China Turns The Clock Back To 2008

It's Like Deja Vu On Steroids

Prayers and thoughts out to our beautiful State of Hawaii in particular Maui and the town of Lahaina for the on-going disaster they are incurring. More often than not, out of chaos comes calm. Let’s hope that is what happens here.

China’s Real Property Market Crumbles

Speaking of chaos, who is President Xi relying upon for his current economic advice, Alan Greenspan? That seems to be the case as what beset Greenspan in his later years at the Federal Reserve is rearing its ugly head in China. As said several times before on this thread, “history unchecked repeats itself” and it’s usually not pretty. This time it’s more centrally caused by an over zealous government and leader wanting to be the “King of the World”. Unsustainable growth rates brought on by excess borrowing and now a lack of demand reflects the recurring “cold” from “COVID” that China caught and they are “sneezing”. That’s not good for China and now being the second largest economy, it’s just as bad for the world.

I’ve been writing about this since resurrecting “The Ticker” and it just keeps getting worse. China’s top “private” property developer, Country Garden, saw its shares hit a record low on Friday on fears that it’s preparing for a debt restructuring. Beijing’s not exactly “supporting” the property sector and the outlook for what comprises upwards of 25% of the Chinese economy is bleak.

Country Garden would be the latest to join a growing list of developers to kick-start a debt restructuring process, Evergrande Group and Sunac China Holdings have already moved that ball forward. These events cause a chilling effect on everyone, homebuyers and financial institutions, who expected China's politburo, to adjust property policies in a timely manner, but no major moves have been made by the top regulators to date.

Country Garden's $22 million of missed “Dollar” denominated coupon payments only broadens the problem globally bringing back repercussions as were felt fifteen years ago here in the US. Other restructurings, China Aoyuan Group & Fantasia Holdings, just add fuel to the fire. Here we go again, “burn baby burn”.

Back Here at Home

Have you checked the price of gasoline recently? It’s about 50% higher since “Biden” took over. Some plan that “Bidenomics” is, eh? Yeah, it’s hot here in Texas. I’ve lived here for years and you know what, it’s “hot” here every summer. While believing that “climate change” in the vernacular should be addressed making drastic changes while the rest of the developing industrialized world continues to burn coal for power just does not make a lot of sense. Really, what does anymore?

Mayor Pete Buttigieg, so grossly unqualified to be Secretary of Transportation, cannot even fix “potholes” let alone run the position he’s in. It’s not just gasoline prices rising that increase the inflation rate. Have you ever calculated how much long haul trucking companies will need to charge running a grossly less efficient electric fleet of trucks? A diesel-fueled truck can run for upwards of 600 to 800 miles before refueling and that takes about 30 minutes to accomplish, unless there’s a KFC nearby. Electric trucks can run between 100 to 250 miles, weather permitting, on a single charge, but it could take hours to recharge, if indeed you can find an operating recharging location. How’s that for efficiency? Do you think companies operating a fleet of electric trucks are going to charge more? They have to, so “supply chain” inefficiencies are built into the process, leading to higher prices and inflation making everything you buy more expensive. It’s one hell of a strategy you got there Pete. What’s next on your agenda, flying busses?

Tax Receipts Are Falling

Tax receipts are falling, which historically precedes economic recessions. Debts and deficits matter. Economic growth is declining, the population is aging becoming more dependent upon the government and most of that spending doesn’t produce revenue.

As an economy slows, revenues and incomes decline. One of the conundrums in 2023 remains the avoidance of a recessionary impact from the Fed’s aggressive rate hiking campaign. Numerous indicators, from the leading economic index to the yield curve, suggest a high probability of an economic recession, but one has yet to occur.

The change in Federal receipts is important as the Government’s revenue is from the “taxes” on both corporate and individual incomes. When revenues and incomes drop, it’s directly reflected in overall economic activity.

Investors think the economy will avoid a recession and earnings growth will return. In looking at recent earnings reports, many beating reduced estimates, there is a limit to how much companies can ‘massage’ the bottom-line earnings if top-line sales growth continues to slow, just look at Apple to confirm this.

As higher rates continue to weigh on consumption, particularly in a highly indebted economy, the risk of a slowdown remains elevated, earnings decline. Historically, a reversion occurs when earnings deviate above the long-term growth trend. Like the China situation, I’ve been preaching this for years. Prices of stocks are inflated due to spending that must be reigned in. With the Fed fighting inflation, a large reduction in rates is unlikely so the more we borrow the higher the costs of that borrowing.

This is something stock markets can’t avoid. It’s obvious; why are the world markets turning a deaf ear? I’d love to turn bullish but I cannot until stock prices drop. Given the current S&P 500 P/E ratio still sits at overvalued levels around 26 I’ll remain on the sidelines except for a couple high dividend paying stocks in industries that perform in recessionary environments.

Back to work writing. I hope to have it “off to the publisher” before attending my 50th reunion. It’s over 300 pages; I’m going blind. I’m just a “young” 68 years old looking to help you be the best damn investor or trader you can be. Everyone learns at their own pace. If you pick it up the first time, great if not email me at david@thetickeredu.com so I can further help. Again, let me know what you want to learn, I’m all ears.

All right, with China about to trigger chaos worldwide it’s time to bring back REM and “It’s the End of the World as We Know It” and I feel fine. Not really I’m worried. What the hell, is everyone blind? Seem to be but their eyes are about to be opened. I believe in being optimistic so hope I’m wrong but I’ve been doing this far too long. It seems to me that everything is in place worldwide for a collapse. There’s not enough money sitting on the sidelines to cure all of the problems we’re facing.