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This Is What Central Bankers Think Of Retail Investors
This Is What Central Bankers Think Of Retail Investors
Of course this being China, even the Ponzi schemes are next level: as we noted before, police had to use two excavators and dug for 20 hours to unearth 80 bags of evidence that Ezubo executives had buried six meters underground on the outskirts of Hefei, a city in the eastern province of Anhui.
Then overnight, Reuters added some more juicy details to this epic fraud: executives at Ezubao’s parent company, Yucheng Group, now say it was “a complete Ponzi scheme”, which used investor funds to support a lavish lifestyle, the official Xinhua News Agency reported this week.
Among gifts that Yucheng Chairman Ding Ning gave his president, Zhang Min, were a $20 million Singapore villa, a $1.8 million pink diamond ring, luxury limousines and watches and more than $83 million in cash, Xinhua stated.
Amazing, but the real question is just how many other Ezubao are lurking. The short answer: many.
China’s P2P and the online finance industry also serve as a critical channel for the emerging small business and consumer market, which is often ignored by banks and mainstream financial institutions. iResearch predicts China’s unsecured consumer finance market alone will triple in size by 2019, reaching outstanding loans of over $1.7 trillion.By November, there were over 3,600 P2P platforms as the industry raised more than 400 billion yuan, according to the China Banking Regulatory Commission (CBRC). More than 1,000 of those were problematic, it said.
…click on the above link to read the rest of the article…
A Bubble on Thin Ice
A Bubble on Thin Ice
An Inexperienced Herd
A recent Bloomberg article discusses the fact that most traders active today have never known anything but the era of easy money, and wonders how they will handle the potential end of that era. To this it should be mentioned that the widely expected rate hike cycle may well never begin. The economies of industrialized nations have been severely undermined by loose monetary policy for many years. In concert with over-regulation and over-taxation, this has encouraged ever more capital consumption. Continued economic weakness may encourage the Federal Reserve to simply continue with the ZIRP policy, although it appears to be eager to end it.
Once the herd stampedes, nothing can stop it
Photo via pixshark.com
We have last discussed these problems in “The Sick US Economy” and “The Goldilocks Illusion”. As we have pointed out in the latter article, weak economic growth is not necessarily a guarantee that there won’t be any “price inflation”. A scenario in which the Fed will be forced to hike rates in spite of weak economic growth is not unthinkable. If so, then all these inexperienced traders could be in for the shock of a lifetime.
Effective federal funds rate, log scale: many traders have known nothing but the “quasi ZIRP” era and its seemingly forever rising risk asset prices – click to enlarge.
For every individual, price changes of a different “basket” of goods and services are important. A rich “one percenter” won’t even notice if his grocery, utility and health care bills are going up. By contrast, people whose incomes are in the lower quintile will be especially hard hit by rising prices of such necessities.
…click on the above link to read the rest of the article…
When the Herd Turns
When the Herd Turns
Once market participants realize the top is in and the only possible result from here on is a loss, the herd will turn and follow the leaders who are selling.
A funny thing happens when the stock market herd turns–all the usual central bank tricks no longer push the markets higher.
Though the mainstream financial media reports on central bank policy as if the policies move the markets, the actual mechanism is not policies per se but their effect on the belief structure of market participants.
If market participants believe the markets are going higher, for whatever reason, they will buy more stocks to reap the anticipated gains.
If market participants believe the top is in and markets will decline, they will sell, i.e. liquidate positions rather than build them. This is called distribution, as the smart money distributes stocks to the greater fools who have yet to get the memo that the top is in and from now on, stocks will only lose value.
When the leaders of the stock rally dwindle to a few names, that is evidence that the herd is losing its momentum and confidence.What causes the herd to turn? The process is not entirely mechanical or predictable. Those in the front of the herd tend to lead those following, and so we look to the leading stocks, sectors and players for clues as to what the herd will do.
When those leaders no longer make new highs but instead notch lower highs despitegood news, that is further evidence that the herd’s direction is becoming increasingly uncertain.
When the herd’s leading edge veers first one way and then the other, this lack of coherence is also evidence that the herd’s leaders are no longer confident in which direction to take.
…click on the above link to read the rest of the article…
