When the ATMs Went Dark …

There’s a time for calm, rational behavior … and a time to panic. On Tuesday, investors in U.S. stocks decided not to panic. Monday’s sell-off halted. But it did not reverse.

And it left the street with its worst half-year performance since 2010. Gain for 2015 so far? Zilch. But have we seen the top? We will have to wait to find out.

Fox News reports that Greeks are eyeing Bitcoin to protect their savings. At midnight Tuesday night, the Greek government defaulted on a €1.5-billion loan repayment to the IMF. And it has imposed a 60-euro-a-day limit on cash withdrawals.


50As of today, depositors reportedly only get 50 euro per day, because the banks have run out of 10s and 20s.


This leaves many Greeks short and looking for alternatives. Pity those who were last in line at the ATMs before they went dark. Says a restaurant owner in Athens, quoted by the Associated Press:


“You don’t know what can happen. In my case, I have money, and I don’t have money in a sense. I have it in the bank, but I can’t get it in my hands. It’s crazy.”


As we’ve been pointing out, money in the bank is not the same as money in hand. The first is just a loan to what could be a bankrupt institution. It could be worth nothing. The second is cash – ready, handy, and extremely useful.

In a financial emergency, there won’t be a liquor store in town that won’t welcome you as a customer. A Greek butcher… also to Associated Press:


“I have no cash to pay for meat supplies for next week because of the capital controls. Sooner or later, probably in this month, I’ll have to let 10 people go.

The people are buying with cash, not credit cards, and the problem is the customers don’t have cash.”


The elderly have been especially hard hit. Often, they don’t have cash… and don’t have any way to get it. And pity the poor schleps who were last in line to sell their Greek stocks. The Athens Stock Exchange peaked in 2007. It’s down 95% since then.

And the yield on 5-year Greek government debt has a rare distinction: It is racing neck and neck with Greek unemployment rates. Both are near 26%.


Greece 2-Year Bond Yield(5 Hours)Greek 2 year government note yield, 5 hourly candles – this one has jumped well beyond the unemployment rate by now, but is still below the more than 400% (not a typo) it briefly reached in 2012


But let us leave the land of Aristotle and Pericles … and wander to the land of Confucius.


Huge Debt Bubbles

If we were looking for an excuse to panic, we would look to Shanghai, not to Athens. The Greek crisis is small potatoes. A Chinese stock crash, possibly followed by a depression, is the kit and caboodle of financial disaster.

Shanghai stocks surged more than 5% on Tuesday – the biggest one-day gain since 2009. But this comes after the Shanghai Composite Index fell 20% from its June 12 peak. And it comes only after the People’s Bank of China cut interest rates and reserve requirements for banks, to boost lending.


SSECAfter the brief surge on Tuesday, the Shanghai Composite resumed its plunging ways. Confucius says: By three methods may we learn wisdom: First by reflection, which is noblest; second by imitation, which is easiest; and third by experience, which is bitterest. Chinese rookie investors are currently taught the third way of gaining wisdom – click to enlarge.


We urge readers to beware. We wouldn’t put it past the feds – in China or in the U.S. – to juice up the market even further when they get really desperate. But what would you expect after two powerful groups of economists connive and collude to implement their central planning fantasies?

They created two huge debt bubbles. The U.S. bubble is a volatile mixture of consumer, corporate, and government debt. Companies owe about half of China’s debt. And state-owned businesses and property companies owe most of that amount. Banks lent mega amounts to overdo it on factories, offices, malls, and housing complexes.

Now, total debt in China – including government, corporate, and household debt – is about 280% of GDP. That’s still a ways off the 331% total-debt-to-GDP in the U.S. But it’s a lot higher than other developing markets.


Hairpin Meets Fat Derriere

What will happen next? We don’t know, but across the Sea of Japan is an instructive example. The Nikkei peaked in 1989. Twenty-six years later, it has recovered only HALF those losses! Pity the poor Japanese investor who was last in line to sell.


