Archive for October, 2015

China reverses one child policy

Posted: October 30, 2015 in Uncategorized

China is reversing the one child policy.

It is easy to understand why. In 2007 there were circa 167 million Chinese over 60. By 2050 there will be approximately 500 million. Half the working population and without a proper pension system.

They need to reverse the error, but you will be sure it will bring unintended consequences – even if it works (as even the Party can really order to make babies).

One it will be an increase of wealth of the already divided wealthy coastal China and poor inner China with more social economical issues.

I already talked about the subject, but an article from Tria Capital begs me to go back to it.

Part of the Financial System Enquiry presses on the fact that Super was not meant to be an intergenerational wealth transfer system.
It was not meant to allow early retiree to get a bonus holiday and then rely on the Age Pension.

In the future all these issues will be addressed. Part of super will be automatically converted in guaranteed income. Extremely large balances will be taxed appropriately and probably also on death.

So how much is enough. Apparently 1 million per member looks enough.

A million gives approximately $65,000 of income per year (Government  data) which is an equivalent of $95,000 salary ($18,000 more than the average australian salary).

So what we have to start thinking about if we have more? Alternatives like investment trusts and insurance bond as an example.

Remember this is not advice
Just were the world is heading as the Government cannot sustain the current age pension situation

Syria..a bigger mess

Posted: October 29, 2015 in Uncategorized

The US now is planning boots on the ground on specific ground operation. Hopefully the coordination with Russia works.

Recapping

Turkey is mainly against PKK kurds and Assad and partially against Islamic State (but it has been caught also providing weapons to IS).

US/West countries are against IS and Assad, but pro Kurds PKK and Turkey.

Gulf States mainly follow the US but some “stray” elements support IS against Russia.

Jordan mainly follow the US and Israel, but also Russia.

Russia and Iran support Assad against the rest.

Iraq supports whoever helps but leaning towards Russia.

Now that IS start pledging support to Palestine, also Israel will get involved. As US is turning is back on Israel it will be interesting to watch Russia/Israel.

China is giving weapon to Iran.

Hopefully I did not forget anyone.

Monday looms another US deficit ceiling showdown, but it seems all will be smooth.

The Republican agreed on a qui pro quo to pass the debt ceiling in exchange of a massive military spending increase.

Since 2008 the US pro capita debt jumped from just over US $20,000 pro capita to over $55,000!

But if you can print money ..who cares?

That is why the real battle US versus China versus Russia is the USD as a reserve currency! And also why the Fed is so slow in rising interest rate…imagine what a 0.25% increase does if you have a new limit of over USD19 trillion (currently just over USD18. World debt just over USD63 trillion)and the US has a population of just over 300 millions…that is what I call Big Spenders!

Markets 28 October

Posted: October 28, 2015 in Uncategorized

The market ot is still technically in a Bear Market rally (and so it will be until SP500 breaks 2130/2150) having broken the 2000.
Now it is in a trading range 2040/2075 waiting for news.
One alerting thing is that the DJ transport index turned south (DJ Trans is usually a bellweather as…no transport no commerce).

This could well be the bear rally temporary top, but the US Fed surely knows.

Middle East: Russia vs Saudi

Posted: October 25, 2015 in Uncategorized

Vladimir Putin has 2 outstanding issues with the Saudis.

In the 1980s the Saudi at least helped the fall of the USSR with cheap oil.
Now they weakened considerably Russia with cheap oil.

Time to retaliate?
After moving into Syria, Russia just signed agreements with Iraq and also Jordan.
It has some “do not disturb agreement” with Israel and some major economic agreement with Egypt.

In the South there is Yemen. Yes the Houthis are losing (not as much as the media wants us to believe), but they are successfully bleeding Saudis finances (Saudi already scale back citizens handsout and tapped international no d markets for finance. And the IMF published a note that Saudi will run into deficit in 5 years if it keeps this level of expenses at these oil prices).

So now look at the map…Is Russia encircling an old enemy?

Middle East: Final showdown?

Posted: October 23, 2015 in Uncategorized

Wednesday evening I went and see Jonathan Pain, author of the Pain Report and often presenting on Bloomberg, CNBC etc.

It is actually comforting to see my theory fully supported from such a famous presenter.

Interesting he has my same take on the Middle East that something bigger than the usual Middle East war is brewing….a final showdown between Iran (backed by Russia and armed by Russia/China and Saudi and the Gulf States alliance backed by the US and the West.

To add things to the fire (as if it was needed) two uneasy comments.

Saudi Foreign Minister ” We wish that Iran would change its policies and stop meddling in the affairs of other countries in Lebanon, Syria, Iraq and Yemen. we will make sure  that we confront Iran’s action and shall use all our political, economical and military powers to defend our territories and people”.

