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Tuesday, July 07, 2015

Reality - It's That Thing That Doesn't Go Away Whether You Believe In It Or Not

And suddenly, the no-belief zone is being breached. 

Tesla (snicker). I don't know what to say but ---- Tesla!!!!

Greece. The Eurozone's all like "Who'd a thunk?? They can't pay their debt??"  When the leader of Malta is trotted out to make these statements of shock and outrage you can hear Cypriot strains in the background, played in a German Biergarten. And Greece - if you are not even willing to pretend, don't expect everyone else to keep pretending on your behalf. Folks, you had to have something to sell! If you weren't willing to do the Sheena Strut, you couldn't expect another quarter on the table.

China - Party like it's 1929. Shanghai opened into a bloodbath, and the banks are falling. They'll have to concentrate their firepower on the financials, and they are going to run out of ammo. I am sure the Chinese state will buy in. China doesn't fool around - the central bank will just hand out money to buy stocks or buy them directly. But there is an end to everything, and there will be to this also, because you cannot print money like that and bail those small investors out without perverting the system, and if you bail the large ones and dump the small ones, you have a hell of a social problem. Call it the Barney factor - it doesn't go away. This is straightforward buyer's exhaustion. 

What unites these disparate "crises" is what lies behind them. 

As for Tesla, anyone who has ever read their financials had to have a moment of supreme enlightenment. Surely. So don't claim you didn't know. This is a company that has no actual revenue stream.

Greece - well, the only thing Greece ever had to sell was the pretense that a country with say, 130% - 140% debt to GDP ratio could actually pull out through an austerity program and pay their debts. If you are Italy, it is essential to maintain that pretense. If you are France, it's very important. If you are Germany, you don't feel the same urgency, and in the end the Germans won and Draghi lost, and the battle now is purely to print enough money to keep those bond yields low. Draghi will indeed do whatever he needs to do, but the problem is the reality is STILL GOING TO BE THERE. Italy is the next Greece, and it's a much larger problem for the EU. The banks hold a huge amount of the bonds, so it will stagger onwards for some time, but sooner or later - Sammy Davis shows up.

China - it is not the stock market crash. It's the stock market crash after the demise of the RE fervor and the slow-down in the basic economy. When profits are doing this and  production inputs are doing this and stocks are going sky-high, it was a dead cert that Sammy Davis was singing in the background

 Reality sucks. It always sucks. The only thing that makes reality less painful on average is paying attention to it early, while the problems are still manageable. 

PS: The really fun thing to do is to watch the companies being suspended. China even futzes the stock indices, but that still doesn't change reality.  

PPS: They are losing the financials and struggling to hold the banks, but they can't succeed. This is historic - make some coffee and stay up and watch trading being shut down. You can't suspend so much of the market and not produce even more selling in the rest of it. The mathematics is inexorable.  

Note: If you don't grasp what I was referring to above, look at the component companies. Trading has been suspended (I believe the companies apply for this) in many, and the rest stop trading when they limit out at -10%. So in the end, if you need to pull money for any reason, you are limited to selling 10 or 20% of the companies in the index, which is a terrible situation to create. It's a recipe for a total crash, as investors have to sell profitable companies at reasonable valuations to get cash. This is almost a total shutdown of the market with hours to go. 

Any theories that the Chinese regulators and government are somehow really super-cool clever have to founder on this terrible, terrible mistake. Instead, they are crazy amateurs. They should not have let this happen.

My neighbors say, "But that's over there. Can't hurt us." Maybe not, I'm not sure. Just happy I'm neither Greek or Chinese. They have some rough sledding ahead.

I do know that we are getting good lessons in what Lady Thatcher said, "Eventually you run out of other people's money." Unfortunately, that still doesn't deter them from their goal of denying reality.
Of course it is going to hurt us, Jimmy.

For one thing, the Chinese authorities have been trying to blame this on foreigners. History suggests this will end in belligerence, because what do you do when your economy is in deflation?? There's not much else left, is there?

China's predicament is going to hurt Asia as a whole. We all know the situation in the Middle East. The South American countries are not doing well, on the whole. We've got Russia in a belligerent mood.

You never want to see everything go at once. This isn't going to help our economy either.

And here I thought you were sending me to YouTube to watch Sammy sing "Something's Gotta Give".

"Any theories that the Chinese regulators and government are somehow really super-cool clever have to founder on this terrible, terrible mistake."

Yes, I constantly hear that China will be the next financial capital of the world, but then they pull common-totalitarian stunts like this. Not to mention...well, don't get me started.

On a lighter note, did you know that Sammy Davis Jr. was quite a good Western shooter? The man was an amazing talent at anything requiring dexterity, and his quick-draw was supposedly near one-quarter second from holster to shot. Twirling was just the icing on the cake. Not to mention, of course, his tap. Watch him wipe the floor with a much younger and more athletic Gregory Hines:

What, you thought my life was all economics and engineering?

I wonder what China will stop buying once they can no longer export to the degree they got accustomed to? I wonder what somewhat-liquid assets China has that they could sell?

Remember the decay of the 1970's? The 1930's? I'm seeing a 42-year pattern, and I'm suddenly thinking of Humpty Dumpty.
Neil - it's Bang Bang for this week.

They have just halted NYSE trading on the floor???

Interesting times, interesting times.

This is just truly going to reassure everyone.
You are funny; that Sammy Davis song.
I think the point about this demonstrating that the emperor has no clothes in China when it comes to guaranteeing outcomes is important. A lot of people over there think their real estate investments are money good because the government won't let prices decline. This should be pretty much the end of that thinking, and that is the big Kahuna in China. The stock market is a relative side show.

Meanwhile, here at home, the meltdown of Obamacare proceeds unabated. The premium increases for next year vs what was promised are just laughable, only in the sense that they demonstrate the obscene hubris and folly of central planners imagining they can command economic outcomes that have no basis in reality. For millions of people in the middle class, this is no laughing matter, this is college tuitions, retirement contributions and nest eggs down the drain. The failure of the press to highlight this is scandalous. I hope you'll do a post.
On Tesla - if anybody needs persuading, go to


(newest posts on top; it's illustrative to read them in actual time order beginning with October of 2013. Though he's from Spain and the dates are shown in Spanish, the posts are all in English and quite understandable).

Tesla's millions-of-dollars'-worth of "no actual revenue stream" comes from selling carbon credits; and per Mr. Zaragosa's blog most of those credits are received due to "hype" (to be kind) or "fraud" (if you're not inclined to kindliness).

So all the Space-X rockets that blow up are funded by phony tax write-offs that are interchangeable with real dollars. How nice of all of us taxpayers.
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