2012-01-31

Chinese yuan gets frisky again, slips then pops

The chart only goes through January 30. After slipping on the first business day after Spring Festival, it rallied today on the hopes that Xi Jinping's visit to the U.S. will be accompanied by yuan appreciation.



Yuan in biggest single-day rise in a month, mild appreciation seen
After appreciating sharply in the last few days of 2011, the yuan fell back in early January and has traded mainly in a narrow range of 6.31 - 6.32 per dollar, as the central bank has kept the exchange rate basically stable due to uncertainty about a slowing economy and weakening foreign demand.
"The government has signalled a general trend of stability for the yuan since the start of this year," said a dealer at an Asian bank in Shanghai.
"But this attitude will not affect the yuan's periodical appreciation as China's goodwill gesture to the United States."
More than a few exporters probably wish Chinese leaders would put off their visits to the U.S.

2012-01-30

Authoritarian America

Jokes are now illegal in America, even absurd ones. Hopefully, you can still laugh your ass off at this one:

'I'm going to destroy America and dig up Marilyn Monroe': British pair arrested in U.S. on terror charges over Twitter jokes Lol. Turns out "destroy" is slang for party in the UK, but its just as funny to imagine digging up Marilyn Monroe will destroy America.
'Free this week, for quick gossip/prep before I go and destroy America'.
3 weeks today, we're totally in LA pissing people off on Hollywood Blvd and diggin' Marilyn Monroe up!
'They asked why we wanted to destroy America and we tried to explain it meant to get trashed and party.
'I almost burst out laughing when they asked me if I was going to be Leigh's lookout while he dug up Marilyn Monroe.
'I couldn't believe it because it was a quote from the comedy Family Guy which is an American show.
'It got even more ridiculous because the officials searched our suitcases and said they were looking for spades and shovels. They did a full body search on me too.
America's security apparatus could grind to a halt by a flurry of absurd Twitter jokes. The Daily Mail is kind enough to give you a list of all the buzzwords in the article.

Shanghai, Guangzhou report similar real estate freezes

春节期间多地楼市遇寒冬 上海广州仅成交十余套

Shanghai and Guangzhou were as bad as Beijing, where there was no activity over Spring Festival, new home sales fell 83% the week before the holiday and second hand homes fell 87%. In Shanghai, there were some sales during Spring Festival (January 22 to 28), but they were down 33% from last year, with prices down 8%. Sales in Guangzhou were also down. Jinan, capital of Shandong province, reported a total freeze in activity.

Another Little Ice Age on the way? No global warming since 1997!

Those investors who've been buying farmland in northern climates, betting on global warming, are in for a surprise. Agriculture is an even better play if you're in the right climate though.

Forget global warming - it's Cycle 25 we need to worry about (and if NASA scientists are right the Thames will be freezing over again)
The supposed ‘consensus’ on man-made global warming is facing an inconvenient challenge after the release of new temperature data showing the planet has not warmed for the past 15 years.
The figures suggest that we could even be heading for a mini ice age to rival the 70-year temperature drop that saw frost fairs held on the Thames in the 17th Century.
Based on readings from more than 30,000 measuring stations, the data was issued last week without fanfare by the Met Office and the University of East Anglia Climatic Research Unit. It confirms that the rising trend in world temperatures ended in 1997.
Russian scientists have been forecasting global cooling, based on the Sun's output, for years. Now the rest of the West is catching up and the implication are serious:
According to a paper issued last week by the Met Office, there is a 92 per cent chance that both Cycle 25 and those taking place in the following decades will be as weak as, or weaker than, the ‘Dalton minimum’ of 1790 to 1830. In this period, named after the meteorologist John Dalton, average temperatures in parts of Europe fell by 2C.
However, it is also possible that the new solar energy slump could be as deep as the ‘Maunder minimum’ (after astronomer Edward Maunder), between 1645 and 1715 in the coldest part of the ‘Little Ice Age’ when, as well as the Thames frost fairs, the canals of Holland froze solid.
This is very bullish for agriculture and energy. A warmer planet would have eased energy demand for winter heating and agricultural production. The risk to oil, coal and gas was from government restrictions. With global cooling, the risk of government restriction on carbon production is gone and more intensive agriculture will need to be performed as yields drop.

Is gold a bubble? The answer is somewhere in China

Gold records brisk sales during Spring Festival holidays
Gold sales at Beijing Caibai, a popular jewelry department store, increased tremendously during the holidays and were much better than the same period last year, a staff surnamed Niu at the sales and strategy department at Beijing Caibai, told the Global Times yesterday.
"We sold one gold necklace per minute on average during the peak time," Niu said.
That store is the one I visited and discussed in my post, China Gold Frenzy.
"Many Chinese people lost lots of money in property and stock investments in 2011, so they prefer to buy gold to maintain the value of their savings amid high inflation," Liu Yangyi, a trader at the Shanghai Gold Exchange, told the Global Times yesterday.
"Besides, Chinese people have a special feeling toward the dragon, and sales of the gold jewelry in the Year of the Dragon are much better than in other years," Liu said, adding that the sales boom will normally last till the Lantern Festival, or February 6 in the case of this year.
Chinese are turning to gold because the stock market bubble deflated and the real estate bubble looks set to deflate. Chinese demand is about 25% of global demand for gold and they will keep buying as long as the price increases. There's certainly a bullish case to be made for gold and it remains a good asset to hold as insurance when central banks are printing money. Still, many Chinese are chasing the latest hot investment and one has to consider how that demand holds up if there's deflation in China. On the plus side, gold demand is strong worldwide and it's a relatively small market. A weak real estate market in China may send more investors into gold. On the negative side, Chinese could be heavy sellers if gold declines and stays down.

In sum, the behavior of the Chinese says bubble. The nation rushed into stocks, then property, now gold. This is what we saw in the U.S. and developed markets as excess capital moved from one market to the next. The big question for gold is whether the decline in social mood will include a loss of faith in paper currency. If yes, then gold can become the bubble asset of the decline—albeit a bubble that has not even begun to inflate. On the other side, if you expect total deflation, then gold will go down with other assets and we're just seeing one of the last investment frenzies before the collapse.

