July 1st marked the 90 years anniversary of the Communist Party of China (CPC). China has undergone huge changes and will be the next super power. If we all end up working for the Chinese or not is to be seen, meanwhile we present some history on the Red Capitalist, that will drive China into the next World Super Power.
Below from Stratfor;
The CPC was founded in July 1921 by 13 Chinese intellectuals who were anxiously seeking a way out for China in the chaotic post-Qing dynasty period. The 13 founders represented a total of 50 Party members, one tiny political group among many in China at the time. Calling for a class-based revolution by urban workers and rural peasants, the Party was assisted by the Communist International (known as the Comintern), though it cooperated with the ruling Chinese nationalist party, the Kuomintang (KMT), in resisting the Japanese during World War II.
Eventually the Party was able to unify the country’s urban workers and create a series of movements to undermine the KMT’s power. Later realizing its weaker appeal in China’s urban areas, compared to the KMT, the CPC shifted its strategic focus to the countryside, establishing a rural base to unify China’s vastly larger peasant population.
Nine decades later, the Party’s status rests primarily on these rural revolutionary roots and its role in creating the People’s Republic of China in 1949. This legacy has helped sustain and reinforce the Party’s absolute control over the state during a series of political movements and internal power struggles from 1949 until the late 1970s, such as the Hundred Flowers Campaign, the Great Leap Forward and the Cultural Revolution, all of which had a disastrous impact on Chinese society.
During the revolutionary period and after the founding of the People’s Republic of China, the CPC’s ruling strategy was ideological. It sought to draw a clear line between the so-called “capitalist class,” which had caused so much torment in China, and the proletariat, which the Party claimed to represent. After coming to power in 1949, the CPC implemented land reform, cracked down on the private sector and targeted the capitalist class as an “enemy” of the state. This not only strengthened the party’s political, social and economic control, it also created the perception among the people that they would derive great benefit from all this. Naturally, this perception made the Party very popular and powerful, further reinforcing its authority despite the extremely weak economic performance and social strife that characterized China for the next three decades.
We look forward to this weekend’s conspiracy theories after Mr Kahn is released without Bail.
Bloomberg reports; Prosecutors agreed to release former International Monetary Fund chief Dominique Strauss-Kahn on his own recognizance, two people familiar with the matter said.
Strauss-Kahn, accused of a sexual attack on a hotel maid in New York, will have his bail returned and would still be subject to travel restrictions while he faces charges, said the people, who didn’t want to be identified because they aren’t authorized to speak on the matter.
The Manhattan District Attorney’s office plans to tell a New York state court judge today that its investigation raised doubts about the victim’s credibility, said a third person familiar with the matter. Prosecutors disclosed the information to Strauss-Kahn’s lawyers, the person said. At that 11:30 a.m. hearing before New York State Supreme CourtJustice Michael Obus, the bail issue is scheduled to be discussed.
“When the district attorney outlined the charges voted on by the grand jury, he said the office would continue to investigate the facts of this case, wherever they lead,” Erin Duggan, a spokeswoman for Manhattan District Attorney Cyrus Vance Jr., said in an e-mail today in response to questions about the handling of the case. “That is exactly what the office has done.”
Live Blog from FT from this year’s soap opera No1,
Some points from BGC’s Purves on copper. The chart is getting some nice support and we could see a catch up move short term.
1. First up/down/up. Copper was one of the first commodities to peak and correct; it is often a leader in the commodity spectrum and arguably is the first one on the way up.
2. Inventories. Inventories are getting tight and this metal, like oil, is highly inventory sensitive. China inventory data is of course tricky but there are wide spread reports/inferences is that the inventory is tight here. We are now nearly 18 months into the China tightening cycle. Food inflation continues to be high but a plausible bull case can be considered and arguably closer to a bottom; a China hard landing/real estate bubble crash needs to be considered carefully but for a shorter term trade this is still in the tail risk camp.
