China’s stock-market collapse is not over yet

The collapse in China’s stock market is far from over despite the Shanghai Composite Index having fallen nearly 30% in about a month and experts are urging investors to bail out while there is time.

“We continue to advise investors to consider not holding individual positions in Chinese stocks but advocate for fully diversified exposure to emerging-market equities,” Peter Donisanu global research analyst at Wells Fargo Investment Institute said in a report to investors. Continue reading

J.P. Morgan’s Dimon warns next crisis will bring even more volatility

It’s not a matter of ‘if’, but ‘when’… and here’s your latest confirmation.

 

LONDON (MarketWatch) — You ain’t seen nothing yet, when it comes to market wreckage from a financial crisis, according to J.P. Morgan boss Jamie Dimon.

In his annual letter to shareholders, the bank’s chief executive warned “there will be another crisis” — and the market reaction could be even more volatile, because regulations are now tougher.

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Opening Moscow’s Bag of Political and Strategic Tricks

Political correctness was invented by Marxists to destroy Western society from inside…. And in Russia, there is no political correctness at all! The reason is that Marxists do not need to undermine the Russian society from the inside, because it is already Marxist.

– Konstantin Preobrazhensky, “How the West Was Fooled by Vladimir Putin”

Then there is Russia’s military potential. With regard to major opponents, the West seriously underestimated its enemies twice during the last century: first in 1939 when the Allies believed they had boxed in Nazi Germany with their “guarantee” to Poland; and again, with sanctions on Japan in 1941. In the first instance Germany smashed Poland and crushed France. In the second instance, Japan destroyed the American fleet at Pearl Harbor, defeated the U.S. forces in the Philippines and captured the British forces in Singapore.

Some may argue that Russians are not as capable as Germans and Japanese. After all, Russia is a backward country; the Russian economy stinks; Russian equipment is obsolete and their people are demoralized. Even more egregious, Russian commanders are political stooges. But wait! Russia put the first man into space. Russia launched the first satellite. Russia built the first operational version of the hydrogen bomb. Let’s not make the mistake of underestimating Russia.

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Money for Nothin’ Writing Checks for Free

When coming from PIMCO, alarm bells should be going off.

Mr. Bernanke never provided additional clarity as to what he meant by “no cost.” Perhaps he was referring to zero-bound interest rates, although at the time in 2002, 10-year Treasuries were at 4%. Or perhaps he knew something that American citizens, their political representatives, and almost all investors still don’t know: that quantitative easing – the purchase of Treasury and Agency mortgage obligations from the private sector – IS essentially costless in a number of ways. That might strike almost all of us as rather incredible – writing checks for free – but that in effect is what a central bank does. Yet if ordinary citizens and corporations can’t overdraft their accounts without criminal liability, how can the Fed or the European Central Bank or any central bank get away with printing “electronic money” and distributing it via helicopter flyovers in the trillions and trillions of dollars?

Well, the answer is sort of complicated but then it’s sort of simple: They just make it up. When the Fed now writes $85 billion of checks to buy Treasuries and mortgages every month, they really have nothing in the “bank” to back them. Supposedly they own a few billion dollars of “gold certificates” that represent a fairy-tale claim on Ft. Knox’s secret stash, but there’s essentially nothing there but trust. When a primary dealer such as J.P. Morgan or Bank of America sells its Treasuries to the Fed, it gets a “credit” in its account with the Fed, known as “reserves.” It can spend those reserves for something else, but then another bank gets a credit for its reserves and so on and so on. The Fed has told its member banks “Trust me, we will always honor your reserves,” and so the banks do, and corporations and ordinary citizens trust the banks, and “the beat goes on,” as Sonny and Cher sang. $54 trillion of credit in the U.S. financial system based upon trusting a central bank with nothing in the vault to back it up. Amazing! Continue reading