Daily Reckoning

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  • China’s Plan to Tank Their Own Stock Market

    China’s Plan to Tank Their Own Stock Market

    This post China’s Plan to Tank Their Own Stock Market appeared first on Daily Reckoning. When I say the fix is in for FXI that’s not meant to be mysterious. FXI is the ticker symbol for a U.S. exchange-traded fund (ETF) composed of the largest Chinese stocks. The phrase “the fix is in” simply refers to government-backed manipulation. When you combine the two into a government plan to tank their own stock market, at least to a point, you’re as close to a sure thing as stock market indexes allow these days. That’s exactly what’s going on in China right now. A currency devaluation will likely lead to a stock market collapse, but it’s a trade-off China is willing to accept because a cheaper currency will stimulate exports and support jobs. China’s motives in market manipulation are about social stability more than profit and loss. Of course, the Chinese have nothing against making money; they’re good at it. But China is controlled by a Communist Party dictatorship that is most concerned about its self-perpetuation. That self-perpetuation can involve prison camps, thought control and torture if needed, but on a day-to-day basis it’s more likely to involve avoidance of inflation, unemployment …Read More »
  • Keep Your Eye on China

    Keep Your Eye on China

    This post Keep Your Eye on China appeared first on Daily Reckoning. The trade war is beginning to take its toll on China as the Chinese economy is losing momentum. Beijing has pledged to increase small-business lending and increase infrastructure investment to help offset the impact. Ting Lu, chief China economist at Nomura Intl. in Hong Kong, said, for example, “The Chinese economy will get worse before getting better. It takes several months to turn around. Beijing will step up credit easing and fiscal measures to deliver a recovery and prevent financial troubles such as a rise of bond defaults.” But with a debt-to-GDP ratio of about 250%, China is already well into the danger zone. How much more debt-financed stimulus can it take? Research by economists Kenneth Rogoff and Carmen Reinhart indicates that debt-to-GDP becomes a drag on the economy at 90%. The Chinese financial sector (banks, insurance, asset management, shadow banking, etc.) is totally insolvent. Consumers’ savings have been used to finance ghost cities, white elephants, capital flight, Ponzi schemes, bribes and kickbacks. There are some real assets to show (their trains are the best in the world) and some growth, but not nearly enough to cover the …Read More »
  • Dollar ↓ Profits ↑

    Dollar ↓ Profits ↑

    This post Dollar ↓ Profits ↑ appeared first on Daily Reckoning. Most stock investors couldn’t care less about the dollar. When it comes to the dollar, most people here in the U.S and abroad have just one concern: what can a dollar buy me? And when you start talking about the dollar as an asset in the currency markets, investor’s eyes glaze over. Who could blame them? The math that goes into valuing a currency and predicting its path is practically the stuff of rocket scientists. To be honest, I leave the art of currency valuation to people much smarter than me. But as a trader, I do follow the movements of the U.S. dollar closely. And you should, too. Here’s why… Americans buy a ton of imported goods like cars, televisions and washing machines. And overseas, consumers buy similar goods that originate in the U.S. The same concept applies to the financial markets. Allow me to explain… The U.S. boasts the world’s largest stock market. And most commodities such as oil and gold are priced in U.S. dollars, too. So when the value of the dollar falls against other currencies, it makes assets priced in dollars cheaper for foreign …Read More »
  • The Strongest Earnings Since When???

    The Strongest Earnings Since When???

    This post The Strongest Earnings Since When??? appeared first on Daily Reckoning. What were you doing in the fall of 2010? At my house, we were getting used to the idea of having four kids in school AND 2-year-old twin girls that we were potty training. Talk about a lot to keep track of! Investors had a lot on their plates in 2010 as well, thanks to a surge in profits from companies that were rebounding from the great recession. In the fourth quarter of 2010, companies were reporting an astounding 30% increase in earnings growth. That’s the stuff bull markets are made of — and incidentally, we were in the very early stages of what has turned out to be one of the best markets for investors in generations! I bring up this strong season of earnings growth because today we’re actually in the same environment! According to the latest data, this earnings season is turning out to be the strongest one since 2010, giving investors a great environment for building their wealth. So what does that mean for us and our income investments? Strong Earnings Lead to Buybacks and Dividend Hikes As more and more companies report results …Read More »
  • This Time Is Different — No, Really

    This Time Is Different — No, Really

    This post This Time Is Different — No, Really appeared first on Daily Reckoning. “Experience keeps a dear school,” said Ben Franklin, “but fools will learn in no other.” The wise man remembers. The fool forgets. The wise man listens. The fool talks. He ignores both the living and the dead… the immemorial dead, whose whispers carry the distilled wisdom of history. No — this time is different, comes the fool’s eternal cry. The past is of no use to me. Rising economic interdependence had rendered war obsolete, argued the foolish author of The Great Illusion in 1909. The events of 1914 — a mere five years hence — revealed the true illusion: The illusion that rising economic interdependence had rendered war obsolete. The dead knew better. But no one sought their ghostly counsel. The stock market had attained “a permanently high plateau,” boasted leading economist Irving Fisher on Oct. 16, 1929. The 1920s had roared… and the arc of industry bent in one direction — up. A cataclysm was all but impossible. “Black Tuesday” followed two weeks after Fisher’s fateful words. The crash cleaned him out. If only he had felt the dead tugging at his elbow… warning him. …Read More »