Pork Prices Keep Rising, CPI up 0.9pc in September

China's CPI is starting to breakout to the upside as the pork crisis escalates. Previous reports predicted a spike in pork prices in the second half of the year, but the continued collapse in swine herds has been a surprise.

Reuters: China's pork, beef imports surge in September

The deadly African swine fever has reduced the world’s top pig herd by almost 40%, according to official data, after spreading unchecked throughout the country and leaving many farmers unwilling to replenish their farms.

The slump in the herd has pushed retail pork prices up by 84% year-on-year to 43.4 yuan ($6.14) per kg while the country’s food price index is at its highest since January 2012.

NBS: 2019年9月份居民消费价格同比上涨3.0%

Producer prices were up 0.1 percent in September. NBS: 2019年9月份工业生产者出厂价格同比下降1.2%

Money Supply Growth Still Slowing

Although the year-on-year comparables were positive, lifting yoy M2 growth from 8.2 percent to 8.4 percent. The rolling 3-month growth rate shows the most recent quarter is slower than last year at 6.6 percent versus 7.3 percent one year ago.

Total social financing increased 11 percent. Closer to 10 percent or below is where the economy runs into trouble.

Reuters: China September new bank loans beat expectations, more easing seen

Official reserves were steady in September., as they have been for months.

Local Govts Start Subsidizing Home Buying Again

iFeng: 贷款额度提升、买房补贴现金…楼市要“闹哪样”？

Phenomenon I, Yangzhou: The accumulation of provident fund loans from 350,000 to 500,000

There is not enough cash, the loan is coming together, the amount is too low, and you can only give up.

A similar situation is common to buyers, but it is really a hero.

This time, Yangzhou acts!

On October 8, Yangzhou issued a document and decided to restore the maximum amount of housing provident fund loans from 350,000 yuan to 500,000 yuan from October 15, 2019.

From 350,000 to 500,000, this range is not small. For the just-needed group whose money is not plentiful, it is undoubtedly good news.

Suzhou, once a "hot" city subject to strict controls, is handing out cash subsidies:

Phenomenon 2, Suzhou: the first suite to subsidize 20,000 yuan

Buying a house for cash subsidies? Yes, you didn't get it wrong! At present, there is already a place to do this.

On October 8th, the Housing and Urban-Rural Development Bureau of Suzhou City, Anhui Province issued the "A Letter on Promoting the Popularization of Agricultural Population to the People of the City", proposing that the agricultural transfer population purchase the first set of commodity housing in the main city and handle the real estate registration certificate. And settled in, and gave full financial subsidies to the deed tax paid.

In addition, the laborer signed a one-year and above labor contract and continuously paid social insurance for half a year or more, in line with the corresponding conditions, and purchased the first set of commercial housing in Suzhou City and settled the certificate, and granted a subsidy of 20,000 yuan for housing purchase.

Although the subsidy of 20,000 yuan is not too much, don't forget that compared with some hot cities, the price of Suzhou is not high. Moreover, compared with other cities, high-education people are required to purchase housing subsidies, and Suzhou workers are included in the scope of subsidies!

The article states this is not a general easing, that housing policy is still "one city, on policy" where local conditions play the largest role.

First of all, the strength of the property market regulation has not been reduced. Statistics show that in September, the number of national real estate regulation and control policies was published up to 48 times. In the first nine months, the total number of real estate regulation and control was 415 times, and the intensity reached a new historical record. From these figures of regulation, there is no sign of the relaxation of the property market.

Secondly, the general direction of protecting those who just need to buy a home has not changed. Whether it is the change in the amount of the provident fund loan in Yangzhou or the cash subsidy for the first home purchase in Suzhou, it is actually protecting the interests of the newly purchased houses, rather than stimulating the real estate market. This kind of thinking is the general direction of the property market regulation. It has not changed in the past. It has not changed now, and the future will not change.

Once again, the idea of ​​"one city, one policy" has been insisting. Under the positioning of housing and not speculation, the real estate market is constantly stabilizing, and all parties are expected to mature and rational. While some cities have fine-tuned their regulatory policies, some cities are also over-regulating. On September 30th, Hohhot issued a series of control and combination boxing, including raising the proportion of down payment for the second suite, implementing the melting mechanism of land transactions, and setting up a price validation team.

