DrBenway

Industrial Production Is Growing but Where Are All the Products Going?

Excellent analysis. Very long-term China may be a great story (or may not - just think of the demographics problem in 20 years from now).

Short-term, it is certainly in a nasty asset/inventory bubble and is due for a major shake-out any time now, unless the rest of the world does a V-shape recovery. The good thing that China overcapacity will hold inflation in check at least for a while.

On China's 8.9% GDP Growth

James,

I am wondering if you have any GDP growth numbers from reputable sources (hint: domain name does not end in ".cn").

Seriously, are these reported GDP numbers worth anything since we do not know where Communist propaganda ends and statistics begins? I was in China in April and May this year and most Chinese in street markets, hotels, bars complained how things were slow compared to last year. I stayed in 4.5-star hotel in Shanghai for about $90 a night and it looked half-empty.

Hardly looked like a growth story to me.

'China Up / U.S. Down' Theme Checkup

No offense but what's truly amazing is that having lived through two recent bubbles, most people still fail to recognize an obvious one forming in China. The internal demand cannot organically jump 56% in one year and without inflation.

I can just hear again "it is not a bubble, it's different this time, old Macro-economics does not apply". All evidence point to the fact that China is running some mega-cash-for-clunkers like goverment program gambling that exports will miraculously rebound and will take care of inflated inventories. This gamble is not likely to end well unless you believe in V-shape US and Europe recovery.

I think I will coin a term "new common sense" as opposed to old obsolete common sense.

On Nov 02 03:16 PM Tony Daltorio wrote:

> Forget exports.....It's amazing how you can completely ignore internal
> demand - the Chinese consumer and the millions of people that have
> been completed unaffected by the global crisis in most of China -
> see the recent article in the Financial Times about the latest Nielsen
> consumer survey in China.

'China Up / U.S. Down' Theme Checkup

All I can coclude from the numbers above that China is a nasty bubble:

Negative PPI and CPI indicate deflation in China for 9 months (slight positive for September) while GDP grows at 7-8%. Assuming these numbers are more or less correct, this can only implies huge overcapacity. You can't have growing economy and falling prices unless your production is propped up by goverment spending. I also find 33% fixed asset growth in just 9 months very disturbing.

Chinese exports are down yoy by some 16-20% and 60-70% of the Chinese output is exported (this number is available from many other sources), so doing a bith of math on GDP equation (I assume imports stayed flat) would suggest that China domestic spending and investment has grown:

0.65 (exported) * 0.82 (18% fall in exports) + 0.35 * x (domestic spending increase: investment, consumer and goverment) = 1.08 (GDP 8% growth) = > x = 156% or 56% increase in just 9 month (!?).

So all I can conclude Chinese GDP "growth" is just a result of the stimulus that resulted in asset and inventory bubble.

I invite comments but I can't just see any other conclusion can be drawn from these numbers and it's a matter of time before Chinese economy blows up in a grand way.

To Heck with Fundamentals: Dow 11,000 Is Up Next

You called bull market in February. So your call was wrong.

Now you are more careful and just call DOW 11,000 "on the next stop" (tomorrow?, a month from now?, 10 years from now?). You should go read "DOW 36,000" book, its author still claims he was right since he didn't say it will hit 36,000 either.

On a positive side of things, it is your probably kind that creates an opportunity for "alpha" for decent money managers.

I agree with many posters here. When the dumb money is irrationally exuberant, it is probably time to sell.

Robert Prechter's 'Conquer the Crash': A Forecast That's Still Coming True

Just a quick check on Wikipedia came up with this quote (with a lonk provided):

"(WSJ in) August 1993 with the headline, "Robert Prechter sees his 3600 on the Dow--But 6 years late,"

So he predicted Dow at 3600 in 1999. If this guy was any good and believed his own words, he would be running a hedge fund shorting the market and keeping his mouth shut. Instead he publishes books (14 to his credit) predicting the end of world.

Lehman's Collapse, Revisited

I do not know why Schiff and his kool-aid drunk followers keep on bringing up Constitution every time they are short of a good argument. There is absolutely nothing in the Constitution about the Fed, bailouts, or a balance sheet. I do not understand why the label "fascism" used. Last time I checked, the term stood for an extreme nationalist ideology and racial superiority.

It's just another useless article from Schiff that offers no numbers, no insight, and no analysis, but filled instead with pompous rhetoric and name-calling.

Max Keiser: Oil Trade's U.S. Dollar Dump Rumors Are True

China wants the US economy to go down? Have you ever checked the backside of anything you buy, the "made in" part? It almost always starts with a C.

I don't even know how to humor his claim that Wall Street engineered fake financial collapse to give itself larger bonuses.

P.S. I also observed the futility of using Independent as a toilet paper. The amount of crap stuck up my *** seems to increase after the wiping...

