Prepare yourself (and your portfolio) for a coming debt crisis and a Chinese hard-landing (crash) 2010 - (update 3)

European debt contagion on it's way.

With stubborn socialist goverments in the EU such as Spain, Portugal and Greece. The market is now jittery over Spain, with Spanish goverment officials saying that they have 'no crisis', which is of course bullshit. Their 1.6 Trillion economy has a shrinking GDP and large deficits; a bailout nightmare for the EU

refer to graph of the EUR: support lower at 1.23, if the EUR collapses through that support the EU will face a currency crisis and the USD will spike sending the USD carry trade into hysteria, meaning short covering and a possible collapse of USD leveraged nominated assets (namley in Asia)

Prepare yourself (and your portfolio) for a coming debt crisis and a Chinese hard-landing (crash) 2010 - (update 2)

Greece is doing it's self no favors with it's corrupt socialist goverment, as the Greek deputy PM Theodoros Pangalos appears to be losing his mind.

From the Telegraph 24th FEb 2010:

Theodoros Pangalos, deputy prime minister, said Germany had no right to reproach Greece for anything after it devastated the country under the Nazi occupation, which left 300,000 dead. "They took away the gold that was in the Bank of Greece, and they never gave it back. They shouldn't complain so much about stealing and not being very specific about economic dealings," he told the BBC.

Twisting the knife further, he said the current crop of EU leaders were of "very poor quality" and had botched this month's crisis summit in Brussels. "The people who are managing the fortunes of Europe were not up to the task," he said.

One banker said the situation was surreal. "How can they call the Germans incompetent Nazis and still expect a bail-out?"

Mr Panagalos has gone even further than premier George Papandreou, who said Greece had become a "guinea pig" for squabbling eurocracts playing power games"

Bond vigilantes should clean up Greece now. CDS spreads will widen as Greece implodes.

MEC.RESEARCH mini reviews (update 1)

Agavero Liquor Tequila. Quite possible the smoothest Tequila you'll ever drink, 100% Agave and it's been aged so it's a Reposado (you can see the golden colour) but sweeten by the Damiana flower an apparent aphrodisiac (kinda tested). I know you don't drink Liquors on ice, but since this is tequila and a naked Tequila is always good with ice, the Agavero is perfect as a sipper. Nose: Carmel, bouquet. Taste: Smooth, sweet with the agave flavour, delicious drink.



Cold Steel Koga. A great defense weapon against hand/weapon attacks, traditionally made out of wood, the company Cold Steel have crafted this out of hard plastic, you could smash concrete with this Koga. What is effective with this mini baton is the fact you could inflict damage on an attacker without actually killing him. Basically the Koga when used properly could break bones, wrist, kneecaps, jaw, ribs and so on. It is a street stopper.

Prepare yourself (and your portfolio) for a coming debt crisis and a Chinese hard-landing (crash) 2010 - (update 1)

As discussed in A Chinese 'hardlanding' is on it's way - just a matter of when. Penciled in for 'mid yr'? , a substantial slowdown in the Chinese ecomomy may occur rapidly in 2010

And also a debt crisis, namley the sovereign debt defaults in Europe, lead by Greece

So MEC.Research will follow media reports and also look at impacts on various markets.

From Bloomberg, China bubble

"Marc Faber, publisher of the Gloom, Boom & Doom Report, says China is overdoing it. “It does not make sense for China to build more empty buildings and add to capacities in industries where you already have overcapacity,” Faber told Bloomberg Television on Feb. 11. “I think the Chinese economy will decelerate very substantially in 2010 and could even crash.”

Huaxi has an even more ambitious project coming up: a 6 billion yuan, 538-meter skyscraper that would today rank as the world’s second tallest. The only loftier building is the new Burj Khalifa in Dubai.

Dubai Times a Thousand

Such undertakings figured in warnings hedge fund manager Jim Chanos delivered in January that China is Dubai times a thousand. The costs of wasteful investments in empty offices and shopping malls and in underutilized infrastructure will weigh on China, Chanos, president of New York-based Kynikos Associates Ltd., said in a speech at the London School of Economics. “We may find that that’s what pops the Chinese bubble sooner rather than later.”

