FINTS

2016-06-25

China's Middle Income Trap an Excuse to Cover Up Failed Central Planning

Sun Hao argues the growth of SOEs and government intervention are the main reason for China's slowing economy.

The biggest shiv:
Not eliminating defects at the institutional level, we may not fall into the middle-income trap like other countries, instead we may fall into the trap of failed states. The Northeast has seen economic growth collapse, all over the country there are also quite a number of collapse points.
also:
Today, these large state-owned enterprises in the industry if you look at the debt structure they already went bankrupt, but they were sheltered by the government, like a dead person in the intensive care unit receiving excessive medical aid enduring as zombies. From borrowing new debt to pay old debt, not borrowing to pay interest, to swapping debt for equity, in their own slow death will absorbed all of the people's bank deposits. Could it be the next step is TARP-like recapitalization to boost bank capital? A few years ago I said if the reform doesn't happen, in seven or eight years time this will happen again.
He also slams SASAC as a reversal of reforms:
SASAC was established in 2003 (the establishment of a government agency using the taxpayers' money to set up a public agency as public service for some shareholders is of questionable legitimacy), this system can be regarded as a reversal.

中等收入陷阱只是挡箭牌 中国经济真正要害是什么?

2016-06-24

Three Body Problem Movie Has a Problem

Caixin: Premiere of Film based on Acclaimed Sci-fi Novel 'The Three-Body Problem' Pushed Back until 2017
Author Liu Cixin sold the rights in 2009 to director Zhang for a big screen adaptation of his book, but the news upset some fans who were worried that Zhang, who had only directed three movies previously, was inexperienced.
Yoozoo's latest statement on the delayed premiere caused a stir among the book's fans again.

"It's like a Chihuahua trying to fight a Tibetan mastiff," an Internet user said on the Quora-like website Zhihu, referring to what he thought was an amateur director's attempts to take on a complex project.

"To turn a good novel into a good movie, there should be a developed film industry and a team that is good at every aspect from planning to distribution," another Net user said.

Yoozoo was established by an online game developer Youzu Interactive Co. Ltd. in November 2014. It has produced four movies to date. One of the films, The Crossing 1, had a 400 million yuan ($60.6 million) budget, but it bombed at the global box office, raking in only 260 million yuan, according to movie website Mtime.com, which offers reviews and tracks box office numbers.
Hollywood will do a remake.

Yuan Fix to Fall Into 6.60s

USDCNY climbed to 6.64 today and given the selling of foreign currencies and the fact that Yuan Follows Dollar Down, But Not Up, a fix in the 6.60s is likely coming up. For more on the yuan's tie to the weak dollar, but not strong dollar, see Calm Before the Dollar Storm.

Looking past the Brexit noise, this is the type of move that could have staying power given everything else going on in the markets.

USDCNY Breaks 6.60 Again

USDCNY drops to 6.61 on global currency turmoil.

Not much of a move, but another asset trading above/below a resistance/support line.

Remain Strongholds Report Over Next 2 Hours

Here's a chart showing the perfect moment to go short, after the euphoria following Nigel Farage's "concession." As I said before, it looked like a top even if Remain won, as the pound also spiked quite high for a moment.

The chart below shows the S&P 500 futures.


I have to say coming into the vote I thought Remain would pull it out, but if Leave wins it is not a surprise. I've been expecting this would happen eventually. At some point, the social mood was calling for this to happen, Socionomic theory predicted it. Now it's a matter of, are we looking at the end of a trend in the market or the beginning. Is US dollar bull market about to run again, or is this a blowoff move? Gold is at a 52-week high and headed for hit a new all-time high in Australian dollars before pulling back.

If this is a top then the market spends the next few months working off these losses. If not, this is the first shot of a much larger wave.

2016-06-23

Brexit Results - Leave In The Lead

Turnout favors Remain, but some key cities such as Swansea, a Labour stronghold, voted Leave. Cities voting Leave are generally hitting turnout of 70-80%, but areas with Remain wins are roughly 70%. If the polls were correct about the race being a toss up, this turnout advantage will translate into a win for Leave.

The pound has dipped, but only back where it was on June 17. If markets are going to react, there's still plenty of time to pile into bearish bets. The best time to short was when the media reported Nigel Farage's "concession" and markets looked to have hit a final euphoria high. Even if Remain won, I would have expected a decline from those levels on Friday. Now, however, the pound is down 5 percent off its high for the day, leaving plenty of risk if Remain pulls it out.

EU referendum live results — tracker

May The EU Go Down in Flames

The people who run the EU come up with ideas like this: Europe's robots to become 'electronic persons' under draft plan
Europe's growing army of robot workers could be classed as "electronic persons" and their owners liable to paying social security for them if the European Union adopts a draft plan to address the realities of a new industrial revolution.
Europe beclowns itself.

