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Mario Cavolo is the founder and editor of Market and China Advisory Monthly Newsletter. He is a professional motivational speaker, business advisor, event and radio host based in Shanghai and Sanya, Hainan, China for over 10 years. You can find his business and China insights at... More
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  • Mario's Market Takes: The New Reality Random Nightmare

    I have kept quiet for well over a week watching the threat of explosive upside frenzy boil and boil, listening to practically every very respected primary advisor I am in touch with suggest this explosive upside rally is very much possibly imminent..oh I love the wording. From 60 year cycles to "this is the inflationary response" which even I have said, to sneaky slow bull markets, the markets are only going up driven by obvious sovereign level strategy that the stock markets will indeed be the root of the recovery. As of today, gold, oil, silver, commodities (ags have lagged) are now setup for an explosive cycle rally up, even the FXI blasted up past strong res at 42...oh, I'm feeling feverish as I write this, my blood is boiling. I can feel the rush, the greed, the fear of missing the move, the magic of watching my longs go up and up and up....oh yes, the government and banks working together to manipulate the markets up and up and up, how I love them, ahh, why was I worried? The world is finally a safe place again.

    ...Oh the happiness and goodness in the world's economies that will come with $90 oil makes me giddy.

    ...Oh the continued staggering unemployment numbers create a relaxed lifestyle for many, the very best of positive thinking philosophy.

    The More Realistic Side of the Story

    Veteran investment guy John Thomas recently interviewed veteran Charles Nenner over at Madhedgefundtrader.com. Nenner had spent 12 years with GS and states that his cycle work has never been wrong; he says all of the above items mentioned (stocks, gold, oil) have peaked currently and after a few more months, bond yields rising to heaven and all else going to hell. There are a few other advisors out there also in agreement that we're at best going sideways from here and may even have some nasty corrections and swings back down...that's right, no oh my gosh explosive rally is imminent. Now I have a headache.

    ...I would tend to side with Nenner and that's exactly why I'm looking at this broad cacophonous choir of "we could now have an explosive inflationary rally" and thinking to go meet Walden in the woods for awhile with my Yamaha electric piano to work on Oscar Peterson's techniques.

    So then here is the secret for shorter term and swing traders - it doesn't matter if you're wrong or right, to be wrong 50% of the time is true mastery if you get out quick when it is wrong and let it ride moving up your stops when the trade is right.

    For long term investors, you're money is safe in cash and that cash should be almost anything but the Euro and Yen. USD is the cash of choice today. Australian or Canadian dollars would be good choices too because they back healthy economies but if the USD starts climbing when bond yields start rising even more, you'll lose value there. If you can arrange it, you should have your cash in Chinese RMB. If you can get $80,000 or more into China, you should immediately go to any of China's secondary cities such as Suzhou and Shenyang where you can still buy new apartments for 6000-9000rnb per square meter. Those will never be bad investments and could for example, be fabulous. In Shenyang, you can buy for 6-8000rmb per square meter within half a kilometer of the Olympic Stadium area, next to a Walmart and 12 months later, the new subway line is opening with a station within five minutes walk. How that could be a bad idea is a pretty limited conversation. Oh, keep another thing in mind, apt property carrying costs in China are very low; monthly management fee like $40 not $140 and no annual property taxes...add it up.

    U.S. Stocks - Gold - Oil

    Markets-wise, the only thing we can figure is the obvious; cheap money pumping the financial system, both in China and the U.S., with nowhere else to go, and for the moment it looks as though a potential steamroller is imminent in gold/oil/silver, with the street choosing to ignore the calamities just around the corner in rising bond yields and other debt/tightening and all the implications that goes with those little tidbits. In previous post, we've already made our case for the ridiculous and outrageous contrived rise in the price of crude oil, almost guaranteed to start causing economic pain soon; but the greedy rich bastards simply don't care about the bigger picture more than their own problems, oh that's human nature for all of us, let's not be "too" judgmental? Besides nasty unemployment and sovereign debt problems, another major U.S. mortgage related crisis is coming our way as enter the summer season.

    Mario's Market Takes and other insightful articles on business, culture and markets in China are free to all readers. To join our subscribers who receive more specific investment and trading commentary including in-depth insights and trade positions in the China markets and their impact on the globe, please visit www.marketandchinaadvisory.com

    The Market and China Advisory Monthly Newsletter is available at $109 per year PLUS you receive a FREE copy of The New Reality, Mario's new 111 page e-book on business, world culture and China.

    Biography: Mario Cavolo is the founder and editor Market and China Advisory Monthly Newsletter. He has been based in China for over 10 years, a professional speaker, writer and media event personality providing multinational and media industry clients with training, coaching, communication, market research and advisory services. Take advantage of Mario’s “on the ground” China insights by visiting www.mariocavolo.com and www.marketandchinaadvisory.com
    , where you will find insightful articles and commentary on business challenges, communication, and global market advisory with a special focus on China business and culture.



