- Gold miners becoming uneconomical — how many more as gold prices fall?
- US consumer confidence slumps to its worst since 2011
- But Ford is kicking butt (and selling $60,000 trucks)
- Even as China enlists “the national team” to prop up the market
- (Wouldn’t it be easier to just post fake stock quotes?)
- Some think China needs a Greenspan or Draghi to “comfort” them
- While in Germany a band of experts dreams of kicking debtors out
- And Beijing, in its infinite wisdom, now wants more control of the internet
Mineweb notes that one in 10 gold mines are now uneconomical. If this is the rough state of things for gold at close to $1,100 per ounce, what happens if (or when) the gold price falls into triple digits?
We like the idea of buying blue chip gold miners with a low cost of production… someday. But not today. (And not tomorrow either…)
Meanwhile US consumer confidence slumped in July, registering its worst number since 2011:
Worker pay increases that barely exceed inflation are limiting household sentiment about their financial situations, indicating consumers may be less inclined to splurge. Swings in stock prices stemming from the Greek financial crisis and weakness in China are also taking a toll on Americans’ attitudes, the Conference Board said.
Might this explain some of the weakness in XRT, the S&P Retail ETF? All dips have been bought more or less — but at some point, a budding correction will amount to something.
Maybe this: XRT is breaking down after months of flatline (see chart above).
Ford Motor Company (NYSE:F) is kicking butt though. The company earned $1.9 billion in net profits for the most recent quarter, a 44% increase year-on-year. Operating earnings “solidly outpaced analyst expectations,” the WSJ reports, with revenues declining slightly “due to the impact of foreign exchange.”
If consumer sentiment is weak, it's not showing at the top end of the spectrum, where people are willing to pay $60,000 for a luxury pick-up truck.
Over in China the “national team” is openly supporting the market. This is fairly strange (via the Financial Times):
The “national team” consists of large institutions with hundreds of billions of renminbi, such as the China Securities Finance Corp (CSF), a fund set up to provide liquidity and margin trading to brokerages that has been the government’s main market rescue vehicle.
Other players on the team include state-owned brokerages, large insurance companies and Central Huijin Investment, the holding company for the government’s majority stakes in most of the country’s largest financial institutions.
“I suggest we should set up a long-term and strong national team in China’s stock market,” Zhao Xijun, deputy dean of the School of Finance at Renmin University in Beijing, told the Financial Times.
“It’s hard to change the sentiment of 80m retail investors and, since Chinese investors are relatively trusting of the government, it should be up to the government to organise the establishment of the national team.”
In contrast, international investors have reacted to the extent of government interference in the market with sentiment ranging from disbelief to disgust…
Americans joke about investing becoming a national pastime, but this is ridiculous. For the finance dean at Renmin University in Beijing, we have a question. Why go to all that trouble? If you want the stock market nationally controlled, why not just let the government set the prices outright? You could have stock prices only show quotation levels pre-approved by the party. No more crashes.
Of course this would defeat the whole point and purpose of a free market in the first place… but who cares about that? Right?
This whole thing would be funny if it weren’t so tragic. Scratch that, it’s funny anyway. The WSJ thinks what China needs is a Greenspan or a Draghi:
Wanted in China: a reassuring face to tell panicking investors that everything will be all right.
Since China’s stock boom turned bust more than a month ago, the Chinese government has put out measure after measure to stanch the bleeding. But the rescue effort is missing one feature found in markets elsewhere: a senior figure stepping forward to stop the panic.
“There is no Alan Greenspan or Mario Draghi in China,” said Peng Junming, a former official at China’s central bank and now chief investment officer at Empire Capital Management LLP, a Beijing investment firm. He referred to the former U.S. Federal Reserve chairman and the president of the European Central Bank, respectively, both known for their public assurances in times of crisis.
The reason? Senior Chinese officials, who are appointed by the top echelon of the Communist Party, are often “afraid of saying anything that could displease or overshadow their bosses,” Mr. Peng said. “This has to do with the long-standing Chinese bureaucracy.”
Isn’t Ben Bernanke a free citizen now? Maybe he could get time off from advising Citadel to fly over and give a “Subprime is Contained” speech in Mandarin.
Somehow we doubt the ten of millions of retail investors losing their shirts will be comforted…
Aaand... the weird keeps getting weirder. A group of German “experts” say debtor nations should leave the euro, the Financial Times reports:
The mere suggestion of a country leaving what was supposed to be an irreversible currency union had long been taboo. But Germany’s finance minister, Wolfgang Schäuble, broke it two weeks ago by suggesting a possible five-year eurozone “timeout” for Greece.
The recommendation from the German Council of Economic Experts on Tuesday that, in some cases, eurozone members should be cut loose is another sign of the rapid shift in thinking in Germany amid mounting frustration over Greece.
“A permanently uncooperative member state should not be able to threaten the existence of the euro,” the economists said in a special report, published on Tuesday, calling for countries to exit the eurozone if it is necessary as an “utterly last resort”.
The five-member independent panel, known as the “wise men”, also argued that creditors should be forced to shoulder losses if states go bankrupt, encouraging them to scrutinise more closely the risks before they invest.
Yes this is a great idea guys. Wonderfully smart. With this plan, as soon as the next economic downturn hits Italy or Spain or even France, investors can begin their capital flight preparations early, touching off a downward spiral in anticipation of the “wise men” pulling the plug.
And Germany can provide lots more fodder for anti-austerity political groups to make jack-booted fascist thug references, via accusations of predatory lending leading to exile blackmail.
In the New York Times, Shahin Vallee argues that Germany is violating what the euro is all about — particularly in respect to France:
Through its actions, Germany has made a broader political point about the governance of the euro. It has confirmed its belief that federalism by exception — the complete annihilation of a member state’s sovereignty and national democracy — is in order whenever a eurozone member is perceived to challenge the rules-based functioning of the monetary union. In essence, Germany established that some democracies are more equal than others. By doing so, the agreement has sought to remove politics and discretion from the functioning of the monetary union, an idea that has long been very dear to the French.
…Germany could undoubtedly build a very successful monetary union with the Baltic countries, the Netherlands and a few other nations, but it must understand that it will never build an economically successful and politically stable monetary union with France and the rest of Europe on these terms.
Over the long run, France, Italy and Spain, to name just a few, would not take part in such a union, not because they can’t, but because they wouldn’t want to. The collective G.D.P. and population of these countries is twice that of Germany; eventually, a confrontation is inevitable.
To all the other euro member states: It’s Germany’s world, you’re just living in it. (Until the euro in its present form finally ends.)
Oh and by the way re: China — their control of the stock market has gone so smoothly, they want more control over the internet too:
On July 1, China’s legislature passed a new security law asserting the nation’s sovereignty extends into cyberspace and calling for network technology to be “controllable.” A week later, China released a draft law to tighten controls over the domestic Internet, including codifying the power to cut access during public-security emergencies.
Other draft laws under consideration would encourage Chinese companies to find local replacements for technology equipment purchased abroad and force foreign vendors to give local authorities encryption keys that would let them control the equipment…
If the evil short sellers don’t stop making stock prices go down, just cut off their internet access!
Disclosure: This content is general info only, not to be taken as investment advice. Click here for disclaimer