Price gouging and the generous free market

Gary North published members-only articles recently (here and here) discussing how Hurricane Harvey has affected economic life in Houston. He makes an important point about prices and customers that I have not seen elsewhere.
Other things equal we know scarcity or high demand will drive prices higher. Sellers of diamonds are rarely accused of price gouging but when prices for everyday commodities take a big leap in a crisis almost everyone calls it price gouging. It’s an easy call: People are in desperate need of critical commodities, while certain suppliers are charging scalper prices. Conclusion: The suppliers are craven profiteers.
Wikipedia defines price gouging as ‘a pejorative term referring to when a seller spikes the prices of goods, services or commodities to a level much higher than is considered reasonable or fair, and is considered exploitative, potentially to an unethical extent.’ Merriam-Webster says price gouging is ‘charging customers too much money.’ How much is ‘too much’? What is ‘reasonable or fair’?
People don’t know, exactly, but they pass laws against it anyway. The fine for gouging a senior citizen in Texas is $250,000; gouging someone younger is only $20,000. Amazon has algorithms that suspend the accounts of sellers charging high prices relative to other sellers. During Harvey’s onslaught in Houston, a photo on gritpost showed a Best Buy store posting $42.96 for a case of bottled water; Best Buy later issued an apology on behalf of the store.

This post was published at GoldSeek on Sunday, 10 September 2017.

China’s Big Ball of Money Isn’t Going Anywhere Near Stocks

This year is seen going down as the worst since 2011 for China’s stock investors as the memory of last summer’s rout lingers and speculative buying switches to the housing market.
The Shanghai Composite Index will end the year at 3,075, according to the median forecast in a Bloomberg poll of 10 strategists and fund managers. That implies a 13 percent drop over the 12-month period, the steepest in five years, and a gain of 2.9 percent from Wednesday’s close. Fading prospects for monetary easing, a slowing economy and the risk of higher U. S. borrowing costs spurring yuan weakness were among factors weighing on the nation’s shares, the survey showed.
Turnover on the world’s second-largest stock market has collapsed to a two-year low as China’s army of investors, unnerved by 2015′s plunge in equity values, charged into other assets. After a frenzied bet on commodities futures soured, they have set their sights on a bigger target – property. With new home prices now jumping the most in six years, analysts are scaling back projections for interest-rate cuts.
‘The property market and the stock market are like a seesaw,’ said Li Lifeng, a strategist at Sinolink Securities Co. in Shanghai. ‘If the ‘fever’ in the property market doesn’t cool down, funds will flow from equities into real estate.’
Small-cap technology stocks are the least preferred by analysts in the survey because of stretched valuations, while building companies are favored thanks to government efforts to boost infrastructure investment.

This post was published at David Stockmans Contra Corner on September 29, 2016.

Fed Seeks to Prohibit Companies from Merchant Banking to Promote Lending

The Federal Reserve wants to take away the ability of Goldman Sachs and other banks to invest in companies rather than acting as bankers and lending. The U. S. banking regulators are urging Congress to prohibit merchant banking where firms buy stakes in companies rather than lend them money. They are pushing for limits on Wall Street’s ownership of physical commodities after lawmakers accused Goldman Sachs and other banks of seizing unfair advantages in metal and energy markets in recent years.
Merchant banking has generally become the business of making private equity investments in non-financial firms, in particular, equity investments that have a venture capital character. Based upon a report on a multi-agency study of banks’ investment activities required by the Dodd-Frank Act, they highlighted ways to fix potential risks that regulators didn’t think were handled by the Volcker rule ban on certain trading and investments. However, Congress needs to pass legislation and they are subject to bribes that we call lobbying, which presents the greatest hurdle to actually changing anything. The Fed’s recommendations on merchant banking would end the ability to operate mines, warehouse metals, and engage in shipping oil.

This post was published at Armstrong Economics on Sep 22, 2016.

