It is a great business plan, but not for me.

More on that later.

bobby,,,,,how is everything,,,,,thanks for the reply….,

If what you say is correct, I second that!

I trust my answer was sufficient. If not let me know

No, it was.

Do you have further information on other directors?

There were minor purchases by the rest of the BoD of EPZ.V, but nothing large. (Could have been just normal purchasing.) O’Flaherty was the only one that stood out.
Pity Bob Quartermain got so involved with Pretium, because at one time I think he was on the board or advising Esperanza.

You are one sharp tack, Al. I can tell you have been around and know how its done.

Trying hard Bird.

More on why later.

Esquire….BINGO!…bingo!

Good point Dennis M!

Interesting commentary, thanks.

Could be crazy as bat-shit too but the mood hit me.

Regarding what, Bird?

BIRD MAN:

That makes a LOT of sense to me … thank you!!!

What I mean to say Al is that commentary I left is just personal opinion with no basis of evidence. Nobody has told me outright they are going to sink pensioners and pocket the gains. I merely put together an idea based on my understanding of greed and opportunism and knowledge of how simplistically some of the players operate.

Everyone wants to believe there is a grand conspiracy involved at every turn. I don’t agree. Normal greed is operational all the time and easy pickings are never overlooked. It is the collective nature of the trading world and how they view money and opportunity that dictates their actions.

Everyone knows that US pensions and the many funds feeding into the market are the ripest plum on the planet right now. It is just inevitable in my mind that they would be the strategic target for future profit and so efforts to pump stocks and try to attract money out of bonds plays well into the scenario when everybody and his cat knows we are at generational highs in stock markets and that this cannot ultimately be sustained.

That is an easy conclusion for me to arrive at and if there were ever a time to be wary it is now, exactly at the moment margin is at all time highs, earnings guidance is falling and retail traders are jumping back into the market. Good grief, it is a near perfect setup for a short if you could divine when the wheels will come off the wagon.

I cannot time the top of course but I will tell you this….I am not about to become roadkill in the market declines that I believe are inevitable as early as this very year even if it costs me 10 or 20% in lost opportunity to the upside. I see the risk as very high and do not doubt that we are now entering a credit tightening phase that will have deep implications for equity markets.

When is the question. Few doubt we are overbought though and overdue to correct.

I also continue to have deep reservations about sustainability of Chinese markets. Perhaps our black swan will emanate from Asian shores as is often the case. The reasons for my doubt are quite straightforward. Let me explain:

The basic facts in China now are threefold. There is an ongoing property bubble that is at epic proportions by most global standards (although it is finally cooling). Credit conditions are at extremes to leverage after having multiplied many fold since 2008 and there are big cracks now appearing in export and trade markets which form the backbone of national income. Worries over electrical consumption which is an indicator of industrial health are legitimate despite contrary records from the authorities that all is well.

This is happening at a time when Japanese inflation targets are robbing Chinese manufacturers as the Yen goes through a stunning devaluation and further pressures are applied as the dollar strengthens and the Yuan peg is put to the test of fire.

Meanwhile, European imports of Chinese production have been pressured down due to outright depression conditions in some Eurozone countries and the recent IMF downgrades to global economic growth paint a disturbing picture that does not give one confidence a recovery is in the offing.

The US itself is already overdue for a new recession simply based on longstanding patterns that are not likely to be broken simply as a result of QE and intervention. So in aggregate I cannot imagine a scenario that is beneficial to Chinese expansion anytime soon. Indeed GDP projections for that country continue to fall and most recently we have heard that the Governments next target level is an optimistic 7.5% while privately we are hearing 6.5% is a hope and a prayer.

So housing prices and other property there are about to face their Waterloo.

In that context the financial system itself is about to be tested. Everything comes down to the value of the underlying property assets and the collateral they represent in supporting the excessive lending we have seen to date.

The cost of housing has of course gone far past what ordinary people can afford.

Price to income ratios in the large cities (which represent the largest proportion of property values) have gone to nearly 30 in some cases. That is to say a home costs on average up to 30 times annual salaries versus a historical mean of 2.6 in the US.

This represents a stunning disconnect between fundamentals and reality and it is utterly unsustainable at every level. Investors must appreciate this one single issue above all others to grasp the significance of what follows.

