Tuesday, November 12, 2013 Hitchhiker's
VUE
Tuesday, November 12, 2013 Hitchhiker's
VUE
Tuesday, November 12, 2013 Hitchhiker's
VUE
General Information and Analysis
“You will never know how much it cost the present generation to preserve
your freedom! I hope you will make a good use of it. If you do not, I shall
repent in Heaven that I ever took half the pains to preserve it.” John Quincy
Adams
I hate to admit it, but my wonderful country is no longer a free country in anyway a free country could be said to exist. We lost, and we are unlikely to ever retrieve what we lost.
US
China:
I'm not putting this under China,
as it does not directly apply to currency. I'm putting under the US, as it affects investing here more so than in China directly.
The English Newspaper published by
the Chinese Communist Party (Global Times) published a report on their
heretofore denied existence of long-range nuclear submarines.
"For the first time, Chinese state
media outlets released a series of reports and photos about the development of
the nation's first nuclear-powered submarine force on October 27. Until
recently the North China Sea Fleet had been a military unit shrouded in mystery."
What does it mean to the Western
World (not just the USA)? One concern,
which is not really the top concern, is that the USA (not Western World) is
entering a "cold war" era with one of its major trading partners.
The English Newspaper published by the Chinese Communist Party (Global Times) published a report on their heretofore denied existence of long-range nuclear submarines.
"For the first time, Chinese state media outlets released a series of reports and photos about the development of the nation's first nuclear-powered submarine force on October 27. Until recently the North China Sea Fleet had been a military unit shrouded in mystery."
What does it mean to the Western World (not just the USA)? One concern, which is not really the top concern, is that the USA (not Western World) is entering a "cold war" era with one of its major trading partners.
Background:
The "Global Times" http://www.globaltimes.cn/index.html
is a Communist Party newspaper printed in English. The Communist Party (and the ensuing
bureaucracy) watches what all reporters in China write and editors publish. Not one thing controversial is published
unless approved by the ruling party.
Last week several large Chinese
papers and the Global Times simultaneously published identical articles about
the existence of a nuclear submarine fleet capable of striking any city on the
USA Pacific Coast with nuclear missiles.
Here is a "strike map"
published by the Global Times.
(Can't put strike map here because Google won't let me insert graphics. I'm still trying to find out why).
Black dots on the map identify
potential nuclear targets, and the red and orange areas are fallout patterns
that would make the land uninhabitable for many years. The Chinese were very blunt: "Because
the Midwest states of the U.S. are sparsely populated, in order to increase the
lethality, [our] nuclear attacks should mainly target the key cities on the
West Coast of the United States, such as Seattle, Los Angeles, San Francisco
and San Diego".
However, if you look more closely,
the target is Seattle and the Puget Sound.
This is likely because Boeing is centered in that area and there is
major naval infrastructure at Joint Base Lews-McChord and several others. This map would also indicate that the fallout
would spread south, taking out San Francisco and San Diego (again Naval
facilities).
Other than to show there is an
approval by the government in China to show they have nuclear power that can
strike the US, it is not China's strategic plan. That plan will be drawn in secret.
The point is we now have a
coordinated Chinese media blast about nuking the USA mainland. This is not some faraway science fiction
end-of-the world movie. This is a real
world threat by the military of China.
The Chinese Military is explicitly
planning to blast US "key cities", and then watch as the nuclear
fallout devastates the land. We've
learned from Chernobyl the natural resources often survive the fallout (not the
immediate blast), and people can live on the land after a decade or so.
At the root of this kind of
planning is what military people call countervalue targeting. This targeting makes no distinction between
aiming at and hitting purely civilian activities vs. military related
activities. Counterforce is the term
used for attacking military and military-industrial assets.
This is planning for the most
destruction that can possibly happen, without retaliation. http://www.globaltimes.cn/content/820840.shtml Of course, we can assume the USA also has
nuclear submarines that could hit China's major cities, and so we end up an a
"cold war" again. (My nukes
are equal to your nukes, and you do it we do it; end of world).
For investors then, the scenario that is
likely to be played out is a nuclear and technology arms race. The Chinese have already announced this
through the new Prime minister. They
want to train thousands of engineers and scientists to create new kinds of
weapons of mass destruction.
Of course, that is really good
news for commodity rich nations (like Australia and Canada). Whatever the Chinese do, they must have raw
materials, and much of those materials do not exist on the Chinese mainland in
the quantities required.
Overall, we can expect that the
USA leadership has to fund military systems to deter and counter that kind of
unpleasantness.
That must mean companies such as
Boeing and Raytheon will benefit from the coming buildup. Raytheon is arguably the biggest supplier of
advanced armaments to the USA military.
L-3 (LLL:NYSE) focuses on
communications and signals equipment.
