JGB Watch: Rollercoaster Rides for JGBs and the Nikkei

Back to my JGB-Japan debt crisis watch.

The actions today of both JGBs and the Nikkei can be described as intense rollercoaster rides.

Though, the JGBs have been more benign.

The intraday trend of the JGB 10 and 30 year yields surged during the early part of the session but traded vastly lower as the day matured.

The lukewarm reception to today’s 30-year auction supposedly served as the impetus for today’s across the yield curve JGB rebound.

From Reuters:

Japanese government bond prices gained on Thursday as bargain-hunting emerged after some anxiety over how a 30-year bond auction would fare and as Tokyo stocks buckled, dropping to a two-month low…

JGBs also extended gains on relief that the results of a 600 billion yen ($6 billion), 30-year JGB auction, turned out to be tepid, but was not as disastrous as some had feared.

The report doesn’t say if the BoJ participated in today’s JGB auction by the Ministry of Finance or of the role played by the BoJ in lifting the JGB market.

Yet while JGBs rallied, Japan’s equity benchmark, the Nikkei swung wildly between steep gains to sharp loses several times in the session as shown by the intraday chart. 

The bears finally ruled as the Nikkei closed “modestly” lower compared to the scale of recent “crashes”.

Today’s loss brings the Nikkei near the technical definition of a bear market: the 20% loss threshold.

From another Reuters report:

The Nikkei dropped 0.9 percent to 12,904.02, its lowest close since April 5. Trading was volatile with the index rising as high as 13,238.53 earlier.

Should the Nikkei fall to 12,754, or down 20 percent from the 5-1/2 year high reached on May 23, it will have entered a bear market.

Bifurcating signals from the JGBs and the Nikkei exhibits the continuing high risk environment.

Phisix and the SET: Why Talking Up the Embattled Stock Markets Won’t Work

Desperate stock market authorities from the Philippines and Thailand gave an advice today to panicking stock markets: CHILL.

From Bloomberg:

Stock exchanges in the Philippines and Thailand have moved to soothe investors after speculation the U.S. Federal Reserve may scale back bond purchases prompted selloffs by overseas investors.

Stock Exchange of Thailand President Charamporn Jotikasthira today urged investors not to panic, saying economic and corporate earnings growth in Southeast Asia’s second-biggest economy remains strong. The benchmark SET Index dropped to two-month low. Philippine Stock Exchange President Hans Sicat described the selloff as an “extreme overreaction.”

The Philippines benchmark index has slumped 11 percent and the Thai gauge 8.4 percent since May 22, when Fed Chairman Ben S. Bernanke said policy makers could consider reducing the pace of monetary stimulus if the nation’s labor market improves. Overseas investors have sold a net $414 million of Thai stocks and $147 million of Philippine shares this month.

“Foreign net selling is an extreme overreaction to Bernanke’s” outlook on possible stimulus cuts, Sicat said in a televised interview with ABS-CBN News today. “Technical corrections tend to be buying opportunities for others who are more conservative.”

Authorities from both former sizzling hot stock markets hardly provided sufficient explanations as to the relationship between the so-called proposed Bernanke’s stimulus cuts vis-à-vis the meltdown, and why the current market paroxysm has not been justified. 

A reduction of stimulus, and not a cessation, simply means of a partial tightening of monetary environment. This could be suggestive of the advent of high interest rate regime. 

And the brutal market reactions reveals of the extent of sensitivity to interest rate changes due to the degree of leverage employed and established around the Fed’s and local central banking "stimulus".

Simply said, financial markets have been deeply addicted to central banking steroids. Thus the recent stock market rout may be analogized as "withdrawal syndromes"

While it may be a coincidence that the emerging markets, represented by the Philippines (PCOMP-yellow) and Thailand (SET-green), turned the corner (dark blue vertical line) as shown in the above chart from Bloomberg since the May 22nd Bernanke spiel, in reality interest rates as impliedly measured by the US 10 year yields (USGG10YR-orange)  has already been in a sharp ascent since the early days of May. This means that Bernanke's babbles seem as trying to realign their policies to match or to reflect on the actions of the bond markets. 

Of course when authorities talk about strong “economic and corporate earnings” they are referring to the recent past events which blossomed under a low interest rate environment. The prospects of higher interest rates essentially changes this, which has been the reason for such violent response.

