, once a barrage of electronic cash withdrawal requests depleted this primary spoke of the entire shadow economy. Ironically, money market funds are supposed to be the stalwart of safety and security among the plethora of global investment alternatives: one need only to look at their returns to see what the presumed composition of their investments is. A case in point, Fidelity's $137 billion Cash Reserves fund has a return of 0.61% YTD, truly nothing to write home about, and a return that would have been easily beaten putting one's money in Treasury Bonds. This is not surprising, as the primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based.
Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets." You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA's latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen. Bank runs have become illegal." This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous "extraordinary circumstances" arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well - sorry, you are out of luck. It's the law.
A brief primer on money markets
A very succinct explanation of what money markets are was provided by none other than SEC's Luis Aguilar on June 24, 2009, when he was presenting the case for making even the possibility of money market runs a thing of the past. To wit:
Money market funds were founded nearly 40 years ago. And, as is well known, one of the hallmarks of money market funds is their ability to maintain a stable net asset value — typically at a dollar per share. In the time they have been around, money market funds have grown enormously — from $180 billion in 1983 (when Rule 2a-7 was first adopted), to $1.4 trillion at the end of 1998, to approximately $3.8 trillion at the end of 2008, just ten years later. The Release in front of us sets forth a number of informative statistics but a few that are of particular interest are the following: today, money market funds account for approximately 39% of all investment company assets; about 80% of all U.S. companies use money market funds in managing their cash balances; and about 20% of the cash balances of all U.S. households are held in money market funds. Clearly, money market funds have become part of the fabric by which families, and companies manage their
financial affairs.
When the Reserve fund broke the buck, and it seemed like an all-out rout of money markets was inevitable, the result would have been a virtual elimination of capital access by everyone: from households to companies. This reverberated for months, as the also presumably extremely safe Commercial Paper market was the next to freeze up, side by side with all traditional forms of credit. Only after the Fed stepped in an guaranteed money markets, and turned on the liquidity stabilization first, then quantitative easing spigot second, did things go back to some sort of new normal. However, it is only a matter of time before the patchwork of band aids holding the dam together is once again exposed, and a new, stronger and, well, "improved" run on the electronic bank materializes. It is precisely this contingency that the SEC and the administration are preparing for by "empowering money market fund boards of directors to suspend redemptions in extraordinary circumstances to protect the interests of fund shareholders."
A little more on money markets:
Money market funds seek to limit exposure to losses due to credit, market, and liquidity risks. Money market funds, in the United States, are regulated by the Securities and Exchange Commission's (SEC) Investment Company Act of 1940. Rule 2a-7 of the act restricts investments in money market funds by quality, maturity and diversity. Under this act, a money fund mainly buys the highest rated debt, which matures in under 13 months. The portfolio must maintain a weighted average maturity (WAM) of 90 days or less and not invest more than 5% in any one issuer, except for government securities and repurchase agreements.
Ironically, the proposed change to Rule 2a-7 seeks to make dramatic changes to the composition of MMs: from 90 days, the WAM would get shortened to 60 days. And this is occurring at a time when the government is desperately seeking to find ways of extending maturities and durations of short-term debt instruments: by reverse rolling the $3.2 trillion industry, the impetus will be precisely the reverse of what should be happening, as more ultra-short maturity instruments are horded up, leaving a dead zone in the 60-90 day maturity window. Some other proposed changes to 2a-7 include "prohibiting the funds from investing in Second Tier securities, as defined in Rule 2a-7. Eligible securities would be redefined as securities receiving only the highest, rather than the highest two, short-term debt ratings from a requisite nationally recognized securities rating organization. Further, money market funds would be permitted to acquire long-term unrated securities only if they have received long-term ratings in the highest two, rather than the highest three, ratings categories." In other words, let's make them so safe, that when the time comes, nobody will have access to them. Brilliant.
