We’ll see. The market is down today but has been solidly up for a few weeks (after a dismal start to the year). But the underlying economic reality hasn’t changed. The deep fundamentals are not good and they haven’t been good for a long time.
So in other words 7% of the market’s upside since 2008 is real. (I’ll bet even that is generous.) This should concern anyone who thinks that economics is more than smoke, mirrors, and animal spirits.
The economist who did this speaks of a tech bubble, housing bubble, and now Fed bubble. But it is really Fed bubble 1, 2, and 3.
“Even I keep my money in Switzerland these days.”
China is not such a good place to keep money medium to long term as it turns out. The wealthy in China are “deeply distrustful” of policy makers. As such many are getting out of China if they can. Beijing is concerned, probably panicking in light of all of the money which is flowing out of the country. And as China is in many respects a black box (perhaps a grey box) people with money can only assume that things are bad and so that compounds the Chinese “problem.”
There is more economic nastiness out there right now than many in this country think. We’ve had a massive papering over of a very tenuous economy during the Obama years. Now the Fed has moved to slightly raise rates (seems reasonable to us, but we’d prefer that the market set all rates of interest) while much of the rest of the world is slowing – again. China, Brazil, much of Europe, many if not most the commodity driven developing countries,
According to Stockman the bubble ends today.
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?