Finally, words of appeasement from authorities like the above sends shivers down my spine. That’s because they resonate with the responses made by authorities during a somewhat similar crash environment 

Here is a some quotes from the October 29, 1929 stock market “Black Tuesday” crash that ushered in the Great Depression:

Sept. 1929: "There is no cause to worry. The high tide of prosperity will continue." Andrew W. Mellon, Secretary of the Treasury

Oct. 14, 1929: "Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board". New York Times

January 21, 1930: "Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said that reports to the Cabinet showed the tide of employment had changed in the right direction." News dispatch from Washington

May 1, 1930: "While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States-that is prosperity." President Hoover

June 29, 1930: "The worst is over without a doubt." James J. Davis Secretary of Labor.

Sept. 12, 1930: "We have hit bottom and are on the upswing" James J. Davis Secretary of Labor.

What I am saying is that markets ultimately determine whether the interim trend and price levels are justified or not. 

Media’s appeal to authority and the subsequent denials made by authorities will hardly wish away any perceived problems the markets sees, which are currently being ventilated through the vehement feedback as expressed via steep price declines.

Following successive sessions of severe drubbing, the vastly oversold Phisix turned from a 164 point intraday opening decline to close higher by .78% or 58.21 points today (chart from technistock.com ).

The sharp rebound has little to do with pitching up of the marketplace, but about knee jerk responses to extreme technical conditions. 

Thailand’s SET slumped 2.13% today.

JGB Watch: Yields Retreat, the Nikkei Nosedives (by 3.83%) Again

Back to my JGB-Japan debt crisis watch.

Except for the 30 year maturity, the 10 year JGBs retreated today after a failed attempt to reach the critical threshold level, or the .9% line in the sand, where Japanese stock markets in the past weeks collapsed.

Today’s pushback in the 10 year coupon has also been reflected on the 2 and 5 year yields as of this writing.

Curiously, Japan’s equity benchmark, the Nikkei, nosedived even when such threshold had not been touched. 

Today’s crash basically eviscerated yesterday’s 2% gain.

The intraday plunge had been astounding. The Nikkei was mostly choppy for half of today’s session, surged during midday for a very short while, and just melted down after.

Media attributes this collapse to a supposed failed expectations from today’s speech by Japan’s PM Shinzo  From Reuters:

Japan's Nikkei share average plunged 3.8 percent to a two-month low on Wednesday after Prime Minister Shinzo Abe's growth strategy to revive the world's third-largest economy failed to impress investors.

The implication is that the stock market seems to be looking for MORE “stimulus” from Abenomics despite the tumultuous state of Japan's bond markets.

Or what the above scenario suggest is that if Abe-Kuroda provides more stimulus that alleviates the plight of her stock markets, the bond markets will become unsettled. On the other hand, leaving Abenomics at its current form, the stock markets convulses but the bond markets steadies. Damned if you do, damned if you don't.

As I said last Sunday, there seems no way out for Japanese government and the BoJ.

Abenomics has set in motion a trap of their own making and is doomed to fail.

Video: Median Voter Theorem: Why politicians sound the same

The following video from learnliberty.org explains why politicians sound almost the same. (hat tip Cafe Hayek)

Via the median voter theorem, the general tendency of political rhetoric have been geared towards the “outcome most preferred by the median vote” or telling the median voters what they want to hear in order to gain their votes or approval.

In other words, political rhetoric panders to the economically ignorant populist "madlang people" irrational voters

Reforming Democracy via Corrective Democracy

At the FEE.org, Chapman University law professor Tom W. Bell posits of how to reform democracy: Corrective Democracy

A corrective democracy allows voters to do only one thing: Strike down a specified rule. Voters would get a fair shot at any law, regulation, ordinance, or order that offends them. If it failed the corrective vote, the rule would get removed from the books. Think of it as the electoral equivalent of jury nullification.

Corrective democracy qualifies as a type of “disapproval voting,” the general name applied to systems that allow only votes against certain choices. Disapproval voting has seen use in a number of contexts, most famously on reality game shows where participants can vote each other off but also, and more conventionally, in recall elections and no-confidence votes. (Disapproval voting has not evidently attracted much formal study, however, or been put to the broad political use advocated here.)

A corrective democracy could not be used to create a government agency or program; creating new institutions would require the passage of new laws. Corrective democracy thus comes with a powerful built-in limitation. Even if the lazy and vicious outnumber the industrious and virtuous—a tragic but unlikely situation—they could not use a corrective democracy to give themselves bread and circuses.

Legislative bodies hardly ever attempt to assess on whether the rules or edicts they pass have been effective or not. Yet most of them have been designed to have short term impact meant to generate votes.

And in the absence or dearth of sunset provision, mounting number of legislation leads to increasing politicization of the marketplace, thus economic repression and lesser civil liberties. 