This will be a huge growth area, as the nuclear submarines China has
built are stealth machines. The Navy has
made a decision to upgrade its airborn submarine tracking abilities. L-3 and Boeing have teamed up to apply new
technology with the P-8 aircraft from Boeing.
General Dynamics (GD:NYSE) will
likely build the new type submarines at their boat division in Connecticut
(Ingalls Shipbuilding).
The investing opportunities will
be in large military suppliers that pay excellent dividends.
Black dots on the map identify
potential nuclear targets, and the red and orange areas are fallout patterns
that would make the land uninhabitable for many years. The Chinese were very blunt: "Because
the Midwest states of the U.S. are sparsely populated, in order to increase the
lethality, [our] nuclear attacks should mainly target the key cities on the
West Coast of the United States, such as Seattle, Los Angeles, San Francisco
and San Diego".
However, if you look more closely,
the target is Seattle and the Puget Sound.
This is likely because Boeing is centered in that area and there is
major naval infrastructure at Joint Base Lews-McChord and several others. This map would also indicate that the fallout
would spread south, taking out San Francisco and San Diego (again Naval
facilities).
Other than to show there is an
approval by the government in China to show they have nuclear power that can
strike the US, it is not China's strategic plan. That plan will be drawn in secret.
The point is we now have a
coordinated Chinese media blast about nuking the USA mainland. This is not some faraway science fiction
end-of-the world movie. This is a real
world threat by the military of China.
The Chinese Military is explicitly
planning to blast US "key cities", and then watch as the nuclear
fallout devastates the land. We've
learned from Chernobyl the natural resources often survive the fallout (not the
immediate blast), and people can live on the land after a decade or so.
At the root of this kind of
planning is what military people call countervalue targeting. This targeting makes no distinction between
aiming at and hitting purely civilian activities vs. military related
activities. Counterforce is the term
used for attacking military and military-industrial assets.
This is planning for the most
destruction that can possibly happen, without retaliation. http://www.globaltimes.cn/content/820840.shtml Of course, we can assume the USA also has
nuclear submarines that could hit China's major cities, and so we end up an a
"cold war" again. (My nukes
are equal to your nukes, and you do it we do it; end of world).
For investors then, the scenario that is
likely to be played out is a nuclear and technology arms race. The Chinese have already announced this
through the new Prime minister. They
want to train thousands of engineers and scientists to create new kinds of
weapons of mass destruction.
Of course, that is really good
news for commodity rich nations (like Australia and Canada). Whatever the Chinese do, they must have raw
materials, and much of those materials do not exist on the Chinese mainland in
the quantities required.
Overall, we can expect that the
USA leadership has to fund military systems to deter and counter that kind of
unpleasantness.
That must mean companies such as
Boeing and Raytheon will benefit from the coming buildup. Raytheon is arguably the biggest supplier of
advanced armaments to the USA military.
L-3 (LLL:NYSE) focuses on communications and signals equipment. This will be a huge growth area, as the nuclear submarines China has built are stealth machines. The Navy has made a decision to upgrade its airborn submarine tracking abilities. L-3 and Boeing have teamed up to apply new technology with the P-8 aircraft from Boeing.
General Dynamics (GD:NYSE) will
likely build the new type submarines at their boat division in Connecticut
(Ingalls Shipbuilding).
The investing opportunities will
be in large military suppliers that pay excellent dividends.
Friday's Labor Report
In one word: Confusing...
On one hand, the report looked
very good. However, the BLS assumes 3%
growth (and you know we are not getting that), and so they arbitrarily add
employment numbers to support the assumption.
That number was 126,000 jobs added out of thin air based on an erroneous
assumption.
Then when you read beyond the
headline number, we observe that the number of people not in the labor force
(but want jobs) exploded by nearly 1 million in October! That my friends is the 3rd largest increase in
the history of the US labor statistics.
The participation rate fell to a
1978 low. Think about that: 62% are
participating in the job market; well who knows about the rest. However, that number is likely lower than
that, because Food stamps applications exploded last month.
Very confusing...
The markets went nuts selling
foreign currencies like mad, driving the US dollar up, and the stock market
threatened to make an all time high in the S&P 500.
Today, sanity is coming back
in. Price is neither good nor bad - it
just is. The only thing price is telling
us at this point in the S&P 500 is that investors and traders are unsure
where the market should be. In auction
market theory, the market has reached an equilibrium where price is fair on the
S&P 500 between 1650 and 1770. (For
technical analysis, 1700 is a support area on an even number - a physiological
number.)
In one word: Confusing...
On one hand, the report looked
very good. However, the BLS assumes 3%
growth (and you know we are not getting that), and so they arbitrarily add
employment numbers to support the assumption.
That number was 126,000 jobs added out of thin air based on an erroneous
assumption.
Then when you read beyond the
headline number, we observe that the number of people not in the labor force
(but want jobs) exploded by nearly 1 million in October! That my friends is the 3rd largest increase in
the history of the US labor statistics.