2012-01-29

U.S war with Iran: speculation heats up

US anticipates May as tentative date for clash with Iran. Floating SEALs base for Gulf
A hurried decision not to de-commission the USS Ponce helicopter marine carrier after duty in Libya - but to refit it for deployment by May in the Persian Gulf as a floating base for commando teams - was confirmed by the US Pentagon and Navy Sunday, Dec. 29. This transportable floating base will expand the commandos' range in coastal areas and support counter-measure against mines which Iran has threatened to plant in the Strait of Hormuz in reprisal for the US-EU oil embargo. The SEALs will also take on Iran's menacing fleet of military speedboats
There has been speculation, with date projections, and nothing materialized. Even if this is just a psy-op designed to ratchet up pressure on Iran, it is a step closer to a full-out shooting war.
Iran has scattered hundreds of speedboats of different types around uninhabited islands off the Iranian mainland, tucking them out of sight in well-hidden inlets and bays. The US commando teams based on the Ponce platform will have the task of ferreting out and destroying this fleet.
The US Defense Department aims to get the Ponce ready for its new mission as a floating commando base with all possible speed. To save time, the US military published one no-bid contract for the engineering work, waiving normal procurement rules on the grounds that any delay presented a "national security risk."
The contract carries pointers to the timeline expected in Washington for a military confrontation to erupt between the United States and Iran, as well as the form it may take, say DEBKAfile's military sources.
The timing suggests a spring or summer offensive, if the timeline is one for war.

A long winter for Chinese real estate: Beijing market frozen during Spring Festival; Greentown sells more assets; 67% of developers could exit the market; Wenzhou capital goes from angel to devil

For the first time in three years, Beijing saw zero real estate contracts signed. The deals completed up until January 27 were for an average price of 17560 yuan per sqm, down 23.6% from last year's 22985 yuan average at the same time. 春节期间北京楼市完全“休眠” 三年来首次“零成交”

The Beijing market was also asleep from the developer front with zero new projects. This is down from the 4 launched in February 2011 and 8 in 2010. Spring Festival is always a slow period, the article notes that in 2010, in the two months after Spring Festival there were 52 and 40 projects. The article says that there have been 6 new developments in January until now, and that will likely be the final number.北京春节楼市彻底“歇了”

北京等地大量房企消失 降价可能成今年主旋律 Real estate firms are disappearing and price cuts will be the theme this year. In Beijing, 473 real estate firms have not renewed their licenses and will disappear in 2012, a rise of 155% from 2010. There are 3000 firms with licenses coming due and without a license, firms cannot buy land, which means they cannot continue doing business and are essentially exiting the market. Only 1000 firms have obtained licenses so far, and the article speculates that 2000 developers could disappear in the next five years. In Wuhan, the number of firms fell by 200 to 1375, a decline of 13%.

A lot of firms cancelling their licenses are those set up only in the past two years (typical bubble popping result as those late to the party are often the weakest players, be it Internet stocks, subprime borrowers or Chinese developers). However, while these small firms are exiting, there are also some large players, such as Beijing Shimao.

绿城拟出售4项目套现60亿人民币 Greentown to sell 4 properties for 6 billion yuan. That total (just under $1 billion) is way up from the 4 properties sold only a few weeks ago for about $300 million. The projects being sold are in Shanghai, Qingdao, Beijing and Wenzhou. UBS analysts project the firm will have negative cash flow for the year, even as it dumps properties.

因为炒房 温州民间资本从“天使”成“魔鬼”? Wenzhou capital goes from "Angel" to "Devil" as residents speculated in real estate markets around China. The article cites a government official who says Wenzhou buyers accounted for less than 10% of home buyers in Shanghai and only 0.75% in Chengdu, but others say their buying influenced the market. Wenzhou buyers did "group purchases" by bundling money and buying into developments around the country. They did this for at least a decade. As they exit, they will likely have the reverse effect. Wenzhou is considered the home of private enterprise in China; Wenzhou businessmen and investors are given a lot of respect. Markets are non-linear and this type of psychological effect helps amplify market swings.

Update: Beijing claims that there were no sales because the government processing system was down. The evidence from other cities indicates a major slowdown though.

Chinese market after Spring Festival: up 83% of the time after two months

过去12年春节后股市统计:节后两个月上涨概率83%
Two months later, the market was up 83% of the time since 2000. The red colored character signifies up. the green down. The first two columns are the last day of trading before Spring Festival, open and close. The second two are first day after Spring Festival, open and close. The next columns are: 1 week, 1 month, 2 months and full year.

Egypt heading for collapse

Failed treasury auction portends Egyptian disaster
Meat imports have already fallen by 60% over the past year, the Egypt News website reported on January 22, [1] reflecting the collapse of purchasing power. More alarming is that bread has become scarce in some provincial cities. In Ismailia on the Suez Canal, the Youm7 website reported on January 22, a bread protest burned cars and blocked a main highway. Similar protests took place in other towns close to Cairo, including Zagazig and Ibousoar.
Anything that can be sold for hard currency - wheat, rice, butane, diesel fuel and sugar - has disappeared from government warehouses during the past year, according to a multitude of reports in local Arab-language media summarized in my 2011 essays. (See When will Egypt go broke? Asia Times Online, July 12, 2011.)
It is not clear whether the localized shortages of food and the nationwide shortage of gasoline reflect a buyers' panic, or large-scale theft, or an effort by the central bank to conserve foreign exchange by slowing essential purchases - or all of the above.
Nearly half of Egyptians are functionally illiterate. Nine-tenths of adult women have suffered genital mutilation. Almost a third of Egyptians marry first or second cousins, the fail-safe indicator of a clan-based society. Half of Egyptians live on less than $2 a day, and must spend half of that on food.
Under duress, and after the collapse of the secular military dictatorship that ruled Egypt since the Free Officers coup six decades ago, Egyptians naturally revert to traditional institutions: mosque, tribe and clan.
Market Vectors Egypt (EGPT):

2012-01-28

Social mood and the NFL

Goodell tells '60 Minutes' recession has helped NFL's TV ratings
NFL commissioner Roger Goodell says the recession has helped build TV audiences for NFL games.
Speaking on CBS' 60 Minutes, to be aired Sunday, Goodell says the nearly 60 million people tuning in to watch last Sunday's conference championships show that.
"People want to feel part of a group, feel like they're connected, and right now during these difficult times, they can turn on free television and watch the greatest entertainment that's out there," Goodell says. "They can forget their worries.for just a few hours."
If people want to feel connected, they get out of the house and meet in large groups. When they want to be alone, they stay at home and watch the game.
"Our biggest challenge going forward is how do we get people to come to our stadiums, because the experience is so great at home," he says. "When you turn on [a football game], you want to see a full stadium."

