2017-10-17

China Isn't Improving, It's Inflating

Global economic indicators, total social financing and rising producer price inflation all point to inflation coming out of China.
Bloomberg: Don't Panic: China's Debt Crackdown May Actually Be Good for Bonds
China’s deleveraging drive will benefit the nation’s bonds as it starts to weigh on the economy and prompts looser monetary policy, according to Fidelity International Ltd.

Bloomberg: What Debt Crackdown? China's Banks Are Bingeing on Bonds
China’s banks are still bingeing on short-term financing, defying analyst predictions that they would wean themselves off such debt as regulators intensify a crackdown on leverage.

Sales of negotiable certificates of deposit -- a key funding source for medium and smaller banks -- surged 49 percent from a year ago in the third quarter to a record 5.4 trillion yuan ($819 billion), according to data compiled by Bloomberg.

Bloomberg: Zhou's Leverage Warning Sends China Bond Yield to 2015 High
Yields on China’s 10-year sovereign notes spiked to the highest level since April 2015 on a closing basis, while a stock gauge of smaller companies slumped the most in three months, after the PBOC governor voiced his concern at the weekend that Chinese firms have taken on too much debt. The comments come amid a run of strong data, with better-than-expected producer price growth Monday underscoring the image of an economy still riding the wave of unsustainable leverage to achieve its growth targets.

“Investors, who have always been concerned with tighter financial regulations, are now especially sensitive to news that’s negative for bonds, such as improvement in the economy,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen.
China has to fund growth with credit. U.S. dollar credit has been tight since before 2008. The yuan saw devaluation pressure in 2008. It launched a massive stimulus that led to soaring home prices and a brief yuan devaluation in 2012, along with trillions of yuan in unprofitable investments. The attempt at a controlled slowdown led to the yuan devaluation in 2015 and global financial mini-panic in early 2016.

Without credit growth (or some major economic reforms), China's economy cannot grow at 6 percent. Since the developed world remains locked in slow growth with the global eurodollar system also growing slowly, a Chinese credit inflation necessitates "de-dollarization," inflating without concern for underlying foreign currency assets. If the growth is "good," value creation will outstrip credit creation. If the growth is "bad," China will be stuck with hundreds of billions, if not trillions of dollars more in debt with no dollar backing. The odds of a sudden and sharp yuan devaluation are rising.

19th National Congress: Deleveraging Will Have No Negative Effect on GDP

Set your watches!

iFeng: 十九大发言人:确保去杠杆不对经济增长产生负面影响
Bloomberg News reporter:

My question is related to China's economy. China for influence in the world economy growing, while China is facing domestic and international environment is quite complex. The Chinese government is currently working at the same time maintaining a high economic growth rate, pushing deleveraging. My question is, What is your vision for the future of the Chinese economy? Which do you think is more preferred between economic growth and deleveraging? Whether deleveraging higher priority?
19th National Congress spokesman Tuo Zhen:

I would like to point out that you can not put deleveraging and steady growth in opposition. In the long term, the initiative to leverage helping to eliminate the potential risks affecting the stable and healthy economic development, and enhance the economic development and long-term tenacity. We adhere to the general tone of the work while maintaining stability, continue to implement the proactive fiscal policy and prudent monetary policy, adhere to the supply-side structural reforms as the main line, a moderate expansion of aggregate demand, deleveraging and economic growth to create a good and stable macroeconomic environment . We insist on actively and steadily deleveraging, adhere to multi-pronged approach, a variety of measures of deleveraging, and properly handle the relationship between steady growth and deleveraging, to ensure that deleveraging does not adversely affect the economic growth. Currently, deleveraging has achieved initial results, no significant tightening effect on the economy.
There hasn't been much of an effect because China isn't deleveraging...

2017-10-16

Skipping the Dark, Marvel Superheroes Go Straight to Horror

How popular is horror amid a decline in social mood? Marvel is launching a trilogy of movies centered around younger mutants (in the vein of X-Men). Instead of typical superhero fare of heroes and comic quips, the movies will all fall in the horror genre.

Slash Film: ‘The New Mutants’ Will Be the First in a Trilogy of X-Men Horror Movies
Director Josh Boone says:
These are all going to be horror movies, and they’re all be their own distinct kind of horror movies. This is certainly the ‘rubber-reality’ supernatural horror movie. The next one will be a completely different kind of horror movie.