In fairness though, the average ratio for the country recently stood at a much tamer 8% although it is notable that housing construction alone accounted for over 15% of the GDP print (exceptional) and it is in decline as home prices soften and a huge surplus of empty property overhangs the market. It is investment grade of course and held by speculators as a form of wealth (sarcasm in case you did not catch it).

So why is all this a problem?

Well it is this. A great deal of all the lending that has taken place there is based upon the collateralization of lands and properties that are themselves at nose bleed levels. Take away the asset value and there is little backing much of the financial system.

This is especially the case with the so-called Shadow Banking sector which has over extended itself on the back of the meteoric rise in property prices and the bubble that followed.

Lest any of the China bulls rush in to argue that the Chinese financial system is safe due to the vast holdings of foreign exchange, let me cut them off at the pass and remind them that the outright selling of all treasuries to support a property bubble collapse would in itself wreak havoc on the economy and seriously damage the currency.

Nothing is ever so simple. Debt and credit are the same there as they are here though and lets not ever forget that. China does not operate in some special economic vacuum where it is invincible at all times due to export incomes and FX. The same rules of the game apply and what we are now seeing is that asset values as they decline are threatening the basis of the Chinese Ponzi credit nightmare that lies ahead.

As we now know, Chinese property prices are cooling rapidly. The outcome is that this presents a genuine risk to lenders who may never recover money loaned for all the usual reasons. Non-performing loans there are already unprecedented and this is BEFORE any real trouble has materialized. The Chinese of course are just like us. When property rose, owners leveraged their assets heavily to buy even more property, to expand business’s and to convert assets to cash that they might then spirit out of the country or invest overseas.

At the very heart of the dilemma though is the collateral supporting the system.

The principle is painfully simple. Banks will lend on a percentage based on estimated valuations of the underlying asset. But China is in a property bubble! Has it not occurred to the China bulls there is a very big hole in the canoe over there on that basis alone and that as assets decline the banking sector, industry and employment are all at immediate risk?

What more do we need to know other than that all bubbles eventually burst and that as an outcome the asset itself will decline in value back to fundamental valuations. This is not fundamentally different than what happened in the US after the housing bubble burst there. In the end everyone is left scratching their heads and wondering where the money went because most of them have no idea to begin with that most asset values are essentially a market fiction built on how others bid up prices. They always forget that buyers can also bid down thus wiping out gains that were in themselves artificial.

As usual In China’s case we do not know what the fundamental values are though because their history of private property ownership has been so brief. We can infer based on global averages what it might be though. Let me assure everyone that number is not anywhere near to 30:1 income to price.

So in short, I have little confidence that China can achieve a soft landing. This is problematic to everyone as China is not a pipsqueak nation like Greece. It is no less than the second largest economy on earth. A credit implosion there cannot possibly be contained and we will see repercussions everywhere as markets are flooded with cheap goods as Asian business’s fail and a reconciliation of past lending excess in conjunction with vast state subsidies is finally brought home to roost.

That is just one of the reasons I have doubts about the sustainability of current equity markets in North America. I have many more but I think this is quite enough for one days writing.

And here is a very odd coincidence.

No sooner had I written and posted the above comments on the problems I foresee with China than a set of similar remarks emanate from Mish Shedlock via Michael Petis who is living in China.

I had not read his remarks prior and the thoughts I expressed are my own which I concluded through my own study of the region. I was readily impressed with how closely we see the situation developing along similar risk lines though.

Michael, interestingly enough, goes into depth about why forced urbanization is not a valid solution to troubles over there and also by coincidence this is an area of serious interest to me. I might post commentary on exactly that topic soon with respect to my own experiences living in a developing nation. I do agree with him but for different reasons. Until later…..

China Urbanization Growth Fallacy ~~ Michael Petis via Mish Shedlock
http://globaleconomicanalysis.blogspot.com/2013/07/china-urbanization-growth-fallacy.html

DITTO ON THE …..”God is in control”………….but, remember it is the Devil’s playground, for awhile…..

Well of course.

But also do the homework that God gave you the ability to do!

AL:

Great question … I am merely firing out my opinion here (nothing more, nothing less), but if cash is worthless … And gold is toast (that is a big IF) … then I would assume that it will be every man for himself (I suspect there would be many private transactions … but what people would use as a gauge to determine what is worth what is beyond my IQ level … 81 on a good day.

Beats my 75!

AL:

HA HA HA … that was funny … your great humor has started my day off on a good note!!!

GREAT!