The Road to Stagflation – – The Case Of Norway

We have all heard the incredible stories of housing riches in commodity producing hotspots such as Western Australia and Canada. People have become millionaires simply by leveraging up and holding on to properties. These are the beneficiaries of a global money-printing spree that pre-dates the financial crisis by decades. The road toward such outsized gains in property is not paved with some global savings glut concocted by theoretical economists, but have rather been a process whereby the US leveraged up its economy-wide asset base allowing the Chinese to print ‘dollars’ with abandon. China, being a top-down system favoured fix asset investments as a means to grow their economy; the newly minted ‘dollars’ were thus used to bid on international commodities. That this increased the nominal values of tangibles, especially commodities with a direct Chinese bid, should come as no surprise. However, now that the Chinese economy is trying to move away from a system based on slave labour, foreign direct investment and exports to an overleveraged world, fixed asset investment growth is slowing down. That this has negatively affected Perth and Calgary is clearly visible in property data. However, one stalwart bubble remain resolute in all of this. A bubble like few before it and which will inevitably burst spectacularly with dire consequences for the small community. If you look to the prosperous fringe of northern Europe, you will note a small resource-based economy that has gone completely haywire. A population befuddled by surging commodity prices in a world where monetary policy is a foreign import. Remember the Impossible Trinity; a country cannot have free capital flows, a fixed exchange rate and a sovereign monetary policy all at the same time. While exchange rates were supposedly freely floating, they were in practice partly managed because a too strong exchange rate would crowd out the non-commodity export based part of the economy. Capital was certainly free to flow across the border, but to dampen the effect on the exchange rate the central bank set its monetary policy with diktat from the Eccles Building in Washington DC via Frankfurt. The result of such folly? We present exhibit A, a gargantuan housing bubble equal to none before it.

This post was published at David Stockmans Contra Corner on August 19, 2016.

Massive Stockpile Means Oil Rebound Is Over

A massive global stockpile of oil could mean trouble ahead for the global crude market, according to Barclays.
Crude oil prices dropped to a two month low on Thursday, after the Energy Information Administration reported a smaller-than-expected decrease in oil stockpiles. That may be a canary in the coalmine, a top energy market watcher explained. ‘For the last 6 quarters there’s been this discrepancy between global supply and global demand,’ Michael Cohen, head of energy commodities research at Barclays, said last week on CNBC’s ‘Futures Now.’
Cohen said Barclays is bearish on oil for the next six to eight months, because the current stockpile could increase in an economic downturn, likely to drive prices lower. In the summer months, increased travel often increases the demand for gasoline, and drags up crude oil by default. Yet once that season ends, inventory levels may continue to rise.

This post was published at David Stockmans Contra Corner on July 11, 2016.

The $50 Billion Oil Bear

Being a bear can be lonely. That’s not Shawn Driscoll’s problem.
The natural-resources fund manager at T. Rowe Price believes we are in a 10- to 15-year bear market in energy and commodities. He has positioned his own $5.2 billion in assets largely against a rise in prices. So far that has worked out well.
Mr. Driscoll’s influence extends far beyond his own funds, making him one of the most important, if unknown, energy bears in the market. T. Rowe Price collectively has about $50 billion invested in energy and natural resources across its diversified stock funds. Many fund managers at the firm, impressed by Mr. Driscoll’s conviction and detailed historical work on commodities markets, have followed his advice.
That gives Mr. Driscoll lots of company. And pressure.
T. Rowe Price, which had $765 billion in assets at the end of the first quarter, has bet its own future on the ability of fund managers to beat the market. A big bet for or against a major sector can reverberate across the firm

This post was published at David Stockmans Contra Corner on June 24, 2016.

It’s Not Different This Time – -Junk Defaults Spreading Beyond Energy

Bond investors appear to have placed their faith in commodities exceptionalism, with many positing that the recent pick-up in U. S. default rates will defy historical trends and remain confined to that industry.
New research from Deutsche Bank AG pours cold water on that idea, arguing that there are already signs of contagion in junk-rated debt outside of the commodities space.
A look at previous peaks in default rates shows the potential for more pervasive corporate stress. While default rates were higher amongst particular sectors – such as telecoms in the early 2000s or financials during the 2008 crisis – the rate for junk bonds excluding these specialized industries also increased significantly.