    Disclosure: short via CZI
    Tags: FXI, HAO, GLD, SLV, EUO, UUP, SCO, UCO, YANG
    Apr 08 6:34 AM | Link | Comment!
  • The New Reality Does Not Include a Doomsday Collapse
    Let's start with a core economic premise and build a scenario of supporting premises as we ponder the new reality of our global economic future without rhetorical, crash and doomsday scenarios which almost never play out.

    Here is the premise:

    Nothing will crash or collapse.  Not the Euro, not the USD, not the stock market of this or that country. Not anybody’s entire financial system. Assets will swing wildly up and down, systems will change, sometimes dramatically but doomsday collapse is off the table. Now let us build the supporting premises to see why, keeping in mind the intelligence of an elementary school sixth grader,  to paint a picture of the new reality in the present and for the next 10 years.

    The global new reality world is a world with unfathomable trillions of sovereign deficit over everyone's heads. It is an ongoing reality, a big part of our new reality. This has been rightfully called a crisis of Biblical proportions. However, based on our premise for this essay, it is not. We just accept it as the new normal reality. We accept it and we adjust to it. Assets will adjust to it. The system will accept it and adjust to it. Individual assets in the system will respond to it by swinging up or down 30-50%, creating significant shifts in society and culture. We can't make it go away, anymore than we can change the color of the sky or the rising and setting of the sun.

    So then, applying a little commonsense, how will the assets of the world economic system respond to the fact of massive sovereign debt hanging over everyone's heads in the coming years?

    Interest Rates

    This is easy. Yields will go up. Higher and higher debt loads scares lenders, so they will demand higher and higher yields in return. Even sixth graders get it. This phase of the cycle has begun with Australia, India, China and the United States during the month of February 2010. 

    Interest rate moving up means stock prices and bond prices moving down. That’s why last month Nicholas Taleb, author of Fooled by Randomness and The Black Swan said everyone should short U.S. Treasury bonds.  However, this doesn't mean stocks will "collapse." That's mostly rhetorical nonsense. We can state there is a very high probability that stocks do not enjoy the bullish joyride bubbles which are possible when interest rates are low because people don't want to leave their money in the bank earning next to nothing.  When interest rates are rising, people shift their priorities to avoiding risk if possible. Why try to earn 15% with some stock where I could also lose my money if I can leave my money in the bank at 5% with no risk? Even sixth graders get it.  

    Please don’t make the mistake of improperly relating this point to the “failing banks” issue.  Yes, we all know there is too much debt and that both sovereign and corporate default on debts is a danger to the financial system. That’s the given over the entire system which must be adjusted to.

    Equities

    The stock market will not doomsday "collapse" in the simple sense the word collapse tries to convey. Why? ; Because the future is inflationary per the rising interest rate scenario which has arrived. The cost and price of everything will go up including the price of stock shares. Most agricultural commodities are going up in price for the simple reason of increased global demand of a larger and larger world population.  More kid stuff.

    Stocks may be worth relatively less when measured against some other asset such as gold or dollars or Euros or coffee. Just look at a 30 year chart of the U.S. stock market and you'll understand the point. When the market declines sharply 30% in a much shorter period of time than it required to go up 50% in the previous year, lots of folks want to freak out. But in fact, the market will once again adjust, respond and start climbing again. It is important to have a sense of the long term reality of global economics and stock markets. Ignore most of the shorter term mainstream media spin which has little to do with helping you be wiser and smarter.

    The World’s Currencies

    Currencies will continue to devalue. They are in a competitive devaluation game because a lower currency value means cheaper exports to the rest of the world.   Right now, the Chinese are in the lead with their refusal to revalue the RMB peg against the dollar. Again, this is kid stuff. The purchasing power of any currency will continue to decline as it has historically. It is a natural consequence of the global economic order. Sixth graders get it. Due to economic forces on the three major continents, individual currencies will keep dancing up and down 30% against each other. Last year US dollar down, Euro up; this year Euro down, US dollar back up Even a sixth grader can look at a chart and see which way the wind is blowing. The point is that in the end, the total sum balance of all the currencies added together equals basket we'll call basket A, which has the purchasing power to buy a basket of goods and services we'll call basket B.  