The utility of money market funds has long been questioned by such systemically-embedded financial luminaries as Paul Volcker (more on this in a minute). After all, what are money markets if merely an easy, and 401(k)-eligible option to not invest in equity or bonds, but in "paper" which is cash in all but name (maybe not so much after the proposed Rule change passes). And as money markets account for a huge portion of the $11 trillion of mutual fund assets as of November (per ICI, whose opinion, incidentally, was instrumental in shaping future money market policy), $3.3 trillion to be precise, and second only to stock funds at $4.8 trillion, one can see why an administration, hell bent on recreating a stock-price bubble, would do all it can to make money markets extremely unattractive. In fact, the current administration has been on a roll on this regard: i) keeping money market rates at record lows, ii) removing money market fund guarantees and iii) and even allowing reverse repos to use money markets as sources of liquidity (because we all know that the collateral behind the banks shadow banking arrangement with the Fed are literally crap; as we have noted before, we will continue claiming this until the Fed disproves us by opening up their books for full inspection. Until then, yes, the Fed has lent out hundreds of billions against bankrupt company equity, as we have pointed out in the past). Money Markets are the easiest recourse that idiotic class of Americans known as "savers" has to give the big bank oligarchs, the Fed and the bubble-inflating Administration the middle finger. As you will recall, recently Arianna Huffington has been soliciting all Americans do just that: to move their money out of the tentacles of the TBTFs. In essence, the money market optionality is precisely the equivalent of moving physical money from TBTFs to community banks in the "shadow economy." Because where there is $3.3 trillion out of $11, there could easily be $11 trillion out of $11, which would destroy the whole concept of Fed-spearheaded asset-price inflation, and would destroy overnight the TBTFs, as equities would once again find their fair value. It is no surprise then, that the current financial system, and its political cronies loathe the concept of Money Markets, and have done all they could to make them as unattractive as possible. Below is a chart of the Net Assets held by all US money market funds and the number of money market mutual funds since January 2008:
Obviously, attempts to push capital out of MMs have succeeded: after peaking at $3.9 trillion, currently money markets hold a two year low of $3.27 trillion. Furthermore, the number of actual money market fund operations has been substantially hit: from 2,078 in the days after the Lehman implosion, this is now down to 1,828, a 12% reduction. At this rate soon there won't be all that many money market funds to chose from. While the AUM reduction is explicable through the previously mentioned three factors, the actual reduction in number of funds is on the surface not quite a straightforward, and will likely be the topic a future Zero Hedge post. Although, the impetus of managing money when one can return at most 0.6% annually, and charge fees on this "return" may be missing - the answer may be far simpler than we think. Why run a money market, when the Fed will be happy to issue you a bank charter, and you can collect much more, risk free, courtesy of the vertical yield curve.
Yet what is strange is that even with all the adverse consequences of holding cash in Money Markets, the total AUM of this "safest" investment option is still substantial, at nearly $3.3 trillion as of December 30, a big decline yes, but a decline that should have been much greater considering even the president since March 3 has been beckoning his daily viewership to invest in cheap stocks courtesy of low "profit and earning ratios" (that, and the specter of President's Working Group on Financial Markets). Could this action, whereby investors will no longer have access to money that historically has been sacrosanct and reachable and disposable on a moment's notice, be the last nail in the coffin of money markets? We believe so, however, we are not sure if it will attain the desired effect. With an aging baby boomer population, which would rather burn their money than invest in the stock market again and relive the roller-coaster days of late 2008 and early 2009, the plan may well backfire, and result in even more money leaving the shadow system and entering such tangible objects as deposit accounts (at community banks, of course), mattresses and socks. And speaking of the President's Working Group...
The Group of Thirty
When discussing the shadow economy, it is only fitting to discuss the shadow decision-makers. In this regard, the Group of 30, is to the traditional economic decision-making process as the President's Working Group is to capital markets. Taken from the website, the self-description reads innocently enough:
The Group of Thirty, established in 1978, is a private, nonprofit, international body composed of very senior representatives of the private and public sectors and academia. It aims to deepen understanding of international economic and financial issues, to explore the international repercussions of decisions taken in the public and private sectors, and to examine the choices available to market practitioners and policymakers. The Group's members meet in plenary sessions twice a year with select guests to discuss important economic, financial and policy developments. They reach out to a wider audience in seminars and symposia. Of most importance to our membership and supporters is the annual International Banking Seminar.