House Speaker Nancy Pelosi says lawmakers are considering levying a windfall profits tax on health insurers to help finance reform. The revenue would help make up for a proposed tax on high-income Americans, which is being scaled back. (earlier)

How's taxing insurers supposed to make insurance more affordable and lower insurance cost? Oh well, just checked her bio, she has never had a real job in her life and was born into rich family. After God thankfully recalled Kennedy from Senate, the stupidity level does not seem to go down -:(

Airlines Hit Hard by Bevy of Factors

I am just curious why you are not short some way UAUA and AMR. I am also curious about your take on JBLU, which in my humble opinion, should be a big beneficiary of the "majors" trouble.

On Oct 07 06:30 PM David White wrote:

> DrBenway: No its not a typo. Yes, all of the above named airlines
> are in danger of going bankrupt in the next year or two. One of the
> reasons for the recent rally has been that banks have recently relaxed
> their lending attitude toward these airlines. That meant that the
> airlines did not have to worry as immediately about facing bankruptcy.
> However, that does not mean they are out of trouble. They are still
> in very serious trouble. Also the euphoria from the better lending
> atmosphere is waning as you can clearly see from the FAA 3 or 6 month
> chart. This makes CAL a good short.
>
> In fairness I should point out that the market value of the airplanes
> owned by many of these companies is likely at a low. If there is
> a substantial recovery in the next few years, the plane values might
> go up enough to push UAUA's head above water again. Still the planes
> are getting older with time. Plus the recovery is supposed to be
> long and drawn out. This likely means a lot more time spent losing
> money by these airlines. This is trouble. CAL for example has a big
> cash flow problem. Others too. As 2010 rolls around, talk of bankruptcy
> for all of the 4 airlines listed above will likely return. Stock
> prices will likely fall. From the FAA chart it looks like airline
> stock prices should fall 12% to 20% from their current values near
> term before the FAA ETF hits good technical support. Since all of
> the companies listed above are currently losing money, this seems
> like a strong possibility, especially with an overall market retracement
> likely in the works.

Airlines Hit Hard by Bevy of Factors

Wow...I first thought Debt-To-Capital ratio above 100% was a typo. You almost never see that in a solvent company. I was wrong! UAUA is -18 per share of negative equity, a quick ratio of 0.6, and a negative cash flow.

So it can't borrow and can't meet its short-term obligations within a year. I am just thinking of a plausible scenario (short of the goverment bailout) where it will not go bankrupt.

Any comments?

John Thain Comes Clean

What else would you expect the CEO of a company to say? "My company is broke and I have no clue what we've got on the balance sheet!"

Thain did a decent job under the circumstances for his employees and shareholders. If he told the truth, Merrill would follow Lehman with shareholders getting zero and employees getting canned.

By the way, he was specifically referring to CDO-squared when he said it would 3 hours to model on tranche, not plain CDOs. CDO-squared was an idiotic product no one could quite understand and should have never been introduced.

I have no idea how you could possibly conclude from what he said that "if we had more computing power, we might not have been in this mess". There is absolutely nothing in what he said to even remotely imply that.

Did you even read the transcript???

PIMCO High Income Fund: A Swan Song

As I mentioned before, some of the PHK buyers were apparently born in this century...


On Sep 15 01:28 PM All Smiles wrote:

> I have watched these over valued comments and agree with them but,
> if your were short the stock every time one of these comments/articles
> came out, you have lost your shorts.
>
> These articles have had short term decline in the price each time
> they were written but then up and away as the shorts have to cover.
>
>
> Remember they are short the monthly dividend as well and the monthly
> distribution of 0.121875 per share is still 14.77% annualized.<br/>
>
> What a blood bath for these poor shorts.
>
> I bought this at a discount to NAV on 9/29/2008, 10/8/2008, 11/3/2008
> and have an 111.3% total return and am not selling.
>
> Talk about pain being short PHK and more to come.
>
> Buy on any decline in price that is caused by these pleas.
>
> These short are looking to cover to get out before their family looses
> their shorts as well.
>
> Another short squeeze will result.
>
> Up Up and Away ......with my beautiful ..........PHK !!!!!
>

PIMCO High Income Fund: A Swan Song

Some closed-end funds (PHK, CFP, TRF) along with bankrupt financial (AIG, C, FNM, FRE) are just new dot.coms. The standard fundamental valuation no longer applies because they trade up on pure technical analysis. Every trader hopes that someone else down the road will hold the bag. Some of us old enough to remember how it ended in 2000...

Plaintiffs' lawyers who won investors a $586M settlement in class-action suits related to the 2000 bursting of the tech bubble want $245M of it for their fees, according to a court filing by an opposed investor. The plaintiffs' counsel say they spent 677,000 hours on the case.

Just a quick check shows that they value themselves at more than $400 an hour, probably including clerks, secretaries, and paralegals!

So investors get ripped off twice: first by banks and then by their own lawyers.

If I need bloodsucking leeches, I can just go to a local pond...