Did You Get Shanghaied?

A few weeks ago, I predicted a major downturn for the Shanghai Index. It fell over 28%. If it weren't for draconian measures, it is possible that it could hit my target 3100. There are many reasons and if you go, dear reader to the archive, you can reread the article.

 

 

 

As you can see, the parabolic move is over. These type of stock movement generally returns to the

starting point. This is how I determined 3100. When you consider that 255 million people opened

accounts in the last nine months with little market experience, the Shanghai market is just one, big

casino. "Everyone is a genius when the market goes straight up," is an old saying with more than one

meaning. One of the implied meanings is markets usually turn when "dumb" money enters. The Chinese market is 85% retail because it is mostly closed to foreign investors.

Last Year...............................................................................................................................

the Shanghai market got connected to the older, more established Hong Kong market. Next year the smaller, Shenzhen will be added to form a triangle connection. The Shenzhen is composed of newly, private enterprises. This exchange does not have government backing and as you will see in a moment, could be the reason why the three indexes collapse. When you put the above picture into dollar values, the Chinese lost economic wealth to the tune of over $3 trillion in one month. To put that figure into perspective, China's losses are double the size of  Australia's entire stock market.

Stop the Bleeding!................................................................................................................

Chinese regulators have come up with a new regulation everyday of the past week to stop the bleeding. The market has rallied up to the 4,000 range, but the fear behind the recent movement is alive and well. China has instituted many old tricks and they even are writing new chapters.

* They've banned short selling.

* They will not allow any investor or any officer in any company or any fund that holds 5% of any company to sell their stock for the next six months regardless of price action.

* They've halted trading on 51% of all Mainland Chinese companies.

* They've lowered their banking interest rate for the fourth time this year.

* They've told all brokers not to liquidate client accounts due margin calls, basically suspending margin requirements.

* They've told "special authorities" to investigate anyone who sold short or is seeking to sell short.

Even with all of the above and who knows what will be added in the coming weeks, debt margin is still over 4% of market cap! In addition, the Chinese government is buying up vacant homes to sell as affordable housing. This sounds like a nice idea except it only spurs more speculation in an already overheated housing market whose bubble is popping.

Adding it up: the Chinese economy is slowing, housing is tethering, oil is already busted and now, questions about investing in the Chinese market will cause many to get out after any rally fearing further restrictions to trading. Eventually, this BEAR MARKET will spread to the region and to the global community. Don't get taken for a ride!    

 This piece was written before the two completed deals: The nuclear agreement with Iran will eventually add a lot of oil to an already gloated market. Not good. The Greece deal is only kicking the can down the road and each time it gets harder and harder because the can is pretty beat up. This will not end well. Bottom line: Don't Get Shanghaied.   

 

Why Is Tsipras Being Lambasted?

As I implied in my last article, the EU is seeking to oust Alexis Tsipras and his Syriza - led government party from office. They see in the referendum an opportunity. A "yes" vote will cause chaos within the Greek Parliament and a new call will arise for an election to form a majority in government.
It also shows the smallness and vindictiveness of the EU members. To bad for the EU it didn't work, but I ask WHY?
Tsipras
has done a credible job. His leadership showed in the fact that the Greek economy registered a slight surplus in 2014. He reduced imports, a drain on your finances by an astonishing 36%. He cut government jobs and hours worked. He cut pensions and jobs, while facing the results of austerity of the EU policy which has caused over 25% unemployment in Greece, OUCH!
He faced a challenge that in reality is insurmountable and the government leaders in the US had better heed the warning of continuous deficits in relationship to the ratio of debt to GDP. It can blow up your economy.
Our press doesn't give a fair or honest reporting of the situation. They paint Tsipras as a buffoon because our leaders side with fiat central bankers who oppose Tsipras.
Reality
The poor Greek nation suffers high unemployment with little prospects. They suffer with migration of multitudes from wars in the Middle East with little assistance and now, capital controls that seep fear into the masses. Just imagine if our President instituted this technique on our banks to stop runs on the banks. It happened before in 1929 and 1933. Just think how you would cope if you could not use your credit card or pay with your smartphone? Checks were not allowed and you could only withdraw $100 from your ATM or full service bank? This is what the EU has done to Greece.
Now, the EU has called a final meeting for this Sunday. They dragged this out, so Greece would squirm a little as their banks are still closed and under stress. Greece had their finance minister quit to show some appeasement. His replacement, Tsakalotos was initially well received, but now gets the cold shoulder. The EU has basically given Greece an ultimatum. Regardless of the outcome, the distrust seed has been planted. It will germinate at some point.
Keep in mind, this is what the Federal Reserve could do in the US. It is why I say, End the Fed!
P.S. : I stated right from the beginning that Europe's Southern Nations should form their own economic block with their own currency. The PIIGS (Portugal, Ireland, Italy, Greece, Spain) would have a low valuation which would spur their exports, grow jobs, tourism, and their economies. They are being exploited by the Northern Nations who benefit with a lower priced currency which helped their economies while the Southern Nations received no such benefit.         

