IPOs Halted on China's Stock Markets, Too Little, Too Late?

On Saturday evening, China’s two stock exchanges — in Shanghai and in the far southern city, Shenzhen — issued notices suspending initial public offerings until further notice even for companies that already had provisional approval to list their shares. (source infra)

As Chinese stocks soared in the 12 months until their peak on June 12, the small- and medium-size companies with weak financial fundamentals fared the best. Many of them quadrupled, or rose even more, in value, while the overall index doubled because large-cap stocks lagged far behind. The small-cap and medium-cap stocks overwhelmingly tended to draw middle-class and working-class investors who were buying whatever stocks were rising fastest. The Shanghai market rose 149 percent in the year until June 12. By comparison, a stock price index of 100 large mainland Chinese companies that are traded in Hong Kong — and many of them in Shanghai, too — rose 24 percent over the same period. (source infra)

China's government-controlled Securities Association of China said that 21 big brokerage firms had agreed to set up a fund worth at least 120 billion renminbi, or $19.4 billion, to buy shares in the largest, most stable companies, and to stop selling shares from their own portfolios. But some experts said the moves might not be enough to stop the hemorrhaging of money from the stock market, particularly given that $105 billion in shares changed hands in Shanghai on Friday.--China Moves to Stabilize Stock Markets; Initial Offerings Halted - The New York Times

The world is addicted to fiscal stimulus and central bankers' fiat money, and as a result has too much debt--The Smartest Man is Wild about Innovation: "The whole world is suffering from too much debt. As a result, growth almost everywhere is going to be slow. I know you believe the problem is insufficient demand, but the major industrialized countries already have considerable debt and do not want to add any more to it to stimulate the consumer."

Financial Crisis Events to watch this week: 

• Greece UPDATE: Greeks Vote "No" more here
• China
• Puerto Rico
• Chicago and Illinois -  Lawmakers 'no closer' to deal hours away from state budget, CPS deadlines - Chicago Tribune

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Municipal Bonds, Financial Crisis, Investors

Municipal Bonds, Financial Crisis, Investors--

What Would Jim Lebenthal Say? | The Woman's Investment Bible: "... It starts with a highly visible market expert making claims for the imminent financial ruin of hundreds of billions of dollars of municipal bonds during the middle of a financial crisis. Nervous investors look at the isolated and well- known problems in the market—Detroit, Jefferson County, Puerto Rico, Illinois—and start to generalize across an entire market. A run ensues. It continues with a zealous tax reformer pays for an income tax cut with a surcharge on tax-exempt income. On a relative value basis this tax structure diminishes the after-tax yield advantage for muni investors, and investor demand continues to wane. A sizeable municipal bankruptcy follows, one in which general obligation and revenue bondholders are forced to accept less than par in a workout situation. Investors continue to shy away from the sector, liquidity dries up, muni yields rise as a result, and issuers find it more difficult and expensive to finance their projects through the municipal market. So they find other avenues for project financing... " (read more at the link above)

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Financial Crisis, Tim Geithner, Barack Obama, Congress - Paul Krugman: "we failed, badly"

Forget the book -- read the review (excerpt below):

Does He Pass the Test? by Paul Krugman | The New York Review of Books: ".... the victory over financial crisis looks awfully Pyrrhic. Before the crisis, most analysts expected the US economy to keep growing at around 2.5 percent per year; in fact it has barely managed 1 percent, so that our annual national income at this point is around $1.7 trillion less than expected. Headline unemployment is down, but that’s largely because many workers, despairing of ever finding a job, have stopped looking. Median family income is still far below its pre-crisis level. And there’s a growing consensus among economists that much of the damage to the economy is permanent, that we’ll never get back to our old path of growth... Whatever Geithner may say, it’s clear that a lot more could also have been done to reduce the burden of mortgage debt. Yet we didn’t do what needed to be done... We can argue about how much of the blame rests with the Obama team... But the overall grade seems clear. We didn’t pass the test—we failed, badly."

