Juggling Dynamite

This should end well…Chinese farmers have set up village monitoring centers so locals can watch their ‘investments’ minute by minute in the stock market. No wonder Macua revenues are down 25%. Who needs casinos when you have insanely levered financial markets to gamble in? See: China rally making stock market history.

Mainland speculators have borrowed a record $348 billion to bet on further gains, novice investors are piling into shares at an unprecedented pace and price-to-earnings ratios have climbed to the highest levels in five years. The economy, meanwhile, is mired in its weakest expansion since 1990…

People’s Bank of China Governor Zhou Xiaochuan, who cut interest rates three times since November, has voiced his support for equity investment as a way to bolster the economy…

Of course, a flood of share sales runs the risk of overwhelming demand, especially now that valuations have climbed to the highest levels since 2009. At 19 times projected earnings, the Shanghai Composite is 62 percent more expensive than the MSCI Emerging Markets Index.

Profits in the Chinese gauge trailed analyst estimates by the most in six years in 2014 as the nation’s economic growth slumped to 7.4 percent, the slowest pace in more than two decades.

As the world economy gears down from the secular credit boom, the last big idea of policy makers everywhere has been to encourage financial bubbles as a way to buy banks and companies a little more time before the inevitable ‘give back era’ that began in 2008, resumes with a vengeance.   In the present reckless episode, the Shanghai stock market has lept 150% in the past 12 months, and yet is still 20% below its previous bubble peak of 6000 in 2007.  Some of the latest participants are the same folks who lost their savings in the 2007-2009 collapse and have recently been sucked back in to the game, others are a fresh new crop of the gullible and the greedy.

Each wave of this manic time makes a handful of lucky gamblers rich and leaves everyone else poorer in the end.  Of course, while the game is on, those winning think they are earning returns through their own investment acumen:  “My advice is to follow the country’s economic development and government policies”, a young player says in this clip.  Follow it minute by minute that is.  While the economy slumps lower and lower.  As if these stock market gyrations have anything to do with fundamentals or analysis.

Here is a direct video link.

We could compile volumes of real-life horror stories about the abuse inflicted by financial ‘advisors’ following self-serving “suitability” standards…there is no reasonable argument for allowing this to continue. And yet so far, it is.

A new regulatory proposal that would require brokers to act in clients’ best interest would save many investors money, says Mitch Tuchman, managing director of Rebalance IRA, an online advisory service. Here is a direct video link.

Here is a modern day twist on “if a tree falls in the forest”…the insolvent Greek government could not make their debt payment due to the International Monetary Fund today, but so far, the bankers are not calling it a default.

The party line is that Greece is permitted to miss today’s €300 million payment by bundling all payments due in June into one €1.5 million lump sum on June 30.  Of course, Greece doesn’t have the money for the larger payment either, but so far, the lenders involved are opting to whistle through that graveyard in the hopes of maintaining the facade that their bonds are solid assets, for just a little while longer.

While Greece may find some further credit to draw on for the month end lump to the IMF, they owe a further €5.2 billion to Treasury bill holders in June and €6.7 billion to the European Central Bank in July and August, and, and, and….See the full crushing inventory of Greek debt payments due here.  All while the Greek economy officially slumped back into recession during the first quarter of 2015.

This is agony.  Watching bankrupts continue borrowing to keep unsustainable spending alive is always gruesome to behold.  Restructuring with large debt write-offs is the only way to restart on a financially feasible path.  So far though, the Greek people have indentured their government with the impossible dual mandate of getting debt write-offs from their European creditors while also staying inside a common currency with them.

One of these days…the reality of the Greek bankruptcy will have to be acknowledged and over-valued financial assets in Greece and throughout their global creditors (banks and other governments) repriced accordingly.  Until then, the officially sanctioned torture of the Greek people by their banker ‘advisers’ continues.