China's Central Bank Eliminates Margin T…

19-01-2017 Hits:253 BoomBustBlog Reggie Middleton

China's Central Bank Eliminates Margin Trading of Bitcoin

There have been rumors that the Chinese Central Bank (PBoC - People's Bank of China) would limit or eliminate margin trading in Bitcoin. It is now official, sort of...

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Is Donald Trump Truly Successful or Born…

18-01-2017 Hits:431 BoomBustBlog Reggie Middleton

Is Donald Trump Truly Successful or Born With A Silver Spoon? An Analysis

In social media and mainstream media, I often hear Donald Trump quoted (by himself, and others) as an extremely successful, self-made man. As an entrepreneur for nearly all of my...

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As I Promised, EU Is Colliding Into Prac…

17-01-2017 Hits:837 BoomBustBlog Reggie Middleton

As I Promised, EU Is Colliding Into Practical Confines of NIRP, Bank Hemorrhaging Up Next

Nearly a year ago, I warned subscribers of consequences stemming from the ECB's negative interest rate program. Here's an exceprt from our resarch report titled European Banking Macro Issues for March...

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Is Bitcoin Too Risky? Whenever the Bitco…

12-01-2017 Hits:1482 BoomBustBlog Reggie Middleton

Is Bitcoin Too Risky? Whenever the Bitcoin is Mentioned in Financial Pop Media, Ignorance Ensues

I hate to be the one to break bad news to you, but most of the pop media/mainstream media financial pundits that I hear and see opine on bitcoin have...

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What Happens When Rates Rise While the S…

10-01-2017 Hits:1128 BoomBustBlog Reggie Middleton

What Happens When Rates Rise While the S&P 500 Relies on Cheap Credit To Boost EPS?

So, the stock market, bond market and real estate markets are all at all-time highs. Everything is Awesome! You know better than that. You see, when the bond market wakes...

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Debt Encumbered Oil, Sovereign Soil, Toi…

10-01-2017 Hits:640 BoomBustBlog Reggie Middleton

Debt Encumbered Oil, Sovereign Soil, Toil & Trouble: Can't You Hear Seems Cracking in the OPEC Empire?

@WSJ reports Libya Ramping Up Oil Production, Threatening OPEC (supposed) Plans to lift global oil place by artificially limiting supply. This would be in violation of federal antii-trust laws in the...

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Ten Years Since BoomBustBlog Was 1st Pub…

09-01-2017 Hits:963 BoomBustBlog Reggie Middleton

Ten Years Since BoomBustBlog Was 1st Published & That Initial Research Still Relevant Today

We have looked into insurance companies' performance last month in regards to our bearish real estate thesis. A small comederie of companies are suffering losses and/or declining profits as we've exected....

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The Macro Truth About The Big Bitcoin Po…

07-01-2017 Hits:1135 BoomBustBlog Reggie Middleton

Bitcoin has dropped precipitously, and as is usual, we have the cacophony of instant digital currency pundits cackling about as if they had a clue. This is the inaugural post...

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To Bust or Not To Bust: Are We In A Real…

04-01-2017 Hits:810 BoomBustBlog Reggie Middleton

To Bust or Not To Bust: Are We In A Real Estate Bubble?

Banks are showing thin NIM, yet many of the big banks are able to boast stable if not slightly improving credit metrics. This doesn’t make sense considering the explosive growth...

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What Happens To Real Asset Lending Banks…

03-01-2017 Hits:657 BoomBustBlog Reggie Middleton

What Happens To Real Asset Lending Banks When the Real Funding Rate Appears? We're About to Find Out

During the financial crisis of 2008, money market funds who subjectively agreed to hold their NAV (net asset value) unit prices at $1 “broke the buck”. That is, the unit...

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Stress Test on Banks’ Earnings Facing th…

30-06-2014 Hits:44786 BoomBustBlog Reggie Middleton

Stress Test on Banks’ Earnings Facing the Veritaseum UltraCoin Value Transaction Platform

My last post on the topic of disintermediation during a paradigm shift was Wall Street Should Be First To Invest In Reggie Middleton's UltraCoin, Much Of It Won't Be Here In...

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Introducing the "Unbreakable Promis…

09-06-2014 Hits:39568 BoomBustBlog Reggie Middleton

Introducing the "Unbreakable Promise" As a Method Increasing Efficiencies and Decreasing Risk

Continuing on the margin compression theme originally laid out in Margin Compression Is Coming in the Payment Processing Space As $100 Million Pours Into Startups, I illustrate mathematically how the bit...