Our take was just go examine the horror genre through comic book movies and make each one its own distinct sort of horror film. Drawing from the big events that we love in the comics.
Discussing horror, the author of the article writes:
With horror undergoing a sort of popular renaissance, appealing to more types of audiences than ever (including yours truly), it’s smart for Boone to tap into the horror zeitgeist. It and Get Out are two of 2017’s biggest blockbusters and the success of the high concept slasher Happy Death Day over the weekend suggest that The New Mutants is on to something.
The marketing of the next Marvel superhero movie to hit theaters sticks with the tried and true formula:

Volatility in Chinese Data Will Spread

Coming on the heels of Friday's money and credit reports showing faster credit inflation, the PPI came in hot at 1.2 percent for September.
The supply side argument (China is closing zombie steel mills coal mines) doesn't explain the rise in prices because output is rising too. When marginal producers leave the market, output should decline and prices rise. The current boomlet has its origin in faster credit growth.

2017-10-15

China M2 Growth Ticks Up in September

Although M2 growth slowed over the past three-months, the September growth rate was 0.64 percent, higher that September 2016's 0.36 percent. New loans beat forecasts.
Reuters: China Sept new yuan loans rise to 1.27 trln yuan, above forecast

2017-10-12

Austria Moving Right Again

AP: Austria set for rightward political turn after Sunday vote
The Freedom Party is strongly euroskeptic. And while it has long distanced itself from its Nazi roots, and its leader, Hans-Christian Strache, has dismissed his own links with neo-Nazi organizations as youthful folly, its presence in a government could present a new challenge to moderate EU governments shortly after Germany's anti-migrant and EU-critical AfD gained seats in the federal parliament for the first time.

Few saw it coming two years ago. Back then, the Social Democratic-People's Party coalition fervently backed German Chancellor Angela Merkel's open border policy, as hundreds of thousands of mostly Muslim migrants flooded into Austria and beyond in their search for a better life in Europe's heartland. The two parties criticized the Freedom Party's call for closed borders and zero migration.
Anyone making predictions based on Socionomics saw it coming. At the time, I said Merkel's policy was almost perfectly wrong, indeed it may be impossible to make a policy more in contradiction with prevailing social mood. Allowing a migrant invasion of hostile foreigners at a time when the public is in a trend that could end with a total ban on immigration is insanity, unless your real goal is to ban immigration must faster than the social mood would otherwise allow.

Catalonia Chickens Out

Catalonia gets cold feet at the last moment because the European Union wasn't going to back them. Independence is only possible when it is true independence and the opinions of outsiders are ignored.

Bloomberg: Balance of Power: A Full-Blooded Separatist Retreat in Catalonia
After rowdy demonstrations, a covert referendum (which drew a violent response from Spanish police) and vows to set up a new republic, Catalan President Carles Puigdemont blinked.

Many lawmakers gathered for a special session of the regional legislature were hoping to hear a declaration of independence. Instead, he put the process on hold to make another appeal for talks with the Spanish government. No deadline. No leverage. And Prime Minister Mariano Rajoy’s response was powerful: he started the process that could see Puigdemont’s administration stripped of its powers.

Already last night cracks were opening up in the separatist coalition, suggesting a regional election may be necessary next year.
If Catalonians wan't independence, it won't be with cowards who want to maintain their subservience to the European Union. The first European nation to declare independence will probably be led by a right-wing movement such as in Northern Italy.

2017-10-10

GOP Civil War Could Near Completion in 2018

I thought the GOP civil war might finish in 2016 or by 2020. It looks like 2020 might mark the emergence of a "new" party depending on how the 2018 off-year election plays out.

The GOP civil was brewing with the Ron Paul campaign in 2008, but didn't show up at the ballot box until the 2010 Tea Party and the 2012 presidential primaries. During Obama's presidency, GOP energy that would have flowed into internal conflict was redirected into opposition. Establishment GOP politicians who didn't want an internal civil war could hide behind opposition to Obama. President Trump broke that stability in 2016. He ran on long-ignored issues in 2016. He exposed how far public had moved from the establishment. Time and again, Trump forced his internal opponents into the open. He also won too quickly. He moved much faster than the rest of the party, resulting in a large base of opposition from within his own party. Now the task of removing internal opposition is underway.