2012-01-27

Euro breaks out, shorts sell the rally

I expected to see some short covering, but speculators have increased their positions against the euro. The news has been consistently negative during the euro rally, but speculators are staying pat (or were as of Tuesday, but had they covered in large numbers the rally would have been intense). The market is headed into very volatile territory.

Tired of their puppets, the EU seeks total control of Greece

The Silent Anschluss: Germany Formally Requests That Greece Hand Over Its Fiscal Independence. In order to continue bailout financing, Greece must surrender sovereignty. To cut to the chase: default is coming.

If the news is so bad, why is the euro up?

The news on the euro has been nothing but bad. Portugese 3-year bond yields are more than 20%, Greece is on the verge of default and Fitch joins S&P in cutting ratings across Europe. Yet over the past two weeks, the euro rallied from $1.26 to $1.32, including a move higher today, when Fitch announced the downgrades. Maybe the market action reflects something other than headlines?

Chinese elite want out of China

The Titanic Strategy
The sixth and latest stage began in 2010. With the changing domestic political landscape, the middle class and intellectuals have also accelerated the pace of emigration. A "countdown mentality" even emerged among intellectual groups. This mentality spread like the flu, adding to the wave of panic of seeking emigration.
The article discusses the Titanic metaphor for Chinese emigration:
This symbolism can only be used to describe the end-of-the-world attitude of some official-businessmen and is not a prediction of China's future. Outward migration is a laudable policy of openness, and it is necessary to protect its continuity in the long-term to provide diverse choices in life. But the "Titanic strategy" of Chinese officials and businessmen -- on the one hand running the political economy from a forward position and continuing to seek power and profit for themselves, and on the other hand prearranging an evacuation route -- will profoundly change the direction of the operation of Chinese history

It's the end of the world. Are you ready?

Subculture of Americans prepares for civilization's collapse
"We could see a cascade of higher interest rates, margin calls, stock market collapses, bank runs, currency revaluations, mass street protests, and riots," he told Reuters. "The worst-case end result would be a Third World War, mass inflation, currency collapses, and long term power grid failures."
A sense of "suffering and being afraid" is usually at the root of this kind of thinking, according to Cathy Gutierrez, an expert on end-times beliefs at Sweet Briar College in Virginia. Such feelings are not unnatural in a time of economic recession and concerns about a growing national debt, she said.
"With our current dependence on things from the electric grid to the Internet, things that people have absolutely no control over, there is a feeling that a collapse scenario can easily emerge, with a belief that the end is coming, and it is all out of the individual's control," she told Reuters.
In the 1990s, the Internet was a sign of great optimism; now it is seen negatively. What changed? Social mood. Keep an eye on this subculture and its growth as social mood declines.

Buffett's reputation takes another hit

I have several posts about Warren Buffett relating to socionomics. The basic argument is that Buffett was the darling of the bull market and he may turn into the goat of the bear market. Things are proceeding apace as Buffett spends more time involved in politics than he does in investing. The latest "scandal" has moved him into the realm of crony capitalist: Buffett's Burlington Northern Among Pipeline Winners
Warren Buffett's Burlington Northern Santa Fe LLC is among U.S. and Canadian railroads that stand to benefit from the Obama administration's decision to reject TransCanada Corp.'s Keystone XL oil pipeline permit.
Right-wing bloggers and crony capitalist watchdogs were all over this story, as Buffett has been Obama's go-to-guy for economic advice and sound bites. What fueled the interest initially was that Bloomberg appeared to have scrubbed the article from their site, but it turns out it was just a coding glitch due to an update.
If you click through the Warren Buffett tag you can see some older arguments against Buffett. The point here is the public perception of Buffett and the willingness of the press to run negative stories. By becoming more political, Buffett opens himself up to more scrutiny, which means if there's any truth or valid complaints about him, they are more likely to receive a public hearing than if he faded into the investing sunset. And as social mood declines, those attacks receive a wider hearing.

Suicide bomber in Hunan blows up family on New Year's Eve

A family land dispute leads to tragedy. Hunan Suicide Bomber Blows Up Family on Chinese New Year Eve
Although this story was also popular over the holiday: “Sleeping Sister” in Spring Festival Gala Audience Goes Viral

2012-01-20

Euro shorts at another record as of Tuesday, before rally in euro

We won't know until next week whether there was some short covering in this week's rally.

Dragon baby boom

Why do seemingly irrational superstitions persist? This paper analyzes the widely held belief among Asians that children born in the Year of the Dragon are superior. It uses pooled cross section data from the U.S. Current Population Survey to show that Asian immigrants to the United States born in the 1976 year of the Dragon are more educated than comparable immigrants from non-Dragon years. In contrast, no such educational effect is noticeable for Dragon-year children in the general U.S. population. This paper also provides evidence that Asian mothers of Dragon year babies are more educated, richer, and slightly older than Asian mothers of non-Dragon year children. This suggests that belief in the greater superiority of Dragon-year children is self-fulfilling since the demographic characteristics associated with parents who are more able to adjust their birthing strategies to have Dragon children are also correlated with greater investment in their human capital.
Does fortune favor dragons

Much of Asia expects birth jump in Year of Dragon
Officials expect a baby boom not only in China and Taiwan, but in other Asian countries and territories that observe the New Year festival, including Japan, South Korea, Vietnam, Hong Kong and Macau.
Most have extremely low birth rates, reflecting a preference among young couples in these prosperous or rapidly developing societies to choose quality of life and career advancement over the responsibilities of child rearing.
But this Year of the Dragon looks to be breaking the mold. A poll in Hong Kong showed that 70 percent of couples there wanted children born under the dragon sign, while South Korea, Vietnam and China all report similar enthusiasm about dragon-year childbearing.
I dug up births and birth rate statistics for China. I made a graph for the former and found one for the latter.

I don't discern any major trends, the overall effect of the one-child policy dampens the signal. There's slight declines in the rate correlated with the economy, but not as clear as in the U.S.

Scarlet fever cases rise in Hong Kong, one death

Probe as scarlet fever kills girl
The Department of Health has launched an investigation after the death of a 14-year-old girl from scarlet fever yesterday. This follows a 10-fold increase last year in the number of children struck down by the potentially fatal bacteria.
Falling social mood and rising epidemics and disease outbreaks.