Qatar even threaten to intervene directly  to hasten Syria’s Assad Government. But bombing Syrian troops would probably kill Iranian and Russian soldiers.

Why “hasten” the fall? Iran has already the strongest army in the Middle East (bar Turkey, part of NATO) and now with the nuclear agreement with the US can start export again and spend money on its conventional military (such as air force) and so getting even more powerful in the future.

Iran and Russia are not famous for having red lines crossed and do nothing about it.

I do not believe in prophecies, but strangely all Armageddon prophesies from the main Western religions do agree in one thing …the final showdown will be in Damascus/Syria. Quite eerie.

Another US debt ceiling showdown

Posted: October 22, 2015 in Uncategorized

In early November again there is a US Debt Ceiling showdown threatening to close the US Government.

The stock market is brushing it off as so many passed and go without inflicting any real damage.

The US Treasuries instead are showing more nervousness.

They are nervous as the 28October there is the election of the new House speaker. One of the favourites  for the place is Paul Ryan, a Republican conservative that voted against the raise of the debt ceiling the last few times.

So no panic, but be aware of it.

The Government accepted all recommendations of the Murray inquiry, apart one.

It will be a “go slow” approach and possibly interrupted by an election – but it is interesting to see the direction of their thinking.

Moreover it has been lauded by all sector…which means it is quite soft as no major interest have been disrupted …and everything was already agreed upon.

Let’s look at the summary from the government own statement

  • Resilience

The government says that the will be no “bank bailout” in the next Financial Crisis and banks have to shore up their balance sheets as they source their money from abroad,

This was well in the cards as you can see from the various capital rising of the banks and even increase of interest rates from Westpac.

Two main takeouts:  the interest rates have pretty much bottomed. This would put further pressure on housing and also in the stock market the bank share price will not go anywhere (80% of the bank profit comes from the loans)

-Super/Retirement income

This address an issue that is in my mind from quite a while. There are too many pensioners that take a lump sum at 60 to “live the life” until 65…and then rely on the age pension. The Government need to change that as it is not sustainable so in the future you WILL NOT able to get lump sums (or probably it will be a limit in what you can take) as your money will be compelled to invested in retirement income product.

This has the potential to have a huge impact on your planned lifestyle. Maybe putting all your money into super is not anymore the smartest idea.

The other huge factor is that the Government is thinking about changing the default allocation on your super. Currently practically is 70% Growth and 30% Income. This means that every year a huge amount of new money goes in Australian shares. A switch of this to a more balance 50-50, could be a massive game changer in the market with more focus on the corporate bond market

-Innovation

Linked to the above point the Government highlight the need of corporate bond and social/infrastructure bond

A very good outcome is the will of bringing some rule around the Credit card space….a really theft by stealth space.

-Consumer outcome

A minimum standard education for financial advisers

Accountability of issuer

A further look in conflicting remuneration also in mortgage broker and stock broker space

Regulation

More power for ASIC, which will also powers overlapping the competition watchdog.

Interestingly there will be a commission that oversees ASIC/APRA. This is again important as the recent scandals showed as the big banks have been treated with white gloves.

Nothing against ASIC, but it is much easier and cheaper to target a John Doe that has access to a normal lawyer than go against a mega bank with an array of mega lawyers

The clause that has not been accepted is the one in relation to the use of loan in the SMSF (specially in regards to buy property)

As expected China GDP growth  came in a bit weaker, but not much at 6.9%.

We talked about the unreliability of this number in an older post, so I will not linger.

Serious institutional only research houses as Lombard Street, Conference Board Center and capital Economics already in May were giving a correct number between 3.8% and 4.9%.

So the reality is well below.

The bigger issue is a series of conflicting message.

practically as soon as there is a serious hiccup, the trend of reforms and modernization of the economy towards a consumer base economy stalls and the politicians revert to the safe and well trodden path of exports and infrastructure.

Just as one example an anticipated announcement of making State Owned Enterprises more private, has been just reverted and actually the Party announced an increase in control!

There is a lack of coordination and a mixed message as they want to clean up the debt at state level…and everybody knows that the real  debt is at regional level.

And so on – they want to sput free stock market, but as soon as the market go in reverse they arrest over 200 people for just talking negatively about the stock market.

The reality is that the “pact” between the Party and the people is Full Employment (as in Western Countries is Democracy) and the Party is scared of a revolutions.

So when the fear goes to panic they revert to what they know.

This fact does not mean China will fall – simply that the problem is much bigger that they (China and Western Media) want us to believe. How much bigger? A lot. Could it cripple China? Probably not, but the longer they do not address the issue the bigger the issue becames.

Well in that they have good company – also the US Federal Reserve the more it dithers unwinding QE 3…the more difficulties they will have.