The point I made from the beginning is that during a period of negative social mood, the party that offers voters something new will have the strategic advantage. They may lose an election here or there, but they will control the political zeitgeist. Democrats are only now starting to remove their old leadership, with a plot to replace Nancy Pelosi. The Democrats are still relying too much on demographic change and immigration though. They don't think they need to change their policies because they expect them to be accepted by a new electorate. At this point, I don't see a battle within the Democrat party over policy arising, rather the most likely point of conflict will be identity as the old white leadership gives way to younger minorities who are organized on racial and ethnic lines. When they get around to having a policy battle, as the Republicans have been having for nearly a decade, then they will offer a countervailing force. Until then, and as long as mood remains in a negative trend, the Democrats will offer a temporary break from the nationalist agenda. All the pain the GOP has experienced and is experiencing, will clear the way for a unified party that will eventually be handed carte blanche power to remake the nation for generations (assuming it doesn't fracture before then).

Previous coverage

From 2011: Republican party headed for civil war; Democrats to follow?
From 2013: GOP Civil War About to Explode
This will not be won by the establishment. The party establishment is going to be destroyed in the 2014 election as the GOP tears itself apart and swings to the right. This is good news for Democrats in 2014 and 2016, but bad news for 2020 and beyond because it means the GOP is likely to turn increasingly radical. That makes them more likely to win at what will eventually turn into musical chairs. Voters will be fed up with all of the establishment, and the small radicalized GOP will be able to reshape politics.
From 2014: GOP Civil War Nearing Completion, But Democrat Civil War Just Beginning
One theme here has been the effect of negative social mood on the political system and how the GOP began tearing itself apart in 2008. It looks bad in the short-term, but if social mood stays in a negative long-term trend, the party that morphs into a reform party, no matter which way they move, will have a clear path to total power in Washington, D.C. on par with the New Deal revolution in the 1930s.

Following defeat in 2008 with a moderate candidate chosen to appeal to independents, the GOP base re-emerged in 2010 with the Tea Party, pulling the Congressional delegation to the right and electing candidates who disagreed with the establishment on major issues such as national defense. Then came 2012, when the party again chose a moderate designed to appeal to independents and angered the base with their tactics. Now the base is fuming over the leadership once more and the Speaker may even have a challenger in the primary, while the VP nominee from 2012, Paul Ryan, also has lost great stature among the base.

...Every single political analysis I've seen thinks the GOP will harm itself in 2016 with primary battles and that the Democrats will have smooth sailing with Hillary. That may end up being the case, depending on how things play out, the question is whether the GOP and the nation are ready for reform in 2016 or whether it will take until 2020. Should the GOP lose in 2016, by 2020 it would have changed greatly on the issues and will likely nominate (or the party that replaces it will nominate) an anti-interventionist, anti-free trade, anti-bank, anti-immigration candidate. Meanwhile, by then the Democrats may be having riots in the streets again.
That last paragraph is 90 percent accurate, with only the timing off.

Do or Die: 2 Hours to Catalonian Decision

The fulcrum of global politics now sits in Catalonia.

BBC: Spain Catalan crisis: Puigdemont to address region's future
Catalan leader Carles Puigdemont is due to announce his plans for the future of the province amid growing pressure to drop plans to break away from Spain.

There is speculation he may announce a unilateral declaration of independence following a disputed referendum.

His address to the regional parliament is scheduled to take place at 18:00 (16:00 GMT).

Catalan police have been posted outside the parliament in Barcelona, sealing off the grounds to the public.
NYTimes says independence: Catalan Leader Is Expected to Declare Independence

Hope Rises Again! OECD Raises GDP Growth Estimates

A bigger wave of hope has arrived.

World Finance: The OECD expects the global economy to maintain growth momentum in 2018
The latest figures for economic growth showed a 3.6 percent annual growth in the second quarter, marking the strongest pace in more than two years. The last time economies showed such robust performance was in the first quarter of 2015, The Wall Street Journal reported.

