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According to the State-owned Assets Supervision and Administration Commission (SASAC) more than 2,000 debt-ridden State-owned enterprises (SOEs) will be closed down or go bankrupt in the next four years. Asia Pulse reports the shutdown of these SOEs will leave 3.66 million employees needing reallocation. Enquiring minds might be wondering if there are additional clues in the Shanghai Stock Index. Let's take a look. Am I really supposed to believe that China is ready to float the RMB or even substantially repeg it higher in the face of a collapsing stock market, a certified property bubble, insolvent banks, and hot money pouring hoping to make a quick score? I think not. If China did float and hot money left, what would happen to the RMB with Chinese banks and SOEs in the condition they are in? So far no one has been able to answer that question satisfactorily. My opinion is actually irrelevant but here is one that matters:China will not revalue the yuan when it expands foreign exch...

I received a phone call today from a professor of an esteemed university offering to teach a class on Relationship Management right here on this blog. I was initially skeptical, and it took a bit of persuasion on his part, but once I heard a synopsis from a few of the lessons, I agreed the topic was fine. Still, everything here is free, I insisted. Eventually we came to terms and the professor agreed to teach a few lessons at the bargain basement price of zero. Without further ado, here is Professor Hardious Knocks of the prestigious School of Hard Knocks, teaching Relationship Management 101. Each lesson in this series is based on current events. There will be written assignment after each lesson. Class is now in session. Lesson OneGet Your Agreements In Writing.

I cannot help but laugh at the latest leading index headline: Index Suggests U. S. Economic Expansion. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? A gauge of future economic activity inched up in July, a research group said Monday, indicating economic growth may pick up slightly in coming months despite turmoil in the housing market. The Conference Board's index of leading economic indicators rose 0.4 percent in July, as analysts were expecting. Over the past few months, the rise and fall of the index 'reflects the yo-yo situation in terms of the overall economy,' said Brian Bethune, an economist with Global Insight. July's uptick was driven by the employment market and high consumer expectations, he said. Monday's upbeat report follows the Federal Reserve's decision Friday to cut its key discount rate by a half-percentage point, a dramatic move meant to stabilize financial marke...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Treasury Secretary Henry Paulson said the Bush administration will evaluate accounting rules for the off-balance sheet units that large U. S. banks set up to invest in assets including mortgage-backed securities. 'Transparency is important here,' Paulson, 61, said in a speech in Washington. 'We need to ensure yesterday's excesses are not repeated tomorrow.' [Mish translation: 'The very last thing we want is transparency. Damn the WSJ for leaking news of the Super-SIV before we wanted them to. As for yesterday's excesses... Of course we want to prevent them. The market has already done so anyway so there's no longer any money in it. The goal is to create new rules that allow new exploitation. There's plenty of money in that for Goldman (GS), Citigroup (C), Merrill Lynch (MER), and I hate to say it even Bear Stearns (BSC)'...

Before we get to the questions about Morgan Stanley, here is the background story: Morgan Stanley posts first quarterly loss, and welcomes Chinese investor. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Morgan Stanley posted its first quarterly loss ever Wednesday after taking an additional $5.7 billion write-down related to subprime mortgages. The investment bank also said it would sell a $5 billion stake to China Investment Corp., a sovereign wealth fund, to shore up its capital. The sale, which would give the Chinese government a stake of about 9.9 percent in one of Wall Street's biggest investment banks, is the latest example of a foreign investor aiding a Western financial firm after the housing meltdown. In taking a major investment from the Chinese sovereign wealth fund, Morgan Stanley is following a model set by Citigroup and UBS, two other financial giants badly damaged by their exposure to s...

In How Does One Invest For 'Muddle Through'? I talked about unwinding of the credit bubble. Here is the pertinent section: BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Assuming we do muddle through, there is still a strong likelihood for a continued asymmetrical unwind of the credit bubble. Implications of that last point are particularly ominous. A carry trade unwind has the potential to affect nearly every equity class. In addition, there are obvious implications on emerging markets and China if US consumer spending is weak. It's a safe bet that several of the companies above will go bankrupt or be taken into receivership. The amount of capital destroyed already has been immense. Many of those charts sport prices all the way back to 1998 or even before. That is some unwind. . In deflation, the value of money rises. Money is hoarded. Furthermore, in economic turmoil in general, gold is sough...