China has defied the global recession of the past two years and remained the fastest-growing major economy. Gross domestic product soared 10.7 percent in the fourth quarter. The government has provided 4 trillion yuan in stimulus spending and encouraged banks to lend a record 9.59 trillion yuan last year, trying to bridge the gap until demand for exports rebounds or domestic consumption takes off"

A warm Friday night...

Half of glass of Agavero Tequila (mini review coming), Yeah Yeah Yeahs playing in the background (faintly) and you baby...a pure love affair.

Interesting divergence Dow (Industrial) index and the EURO

The money pumps are still turned on the US, so we have up-ticks in industrial production and housing, two major industries that have been supported and underpinned by low interest rates and government grants. In the meantime Europe is now feeling the pinch of countries facing sovereign defaults which is from the much published pseudonym of the PIIGS, Portugal, Ireland, Italy, Greece and Spain. The European country that is gaining more press due to its horrendous accounts is Greece. So we have seen jittery markets in Europe and Asia, Asia picks up bad cues that comes in form Europe and it's markets reflect that in next day trading, the US on the other hand is still showing rangy markets but manages to to rally in a small range. The Federal Reserve has finally lifted the discount rate from .50% to .75% (for banks to borrow); this is a small step in trying to draw out money from the US economy.

In the meantime the EU, which will attempt to draw out liquidity, is also grappling on how to bail out Greece, so far market chatter has indicated that the IMF may provide the loans when recently the IMF will sell $7.2 billion of gold into the market.

So we have a diverge with US stocks/USD and the EUR (Euro). With massive short positions on the EUR, the USD carry trade could come to a crunching end. It would be now interesting to see how Asia reacts as liquidity begins to tightening, more recently China requesting banks increase their reserve ratios. If we do see liquidity tightening across the board, a doubdip recession cannot be ruled out in 2010. Especially if China crunches in 2010

Graph is the EUR/USD with overlay on the DJI
Note DMI with ADX showing cross over (RED line) sell on the EUR. Further sell pressure on the back of mild USD strength (Fed Fund rate at .75%)
Divergence between the DJI and EUR/USD, could show that liquidity rallies have been persistent for US indices. This may end in 2010 as liquidity tightens.

The last of the market liquidity rallies - Feb 2010?

A hangover from 2009. UK's Barclay's bank reports massive profit (ala Bank of England support and assets swaps/loans as low as 0%, it would be impossible for that bank not to make money).

In the US a hand full of companies report quarter earnings with some upside results, the NY Fed manufacturing index rises.

But the ABC consumer index falls sharply -1 % to -49%

Asymmetrical recovery.

A Chinese 'hardlanding' is on it's way - just a matter of when. Penciled in for 'mid yr'?

It's on the cards. When? Maybe in the next 4-6mths in 2010; when inflation kicks into gear. Dismiss Chinese goverment CPI figures (fudged), good for FX trading (or nerve racking), but if you are going long with puts on risk currencies watch April/June 2010

Bloomberg Feb 11th 2010

"China’s Bubble ‘Worry’

Besides targeting slower credit growth, the government has this year ordered banks to set aside larger reserves and tightened home lending, while leaving interest rates unchanged.

Central bank adviser Fan Gang said Feb. 1 that asset price bubbles are the “real worry” for China’s economy. Bank of China Ltd., the nation’s third-largest lender by market value, said Feb. 3 that it had reduced discounts for some mortgages, citing rising property-market risks.

Gross domestic product expanded 10.7 percent last quarter from a year earlier, the fastest pace since 2007. Government economists warned last month that growth could accelerate to 16 percent this year unless stimulus measures were reined in.

“China’s economy still faces the risk of overheating if policy remains at current settings,” said Brian Jackson, an emerging-markets strategist at Royal Bank of Canada in Hong Kong. “We continue to expect a move towards tighter policy in the next few months.”