In the next six to nine months, the US, Japan, Canada and the majority of European countries are expected to maintain “stable growth momentum”, according to the OECD. Others, such as Italy, are forecast to grow faster.

With regards to China, whose performance is a matter of concern worldwide, the report highlighted that the economy’s output will be boosted in the months ahead by strong performance in its industrial sector.
iFeng: OECD:全球主要经济体首次同步增长 或将摆脱经济阴霾
Every blip in copper reflects a moment of hope for the economy. We are in the middle of a much larger rebound today, one that offers new hope for the global economy. Underlying problems remain unsolved, however. The main issue remains credit growth, and there's no sign of a return to normal in the United States.
As I've said for much of the past 18 months, the rise in commodity prices such as copper is the best argument for a recovery. But until I see a good signal that growth is picking up, I'm sticking to a bearish view. The U.S. economy has grown far below potential for a decade now. A recovery will not be a blip, it will be a rip-roaring rally that sees wage growth climb 5+ percent, inflation rise above 3 percent and the Federal Reserve in panic mode. Under current conditions, President Trump's growth-via-negative strategy of removing illegal aliens, vastly reducing immigration and renegotiating trade is the fastest and surest way to restarting U.S. growth. Wage growth will spur inflation. That will spur investment as debt depreciates. Rising wages and inflation will accelerate capital investment in labor-saving productivity growth. It will be messy, but short of a "white swan" there is no clean exit. There is no restarting a global system that requires a further reduction in developed living standards.

Japan Pacifist Constitution Losing Political Support

Shinzo Abe's challenger in the snap election also supports constitutional reform.

SCMP: Behind Japan’s election, a right-wing coup against democracy is being staged
Polls show 55 to 60 per cent of Japan do not want to change the pacifist constitution. But Abe makes constitutional change a central election plank, while Koike and her lieutenants demand that candidates support her hardline views on the constitution. Whoever wins on October 22, supporters of constitutional change are likely to have a two-thirds majority. “All” it would require is for Abe and Koike to get together to force the issue.

Beijing 33 Existing Home Sales in 7 Days, Agents Quit

Existing home sales in Beijing:
iFeng: 全北京8天只卖了33套房 中介门店上演“离职潮”
Statistical data from Centaline Property Research Center data show that eight days National Day holiday Beijing signed a total of 222 new residential units, second-hand housing 33 units. "Last year, seven days holiday and trading volume contrast, the decline is still very obvious." Said Zhang Dawei, chief analyst with Centaline Property, 7 Skynet before Beijing new residential signed 116 sets, 27 sets of second-hand housing net signed, are the lowest in history to 2009 value, year on year decline of 65%.
The 65 percent decline is a slight improvement from the 71 percent decline for all of September.
Zhang Ming of Maitian real estate said over the past year there was a "quit wave." "We have a maximum of nearly 50 brokers, only 30 something now."

2017-10-09

China FX Reserve Edge Higher in September

Reuters: China Sept FX reserves lifted by appreciation of investments - FX regulator

Goldman: PBoC Could Change Policy Again

The Business Times: Reading PBOC signals takes 'mosaic approach,' Goldman Sachs says
Mr Tang outlined five broad sets of signals for interpreting policy intent:

1) The PBOC's "official taxonomy," such as calling for a prudent and neutral policy stance, released quarterly and typically set at the year-end Central Economic Work Conference.

2) The tone of irregular official comments, with rare deviations from the party line indicating a strong signal.

3) Quantitative liquidity indicators, such open market operations or changes to the Medium-term Lending Facility targeted lending programme.

4) Interbank rate spreads, which reflect financial leverage and influence the policy bias.

5) The repo rate that covers only banks can reflect the policy stance more accurately than the general 7-day repo rate, and gravitates toward it over time, Mr Tang said. High-level actions like changes in the benchmark rate or required bank reserves.