The Liquidity crunch took another step forward today as California Home-Loan Defaults Rise to a Decade High. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? California mortgage defaults rose to the highest level in a decade in the second quarter as falling home sales and higher interest rates battered the housing market. Homeowners received 53,943 default notices, more than double the 20,909 filed a year ago, DataQuick Information Systems, a La Jolla, California-based provider of real estate data, said today in a statement. Last quarter's default level was the highest since the fourth quarter of 1996, when 54,045 notices were recorded in California. Californians are struggling to repay home loans as mortgage rates jumped to an 11-month high and tighter lending standards limited their ability to refinance. Southern California home sales last month slumped 36 percent to the lowest for a June in 14 years a...

One of the bullish arguments that I have repeatedly heard during the latest pullback is that consumer sentiment shows how wrong I am. Indeed Reuters is reporting July consumer confidence at 6-year high. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? One of the bullish arguments that I have repeatedly heard during the latest pullback is that consumer sentiment shows how wrong I am. Indeed Reuters is reporting Consumer confidence rose to a nearly six-year high in July as consumers perceived improvements in business conditions and the labor market, a report said on Tuesday. The Conference Board said its index of consumer sentiment rose to 112.6 in July, the highest reading since August 2001 and above an upwardly revised 105.3 in June. 'An improvement in business conditions and the job market has lifted consumers' spirits in July,' said Lynn Franco, director of The Conference Board Consumer Researc...

I spoke with Carl Carter, public relations manager for J. P. King following the auction of 40 condos at the Hamptons at Tampa Palms. 171 bidders from 15 states arrived and 40 units were sold. The planned sale was 40 absolute with another 60 units with a minimum bid. In addition there were another 160 the developer still owned and wanted to sell. What follows are excerpts from that interview. Mish: Can you describe the auction. Carter: The auction was in a format called 'High Bidders Choice'. The winning bidder had a choice of condos in pool of similar picks, typically by unit size. There were 1 BR, 2 BR and 3 BR pools being auctioned and the high bidder had his choice of units remaining in the pool. Mish: How many units of each type were sold? Carter: 20 2-bedrooms units, 15 3-bedrooms units, 5 1-bedrooms units. Mish: What was the price range on the units sold? Carter: $130,000 to $200,000. Total auction proceeds were $5,900,000.Mish: Does that include auction fees? Carter: Yes...

It's time for some light hearted weekend news involving the letter 'T'. Here's a look at recent developments on Trump Mortgage as well as the Mr. T gold indicator invented by Kevin Depew on Minyanville. Every Wednesday Minyanville posts a new video on some facet of the economy. This week's video was on the demise of Trump Mortgage. Click here to play the Trump Video. The above was poking fun at Trump Mortgage, ‘You’re foreclosed’. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? It's time for some light hearted weekend news involving the letter 'T'. Here's a look at recent developments on Trump Mortgage as well as the Mr. T gold indicator invented by Kevin Depew on Every Wednesday Minyanville posts a new video on some facet of the economy. This week's video was on the demise of Trump Mortgage. Donald Trump has pulled the plug on Trump Mortgage less than two years after...

Kevin Depew's post on Inflastagdeflation in Wednesday's Five Things got me to thinking about how everything is in the eye of the beholder. Here is quick recap of inflastagdeflation. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? A. Inflation is understated. General price level measurements are being manipulated, or are failing, or are simply false we are facing a dramatic buildup in inflationary pressures. ..... B. Inflation is yesterday's story. What we are experiencing now is stagflation. Wages and incomes are stagnant, housing is slowing, the consumer is on the brink, and growth is slowing by virtue of the fact that producers have no pricing power in a credit-fueled growth environment. ..... C. Inflation? What inflation? Housing prices are deflating. Consumers are cutting back. Producers have no pricing power. ..... The truest answer is, 'Yes, we are.' .... smack in the middle of inf...