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I have another paper available for download outlining my China short thesis available for subscribers here: China Macro Discussion 2-4-10 China Macro Discussion 2-4-10 2010-02-04 13:10:26 922.25 Kb. 

In addition to the issue-specific ETFs (proffered (Chinese ETFs with Exposure to Real Estate, Banks, Insurance and Export Industrials) that I have already proferred, I will be offering my viewpoints on specific companies across various geographic regions as well.  Those ETF's have actually performed quite well on the short side YTD. For those who don't subscribe to my blog, here are some excerpts from the 11 page download:

Can China Control the “Side-Effects” of its Stimulus-Led Growth?

The strongest argument for a Yuan-revaluation relies on a basic tenet of economics: tinkle with prices and you disturb the resource allocation equilibrium prevailing in the economy. China’s endeavor to push economic growth through stimulus spending and its lax control over money supply has started to affect the “side effect” - INFLATION. The very contrivance used to maintain stability has become a threat to economic resurgence. And if there is one such thing that could force China to drop its dollar peg, it is out-of-control inflation.

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One of the major reasons for inflation in China is the rescue program initiated during the recent global slowdown. The Stimulus program aimed at creating a temporary demand within the economy has apparently worked wonders – aiding the Chinese economy to grow by a healthy 9% in 2009.  This program has apparently overheated the economy, gorging on what may become untamed GDP growth, currently 10.7% in 4Q09 - its fastest quarterly growth in two years - which was uncannily higher compared to the 6.1% growth in 1Q09, the lowest since the introduction of quarterly GDP figures in the fourth quarter of 1999. 

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On a real basis, China's equity markets closely track GDP. I would venture that a pullback of government stimulus and/or a spike in inflation or currency values will put the skids on export driven and financial equities. Let's explore this thesis...

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The unprecedented stimulus (as a % of GDP) has given rise to what I would consider an uncontrolled frenzy of economic activities, resulting in excess money supply within the economy while keeping the domestic supply of goods and services relatively constant in the short term. Though the growth rate may not be a concern and may even be maintained at the optimum level, demand, especially from consumers and investors will inevitably increase over a period of time driven mainly by the significant amount of domestic liquidity in the economy which also poses a risk of increasing prices. Money generally chases assets that provide the highest returns causing a stress on several such assets to the point of demand pull inflation or in other words, unwanted asset bubbles.

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According to a report issued by the People's Bank of China, the nation's commercial lenders pumped out RMB 9.59 trillion (US$1.4 trillion) in credit in 2009, almost double that of the previous year. China's Yuan-denominated individual home mortgage lending rose 47.9% from the previous year, to RMB 1.4 trillion ($204.98 billion) in 2009. Meanwhile, the Yuan-denominated property development lending gained RMB 576.4 billion in 2009, up 30.7% y-o-y. The total mid-term and long-term loans in foreign and domestic currency increased by RMB 7.1 trillion in 2009, up 43.5% from the previous year, and the growth rate was 23.4 percentage points more than the previous year.

These liberal credit policies adopted by China over the past four to six quarters have flushed the economy with excess money supply. The current rate of production has not been able to cope with the rate of the increase in demand for these goods and services creating a scenario where excess money has been chasing limited goods and services, leading to excessive inflationary pressures.

Further, easy availability of funds have rapidly increased the demand (investment) in real estate. As mentioned earlier, real estate is considered a high return asset, which attracts money. The result: home prices in 70 major Chinese cities jumped 7.8% on average in December 2009 when compared with December 2008 - the steepest climb in the past 17 months. 

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Another key factor that has continuously driven the money supply is the growing foreign exchange reserve which in turn is driven by foreign trade surplus, foreign direct investment and “hot money inflows”. At the end of 2009, China's outstanding foreign exchange reserves reached USD 2.4 trillion, soaring 23.28% or USD 453.1 billion y-o-y. Moreover, as per industry observers out of the total increase of USD 453.1 billion, the annual increment of about USD 167 billion is over and above the sum of the country's foreign trade surplus and foreign direct investments. Of this USD 167 billion, it is estimated that at least USD 100 billion relates to hot money, which is a concern for the economy as growing hot money inflows are propagating an asset bubble, which if left uncontrolled could burst upon the inevitable hot money rush to the exit.