"These various sets of signals each offer a different perspective, and are best pieced together to provide a more comprehensive read of policy intent," Mr Tang said. "Most recently, the RRR news in isolation is a dovish hint," but other indicators such as liquidity operations and signs of financial leverage "would be useful supplementary signals to watch."
iFeng: 高盛:中国央行未来几个月可能再次调整货币政策

Golden Week Home Sales Fall 60pc in First Tier

Caijing: 黄金周楼市遇冷 北上广新房成交量同比降超六成
And "the longest golden week" of the scenic sea of ​​people is different, in the "silver ten" the first seven days, a second-line hot city sales offices, real estate agents seem cold and clear. Centaline Property Research Center statistics show: October 1 to 7, Beijing net sign (including second - hand housing) fell 65%, Shanghai, Guangzhou hand housing turnover fell 78 percent year on year, Fuzhou, Nanjing and other places The decline is also 40 to 50 percent.

2017-10-08

Turkish Lira Tumbles After Diplomatic Spat with USA

ZH: Turkish Lira Crashes 4%, Biggest Drop Since "Failed Coup" Following Visa Suspension Drama
With tensions between Turkey and the US escalating dramatically and unexpectedly in the past few days, when first Turkish police on Wednesday arrested a local employee of the US embassy in Istanbul and charged him with espionage and an attempt to overthrow the government, which was following on Sunday afternoon by the US embassy in Turkey announcing that "effective immediately" it has
"suspended all non-immigrant visa services at all U.S. diplomatic facilities in Turkey"...
I have written about Turkey several times in the past couple of years.

Some posts include:

Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?
2016 Forecast: Turkey Collapses
Turkey Edges Closer to Chaos
Erdoganomics Will Run Turkey Now
2017 Will Be Worse for Turkey

I predicted conflict with the United States and Europe, and that is what has unfolded. Before this spat with the U.S., Germany pulled out of Turkey in June.

NYTimes: Germany to Withdraw Forces From Incirlik Base in Turkey

Back in March, it was a diplomatic spat over domestic European politics.

CNN: Tensions rising between Turkish, European leaders before elections

Turkey is on a path to leaving NATO and being shut out of Europe. The H&S pattern is about to breakdown.

2017-10-06

Anthem Protests Come to Hong Kong

Global social mood remains negative.

SCMP: Hardcore fans boo national anthem before Hong Kong friendly soccer match against Laos
A block of hardcore Hong Kong fans booed the national anthem, despite a recent law in China forbidding such actions, during Thursday’s soccer friendly against Laos.

...Some were even seen pointing their middle finger during the ceremony, irking soccer officials who were afraid another episode like this would happen again.

...Although the match attendance was down from previous encounters involving the Hong Kong national squad, there was still a sizeable crowd of 2,200 spectators – roughly one third of the seating capacity of 6,200 – who made their feelings known about the national anthem.

2017-10-05

Secession Coming: Banks Move Out of Catalonia

Reuters: Spain to make it easier for firms to move base from Catalonia as business alarm deepens
Spain’s government will issue a decree on Friday making it easier for firms to transfer their legal base out of Catalonia, two sources said, in a move that could deal a serious blow to the region’s finances as it considers declaring independence.

The decree is tailor-made for Spanish lender Caixabank, sources familiar with the matter said, as it would make it possible for the bank to transfer its legal and tax base to another location without having to hold a shareholders’ meeting as stated in its statutes.

“The government is working on changing the law so that it’s no longer need to have a shareholders’ meeting, which would delay a change of the legal base in a case of emergency,” one of the sources said.

Stock Market Bubble

Probably not if search data has any value.

Seattle Turns Attention to Foreign Homebuyers

Seattle PI: Connelly: Chinese-Americans call out Cary Moon for blaming foreign buyers
A "foreign buyers tax," the Chinese-Americans said, would "deepen troubling and long-standing false stereotypes of Asian and Chinese people here in Seattle," while doing "little or nothing" to solve housing problems.

..."Part of what's escalating prices is the fact that our housing is being traded as a commodity in the global economy. We need to figure that dynamic, how it's working and block that activity," Moon said in a recent Chinese Radio Seattle interview.
This charge again Moon won't work because during the mayoral debate, she said that storm drainage was part of racial equality.

Anti-foreign ownership laws are coming. They have to as a simple matter of math. Granted, China is probably on the cusp of an historic economic collapse. This is probably a repeat of Japan in the 1980s in terms of the current wave. But 10 or 20 years from now, China will rise again and this time they will be joined by a couple hundred million Indians.