While working in my garden this weekend I was thinking about a game of economic chicken. I was not the only one. Economic Disconnect was writing about Superfund Strong Arm and a Game of Chicken. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Right now we are looking at a systemic banking crisis. The FED had to cut rates in a hurry, the discount window was open for business, Hank Paulson is running around on TV, in interviews, at any conference anywhere pushing the SIV Superfund. All these things are very rare and disquieting. The banks second front in their 'War on Insolvency' is a game of chicken played against the FED, the US government, and the US taxpayer. The game of Chicken models two drivers, both headed for a single lane bridge from opposite directions. The first to swerve away yields the bridge to the other. If neither player swerves, the result is a costly deadlock in the middle of the br...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? The European Union will impose import duties as high as 20 percent on some leather shoes from China and Vietnam starting in April, to prevent the footwear from being sold below cost on the bloc's markets. The EU, which in the last year imported 120 million pairs of shoes from Vietnam and 95 million pairs from China worth 5 billion euros ($6 billion), said it will impose rising tariffs over six months, to a maximum of almost 20 percent of their value. China has threatened to retaliate if the European Trade Commissioner Peter Mandelson levies the additional duties. 'This is a very consumer-hostile measure and would be particularly burdensome to low-income families as well as traders, importers and retailers,' said Ralph Kamphoener, senior trade adviser at EuroCommerce, which represents European companies that employ more than 22 million people in the...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Nearly 50 sign-waving demonstrators chanted and marched outside the Countrywide Financial office on Frazee Road yesterday to protest the way the firm has handled soaring foreclosure rates in San Diego County. Protesters yesterday said Countrywide and other lenders had steered many borrowers into subprime loans when they could have qualified for cheaper, conventional mortgages. “Be right, be just, be fair,” said Nativo V. Lopez, president of the Mexican American Political Association. “Allow our families to remain in their homes.” In part, demonstrators yesterday asked Countrywide to stop foreclosures on borrowers who have fallen behind in their mortgage payments. They called on the lending giant to modify adjustable-rate mortgages that are due to reset at higher amounts. Leaders of the protest also questioned the importance of an agreement with lenders brokere...

Check out Snow's comments to the Senate Banking Committee: 'I don't think it's in our interests or in their interests to go to a full float. I see them on a path to a float.' Hmmm Is that a blink? Snow said the judgment on whether China was a currency manipulator would depend on how its large current account surplus with the United States developed -- as well as its large and growing surplus with the world, continued capital inflows and the buildup of its foreign currency reserves. So far, he is refusing to say how much he wants Chinese officials to revalue the renmimbi. Others in the administration are privately demanding an immediate increase of 10 to 15 percent. 'I am frankly astounded the administration continues to report the Chinese peg is not currency manipulation,' said Senator Elizabeth Dole, Republican of North Carolina. 'I think we're going to see action by China,' Snow told members of the Senate committee but added that he 'might ...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Fresh doubts emerged last night about Northern Rock's ability to repay the?23bn of taxpayers' money it has been lent by the Bank of England. A Guardian examination of Northern Rock's books has found that?53bn of mortgages - over 70% of its mortgage portfolio - is not owned by the beleaguered bank, but by a separate offshore company. The mortgages are now owned by a Jersey-based trust company and have been used to underpin a series of bond issues to raise cash for Northern Rock. It means the pool of assets available to provide collateral for Northern Rock's creditors, including the Bank of England, is dramatically reduced, calling into question government claims that taxpayers' money is safe. The same investigation reveals just how vulnerable the bank is to a cooling property market and demonstrates the scale of Northern Rock's exposure ...

I am pleased to report the inflation monster has been captured and placed in a jar. This stunning announcement as well as an accompanying video detailing the highlights was made by the European Central Bank in cooperation with the national central banks of the euro area. Along with the announcement, the ECB has produced an information kit on inflation enh1d 'Price stability: why is it important for you?' It is targeted at young teenagers and teachers in all the official languages of the European Union. Here is proof the monster was captured:The ECB's eight minute video is actually somewhat entertaining so I recommend that everyone click on the above link take a look. Even though it is entertaining, it sure flops as an educational tool unless of course the goal is self serving promotion by the ECB, for the ECB. Unfortunately the video does not explain that the real source of inflation is printing of money by the central bank itself. Nor does it explain why 2% is such a good ...

One of the big question now being debated is 'What would happen if China were to dump its entire Treasury portfolio in one fell swoop?' Caroline Baum addressed that question in China Doesn't Steer the U. S. Interest-Rate Ship. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Like a highly contagious virus, fear that foreigners will dump all their U. S. Treasury securities spreads through the market at periodic intervals. The fear is not totally unfounded. Foreigners own a little more than half of publicly held U. S. government securities, according to the Treasury Department. So if these foreigners -- both central banks and private investors -- woke up on the wrong side of the bed one morning and decided to give the Treasury portfolio the old heave-ho... well, you can begin to understand the basis for the recurrent nightmare. 'When people say, what happens when foreigners dump U. S. securitie...

Echoing what I said days ago in Fiscal 'Stimulus' Doomed To Fail, MSNBC is reporting Impact of bold Fed rate cut may be limited. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? While the move helped slow a global slide in stock prices Tuesday, the long-term economic impact of cutting interest rates may be limited. Even as housing starts continue to fall, the inventory of unsold houses has risen. With prices falling in many parts of the country, buyers are waiting for a turnaround before they start house hunting again. : Therein lies the first key. Psychology is a major driving force. Consumers have decided home prices will keep falling. And as long as home builders keep building at a pace greater than sales, inventories will continue to rise and prices will continue to fall. As the recession steepens, massively increasing numbers of foreclosures will exacerbate the problem. Lenders and investors hav...