Market Is Going To Get> SHANGHAIED

You don't hear that expression much anymore. It means to be taken for a "ride." It goes back to the 1800s, when men were kidnapped to ships sailing to China by compulsory force. That image associated with the word today means a different ride. It is a rocket, straight up from the lows of 2009 on the Shanghai stock market. The index has risen over 122% or from 2025. It set a peak record on 12 June 2015 of 5178. It is up over 3,000 points in just one year. The Chinese are creating millionaires. However, dear reader the root of the word is the word. Like the song by CCR, I see a Bad Moon Rising.
Signs of Trouble
New accounts are off the charts. During the period of late 2008 to the present, there were 4,435,255 new brokerage accounts according to a report by NIA. This works out to a monthly average of 196,671 per week! It sounds and looks like 1929 all over again as the Chinese go All-In. Debt margin has increased on average by 15.24% and it is 4.22% of market cap!
Shanghai has percentage rules in stock trading. After a 10% move, a stock is halted for the day, however, it is different for IPOs. IPOs are allowed up to 44% per day and up to 110% for the week. From January to February in 2015, 18 companies went public. Every one went up the 44% limit and 17 of the 18 made the 110% gain for the week. Who wouldn't want to go all-in?
Roller Coaster
during the ride up, there have been moments of pressure. Last month the index dropped over 6% in one day, however, it steadied and hit the new peak earlier this month until this week. In just eight days the market has dropped 20% which is BEAR TERRITORY. It closed at its lows on Monday at 4053. The Chinese feel that the market will always come back like it did after falling from its all-time peak of over 6,000 in 2007. They don't understand that the market can be irrational for 20 or 30 years and much longer than you can be solvent.
Now, like I declare in my unpublished book, everything is related. Let us look at the other expression, "Greek Tragedy." A deal will be made by the EU with the Greek government because the Greeks are owned by the EU. They sold their sovereignty when they joined. The leaders know, but the people don't. Eventually, they will and this play will live up to the root of Greek plays, a tragedy.
I wrote that on Saturday and I was wrong. Greece defaulted, but the EU got control of the media to make like this was nothing more than a technicality. That, dear reader is pure BS!
It is so bad that the euro rose while the dollar declined which is the biggest lie of all! As I see it, the Greek Prime Minister is made out to be a buffoon, but I feel that he understands that fiat money is just a game. The people in power do not like to be shown up and being small in skin, they will seek to remove the Greek leader. They will get their chance as he has laid out the situation to his country which will vote on acceptance or refusal this Sunday. Already, the media is using fear to scare the vote for acceptance and to stay in the EU. They probably will succeed, but maybe, just maybe, a denial will again save democracy with this tragedy, and once again, Greece will be the cradle of democracy.
In the meantime to gather sympathy and appear like the "good guys," the EU will use one of their phony programs like the Economic Stability Fund to "help" the Greek people get by in this critical time. All they do is print on some paper, click-on their site and presto!: Money for economic stability in a time of crisis.
Nevertheless, no matter what the outcome of the outcome, all governments will stand on the side of the central bankers, so they look like the correct side and the Greek leader the fool. This will spark a world rally in markets, although only temporarily. This rally will stop the bleeding in Shanghai and the belief in this market will only make the final outcome more severe. By mid-July the joy will be over and the smart money long gone as a new low will be reached and I will do a follow up at that time to see how low it can go. At the moment, 3108 is in play. Elsewhere, the US will not be shielded from the fallout. We have a serious economic problem in Puerto Rico, and Illinois will soon make headlines under bankruptcy At present, we are also in a bubble in terms of margin debt. It surpassed the record of 2007 and it is over $507 billion. Margin calls in all markets can start a cascading fall that becomes self generating to the downside. Support for the Dow in the US is 16,500, however the transports never reached a new high which means the US is a conflicted market with over-priced stocks at over-priced evaluations.
Can you say, LIMBO?