2017-10-04

Secession Movement in Brazil Picks Up Steam

Bloomberg: Catalan Vote Inspires Brazil’s Southern Separatist Movement
Whiter and richer than the rest of Brazil, these southern states with cooler weather have long nursed separatist ambitions. Rio Grande do Sul even briefly claimed independence 180 years ago. Few Brazilians expect the current movement to succeed any time soon, not least because it is prohibited by the Constitution. But the country’s deepest recession on record and a massive corruption scandal have exacerbated the region’s longstanding resentment towards the federal government in Brasilia. With just one year to go until general elections, the rekindling of separatist sentiment in the south is another indicator of the unsettled state of Brazilian politics.
These aren't the good times in Brazil, but the really bad times still haven't arrived yet. Expect this secession movement to accelerate. If I was buying real estate in Brazil, I'd head to these areas. Similarly in the U.S., although it's early, it pays to think where you want to live/do business/own property if the nation fractures and the locals are setting tax and currency policy for the nation.

Governments are going to start collapsing all over the globe. Diversity within a single political unit is over. The age of city states and small nation states has returned. The most diverse nations will fracture the most. The most ethnically homogeneous will survive. China and Japan are looking good if they avoid a shooting war.

2017-10-03

Deflation, Political Pressure Hits Qatar

ZH: One Of The World's Biggest Sovereign Wealth Funds Is About To Become A Seller
Now, after a period of relative stability for sovereign wealth funds, in which the indiscriminate SWF/China selling of 2015 faded into a distant memory, one of the world’s biggest buyers of trophy assets is about to become a seller again. According to Bloomberg, following the ongoing isolation by its powerful Arab neighbors, Qatar’s sovereign wealth fund is reversing a decade-long run in high-profile foreign investments to buttress its own economy.

The Qatar Investment Authority, or QIA, which has already reduced its holdings in Credit Suisse, Rosneft and Tiffany in recent months, is considering unleashing what could be a liquidation tsunami in this illiquid market, selling more of its $320 billion of assets, which includes stakes in Glencore and Barclays, and using the proceeds to bolster the domestic economy, according to Bloomberg sources.

Yuan Pain Commences

SCMP: ICBC, China Construction Bank score the biggest gains in years after PBOC cuts reserve ratio
On Saturday, the PBOC announced it would cut the reserve requirement ratio (RRR) for some banks that meet certain requirements for lending that supports small businesses, agricultural production, entrepreneurship, and education, effective 2018.

China International Capital Corp said in a recent research report that the targeted RRR cut will cover all the large and medium-sized banks, 90 per cent of urban commercial lenders, and 85 per cent rural commercial lenders.
The move is estimated to inject about 220 billion yuan (US$33 billion) of liquidity into the market...
Central banks don't cut interest rates and ease liquidity during an economic recovery, during a tightening cycle. Chinese monetary policy is at cross purposes with the Federal Reserve. This year's yuan rally will end up being very expensive and ultimately useless. Except for the bearish traders. (Thanks again PBOC!)

Alhambra: Aligning China To The Deficient ‘Dollar’
The more “dollars” that arrived on the balance sheets of Chinese banks, the more the PBOC raised the RRR especially for big banks. This is the basis for the very close correlation between CNY and the RRR.

China’s major monetary problem since 2013 has been the opposite condition – fewer “dollars” both in the private sector as well as the central bank channel (limited float means the PBOC is managing and conducting some transactions, just not as many or in the same sizes as a peg). To counteract that reduction in base RMB money, the PBOC has several choices.

In late 2014, the central bank met the initial reduction in forex with a reduction in the RRR. It was textbook orthodox monetarism whereby the private banks were empowered to deal with fewer “dollars” by being able to still increase their RMB activities with less RMB held as statutory reserves.
China announced the RRR cut ahead of time (and during the holiday) because it won't affect the yuan market. China also won't have to announce a cut when bearish expectations would send the yuan tumbling. Finally, the cut is flexible. China might try quietly easing the rules for the current RRR cut instead of making another announcement.

Jeffrey Snider alerts us to a repo fail pattern associated with dollar rallies and financial market instability: Three Straight Weeks Can’t Be Ignored
The Federal Reserve Bank of NY reported on Friday that repo fails for the week of September 20 were $359 billion (combined “to receive” plus “to deliver”). That’s the second highest weekly total of this year, following $435 billion fails recorded just two weeks earlier. The week in between those two was also high, tallying $325 billion.
That makes for three consecutive weeks of unusually high repo fails.