Someone asked me the other day 'Where are the bond vigilantes?' The person who asked was referring to the treasury market in relation to the rising CPI. Before proceeding, let's discuss the term bond vigilantes. Richard Russell in Dow Theory Letters offers this viewpoint: 'These are the bond people who are like bloodhounds when it comes to inflation. When the bond vigilantes smell even a hint of inflation, they head for the exits, meaning they unload their bonds.'That is one kind of bond vigilante. A second kind of bond vigilante is concerned with receiving adequate yields when risks of defaults rise. In regards to treasury yields, with the economy heading in to a recession, consumer spending declining in real terms, unemployment rising and the ISM contracting, yields on treasuries should be dropping. And they have been as the following yield curve shows. Yield Curve For January 5 2008Chart courtesy of Bloomberg. Click on chart for sharper image. How To Find Bond Vi...

Well the Fed made its choice and anyone who thought the Fed cared about the U. S. dollar found out otherwise. The U. S. dollar fell to a record low against the Euro, gold is breaking out to a 27 year high and oil is at another new high as well, up 33% or so on the year. Following is the FOMC statement. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Well the Fed made its choice and anyone who thought the Fed cared about the U. S. dollar found out otherwise. The U. S. dollar fell to a record low against the Euro, gold is breaking out to a 27 year high and oil is at another new high as well, up 33% or so on the year. The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent. Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to res...

This post is an attempt to construct an active chart of money supply data that is useful in assessing the likely direction of future economic activity. This is an ongoing effort that relies heavily on the work of Austrian economist Frank Shostak who has previously written on this subject on the Ludwig von Mises Institute and other places. Before we can construct charts of money supply we first must agree what it is we want to measure. Answers. com provides many definitions definition of money but none of them are useful for our purposes. Wikipedia's disscussion of Money Supply includes M0, M1, M2, and M3. There is also MZM (Money with Zero Maturity). So which one of those makes the most sense to track? Please stick around because the answer might surprise you, with lots of neat charts to prove it (click on any chart for a better look at it) . But first let's tackle the methodology. In The Mystery of the Money Supply Definition Shostak wrote:

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? In January the U. S. trade gap widened to $58.3 billion. For all of 2004, the U. S. booked a record trade deficit of $617.1 billion, or 5.3 percent of gross domestic product. The trade gap with China widened by nearly $1 billion to $15.3 billion as exports plunged 20 percent. The trade gap with Canada widened to $6.2 billion, the most since June as imports grew by 4.3 percent. Those that thought a falling dollar would cure this problem can look again. The US$ index is down about 40% since 2002 yet month after month the balance of trade just gets worse as evidenced by the following chart: The typical scapegoat for this sad state of affairs is China. That viewpoint is misguided and the following chart shows why. China accounted for only 15.2 Billion of that trade gap and given what is produced in China vs what is produced in the US there is no doubt in my mind t...

A number of people have all emailed me with a sensational but preposterous 'Mortgage Meltdown' article by Sean Olender about the interest rate freeze. Yes there is 'fraud everywhere' as the article suggests, and yes the freeze 'has nothing to do with keeping people in their homes', and yes, 'The problem isn't just subprime loans', and yes a 'mortgage meltdown' is in process. But the rest of the article is complete nonsense. Here are a few snips: BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Yes there is 'fraud everywhere' as the article suggests, and yes the freeze 'has nothing to do with keeping people in their homes', and yes, 'The problem isn't just subprime loans', and yes a 'mortgage meltdown' is in process. The goal of the freeze may be to delay bond investors from suing by putting off the big foreclosure wave for severa...

All of this talk about what oil is priced in is a needless red herring. In an on again off again situation Saudi Arabia Won't Include U. S. Dollar in OPEC Talks. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Saudi Arabia, the world's largest crude oil exporter, rejected a proposal by Iran and Venezuela to discuss the weak dollar at this weekend's OPEC summit in Riyadh, saying it didn't want the U. S. currency to 'collapse.' Saudi Arabia won't discuss pricing oil in currencies other than the dollar, Saudi Foreign Minister Prince Saud Al-Faisal said, speaking at a meeting of oil and finance ministers today that was accidentally broadcast to journalists. The Organization of Petroleum Exporting Countries, which pumps more than 40 percent of the world's oil, has seen its revenue diminish because of the decline in the dollar over the past three years. My Comment: This is of cours...