* MEC.research doesn't give investment advice, trade at your own risk

What Do Women Want? NY Times article

A fantastic article written for the New York times in relation to female desire, which in all retrospective (even in our contemporary society) is still a taboo; a riddle of complexities and confusion. But hot damn! what a great subject, read on (New York Times Jan 2009 please click here for full article):

"Meredith Chivers is a creator of bonobo pornography. She is a 36-year-old psychology professor at Queen’s University in the small city of Kingston, Ontario, a highly regarded scientist and a member of the editorial board of the world’s leading journal of sexual research, Archives of Sexual Behavior. The bonobo film was part of a series of related experiments she has carried out over the past several years. She found footage of bonobos, a species of ape, as they mated, and then, because the accompanying sounds were dull — “bonobos don’t seem to make much noise in sex,” she told me, “though the females give a kind of pleasure grin and make chirpy sounds” — she dubbed in some animated chimpanzee hooting and screeching. She showed the short movie to men and women, straight and gay. To the same subjects, she also showed clips of heterosexual sex, male and female homosexual sex, a man masturbating, a woman masturbating, a chiseled man walking naked on a beach and a well-toned woman doing calisthenics in the nude.

While the subjects watched on a computer screen, Chivers, who favors high boots and fashionable rectangular glasses, measured their arousal in two ways, objectively and subjectively. The participants sat in a brown leatherette La-Z-Boy chair in her small lab at the Center for Addiction and Mental Health, a prestigious psychiatric teaching hospital affiliated with the University of Toronto, where Chivers was a postdoctoral fellow and where I first talked with her about her research a few years ago. The genitals of the volunteers were connected to plethysmographs — for the men, an apparatus that fits over the penis and gauges its swelling; for the women, a little plastic probe that sits in the vagina and, by bouncing light off the vaginal walls, measures genital blood flow. An engorgement of blood spurs a lubricating process called vaginal transudation: the seeping of moisture through the walls. The participants were also given a keypad so that they could rate how aroused they felt.

The men, on average, responded genitally in what Chivers terms “category specific” ways. Males who identified themselves as straight swelled while gazing at heterosexual or lesbian sex and while watching the masturbating and exercising women. They were mostly unmoved when the screen displayed only men. Gay males were aroused in the opposite categorical pattern. Any expectation that the animal sex would speak to something primitive within the men seemed to be mistaken; neither straights nor gays were stirred by the bonobos. And for the male participants, the subjective ratings on the keypad matched the readings of the plethysmograph. The men’s minds and genitals were in agreement.

All was different with the women. No matter what their self-proclaimed sexual orientation, they showed, on the whole, strong and swift genital arousal when the screen offered men with men, women with women and women with men. They responded objectively much more to the exercising woman than to the strolling man, and their blood flow rose quickly — and markedly, though to a lesser degree than during all the human scenes except the footage of the ambling, strapping man — as they watched the apes. And with the women, especially the straight women, mind and genitals seemed scarcely to belong to the same person. The readings from the plethysmograph and the keypad weren’t in much accord. During shots of lesbian coupling, heterosexual women reported less excitement than their vaginas indicated; watching gay men, they reported a great deal less; and viewing heterosexual intercourse, they reported much more. Among the lesbian volunteers, the two readings converged when women appeared on the screen. But when the films featured only men, the lesbians reported less engagement than the plethysmograph recorded. Whether straight or gay, the women claimed almost no arousal whatsoever while staring at the bonobos"

There is a Greek tragedy unfolding - Goldman Sachs secret deal

From Spiegel (German newspaper) Feb 8 2009

"Greeks aren't very welcome in the Rue Alphones Weicker in Luxembourg. It's home to Eurostat, the European Union's statistical office. The number crunchers there are deeply annoyed with Athens. Investigative reports state that important data "cannot be confirmed" or has been requested but "not received."

Creative accounting took priority when it came to totting up government debt.Since 1999, the Maastricht rules threaten to slap hefty fines on euro member countries that exceed the budget deficit limit of three percent of gross domestic product. Total government debt mustn't exceed 60 percent.