Corrective democracy comes with a “skin on the game”, again Professor Bell

How to provide open access to corrective democracy without wasting time on futile votes? Let anyone call an election on any rule, but make losers pay the costs. Apart from perhaps requiring that challengers post bond, this system would let anyone target any law, regulation, ordinance, or order. Elections in a corrective democracy could thus arise directly from voters themselves, the popular will unmediated by party politics, electoral commissions, or arcane devices like the Electoral College.

Corrective democracy as a check on government.

Corrective democracy offers democracy, corrected. Because it operates only to trim back government excesses, corrective democracy runs little risk of degenerating into mob rule. It thus gives voters a more direct say in their government without giving them direct access to power. 

Corrective democracy is not a lesser form of democracy, however. To the contrary, it affords a safe means to broaden the voting franchise and open up public access to the initiative process. Corrective democracy does not solve every problem of governance—somebody still has to write the rules, for instance—but it does improve on current political mechanisms. Corrective democracy turns voting from a blunt scepter for wielding political power into a sharp sword for defending individual rights.

Thomas DiLorenzo: The Real Lincoln in His Own Words

At the LewRockwell.com, Austrian economist and author Thomas DiLorenzo exposes on the popular myths about former US president Abraham Lincoln

After writing two books and dozens of articles, and giving hundreds of radio and television interviews and public presentations on the subject of Lincoln and the political economy of the American "Civil War"over the past fifteen years, I have realized that the only thing the average American knows about the subject is a few slogans that we are all subjected to in elementary school. I was taught in public elementary school in Pennsylvania that Abe was so honest that he once walked six miles to return a penny to a merchant who undercharged him (and six miles back home). He was supposedly so tendered hearted that he cried after witnessing the death of a turkey. He suffered in silence his entire life after witnessing slavery as a teenager (While everyone else in the country was screaming over the issue). And of course he was "a champion of democracy, an apostle of racial equality, and a paragon of social justice," Joseph Fallon writes in his important new, must-read book, Lincoln Uncensored.

This view of Lincoln, writes Fallon, is only true "in official histories or in Hollywood movies" but not in reality. The reason for this historical disconnect is that "this myth of Lincoln, not the Constitution . . . now confers legitimacy on the political system of the United States." Despite being mostly a bundle of lies, it is nevertheless the ideological cornerstone of statism in America and has been for nearly 150 years.

The real Lincoln was a dictator and a tyrant who shredded the Constitution, fiendishly orchestrated the mass murder of hundreds of thousands of fellow citizens, and did it all for the economic benefit of the special interests who funded the Republican Party (and his own political career). But don’t take Joseph Fallon’s or Thomas DiLorenzo’s word for it. Read the words of Abe Lincoln himself. That is what Fallon allows everyone to do in his great work of scholarship, Lincoln Uncensored. No longer do Americans need to rely on politically-correct, heavily state-censored textbooks or movies made by communistic-minded Hollywood hedonists to learn about this part of their own country’s history.

Each of the twenty-three chaptes of Lincoln Uncensored explains the real Lincoln in Lincoln’s own words by quoting him directly from The Collected Works of Abraham Lincoln (CW), complete with specific citations for every single quotation. The following is an abbreviated sampling of what you will learn upon readingLincoln Uncensored.

LINCOLN WAS AN OBSESSIVE WHITE SUPREMACIST

"Free them [blacks] and make them politically and socially our equals? My own feelings will not admit of this . . . . We can not then make them equals." (CW, Vol. II, p. 256).

"There is a natural disgust in the minds of nearly all white people, to the idea of an indiscriminate amalgamation of the white and black races" (CW, Vol. II, p. 405).

"What I would most desire would be the separation of the white and black races" (CW, Vol. II, p. 521).

"I have no purpose to introduce political and social equality between the white and black races . . . . I, as well as Judge Douglas, am in favor of the race to which I belong, having the superior position. I have never said anything to the contrary." (CW, Vol. III, p. 16).

"I am not, nor ever have been in favor of bringing about in any way the social and political equality of the white and black races . . . . I am not nor ever have been in favor of making voters or jurors of negroes, nor of qualifying them to hold office, nor to intermarry with white people . . ." (CW, Vol, III, pp. 145-146).

"I will to the very last stand by the law of this state, which forbids the marrying of white people with negroes." (CW, Vol. III, p. 146).

"Senator Douglas remarked . . that . . . this government was made for the white people and not for negroes. Why, in point of mere fact, I think so too." (CW, Vol. II, p. 281).