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Global Economic Crisis, Are We In Trouble?

Increasingly, "yes" is the answer heard -- "A gradual tightening of fiscal policy and structural reforms are desirable to restore fiscal space depleted by the 2008 financial crisis. In brief, now is the time to prepare for the next crisis." -- Kaushik Basu, the World Bank Senior Vice President and Chief Economist

18 Signs That The Global Economic Crisis Is Accelerating As We Enter The Last Half Of 2014 Washington's Blog: "... Most Americans tend to only care about what is happening in the United States, but the truth is that serious economic trouble is erupting in South America, all across Europe and in Asian powerhouses such as China and Japan.  And the endless conflicts in the Middle East could erupt into a major regional war at just about any time.  We live in a world that is becoming increasingly unstable, and people need to understand that the period of relative stability that we are enjoying right now is extremely vulnerable and will not last long.  The following are 18 signs that the global economic crisis is accelerating as we enter the last half of 2014…" (read more at link above)

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The Financial Crisis and the Free Market Cure

Well worth watching--

Book Discussion on [The Financial Crisis and the Free Market Cure] - C-SPAN Video Library: "John Allison talked about his book, The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World Economy’s Only Hope, in which he argues that government incentives and regulation caused the 2008 collapse and says that to improve the economy we need to adopt pure free market policies. He responded to questions from the audience at the Heritage Foundation in Washington, DC."

Some of the points made--

Housing is consumption not investment;

Wall Street wasn't the problem--government was (Federal Reserve, SEC and regulatory agencies, Fannie Mae and Freddie Mac, governmental policies, etc.);

Fannie and Freddie failed and were leveraged 1000 to 1, half their loans in sub-prime loans.

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The Eurozone Disease

The biggest failure of the Obama Presidency? Without a doubt his failure to address the fiscal crisis facing the United States. Instead of providing leadership after the report and recommendations of his own appointed Presidential Commission (Simpson-Bowles)--he did nothing. Failure to lead, failure to act, that is his undeniable legacy on this issue. So where does this leave us? Completely vulnerable to "catching" the "Eurozone disease"--

Agenda | Irwin Stelzer: Euro-Zone Shark Still Has Its Appetite - WSJ.com: "Bankrupt Greece; junk-rated Portugal pleading with Angola for inbound investment; jobless Spain, facing some interest rates that have doubled in the past month; and recovering Ireland have already fallen to the bond vigilantes. Growth-free Italy is fighting a rearguard action, facing unsustainable interest rates despite the stellar reputation of its newly appointed technocrat prime minister, Mario Monti; Belgian debt, now equal to its GDP, has been downgraded, in part because of the inability of this seat of the EU to form a new government. France, consumer confidence dropping, is likely next. . . . The failure of the supercommittee to find some trivial deficit reductions means America might also slip into the ungovernable category. And the Federal Reserve Board is imposing new stress tests to determine whether leading banks can withstand a wave of sovereign- debt and bank defaults in Europe. Pulitzer Prize-winning columnist Charles Krauthammer is not alone in arguing that the euro-zone disease, unless cured, might well turn slow growth in the U.S. into recession, and scupper any chance President Barack Obama has of avoiding a forced return to Chicago in 2013. Which is why Mr. Obama will do more than present German Chancellor Angela Merkel with the Presidential Medal of Freedom when she arrives in Washington Monday evening. He and Treasury Secretary Tim Geithner hope to persuade her to stem the rot. Whether she is prepared to take advice from the team that has driven American deficits and debt to such levels that their nation's debt has been downgraded while Germany's remains triple-A is uncertain. . . . "

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Don't Trust Those "In Charge"

If you read nothing else this week, read the article from Forbes excerpted below. I remember being told  in Miami in late 2004, by a PR guy who did work for real estate developers, that a huge "real estate bubble" was developing that would burst and cause "a lot of banks to fail." He expected it to happen in 2005--a little early--but he was proven right. On the other hand, those "in charge" never saw it coming.