This post was published at David Stockmans Contra Corner on May 24, 2016.

The World’s Most Extreme Speculative Mania Unravels In China

From the Dutch tulip craze of 1637 to America’s dot-com bubble at the turn of the century, history is littered with speculative frenzies that ended badly for investors.
But rarely has a mania escalated so rapidly, and spurred such fevered trading, as the great China commodities boom of 2016. Over the span of just two wild months, daily turnover on the nation’s futures markets has jumped by the equivalent of $183 billion, outpacing the headiest days of last year’s Chinese stock bubble and making volumes on the Nasdaq exchange in 2000 look tame.
What started as a logical bet – that China’s economic stimulus and industrial reforms would lead to shortages of construction materials – quickly morphed into a full-blown commodities frenzy with little bearing on reality. As the nation’s army of individual investors piled in, they traded enough cotton in a single day last month to make one pair of jeans for everyone on Earth and shuffled around enough soybeans for 56 billion servings of tofu.
Now, as Chinese authorities introduce trading curbs to prevent surging commodities from fueling inflation and undermining plans to shut down inefficient producers, speculators are retreating as fast as they poured in. It’s the latest in a series of boom-bust market cycles that critics say are becoming more extreme as China’s policy makers flood the financial system with cash to stave off an economic hard landing.

This post was published at David Stockmans Contra Corner on May 10, 2016.

‘Free Trade’ vs. Actual Free Trade

The unlikely rise of Bernie Sanders and Donald Trump has focused public attention on an issue that hasn’t gotten much attention since the Civil War era – international trade.
One of the biggest controversies in nineteenth-century American politics was tariffs – with Big Business manufacturers for them, and farmers and producers of other commodities against them. Corporate behemoths wanted protection from foreign competition while ordinary consumers wanted lower prices. Furthermore, tariff revenue was used to enrich crony capitalists in the industrialized North: the federal government subsidized the building of railroads, canals, and other infrastructure while the beneficiaries of this largesse turned cheap tariff-free commodities produced in the South and West into high-priced manufactured goods.
These days, however, the ‘free trade’ versus ‘fair trade’ debate is seemingly reversed, with the big corporations supposedly favoring the former while the latter is championed by leftists like Sanders and right-wing populists of the Trumpian variety. In reality, however, nothing has really changed.
It would be very easy to institute a free trade regime in the United States, and you wouldn’t need a thousand-page treaty to do it. You’d only have to abolish all tariffs, subsidies, and other government-imposed impediments to the free passage of goods across our borders. That’s free trade.

This post was published at Lew Rockwell on May 7, 2016.

‘Free Trade’ Deals Are Not All That

The unlikely rise of Bernie Sanders and Donald Trump has focused public attention on an issue that hasn’t gotten much attention since the Civil War era – international trade.
One of the biggest controversies in nineteenth century American politics was tariffs – with Big Business manufacturers for them, and farmers and producers of other commodities against them. Corporate behemoths wanted protection from foreign competition, while ordinary consumers wanted lower prices. Furthermore, tariff revenue was used to enrich crony capitalists in the industrialized North: the federal government subsidized the building of railroads, canals, and other infrastructure, while the beneficiaries of this largesse turned cheap tariff-free commodities produced in the South and West into high-priced manufactured goods.
These days, however, the ‘free trade’ versus ‘fair trade’ debate is seemingly reversed, with the big corporations supposedly favoring the former while the latter is championed by leftists like Sanders and right-wing populists of the Trumpian variety. In reality, however, nothing has really changed.
It would be very easy to institute a free trade regime in the United States, and you wouldn’t need a thousand-page treaty to do it. You’d only have to abolish all tariffs, subsidies, and other government-imposed impediments to the free passage of goods across our borders. That’s free trade.

This post was published at David Stockmans Contra Corner by Justin Raimondo ‘ May 6, 2016.

