July 18: Daily Contrarian Reads

Red Ponzi Update: China’s Ghost Recovery

Unless and until Americans and Europeans start buying Chinese goods again, any goods for that matter, there will have to be more ghost cities coming. Neither rebalancing nor global recovery are in China’s future. A 2014 Chinese government study concluded that as much as $6.8 trillion in so-called investments had been wasted from 2009 to that point. In the strictest sense it certainly seems to have been, but, again, what else were they going to do? Economists called it “stimulus” and still do, but in truth it was actually the last option in maintaining the (recovery) lie…….They are not ghost cities.  It is still a ghost recovery.

Global Ponzi Update: Stocks soared $1.5 Trillion Last Week to 102% of World GDP

Thanks, it seems, to a few short words from Janet Yellen, the world’s stock markets added over $1.5 trillion to wealthy people’s net worth this week, sending global market cap to record highs. The value of global equity markets reached a record high $76.28 trillion yesterday, up a shocking 18.6% since President Trump was elected. This is the same surge in global stocks that was seen as the market front-ran QE2 and QE3. This was the biggest spike in global equity markets since 2016.

Fed Jabberwocky:  When Tightening Is Actually Easing

The current Fed policy effectively injects liquidity into the financial system through raising the IOER rate — printing money to make interest payments on reserves banks hold on deposit at the Fed.   This compares to the traditional monetary where the Fed drains reserves from the financial system to drive the Fed Funds rate higher.   We are years off to getting back to traditional monetary policy.  Maybe not in our lifetime….The S&P500 is at an all-time high, up over 20 percent since the Fed shifted to a tightening regime;  the 10-year Treasury yield is only up 5 bps;  the 10 minus 2’s yield curve is 32 bps flatter;  the dollar index is down -3.12 percent (we expect a big rally if any healthcare bill passes) ; the VIX is down over 50 percent and closing in on its December 22, 1993, all-time closing low of 9.31 and will probably take out its intraday all-time low of 8.89, set on December 27, 1993, sometime very soon.   The VIX has only traded below 9 one time.

US Restaurant Industry Stuck In Worst Collapse Since 2009

One month after we reported that the “restaurant industry hasn’t reported a positive month since February 2016”, we can add one more month to the running total: according to the latest update from Black Box Intelligence’s TDn2K research, in June both same-store sales and foot traffic “growth” declined once more, dropping by -1% and -3%, respectively, extending the longest stretch of year-over-year declines for the US restaurant industry to 16 consecutive months – the longest stretch since the financial crisis – with sales rising in 45 markets while declining in 150 with Texas, the worst region in the US, suffering a 2.2% and 4.1% decline in sales and traffic respectively.

Is RussiaGate Really Hillarygate?

According to an insider account, the Clinton team, put together the Russia Gate narrative within 24 hours of her defeat. The Clinton account explained that Russian hacking and election meddling caused her unexpected loss. Her opponent, Donald Trump, was a puppet of Putin. Trump, they said, “encourages espionage against our people.” The scurrilous Trump dossier, prepared by a London opposition research firm, Orbis, and paid for by unidentified Democrat donors, formed a key part of the Clinton narrative…..If ordered and paid for by Hillary Clinton associates, Russia Gate is turned on its head as collusion between Clinton operatives (not Trump’s) and Russian intelligence. Russia Gate becomes Hillary Gate.

Boomerangski

Resistance” law professors, such as Lawrence Tribe at Harvard, were quick to holler “treason” over Junior’s meet-up with Russian lawyer Natalia Veselnitskaya and Russian-American lobbyist Rinat Akhmetshin. Well, first of all, and not to put too fine a point on it, don’t you have to be at war with another nation to regard any kind of consort as “treason?” Last time I checked, we were not at war with Russia — though it sure seems like persons and parties inside the Beltway would dearly like to make that happen. You can’t call it espionage either, of course, because that would purport the giving of secret information, not the receiving of political gossip.

Is California Bailing Out Tesla through the Backdoor?

Given Tesla’s ambitious US sales forecast for its Model 3, it will hit the 200,000 vehicle limit in 2018, after which the phase-out begins. A year later, the subsidies are gone. Losing a $7,500 subsidy on a $35,000 car is a huge deal. No other EV manufacturer is anywhere near their 200,000 limit. Their customers are going to benefit from the subsidy; Tesla buyers won’t. This could crush Tesla sales. Many car buyers are sensitive to these subsidies. For example, after Hong Kong rescinded a tax break for EVs effective in April, Tesla sales in April dropped to zero. The good people of Hong Kong will likely start buying Teslas again, but it shows that subsidies have a devastating impact when they’re pulled.

Whole Foods Could Be Amazon’s Waterloo

If you interchange “armies” for “business sectors”, Amazon’s strategy over the last few years seems much aligned. i.e., War against big-box retail, then all retail, media, spacecraft, and now – retail food shopping. I am of the opinion Amazon™, much like Napoleon, are going to find this battlefield has far more challenges that may end up costing them far more dearly, than they ever bargained for. Here’s why…

Aleppo Rising—-City Returning to Normal After Defeat of Washington/Saudi Supported Jihadists

Now, during the first summer of relative calm Aleppo residents have seen in over four years of grinding conflict, the city commonly referred as “the jewel of Syria” is once again rising from the ashes. Foreign journalists are also accessing places like East Aleppo and the heart of the walled ‘old city’ for the first time. Some few honest correspondents, unable to deny the local population’s spirit of hopefulness and zeal with which they undertake rebuilding projects, acknowledge that stability and normalcy have returned only after the last jihadists were expelled by the Syrian government and its allies.