As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more
The Chinese government has announced the most revolutionary changes to its economy in nearly four decades. The implications for global stock markets are hugely positive, and until now, under appreciated. The Middle Kingdom?s state controlled media, never prone to hyperbole, are calling it ?a new historical starting point.?
Chinese stocks have rocketed since word of the broad ranging reforms leaked out last week, and appear to have much more to go. This brings to an end the 3 ? year Chinese growth recession, which saw GDP growth rates shrink from a white hot 13% annual rate, down to a more modest 7%. Until last week, Chinese capital markets were neglected, ignored, and left stranded on a back burner.
This is great news for all of us.
The sea of change promised by the events in the Middle Kingdom barely caught notice in the West, where investors were transfixed by the never ending rise of US equities and other risk assets. But my friends at the senior levels of the Chinese government have been gushing about the great things to come. They compare it to the 1978 revolution, when the ?Gang of Four? was thrown out, and Deng Xiaoping was named premier.
Some 35 years of wildly successful modernization, westernization, and capitalization followed. Chinese per capita incomes skyrocketed, from $100 to $6,000 today. The current round of liberalizations could eventually bring Chinese standards of living to American levels. Give it another 35 years.
Of course, reading the statement issued by the 370 senior party members of the third plenum of the 18th Central Committee, you get no clue of the brave new world they promise. These are always written in obscure code words whose meaning can only be deciphered by tracking nuances, changes, and references over decades. I have been doing this since the early seventies, when Mao Zedong was calling the shots, longer than most Chinese. It was a lot harder then, or am I simply getting wiser in my old age?
The goal of the reforms is to move China from its current emerging status towards middle class. The one child policy was abandoned, which has cut the country?s population growth by 400 million over the last 30 years. This should add back in 400 million in population growth over the next 35 years. Not to do so would risk labor shortages looming in the 2020?s, and the runaway wage inflation that invariably follows.
Internal passports that restricted population movements were abolished. Private property rights are receiving a boost. The economy will become more market oriented. The Chinese gulag that imprisoned tens of thousands was sent to the dustbin of history. The strengthening of the country?s social safety net will free up domestic Chinese savings, which now at 30%, are among the highest in the world. This will bring a surge in consumer spending.
Financial reforms are expected to follow soon. These include a more aggressive path towards a free float of the Chinese Yuan, known locally as the ?renminbi,? or ?people?s currency.? The breadth and depth of domestically traded debt instruments will be greatly expanded. You can expect far more active investment of the country?s nearly $4 trillion foreign exchange hoard abroad, especially in trophy assets in safe havens like the US and the UK. They are already soaking up commercial property loans by the billions here in the San Francisco Bay area.
This will accelerate the evolution of the Chinese economy from an export oriented consuming one to one that is more oriented towards domestic consumption. This is big.
The net net of all this will be to enhance the productivity and profitability of Chinese companies. That is what the Chinese stock markets have been screaming at us since last week.
The prospects for the world economy have been much improved by this second Chinese modernization. Rising Chinese standards of living will produce hundreds of millions of new consumers of American and European goods. Emerging markets (EEM), many of which are indirect China plays, do pretty well in the new paradigm as well. All in all, this should add many percentage points of growth to the world economy in coming decades.
It certainly makes my own forecast of a global synchronized recovery 2014 look good as well. As for stock markets everywhere, think higher, and for longer. ?RISK ON? is ?ON.?
The no brainer here is to buy the iShares FTSE China 25 Index Fund ETF (FXI), which has to rise by 63% just to match its 2007 high. The Chinese economy has more than doubled in size since then, making today?s (FXI) level relatively much cheaper. During this time, Chinese earnings multiples have gone from a huge premium to US ones to a large discount, making them a great rotation play.
If you want to sleep at night, buy the Hong Kong ETF (EWH), where accounting and disclosure standards are on par with those of England, a legacy from its colonial days. You can expect to Chinese Yuan ETF (CYB) to continue its northward market, as I have been predicting for the past four years.
You can also go into single stock plays, like China Mobile (CHL), the world?s largest phone company. Something tells me there are a lot of new customers and upgrades in its future.
Looks like there is going to be a lot more dim sum in my future.
?To Get Rich is Glorious?
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
Global Market Comments
November 19, 2013
Fiat Lux
Featured Trade:
(CHINESE REFORMS AND THE US STOCK MARKET),
(FXI), (CHL), (CYB),
(RUBBING SHOULDERS WITH THE ?1%? AT INCLINE VILLAGE)
iShares China Large-Cap (FXI)
China Mobile Limited (CHL)
WisdomTree Chinese Yuan (CYB)
If you really want to get a read on how ?the 1%? are faring these days, take a ski vacation to the tony hamlet of Incline Village on the pristine shores of Nevada?s Lake Tahoe.