Don't Trust The Wise Men Of Finance - Forbes: " . . . Fed Chairman Ben Bernanke told a George Washington University class last week ( I saw it on C-Span) that the 2008 financial crisis took place because “nobody was looking at the whole system.” Almost simultaneously former Treasury Secretary Robert Rubin was telling another GWU group, televised on C-Span, that “no one saw the Long Tail coming,” meaning that no Wall Street leader, no economist, no legislative committee, no regulator, could predict the perfect storm of all investment assets collapsing at the same time. I beg to differ. Here, from a piece I wrote on June 18, 2007 — more than a year before the Lehman Brothers bankruptcy, I was talking to a whole mess of well-connected people about what danger we might be in. . . . "

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Reality Check: Eurocrisis Is Far From Over

Don't listen to the pundits and salesmen, the eurocrisis is far from over--here is Germany's Der Spiegel's take just last week:

Not Out of The Woods Yet: Despite Progress, Euro Crisis Is Far From Over - SPIEGEL ONLINE - News - International: " . . . So has Greece been rescued and financial markets been tamed? Is the euro crisis a thing of the past? Unfortunately not. With their successes in the last few days, euro-zone politicians have done little more than bought themselves time. They must use this window to brace themselves for the next wave of the euro crisis which is about to crash down on Europe. It's already clear that the Greek economy can't survive with a government debt to GDP ratio that will -- at best -- still be at 117 percent in 2020, especially given the record pace at which the country's GDP is contracting. There is still no coherent strategy for making Greece competitive again inside the euro zone, or for raising the capital for the huge investments needed -- let alone for the wholesale revamp of the country's entire public administration. And so Greece is likely to report the next set of disappointing budget figures in a few months, and the wrangling over a new debt cut and a new rescue package will start shortly afterwards. Maybe the next wave of the crisis will hit us even sooner: Greece is scheduled to hold an election on April 22 which is expected to produce a left-wing majority deeply opposed to the strict austerity program imposed by Brussels. . . .  Portugal, Spain and Italy, the three other problem countries in the south of the euro zone, must perform the magic trick of stimulating growth while reducing their budget deficits. That can only succeed with a lot of pragmatism -- austerity without growth is as pointless as growth without austerity. . . ."

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Europe: the crisis is not over--

Europe: the crisis is not over--

1. The problem is not solved --
An EU Summit mis-think: The pitfalls in official first-loss bond insurance | vox - Research-based policy analysis and commentary from leading economists: . . . Italy is a lot like Fukushima . . .

2. The markets know it --(watch the Italy/Germany spread)

http://www.bloomberg.com/quote/!ITAGER10:IND  

But the stock markets went up Thursday you say? The stock markets today are full of traders and speculators--if you're an investor, it's best not to hang out in bad neighborhoods!

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Europe's temporary solution (video)

Europe's temporary solution, the crisis is not over (video below)

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Jeffrey Friedman: Regulators' Ignorance Contributed to the Financial Crisis (video)

Jeffrey Friedman: Regulators' Ignorance Contributed to the Financial Crisis
AEIvideos
http://www.aei.org/event/100483 "Capital Standards, Regulatory Ignorance and the Financial Crisisof 2008" Jeffrey Friedman, University of Texas, Austin, and Critical Review.

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At the precipice--this is not good--Europe rejects U.S. and IMF recommendations on debt crisis

At first I could hardly believe this when I read it tonight--

Europe rejects U.S., IMF recommendations on debt crisis, stirring doubts about plan

European officials working to address the region’s financial crisis have rejected key recommendations from the United States and the International Monetary Fund, casting doubt on whether an emerging plan will be as broad or fast-acting as hoped.. . . the plan excludes the open-ended use of the European Central Bank as a guarantor of government debt and the swift infusion of public capital into banks that U.S. and IMF officials say could be critical to restoring confidence in the euro region. Both were central elements of the effort to shore up the U.S. financial system three years ago. . . . the plan means months more uncertainty while potentially weakening banks that have to turn to public sources for help and admit they cannot raise money on their own. http://www.washingtonpost.com/business/economy/europe-rejects-us-approach-to-financial-crisis-stirring-doubts-about-plan/2011/10/13/gIQACZQVmL_story.html

When your friends reject your best advice and decide to keep spiraling down, what do you do? Unfortunately we live in a global system and the coming contagion is going to be hard to contain once it starts. What a contrast to what the Bank of England did just a few days ago.