Dead Reckoning Day

One aspect that is overlooked with the Federal Reserve's fiat money system is the fact that our whole economy is based on faith. Faith is what backs our system. We place faith that our currency will deliver goods from purchase. No one rejects the IOU. Please, don't bring up the isolated circumstances of a mortgage lender refusing payment in cash or a rental office demanding a money order or check because they are also variations of faith based on credit. Everyone takes credit.
Credit is an Asset
You see, dear reader, according to the Fed and the government, credit is money. Everything we do is a result of this format. You get a loan(credit)to build a house. Your mortgage is your credit. The builder gets his supplies on credit. His workers construct your house for the first two weeks based on credit of the boss, as everyone in line awaits the release of payment which is numbers in an account that go plus and minus accordingly. No one transfers huge amounts of actual cash. All our bills are plus and minus signs on a ledger. We pay the utility bill by check and the energy company gets a plus while you get a minus in your account. This is the root of the problem. I'll explain.
Experian
the information and market company reported that used car loans(credit)have reached an all-time high of 62 months. Our fellow citizens are buying used vehicles and they will pay another five years to own a second hand car! Why, you ask?
Because we don't earn and save enough to be able to purchase a used car with cash. People, that last word is the focal point of this piece.
Because the convenience of credit allows us to go about our daily needs without carrying a truckload of cash and becoming a potential robbery victim. The problem with real cash as related to credit magnifies itself when someone's check bounces. Not that an individual scam can bring an economy to a halt. However, dear reader, states, cities and government use credit just like we do, but the numbers in the plus and minus accounts are much, much bigger. Therein lies the problem.
It is why Greece is in the headlines. In the US 36 states will soon vie for that space. Pension and medical promises to local, state and federal government are underfunded. They are now do.
GASB
The Government Accounting Standards Board wants states to come clean and update their ledger. Our federal government keeps things off the books and so do local "leaders."
This will only make the problem known because the last resort is you and me to cover these obligations. Rough estimates indicate that $500 billion is needed for pensions and another $500 billion to cover medical promises. Who will pay? (see above)
Now, back to our cash in circulation. Estimates say we have $250 billion. I say that is probably wrong and the figure is much, much higher. Nevertheless, the amount will be no where near the amount of debt and credit that moves our $14 trillion economy with another $23 trillion based on credit.
Dear reader, when states and cities like Detroit fail, that bounced check causes a chain reaction just like the threat of Greece defaulting. Bills must be paid, Cheney!...and there isn't enough cash to go around. When that day arrives and it is not far off because credit keeps expanding, a day of dead reckoning is just behind the promise of a unfunded pension with medical coverage. When that day comes, if you don't have cash, precious metals or something of value to trade, you will go hungry and find yourself homeless. It will get worse because civil unrest will follow and so much fear that none of the charity, food banks or similar goodwill functions will be open to operate. The government will institute capital controls to limit banks and ATMs just like in Cypress and now, Greece. Thanks to the Federal Reserve things will get ugly for awhile which is another reason why I say End the Fed!

