Can China Reflate Its Economy?

Now the global institutions think it is better to issue warnings rather than continue hiding the big problems. Only Wall Street analysts still play the “let’s pretend all is well” game.

We hear all the time that China cannot have a crisis because it has $3.7 TRILLION in reserves. We disagree with that for several reasons. First, who has counted that? Is this Chinese accounting? It may have accumulated over the years, but hasn’t it been spent on extravagant and unproductive governmental projects, such as building cities where no one except the street sweepers live?

Stock Market: “To Buy Or Not To Buy, That Is The Question.”

Our long-standing upside target for the Nasdaq Composite as a proxy for the stock market has been reached. In our Wellington Letter we have written for the past 18 months that this index would reach the all-time high of March 2000, which was 5,133 intraday, before the bull market would end.

That high was finally reached and surpassed on June 22 and June 23, 2015. But it was for only two days on a closing basis.

The Stock And Bond Markets: A Critical Time

A CNBC survey asked 14 global market strategists to give their year-end target for the S&P 500 index. The lowest forecast was for 2,150 (close on May 28 was around 2120.) Most of the other forecasts were just below 2,300, while a number were above that level.

We remember a Barron’s survey of top institutional money managers in early 2008, just before the global crisis. Not one of them forecasted a decline in the stock market for the year, but the year saw the greatest global crisis since 1929.

They were obviously all very, very wrong.

Not A Bear To Be Found

The unanimous opinion is that the stock market will rise another 10%-15% in 2015. Even with the DJIA down more than 300 points on Monday, January 5, analysts in the media said things like: “I don’t see anything that could derail this bull market.” Another one said: “I see no signs of excessive euphoria.” These are comments you usually hear near market tops.

Economists are looking for a strong economy in 2015. Apparently they think the major parts of the world, China, Japan, Europe and Russia can go into recession and the U.S. will be immune. Bring out the

Japan In Recession: Warnings Of A Global Financial Crisis

The major central banks have pursued a “zero interest rate policy” known as ZIRP, since the financial crisis of 2008-2009. More than $10.5 trillion of artificial credit were created. Has this unprecedented policy, never before seen in history, caused sustainable economic recoveries?

The evidence says: “No way.”

No recession, not even the Great Depression, has seen such anemic economic growth. Looking at it scientifically, instead of as an economist, we must ask, “Have central bank efforts to ‘stimulate’ actually done the opposite?” Has ZIRP actually contributed to global deflation?

Carry Trade: The Multi-Trillion Dollar Hidden Market

The dollar is soaring. The U.S. stock market is making new highs. U.S. T-bond yields are declining, causing T-bond prices to rise while all the experts say they are too overvalued. European government bonds actually yield less than U.S. Treasuries, which makes no sense because the U.S. bonds are considered much safer. Many analysts confess that they are mystified.

What is the driving force for these moves? The “carry trade.”

What is the carry trade?

Why Are Stocks Rising?

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During 2013, many smart analysts and money managers voiced their puzzlement of why the stock market continued to rise in spite of the lack of revenue growth of many companies, a stagnating economy, and looming problems in 2014. I wrote in our Wellington Letter that this year it would have been more productive for analysts to just “go with the flow” and head for the golf course each day then to do tedious analysis.

The Stock Market: Floating to New Highs

The stock market is being pushed up by forces having nothing to do with the free market. The ‘agenda’ apparently is to push the market higher, at minimum until year-end. Washington has nothing else improving except the market. And the Treasury’s PPT can continue push the stocks up until some serious selling starts. Then they may be overwhelmed.

The smartest, biggest investors are turning bearish on the market. As we wrote last month in the Wellington Letter, sometimes it pays to be ignorant of the facts and pay attention only to liquidity rather than other fundamentals.

Investors Take Note: The Worst Is Still Ahead

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In August, I had warned about a stock market decline in the September-October period, possibly a very sharp one. Until September 18, when the Fed decided not to reduce the QE, that view was “inoperative.” However, it was a matter of “delay,” not a cancellation of the forecast.

Several positive factors had kept moving the markets upward, such as a positive election outcome in Australia, Larry Summers withdrawing his name for Fed chairman, and finally the Fed announcement.