Commodities become China’s Hottest New Casino

China’s market regulator may have succeeded in taking much of the froth off the country’s surging commodities markets last week, but the message is not filtering down to many dedicated retail traders.
As Chinese markets reopened on Tuesday after the May Day holiday, a few dozen young traders in Shanghai crowded into a small room provided by a local brokerage. The mostly 20-something male traders, dressed in jeans and T-shirts, were looking forward to another week of fevered risk-taking in China’s hottest new casino. ‘It’s better for futures traders to be young because they can learn faster,’ said Zhang Jun, 26, who has been trading commodities on the Shanghai Futures Exchange for three years but has only recently begun to make any money. ‘This is not relevant to anything you study before you get here. I don’t know anyone who studied a relevant major,’ said Mr Zhang, a mechanical engineer by training.
On April 29, the China Securities Regulatory Commission ordered the country’s three commodities futures exchanges to curb speculation. The exchanges had already taken steps in that direction, by increasing margin requirements and transaction fees while reducing trading hours.

This post was published at David Stockmans Contra Corner on May 4, 2016.

China’s Latest Casino – -Madness In The Iron Ore Futures Pits

SYDNEY – The price of iron ore for decades was hammered out in secret talks between the world’s biggest miners and steelmakers.
Now, the dominant force is an obscure commodities market in northeastern China, a stark example of how pricing power for everything from steel to copper is shifting east.
The change has been driven by Chinese investors who have poured billions of dollars intoiron-ore futures traded on the Dalian Commodity Exchange. Their bets, reminiscent oflast year’s frenzy in Chinese stocks, have generated as much dollar volume as gold futures in New York, according to data fromCitigroup Inc. They also have created something that had never existed before in the clubby market for iron ore: visible, real-time prices.
Those prices are surging. Despite an expected glut of iron ore in 2016, Dalian iron-ore futures have climbed 46% since the start of the year. Prices for physical iron ore have risen 52%, reaching a 15-month high of $68.70 a metric ton April 21. On Friday, the physical commodity traded at $65.20 a ton, while the most active contract on the Dalian exchange settled at 462 yuan ($70.36) a ton.

This post was published at David Stockmans Contra Corner on May 3, 2016.

Chinese Commodity Trading Frenzy Hits $261 Billion Single Day Peak

The speculators that traded $261 billion in Chinese commodities in a single day last week are retreating as regulators prepare to step up control of the market.
The value of futures traded across China’s three biggest commodity exchanges has shrunk 42 percent since investors spent 1.7 trillion yuan last Thursday on everything from steel bars to eggs. The amount that changed hands was on a par with the entire U. S. equities market on the same day.
Markets in the world’s biggest consumer of raw materials have been gripped by a trading frenzy that’s drawn comparisons with the credit-driven stock market rally last year that preceded a $5 trillion rout. Exchanges have responded by raising margins and transaction fees to curb speculation while the securities regulator is said to have prepared measures to limit price fluctuations.
‘They unleashed this torrent of regulatory moves in the name of curbing speculation, but the long-term impact on this marketplace is uncertain,’ Fan Qingtian, an analyst at Nanhua Futures Co., said by phone from Hangzhou. ‘The short-term impact is that many investors who have been caught in the middle are trying to exit their positions.’

This post was published at David Stockmans Contra Corner on April 29, 2016.

Whack-A-Mole Bubbles In The Red Ponzi

Wondering what will blow up in China next? For all the concern about excessive debt, bubbles are likely to keep inflating for a while. The latest exhibit: commodity futures.
Iron-ore contracts traded in the northeastern city of Dalian are starting to look eerily like Chinese stock market indexes did in early 2015, on their run-up to a midyear peak that then turned to bust.
Anyone tempted to believe that the gains are driven by fundamentals should look at what happened this week. China’s iron-ore futures contract dropped by the daily limit to 450.5 yuan ($69) on Tuesday after the Dalian exchange almost doubled trading fees, the latest of a raft of measures to curb speculation. It plunged further to close at 434.5 yuan on Wednesday, still up about 40 percent for the year.
Fueling the rally are a sudden interest by Chinese investors in commodities after their best two-month run since 2012, and the availability of margin finance.
The events mirror almost step by step the rise and fall of the local stock markets last year. The Shanghai and Shenzhen stock exchanges also began to raise trading fees while the bull market was still raging but it wasn’t until regulators clamped down on margin trading that the bubble popped.