Sounds like any old D.C.-based think tank... until one looks at the roster of members:
Paul A. Volcker, Chairman of the Board of Trustees, Group of Thirty, Former Chairman, Board of Governors of the Federal Reserve System
Jacob A. Frenkel, Chairman, Group of Thirty, Vice Chairman, American International Group, Former Governor, Bank of Israel
Jean-Claude Trichet, President, European Central Bank, Former Governor, Banque de France
Zhou Xiaochuan, Governor, People’s Bank of China, Former President, China Construction Bank, Former Asst. Minister of Foreign Trade
Yutaka Yamaguchi, Former Deputy Governor, Bank of Japan, Former Chairman, Euro Currency Standing Commission
William McDonough, Vice Chairman and Special Advisor to the Chairman, Merrill Lynch, Former Chairman, Public Company Accounting Oversight Board, Former President, Federal Reserve Bank of New York
Richard A. Debs, Advisory Director, Morgan Stanley, Former President, Morgan Stanley International, Former COO, Federal Reserve Bank of New York
Abdulatif Al-Hamad, Chairman, Arab Fund for Economic and Social Development, Former Minister of Finance and Minister of Planning, Kuwait
William R. Rhodes, Senior Vice Chairman, Citigroup, Chairman, President and CEO, Citicorp and Citibank
Ernest Stern, Partner and Senior Advisor, The Rohatyn Group, Former Managing Director, JPMorgan Chase, Former Managing Director, World Bank
Jaime Caruana, Financial Counsellor, International Monetary Fund, Former Governor, Banco de España, Former Chairman, Basel Committee on Banking Supervision
E. Gerald Corrigan, Managing Director, Goldman Sachs Group, Inc., Former President, Federal Reserve Bank of New York
Andrew D. Crockett, President, JPMorgan Chase International, Former General Manager, Bank for International Settlements
Guillermo de la Dehesa Romero, Director and Member of the Executive Committee, Grupo Santander, Former Deputy Managing Director, Banco de España, Former Secretary of State, Ministry of Economy and Finance, Spain
Mario Draghi, Governor, Banca d’Italia, Chairman, Financial Stability Forum, Member of the Governing and General Councils, European Central Bank, Former Vice Chairman and Managing Director, Goldman Sachs International
Martin Feldstein, Professor of Economics, Harvard University, President Emeritus, National Bureau of Economic Research, Former Chairman, Council of Economic Advisers
Roger W. Ferguson, Jr., Chief Executive, TIAA-CREF, Former Chairman, Swiss Re America Holding Corporation, Former Vice Chairman, Board of Governors of the Federal Reserve System
Stanley Fischer, Governor, Bank of Israel, Former First Managing Director, International Monetary Fund
Philipp Hildebrand, Vice Chairman of the Governing Board, Swiss National Bank, Former Partner, Moore Capital Management
Paul Krugman, Professor of Economics, Woodrow Wilson School, Princeton University, Former Member, Council of Economic Advisors
Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Economics, Harvard University, Former Chief Economist and Director of Research, IMF
and, of course:
Timothy F. Geithner, President and Chief Executive Officer, Federal Reserve Bank of New York, Former U.S. Undersecretary of Treasury for International Affairs
Lawrence Summers, Charles W. Eliot University Professor, Harvard University, Former President, Harvard University, Former U.S. Secretary of the Treasury
and many more. Given the choice of being a fly on the wall at a G7 meeting or that of the "Group of 30", we would be very curious to see who would pick the former over the latter. These are the people, whose "reports" and groupthink determines the financial fate of the world: their vested interest in perpetuating the status quo is second to none. Which is why we read with great interest a recent paper from the Group of 30: Financial Reform, A Framework for Financial Stability, released on January 15, 2009, deep in the heart of the crisis. While the paper has enough insight for many, non-related posts (we are already working on several), we will focus on the policy recommendations presented for money market funds.
