Wednesday, April 22, 2015

Corrupt State of Affairs: No Free Market

What is, is no longer what is. What do I mean by that? The intangible web of deceit and market manipulation is so deep, so pervasive and so profound that a picture no longer depicts an answer or has value. It has lost its thousand words. There are many examples in the market. The financial crisis of 2008 showed that the Federal Reserve is really socialism for the banking industry. The big institutions were saved from extinction and now, central bankers everywhere just print to cover loses or governments pass regulations to protect failure under the code word "stimulus." So, why should anyone be surprised that in the past week two Chinese companies went into default and there was no negative reaction in the market. In fact, just the opposite. The Chinese exchange kept rising every other day. In Europe Greece has all but stated that it won't be able to meet payment for loans received. The buzz is already covering this event. It doesn't mean that Greece will be kicked out of the EU. No, dear reader, it means that given more time and maybe a bridge loan, a solution will be achieved. After all, all these central bankers have to do is buy more worthless paper from Greece called a bond, hold it forever and all will be forgiven and to the public these fakes will appear as financial geniuses. So, sorry Rod Stewart, Every Picture Does Not Tell A Story. Take a read.
Kaisa Group Holding
is a huge Chinese real estate developer. I have told you before that they will probably go bust and on Monday, they did. I also warned you about the two largest segments in the Chinese economy that are in trouble which could set off a dangerous chain reaction of derivatives which no one can cover. Well, this company can't pay back its loan. They have stated that they can't raise money, but no damage to the market. No chain reaction of debts, loans and bonds. The Hang Seng keeps rising. Maybe my definition of default is not the same as reality. To me it means that your company goes to court and whatever is left is divided on a hierarchy of liens. I guess I'm wrong and I can't interpret a picture.
I should've realized that failure is no longer absolute. You get another chance if you are big enough to influence the central banker and government. Don't believe that? We both get a second opinion with yesterdays default by a transformer company in China called Baoding Tianwei Group Co. It is a unit of China South Industries Group Co. This is a state sponsored entity.
Again, my understanding is that China South would make good on Baoding's bad moves and obligations. Again, I'm wrong. Apparently, Baoding bonds just went from AA+ to "B." To me, if you don't pay back what you owe that is an "F." You know, a failure, a fools and his money to be departed. The transformer company operates like nothing is wrong to the 30 nations where it does business.
China Debt: Public & Private
China's corporate debt is the highest in the world and many companies are borderline at present due to global slowing. In addition, China's government is in debt to $28T according to McKinsey & Co. This works out to 282% of GDP which is even higher than Greece. If things continue to slow with more defaults on the horizon, stimulus which is code for debt will only add to the horrible figures.
There are many examples of private enterprise failures in China like Kaisa, but this is the first state company to be allowed to fail. Some say this is a positive that China feels secure with its economy to let the market forces dictate results. People, that is shills seeking your confidence and your money to keep playing the game like in every other market in the world. As soon as these defaults multiply, responses that allow time and manipulation will awaken. The first in line will probably be Erzhong Group Deyang Heavy Industry Co. This is a steel equipment maker who is behind on its payments. They are still functioning, but default is looming. However, just like bankruptcy that is just a word. Someone will pay a price and dear reader, we cannot afford to be that someone. My suggestion is this: We now have seen a rapid decline in core economic sectors for the world in oil, steel, copper, lumber and mining. These are statement alerts, red flags indicating something is wrong. The first defaults in China present a picture even if it has been photo-chopped because every picture tells a story.