China’s Economy is Doomed

Posted on March 20, 2015 by MN Gordon

Sometime early last summer, Hui Ka Yan, chairman of Evergrande Real Estate in China, displayed his brilliant deal making abilities.  He took time off from developing and selling residential real estate buildings to sell China’s most popular soccer team to fellow billionaire, and chairman of Alibaba Group, Jack Ma.

“By accident I got him drunk,” recounted Yan, of how the deal went down with Ma.  “I told him my Evergrande soccer team is planning to issue shares and raise money to support strategic development, will you join?  He said I will.  We finished it in 15 minutes.”

Surely, such stellar business dealings have been fundamental in Yan accumulating a net worth of $6.4 billion.  Likewise, for Ma this $192 million soccer team purchase may have been nothing more than an act of philanthropy.  Ma’s net worth – $22.5 billion – dwarfs Yan’s.

One of the great marvels of life is the direction money flows.  From whose hand is it given?  To whose hands is it received? Continue reading →

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Not in a Million Years

Posted on March 17, 2015 by MN Gordon

Storylines serve a valuable purpose.  They round out the incongruences and give meaning to things in a way people can quickly comprehend.  This is especially true when it comes to the economy.

The popular narrative of the day is that the U.S. economy is moderately improving while the world’s other major economies – Japan, China, and Europe – are bittering over like a cold cup of coffee.  But is this positively fact or is it mere fiction?  Have the raconteurs missed the plot?

Stock market investors can’t make up their mind.  They want to believe the story.  But they have their doubts.  One day the DOW runs up 200 points.  The next day it gives it all back…and then some.

Anxiety over what the Fed will do with the federal funds rate is of particular interest these days.  Will they raise rates?  Will they hold them at zero?  Perhaps later this week we’ll find out more.

The notion that the U.S. economy is strengthening is the storyline that will prompt the Fed to raise rates sooner than later. Continue reading →

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Bet Against the House at Your Peril

Posted on March 13, 2015 by MN Gordon

The stock market’s on edge.  After dropping 278 points last Friday and climbing back 139 points on Monday…the DOW purged 332 points on Tuesday.  Wednesday the DOW gave back another 27.  By yesterday the storm had past.  Sunny skies were out…the DOW bounced back 259 points.

From what we gather, signs of an improving economy are considered bad for stocks.  The initial selloff, which began last Friday, was triggered by the Bureau of Labor Statistics February jobs report.  According to the government bean counters, 295,000 jobs were added for the month.  All the new jobs pushed the official unemployment rate to 5.5 percent.

Speculators understood this good news for the economy to be the rationale the Federal Reserve needs to finally raise its federal funds rate from practically zero.  If you recall, the federal funds rate has been pushed down to the floor for six plus years.  Not by coincidence, the current big bad bull market run just turned six years old on Monday. Continue reading →

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The Beginning of the End for the European Union

Posted on March 10, 2015 by MN Gordon

The European Central Bank initiated a new mass money debasement scheme yesterday.  If you recall, this involves buying €60 billion ($66 billion) a month of European government bonds.  Somehow this is supposed to improve the economy.

No doubt, the European Union is absurd for many reasons.  According to J.P. Morgan, the differences of its member countries are greater than a reconstruction of the territories of the former Ottoman Empire, all countries on Earth five degrees north of the Equator, and all countries beginning with the letter “M.”  Conveniently, the ECBs effort to cheapen the currency merely holds the absurdities up for ridicule.  Here are several questions that come to mind…

Where does the ECB get the money to buy government bonds?  Does the ECB get it from the same place the Federal Reserve gets its money?  Like the Fed, does the ECB make a ledger notation and borrow it into existence?

To whom will the ECB give the money to?  Will they buy German bunds?  Will they buy French OATs?  Will they buy Italian BTPs?  What about Greece government bonds?  Or Spanish? Continue reading →

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