duminică, 23 august 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

One Hell of a Round Trip: Chinese Stocks Crash 8.45%, Give Up 60% Gains This Year

Posted: 23 Aug 2015 10:25 PM PDT

Chinese stock plunged another 296.55 points today (8.45%) to 3211.20. The market was once up over 60% on the year in June, but is now negative.

$SSEC Shanghai Index



click on chart for sharper image

I added that last red bar because Stockcharts reflects last Friday.

One Hell of a Round Trip

From 3264 to 5178 to 3211 is one hell of a round trip, especially for a stock market index.

Bloomberg notes State Support Fails to Stop Rout.

  • More than 750 stocks fell by the daily 10 percent limit on the Shanghai Composite.
  • Economic growth slowed to 6.6 percent in July, according to Bloomberg's monthly GDP tracker.
  • Stocks on mainland bourses traded at a median 61 times reported earnings on Friday, according to data compiled by Bloomberg. That's the most among the 10 largest markets and more than three times the 19 multiple for the Standard & Poor's 500 Index.
  • Yuan positions at the central bank and financial institutions fell by the most on record last month, a sign capital outflows have picked up.

Crash Explained

Please consider the Vox article China's Latest Stock Market Crash, Explained.
China's stock market had a debt-fueled boom, followed by a crash

Between June 2014 and June 2015, China's Shanghai Composite index rose by 150 percent. A big reason for the stock market rally was that a lot of ordinary Chinese people began investing in the stock market for the first time. More than 40 million new stock accounts were opened between June 2014 and May 2015.

And many have been buying stocks with borrowed money. The Chinese government used to strictly limit this practice, but over the last five years the government gradually relaxed those regulations.

Earlier this year, the authorities became concerned that the stock market's rise had become unsustainable. So they began to tighten limits on debt-financed stock market speculation. The stock market peaked in June and then began to fall quickly. That caused regulators to change their minds again. In early July, they made aggressive efforts to push stock prices back up.

Those efforts seemed to work for a few weeks, as the market rose and then stabilized. But now it seems that even July's extraordinary actions — which included ordering companies to buy their own stock and banning some executives from selling — weren't enough to prevent further declines.
True Origin of Crash

What Vox failed to mention is the boom was fueled by ridiculously loose monetary policy, culminating with a massive real estate boom followed by an equity bubble with kids who did not even graduate from high school, buying stocks on margin.

US equities and corporate bonds are also in a huge bubble. There are so many bubbles that one has to be nearly blind to not see them.

Mike "Mish" Shedlock
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Another Asia-Pacific Equities Bloodbath

Posted: 23 Aug 2015 06:57 PM PDT

Another Asia and South Pacific equity bloodbath is underway this evening (morning or afternoon to those areas).

Here is a chart from roughly 8:30 PM central.



click on chart for sharper image

Mike "Mish" Shedlock
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Huge Glut in European Dairy Cows and Milk Coming Up

Posted: 23 Aug 2015 11:59 AM PDT

Spain is truly going off the deep end in numerous areas lately. As noted previously, citizens have received huge fines for being disrespectful of police (See Progression of the Police State Spanish Style; Law of Simmering Social Pots).

In another recent example, a citizen was fined for posting on Facebook, the image of a police car parked illegally.

Today, let's discuss dairy cows. There are so many dairy cows in Spain that farmers have not been able to make any money. There is a glut of milk.

The government solution, amazingly, is to Give 300 Euros Per Cow to Farmers With Insufficient Profitability.
The Minister of Agriculture, Food and Environment, Isabel García Tejerina, announced on Saturday that the Ministry will grant direct aid of 300 euros per cow for those farms that are selling milk below profitability. The measure will benefit 2,500 to 3,000 farms according to estimates by the Ministry.

Tejerina is "working at full speed" to prevent milk being sold at prices that are unprofitable.
Too Many Cows, Too Much Milk

Any rational person would suggest there are too many dairy cows and perhaps too many farms.

But instead we see articles like this one from El Confidencial: Do you buy milk at less than 60 cents? This is what you're doing to farmers.
The prices in the dairy sector have plummeted in recent months by the combination of several factors. Historically Europe produces more milk than it consumes and therefore dependent on international markets to survive. Especially Asians. And China has stopped buying milk in recent months. To this must be added the effects of Russia's veto imports of fresh products. The result is that the European market does not absorb all the milk generated and there is an excess of 'stock' that brings down prices.

Milk quotas also come into play. Since Spain joined the European Union countries production was limited in order to avoid surpluses. In particular, Spain had a limit of 6.5 million tonnes of milk annually.

To this system, countries like the Netherlands, UK and Germany have greatly increased their production, creating fierce competition for the Spanish market. Keep in mind that a 12% market share in our country is in the hands of the French giant Lactalis.

"What you buy below 55 cents indirectly causes the closure of farms", points out Andoni Arriola Garcia, spokesman for COAG (Coordinator of Organizations of Farmers and Ranchers).

"They are using the deregulation of the market to offer the farmer a ruinous prices," said García Arriola.
Count the Cows

Mind you, closure of farms is precisely what needs to happen (given the inane sanctions on Russia).

By country, here is a Dairy Cows Count for every country in the EU.

As of 2013, Spain has 857,000 cows. Assuming there are no more cows in Spain now than in 2013, the cost of the guarantee would be €257,100,000.

Pity the Farmers?
Instead of blaming farmers for producing too much milk, and instead of blaming inane sanctions on Russia, the government and news outlets blame people for paying too little for milk.

"This is what you are doing to farmers," states the inane headline on El Confidential.

Given there is already a glut of milk and cows, guaranteeing a profit on cows is a 100% surefire way to ensure the glut further expands.

In a free trade setup, unprofitable farms would go out of business, but there would also not have been a ridiculous set of sanctions on Russia in the first place.

Mike "Mish" Shedlock
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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