The Greeks have never managed to stick to the 60 percent debt limit, and they only adhered to the three percent deficit ceiling with the help of blatant balance sheet cosmetics. One time, gigantic military expenditures were left out, and another time billions in hospital debt. After recalculating the figures, the experts at Eurostat consistently came up with the same results: In truth, the deficit each year has been far greater than the three percent limit. In 2009, it exploded to over 12 percent.

Now, though, it looks like the Greek figure jugglers have been even more brazen than was previously thought. "Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future," one insider recalled, adding that Mediterranean countries had snapped up such products.

Greece's debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period -- to be exchanged back into the original currencies at a later date."

FUBAR

The problems of account deficits in relation to the PIIGS (Europe)

Between 2003 and 2007 I worked for a legal firm that utilized a settlement account that I and others monitored. The account was primary for property settlements with an average of 30 million AUD being deposited into the account every month, mostly from daily deposits. These amounts came in bundles, say $500,000.00 one day $1,000,000.00 the next. Our job was to break up the amounts and assign them to the different accounts (individual clients); sometimes instructions where vague and there was a lot of verification of fund amounts so each amount could be allocated to the correct account. Once monies have been verified and accounts credited with correct amounts then settlement could take place. The concern was of course a shortfall that would lead to an account deficit, as an example a bundle of funds would arrive, amounts are then separated into each account, a short fall is detected of $7,000.00. What we needed to do and do quickly is find the shortfall and what account it belonged too. The reason? If settlement was to take place (and settlements happed hourly) and a deficit was allowed to occur unchecked, then we would have a rapidly growing hole in the accounts from $7000.00 as other amounts arriving were now covering that shortfall and of course creating new shortfalls and leading to a greater deficit. This was nerve wreaking work but essentially taught you discipline that a deficit is an extremely hard thing to control and therefor should be avoided.

On a larger fiscal and economical model as we all know huge deficits have been created globally by governments, the PIIGS (Portugal, Ireland, Italy, Greece and Spain) of Europe are the now growing concern for global markets. As these country deficits are unlikely going to be plugged, they are just going to get worst. Say a company has a deficit in it's accounts and it can't repay it's interest on its debts, it then declares bankruptcy and sells off remaining assets. But essentially it no longer functions as a business. A country can do the same it can default on it's debt and tell it's creditors it is unable to pay. That is fine, but the instability it will create globally is far more damaging than Lehman Brothers going bankrupt in 2008, which lead to the global market crash. Since most developed countries have created massive deficits the after effect of a country or countries going bankrupt will be a massive shock to the global ecomomy.

An experiment you can do (if you can be bothered) is budget for a reasonable amount of groceries and other expenses for a week, say $100.00. I tried it and ended up going -111 into the negative (Tequilas and dinner Friday night was the deficit precursor). Yes my wage will bring that 'deficit' under control, but when a country is unable to increases it's credits or exports to boost GDP, it will find that it is unable to bring the account deficit under control. A country can do other things, one it can devalue it's currency (so exports can be cheaper and more competitive (note: Argentina devaluing the Peso in 2001, after Argentina couldn't repay it'd debt) or increases taxes (rapidly). But Inflation is the killer, as it creates civil unrest MORE SO than deflation. Then you have protectionism as most countries have fiscal deficits and they will all compete to sell their exports in a devalued environment.

So at this point Europe could implode, especially if Germany has to foot the bill for the PIIGS (bailouts) - and money has to come from somewhere, namely higher taxes and inflation.

A side note: The European Central bank like the others were good at printing money. This current debt problem has been exasperated by central banks intervention in the markets. There is not much the ECB can do now.

MEC.RESEARCH mini reviews

This is a new blog topic that is basically condensed reviews (mini) of various products good or bad.



Jose Cuervo Tequila

Not bad, but not good as a sipper. Tried with 2 double shot glasses and ice. I won't be buying a bottle


OlMeca Tequila

Terrible. People might use this for shots or mixer for the sake of getting drunk. For me this is low grade. Yes, but I finished the bottle.