Until His Dying Day, Lincoln Plotted to Deport all the Black People Out of America

"I have said that the separation of the races is the only perfect preventive of amalgamation . . . . Such separation . . . must be effected by colonization" [to Liberia, Central America, anywhere]. (CW, Vol. II, p. 409).

"Let us be brought to believe it is morally right , and . . . favorable to . . . our interest, to transfer the African to his native clime . . ." (CW, Vol. II, p. 409).

"The place I am thinking about having for a colony [for the deportation of all American blacks] is in Central America. It is nearer to us than Liberia." (CW, Vol. V, pp. 373, 374).

LINCOLN ONLY RHETORICALLY OPPOSED SOUTHERN SLAVERY. IN PRACTICE, HE STRENGTHENED IT

" I think no wise man has perceived, how it [slavery] could be at once eradicated, without producing a greater evil, even to the cause of human liberty himself." (CW, Vol. II, p. 130).

"I meant not to ask for the abolition of slavery in the District of Columbia." (CW, Vol., II, p. 260).

"I believe there is no right, and ought to be no inclination I the people of the free states to enter into the slave states and interfere with the question of slavery at all." (CW, Vol. II, p. 492).

"I have no purpose directly or indirectly to interfere with the institution of slavery in the States where it exists." (CW, Vol. III, p. 16).

"I say that we must not interfere with the institution of slavery . . . because the constitution forbids it, and the general welfare does not require us to do so." (CW, Vol. III, p. 460).

LINCOLN CHAMPIONED THE FUGITIVE SLAVE ACT

"I do not now, nor ever did, stand in favor of the unconditional repeal of the fugitive slave law." (CW, Vol., III., p. 40).

"[T]he people of the Southern states are entitled to a Congressional Fugitive Slave Law." (CW, Vol. III, p. 41).

Lincoln Advocated Secession When it Could Advance His Political Career

"Any people anywhere, being inclined and having the power, have the right to rise up, and shake off the existing government, and form a new one that suits them better." (CW, Vol. 1, p. 438).

LINCOLN VIEWED FORT SUMTER AS AN IMPORTANT TAX COLLECTION POINT AND WENT TO WAR OVER IT

"I think we should hold the forts, or retake them, as the case may be, and collect the revenue." (CW, Vol. IV, p. 164).

Read the rest here

Much of what we have learned from the mainstream, like undue hero worshiping or attributing "greatness" to leaders or presidents, who presided over war/s, turn out to be mostly propaganda from statists.

JGB Watch: Yields Firming, Nikkei Rallies 2%

Back to my JGB-Japan debt crisis watch.

JGB’s rallied strongly yesterday. The 10 year bond yield retreated back to .817% or a 3 week low (left window). This came as Japan’s major equity benchmark the Nikkei dived by 3.72% (right window, stockcharts.com)

Yesterday’s rally in JGB’s seems to have foreshadowed today’s 2% rally in the Nikkei.

Nonetheless fresh reports say that weak demand for JGBs once again pushed yields higher today.

From the MSN/Reuters:

Weak results of an auction of 2.4 trillion yen ($24 billion) 10-year bonds on Tuesday and aggressive selling of 30-year bonds ahead of Thursday's auction for that maturity led to a steepening of the yield curve.

Currently the yield curve seems mixed.  10 year yields have been trading higher at the .84-.87 range while 30 year yields have firmed by .7 bps. The shorter end has posted declines. 

As of this writing, Nikkei futures seem as slightly up from today.

Whether the Nikkei’s rally today constitutes a dead cat’s bounce or an inflection point ultimately depends on the developments of Japan's bond markets. 

Much of the financial volatility seen today, especially pronounced in the Emerging Markets, can be traced to the turbulence in Japan's bond markets.

Media’s cheering on the positive effects of “Abenomics” on Japan’s stock markets  will have temporary or short term impact at greater cost overtime.

Will the Syrian Civil War lead to World War III?

Will colonial power lust by UK and France over Syria lead to World War III?

Writing at the lewrockwell.com historian Eric Margolis explains of the deteriorating geopolitical events in Syria rooted on past colonial relations:

Adding spice to this dangerous stew, Israel threatened this week to attack Russian S-300 anti-aircraft missiles if delivered to Syria. It remains unclear if these very effective missiles have yet arrived in Syria. Moscow promised S-300’s years ago to both Damascus and Tehran, but delayed deliveries under US pressure. Last week, Syria’s President Bashar al-Assad apparently said that the first deliveries of the potent defensive weapons had arrived.