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The Bank of England moves aggressively in face of a growing global economic disaster

UK determined not to go down with Europe—the Bank of England has sounded the alarm and is now moving aggressively while the European Central Bank (ECB) fails to act

The big story is now playing out across the “pond”--driven by growing signs of a global economic disaster, the Bank of England is putting £75billion of newly created money into the economy in a desperate effort to stave off a new credit crisis and a UK recession. In announcing the decision Bank of England Governor Sir Mervyn King said:

“This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever.  We’re having to deal with very unusual circumstances, but to act calmly to this and to do the right thing.”

Announcing its decision, the Bank said that the eurozone debt crisis was creating “severe strains in bank funding markets and financial markets”.

“The world economy has slowed, America has slowed, China has slowed, and of course particularly the European economy has slowed,” he said. “The world has changed and so has the right policy response.” The decision was the Bank of England’s first move on QE since 2009, during the global credit crisis, when the Bank injected £200 billion into the economy.

Not that any of this seems to have been obvious to the European Central Bank (ECB), whose failure to cut interest rates on Thursday was almost as surprising as the Bank of England's decision to act so precipitously and pre-emptively. http://www.telegraph.co.uk/finance/comment/jeremy-warner/8812051/Bank-of-England-hits-the-panic-button.html

City (London) traders took heart from the Bank of England’s move to boost growth, with the FTSE 100 rising 3.7 per cent -- its biggest two-day gain since 2008.

The Bank of England is now at odds with the European Central Bank (ECB), which has been moving in the opposite direction and raising rates. http://www.telegraph.co.uk/finance/financialcrisis/8810896/Bank-of-England-launches-75bn-more-QE.html

. . . . Bizarrely, the ECB still seems to be looking in the wrong direction – ever vigilantly searching the horizon for the ghost of inflation – even as the noisy locomotive of economic catastrophe bears down on it from behind. Even for such a compromised institution, with 17 masters to answer to, the incompetence of the policy stance is quite breathtaking. . . . Europe's failure to resolve its debt crisis is creating a vicious downward spiral of contracting credit and economic activity. The Bank (of England) does indeed have little option but to react in the way it has. The almost suicidal, depression economics of the eurozone leaves it no choice. . . . (emphasis added)--Jeremy Warner in the The Telegraph http://www.telegraph.co.uk/finance/comment/jeremy-warner/8812051/Bank-of-England-hits-the-panic-button.html

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Government money is no good in today's stressed environment

Why This Crisis Is Different From the 2008 Financial Crisis - WSJ.com: ". . . current clamor for intervention by the monetary authorities—be it in the form of more liquidity injections (or 'QE3') by the Fed or the European Central Bank.
So 2008.
Even if the central banks were inclined that way, pumping more money into an economy already flush with cash would provide little solace."

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Keep an eye on Europe--the Italy-Germany 10 year spread

While everybody is watching what is happening in Washington, also keep an eye on Europe--a snapshot is the Italy-Germany 10 year spread.  Don't take my word for it, listen to a Nobel laureate in economics--
Economics and Politics by Paul Krugman--NYTimes.com: "When I fire up my computer these days, I quickly check out the Italy-Germany 10-year spread. That spread spiked earlier this month, signaling the spread of the crisis beyond the small peripheral economies; at its peak a couple of weeks ago it was 3.32 percent. Then the new rescue plan was announced, and the spread fell to 2.47 — still very bad, but a little less catastrophic. . . as of this morning it’s back up to 3.08. Things are falling apart."