Nikkei, long termNikkei Index, monthly. After declining to a new 20 year low in 2009, the index has managed to regain half the level it inhabited at the end of 1989 – click to enlarge.


But Chinese investors learned nothing. This year, they bid up Shanghai and Shenzhen stocks to levels last seen in Japan in 1989… or U.S. stocks in 1999.

Attracted by the commotion, rookie investors opened brokerage accounts in record numbers. They invested their savings. Then they borrowed money so they could gamble more.

In May, the hairpin found its fat derriere. First in line to sell were the insiders. Reuters reports that corporate insiders were selling at a record pace: three times as many in May as in April.

One of the sellers was Li Hejun, the chairman of Hanergy Thin Film Power Group. Li shorted his own company’s shares. He did very well. Trading at nearly $1 on May 18, Hanergy shares are worth about $0.25 today.


Hanergy-thin-filmThin Film becomes thinner film – real fast. We admit to a grudging respect for CEO Li Hejun’s display of chutzpa and acumen in shorting his own company’s shares. Li is reportedly China’s richest man, worth $32 billion (200 billion yuan). This is no surprise – he’s evidently no dummy – click to enlarge.


Charts by: investing.com, bigcharts.


Image captions by PT


The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.




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4 Responses to “Forget Greece … China Is the Real Threat”

  • VB:

    “Fox News reports that Greeks are eyeing Bitcoin to protect their savings”. LOL. If Bill is getting his info from Faux News, it’s no wonder that his articles rarely make sense and his most often repeated phrase is “we don’t know”.

    Greeks can’t buy Bitcoin, because they have no cash and bank transfers don’t work. Oh, yes, and there is no Greek Bitcoin exchange. And even if they did have Bitcoin, they wouldn’t know what to do with it, because there are something like 4 companies in Greece that accept it as payment. As far as “protecting savings” goes, Bitcoin has fallen some 80% for the past year alone. There is also a hard limit on the protocol, which limits it to averagely 2.7 transactions per second. If only Greece and nobody else used Bitcoin, the average Greek would be able to make averagely 1 transaction every 44 days. And don’t even let me get started on all the scams, hacks, and simple screw-ups that happen literally every day in the Bitcoin world…

    • reniam:

      The wise among use all news sources to glean the truth from the noise. Fox News displays things from a certain angle same as MSNBC. We understand these are businesses, not public service organizations. Their revenue model is to sell you the news between ads, so their content will be aimed at keeping you watching so they can tell you what to believe after they’ve told you what to buy. Fools run around saying “Faux News” or “PMSNBC”.

      “Greeks can’t buy Bitcoin, because they have no cash and bank transfers don’t work.”
      And yet, there are a multitude of articles, such as the CNN Money article “Greeks are rushing to Bitcoin” that indicated the opposite of what you say.

      “Oh, yes, and there is no Greek Bitcoin exchange.”
      There’s this wonderful thing called “Google”. By using it, one is able to find the Bit Coin exchange BTCGreece in less than one second. You should try it.

      “And don’t even let me get started on all the scams, hacks, and simple screw-ups that happen literally every day in the Bitcoin world…”
      Gee, you don’t say. There are “scams, hacks, and simple screw-ups” where ever humans are using a medium of exchange.

      • VB:

        Yes, obviously you too, get your info from the mainstream media.

        “there are a multitude of articles” – yes, and they are all copied from each other. Once one big MSM outlet runs with a “story”, everybody else rushes to keep up and writes about the same thing. It doesn’t make it true.

        “BTCGreece…You should try it” – I’d rather not. Especially if I were Greek. From the English version of the site (I don’t read Greek): “How to buy Bitcoin… Deposit Euro to your account by bank transfer”. Well, isn’t that too bad? Greeks can’t move money around with bank transfers right now.

        “There are “scams, hacks, and simple screw-ups” where ever humans are using a medium of exchange.” – not even REMOTELY as many as where Bitcoin is involved.

  • Professorlocknload:

    Adjusted for inflation, that Nikkei chart becomes devastating. Not hard to see how US equity returns going forward could easily turn negative for a decade or so, at least in real terms.

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