Money Market Mutual Funds and Supervision
Recommendation 3:
a. Money market mutual funds wishing to continue to offer bank-like services, such as transaction account services, withdrawals on demand at par, and assurances of maintaining a stable net asset value (NAV) at par should be required to reorganize as special-purpose banks, with appropriate prudential regulation and supervision, government insurance, and access to central bank lender-of-last-resort facilities.
b. Those institutions remaining as money market mutual funds should only offer a conservative investment option with modest upside potential at relatively low risk. The vehicles should be clearly differentiated from federally insured instruments offered by banks, such as money market deposit funds, with no explicit or implicit assurances to investors that funds can be withdrawn on demand at a stable NAV. Money market mutual funds should not be permitted to use amortized cost pricing, with the implication that they carry a fluctuating NAV rather than one that is pegged at US$1.00 per share.
The phrasing of "with no explicit or implicit assurances to investors that funds can be withdrawn on demand at a stable NAV" should be sufficient to whiten the hairs of every proponent of money markets as a "safe" investment alternative. Yet what the SEC has done, is to take the Group of 30 recommendation, and take it to the next level: not only will funds not have explicit assurance of any kind vis-a-vis funding, but in fact, the redemption of said funds would be legally barred upon "extraordinary circumstances."
Rule 22e-3
From the SEC:
Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if: (i) The fund’s current price per share, calculated pursuant to rule 2a–7(c), is less than the fund’s stable net asset value per share; (ii) its board of directors, including a majority of directors who are not interested persons, approves the liquidation of the fund; and (iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee. These proposed conditions are intended to ensure that any suspension of redemptions will be consistent with the underlying policies of section 22(e). We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares. Accordingly, our proposal is limited to permitting suspension of this statutory protection only in extraordinary circumstances. Thus, the proposed conditions, which are similar to those of the temporary rule, are designed to limit the availability of the rule to circumstances that present a significant risk of a run on the fund. Moreover, the exemption would require action of the fund board (including the independent directors), which would be acting in its capacity as a fiduciary. The proposed rule contains an additional provision that would permit us to take steps to protect investors. Specifically, the proposed rule would permit us to rescind or modify the relief provided by the rule (and thus require the fund to resume honoring redemptions) if, for example, a liquidating fund has not devised, or is not properly executing, a plan of liquidation that protects fund shareholders. Under this provision, the Commission may modify the relief ‘‘after appropriate notice and opportunity for hearing,’’ in accordance with section 40 of the Act.
Lots of keywords there: "fiduciary", "impose hardships" but most notably "permit us to take steps to protect investors." Uh, SEC, no thanks. We can protect ourselves. Your protection so far has resulted in the Madoff scandal, the BofA fiasco, billions in insider trading profits and not one guilty person, who did not manage to escape unscathed with merely a wrist slap in the form of some pathetic fine. With all due respect, SEC, any proposal that involves you acting to "protect" us should be immediately banned and any further discussion ended.
Especially in this case: what the SEC is proposing is simple - the entire market structure has been converted to a hedge fund. When investors hear the word "suspend redemptions" they envisioned a battered, pro-cyclical, leveraged, permabullish hedge fund, that suddenly "found itself" down 30, 40, 50 or more percent, and to avoid instantaneous liquidation, had to bar redemptions. Forgive us, but is the SEC confirming that the entire market is now one big casino, one big government subsidized hedge fund, where as long as things go up, all is good, but the second things take a leg down, just like any ponzi, nobody will be allowed to pull their money? Maybe Madoff should have created the same redemption suspension: his fund would still be alive and thriving, now that the government has become the biggest ponzi conductor of all time. And nobody would have been the wiser. But instead, the Securities and Exchange Commission, in discussions with the Group of 30, Barney Frank, and any other conflicted individuals who only care about protecting their own money for one more year, has decided, in its infinite wisdom, to make money markets a complete scam. And this is the gist of regulatory reform in America.
