Category Archives: markets

People’s Republic of China’s Stock Market Drop

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The PRC’s Shanghai Composite Index, which is an index of the stocks that trade on that country’s major stock exchange, the Shanghai Stock Exchange, has fallen by some 28% in the last week. This is the second time since 2007 that this index has fallen this far (in 2007 it dropped by roughly 2/3 over the course of 13 months beginning in October 2007). In response, the PRC has decided to close the market to IPOs until the central planners in Beijing decide conditions are suitable for IPOs.

This central planning foolishness got me wondering. How big a deal is the Shanghai Stock Exchange for the PRC’s economy?

The total value of the PRC’s stock market was around $4.2 trillion in 2014, per Bloomberg Business. The PRC’s Purchasing Power Parity GDP for 2014 was around $19 trillion. Thus, the value traded in its markets was roughly 22% of GDP.

In contrast, the dollar volume on the New York Stock Exchange last Thursday (2 Jul) was some $63.5 million. Expanding that (very naively) to a trading year of 220 days during which stocks are traded out of a 365-day year (weekends and holidays, after all), the annual dollar volume for the NYSE runs to a skosh under $14 trillion. The US PPP GDP for 2014 was $17.7 trillion. The value of the NYSE’s stock trading was a bit under 80% of our GDP.

It’s certainly true that 22% of GDP or the raw value of $4.2 trillion are hefty numbers. But at only 22%, the central planners, in addition to chasing chimeras with their assumption they actually can control in any significant degree any economy, are chasing a relatively minor chimera with their IPO moves. But, then, like central planners everywhere, they think they Know Better than mere investors. Even when the Know Betters are monstrously wrong.

Europe and Greece

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Peter Müller and René Pfister have a piece up in Spiegel Online International concerning German Chancellor Angela Merkel’s handling of Greek Prime Minister Alexis Tsipras and of the Greek financial crisis. Müller and Pfister’s central thesis is that Merkel has mishandled the situation, and rather apocryphally, they suggest that any resulting failure of the euro will be the fault of Merkel’s policy regarding Greece.

Müller and Pfister are operating from the false premise that, beyond Merkel’s supposed mishandling of Greece and of Greece itself, the euro is fundamentally sound.

This is false. If the euro fails, it will not be because of Merkel’s policy regarding the Greek problem (I won’t call it a crisis, since it’s that only for Greece, and not at all for the rest of the eurozone) didn’t work, or even because of Greek-eurozone mutual intransigence. Any failure of the euro will flow from its poor construction.

On what basis can anyone think that a currency cobbled together from nations with as radically differing philosophies regarding the purpose of money or the role of government in society as is extant between, say, a Greece and a Germany or a Netherlands would have any durability at all?

Europe would be far better off well into the intermediate and nearby distant future were it set up as three or four smaller currency unions, each with much more homogeneous philosophies, and those currency unions then operating within a pan-Europe free trade zone.

Obamacare….

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…again. The claimed purpose of Obamacare is to get every American covered by a health plan.

Prior to the passage of the Affordable Care Act, with its mandate that all Americans purchase insurance and requirement for businesses to offer employees insurance plans, many small companies provided coverage by directly reimbursing medical costs or for the cost of private insurance plans. Businesses do it because that’s a less complicated process than dealing with an official health insurance plan….

An IRS Rule (remember these guys and their rules?) that took effect on 1 Jul punishes those businesses for helping their employees.

…those reimbursements…are “considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.”

“Such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code[.]

No. The true purpose of Obamacare is to get every American covered by a government-approved health plan. Choice be damned. An employer actually helping his employees be damned.

US Access to Space

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Last weekend, a SpaceX rocket carrying supplies to the Space Station exploded while staging after launch. This follows an Orbital Sciences resupply rocket explosion last fall and a Russian resupply rocket failure last spring.

USAF General (Ret) William Shelton, in a Wall Street Journal op-ed, is lamenting legislation barring the use of Russian rocket engines in our launchers, and his concern is sparked by those failures.

The problem, and it’s a legitimate concern, is that SpaceX and United Launch Alliance, a partnership between Lockheed Martin and Boeing, are the only two American reliable rocket companies we have—Orbital Sciences hasn’t succeeded yet—and ULA uses those Russian rocket engines in its launchers. With the legislation, of the two rocket companies (and at least two are strongly desired for safety and redundantly assured access to space), only one will be able to fly until ULA develops another engine.

The other side of the problem, though, is that of the two current American companies, one can fly only with the engines supplied by one of our enemies. That’s not very reliable, either.

Rents and Rental Ownership

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New York City is going to do it, again.

Mayor Bill de Blasio appears poised to deliver on a campaign promise to freeze rents for more than one million tenants protected by New York City’s rent-stabilization laws.

Both landlord and tenants leaders said they expect the Rent Guidelines Board to approve the freeze, affecting one-year apartment leases beginning on or after Oct 1, on Monday….

Never mind that

…an annual report showed that landlord operating costs only rose 0.5% due to falling fuel prices. Excluding volatile fuel costs, overall costs rose 3.6%.

Why would anyone want to rent in this environment? How are landlords supposed to afford maintenance—cosmetic or needed—if they’re not allowed to raise rents to cover costs? Never mind that they’ll be held to account in open court if they don’t do the maintenance.

How are landlords supposed to afford to advertise or otherwise attract tenants if they’re not allowed to cover costs?

How are landlords supposed to earn a living if they’re not allowed to earn a profit for their efforts?