Falklands cold war heats up

Argentine colonialists! Cameron raises Falklands stakes after report of plan for 'fishermen's invasion'
David Cameron accused Argentina of ‘colonialism’ for threatening the Falkland Islands yesterday after being warned the regime in Buenos Aires is plotting a mock ‘fishermen’s invasion’.
He dramatically raised the diplomatic stakes during an exchange at Prime Minister’s Questions.
The accusation by the Prime Minister came as it emerged that the Ministry of Defence has 'contingency plans' in place enabling troops to be deployed swiftly in an emergency to the Falklands via Ascension Island.
Last night Argentina’s interior minister Florencio Randazzo hit back after Mr Cameron approved the MoD plans, saying: ‘It is absolutely offensive especially in the case of Britain. History clearly shows what its attitude to the world was.’
Since the people of the Falklands wish to remain with Britain, Cameron said the Argentines are acting like colonists. Expect this to get even hotter as Argentina's credit bubble threatens the economy.

2012-01-19

Nassim Taleb on Antifragility

Nassim Taleb, author of Fooled By Randomness and The Black Swan, talks with EconTalk host Russ Roberts about antifragility, the concept behind Taleb's next book, a work in progress. Taleb talks about how we can cope with our ignorance and uncertainty in a complex world. Topics covered include health, finance, political systems, the Fed, your career, Seneca, shame, heroism, and a few more.
Taleb on Antifragility, hosted by Russ Roberts.

SHIBOR drops towards normal levels thanks to massive PBOC intervention

SHIBOR surged in the run-up to Spring Festival, but it is easing just as rapidly:

SHIBOR is important to watch for signs of stress in the Chinese banking system. While this move is seasonal, the central bank was forced to step in and provide liquidity this year. China's money rates slump after PBOC injects money
The People's Bank of China conducted 14-day reverse bond repurchase business worth 183 billion yuan ($29 billion) on Thursday, continuing to inject cash into the market and having conducted such business every day so far this week.
SHIBOR did not fall until today, which means the first three days of repurchases failed to ease the market.

One thing I forgot to note in the previous article, something not mentioned in the Bloomberg article I linked to but was mentioned in the Chinese press, was that this move was the first in 5 years (see 央行近5年来首次逆回购 回笼日或是降准窗口期). So now we have a move not conducted in 5 years, carried out for 4 straight days. Shades of the declining yuan......Another article (央行今年首次启动14天逆回购) pointed out that this was the first time in 10 years the PBOC announced their move—although as we subsequently learned, there were repurchases all week and not all were announced.

巨量逆回购显著舒缓资金面紧绷 This Chinese article pegs the total repurchases at around 500 billion renminbi, or almost $80 billion.

This was orginally posted at 2:44 PM Beijing time. It is republished due to significant updates.

Chinese steel market still in decline

In a post from early December, Chinese steel industry profit margins collapse, I covered the collapsing margins at steelmakers. Now earnings are coming through.
China steel maker Baoshan's profits fall
China's Baoshan Iron and Steel Co said its annual net profit for 2011 fell by around 43 percent, as the nation's industry is hit by a slowdown in the domestic and global economy. Unaudited net profits fell to 7.3 billion yuan ($1.2 billion) in 2011 from 12.89 billion yuan in 2010, Baoshan -- the listed unit of China's second largest steel maker Baosteel Group -- said in a statement issued at the weekend.
The firm gave no reason for the fall in profit but it has previously said weaker demand and surging raw material costs eroded earnings in the first half of last year.
For resource investors, consider this delta: BHP Sees Another Record in Iron-Ore Output
BHP Billiton Ltd. said Wednesday it was set for another record year of iron-ore production after bumper output in the most recent quarter as it continues to expand operations in Western Australia's arid Pilbara region.
BHP's optimism over demand for its primary earnings driver helps damp predictions of a slowdown in industrial development in China, the world's biggest consumer of iron ore and other minerals. Anglo-Australian rival Rio Tinto PLC a day earlier posted record iron-ore output in the recent quarter as it too invests billions of dollars in mines and ports.
Finally, in early December I posted this chart of steel prices in China:
Here's an updated chart. Prices haven't been collapsing, but they've been ticking down at a regular price value, meaning the percentage losses are picking up.
Baosteel (600019.SS) stock has already priced in the decline and the stock has even bounced a little in 2012.

Italia headed for a depression

Money supply is very important. Notice what a mess occurred in 2008 and money supply hadn't decline as much in the lead up.

Mish has the details in Money Supply Figures Suggests Italy Headed Into Depression; Non-Performing Spanish Loans Hit 134 Billion Euros, 7.51% of All Loans, Highest in 17 Years; Eurozone Unemployment Charts

More Maotai coverage

Maotai gets the full treatment by at Tencent's finance portal. On story notes that Maotai, which I posted earlier went for 2000 yuan per bottle, is now selling for 2700 yuan per bottle in Guangzhou. All sorts of stories at the link about scams and shady deals by people who are trying to profit.

McDonald's raises prices for 2nd time in 6 months; Pizza Hut enacts stealth hike

麦当劳必胜客龙年首提价 天津没hold住也跟涨. The breakfast, lunch special and "dollar menu" are not seeing increases, but the Big Mac and chicken McNuggets are going up in price. A Big Mac meal is up from 17.5 yuan to 18.5 yuan (I believe that is a cheaper option), an increase of almost 6%. Chicken McNuggets are also up 1 yuan, from 7 to 8 yuan, an increase of 14%. The price hikes across the menu are between 0.5 and 2 yuan. This is the fifth time McDonald's has raised prices since 2010 (QE2 was announced in August 2010 and formally launched in November 2010). This article goes on to claim that Pizza Hut has raised prices by cutting portions.

Layoffs hit Chinese developers; over $50 billion in trust assets come due, up to 15% at risk

Chinese real estate developers could not hit their year-end targets. The result is big cuts to prices and workforces. A multitude of articles are available at: 不能完成的“目标”

业内称大部分房企都在裁员:最高裁员比例为60% (Developers all cutting staff: largest layoffs hit 60%). This article says that most layoffs are around 30-40% of the workforce. Most are larger firms and the cuts are coming at regional offices, not headquarters. Some small firms have closed, but most do not need to cut staff. Rumors of 90% cuts in some places (seems to definitely be a rumor for now), while analysts expect job losses to exceed the levels of 2008.

绿城甩卖项目融资3亿 拉响房企资金链紧绷预警 Greentown sells 4 properties for $300 million. The firm has used a lot of equity financing in the past, but now it has to start selling inventory.