Each morning, I trekked to Starbucks, one of the few local sources for the Wall Street Journal and the New York Times. There, trophy wives line up to buy their chai tea lattes, all tall, thin, and blonde, wearing designer sunglasses and snow boots, as if produced from a Gucci cookie cutter. The parking lot is jammed with Range Rovers and Cadillac Escalades.
Keeping up with the Jones?s here on fabled Lakeshore Drive can be quite a task, especially when they are populated by such names as Oracle?s Larry Ellison, casino mogul, Steve Wynn, and Saudi arms dealer, Adnan Kashoggi. Ellison alone is thought to have poured $200 million into his mountain retreat. Some of these compounds offer private beach lodgings for bodyguards and dog groomers. Junk bond king, Michael Milken, springs for the cost of the town?s annual Fourth of July fireworks display as it coincides with his birthday.
In the ultimate feat of hubris one upsmanship, one billionaire is converting the profits from his check cashing business to build a $150 million, 36,000 square foot residence that looks like a convention center. He has ruffled the feathers of locals by chopping down every ancient pine and cedar tree on the property to max out the square footage, violating multiple town ordinances. Who knew that cashing checks was so profitable?
In fact, lakefront Incline boasts one of the few neighborhoods in the US that has held up reasonably well during the real estate crash, with six properties changing hands at $1,000 a square foot in the last year. I guess they?re just not making beachfront property any more. Current listings include a 3 bedroom, 2 bath bungalow for $49.9 million and an 8,694 square foot palace for $43 million. If you are looking for a real bargain, check out the five bedroom French castle for $22.85 million. As with the large diamond shortage I have written about previously, this is further evidence that the rich are getting richer at an accelerating rate.
The land here was originally owned by one of the Comstock silver barons of the 1860?s. You may recall it as the location of the TV series ?Bonanza? and I?m sure that every female reader will remember ?Little Joe?. A development company subdivided the land during the 1950?s with the intention of creating a Palm Springs in the mountains, spurred on by the completion of Interstate 80 as part of the infrastructure demanded by the 1960 winter Olympics at nearby Squaw Valley.
Devoid by edict of the down market fast food chains that afflict most of America, Incline boasts two municipal golf courses, where at 6,300 feet, the air is so thin that your drive travels an extra 50 yards. If you want a Big Mac, you have to travel down the road to California-- if the road isn't blocked by snow.
Incline is also a Mecca for libertarian millionaires drawn by the absence of a state income tax. Unfortunately, they also possessed the financial sophistication to buy gorgeous mountainside homes, extract cash-out refi's all the way up, invest the proceeds in the stock market, and lose it all in the subsequent crash.
The result has been a meltdown of Biblical proportions in the housing market. Of the 8,000 homes in the village, 400 are for sale. At its worst brokers reported a brisk business in bank owned short sales, foreclosures, and sales on the Washoe County Court House steps for homes worth less than $800,000 at prices down 60%-70% from the 2006 peak.
The middle market, where homes are priced from $1 million to $4 million, is still languishing. Only cold, hard cash talks here. But high net worth individuals hate tying up capital in an illiquid asset when more attractive options abound. Precious metal coins are especially popular in the Silver State.
I am sad to report that antidepressant addiction among realtors in Incline Village is at epidemic proportions, since they don?t have anything to sell to the 1%. Some of their properties have been on the market so long that snow drifts have collapsed balconies, the local wildlife have moved in, and prospective buyers are scared away by offensive odors. Break-ins by black bears have become a serious problem, leaving basketball-sized poops on the living room floor.
Abandoned homes see their pipes freeze and burst, causing irreparable damage. In Las Vegas, foreclosed homes can be easily spotted from the air by their dead lawns and green swimming pools. In Incline the 'tells' are the ten foot high mountains of frozen snow dumped there by snow plows, blocking entry. I guess all real estate markets really are local.
Owners used to be able to cover half their annual carrying costs by renting out their properties during Christmas and New Year's, and for a few weeks in the summer. Unfortunately, that market has collapsed also. There are not a lot of high rollers willing to fork out $10,000 a week for a vacation rental during our new era of humility and restraint.
If you are one of the 99%, I?d think again before buying a vacation home any time soon. The only consolation is that conditions are much worse in Las Vegas. The optimists believe that the market there has finally turned around. The pessimists can already be found at the bottom of the lake with the Godfather's Fredo Corleone, another former resident of Incline Village.
?America?s colleges and universities churn out lots of liberal arts graduates?.By and large, the economy doesn?t need all these generals. We?re not training enough scientists and engineers. The high schools used to churn out enough people with technical skills in the fifties and sixties, but not so today. It?s cheaper just to prepare everyone to go to college and pretend that a liberal arts education is going to solve everyone?s problems,? said Professor Peter Morici at the University Of Maryland School Of Business.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.