    Gold

    Gold is just another asset to store value which in general keeps going up in value relative to currencies. The part most people miss is the relativity, i.e., recently gold went UP against the Euro, right? No no; the Euro is going down, so the price of everything including gold against the Euro is going up priced in Euro. To someone holding Euro, the price of gold and the price of a vacation in the U.S. are both going up.  Yes I think even a sixth grader can get that after a five minute explanation.
    Knowing that interest rates are going up long term and that currencies are devaluing long term, then gold will also continue going up long term. It will also go up as it is regarded as a safe-haven asset against government instability and volatility in the global economic scenario. We can see there's plenty of that going around. Your final clue on the floor of the price of gold is that China and India and George Soros are buying lots of it at around the current $1000-1100 price range. Our sixth grader isn’t lost yet.

    Oil and Energy

    The price of oil is a tricky one to get a handle on for a number of reasons. First, the price of oil is highly manipulate and controlled by traders and speculators with billions at their fingertips in the 24 hour futures markets. Few would beg to differ. Meanwhile, the oil industry has become more like a mainstream McDonald's or Nike brand. They are now running this massive orchestrated "the world needs oil" PR campaign while instead, the world is quite intent on going on an oil diet. You do know that big corporations including oil corporations retain PR and marketing firms, right?.

    That's not just for crisis response on oil spills. Seems weird, doesn't it?  I mean, they're just supposed to be providing a commodity, what the heck are they doing getting involved in PR and branding? Anyway, the second point about oil is that demand is not going to skyrocket. At best it is going to slowly rise. The third point is that oil production levels are dropping, but again this scenario can change significantly.

    The fourth point in the oil discussion is the one we sense the oil industry's PR campaign is trying very hard to downplay to stall a decline in oil prices; that there is now a massive global commitment to the alternative energy sources. The buildup in the combination of wind, solar, natural gas and nuclear energy has the potential to put a much more significant dent in the demand for oil than makes them happy. Of these, nuclear will be most significant because it is already a well-established industry and due to advances in technology, nuclear safety today has improved multiple generations beyond what it was in the days of Three Mile Island. Over the next few years, as hundreds of new nuclear power plants come online, most located in America and China, a complimentary pro-nuclear PR campaign will insure that images of nuclear disaster will drift out of the collective psyche. (By the way, my family lived near Three Mile Island the week it’s reactor had a breach. We high-tailed it to Grandma's back in Yonkers for a few weeks!)

    We can sense that big oil wants oil in the $80-$90 range while in reality; the price of belongs in the $55 to $70 range, which would also be much more supportive of the global economy. Finally, the use of alternative energy sources in practical daily life will cause the routine of our daily life to change. You will not own a big fat SUV. You will own an electric car, electric bike or even electric golf cart type vehicle which you use only for local trips at 20 mph. You will not buy gas. You will drive home and plug your electric scooter in the wall every 25 miles. You will in fact, enjoy the change and appreciate saving money. Electric bikes and scooters have been mainstream transportation in China for years along with buses and subways. Why do you think Chinese have so much cash? In America, think Sun City where the residents own golf carts to get around the neighborhood. In the future, that lifestyle won't be restricted to retirees.

    It is true we are facing global economic circumstances which can be painted with a doomsday brush. We could also use a Chinese silk brush to paint the picture less harshly. If we take the time to look at the situation with long term eyes and through the eyes of a sixth grader, it enables us to understand that whatever is happening in the world of scary global economics, the parts of the system, the various assets in the global economy, adjust and respond in cycles along the way. We must become smarter so that we too, know how to adjust and respond as effectively as possible, living as we do, here in the new reality.

    Mario Cavolo

    www.mariocavolo.com

    Biography:  Mario Cavolo has been based in China for over 10 years. He is a professional speaker, writer and media event personality providing multinational and media industry clients with training, coaching, communication, market research and advisory services.  Take advantage of Mario’s “on the ground” China insights by visiting www.mariocavolo.com, where you will find insightful articles and commentary on business challenges, communication, and global market advisory with a special focus on China business and culture.

    © 2010 Copyright Mario Cavolo - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.




    Disclosure: short via czi, ery, sdow
    Mar 17 10:48 AM | Link | Comment!
  • The Dubai - Hainan Connection: The Millionaire Speculators of Wenzhou, China

    What does Dubai have in common with Hainan Island, China?

    The Answer: China's infamous real estate speculators of Wenzhou. I was recently pointed to a juicy background story at India Times of global property speculation leading from Wenzhou across the globe to Dubai and then back to Hainan Island where just one month earlier, the Wenzhou gang descended upon this tropical island paradise in a well-timed frenzy of property speculation, even by fast-rising Chinese property market standards.

    From the India Times Article:

    Millionaires from the isolated coastal city of Wenzhou, a centre of Chinese private enterprise, have fanned out across China and overseas over the last decade in search of property that they buy, and often quickly resell at a profit.

    They may collectively face about 1 billion yuan ($146.5 million) in losses as the Dubai real estate market contracts, the head of the Wenzhou SME Business Development and Promotion Association said on Wednesday.