Results From Our Experts

Back in 2007 senator Obama pledged in his presidential campaign to end the Middle East wars. After he got elected he actually increased the number of troops and violated another campaign promise. He increased our national debt by giving the military a pay hike. To put this in perspective consider this? Citizens drafted during the Vietnam Era got paid $93 per month and today, they make more than that in a day!
Anyway, eventually he pulled out the troops from Iraq. He stated, "Iraq could self determine..." We trained their military, supplied weapons and money and installed democratic elections. The election went to the Shite's. The newly minted cabinet shut out the competition, the Sunni's.
Back before President Bush invaded Iraq in 2003, other nations warned us to keep out because the nation is fiercely divided. One strong, bad dictator was better for the region than some unknown entity.
Our Experts
new better. Our "military leaders" new better. Today, only our citizens know better. It is a stupid, wasteful war that only makes the world more dangerous and destroys our natural treasures. It will serve no useful purpose.
The first fiasco came to light when President Bush stood on a ship and behind him was a banner proclaiming "Mission Accomplished." There was no plan to establish a new government after the dictator was disposed.
The latest oracle revealed itself with the rising of a fraction known as ISIS. They defeated the Iraqi army and took over Iraq's second largest city, Mosul.
Our "military leadership" didn't foresee this, but after it happened, they had the answer: more training, supplies and money. No one challenged them that this is the same plan instituted ten years prior.
Nevertheless, I draw your attention to the supplies equation. When ISIS defeated the Iraqi army, they took possession of the city which included oil distribution, money and the weapons that we supplied the Iraqi's. They could be using our taxpayer weapons to kill our troops!
Flash Forward
in late 2014, ISIS had another victory by taking Ramadi. In this latest fiasco, we at least know what they took command over. The following taxpayer revenues that will increase our national debt well into the future went into this rogue group. We lost:
2,300 Humvee's worth $16m.
40 Abron tanks worth $172m.
52 Howitzer's worth $2.7m
74,000 machine guns worth $29m.
and who knows what else?
ISIS continues to sell oil in the open market and for all practical purposes are operating as a country within a nation. Our "experts" and "military leaders" offer the same plan as they did back in 2002 when the fool first invaded. Excuse Meeeeee! They are offering the 1964 plan that we used in Vietnam. Send supplies, send some advisers and put up some bases to track the progress. Then what, you ask? Troops on the ground! 50,000 drafted EVERY MONTH!
Oh, by the way those same experts allowed the State Department, White House, the Office of  Personal Management and even the US Army website to be HACKED! This will cause undo hardship for many US citizens not to mention what harm that we will pay for future fraud by criminals. The military wastes $-one trillion every two years and our border is unsafe, our national treasures squandered and now, our invention, the internet will cause us all grief!
My response is to call your attention to the words of wisdom from an unlikely source, the QB of the Denver Broncos who reminds us, "The Arc was built by an amateur while the Titanic was built by experts." 

Did You Realize This?

As June is the season for weddings and graduation, I came across these words of advice from an unlikely source. It does not render itself to nuptials, but speaks loudly to the class of 2015 and the rest of us.
Peyton Manning, the QB of Denver reminded us all that an amateur built the Arc and "experts" built the Titanic.
In our so-called modern society we have segregated jobs with education. We classify it as specialization. Then, through time, a certain degree of recognition is gained from experience in the different fields. Of course, doors open faster if you know someone and thus the saying, it is not what you know, but who. Then again, any time one uses the word segregated, it implies another level of difficulty and some doors never open. Dear reader, it is not just minorities that have doors shut on them, but a whole level of society. People, who continue to grow and develop products or ideas have the same doors shut to them. This is a serious problem in America. We are losing our social mobility. This is the problem why my book goes unpublished. Furthermore, almost all the new technology advancements came from venture capitalist, not companies. Shark Tank is a reality. Innovators give up so much just to get a chance. This is very sad for America.
Yes, I'll have some cheese with my whine.
Putting that aside another tidbit has come to focus and the focal point of this piece. Did you know that margin debt pertaining to stocks is included as growth in our economy when the GDP is reported? You see, according to the "experts" margin is credit and credit is considered growth. This obscured manipulation of GDP gets more unreal and dangerous when I add this important aspect to it.
You see, dear reader, that margin debt is off the charts.
Record Level
Yes, it broke the old record of 2007 which broke the previous record back in 2000. Funny thing about those two previous record, the market crashed on both occasions.
This time will be different. Great BS by the pundits and this time, they're right. No, not what they imply, but the fallout will be more devastating than 2008. Margin debt in correlation to our GDP is at 97% in the US which is almost 1-to-1. This is why markets crash. No one challenges the experts that this margin could go south, leaving the investor with debt and losses not to mention what that aspect will do to this manipulated use of credit to be classified as economic growth. With all the people running for office in 2016 not one dares to debate this scary situation. People only spin positives with half truths like this is not another dot.com bubble, now we have earnings. What they don't say is that the buybacks are used to cover shortfalls in revenues, put the company in debt because they use borrowed money from the cheap rates by the Fed. Many, many other examples like Apple taking a loan to provide a dividend.
In addition to this margin debt there is business loans and consumer credit. When you add all three to the picture, you would think that Steven King wrote the script in this economic horror.
Margin debt is 2.89% of our GDP.
Business loans are 10.57% of our GDP.
Consumer credit is 19.04% of our GDP.
32.50%
of our economy is nothing but debt and credit loans. Is it no wonder that America does not create wealth for all its citizens? Is it no wonder that we have a class/wealth gap? And all this hoopla over the market, blinds one to this next very important point.
Market Cap
In relationship to GDP is at its highest peak since 1991 according to a report by NIA(National Inflation Ass.). They looked at the top 24 countries and the average ratio is 90%. Stocks are considered overvalued at 75%. Presently, the US is at 97% and many countries like Japan are at 100%. In fact, over half are at 95%. The last time this occurred was in 2007. Enough said!
If you think or believe the above is bad, I will remind you, dear reader that government
manipulation to GDP is off the charts when you consider the next recent changes.
Lights, Camera, Action...
if you are a movie or television producer and whatever work you perform in your environment is now considered economic growth. All the costs are included as gains in the economy. It doesn't matter whether the movie fails, the show is dropped by a network or even the fact that it was so bad that it didn't even get completed. Yeah, this helps America and promotes the general welfare of... lobbyists and the connected. How about a new computer with all the bells and whistles? This gets a double category. It lowers the CPI because it makes you more productive and this productivity increase is a plus to GDP. All our agencies have been poisoned by appointments as favors, the government only spins positive lies and even with all its manipulation, the economy contracted in the first quarter.