Siege #2 (Marvel Comics)

What a blast this comic is, I love reading comics where all hell breaks loose. Marvel 'dark' heroes invade Thors kingdom. Hard to explain, standout is seeing the Sentry rip Ares the God of War in two, yes blood, guts, spleen and rib cage...all over the place. Brutal spread.



Red Faction Guerrilla for PS3

Hard and intense game, massive maps and a lot of destruction. Excellent physics on character movements especially when things are blowing up. Fun, but exhausting (mentally).

Don't dismiss 'Gold' the crisis hedge just yet- 2010

Currently we have a massive wave of risk aversion, essentially filtering into an overdue stock correction which I believe will last into June 2010

The market is looking at the risk aversion from the perspective of growth faltering ie or a double dip global recession - that is the primary fear at this point in time lead by sovereign risk/defaults from EU countries such as the PIIGS (Portugal, Ireland, Italy, Greece and Spain). So USD and T-Bill buying has been overpowering the normally safe haven Gold. As discussed in Will gold correct soon? the support for gold is at 990. It is possible for Gold to fall back into the support range, but once the market realizes that any major sovereign default story comes to the forte, Gold should skyrocket. This is because the global ecomomy is in a volatile recovery mode, in the sense that government stimulus have actually created a support for the economy at the expense of huge deficits; a shocking realization for the market will be when a developed nation defaults on it's debt or has to be bailed out. Since we had a synchronized goverment spending (to stabilize the economy), we should have a overwhelming market worry that the defaults and sovereign defaults could be a major global concern in the near term. This can be seen right now with credit defaults spreads widening; the market is now factoring in the costs of major defaults.

So in my opinion we have (starting from now) a 3 to 5 year decay of public accounts that will lead into a collapse.

Please also refer to the post Greece downgrade - may induce nasty market correction.

MEC.RESEARCH store - Rogue Warrior watch

As mentioned in this blog post, I am now in possession of the Rogue Warrior watch, this watch by definition is a solid, tuff and durable looking timepiece. This is my weekend watch or casual watch and basically the watch that I'll wear when things go south. The Oris can be locked away and this baby is brought out. Illumination and watch face are easy to read.

Good to support smaller companies out there competing for market share, but if Obama and his crazy team start too tax companies manufacturing products overseas...ok lets not get to negative just check out/buy the watch. Very well priced for a watch that will survive, even if you don't.

Daria Werbowy for Loewe

Since this Macquarie bank trader and the naked (?) pics (on his computer screen) Mirander Kerr story is appearing on front pages of newspapers (yeah I know... an agent or marketer would die for this kind of client exposure); so I don't think it will appear on this blog, although click here for the story and clip.

So instead: Daria Werbowy.

Australian Reserve Bank leaves cash rate unchanged

Basically the RBA decision (left rates at 3.75%) caught the whole market with the dicks hanging out, cept for a few (yeah including me shorting/put options on the AUD). The Australia dollar is over priced especially when every country still wants to debase their currencies, China is stuck in a bubble/growth paradox it's liquidity tightening may come in somewhat more dramatic (market wise) than anywhere else. Obama (as expected) will attempt to flood the US ecomomy with more liquidity (and increase deficits). In my opinion the markets will read that as risk averse rather than buying frenzy of assets (stocks). So the more government spend the more the market will react adversely against it; 2009 passed with liquidity rallies 2010 is going be the beginning of debt trouble.

Basically the central banks and goverments will not know what to do when bonds become unappealing (factor another bank problem note:UBS breaking up) as and capital raising sinks (small/mid cap companies), banks tighten and credit spreads widen - and the global ecomomy sinks (attached inflation) with in a 2-5 year decay of public finances. So it's kinda fucked up. So safe assets should come into the play like the YEN, USD (relative to risk aversion) and Gold.

The AUD collapsed from 0.89 to 0.87 in less than 5hrs (02/02/2010)