    This story broke back in December revealing that in fact it was Wenzhou native Hu Bin, chairman of Shanghai Zhong Zhou Group, who laid out $28 million to purchase one island of the World Islands project set for luxury development and now looking more like a desert mirage. Post Dubai crash, Wenzhou investors are looking for the bargains there once again. "Since the recession on real estate in Dubai, I've led three groups of investors to Dubai to investigate properties," said Chen Zhiyuan, the president of Wenzhou Chamber of Commerce in the United Arab Emirates. According to a February report in China Daily, "Wenzhou, China's private capital powerhouse in the southern province of Zhejiang, is among the richest areas in the country and the birthplace of self-made billionaires who are manufacturing clothes, shoes, and other small commodities like lighters."

    This story broke back in December revealing that in fact it was Wenzhou native Hu Bin, chairman of Shanghai Zhong Zhou Group, who laid out $28 million to purchase one island of the World Islands project set for luxury development and now looking more like a desert mirage. Post Dubai crash, Wenzhou investors are looking for the bargains there once again. "Since the recession on real estate in Dubai, I've led three groups of investors to Dubai to investigate properties," said Chen Zhiyuan, the president of Wenzhou Chamber of Commerce in the United Arab Emirates. According to a February report in China Daily, "Wenzhou, China's private capital powerhouse in the southern province of Zhejiang, is among the richest areas in the country and the birthplace of self-made billionaires who are manufacturing clothes, shoes, and other small commodities like lighters."

    In an effort to identify where else the Wenzhou investment groups may be targeting for their investment hoards, we dig deeper to find a recent yet poorly translated article at www.kinablog.com , where we find the following:

    "Wenzhou hot money fled to the top of the boom in house prices in Hainan, Wenzhou, real estate speculators group is the initiator of the short-term speculation, but also the main force. However, according to investigation by the reporter, short-term access to huge profits, they chose the fast retreat."

    And from Global Times - "Wenzhou...makes up half the housing sales"

    "Buyers are mostly outsiders, including from Beijing, Shanxi, Jiangsu and Zhejiang, according to the Jintai Real Estate sales manager. And group purchases, especially those made by people from Wenzhou, a booming city in Zhejiang, could make up half of the housing sales, he said."

    So there you have it; more rich people, in this case the Wenzhou real estate speculators making their speculative moves, swooping down Dubai-style on Hainan Island to suddenly raid, goose and disrupt market values to grab their profits and head home.

    More so, this kind of real estate action only further reminds us of the bubbly real estate expansion taking place in China. A report from New York based broker Cushman & Wakefield indicates China overtook the US as the world’s top property investment market last year and did so with the expectation the market will remain strong even with lower reliance on debt for property financing. They say real estate investment in China more than doubled to $156.2 billion last year, while the total for the US slumped 64% to $38.3 billion. No question which side the global bread is buttered on.

    So do the innocent folks who got excited and hopped on a plane to Hainan Island to line up behind the wizards of Wenzhou find themselves left holding the bag? It seems so as prices have already begun cooling back down 20% according to several nice oceanfront property listings I am aware of locally along with real estate sales centers sans customers. The annual Chinese New Year season of joy, family harmony and propaganda winds down once again.

    Silly me, back in my Sanya 3rd Quarter Real Estate Review I called the market top in property when prices were already a ridiculous 25-35,000rmb per square meter for the prime luxury properties in the area. Well I obviously got my head handed to me on that one courtesy of the wizards of Wenzhou creating this bizarre Macau style sucker's frenzy. That's good for innocent folks who were already holding property and find their values higher but bad for the folks who bought from the Wenzhou landlords who were buying and selling before the ink was dry and hopping the plane back to Wenzhou all the richer for their infamous exploits.

    What more does Dubai have in common with Hainan Island? Due to the still relatively low levels of financing required for most of China's property purchases, hopefully not the bust that followed. If you're loaded up with credit card debt and having trouble geting by on $50,000 per year, just come to China and then you'll really feel poor.

    Mario Cavolo has been based in China for over 10 years. He is a professional speaker, writer and media event personality providing multinational and media industry clients with training, coaching, communication, market research and advisory services. Take advantage of Mario’s “on the ground” China insights by visiting www.mariocavolo.com, where you will find insightful articles and commentary on business challenges, communication, and global market advisory with a special focus on China business and culture.

    Information in this article comes from sources believed to be reliable. Mario Cavolo is not a registered investment advisor and does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. His research, point of view and opinion are informational and educational only. The author may or may not hold positions in issues referred to in this article. No representations are to be taken as advice or recommendation by the author to buy or sell any asset. Copyright 2010, Mario Cavolo. All Rights Reserved.

     




    Disclosure: short via czi
    Mar 17 9:42 AM | Link | Comment!
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