开发商年底卖房花样多 11种促销新招一览 11 year-end sales tactics. The list below includes cities all around China, with some methods covered on the blog before, such as allowing a home-buyer to sell the property back.


六成一线房企未完成销售目标 绿城中国降37% Greentown sales fall 37% in 2011, it can only fulfill 64% of its sales target for the year.

And the most important, due to knock on effects in the banking system and financial markets: 2012房企面临还债难题 3500亿地产信托将到期 350 billion (RMB) in real estate trust assets come due in 2012. 10-15% of these projects are at risk for default. 2010 was the peak year for issuance of real estate trusts and their duration is 1 to 2 years, which makes this look very similar to the subprime debacle in the run-up to the U.S. housing market peak. We may see more inventory selling and with it falling prices, as firms raise capital to pay back their debts.

Social mood and moral judgements: good for Ron Paul

The four stages of social mood are rising, peak, falling and trough. During rising social mood, moral judgements are black and white. At peak social mood, everything is considered good. As social mood falls, there's a push towards amorality or non-judgement. At the bottom, people see evil everywhere.

All of this is taking place against the backdrop of cultural development. Depending on the degree of the wave, it will either be a micro effect or macro effect. If 2000 was the grand supercycle top, then the changing in morality that took place over the past 200+ years, which exploded in the 20th Century and accelerated in the 1960s and thereafter, was a rapid playing out of the move from black and white moral judgement all the way through amorality. We are starting to see the "evil everywhere" view of banks, and increasingly government. However, in other cases, there are smaller shifts in mood. For example, the general cultural opinion about an issue such as abortion may be permissive and generally in the category of non-judgemental, but during rising social mood we might see more hard lined opposition, such as in the early 1980s growth of the pro-life movement. Then, this issue fizzles out as a major fault-line during the peak social mood, but then turns towards non-judmental in the 2000s and we see the rising popularity of Ron Paul's plan. He wants to take jurisdiction away from federal courts and turn abortion law back over to the states, where they could choose to be more permissive or ban the procedure entirely. In general, the falling social mood is good for libertarian philosophy which seeks to remove government control over decision making. It isn't necessarily non-judegmental in and of itself: Dr. Paul would like to see a Constitutional amendment or change in the courts that would fully protect unborn life, but it is a philosophy that fits well with the times.

This post was sparked by the following article, which offers a look into potentially shifting mood in the art world: What David Hockney’s return tells us about the new mood in Britain. The sub-heading is: "The country is once more ready to make confident judgments about truth and beauty"
The first and most impressive of these is the magical collection of David Hockney’s landscapes at the Royal Academy. I do not know, and would not care to ask, which party Hockney votes for at general elections. But this much can be asserted with certainty: he is a conservative painter.
In a famous passage, the great philosopher Michael Oakeshott wrote that “to be conservative… is to prefer the familiar to the unknown, to prefer the tried to the untried, fact to mystery, the actual to the possible, the limited to the unbounded, the near to the distant, the sufficient to the superabundant, the convenient to the perfect, present laughter to utopian bliss”.
He contrasts this with a more popular artist:
Let us now turn to Damien Hirst, whose display of spot paintings opened at both of London’s Gagosian galleries last week. Just as Hockney is conservative, so Hirst fits in tidily with Michael Oakeshott’s definition of the progressive: “You will not be bound by unprofitable attachments to particular localities, pieties will be fleeting, loyalties evanescent; you may even be wise to try anything once in search of improvement.”
Hirst’s spot paintings are abstract and universal, lack humanity and have zero reference to time or place: his exhibition is being shown simultaneously at 11 galleries around the world. Skill is not required: no late nights at life class for Hirst, who gained an E grade at art A-level and scarcely knows how to draw. “There is no such thing as a good as opposed to a bad spot painting,” noted the Telegraph’s art critic Richard Dorment in a review last week. Hence the need for experts to explain to a baffled public why Hirst matters: the arts establishment love him so much because he gives them a priestly role.
In due course, however, I would guess that critics will question whether Hirst was an artist at all.
We have two competing judgements juxtaposed. On the one hand, the perfect encapsulation of non-judmentalism, on the other, a clear black-and-white statement.
The central distinction in Conservative philosophy is between two different kinds of knowledge: abstract and concrete. Britain is moving back towards a world with solid, enduring values in which, for the first time in many years, public figures can make confident judgments about truth, beauty and morality. It is a world in which David Hockney OM has an honoured place as the greatest artist of his age.

2012-01-18

Dalrymple on Europe's crackup

The European Crack-Up
Reflection on the situation in tiny Belgium might introduce an element of doubt into the minds of the most fervent believers in the European Project. Belgium has existed ever since it was cobbled together in 1830; yet in all that time, it has not been able to create a durable national identity. One of its many prime ministers, Yves Leterme, once said that just three things held Belgium together: beer, soccer, and the king. As I write, Belgium has not had a central government for more than 500 days. While I must admit, as an occasional visitor to that country, that the difference between Belgium with and Belgium without a central government is not apparent on casual inspection, this interregnum may take the theory of limited government too far.
The reason that Belgium has lacked a government for so long is that the country is divided into two populations (actually three, but the third is too small to count) with incompatible politics: French-speaking Wallonia and Dutch-speaking Flanders. Belgium is officially bilingual, yet you see not a word of Dutch in Wallonia and not a word of French in Flanders. The division could not be starker if barbed wire separated the two provinces. Only in the capital, Brussels, does one find any concession to bilingualism.
He goes on to discuss the different cultural reactions to the crisis in Ireland and Greece, among others. A good read.

Illogical headline and reason for China slowdown

Global woes hit investors' appetite for China outlay
Analysts said weakening growth in the US and the sovereign debt crisis in the euro zone have dimmed foreign companies' appetite for investing in the world's fastest-growing major economy.
China's own growth outlook was another factor behind the decline in FDI in the last few months of 2011.
"One, cash-strapped foreign investors cut their investment in China as a result of the euro-zone debt crisis; two, some investors fear a hard landing in China," said Ting Lu, chief China economist at Bank of America-Merrill Lynch. Lu said negative FDI growth could last several months.
Number two is the story, fear. For the past several years, investors were running away from slow developed world growth rates and debt problems, and into China's rapidly growing economy. A "hard landing" in China is a growth rate of 4-5%, still great compared to Europe and the U.S. Why would investors leave when the relative performance still has a large gap? The explanation is social mood and herding behavior. People are afraid generally and some of that fear may be getting transferred to China, but they are also looking at China's economy and concerned that it will slowdown much faster that anticipated. Also, I suspect that not a small reason for the shifting statistics is Chinese money leaving China, rather than foreigners not coming.