She Thinks She Missed the Train to Mars

Supporting trendline from 2008 low.

Proctor & Gamble Wedgie

Maybe nothing

Turkey is Toast 2019 Edition

I identified Turkey as a potential geopolitical hotspot given a bearish chart pattern several years ago. Things have not been going well for Turkey or its currency in the interim. I speculated that a completion of the bearish pattern would point to extreme events, either currency collapse or possibly Turkey being ejected from NATO. The latter is now openly discussed in Washington, DC.

NI: Sorry, Lindsey Graham: America Can't Kick Turkey Out of NATO Unilaterally
TAC: Time to Kick the Islamizing Turkey Out of NATO

Dollar Tree Lines

Groundwork for Yuan Devaluation

I expect currency devaluation is the end game for nearly all countries, but the first to go will be emerging markets, not core economies since a Plaza Accord 2.0 seems impossible. The key currency for the "emerging market" complex is the Chinese yuan. Although it may be currencies such as the South Korean won that depreciate first, the yuan will eventually be the big mover that shakes the "EM" complex, followed by spillover into the euro and yen, then finally the dollar.

Before devaluing and floating the yuan, there will be much discussion in the press, such as this article. Zhang Bin of CASS has put out an opinion piece arguing a floating currency isn't to be feared, but is in fact a tool of economic stabilization.

财新：浮动汇率不可怕 是经济自动稳定器

As I've been saying here for many years, I expect China will implement a large one off devaluation that undervalues the yuan and then allow the yuan to float. Capital outflows occur because investors expect the currency will lose value. By slashing the yuan and allowing it to float, the market will bid CNY up as foreign and domestic investors repatriate funds and buy undervalued assets. Zhang Bin says much the same thing in this article.

There is a general concern that currency depreciation can lead to instability of confidence and capital outflows. This is a misunderstanding that does not distinguish between depreciation and depreciation expectations.

　　Under the intervention of the monetary authorities, if the market-driven demand-driven currency depreciation is not realized or fully realized, the currency depreciation is expected to exist. The purchase of foreign currency financial assets will receive an additional expected premium, and the repayment of foreign currency liabilities will receive additional expected subsidies. Incentive capital outflows and reduced capital inflows, net capital outflows increase. This is a depreciation expectation, not a depreciation itself, driving a net outflow of capital. If sufficient depreciation is achieved in accordance with market supply and demand, in the absence of further depreciation, capital outflows have no additional expected returns, capital inflows have no additional expected subsidies, and net capital outflows are more stable.

He argues the yuan will not depreciate excessively:

Another concern about the introduction of floating exchange rates is that the RMB exchange rate under market supply and demand decisions will depreciate excessively. Based on international experience, the probability of this happening is very low.

　　We define a total depreciation of more than 15% a year as a large depreciation. We have compiled large depreciation cases in the IMF database since the Bretton Woods system was disintegrated. In the nearly 40-year history, 157 large devaluations occurred in all 52 sample countries. Among the above 157 cases of large devaluation, there are high inflation or trade deficits behind the 148 major devaluations, or both. Only nine major devaluations occurred in the context of low inflation and trade surpluses.

　　These nine major devaluations can be divided into several categories: 1. Exogenous economies face severe external crises: South Korea (2008-2009), Malta (1993); 2. Greatly loosening monetary conditions and actively guiding currency depreciation: Sweden (2009) Japan (2013); 3. Monetary system reform: Denmark (2000), Switzerland (997); 4. Pre-existing currency overvalued: Japan (1996) Netherlands (1997); 5. Excessive credit and excessive foreign debt: Indonesia (2001).

　　These international experiences show that the foreign exchange market is not as ineffective as many people worry. China's economy is currently in a medium-to-high-speed growth, low inflation, trade surplus, no serious external economic crisis, overall controllable risks in the domestic financial system, and external debt has fallen to a lower level. From the international experience, the probability of a large depreciation of the currency in this context is very low.