Israel’s three previous air attacks on Syria and threats to destroy S-300 missiles if emplaced there have sharply raised tensions with Moscow. The Russians, whose influence in Syria is being sharply challenged by the West, are low on patience at a time when even Israel is challenging Moscow.

Moscow’s efforts to organize a peace conference over Syria are being thwarted by the EU’s call to lift the so-called Syrian arms embargo and provide more military aid to anti-regime rebels. The entry of some Hezbollah fighters into battles along the Syrian-Lebanese border, and Shia-Sunni fighting inside Lebanon, underline the threat of the civil war becoming regionalized.

Will Russia sit back with its arms folded and watch rebels backed by the Western powers and conservative Arab states overthrow the Assad government? Russia has a small naval depot at Tartus, Syria, but it is hardly of major strategic importance. Of more concern to Moscow is that its influence in the Levant and Caucasus, which is being relentlessly chipped away by the US and its allies.

If Israel continues and intensifies its air strikes and goes after the S-300’s when they are operational (which could take up to one year), Russia may be forced to intervene militarily just as it did in Egypt in 1970 during the “War of Attrition” on the Suez Canal. Russian anti-aircraft missile batteries and fighter squadrons battled Israel air power to a stalemate over the Canal and western Sinai.

Syria’s civil war is clearly threatening to turn into a regional conflagration that involves both the subplot a Sunni-Shia conflict and blatant outside military intervention reminiscent of the 1930’s Spanish civil war. There is also a deeper theme: a major effort to crush Syria, Iran’s sole Arab ally. Right after US forces entered Baghdad in 2003, Israel’s then prime minister Ariel Sharon urged Washington, “the road to Tehran lies through Baghdad.” This time around, the route to Tehran runs via Damascus.

Read the rest here

Video: Peter Schiff on the Solid Gold 'Chocolate Bar'

The Valcambi Suisse refinery introduces the Valcambi CombiBar 50-gram “chocolate bar” which can be broken into individual 1-gram gold bars. 

In short, pocket sized gold bars. 

Peter Schiff claims that its all the rage in Europe, in the following video (hat tip Lew Rockwell.com) 

Important disclosure: I have no business relationship with Peter Schiff as of this writing. 

I share this video with the purpose of informing my readers of the innovative trends in gold products. 

If pocket size gold bars become widespread or become available in Asia, I may be one of their buyer.

How Financial Experts Bamboozle the Public

Money pros had been taken to the woodshed according to the Global Association of Risk Professionals. (hat tip EPJ) [bold mine]

Americans would like an apology from Wall Street for the financial crisis.

They probably aren't going to get it.

But how about giving the number crunchers and investment managers a "time out" to reflect a little on the era of financial alchemy and greed that did so much damage?

That's what was happening in Chicago this week, where about 2,000 of the financial industry's quantitative minds and investment professionals gathered for their annual CFA Institute conference. They got some verbal punishment from some of the industry's stalwarts, who were admonishing their chartered financial analyst peers to think rather than allow mindless financial models and dreams of success to drive them to endorse the kinds of aggressive investment decisions that can create riches for themselves -- and destroy wealth for others.

"If you are attracted to a job in finance because the pay is so generous, don't do it," said Charles Ellis, one of the elder statesmen of the profession. "That's a form of prostitution."

Rather, Ellis said, his profession needs to return to the days he knew in the 1960s, when the emphasis was on counseling investment clients and not on churning out esoteric products and pushing people to buy them blindly.

Today the emphasis too often is on "complexity rather than common sense," said James Montier, asset allocation strategist for investment manager GMO. "In finance, we love to complicate. We rely on complexity to bamboozle and confuse."

In the local arena, such conflict of interests has hardly been about “churning out esoteric products” but about the pervasive cheerleading of politically colored quack statistics into “pushing people to buy them blindly”. "Them" here is applied to conventional financial assets.

More on the use of aggregate model based analysis:

Too many in his profession, Montier said, are trying inappropriately to apply physics to investing, where it doesn't belong, and they are ignoring inconvenient truths. Complex mathematics is valued but not necessarily used honestly, he said.

"A physicist won't believe that a feather and brick will hit the ground at the same time, and they won't use models to game the system. But that's what finance does with models," Montier said. "They take them as though they are reality."

Montier, speaking to financial professionals who design, evaluate and sell investment products to individuals and institutions, warned that all professionals in finance need to be thinking more, rather than following the herd.

"Who could have argued that CDOs were less risky than Treasurys with a straight face?" he said. But that's what happened. "Part of the brain was switched off, and people took expert advice at face value.

