China lost the equivalent of 14 Greeces over the last month: Why the actions of banning short selling and punishing the market taken by the Chinese government will backfire.
The market has been fixated on the actions of Greece, a country with 11 million people or the equivalent of Los Angeles County. However, the bigger action is taking place in the gambling obsessed Chinese economy. For those of you not following global news the Chinese stock markets, primarily the Shanghai Composite, Shenzhen, and Hang Seng have been on a ridiculous tear. The ChiNext which tracks China’s small-cap board had a trailing PE ratio of 90, twice that of the NASDAQ back in America’s dotcom bubble in 2000. In other words China is in one massive bubble. They are following the path of Japan in the sense that they had (still have) an absurd real estate bubble that has now popped and people then flooded their money into the stock market. The recent actions in China carry an underlying feeling of fear. They loved capitalism when the stock market was soaring and farm workers and hairdressers suddenly became mini Warren Buffets. But with the bust, all of a sudden it is communist central and people are being punished for selling. This doesn’t bode well especially considering at the latest trough, $3.3 trillion in wealth evaporated. This is the equivalent of losing 14 Greeces.
You are being lied to about inflation. Latest CPI figures show nearly no inflation over the past year. Yet housing, tuition, and healthcare costs continue to soar.
Inflation. Few people think about inflation but simply accept the reality that prices will go up. However prices going up has a deeper economic reason than simply momentum. Inflation is notorious at destroying your standard of living. Our current financial system is now setup in a way to punish savers. Most banks are offering near 0 percent on standard savings accounts. However, they are able to borrow from the Federal Reserve near 0 percent and lend out mortgages at 4 percent or credit cards at 15 percent. Money out of nothing. If everything goes down in flames, the Fed will bailout the too big to fail. It is really the perfect system if you were a bank. However most people are not banks. And policy is dictated on the inflation rate as measured by the CPI. The CPI on a year-over-year basis is coming in at a neutral level. But look at housing values, college tuition, and healthcare. None of these are even remotely close to coming in at neutral for the year. Prices are going up and wages are not. So why is there a motivation to hide the truth regarding inflation?
Non-working America soars by 640,000 in one month to new record of 93.6 million. Not in the labor force Americans up 11 million since 2010.
It is hard to believe that one out of every three Americans is financially supporting the other two-thirds. The unemployment rate appears much lower than it is because of the odd math behind the labor force. The latest unemployment rate of 5.3 percent sounds great until you realize that last month 640,000 Americans were plopped into the not in the labor force category. 223,000 jobs were added but 640,000 Americans dropped out of the labor force. Take the back of the napkin calculation that 10,000 Americans a day are hitting retirement age (that is roughly 300,000 per month). Assuming all of these older Americans had the means to retire (not likely according to older Americans working) this means 340,000 Americans of working age fell out of the workforce for other reasons than age. Something is going on behind the headline figures and it seems like more people are waking up to the funny math when it comes to employment.
Top 4 employment sectors in the United States pay $10 an hour or less: The uneven recovery being led by low wage labor.
It is hard to believe but we are now “officially” six years into this recovery. For most Americans, it doesn’t feel anything like a recovery and that label appears to be a misnomer. Americans need only look at their paychecks and the cost of living to realize that yes, things are getting tougher. There appears to be a global race to the bottom when it comes to wages. Most of the jobs added since the recovery hit have come in the form of low wage service sector jobs with scant benefits, if any. The top four employment sectors in the United States are all in the service sector and all pay $10 an hour or less. The math begins to get murky because you have so many older Americans depending on Social Security as their primary source of retirement income while our young labor force is earning less and therefore paying smaller amounts into the Social Security pool. The recovery has been very uneven and when we look at the numbers today, we continue to find that the trend is continuing.
Is the Chinese stock market bubble finally bursting? Shanghai composite and Shenzhen composite down 7.4 and 7.9 percent respectively in one day.
The Chinese stock market has been one of the hottest tickets lately. The US stock markets might seem overvalued but in comparison to China with relatively new financial checks and balances, the US looks like a conservative old timer. Stocks in China are already deep into ridiculous pricing territory. You have an army of uneducated investors diving in hand over fist trying to get a piece of the action. In the US, there is little activity in the stock market from our massive low wage labor pool. In China, from poor to wealthy stock speculation is now taking the baton from the boring correcting real estate market. On Friday, all stock markets in China took it on the chin. The two largest exchanges with the Shanghai composite and the Shenzhen composite fell hard, 7.4 and 7.9 percent respectively. How bad is that? Imagine the Dow Jones Industrial Average losing 1,300 points in one day. That is how bad it was in China on Friday.
How much do Americans earn in 2015? A comprehensive look at household income and individual earnings. GDP disconnects from household income.
How much do Americans earn? This is an important question to ask given our consumption based economy. Each household has a propensity to spend and the ability to consume is largely derived by income. Debt has made it easier for households to spend future wages but we need to find out two important reference points to measure the health of household income: total wages for households and that of individual workers. What we are seeing is a growth in lower wage jobs and the cost of living eating into wages leaving a smaller amount of disposable income each month. I’m still surprised as to how many Americans overestimate wages for US households. The US is still the top economic country in the world but we are quickly seeing our middle class disappear. Middle class is an ambiguous catch-all category but at the core, it means a family is earning enough for buying a home, putting your kids through college, and having enough in retirement that you are not begging on the streets in old age. So how much do Americans earn?
Record number of too big to fail banks: 59 banks in the United States now have over $20 billion in assets. Top 3 US banks hold $6.3 trillion in assets.
Remember when too big to fail was being uttered like “good morning” or some other daily phrase? Apparently people have forgotten about the dangers of too big to fail and have allowed the banking system to grow like weeds in an unattended garden. The previous peak of massive big banks was in 2004 when we had 54 banks with more than $20 billion in assets. Today we are at a new peak of 59 banks. These assets are being inflated thanks to the new property bubble that is catering to the investor class. The majority of families are being pushed to the sidelines being crowded out in the housing market and then being offered 0 percent on savings accounts while banks speculate like wild banshees. Too big to fail is back and not much attention is being placed on this. People might be too busy struggling in the low wage economy to care about banks getting dangerously large. We are now at a peak in regards to too big to fail banks.