China’s Exercise in Futility

Posted on July 21, 2015 by MN Gordon

At the moment, it appears the Chinese government has forestalled a full stock market meltdown.  To do so, the People’s Bank of China made direct purchases of stocks trading on the Shanghai Stock Exchange.  What type of chimera is this?

Obviously, this was a desperate measure that only pushes instabilities further out on their precarious perch.  For all is not well in China.  Like the stock market, the financial and economic fundamentals of the country are also out of whack.

Beijing’s policies of mass credit creation have enticed the Middle Kingdom’s corporations to borrow gobs of money.  Corporate debt in China has run up to $16.1 trillion.  This is the largest corporate debt pile in the world…and it appears to be breaking down.

The situation Chinese businesses find themselves is the unfavorable place where debts are rising while profits are fading.  Borrowing more money to increase production only exacerbates the problem.  Companies can’t make up for profit losses with higher volume.

Making matters more difficult is the economic structure of China.  Namely, the abundance of state-owned enterprises.  These companies are notoriously inefficient. Continue reading →

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Will We Get the 1930s or 1970s?

Posted on July 17, 2015 by MN Gordon

What’s the deal with your neighbor?  His car’s 12 years old.  His house has minimal upgrades.  He’s the only guy left on the street who still cuts his own grass.  Is he a weirdo?  Or is he a millionaire?

Certainly, he’s a bit unconventional.  He does things a little different than everyone else.  But there’s a good chance he’s also a millionaire.  In fact, as explained in the book “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko, this humble neighbor of yours fits the profile of a millionaire.  No kidding…

“The book defines the ‘millionaire next door’ as someone who doesn’t look the part,” explains Philipvan Doorn at MarketWatch.  “He or she makes no ostentatious display of wealth.  There’s no fancy car, no $5,000 watch, no McMansion.  This wealthy person lives in a regular middle-class or lower-middle-class neighborhood.

“According to statistics backing the book, ‘more than 80 percent [of U.S. millionaires] are ordinary people who have accumulated their wealth in one generation.’”   Indeed this is a notable achievement.  So what’s the secret…how did they do it? Continue reading →

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Playing the Hand Dealt

Posted on July 14, 2015 by MN Gordon

Does anyone really care about Greece anymore?  The ‘Grexit’ talk has been going on for years.  It became dull, tedious, and exhausting long ago.

Unquestionably, Greece’s relationship with Europe is ugly.  Greece owes more money than it can possibly pay back.  But the European Union won’t let them default.  Somehow the can continues to get kicked down the road until it must get kicked again.  Why not just let Greece default already?

Greece’s economy makes up only about 2 percent of the euro zone’s total GDP.  Certainly, the departure of Greece wouldn’t be a major loss to the European Union.  They’re significance to the European Union’s economy is a mere gnat on an elephants behind.

But the Greece problem does expose a flaw in bloc currencies.  Namely that unifying different countries – and different cultures – under the same currency isn’t the prodigious idea it was thought to be.  Some countries are greater credit risks.  Their debt should have a greater premium.  Continue reading →

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The Ghost of Mao Zedong

Posted on July 10, 2015 by MN Gordon

“Let a hundred flowers bloom.” – Mao Zedong

Someone screamed “fire” in a crowded theatre in Shanghai about a month ago.  For whatever reason the audience was on edge.  Perhaps they were watching a suspense thriller, or maybe a horror flick.  We don’t know.

But we do know that all at once, a manic herd of panicked patrons all made a mad dash for the theatre exit.  Then, however, something went terribly wrong.  They couldn’t escape.

The hysterical masses piled up against the inwardly opening door.  The force of the bodies made it impossible to egress.  Pushing for the exit the patrons sealed their fate…they went up in flames, along with the building.

Fortunately, this grim theatre incident is merely a graphic yarn.  There’s been no fire that we are aware of.  No fatalities either.  There have been casualties, though.  Namely money…lots of it.

Anyone with even half their wits saw this money combustion coming from miles away.  We could even see it from across the Pacific.  Continue reading →

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