True. Mathematical and statistical formalism serves as the major instrument used by “experts” to hoodwink the vulnerable public on so-called economic analysis. The public is usually awed or overwhelmed by facade of numerical equations and economic or accounting terminologies.

These experts forget that economics hasn’t been about physics but about the science of incentives, purposeful behavior or human action.

As the great dean of Austrian school of economics wrote, (italics original, bold mine)

Indeed, the very concept of "variable" used so frequently in econometrics is illegitimate, for physics is able to arrive at laws only by discovering constants. The concept of "variable," only makes sense if there are some things that are not variable, but constant. Yet in human action, free will precludes any quantitative constants (including constant units of measurement). All attempts to discover such constants (such as the strict quantity theory of money or the Keynesian "consumption function") were inherently doomed to failure.

Governments love Wall Street models too

Government regulators and the Federal Reserve are guilty, too, of blindly putting their confidence in flawed models, he said. And if his profession and the regulators continue to ignore the dangers of financial concoctions involving massive leverage and illiquid assets, financial companies again will create an explosive brew that will result in calls for another government bailout.

This means because authorities has embraced economic bubble policies as a global standard, which engenders boom bust cycles, we should expect more crisis ahead. Thus the prospective “calls for another government bailout.”

To add, in reality, the government’s love affair with models has been undergirded by an unseen motivation: the expansion of political power.

Every crisis bequeaths upon the governments far broader and extensive social control over the people via bailouts, inflation, more regulations higher taxes and etc...

This legacy quote from a politician, during the last crisis, adeptly captures its essence

You never want a serious crisis to go to waste..This crisis provides the opportunity for us to do things that you could not do before.

Bottom line: many financial experts seem to in bed with politicians to promote political agendas either deliberately or heedlessly. Thus, financial expert-client relations usually embodies the principal-agent problem.

Nassim Taleb would call such mainstream experts as having "no skin in the game", thus would continue to blather about nonsense while promoting fragility.

Finally one doesn't need to be a CFA to know this. As James Montier in the above article said it only takes "common sense" which experts try to suppresss with "complexity". 

I would add to common sense; critical thinking.

In Beijing, Property Curbs Fail to Stop Bubbles

When authorities say that regulations would do the wonders of effecting price controls, they are mostly propagandizing. That's because markets will prove them utterly wrong. 

One great example, the stiff property curbs in Beijing has failed to stem the locality’s ballooning property bubble.

From Bloomberg: (bold mine)

Beijing, which already has China’s strictest real estate curbs, is being forced to take additional steps to contain surging home prices as demands for record-high down payments fail to deter buyers.

The city has enforced citywide price caps since March by withholding presale permits for any new project asking selling prices authorities deem too high, according to developer Sunac China Holdings Ltd. (1918) and realtor Centaline Group. Local officials will need further tightening as they struggle to meet this year’s target of keeping prices unchanged from last year, said Bacic & 5i5j Group, the city’s second-biggest property broker.

The failure of official curbs to stem price increases in the nation’s capital highlights the government’s struggle to keep housing affordable as urbanization sends waves of rural workers into China’s largest cities. New-home prices in Beijing rose by 3.1 percent in April from the previous month, the biggest gain among the nation’s four so-called first-tier cities, and climbed by the most after Guangzhou in May, according to SouFun Holdings Ltd. (SFUN) They rose in each of the first five months of this year…

Beijing, the nation’s third-most populous city, is the only city that enforces price caps in earnest, according to Bacic & 5i5j. Guangzhou and Shenzhen in the southern province of Guangdong are rejecting presale permits for some projects seen as too expensive, CEBM’s Luo said. The three cities, along with Shanghai, are considered first-tier.

In one of his last policies, Wen, replaced by Li Keqiang less than a month later, on Feb. 20 called on city governments to “decisively” curb real estate speculation after home prices surged the most in two years in January.

Beijing followed with the toughest curbs among the 35 provincial-level cities that responded with price-control targets, becoming the only region to raise the minimum down payment on second homes from 60 percent and to enforce a 20 percent capital-gains tax on existing homes, according to Centaline Property Agency Ltd., China’s biggest property agency.

Still, new-home prices in the city of 19.6 million, jumped 10.3 percent in April from a year earlier, the biggest rise after Guangzhou and Shenzhen, the National Bureau of Statistics said May 18. Prices of existing homes jumped 10.9 percent, the most since they reversed declines in December, and the greatest gain among all the 70 cities tracked by the government.

