All Hail the Chinese Communist Party!

Chairman Mao famously said "Marxism...  is less useful than dog shit."  So when I read a China watcher worry about "Communist Party competence narrrative" I worry for the watcher:

I get nervous because the next move in China is going to be a political move, and political moves are never well anticipated by markets. The Beijing regime is going to take steps to defend itself, or at least insulate itself, from the growing Narrative that they are incompetent. Heads will roll. Literally, in all likelihood. But the incompetence genie is very hard to stuff back into the bottle, and depending on whose head is on the chopping block, regime stability can deteriorate very quickly. Now that’s what will make me change my bullish stance on China fundamentals, and that’s what will make the US market swoon of last August look like a gentle spring rain.
From an Epsilon Theory perspective, a collapse in the Narrative of Chinese Government Competence is the biggest systemic risk out there right now, and that’s where I’m focusing my risk antennae.

The ChiComs could care less how the economy goes.  They will be in charge.   Sure they'd prefer a peaceful, prosperous, just China, but with USA perfidy, they play the hand dealt them.  But as to narrative, they saved China, and anyone who contradicts the ChiComs is against saving China.  It is really quite simple.

Circa 1977 the Chinese Communists managed one of the most remarkable transition in history.  And ten years earlier they had done so as well.  And ten years later they managed the Tien An Men debacle.  This crew knows from competence management.

So they let capitalists have enough rope to hang themselves, and the capitalist made a hash of it.  So what?  Half the party said they would.  Nothing that happens will be a threat to the Communist Party.  Anyone who moves against the party will end up as body parts for incontinent Americans.

There is no "Chinese government competence narrative" that matters.  The government is not the Party. The government can be changed, without affecting the immutability of the Party.  The only narrative that matter is the Communist Party narrative: "We saved China.  You didn't."

So sure, plenty of changes are coming, but for as long as the mind's eye can see into the future, never bet against the ChiComs.  They have the most reliable logo since SPQR.

https://en.wikipedia.org/wiki/National_Emblem_of_the_People%27s_Republic_of_China

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EZ Credit the Last 40 Years is Over. Next?

I like how the author puts scare quotes around money, an indication people are thinking more clearly.  But more to the point, junk bonds are big business means of finance roll-up operations, and the classic scorched-earth tactic that facilitated the "get big or get out" mantra of USA economic policy.

The most important outbreak or story of 2015 had to have been the junk bond reversal. It combined all the major elements of what investors and economic agents are both fearing and, at one point in the past anyway, hoping. It is the confluence of finance, “dollars”, liquidity and economics with or without recovery and the best scenario. The FOMC raising rates is supposed to confirm the brightest outlook, which would only lead to more extension in the credit cycle, and yet junk bonds traded as if the worst were only just around the corner. It isn’t so much the selloff, though that is obviously important, but rather how increasingly the selloff is being treated as permanent.

Walmart, Petco, O'Reilly, Walgreens, Old Navy, Office Depot, Union 76, Vons/Safeway/Dominicks, Lowes, Best Buy, Barnes & Noble, McDonald's and so on all used junk bonds at critical junctures.  But now with the massive numbers of store closings in the big box field, who wants junk bond finance?  Just what project would you want to finance?

More to the point, to use bonds is to lend your credit (not money, anymore), to reassign your tallies to unlikely-to-succeed projects.  Bondholders are supposed to have first place in liquidation, but when the auto-industry burned the bondholders in 09, that is not so sure anymore. In capitalism, the "rule of law" is entirely relative.  In any event, it would be good for people who once used junk bonds to be interviewed now as to why not anymore?  Specifics...

The upshot is the less business these people do, not dollar for dollar, but certainly in some positive relation, the more small business and specialty will do.  But never think online is a viable means to market or do business, that is proven unworkable.  Catalog and price list, sure. Self-service check-out, to be sure.  But not the basis of the business.  And on a story about store closures, there is this in Forbes:

But a fresh crop of online-only merchants are expected to make their mall debuts this year, building on a trend that gained momentum in 2014, as beauty subscription serviceBirchbox, for example, opened a store, while hot e-commerce eyewear shop Warby Parker opened more stores.

Just so.  With only 6% of sales taking place online, serious biz people are looking at the other 94%, brick and mortar operations.

I expect small regional trade shows to reinvigorate.

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Remember the Cypress Crash? Stockman's Update

Stockman gives you a blow by blow of what to expect from the coming USA crash.  it's too late now, but it might also have been edifying to note Iceland and Cypress were once at the same point, but Iceland told the bankers to go $ç≠æw themselves, and they have had solid, steady recovery.

Not so Cyrpess.

In order to fully grasp the extent of this devastation, consider the following: had you bought the market after it had declined by 90%, you would quickly have lost another 90%. Had you bought after it had declined by 90% twice, you would just as quickly have lost almost another 90%. So since 2007, this market has seen three consecutive declines of 90%. As far as we know this is unparalleled. If there had been a stock market in the Roman Empire, it might have done something similar around AD 400 – AD 500.

So when you are advised to buy the dips, you'll be the one getting dipped.