The Dying Dollar System

Back in 2013 I summed up the position here on the dollar system: Death of the U.S. dollar greatly exaggerated; Historic U.S. dollar rally still likely
The U.S. dollar is the core of the global financial system and global powers, including China, will seek to preserve it as long as possible. As each nation passes through hyperinflation, however, they become freed from the global financial system via devaluation. At that point, the cost of launching a new financial system have been paid up front. As each nation goes through hyperinflation, it puts the U.S. dollar in a more untenable situation and makes a nation more likely to defect to a new system.
Now consider this article from Caijing, the headline says "U.S. dollar hegemony weakens, Oil producers don't hesitate to devalue, de-dollarize"

Caijing: 美元霸权松动:石油国家不惜货币崩盘 誓“去美元化
However, since the 2008 financial crisis, "de-dollarization" are growing. Honorary President of the National Development Research Institute of Peking University Lin has said dollar dominance is the root cause of the international financial and economic crisis. Today, the US dollar in global foreign exchange reserves in the proportion declining to abandon the fixed exchange rate has led to the collapse of the local currency as the representative of Nigeria's oil country, mustering strength you want to get rid of the shackles of the dollar; the US government out of the ticket price also let "de-dollarization" slogan popular in the European banking sector.
The dollar is the core of the problem because the dollar refuses to devalue. We are in the middle of a depression and the value of currency is rising, not falling, amidst a credit deflation. Countries aren't "solving" the problem is because the countries that have solved it, such as Nigeria, watch their currencies collapse. Others that might want to try, such as Japan, are sternly warned by trading partners.
At the same time, the rapid rise of the yuan to make the world wonder. In recent years, China has actively accelerate and promote the process of internationalization of the RMB, especially this year, October 1, the RMB will officially join the IMF SDR basket of currencies. From currency, denominated in the currency to the settlement currency and reserve currency, the yuan is increasingly being recognized worldwide.

"The dominance of the dollar in the short term is difficult to shake, but the dollar in the future can not dominate." Secretary-General of Shanghai Development Research Foundation, Joyce Germany had to accept the "First Financial Daily" reporters interview, said, or will be gradually replaced it is a multi-currency system, the yuan is one of the world's reserve currency may end up in around 2025.
Of course the yuan isn't becoming internationalized, but the opposite, precisely because the same force pulling the Nigeria naira down is the same force pulling the yuan lower. Christopher Balding discusses it here: Follow Up to BloombergView RMB Deinternationalization
Now the price and the flow issues combine to tell us very real information. If RMB needs to flow into the rest of the world to become an international currency, this means there will be downward pressure on the RMB. If Beijing relaxes its grip on the directionality allowing the RMB to internationalize, this will place long term downward pressure on the RMB reducing its value. There is another way to think of this: if Beijing wants to hold the value of the RMB higher, it will continue to deinternationalize the RMB. If Beijing is willing to let the RMB depreciate, the RMB will internationalize. The only way the RMB can internationalize and rise in value is if the demand for RMB assets significantly outstrips demand for foreign assets. There are two reasons this is unlikely. There is an asymmetric relationship in that foreign investors are much more able to hold RMB assets than Chinese holding foreign assets. In other words, there is a lot of pent up demand by RMB holders for non-RMB assets. Furthermore, given the law of large numbers, China would have to absorb such a vast amount of world savings and investment in the future to push the RMB higher on a strictly flow basis to render this all but impossible. In other words, this gives us the pre-conditions under which the RMB will internationalize and what we will see both with flows and with RMB.
There is a depression because there is a slowdown in U.S. dollar credit growth. The U.S. shadow banking system is in deflation. What the world wants is a cheap, liquid currency. It had that, and abused it, so today it has a huge short position (debt) against a shrinking pool of credit. The game of musical chairs is winding down an no bank is dumb enough to put another chair out and join the game. They are removing their chairs and quitting the game.

If China is thinking long-term, they would flood the world with yuan and steal market share from the U.S. dollar, but to do so would require allowing a greater role for the market in pricing the yuan.

Conversely, China can stop The Informational Power of the Offshore Yuan Exchange Rate by shutting down the offshore market. For all the talk of the renminbi as reserve currency, it is blatantly obvious China wants no such thing, at least not in 2016 or the near future. China is acting precisely opposite to how it would behave if it sought to become a reserve currency in the near future, despite depreciation being all but inevitable.

China can be patient though, because the U.S. dollar system will kill itself. Back to the Caijing article:
Common problems they face are, on the one hand the international oil prices, oil led the national economy has been hit hard; on the other hand, the Federal Reserve interest rate channel open up the dollar, oil and national currencies against the US dollar continues to depreciate, described as "worse."

Therefore, more and more oil countries to speed up the "de-dollarization" pace. Kazakhstan and Russia became the last two years committed to get rid of the shackles of the typical dollar.

...When he was governor of the French central bank Christina (Christian Noyer) of the United States warned the United States to use their rules limit BNP Paribas bank dollar transactions on a global scale, which will encourage (banks) "to dollarization." "Trade between Europe and China does not necessarily require the use of US dollars may also use the euro or the yuan."
The world is de-dollarizing because there is a shortage of U.S. dollars. The amount of "real" U.S. dollars is vanishingly small compared to the total amount of credit and derivatives. The world economy is run on credit, and the banks that can make U.S. dollar credits backed by the Federal Reserve, that is banks who can back their short positions, are reducing credit. Deflation is the order of the day.
It is noteworthy that, in the June 7 end of the eighth round of Sino-US economic dialogue, the Chinese central bank vice governor Yi Gang said, shortly after was the establishment of an RMB clearing bank in the United States.

"This move also means that the RMB internationalization made an important breakthrough." HSBC director of currency research in emerging markets Paul Markel (Paul Mackel) "First Financial Daily" reporters, he said the dialogue is very important breakthrough in the United States establishing a policy framework to promote US trade and the RMB in the settlement, which is conducive to China were included in major international equity and bond market indices, while helping China to further reform of foreign exchange on the track.
China is building the infrastructure for an international currency, and eventually a reserve currency, but it's actions today are the exact opposite. Meanwhile, the dollar system dies a slow death with every instance of depegging and/or hyperinflation in foreign currencies. Credit, then fiat, burns from the periphery to the core.