Given China’s underdeveloped capital markets, the ongoing consolidation of their stock markets, the artificially low rates designed to attain negative real rates or via the "inflation tax" (I doubt the accuracy of official statistics suggesting otherwise) and the massive credit expansion channeled mostly through State Owned Enterprises, where do you think the average Chinese will put their savings?

Bubble policies motivates people to go into wild (yield chasing) speculative activities. Thus, property bubbles and property sector backed shadow banking system are merely symptoms of bubble policies. 

For as long as the Chinese government promotes credit inflation, bubbles will be the economic and financial order.

The failure of property curbs only exhibits of the flagrant myopia of politics—where authorities see their constituents as unthinking subjects or automatons who will merely surrender to their whims.

In reality, many Chinese look for loopholes such as resorting to “divorce” in order to circumvent property regulations.

Moreover, additional regulations only complicates a fragmented and diverse system which only encourages corruption and other unethical behavior.

Yet aside from property bubbles and the shadow banking system, the more cautious Chinese protect their savings through accumulations of gold. 

The recent flash crash has only prompted many of the the Chinese to a gold buying spree. Premiums on physical gold in China has “jumped four-fold in the last six weeks” according to the the Zero Hedge.

In the illusory world of the fiat based monetary political economy, people have been incentivized to either indulge in wanton speculation or to hedge on real assets rather than to engage in productive activities. Thus bubbles everywhere.

And price controls only worsens such imbalances.

KPCB's Mary Meeker: Internet Trends 2013

For technology buffs, find below the global internet trends as presented by the slideshow of KPCB's Mary Meeker and Liang Wu (courtesy of Slideshare.net)

KPCB Internet Trends 2013 from Kleiner Perkins Caufield & Byers

North Korea’s Hyperinflation Prompts for the widespread use of the US Dollar and Chinese Yuan

The recent Hyperinflation in North Korea has prompted the repressed citizens to use the US dollar and the Chinese yuan even when foreign currency trades goes against the government’s prohibition which is punishable by death.

From Reuters (bold mine)

Chinese currency and U.S. dollars are being used more widely than ever in North Korea instead of the country's own money, a stark illustration of the extent to which the leadership under Kim Jong-un has lost control over the economy.

The use of dollars and Chinese yuan, or renminbi, has accelerated since a disastrous revaluation of the North Korean won in 2009 wiped out the savings of millions of people, said experts on the country, defectors and Chinese border traders.

On the black market the won has shed more than 99 percent of its value against the dollar since the revaluation, according to exchange rates tracked by Daily NK, a Seoul-based news and information website about North Korea.

I previously posted about North Korea’s hyperinflation here.

The growing use of foreign currencies by North Koreans can be seen as a form of civil disobedience

More from Reuters:

But experts said the growing use of foreign currency is making it increasingly difficult for Pyongyang to implement economic policy, resulting in the creation of a private economy outside the reach of the state that only draconian measures could rein in.

For now Pyongyang appeared to be capitulating, rather than trying to stamp out foreign currency use, they said.

Estimates of how much hard currency is in circulation vary, but an analyst at the Samsung Economic Research Institute in Seoul put it at $2 billion in an April study, out of an economy worth $21.5 billion, according to some assessments. Pyongyang doesn't publish economic data.

The use of dollars and yuan is now so pervasive there is little Pyongyang can do about it, said Marcus Noland, a North Korea expert at the Peterson Institute for International Economics in Washington.

The government would increasingly have to force people to provide goods and services to the state and get paid in won, added Noland, who closely studies the North Korean economy.

More on people defying the government:

North Korea made circulating foreign currency a crime punishable by death in September 2012, the Paris-based International Federation for Human Rights said in a report last month.

Another group, Human Rights Watch, recently interviewed more than 90 defectors who had fled North Korea in the past two years about punishment they had received for economic crimes. None said they were penalized for using or holding hard currency.

Nevertheless, ordinary North Koreans are very careful.

"I have heard multiple stories of people hiding foreign money under the floorboards in the house, or burying it up the hill in the woods out back," said one person in northeastern China who has lived in Pyongyang and regularly interacts with North Koreans.

"Nobody puts it in the bank because nobody trusts the government.

Even in North Korea, people see banks as wards or instruments of the government

Foreign currency use as backlash against the government’s attack on the thriving informal economy

Faith in the North Korean won crumbled when Kim's father, Kim Jong-il, ordered the sudden revaluation of the currency in November 2009.