...The last time that [three weeks in a row of at least $250 billion fails] happened was for five straight weeks beginning last November during the big bond selloff, and then earlier in 2016 in March (Japan problems). Before those there were four weeks in December 2015 just prior to the second wave of global liquidations, and then for three weeks in June 2014 kicking off the whole “rising dollar.”

...Three weeks (and perhaps longer) simply confirms that this is some kind of warning. I’m hoping some of the less frequent monthly data will provide some answers, but unfortunately most of that won’t be available for some time (in the case of TIC, it won’t be released until November). Until then, we have to keep watching price movements for clues as to what kind of warning, possibly, this might be.

Germany Moves Right, Again

The Weekly Standard catches on to what I've argued here for several years: The Germans Turn Right
France’s National Front, the UK Independence party, the Republican party in the Trump era .  .  . Germany used not to have groups like those. The rawness of the country’s memory of Nazism gave it an aversion to the style of politics now called populist. But something has destroyed the German party system. Possibly it is globalization or the mere passage of time. More likely it is Merkel’s invitation in the late summer of 2015 to refugees fleeing the war in Syria​—​an invitation she saw fit to extend without consulting parliament. Germany got over a million immigrants in the months that followed, virtually all of them Muslims, the vast majority young men, and most of them from places other than Syria. At the time Merkel appealed to the common decency of Germans: “If we have to apologize for showing a friendly face,” she said, “then this is not my country.”

Perhaps it is not. “Nazis,” said Merkel’s foreign minister, the Social Democrat Sigmar Gabriel, “are going to speak in the Reichstag for the first time in 70 years.” That is an oversimplification. The AfD was founded in 2013 by a group of policymakers and economists concerned Germany would need to bail out Greece and other failing European economies in the wake of the financial crisis. It was a single-issue party, and that year it fell just short of the 5 percent required to get seats. In 2015, as the first reports emerged of migrants moving north across the Mediterranean, the party spokeswoman Frauke Petry had a brainstorm. Her backers, much more worried about Islamization than inflation, helped her oust the nerdy leader Bernd Lucke. The party now had a different profile. Petry was ebullient, eloquent, Anglophone, and East German, and beloved by the rank and file. Her party added to its core of concerned businessmen new groups of cultural conservatives and nationalists, not to mention extremists of all varieties.

Refugees began pouring into the country months later. On New Year’s Eve 2015-16, groups of North African immigrants isolated, surrounded, and groped hundreds of women on the square in front of Cologne’s cathedral. The details were not known to the public until weeks later, thanks to the obstinacy of local police in covering it up and of politicians in minimizing it. Soon the AfD was racking up seats in state parliaments, and lots of them​—​getting a quarter of the vote in the eastern region of Sachsen-Anhalt and even 15 percent in yuppie Baden-Württemberg. (In this fall’s national election, the AfD was the number-one party in Saxony, taking a third of the vote in Petry’s Saxon stronghold.)
At the end of 2015 I wrote a post titled, "This One Chart Explains the Next 10 Years of Political Change"
I've said that whoever picks up the immigration issue will run to victory because they will have the public support and zero political opposition. In fact, the establishment will fight them so hard that they will create a binary political situation. Instead of shifting to the right to maintain power (the Pareto optimal, robust position) the ruling class is moving into a fragile position that increases the likelihood and size of potential losses. Sweden Democrats are iced out of government, a big loss for them in terms of political power, but if the people want to throw out the government, now they have one option only: Sweden Democrats or perhaps an still non-existent far right party. If the GOP establishment does support Hillary Clinton, the argument that America has only one political party will be an observable fact. In France, if the left and right team up to defeat the National Front, voters will have the same choice going forward.

The political opposition is anti-fragile. If there is a major terror attack, if there is a major economic dislocation, if there is an unpopular war, then the opposition can go from obscurity to total political power in one election cycle.

...To summarize. The electorate increasingly wants a major change and it may desire a multi-generational political realignment. The ruling class responds by circling the wagons. This keeps outsiders from gaining political power, but by doing so, it increases the need/desire to throw out the entire political class.