The participation rate fell to a
1978 low. Think about that: 62% are
participating in the job market; well who knows about the rest. However, that number is likely lower than
that, because Food stamps applications exploded last month.
Very confusing...
The markets went nuts selling
foreign currencies like mad, driving the US dollar up, and the stock market
threatened to make an all time high in the S&P 500.
Today, sanity is coming back
in. Price is neither good nor bad - it
just is. The only thing price is telling
us at this point in the S&P 500 is that investors and traders are unsure
where the market should be. In auction
market theory, the market has reached an equilibrium where price is fair on the
S&P 500 between 1650 and 1770. (For
technical analysis, 1700 is a support area on an even number - a physiological
number.)
Today?
The market is in a downward
move.
The US Treasury starts off this
week by selling $30 billion in 3 year T-Notes.
On Wed. they will sell $24 billion in 10 year T-notes, and finish with
$16 billion 30 year bonds on Thursday.
The currency markets overnight
were mixed. The dollar index is up, but
the major currencies are mixed (some up some down).
The bullish factor for stocks is
China.
The market is in a downward
move.
The US Treasury starts off this
week by selling $30 billion in 3 year T-Notes.
On Wed. they will sell $24 billion in 10 year T-notes, and finish with
$16 billion 30 year bonds on Thursday.
The currency markets overnight
were mixed. The dollar index is up, but
the major currencies are mixed (some up some down).
The bullish factor for stocks is
China.
Canada
Eurozone
The Euro suffered mightily last
week. It began with the lower inflation reports (from the previous week),
suffered through a rate cut, and then extreme dovish talk from the ECB
(European Central Bank).
There is more trouble coming for
the Euro. ECB will very likely opt for
another round of LTRO (Long-Term Recovery Organization) bond buys. The ECB with support from Germany, will
likely announce negative deposit rates.
When this is done (probably
through December 2013), the Euro will rebound more than likely. At the moment, if one invested short term in
currencies, the Euro is taking a shellacking.
Why would they rebound? Because the US political and financial
situation is worse than Europe's and the USA faces the debt ceiling again first
of next year.
Australia:
Australia is not feeling the love
at the moment (they experienced some last week). This is very likely because there is no GOOD news coming from China's
Third Plenum meetings where it was expected President Xi would announce
liberalization of the Chinese Economy.
China
End of 3RD Plenum
This just in:
"A
few hours ago, the "historic" and "most important ever"
(just like ever payrolls report) Chinese plenum concluded. And like everything
out of China, it was big on promises and scant on details. Among the numerous
assurances of reform, the plenum promised: to deepen reform of the medical
system and in the education sector, to speed up free trade zone development, to
clear barrier in markets, to deepen national defense and military reform, to
reform the income distribution system, reiterated the main role of public
ownership and said there would be reform of government-market relations. And
all of this would yield results by 2020. Essentially, words so hollow one can't
help but doubt this was merely the latest smokescreen to justify the
perpetuation of the status quo, investment-based economy which as the BBG Brief
chart below shows, instead of becoming more consumption driven which is what
China has been feverishly attempting to achieve, has instead become ever more
reliant on consumption." Zero Hedge
===============================================
The
most notable thing is the shift in language, because this has all been said
before. They use "Decisive"
role instead of "Basic" role for the economy.
China’s October industrial
Production unexpectedly took a huge jump to +10.3% year on year. It was expected that industrial production
would decline. Retail Sales were weaker
than expected.
Wholesale delivery of Cars and
Sport utility vehicles rose 24%. This
was much higher than expected, and would indicate the wholesalers believe there
will be strong retail demand.
New Yuan loans were 506.1 billion
Yuan; well below estimates of 580 Billion Yuan.
China’s curtailment of loans internally seems to be working.
China’s CPI roase +3.2% y/y. This is a continual improvement (if
inflations is improvement), and continues to climb as China focuses on building
the middle class of consumers. However,
unexpectedly PPI fell -1.5% y/y.
Overall, these numbers (along with
iron ore shipments last week) seem to indicate that the global economy driven
by China’s consumption is on track even with the USA problems.
China’s October industrial
Production unexpectedly took a huge jump to +10.3% year on year. It was expected that industrial production
would decline. Retail Sales were weaker
than expected.
Wholesale delivery of Cars and
Sport utility vehicles rose 24%. This
was much higher than expected, and would indicate the wholesalers believe there
will be strong retail demand.
New Yuan loans were 506.1 billion
Yuan; well below estimates of 580 Billion Yuan.
China’s curtailment of loans internally seems to be working.
China’s CPI roase +3.2% y/y. This is a continual improvement (if
inflations is improvement), and continues to climb as China focuses on building
the middle class of consumers. However,
unexpectedly PPI fell -1.5% y/y.
Overall, these numbers (along with
iron ore shipments last week) seem to indicate that the global economy driven
by China’s consumption is on track even with the USA problems.
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