3. Sentiment. Sentiment is at 57, a low number and probably a good contrarian indicator.
4. Supply. As is well known, mining growth is structurally challenged and hence the inventory “mania” that can be seen frequently. I would also mention that the M&A activity in copper miners (ABX buying Equinox for a very steep multiple and the latest Vale vsJinchuan for Metorex) underscores how limited the broader supply of high quality copper mining assets is.
5. Charts. Charts look good. Strong support can be seen at $4.00. Copper had a strong day today that lifted it’s price and RSI levels establishing a pattern of higher highs, higher lows and a nicely trending RSI levels. I personally doubt we make a new high here given everything going on in China and elsewhere economically but we could see a nice further move up here to $4.50.
Reasons not to get long on a copper or copper related trade.
1. China real estate bubble coming?
2. Sudden leap down in U.S. and European construction.
3. Sustained dollar rally.
Net net these are all real risks but I see them as remote at this point. The weak U.S. housing appears to be well incorporated in the price. FCX has excellent options which can be used to express a long copper view point, please contact us to discuss how to express this view through listed options.
After the last week’s good “window dressing” equities performance, it is time to reconsider some facts on the Economy. Our short term targets in SPX have been reached, since bouncing off the 200 day moving average. We should start hitting some resistance levels shortly (1320). The dull summer months might even provide some kind of consolidation/trading range, where volatilities come off, and present a nice set up for the autumn collapse we think will happen. More Technical Charts Updates over the weekend.
What about that Recovery though? The Economy is still not showing overly positive tones. Many Indicators are on the contrary falling, and people feel worse off. Despite the manipulators printing SPX higher as the QE2 ends, one should recheck some indicators below. Gallup reports below;
After surging in May, Americans’ economic confidence receded in early June and remains near its 2011 low, averaging -33 in the week ending June 26. This is down seven percentage points from the week ending May 29 and down a similar amount compared with the same week a year ago.
U.S. economic confidence peaked this year at -18 in February and then generally declined, reaching -39 during week ending April 24, as gas prices surged and economic activity slowed. Confidence increased in May, averaging -26, likely in response to the news of Osama bin Laden’s death in a U.S. military raid.
Gallup’s Economic Confidence Index combines two measures: one assessing Americans’ views about whether the U.S. economy is “getting better” or “getting worse,” and the second involving Americans’ ratings of current economic conditions as “excellent,” “good,” “only fair,” or “poor.” Both ratings have deteriorated thus far in June.
Fewer Americans See Economy “Getting Better”
In the most recent week, 31% of Americans said the U.S. economy is getting better — on par with what Gallup has measured throughout June, but down from 37% weekly readings during most of May. The latest reading is also down from 36% during the same week in 2010.
More Americans Rate the Economy “Poor”
Forty-five percent of Americans rated current economic conditions “poor” in the week ending June 26 — three points worse than the 42% readings during the week ending May 29 and a year ago. June’s “poor” ratings are at or near their highest levels of 2011.
The worsening of Gallup’s economic confidence measure during June may be due in part to the dissipation of the “halo effect” surrounding the death of bin Laden. Confidence has now moved back near the April 2011 low. This suggests that the consumer benefits associated with steadily declining gas prices at the pump — down 14 cents per gallon in the past two weeks — are being offset by other factors. One such factor might just be that gas prices remain 82 cents per gallon higher than they were a year ago. Another could be the continuing dismal jobs situation.
Federal Reserve Board Chairman Ben Bernanke last week seemed to add to the growing economic pessimism, noting that the Fed has reduced its 2011 growth forecast for the U.S. economy. Wall Street continues to suffer as a result of the Fed’s apparent confirmation of the economic “soft patch” and the financial problems in Europe. The battle over raising the debt ceiling has not disrupted the money markets to this point, but certainly represents another negative for overall economic confidence.