Note the important point: there is zero change in productive capacity. Only the ownership claims of that capacity, plus the ability of the state to borrow enough to support the promises of the state to buy some of that capacity will dwindle.  People will be fighting over the known.

Stockman again reiterates anyone hurt cannot complain.  You get what's coming to you, even if the smart people will be made whole, will move their assets before the truth comes out.  More for them less for you.  And he says he has no recommendations.  Read the whole article.

I have a recommendation.  Start your own business.  It will be small and off the radar.  To small to steal, and you can manage your way around the dizzying new regs designed to steal your results.  The future will favor the small.

And you won't need bank credit, you'll use vendor financing and extend your own asset-backed credit. At no interest.  You will be part of the solution long before it becomes clear.

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Import Export: What Are Related Party Transactions?

The October 15 USA world trade totals are out, and the down trend continues.  This is of course in dollars, and includes toys, sporting goods, clothes, gas, oil, etc.  I've been tracking this for years, and point out what is dropping is the big business share of the totals, which naturally is the lion's share.

Specialty goods, as I have demonstrated, are still growing in every category I've examined.  Another way of considering this question is "related party transactions."  But first the totals:

https://usatrade.census.gov/?eml=gd&utm_medium=email&utm_source=govdelivery

Down she goes...  now from CFR 19 on to "related party transactions:"

(1) For purposes of this section, the personsspecified in any of the following subparagraphsshall be treated as persons who are related:(A) Members of the same family, includingbrothers and sisters (whether by whole or halfblood), spouse, ancestors, and lineal descendants.(B) Any officer or director of an organizationand such organization.(C) An officer or director of an organizationand an officer or director of another organization,if each such individual is also an officeror director in the other organization.(D) Partners.(E) Employer and employee.(F) Any person directly or indirectly owning,controlling, or holding with power tovote, 5 percent or more of the outstanding votingstock or shares of any organization andsuch organization.Page 129 TITLE 19—CUSTOMS DUTIES § 1401a(G) Two or more persons directly or indirectlycontrolling, controlled by, or undercommon control with, any person.

Pretty direct - is the importer or exporter in any sense of the word related to the overseas counter-party in the deal?  This rule is under the heading of customs valuation. The reason they ask is, if so, the moral hazard is to falsify the valuation of the products with a view to:

1. avoid duties (taxes)

2. launder monies

The actual ways I won't get into, simply because that is of no use to we who do not compete on price.  That is for big business and criminal.

Related parties tend to find a more agreeable valuation amongst themselves, and USCustom's main mission is to "protect the revenue of the USA."  And once upon a time, the only revenue of the USA was supposed to come from customs duties.

So let's look at how much trade goes on between related and non-related parties.

http://www.census.gov/foreign-trade/Press-Release/2014pr/aip/related_party/rp14.pdf

This is a snapshot and the trends over the last decade, and decades, also tell a story, but for today let's look at the snapshot.

Our #1 import AND export in dollars is now transportation equipment, roughly 350 billion in imports and 250 billion in exports.  Now, pause for a second... recall how you hear we go overseas for cheap labor, if so, how can we have such huge exports in labor intensive goods?  It's a side issue, but labor never has been nor ever could be a factor in international trade.  But blaming the victim, labor, is good politics.  But back to the data ...

For imports, 2/3rds is related party and 1/3rd nonrelated party.  This makes sense, all those car companies who took their taxpayer bailout money built factories overseas to avoid taxes and regulations are now importing those cars.  The best selling Ford product is the Transit, made in Turkey, and note to put too fine a point on it, introduced in 2009.  Your tax dollars at work.

For exports, it's the other way around: 1/3rd is related party and 2/3rds nonrelated.  Keep in mind, for exports, it is Boeing, USA's #1 exporter in dollar volume.  Boeing leases jets for a profit overseas, making for export revenue, but most of those jets are sold, with taxpayer money given directly to the customer overseas by means of ExImBank loans.  Otherwise Boeing might find competition in USA and improve as a company.  We cannot have improvement in capitalism, that only happens in free markets.  With capitalism you only get concentration of power and "wealth" and it's a great system if you are the one getting the power and wealth.

As you head down the list, it is remarkable that we tend to import the most of what we also export,  transport equipment, chemicals, petroleum and coal, machinery and computers.  The only exception is oil, which as an export is not in even our top ten.  On the other hand, food is a top ten export, but not even in the top ten as an import.  Exporting food is both top ten and growing in USA, but whereas the big fellows are stalling out, specialty food is growing.

About 13% of our total exports is "re-exports," what is not made here (which in itself is an odd figure begging explanation) but the fact is, of the main lines we export, we import the same things as well.  (Oil the only exception.)  That demonstrates we can make just about anything we import.  How come we don't?