This post was published at David Stockmans Contra Corner on April 29, 2016.

What Global Growth Rebound? Ports Quiet, Containerships Losing Steam

At a logistics park bordering Shanghai’s port last month, the only goods stored in a three-story warehouse were high-end jeans, T-shirts and jackets imported from the U. K. and Hong Kong, most of which had sat there for nearly two years.
Business at the 108,000-square-foot floor warehouse dwindled at the end of 2015 after several Chinese wine importers pulled out, said Yang Ying, the warehouse keeper, leaving lots of empty space. The final blow came after a merchant turned away a shipment in December at the dock.
‘The client told the ship hands, just take the wine back to France,’ Ms. Yang said. ‘Nobody wants it.’
Pain is increasing among the world’s biggest ports – from Shanghai to Hamburg – amid weaker growth in global trade and a calamitous end to a global commodities boom. Overall trade rose just 2.8% in 2015, according to the World Trade Organization, the fourth consecutive year below 3% growth and historically weak compared with global economic expansion.
The ancient business of ship-borne trade has been whipsawed, first by a boom that demanded more and bigger vessels, and more recently by an abrupt slowing. That turnabout has roiled the container-shipping industry, which transports more than 95% of the world’s goods, from clothes and shoes to car parts, electronic and handbags. It has set off a frenzy of consolidation and costs cutting across the world’s fleets.

This post was published at David Stockmans Contra Corner on April 27, 2016.

China’s Latest Mini-Boom Nears Peak Just As Amateurs Pile In

Elite global banks have begun to warn clients that China’s latest credit-driven boom is nearing its peak and will lose momentum by late summer, dashing hopes for a genuine cycle of fresh economic growth and commodity demand.
Morgan Stanley, Nomura, and Societe Generale have all issued cautionary notes just as amateur investors belatedly turn bullish again on China and start to pile into both commodities and emerging market equities.
‘While the mini-recovery is likely to last another 3-4 months, our economists expect a renewed slowdown in the second half of the year, as stimulus efforts fade,’ said Morgan Stanley.
The US bank said record credit growth over the last quarter will keep growth humming for a little longer but the fiscal blitz is already ebbing and the government is imposing property curbs in the Eastern cities to prevent a speculative bubble.
China’s reflation drive has been explosive. New home sales jumped 64pc in March from a year earlier. House prices have risen 28pc in Beijing, 30pc in Shanghai, and 63pc in the commercial hub of Shenzhen. The rush to buy has spread to the Tier 2 cities such as Hefei – up 9pc in a single month.
‘The housing market is on fire,’ said Wei Yao, from Societe Generale. ‘In the first quarter, increases in total credit exploded to 7.5 trilion yuan, up 58pc year-on-year. There is no bigger policy lever than this kind of credit injection.’

This post was published at David Stockmans Contra Corner on April 26, 2016.

Another Gary Cooper Rebound – – It Isn’t On The Level

Gary Cooper famously told a Congressional committee investigating communist infiltration of Hollywood in the 1950s that ‘from what I have heard about it, it isn’t on the level.’
I was put in mind of that observation this morning. First, I heard Jim Cramer saying that the bottom is in for Caterpillar and then I read that Goldman Sachs had upgraded its rating on CAT and Joy Global on the grounds that,
‘…… the signs of a China recovery now appear to be broadening.’
By the lights of Wall Street and its media megaphones, therefore, global demand for commodities and oil is purportedly rebounding and a reflationary cycle of growth is again underway. Apparently, its time to buy the dip again because the world economy has gotten back into its growth groove.
No it hasn’t. What we have here is a Gary Cooper rebound. That is, another unsustainable upward blip of the fundamentally false global credit bubble. But the latter is no more on the level than was Joseph Stalin’s new Soviet paradise.
This time, of course, capitalism is being supplanted by printing-press happy central bankers rather than tonnage toting commissars reinforced by firing squads. But the end game is much the same. To wit, when the state tries to over-ride the laws of the market and sound money, the experiment will eventually end in tears.