Conclusion
At this point it is without doubt that even the government understands that when things turn sour, and they will, the run on the bank will be unavoidable: their solution - prevent money from being dispensed, when that moment comes. The thing about crises, be they liquidity, solvency, or plain-vanilla, is that "price discovery" occurs all at once, and at the very same time. And all too often, investors "discover" they were lied to, as the emperor, in any fiat system, always has no clothes. Just like in September 2008, when the banks were forced to look at each-others' balance sheet and realize that there are no real assets on the left backing up the liabilities on the right, so the moment of enlightenment occurs are the most importune time: just ask Hank Paulson. Had he known his action of beefing up Goldman's FICC trading axes would have resulted in the "Ice-Nine'ing" (to borrow a Mark Pittman term) of money markets, who knows- maybe Lehman would have still been alive. Perhaps risking the cash access of 20% of US households and 80% of companies was not worth the few extra zeroes in Goldman's EPS. But we will never know. What we will know, is that now i) the government is all too aware that the market has become one huge ponzi, and that all investment vehicles, even the safest ones, are subject to bank runs, and ii) that said bank runs, will occur. It is only a matter of time. And just as the president told everyone directly to buy the market on March 3, so the SEC, the Group of 30, and Barney Frank are telling us all, much less directly, to get the hell out of Dodge. Alternatively, the game of "last fool in", holding the burning hot potato, can continue indefinitely, until such time as the marginal utility of each and every dollar printed by Ben Bernanke is zero.
Lindsey Williams Raytheon Warning - US Government to Shut Down Soon
http://networkedblogs.com/Bzfhq
Pastor Lindsey Williams has received information from a woman who works for Raytheon who has security clearance . This woman is reported as being a liberal, and she got shaken a few days ago. She does not like us conspiracy people and has allegedly reported to her sister who shared this with Lindsey Williams. The woman states that the US Government has notified Raytheon to prepare for a US Government shutdown .The liberty oil rig has stopped drilling and won’t continue drilling until oil hits $150 a barrel. This is supposed to be happening sometime in the very near future.
John McGowan Presents former Alaskan Oil Pipeline chaplain Lindsey Williams. Mr. Williams shares the latest info on the upcoming bank holiday, the coming cashless society, the middle east wars and oil prices.
Raytheon (a major US defense contractor, including in satellites) Raytheon Who has been a part of the military industrial complex since the fifties , received a "security clearance" message from the US government, telling Raytheon to take immediate preparations for the close down of the United States government financially in the very near future. There is a possibility of the United States government shutting down financially in a very short time. BP's Liberty rig, near Gull Island, Prudhoe Bay, Alaska, has stopped drilling. It is the biggest rig in the world and BP wouldn't stop drilling that mega field, over 40,000 feet down, into abiotic oil, without a serious reason. The west has taken down Mubarak in Egypt and Ghadaffi in Libya, and provoked other Arab Spring revolutions in Yemen and Tunisia, but it is having trouble removing Assad from Syria, and hasn't gotten oil prices where they want them ($150/barrel) before they start bringing in oil from that field in Alaska. So BP is holding off on drilling the last bit into that mega field until the US can get the price of oil higher with sufficient chaos in the Middle East. The last nation to be thrown into chaos in the Middle East would be Saudi Arabia.Syria has set the timetable of the elite back six months. The Liberty rig will not finish drilling into that abiotic oil strata until oil is above $150/barrel.it may take a year or three, but the elite are preparing for a New World Order cashless society. Gold will go to $3000/ounce. Get into secured assets - own your home - get out of paper assets of any kind. Obama recently warned Assad to not use chemical weapons or we might invade. This is an obvious setup, similar to the claims of weapons of mass destruction in Iraq before we invaded them, to justify invading Syria, getting oil to $150/barrel and gas at the American pump to $6/gallon (it is about $3.75/gallon now, US national average.)
Russia Stocks Fall As Japan Deficit Widens, Greece Seeks Time
By Ksenia Galouchko and Jason Corcoran - Aug 22, 2012 10:33 AM CT
http://www.bloomberg.com/news/2012-08-22/russia-stocks-fall-on-japan-deficit-euro-region-leaders-talks.html
Russian stocks declined after Japan reported a wider-than-estimated trade deficit and as Greece sought more time on policy changes while investors awaited Federal Reserve minutes.