U.S. ambassador reflects on social mood in China

U.S. ambassador: Political situation in China “very, very delicate”
"Do you think that the situation is fundamentally stable in China right now?" Inskeep asked Locke. "I think, very delicate -- very, very delicate," Locke responded. "But there were calls earlier this year for a Jasmine Revolution and nothing came of it. I think it would take something very significant, internal to China, to cause any type of major upheaval."
He describes it how I describe it and some friends have described it. You can sense the mood. Nothing is going to happen now, but there's a potential out there; if there's a spark it could quickly catch fire.

Bubbles everywhere in China

Closer Look: Mad for Maotai
According to domestic media, the price of a bottle of 53 degree Feitian Moutai made by Kweichow Moutai Co., China's national liquor served at official occasions and state banquets, has ramped up to 2,000 yuan, almost double from the beginning of the year and more than three times its official factory price. Other middle and high-end liquors also witnessed price jumps pushed up by the hot demand before the Spring Festival holiday.
However, questions hang over how the brand was catapulted into luxury status. Behind the soaring prices, some say that the brand value of Maotai is not supported by real market demand but speculation and government spending.
Maotai has become a bit like Beanie Babies. People buy up Maotai and save it as a way to earn money, while the government has big pockets and spends lavishly for dinners. Or those currying favor with the government spend the money. As one friend told me, only if you are in the government will you taste Maotai.
China's National People's Congress saw delegates submitting proposals to ban Maotai and other luxury liquors at government banquets as a step to push forward reforms in government spending. The proposals pushed Maotai's stock price at a further downward trend.
After a two-year rise of stock prices in China's liquor industry since early 2010, prices of liquor companies started to fall in early December. So far, the stock price of Kweichew Moutai declined 14.6 percent from December 2. Another famous liquor brand Wuliangye also declined 13.9 percent from the beginning of December. A source from a securities firm said that the current public sentiment will bring a negative impact on the evaluation of liquor companies.
But Maotai's price-earnings ratio remains high. According to Wang Lan, a Caixin columnist, Maotai's PE ratio is 36.07 based on its December 27 share price, higher than luxury brand Louis Vuitton and Hermes.
Along with real estate, the Maotai bubble appears ready to pop.

Inter-bank liquidity extremely tight ahead of Spring Festival

China’s Money-Market Rate Jumps to Six-Month High Before New Year Holiday
The People’s Bank of China injected 169 billion yuan ($26.8 billion) into the financial system via 14-day reverse-repurchase contracts at 5.47 percent today, according to a statement posted on its website.
The seven-day repurchase rate, a gauge of funding availability in the financial system, increased 98 basis points, or 0.98 percentage points, to 7.15 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That was the highest since July 6. The one-year swap contract, the fixed cost needed to receive the repo rate, rose four basis points to 3.14 percent in Shanghai, according to data compiled by Bloomberg. The yield on the 3.93 percent government bonds due August 2021 added one basis point to 3.42 percent.
How about the SHIBOR rates?

The last graph of the 1 year SHIBOR shows that the Chinese New Year affect is limited to the short end, but still, as the Chinese say, 哇塞!

Währungskrieg!

German Euro-Deputy: S&P Downgrade Part of American ‘War Against the Euro’
Brok said that “the downgrade is a targeted attack on Europe by the American rating agency.” Insisting that there were no “plausible grounds” for the downgrades, Brok continued, “Consequently, the S&P downgrade is a matter of interests. They have declared a currency war on us.”

Trouble for Hungary as EU steps up attacks

Hungary faces ruin as EU loses patience
Hungary's defiant premier Viktor Orbán has no hope of securing vital funding from the EU and the International Monetary Fund until the dispute is resolved, leaving him a stark choice of either bowing to EU demands or letting his country slide into bankruptcy.
Yields on Hungary's two-year debt jumped to 9.17pc on Tuesday, an unsustainable level for an economy in recession with public debt of near 80pc of GDP. Hungary's debt was cut to junk status by rating agencies last week.

2012-01-17

Two years of Chinese IPOs have all lost money

近两年买入新股多亏损
According to the China Securities Index Company statistics in 2010 and 2011, the Shanghai Stock Exchange main board 64 IPOs, the average price-earnings ratio of 37.55 times, 87.19% higher than the 20.06 average market price-earnings ratio; Shenzhen SME Board had 319 IPOs. The average price-earnings ratio was 48.53 times, 27.41% higher than the average price-earnings ratio of 38.09.
ChiNext is a bit special, over two years there were 245 IPOs, the average price-earnings ratio was 59.49 times, 7.39% below the average P/E ratio of 64.24. This occurs mainly because the ChiNext-listed shares have high P/E when they IPO, and after trading the P/E ratio begins to decline.
I don't understand that last sentence, unless they meant to say that earnings are overstated at the IPO.
The IPOs had higher issue prices, then gradually turn lower. Statistics show that in 2010 and 2011 the average IPO saw a first-day increase of more than 32.25%. After one week, that gain was reduced to 28.21%, a month later it fell to 25.94%, three months later it was down to 20.71%, and one year after listing the average share price was below the issue price, a decrease of 11.87%. Among them, the largest decrease was in the ChiNext shares, a year after listing the price was down 19.35% from the first day of trading; big board followed, down 11.55%; small and medium shares were down 6.26%.
Investors aren't interested in buying stocks these days......

85% of Chinese economists predict home prices will fall in first half of 2012

85%经济学家预期半年内房价将下降

61% expect prices will fall 10% or less, 24% expect a decline of 10% or more. The economist confidence survey is at 4 on a scale of 1 to 9. which indicates economists are slightly pessimistic.

Fashion and social mood

Austerity shows its stylish side
"Things like that come together and signal to us that people are looking for a more austere approach to life - we help our clients deliver that." This is where the theme of radical neutrality has its roots, Teo says. It is characterised by bold, exaggerated shapes in neutral colours.
Teo explains that eco-hedonism, on the other hand, is paganistic, shamanistic, dark and mystical, and characterised by raw natural textures such as heavier linens and feathers. Hyperculture, Teo says, is about the quirks in local culture and the "ability to laugh at oneself".
But WGSN's predictions failed to move Ychay Simkhai, a buyer with Ravel, a US-based women's apparel company. "We set our own trends."

