TopCools Editorial. Sep 3rd, 2015
Nobel Prize-winning economist Robert Shiller said Thursday he sees the “risk of substantial declines” of S&P to 1300 (30% drop); Another legend Bill Gross wrote on Sep 2, 2015 as no more stock growth in years ahead and “The Great White Hunter” and “something may be amiss in the global economy itself – China notwithstanding”. I take the great white as wall-street white shark are turning direction(do you remember a few days ago before this market drop, Goldman Sachs came out saying there is not much stock will go up”?) and “China NOT withstanding” and global debt not withstanding as below shown:
Here is our interpretation of why market goes this high:
1. Long “near-zero” interest rate, money cost is cheap.
2. Global central banks printed too much.
3. EM wealthy and wealth are streaming into US.
4. Bonds long bull is near the end.
Here is our perception why the legendary are bearish:
1. The global debt is gigantic compare to 2007. China has double its total debt increased from 158% to 282% of house-inflated GDP from 2007. In addition, its local government debt is hardly payable once local government loss land sales income and its industry has low profit margin and shrinking constantly, thus its public banks’ debt quality is much lower than private banks in other countries. More serious is: Chinese Yuan has strong depreciation expectation and exports is hurting…… the money flow out in the 2 weeks after the Aug 11 depreciation is about the size of 1H2015….. that bleeding is gigantic. 60~70% of its wealthy has foreign passport adding to the possibility that these wealth will never return.
One more thing: when an currency has strong depreciation as off-shore Yuan has shown. Cutting interest rate, reserve ratio, defend stock market, more discount to pop up real-estate only adding to more depreciation pressure to RMB and accelerating bleeding of wealth. The handlings show China’s central bankers are acting to accelerate the collapse of Chinese economy.
2. EM are changing from net US bond buyer to seller, US will be forced to pay more interests for its debts. The FED interest rate hiking is imminent and EM asset is bleeding and flying into US so much so, that an crisis is coming for sure.
3. Even though US has more cash, any big fund will not buying more due to pending crisis. In addition, once interest rate raised, fair value of S&P should be 30% lower. Bill Gross, Robert Shiller and Goldman Sachs should be right.
TopCools Editorial. Sep 3rd, 2015.
Disclaimer: We are not interested in any politics other than making money from sharp economic analysis.