We once did, but over the last 40 years, a result of the new process of lending credit at interest, it was possible to overwhelm the smaller manufacturers in a simple process that goes on to this day:

The Star reported that Zsemba filed for protection and the Bankruptcy & Insolvency Act in May, asserting it suffered losses of C$5.5 million from 2010 to 2013, after Ikea “unilaterally and substantially reduced the prices that it paid for products purchased from its manufacturing suppliers, including ZAU.”
Zsemba’s statement of claim maintains Ikea should have known that this would “cause them to operate at a loss.” It also seeks to negate the original purchase agreements, citing a “power imbalance and the dependent relationship between Ikea and ZAU which was fostered and encouraged by Ikea when it required ZAU to dedicate the majority of its production efforts and resources to Ikea.…

Ho hum.   Sue your customer.  Brilliant. Anyone who has any experience in trade knows never let any one company be more than 5% of your sales.  The newbies who rejoice at a Costco order soon enough come to tears.  But the point is this has been going on for 40 years.  Increase orders, squeeze for volume discounts, beat the competition on price, grow, and as your competitors wither move on to bigger fools to crush.  But the mid 1980s, USA manufacturing had been hollowed out, but happily by then the entire country of China was open for business, especially to lend credit at interest and compete on price game, which now too is ending.  As to the exponential loss by discounting, the folly of price cutting, see in my book here, and as for roll-up, read any biz news the last 40 years.

The fact is, the patterns and practices of capitalism are by definition and unabashedly in the service of concentrating "wealth" in the contemporary sense of property in ever fewer hands.  But that game is over, and the big question is in the chaos about to descend, is the smart thing to do renew manufacturing here at the small business level?  Worth testing.

As another tweak, in the CFR 19, the related party is 5% corp ownership for imports, but 10% for exports.  Hmmmm...  we are tougher on imported goods than we are on exported goods, by 100%.

Studying all this data and drawing conclusions is not being done by anyone systematically, but there is a wealth of information for anyone who wants to mine it.  it would make a fine masters thesis or Phd dissertation topic.

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China: A Gentle Reminder?

Wanna scare people toot sweet back into line in China?  Remind them of not so long ago....

https://commons.wikimedia.org/wiki/File:Mao_Zedong_with_workers.jpg

An article this week looks like something out of Beijing Review, 1966:



Check out the whole series of photos.  I was travelling twice a year to China 1977-81 and then took a sabbatical from work to finish a bachelor's concentrating on Asia.  To watch the changes first hand and then study it was fascinating.  It's not so much just Pres. Xi, for his staged photo-ops are bad enough, but to arrange the audience in crypto-Maoist array leaves nothing to the imagination. These image remind elders (like me, I guess... sheesh..) that the CPC PRC (Chinese Communists) are the 大救星.   President Xi three months ago was getting down at a Tacoma, Washington High School, so he is no Long March Yan'an Cave man.  He is a polished world-class leader, which makes these images all the more striking.  But it is an effective, nonviolent way to signal the Communists take their role as national saviors seriously, and no one else comes close to legitimacy.

CP-PRC Word to troublemakers:  You've learned nothing, we've forgotten nothing.  With an economic cataclysm on the way, it's back to the future. Although plenty of people will act up and demand changes, well, there will not be regime change on the CP- PRC watch.    Fine for the Soviets if they want, but not China.

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It's Startiiiiiiiiiing!

Trim a little here, cut a little there....

2016 Standard Mileage Rates for Business, Medical and Moving Announced
IR-2015-137, Dec.17, 2015
WASHINGTON — The Internal Revenue Service today issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 54 cents per mile for business miles driven, down from 57.5 cents for 2015

• 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015

• 14 cents per mile driven in service of charitable organizations

It's only a couple of cents...  times billions... and it is only one break out of millions...  aqueeze... squeeze... squeeze...

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Did You Waste Time and Money on an MBA?

If you have an MBA, especially in finance, you may have wasted all of that time and no doubt money, and are perhaps enslaved by the hegemon with an unbankruptable loan, in spite of being unemployable.  Too bad, but you could work your way out of the hole by being self-employed

What I teach is valid, because it works for me.  And for others.  But is it reliable?  That is it works for everyone?  Yes, as I show in studies I have found.

Here is a couple I've never heard of, and has no doubt never heard of me.  But here they are, starting up a brilliant business, and getting finance the old fashioned way: subscription pre-sales.  The fact plenty of others do what I also teach although they have never heard of me is heartwarming.

You can start your own business too and get out of debt.

Check out their website video, and then back them.



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Economic Victim Culpability

In Chicago they say "only suckers beef."

Talking about victim culpability, what is going on is no secret.  Here is an absolutely explosive charge..

Which leads to another question: if institutions are actively dumping stocks, perhaps mom and pop investors should show the following chart to their financial advisors, who directly or indirectly work for these institutions, and ask them: why should they be buying, when the counterparty they are buying from is, most likely, this very same financial advisor?

to which there is almost no one reading and no comments.  True, the choice is to liquidate and take a 10% penalty (how come?) on top of a 30% tax (how come?), but I expect soon enough plenty of people will wish they did.

Or perhaps we are a nation of Jesuitical indifference.

Keep in mind, you don't need money to start a business, just customers.  So if you do lose so much it takes your breath away, don't worry, you can get going with what you got.

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