Yuan reform continues apace

China Plans to Expand Yuan QFII Quota
Yao said at a financial forum in Hong Kong that the expanded quota will be mainly granted to the trading of A-share Exchange-traded fund (ETF) in Hong Kong exchange, saying the launch of A-share ETF will offer a instrument for RQFII to invest in the mainland stock market and boost the flow of yuan from overseas market to the mainland.
Here comes an actual A-share ETF backed by Chinese shares, rather than the existing derivative products.

Dim sum bonds and yuan loans to fire
Mainland companies are increasingly seeking to borrow in Hong Kong as unsettled equity markets deter stock sales. The yuan is expected to see the slowest growth since 2009 as shrinking economic growth curbs demand.
Sales of dim sum bonds, denominated in yuan, quadrupled to a record US$23.7 billion last year, exceeding the US$16.6 billion raised using Hong Kong dollar debt. The number of dim sum bond issuers jumped to 87 from 19 in 2010. Sales may rise to US$47.5 billion this year, according to analysts.
Interesting too see how this plays out with predictions of bankruptcy and default in a Chinese economic slowdown.

London in HK link-up to trade in yuan
As part of the tie-up with the City of London, the HKMA will extend the yuan real-time settlement system by five hours to 15 hours a day. It will close at 11.30pm by the end of June, instead of 6.30pm now. This will overlap the European markets that settle yuan trades in London.

2012-01-16

China's ChiNext market under pressure

China's market for small companies is coming under pressure as many shares become unrestricted. According to this article, A股本周压力大:逾400亿解禁洪峰来袭, restricted shares amount to roughly 48% of existing shares. The article also notes that 4.6 billion yuan flowed out of stock funds in the previous week. Below is a chart comparing the Shanghai Composite and ChiNext Index.

Argentina's cold war on the Falklands

As Ron Paul likes to say in the debates, sanctions are often a precursor to war. At least, they are war by another means, a cold war, an economic war, a financial war. An earlier post,Is Argentina Going to War? , was prompted by the boarding of several fishing vessels by the Argentine navy. Now, Argentina is stepping up its economic war on the important fishing industry, see: Squid Wars in South America
Argentine Illex squid live for one or two high-octane years. Like most squid, they eat anything that moves, grow fast, migrate, reproduce, then die. Now Argentina is urging its fishermen to catch the mollusks before they migrate into the waters surrounding the Falkland Islands, which would deliver a strategic blow to the Falkland economy. Squid comprise half the value of the Falkland fisheries.
Last month Argentina convinced Brazil, Uruguay and Chile to shutter their ports to any ship flying the Falkland flag. Are the two nations becoming entwined anew in tentacles of combat?

Next election: Croatia

On January 22, Croatian voters go to the polls. At stake is their membership in the EU. Croatia suffers jitters over joining troubled EU
Opinion polls predict a "Yes" vote of up to 60 per cent on Sunday, paving the way for Croatia to become the first of the ex-combatants from the Balkans wars of the 1990s to join the Euro-club. That fact alone is a matter of satisfaction to some, pleased that their immediate neighbour and former enemy Serbia has yet to be officially accepted even as an official candidate for EU membership. Montenegro, Macedonia and Iceland are ahead of Serbia in the queue.

As the above paragraph shows, the linked article is focused on the concerns of the minority.
After Croatia, the next big election is the Russian presidential election on March 4.

Sarkozy finished?

Taiwan stayed with current leadership in their election, but it appears France may go with new leadership as Nikolas Sarkozy only has a 2% lead on the anti-euro Marine Le Pen.
He currently has a 2% lead on Le Pen, but is behind the Socialist Party candidate. France has two rounds of elections: a first and then a second run-off if no candidate has more than 50%. In 2002, Jean-Marie Le Pen led the National Front to a first round victory over the the left-wing candidate, but in the run-off French voters came out overwhelmingly in support of Jacques Chirac. This time around, things are going to be more interesting. If Marine Le Pen knocks out Sarkozy, she will likely pull some right-wing support her way. However, since the socialists are also against the current euro bailout deals, she may not be able to turn her anti-euro stance into the presidency.

The CAC 40 is trading above 2009 lows, but not much. It is only higher than about 1 month of trading, when the indexes plunged to panic lows.
H/T to Mish. "Let the Euro Die" Candidate Trails Sarkozy by Slight 2 Percentage Points; Will Sarkozy Survive the First Round Vote? Eurozone About to Become Unglued

China gold frenzy

I went to the Caibai Gold and jewelry market on Sunday. The first level of gold products was wall to wall people, with lines snaked around the cashier's counter. The employees behind the gold counters had almost no time to speak with customers because they were processing sales non-stop. In these pictures there are some prices for gold: as of Sunday, January 15, gold was 337 renminbi per gram for investment. Many of the gold products, which included gold knives, abacuses and combs to name a few, sold for 390 to 410 renminbi per gram and up. On the third floor, there were investment bars for sale at small premiums above spot. Silver was selling for 6.3 renminbi per gram. Also, several items are measured in taels and candareens. A candareen (分)is 1/100 of a tael, a mace(钱)is 1/10. I did not ask which tael they were using, as Hong Kong measures a tael as 37.43 grams or 1.2 troy ounces. The silver coins say: 7 mace 2 candareens, which is the weight for 1 silver Chinese yuan.

2012-01-15

Markets are not efficient

Overnight Long/Intraday Short Gold Fund More Than Doubles In Just Over A Year: Generates 43% Annualized Return
Back in August 2010, we presented an idea proposed by our friends at SK Options trading for a very simple trading strategy: being long gold in the overnight session, and shorting it during the day. At the time of writing, such a strategy would have returned $2.16 billion from a $100 million initial investment in 10 years, a 37.46% annualized return. Today, we provide a much needed follow up to this quite stunning divergence. As SK notes: "we have revisited the article and written an update. Not only does the discrepancy still exist but it has been actually increasing. That fund would now be worth $5.26B, way up from $2.16B when we last wrote about it - in other words an increase of 143% in just over a year. When we wrote about this in August 2010, the annualized return of the Long Overnight/Short Intraday gold index was 37.46% since the start of 2001. However if we measure from now the annualized return since 2001 is 43.24%, with the annualized return of the Long Overnight/Short Intraday gold index standing at roughly 64.4% since 2009."