The government chopped two zeroes off banknotes and limited the amount of old money that could be exchanged for new cash. The move, seen as an attack on private market activity at the time, spurred a rush to hold hard currency.

It also quickened inflation and according to South Korea's spy agency, sparked rare civil unrest in one of the world's most entrenched authoritarian states after North Koreans realized the won was not a safe store of value.

The government is widely believed to have executed the economic official who oversaw the revaluation.

Dollars have circulated in North Korea for decades, partly because of the cash siphoned off from official foreign trade.

The rise in the use of yuan is a more recent phenomenon and reflects a surge in trade and smuggling between North Korea and China along their 1,400 km (875 mile) land border, where a lot of the currency changes hands. Official trade with China is worth $6 billion annually.

Black market rates illustrate how far the won has fallen since the revaluation. It has plunged from 30 to one U.S. dollar to about 8,500, according to exchange rates tracked by Daily NK. The current official exchange rate is about 130 won per dollar.

This goes to show how people respond to repressive regimes especially when their survival is at stake.

This also goes to show of the limits of government’s influence in imposing the use of their fiat currency on the public. Despite threats on their lives, people junk worthless currencies for better alternatives.

This also exposes how much a paper tiger North Korean government is with regards to using its military to enforce the geopolitics of blackmail.

North Korean won seems headed in the same destiny with the Zimbabwean Dollar

The Hindenburg Omen Triggered; Will there be a US Stock Market Crash?

Although I began my analytical work on the financial markets as a “chartist”, I eventually moved on. 

There has been recent buzz about the reemergence of the so-called  “Hindenburg Omen”, which supposedly scared US stock markets last week.

The Hindenburg Omen, a technical indicator, if triggered supposedly portends of a stock market crash, thus was named after the “Hindenburg disaster” (see image above)

Writing at the stockcharts.com Chip Anderson says that the conditions of these crash indicator has been triggered: 

It happened in mid-April and it happend again on the last day of May.  The ominous sounding "Hindenburg Omen" signal has been given.  Here's the chart:

Here's the definition from our ChartSchool Glossary page:

"Hindenburg Omen: Created by James Miekka, the Hindenburg Omen warns of potential weakness in the stock market. There are three criteria to activate the omen. First, NYSE new highs and new lows must both be more than 2.8% of advances plus declines. Second, the NY Composite is above the level it was 50 days ago. Third, the number of new highs cannot be more than double the number of new lows. The activation period is good for 30 days. Once active, a sell signal is triggered when the McClellan Oscillator moves below zero and negated when the McClellan Oscillator moves back above zero."

So Friday's big drop triggered the Omen signal by causing $NYLOW:$NYTOT (the ratio of NYSE Lows to NYSE Total Stocks) to spike up above 2.8% (the red area graph above).

The Wikipedia.org has further conditions for such pattern to take place:

The traditional definition requires each condition to occur on the same day. Once the signal has occurred, it is valid for 30 days, and any additional signals given during the 30-day period should be ignored. During the 30 days, the signal is activated whenever the McClellan Oscillator is negative, but deactivated whenever it is positive.

Some users of the omen may choose to view the 30 day limit as "working days" and not "calendar days". This is reasonable as the global finance market works on a weekday (Monday to Friday) schedule—leaving about 100 hours where only limited sharemarket trading takes place. This only extends the omen's warning by an extra 10 days, a reasonable limit.

Having met the conditions, will the US stock market crash within 30 days?

Finally the odds for the pattern’s success:

From historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77% [The Wall Street Journal 8/23/2010 article cited below states that accuracy is 25%, looking at period from 1985], and usually takes place within the next forty days. The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%. Though the Omen does not have a 100% success rate, every NYSE crash since 1985 has been preceded by a Hindenburg Omen. Of the previous 25 confirmed signals only two (8%) have failed to predict at least mild (2.0% to 4.9%) declines.

Because of the specific and seemingly random nature of the Hindenburg Omen criteria, the phenomenon may be simply a case of overfitting. That is, by backtesting through a large data set with many different variables, correlations can be found that do not really have predictive significance. The Omen is at best an imperfect technical indicator that is a work in progress.

The last paragraph suggests that the accuracy of the Hindenburg Omen as crash forecasting tool may have been about data fitting. In short, this may not be reliable.

Anyway if the US stock markets should crash, I think it would more about the risks of a precipitate surge in the bond yields.

The Hindenburg Omen may function as a coincident indicator which reveals of the transition of the market’s sentiment as expressed in price trends and interpreted via specific technical indicators. 

But I wouldn't bet on a crash based merely on the Hindenburg Omen.