Thursday, July 28, 2016

Is China About to Shock the Market?
"Did the U.S. just double-cross China under the Shanghai Accord? If so, China will act on its own to devalue the Chinese yuan. In that case, the Dow Jones Industrial Average could plunge to 16,450, and the S&P 500 could plunge to 1,925 in a matter of weeks, wiping out trillions of dollars of investor wealth .. China is struggling under the weight of too much debt, poor demographics, and competition from lower priced suppliers in Vietnam, Indonesia, and the Philippines .. China needs economic relief. Fiscal stimulus just means more non-sustainable debt. China has too much of that already. The easiest way to give the Chinese economy a boost is to cheapen its currency, the yuan (CNY), to make its exports more competitive. When China cheapens CNY, they encourage capital flight. The wealthy and well connected try to get their money out of China as quickly as possible before the next devaluation. This causes the dumping of Chinese stocks, which soon infects U.S. stock markets and causes a global liquidity crisis. The last two times China devalued, U.S. stocks fell over 10% .. Once the correction takes place, the Fed can rescue the stock market again with more dovish signals. This will weaken the dollar, stabilize the yuan, and reinstate the Shanghai Accord. Until then, the risks are that the Fed has not learned from its past mistakes and will ignore its responsibilities under the Shanghai Accord. August 2016 could be a replay of August 2015. Fasten your seatbelts."
- Jim Rickards*
LINK HERE to the essay

1 comment:

Anonymous said...

"Short Everything That Guy Has Touched" - San Fran's Lending Standards Put The Last Housing Bubble To Shame

As noted in a Bloomberg article today, the $0 down, 30-year, adjustable-rate, jumbo mortgage backed by illiquid stock options in tech start-ups, a loan which the San Francisco Federal Credit Union has coined POPPY, or Proud Ownership Purchase Program for You (because "Steaming Pile of Shit" just didn't seem appropriate and messaging really is everything when you're trying to dump loans overseas), has made a huge comeback in Silicon Valley.

As the San Francisco Federal Credit Union pointed out, it's often not home values that keep people in rentals but rather the inability of potential buyers to come up with a down payment which would be equal to $187,000 on the median home in San Francisco. So they decided to solve that silly little problem with POPPY. To our "surprise", POPPY has been a huge success and the credit union is sitting on a backlog of $100 million of pre-approved, 30-year, adjustable-rate mortgages just waiting to be funded.

Not wanting to be outdone by their tech brethren, local banks have become very "innovative" in their race to "disrupt" the old-school approach to mortgage lending that requires things like down payments and rigorous credit checks. Per Bloomberg:

At Social Finance, the strategy is about getting in on the ground floor, which it aims to do through its marketing partnerships with 22 companies and a promise of an answer on a loan application within a day to help speed up the home-buying process. SoFi also woos clients with loan officers who fight to help them win bidding wars against cash buyers.

First Republic Bank -- which gave Facebook Inc. billionaire Mark Zuckerberg a 1.05% interest-rate mortgage -- has opened branches in Facebook and Twitter Inc. headquarters.

As Glenn Kelman, CEO of the brokerage Redfin, concluded "It’s a smart bet to cater to a sector that’s created thousands of millionaires and dozens of billionaires."

Our thoughts are best summarized by Steve Carroll at the very end of the clip below:

and remember markets never go the house on it ..thank you FED:)