This post was published at David Stockmans Contra Corner on April 25, 2016.

The Debt Doghouse Is Filling-Up Fast – -Junk Downgrades Soaring

The debt doghouse is filling up fast. More companies were downgraded to junk status by Moody’s in the first three months of the year than in the whole of 2015.
In total, 51 companies were pushed into junk territory, up from eight in the fourth quarter and 45 in 2015.
The sharp increase in number of so-called ‘fallen angels’ – as those companies stripped of their investment grade status are known – comes as focus intensifies on whether the current credit cycle, which began after the 2008-2009 financial crisis, is turning.
Pressure on borrowers’ balance sheets has been particularly acute among those exposed to the falling price of commodities.
Moody’s also blamed the travails of the commodities market on the significant swelling in the number of ‘potential angels’, or those companies at risk of being cut to junk.
The increase in the number pushed the amount of debt in ‘potential angel’ camp to $265bn by the end of March.
That is up from just $234bn at the end of the year and $105bn at the end of the first quarter in 2015.
Of the 51 companies that lost their investment grade at Moody’s in the first quarter, those from the oil and mining industries accounted for 22 of them.

This post was published at David Stockmans Contra Corner on April 22, 2016.

Here It Comes – -China’s Monumental Dump Of Surplus Steel, Aluminum And Other Industrial Commodities

The world is about to have a good old-fashioned glut on its hands, courtesy of China’s problematic economy.
And the world is already starting to feel the pain.
The problem is that China’s got too many companies producing things like coal and steel, and the state-owned enterprises (SOEs) doing this have racked up debt that’s now eating up their profits.
The government is trying to shift the whole economy from its dependence on manufacturing, and it has already said that millions of people in some of these industries are going to be laid off in the next few years.
But China can’t just shutter these companies overnight, because they still need to pay back the banks holding their debt and it would be an unmitigated disaster for employment.
So these products have to go somewhere, and that means they’re going to be exported to the world. There are a bunch of industries that need this treatment too.
China’s crude steel, aluminum, shipbuilding, chemicals, cement, refinery products, flat glass, and paper will all have to be unloaded on the world, whether the world needs them or not. (Mostly not.)

This post was published at David Stockmans Contra Corner on April 8, 2016.

China’s Global Investment Spree is Fuelled by Debt

‘WE ARE on a wild ride,’ Tom Mangas, the boss of Starwood, an American hotel group that owns the Westin and Sheraton brands, wrote to employees this week. He was referring to the bidding war over Starwood between Marriott, another American hotel operator, and a group led by Anbang, a Chinese insurer. Anbang this week first raised its offer to $14 billion, and then abandoned its pursuit of Starwood altogether. But Mr Mangas could just as well have been talking about the wave of China-led mergers and acquisitions that is sweeping over the world economy.
Anbang’s volte-face notwithstanding, Chinese firms with little international experience and lots of debt have emerged as the biggest buyers of global assets. They have announced nearly $100 billion in cross-border M&A deals this year, already more than their $61 billion of foreign acquisitions last year (see chart). As the latest twist in the Starwood saga shows, announcing deals is not the same as closing them. Between losing out to other bidders and rejection by regulators, China’s investment tally could fall. Nevertheless, the trend is unmistakable. In recent years China has consistently accounted for less than a tenth of announced cross-border M&A deals; this year its share is nearly a third.
For the world economy this investment boom is, in some respects, a welcome development. Global M&A is on track to fall by 25% in the first quarter of this year from a year earlier. Without China’s voracious appetite, the decline would be even more precipitous. The action has also been spread across a wide range of industries, from cosmetics to construction equipment and from film-making to fertilisers. China seems to have outgrown its fixation with commodities and energy.

This post was published at David Stockmans Contra Corner on April 7, 2016.