It may be that declining gas prices will eventually lead to improved consumer confidence and increased consumer spending, which could make the current economic soft patch modest and transitory. At this point, however, Gallup’s monitoring of economic confidence does not support that idea.
And some more Important Charts below. All trends loosing steam, and are soon turning lower. That is NOT a strong recovery. Charts from Stratfor;
This Kahn’t be True, again. The Attorney is reportedly having difficulties in the Strauss Case. Strauss career is destroyed, his reputation gone, and now we hear the Attorney has difficulties in the sexual assault case. Lagarde got the IMF job, Strauss won’t run for Presidency, but at least he will get a quick trial, while preparing the defense in his Manhattan Townhouse costing 250k USD per month. NYT reports;
The sexual assault case againstDominique Strauss-Kahn is on the verge of collapse as investigators have uncovered major holes in the credibility of the housekeeper who charged that he attacked her in his Manhattan hotel suite in May, according to two well-placed law enforcement officials.
Although forensic tests found unambiguous evidence of a sexual encounter between Mr. Strauss-Kahn, a French politician, and the woman, prosecutors now do not believe much of what the accuser has told them about the circumstances or about herself.
Since her initial allegation on May 14, the accuser has repeatedly lied, one of the law enforcement officials said.
Senior prosecutors met with lawyers for Mr. Strauss-Kahn on Thursday and provided details about their findings, and the parties are discussing whether to dismiss the felony charges. Among the discoveries, one of the officials said, are issues involving the asylum application of the 32-year-old housekeeper, who is Guinean, and possible links to people involved in criminal activities, including drug dealing and money laundering.
Prosecutors and defense lawyers will return to State Supreme Court in Manhattan on Friday morning, when Justice Michael J. Obus is expected to consider easing the extraordinary bail conditions that he imposed on Mr. Strauss-Kahn in the days after he was charged.
Indeed, Mr. Strauss-Kahn could be released on his own recognizance, and freed from house arrest, reflecting the likelihood that the serious charges against him will not be sustained. The district attorney’s office may try to require Mr. Strauss-Kahn to plead guilty to a misdemeanor, but his lawyers are likely to contest such a move.
Risk on, off, bail out on, off. Who are we bailing out, and why are people protesting? Greece is in deep problems, but are the bail outs designed for the Greeks, or are we just merely bailing out bad decisions of the creditors, mainly European Banks? As Michael Hudson has presented so well in many articles, it is these institutions we are bailing out, not the Greek people. It is always the same logic behind every bail out. With the Greek votes now all cleared, and the country might survive until they get another tranche of money, we will surely see further social unrest, and more violent protests. People are realizing who is being bailed out, and who is paying the bill.
From El Pais with Stieglitz, translated by Google;
To an economist in the critical struggled as Joseph Stiglitz (Gary, Indiana, 1943) did not voice trembles when he says those responsible for the crisis to an audience that, in part, may be referred by their reproaches. Not when he denounced the cruel social consequences that will result austerity measures have been imposed as a priority the European Union or the United States out of the crisis. And much less when asked to say things by name and not to mention rescue Greece, Ireland and Portugal where, in his view, actually “is a protection for European banks.” The 2001 Nobel laureate in economics and professor at Columbia is as ruthless with market fundamentalism to the packed audience of businessmen Circle Barcelona Economics in its opinion articles and books.
Before his talk, serving the country in a hotel room where the business lobby Sitges Catalonia celebrated every year their journeys. Affable and calm, Stiglitz is capable of indignation, for example, because the U.S. president, Barack Obama, whom he advised, is surrounded by those who, in his opinion caused the crisis. Already in his latest book, Free Fall (Taurus, 2010), no criticism of the President saves an exercise in honesty. In reviewing this work in October last year, hard adjustment referred to in the Spanish public accounts. ”For now, Spain has been attacked by speculators, but may be only a matter of time,” he said then.