PREDICTION: A Big Move Is Coming In Silver

Yesterday leads to today and together forms tomorrow - Sebastian

In his book, Fisher has traced the history of fiat currencies with one common denominator: they all failed. The average lifespan is 40 - 50 years. The US has held as the world's reserve currency under a fiat system for 44 years. The clock is ticking...
Today
China wants to be the Alfa dog, but opposition is still strong against their desires. However, there is a growing opposition against the greenback due to the policies of the Federal Reserve and our foreign policy of military intervention. In our present environment there are few choices. The IMF has a plan with a new currency called SDR. This is a weighted basket of currencies. China wants to be included and people say that on 20th of October of this year, there will be a major announcement on the subject. Also, we have history's choice: gold and precious metals. Since the central bankers control the game they have outlawed precious metals as money. They call people who follow the Founding Fathers choice as bugs with the euphemism "gold bugs."
One of the complaints by government about gold is a valid point. There isn't enough to back a currency. However, these are the people who make the rules. They overlook the aspect that if platinum were added to form a three tier approach, precious metals could back a currency. In any case gold has found a place in jewelry. Platinum is needed for converters and is also in jewelry. Then, the poor man's choice: silver. It is needed in so many industrial products that it could fill a page. It lost its hold in photography, but solar looms even larger. Solar producers expect to need 150 million ounces in the next two years. Silver is in demand in electronics and water sanitation which will also increase demand. We know one principal that evades even market manipulation: supply and demand. When supply is limited and demand grows, the price rises.
Now
the present climate has all three metals in the dog pound. The miners are hurt by rules and regulations, environmental concerns and financing. In addition, they have labor problems, insurance worries and equipment costs. Low prices has caused them to cut back in production and curtailed future exploration and investment. With this outlook you would expect prices to rise under the simple guidelines of supply and demand. Did I mention a study that claims since silver is a low crust metal, the supply is dwindling due to peak discoveries? Put all of the above in my favorite stock, Silver Wheaton and I will be able to retire with heat in winter and air in summer. However, the focal point of this piece could be the catalyst or the antagonist for silver. Time will tell.
Question
Why would JP Morgan, long whispered to be the shill for the Federal Reserve and fiat money, suddenly have an about face? They have started to stockpile silver. They are no longer just trading, and usually a short on silver, to accumulating. Is this another miracle like Paul on the road to Damascus? Morgan Chase is taking delivery of contracts. In April 2015 they purchased 8,300 ounces of silver. This big dog has caused smaller hedge funds to follow their lead. They now total 55,692,000 ounces of silver. Something is going to happen and this is the difficult part of my prediction. What do they see or know? Were they uncovered in a fraud investigation and they have to replace a truckload of silver? Do they recognize the lack of production while solar needs are increasing? Is Greece going to cause a run to safety? As you can see there are more questions than answers. Of course, with their history the danger of the dumping their load to crush the silver price and market also looms.
I offer this advice. Watch the daily action and weekly trend. If silver breaks down and falls below $15, drop it like a bad habit. However, if it rises in a staircase move with the first step being $18.50, get on board the gravy train. After that, the next step would be over $23.10. And if it continues and passes $25.12, put it all on the nose and I'm not talking American Pharaoh. When and if that day comes, I'll give an update on my triple crown of precious metals.