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Generational Dynamics Web Log for 27-Jan-2014
27-Jan-14 World View -- Hungary's 'fascist' Jobbik party leader Gabor Vona speaks in London

Web Log - January, 2014

27-Jan-14 World View -- Hungary's 'fascist' Jobbik party leader Gabor Vona speaks in London

China banks halt domestic cash transfers as fund bankruptcy looms

This morning's key headlines from GenerationalDynamics.com

Hungary's 'fascist' Jobbik party leader Gabor Vona speaks in London
Hussman's analysis of market instability
China banks halt domestic cash transfers as fund bankruptcy looms

Hungary's 'fascist' Jobbik party leader Gabor Vona speaks in London

Gabor Vona in London on Sunday, carrying a Hungarian flag, protected from anti-fascist activists by police

Gabor Vona in London on Sunday, carrying a Hungarian flag, protected from anti-fascist activists by police

Gabor Vona, described as "one of Europe's most electorally successful fascists" spoke on Sunday to UK-based sympathizers of his Hungarian Jobbik Party. Demonstrations by anti-fascist campaigners prevented Vona from giving his speech at the planned venue, so he ended up speaking to around 100 supporters at Speakers' Corner in Hyde Park. The Jobbik party, which is considered anti-Roma and anti-Semitic, is the third biggest party in Hungary, with 43 seats in the national parliament. It's thought that Vona would like to create a "common core" of parties across Europe that would include the British National Party, the French National Front, Holland's Party for Freedom, and Greece's Golden Dawn. Each of these parties is, to a greater or lesser extent, anti-immigrant, anti-Roma and/or anti-Semitic. These nationalist sentiments have been growing around Europe, for the first time since World War II. According to the European Union Agency for Fundamental Rights, anti-Semitism has been skyrocketing in Europe, with some 66% of European Jews saying that in 2013, anti-Semitism has significantly impacted their lives. Independent (London) and Israel National News

Hussman's analysis of market instability

A major correction or crash on Wall Street is long overdue ( "25-Jan-14 World View -- That '1929 feeling' may be back on Wall Street"), and while the timing cannot be predicted with certainty, some analysts are saying that there are signs that it's not far off.

The Hussman Funds manager and analyst John P. Hussman is describing a number of factors leading to market instability:

"The extreme syndrome" of overvalued, overbought, overbullish, rising-yield conditions exclusively seen at the 1929, 1972, 1987, 2000 and 2007 market peaks.

"Bullish sentiment" extremely high, with 57.7% of advisors recommending "buy," while only 14.8% recommend "sell" -- the most lopsided bullish versus bearish sentiment in decades. In other words, when everyone is telling you the same thing, then it's time to be very nervous.

New York Stock Exchange margin debt now at 2.5% of GDP – an amount equivalent to 26% of all commercial and industrial loans in the U.S. banking system. The 1929 crash was blamed by many economists on high margin debt.

Currency collapses in Argentina and Venezuela.

Fresh credit strains and industrial shortfall in China.

Each one of these factors, by itself, is not of concern. But the combination of such factors, taken together, creates a state of market instability, such that any small disturbance may trigger a crisis or crash.

Hussman also expresses concerns about high levels of corporate debt, and adds: "In any event, however, the objective evidence speaks well enough for itself across history. If accuracy in projecting actual subsequent market returns is a standard by which alternative valuation metrics should be judged, then the U.S. equity market is trading about double its historical norms, and double the level at which investors should expect historically normal returns."

As I've been saying repeatedly, Generational Dynamics predicts a major stock market crash to the Dow 3000 level or lower. It's impossible to predict the exact timing, but there are increasing signs that the time is close. John P. Hussman

China banks halt domestic cash transfers as fund bankruptcy looms

People's Bank of China

People's Bank of China

The People’s Bank of China (PBOC) has issued an order to commercial banks to halt all cash transfers for 3 days, and to suspend conversions of renminbi to other currencies for 9 days. China's banks are giving no explanation except "system maintenance." China's week-long Lunar New Year holiday begins on January 31, there's a high demand for cash around this time, and banks are desperate to avoid a cash crunch. Although China's government has $3.82 trillion in foreign exchange reserves, this crisis is over the domestic currency (the renminbi), where dollars aren't of much use.

America's financial crisis began when the credit bubble, built on over-leveraged debts based on subprime mortgages, began to burst. The collapse of the investment bank Lehman Brothers Holdings Inc. in 2008 triggered a worldwide financial crisis.

China has a much larger shadow credit bubble, based on $4.8 trillion of over-leveraged loans made in its shadow banking system, and is now facing a major bankruptcy in its shadow banking system on Friday, January 31.

Just as American investment banks had sold trillions in fraudulent securities based on faulty subprime mortgages, the The Industrial and Commercial Bank of China sold $496.2 million in fraudulent securities called the "Credit-Credit Equals Gold #1 Collective Trust Product." The whole deal was full of corruption, and now the bill is coming due on Friday, when payment on the securities is due to investors.

According to Moodys,

"This case reminds people of Lehman minibonds because complicated credit-linked products were sold to individual investors via bank channels. It’s not clear whether misselling was involved due to lack of transparency. It’s also not clear who will share the loss. Regardless, both the product packager and distributor have seen their reputation suffer."

Many of those investors who will lose money are other banks, and so the "Credit-Credit Equals Gold #1" bankruptcy is thought to be the reason for the PBOC's order blocking cash transfers. Many banks had been counting on the money from the investment product, and some may be facing bankruptcies themselves, as a chain reaction looms. China's government will undoubtedly do everything possible to prevent such an outcome, but with China's credit bubble collapsing, it's possible that the chain reaction can't be stopped. Forbes and Bloomberg

(Comments: For reader comments, questions and discussion, see the 27-Jan-14 World View -- Hungary's 'fascist' Jobbik party leader Gabor Vona speaks in London thread of the Generational Dynamics forum. Comments may be posted anonymously.) (27-Jan-2014) Permanent Link
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Generational Dynamics Web Log for 27-Jan-2014 27-Jan-14 World View -- Hungary's 'fascist' Jobbik party leader Gabor Vona speaks in London

Hungary's 'fascist' Jobbik party leader Gabor Vona speaks in London

Hussman's analysis of market instability

China banks halt domestic cash transfers as fund bankruptcy looms

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Generational Dynamics Web Log for 27-Jan-2014
27-Jan-14 World View -- Hungary's 'fascist' Jobbik party leader Gabor Vona speaks in London