2012-01-14

Scottish independence has favorable window; Anglo-Saxon nations looking to past to move forward

Scots Wha Hae! The battle for independence
Within 24 hours, however, Mr Salmond had been forced to follow Westminster's lead and confirm plans to hold an independence referendum in 2014.
The coalition is gambling that support for independence will remain in the minority – currently below 40 per cent – up to the referendum and the issue will be killed off for a generation. The real risk is the lingering possibility that the Scots will vote "yes" to leaving the UK – or that they somehow get the chance to vote on new powers short of independence.
Social mood should turn quite negative if the longer-term Elliot Wave forecasts play out as expected and adding the extra 10%+ needed for independence won't be difficult. What Scotland is looking for is something closer to the (original) American model of states' rights.

Is 'devolution-max' the way forward for Scotland?
It's being nicknamed "devolution max" and will ask whether Scottish people want full tax powers to fall in Holyrood, but keep things like defence and foreign affairs under the control of the Westminster government.
One Scot quoted in the article explains why independence is unpopular:
Paul Scullion - an engineer from Edinburgh - isn't sure his country is ready to break away.
"I admire what Alex Salmond is trying to do, but I wouldn't vote yes at the moment," he says.
But full independence could see Scotland with its own government, own prime minister, maybe even its own army.
"Scotland as an independent country wouldn't survive, I don't think," says Paul.
"We still depend a lot on handouts from Westminster, with things like defence and jobs," he admits.
The Scottish government believe "devolution max" will secure a "yes" vote and so is the party's back-up plan.
Considering the long-range social mood forecast and the economic implications, chances are good that there will be major spending cuts. This will weaken the economic argument and even become a reason for independence, if the cuts fall even a little disproportionately on Scotland—and that is all but guaranteed because massive government spending cuts will always fall disproportionately on the groups more reliant on government spending.

I wholeheartedly endorse devo-max. It is the perfect solution, as is a move towards states' rights in the United States (a similar devolution of power), for the current situation. The Scottish National Party believes devo-max is a stepping stone to independence, but I believe it is more likely to be the pressure valve that holds the UK together. Had powers already been devolved and there were only the loose ties of union remaining, a significant secular decline in social mood could lead to independence. Instead, it will probably cause the declining social mood to turn inwards and focus on domestic problems.

The bonus kicker for devo-max is that the SNP is a socialist party, reflective of Scotland's support for the Labour Party, while England is heavily Tory. Thus not only is there an ethnic fault line, but also an ideological one. Scotland would turn left (in the present-day sense of the word) and England would turn right. This could lead to greater demands for independence in a repeat of the euro crisis: Scotland chooses bad economic policies, borrows in pounds, heads for crisis and seeks an independent currency to solve the problem. More likely though, Scots would confront their problems and reform. If they remain politically tied to England, the Scots may help block reform. By separating, England will accelerate reform and Scotland will likely follow.

As Ron Paul becomes a more serious contender in the United States, a similar idea is making its way into the national discussion. The U.S. will not break apart (yet? see Buchanan), but could devolve powers as the federal government reduces its role in economic and political life. Canada already allows for some greater powers at the provincial level, partially as a means of deflecting separatist sentiment in Quebec. The plus for Anglo-Saxon nations is that there's a long and storied history of individualism and this allows for a far greater tolerance of "independence" in the system, whereas other cultures and societies face greater stress when a minority presses for independence. For this reason, I forecast the Anglo-Saxon nations are very unlikely to separate. In fact, if devolution proceeded far enough, we may even see revived talk of a greater voluntary union between the UK, US, Canada, Australia and New Zealand when social mood again turns higher.

Paul Johnson wrote this article in 1999 when Britain seemed ready to dissolve itself into the European Union, offering a union with the United States as a more favorable counterweight. Now, Britain is unlikely to join for the foreseeable future and the political trend is towards independence. His article more focused on political union, rather that greater voluntary cooperation where each nation retains complete independence, but whether for political or voluntary union, the sentiment for greater political cooperation exists. Why Britain should join America
A year ago the Canadian newspaper tycoon Conrad Black launched the debate by suggesting Britain should become a member of the North American Free Trade Agreement, thus transforming it into a North Atlantic Free Trade Area. The discussion has been given special impetus by recent reports in British newspapers that in 1967 President Lyndon B. Johnson and Prime Minister Harold Wilson seriously discussed a union of the two countries.
For ordinary British people, the U.S. is not a foreign country but "family." America and Britain share the same language and culture, the same deep-rooted respect for democracy and representative institutions, the same religious and moral assumptions and similar legal systems. The recent impeachment of President Clinton was incomprehensible to continental Europeans but not to the British. The British invented impeachment in the 17th century and have used it at least 60 times.
Also, though official American opinion used to favor the emergence of a European federal state, thinking it would be a duplicate of the American system, Washington has in recent years become increasingly critical of European Union policy. Europe seems protectionist, illiberal, socialist and, not least, incapable of acting in concert over the whole range of foreign and military policy issues, especially in the Balkans and the Middle East. Thus the U.S. and Britain have been forced to act together, often alone. This too is bringing about changes of attitude on both sides of the Atlantic.
Unlike the Germans and Greeks, the Scottish, English, Americans, Canadians, Australians and New Zealanders have more in common than they differ. America declared independence from Britain; Canada, New Zealand and Australia retain loose ties to the motherland, yet all are often in close cooperation on international issues. Of course, Scotland has its own history of conflict with England, but after hundreds of years in union, the discussed changes in Scotland are in keeping with the culture and history, far different from a political separation in say Belgium, where two distinct nations may emerge.

Authoritarian responses to financial crisis will fail

Wow. Germany is considering suicidal legislation to defend the euro and sovereign debt. See the Financial Times article, Merkel says eurozone must act fast.
Speaking on the fringes of a start-of-year retreat of her Christian Union lawmakers in the city of Kiel, Ms Merkel said she would consider calls from her party colleagues for legislation to bar institutional investors such as insurance companies from selling bonds when ratings were downgraded, or fell below investment grade.
Imagine you are an insurance company holding sovereign debt and you read that you will not be able to sell these bonds if there's trouble. You can drink the hopium and hope the government bails the firm out, and chase it with the Kool-aid and hope that the bailout is not in a severely depreciated currency. Or, you can look at the risks, consider your fiduciary responsibility to customers, and dump the bonds ahead of a legal change.
H/T ZeroHedge.