From The World Complex on Algos, part 2;
The recent elegant explanation for the activities of the HFT algos by Nanex seems likely to be a better one than the analysis that follows, as it answers the all-important question–why? In the following analysis we will look a little bit at how, but most or our interpretation of the results is coloured by the Nanex explanation. It explains why so many trades happen outside the bid-ask spread, particularly as the bid and ask prices are moving rapidly. They are scalping fractions of pennies from some poor fool who has data more than a few ms old.
As this is the reason, the method of choosing bid and ask prices pales in significance next to the methodology of stuffing the orders. This methodology I know nothing about and will not address. This article will address how to use this stuffing to create endless opportunities for arbitrage.
The principal advantage discussed in the Nanex report is stuffing the market with so many orders that competitors have trouble seeing the present state of the market. Whenever such inefficiencies are created, an arbitraging opportunity may also be created.
One method of creating arbitrage opportunities is through manipulation of time. We are accustomed to thinking of information flow as instantaneous, but it is limited by the speed of light. How might HFT take advantage of this?
Imagine for a moment that transatlantic communications were somehow extremely limited, so that a trader in New York could not see the present price of a stock in Paris, but would only see it after a two-hour delay. Any market participant who could somehow overcome this limitation would find a myriad of arbitrage opportunities.
Now look at the present. Let’s suppose International Face Sucker (IFS) starts stuffing 100,000 bids per second into the pipe in New York. Let us say that those bids are x1, x2, x3, . . .
A market participant in Californa, Hedge Fool LLP (HF) is in the market and starts looking at the stream of bids coming down the pipe.
At 100,000 bids per second, the electronic signal only travels about 3 km between each bid. So at the time when HF sees the first bid (x1), and prepares its response (say, y1), IFS is actually sending quote x1500 into the dataverse. Where is the market? What is the current price?
Now suppose IFS has a branch in California. They have the same algo as IFS New York, and are running it so locally they observe x1 and HF’s response y1–but they already know what x1500 is (or is that “is going to be”?), not to mention all of x2 through x1499. Might there be an arbitrage opportunity? Might there be 100,000 such opportunities every second?
A fraction of a penny 100,000 times a second–it isn’t long before you’re into real money.
Now IFS has branches in London, Paris, Sydney, Tokyo, Shanghai, Moscow–they are all running these arbitrage trades and who knows–maybe they are stuffing orders into their local bourses, using an algo known by all other branches and are arbitraging them as well.
The role of chaos
Not that it matters much, but what sort of algos are they using? I think they are mostly pretty simple.
The algo on the bizarre spreads seen here is straight forward, but hard to see how it profits.
Plot of first 5500 values for x using the Lorenz equation with parameters σ = 10, ρ = 24.7, β = 8/3.
And the conclusion;
The only practical use for this software, if stolen, would be to use the same quote-stuffing method so your international subs could arbitrage the hell of the market. But that would be manipulation, if it falls into the wrong (read “your”) hands. In the hands of IFS, of course, it is proper and judicious market management.
Full article on Deconstructing Algos, part2.
Below is Shilling’s last article with regards to the Chinese Hard Landing. This part is about the commodities having formed a bubble. Despite his reasoning about rare earth metals, it is extremely hard predicting the bursting of such a bubble. The below charts sure look rather parabolic, but I wouldn’t short those, at least not with great confidence.
Below Shilling’s article from Bloomberg,
The hard landing that I foresee for China will probably prick the global commodity bubble, which is already showing signs of topping out.
Agricultural product prices have jumped, the result of robust demand, bad weather last year in Russia, recent floods in Australia, and dry and hot La Nina conditions in Argentina.
Industrial metals such as copper were on a tear. So were precious metals, such as silver.
But much of the leap in commodity prices was due to investors and other speculators. Exchange-traded funds had already tied up much of the physical supplies of gold and other precious metals. Futures contracts held by speculators were up 12 percent in 2010 through October, with sharp increases in bullish bets on crude oil, copper and silver. Volatility forced futures exchanges to raise margin requirements on a number of commodities.