We’ve been saying the numbers weren’t to be trusted in China for years. (We certainly weren’t the only ones.) Looks like the world is also coming to this realization, or more likely is just acknowledging that the jig is up. Or maybe both. Whatever, we hope that you had a good ride if you were investing in China on the long side, and hope that you saw the writing on the ghost city walls before things got ugly.
Meanwhile at High Point University
Funny how things are sometimes on this website. In the prior post we heard Peter Schiff warn of the student debt bubble, something we’ve long been focused on here, and now this little article comes along.
What do you remember of living arrangements in college? Bunk beds perhaps? A shared sink and bathroom with suite mates? Bookshelves made from cinder blocks and plywood?
Not anymore. In some places student housing resembles a cruise ship more than it does a dormitory.
It should be noted that when aspirational countries hit economic brick walls they often do not react well. Suddenly power shifts, as do markets and political perspective – in policy circles and in the general population. This creates instability, which threatens the powers that be. The powers that be then react.
From a Chinese market
When an economy is built upon dishonesty, and dishonest prices most importantly, an economy’s reckoning is only a matter of time. The further the charade goes on, the worse the reckoning. China’s been going on for a long time.
Now the Chinese government is trying to save its market with more central planning and knob turning. And don’t forget about the guns it has too.
But ultimately the system will erode. It isn’t built on real prices.
Yeah, the reckoning has been coming for a very long while. The Fed is out of control and lost. The stock market as it is is not sustainable. Many other markets are in the same boat.
Any market which reflects the wants and desires of the rich (aka those closest to newly “printed” money) is pretty much in a bubble. Art, wine, etc. Even residential real estate in places like London and New York are bubblicious.
It isn’t going to keep going.
New Chinese condo.
Sometimes 2 trends will look eerily similar for a good long while and then the 2 trends will diverge. We’ll see in this case.
However there is a very good case to be made for a Chinese stock bubble, hell, a Chinese country bubble in many respects. China is the ultimate crony capitalist state.
That China is rattling its saber with such vigor lately may be a symptom of a Communist Party which is seeking to focus attention away from domestic economic issues.
It’s going to happen. We don’t know when, but it will.
Or maybe you think we are in a healthy and organic market. If so good for you and good luck.
My wife and I were just talking about how we hoped the student debt bubble would hurry up and deflate. We have kids to put through school in the not too distant future and the sooner things settle out the better. The current situation cannot continue. Tuitions are unsustainable. Student debt has fueled a bubble in the University system and it is going to end. Perhaps badly.
This week we may have gotten a glimpse of things to come.
Debt is addictive. Once one gets on the stuff it is nearly impossible to get off of. And like all hard drugs, sooner or later debt will extract its toll. It certainly did in 2008. But instead of getting sober and real after that fateful year the world went on a binge instead. Not a very healthy thing to do. There will be pain, likely quite a lot of pain when the debt stops “working.”
When will reality come calling?
Charles Hugh Smith examines this important but often neglected question. Really, who does benefit from a bust?
If it does, and eventually it will, watch out. We will enter completely new economic territory. You think things have been wild since 2008? If people truly call out the emperor as naked, if that becomes the consensus, holy moly, are things going to get interesting.
And remember this is with a totally gamed CPI number. It’s worse than it even looks.
Newsflash! Things are not good economically.
Most people make significantly less in inflation adjusted terms than they did prior to the 2008 Crash. And it should be noted that the economy prior to the Crash felt pretty hollow too. People forget this now. But nearly everyone was living off of the housing bubble in the Bush years. That’s why it hurt so bad when housing ate it.
Can’t you just feel the excitement in the economy? It’s palpable. Boom. Boom. Boom. Good times! Happy days!
In the attached article from CNBC the point is made that the real bubble is likely an inflated confidence in the Federal Reserve.That come what may, the Fed will intervene in markets and buoy them. So what if stocks are over extended, Yellen and the FOMC will save the banker’s posteriors. As we’ve said before this sounds very much like “housing prices always go up” to us. If sentiment regarding the Fed were to change, if traders were to fear that things were bigger than the Fed,