The Micex Index (INDEXCF) fell 0.5 percent to 1,446.84 by the close in Moscow, after rallying 1.8 percent yesterday. OAO Mechel (MTLR), Russia’s biggest producer of coal for steelmakers, slid 1.3 percent. United Co. Rusal, the world’s largest aluminum producer, dropped 1.5 percent, while OAO Novatek, Russia’s second-biggest producer of natural gas, declined 1.8 percent.
Japan reported a trade deficit of 517.4 billion yen ($6.5 billion) in July as Europe’s debt crisis curbed exports. The median forecast in a Bloomberg News survey of 28 analysts was for a shortfall of 270 billion yen. Stocks worldwide fell as Greece asked for more time to carry out policy changes. Prime Minister Antonis Samaras said his country needs “more air to breathe” in dealing with its debt crisis. The Fed will publish today minutes of the two-day meeting that ended on Aug. 1.
“The Japanese deficit figure doesn’t help the sentiment when the global growth outlook is looking uncertain,” Saad Siddiqui, an emerging-markets strategist at Credit Suisse Securities, said by phone from London. “There is uncertainty about the Fed’s actions, whether there will be more stimulus.”
Oil, the country’s main revenue earner, added 0.5 percent to $97.20 in New York. Preferred shares of OAO Surgutneftegas rallied 2.4 percent to 20.67 rubles.
WTO Entry
The World Trade Organization today formally accepted Russia, the world’s biggest energy exporter, as a member after 19 years of negotiation. Joining the Geneva-based body that sets global trade rules should drive bigger investment inflows, trade and higher competition in Russia, according to Fitch Ratings.
“The WTO accession does not drive the stock market immediately, however, over time, when investors pay more attention to Russia having joined WTO, Russia should be able to outperform emerging-market peers,” Marcus Svedberg, chief economist at Stockholm-based East Capital, which manages more than $4.4 billion in assets, said in a phone interview today.
Entry will boost stock valuations, narrowing the discount versus emerging-market peers to about 20 percent, the smallest in two years, according to Svedberg.
Troika Dialog expects consumer stocks to be the first to benefit from the WTO entry on lower import tariffs and the easing on import restrictions, according to an Aug. 21 report. The stocks set to benefit most include M.Video, OAO Aeroflot and OAO Mostotrest (MSTT), Chris Weafer, chief strategist at Troika Dialog in Moscow, wrote in an e-mailed report today.
Cheap Valuations
M.Video, an electronics retailer, was little changed at 265.47 rubles. Aeroflot, Russia’s biggest airline, rose 0.2 percent to 43.39 rubles while bridge builder Mostotrest sank 1.4 percent to 175.35 rubles.
Russian stocks pared losses after sales of existing homes climbed in July from an eight-month low, adding to signs U.S. housing may pick up in the second half.
The Micex trades at 5.1 times earnings after gaining 3.2 percent this year. That compares with a multiple of 12 times for the MSCI Emerging Markets Index, which has risen 5.7 percent.
Russian equities have the lowest valuations based on estimated earnings among 21 emerging markets tracked by Bloomberg.
China bubble in 'danger zone' warns Bank of Japan
http://www.telegraph.co.uk/finance/financialcrisis/9491069/China-bubble-in-danger-zone-warns-Bank-of-Japan.html
China risks a repeat of Japan’s boom-bust disaster 20 years ago as exorbitant property prices combine with a demographic tipping point, a top Japanese official has warned.
Richard Koo, from Nomura, said worries about China’s slowdown have spread from financial markets to national security officials. Photo: Alamy
By Ambrose Evans-Pritchard, International Business Editor9:06PM BST 21 Aug 2012214 Comments
“China is now entering the 'danger zone’,” said Kiyohiko Nishimura, the Bank of Japan’s deputy-governor and an expert on asset booms.
The surge in Chinese home prices and loan growth over the past five years has surpassed extremes seen in Japan before the Nikkei bubble popped in 1990. Construction reached 12pc of GDP in China last year; it peaked in Japan at 10pc.
Mr Nishimura said credit and housing booms can remain “benign” so long as the workforce is young and growing. They turn “malign” once the ratio of working age people to dependents rolls over as it did in Japan.
China’s ratio will peak at around 2.7 over the next couple of years as the aging crunch arrives. It will then go into a sharp descent, compounded by the delayed effects of the one-child policy.
“Not every bubble-bust episode leads to a financial crisis. However, if a demographic change, a property price bubble and a steep increase in loans coincide, then a financial crisis seems more likely,” he said in Sydney at a conference on asset booms.
Japanese stocks have fallen by 75pc and Tokyo land prices by 80pc since the economy first began to slide into a deflationary trap two decades ago, although real per capita income has held up well. Any such fate for China – a much poorer country today than Japan in 1990 – has shattering implications.
Such a warning from a Japanese official may ruffle feathers in Beijing. The Communist authorities have studied Japan’s Lost Decade closely and are convinced they can avoid the same errors.
The Pacific rivals are embroiled in a bitter dispute over the Senaku/Diaoyu islands in the East China Sea. Nationalists from both sides have landed on the Japanese-administered islands.
It is unclear how easily China can manage the hang-over after letting home price-to-income ratios peak at nose-bleed highs of 16 to 18 in the coastal cities of Beijing, Shanghai, Tianjin, and Shenzhen.
The authorities deliberately choked the boom by tightening credit last year but have discovered that it is not easy to stop the effects spilling into the rest of the economy, causing an industrial recession.
Export growth fizzled over the summer. Komatsu’s index of excavator usage – a proxy gauge of Chinese construction – fell 13pc in July. The Yangtze ship-building industry is in dire straits. China’s largest shipbuilder, Rongsheng, has not had a single order this year.
Richard Koo, from Nomura, said worries about China’s slowdown have spread from financial markets to national security officials.
Jing Ulrich from JP Morgan China said the mini-slump may drag on as Chinese exporters struggle with a recession in Europe, wafer-thin margins and price wars.
“The unpleasant situation for industrial companies is unlikely to change until the second quarter next year. The country’s stock market will face big challenges in coming months as excess production capacity becomes more obvious,” she said, predicting that growth would slow from torrid rates of 10pc to nearer 6pc over the next five years.
Premier Wen Jiabao has warned repeatedly that China’s economy is badly out of kilter. He is trying to wean the system off exports and investment – a world record 49pc of GDP – switching to home-bred consumer demand.
A report earlier this year by the World Bank and China’s Development Research Centre warned that the low-hanging fruit of state-driven industrialisation is largely exhausted.
They said a quarter of China’s state companies lose money and warned that the country will remain stuck in the “middle-income trap” unless it ditches the top-down policies of Deng Xiaoping. This model relied on cheap labour and imported technology. It cannot carry China any further.
The reformers agree but good intentions are fading as the downturn deepens. Those calling for another blitz of cheap credit to keep the old game going are gaining the upper hand.
The city of Chongquing this week unveiled a $240bn (£153bn) investment in electronics, car plants, petrochemicals and other industries over the next three years, equal to 150pc of its GDP. This follows vast spending proposals by Ningbo, Guangzhou, and Changsha, apparently with the blessing of state-run banks and the Politburo.
Whatever the offical mantra, Beijing is bringing out its bubble pump again.
?"Radiation and rockets at the London Olympics you ask? Yes, more than 7,000 tons of radioactive debris pushed just to the side to build the Olympic stadium and anti-aircraft missIes anchored on the rooftops of private London residences. War games, military and private security forces patting down the throngs at a cost of £1 billion ($1.54 billion) just for “security” alone, this is the straw which has finally broken the camel’s back for my lifetime of Olympics watching."
http://cuttingthegordianknot.wordpress.com/2012/06/08/radiation-and-rockets-why-i-am-boycotting-the-london-2012-olympics/