Now, this reality has come to Germany. This chart below shows where voters place the various political parties on the political spectrum. Notice the Free Democrats and Merkel's CDU drift so far to the left that they are now considered left-wing parties.
The only question now is the length of the negative mood trend. If this a short-term cycle, then this is the 1970s. The high-water mark hasn't been hit, but it will quickly be eclipsed by a new wave of positive mood. If instead this is a larger cycle, there's still a decade or more to go (at least) before it ends. Mass deportation of Muslims is not a zero probability event, nor even a low probability event depending on how negative mood gets. Civil war and world war are also serious possibilities for many nations because their leaders continue choosing the absolute worst of all possible policy paths.

2017-10-02

The End of the Beginning: Catalonia Says Adios to Spain and EU Austerity

Catalonia marks the end of the beginning. The first phase of negative social mood is over, culminating in an overwhelming vote for independence. The next phase, political breakup, is underway. If Catalonia leaves, it will serve as an example for other nations across Europe. If it is crushed, unity can be imposed by force. Spain will pay a high price either way. Thus far, the EU sounds anti-Spain more than pro-Catalonia.

Daily Mail: Catalans 'vote overwhelmingly for independence' in 'illegal' referendum
Catalan officials claimed 90% of 2.2million voters had called for independence in an 'illegal' referendum blighted by violent scenes which left at least 888 people injured.

World leaders condemned the brutal scenes after officials revealed that hundreds of protesters have been injured so far.

Officers were seen kicking and stamping on protesters as they stormed buildings and seized ballot boxes.

Footage captured in the village of Sarria de Ter in the province of Girona showed authorities using an axe to smash down the doors of a polling station where Catalan president Carles Puigdemont was due to cast his vote.
Sky News: Catalonia independence vote: Spanish foreign minister says police violence 'not extraordinary'
Mr Dastis said: "I don't agree with you that this is an extraordinary level of violence.

"You may think people were peacefully exercising their right to vote but the problem is this so-called referendum had been held to be illegal by the constitutional court."
Catalonia was a prime spot for secession because it has its own language and culture. America has multiple languages and openly celebrates multiculturalism. It is not a question of if America will break apart (or descend into civil war) but when, as long as social mood remains on a negative trajectory.

One factor overlooked in some of the mainstream Catalonia coverage is the economic and political factors. This vote was a direct consequence of the European Central Bank and European Commissions austerity program. Since the West is now in decline, it is fighting over how the pain is distributed. Catalonia is wealthy and supports Spain. Left-wing Catalonia did not like paying for the rule of right-wing Spain (shades of #CalExit).

Across the developed world, the debt crisis has only been delayed. The longer it takes to play out, the longer secessionists will have to build their movements. In the United States, the failure of pensions across private industry and a dozen or more states in on the way. Demographics in Europe and Japan are even worse.

The markets in Spain haven't performed terribly (the chart below is Spanish ETF, so it includes losses caused by the euro's slide since 2008). If the market reflects social mood, Spain is also at a bear-market rally peak in social mood.
Here's the United States' social mood, as represented by the stock market.
Consider the divisions within the country, racial tensions, the recent battles over the national anthem and Confederate statutes. Now imagine what American politics would look like if the S&P 500 Index falls 60 percent and remains 25 percent below its peak a decade later. Multiple pension funds will fail, several states could go bankrupt, social services will be cut, police salaries will be cut (they're already quitting because of rising social tensions). California is already talking of leaving (and Silicon Valley might leave California). Any state with natural resources (most of the West and Alaska) could instantly increase its GDP by kicking the EPA out of its territory. Layer on racial/political tensions. Great tensions lie ahead for those united States.

Finally, the next phase down for the global financial system is as likely to come from politics as economics. Investors are mostly ignoring the result in Catalonia, not making connections to their domestic economies/governments. This is very misguided, in part because politics is more predictable than economics these days. Nationalism, identity politics and sovereignty are ascendant. Where these forces conflict with economic and financial stability, the loser will be stability.

2017-10-01

Greece Debt Sale Signaled Market Top Again

In May I wrote:
The last time Greec issued bonds into the private debt markets (2014) it marked a peak for the Greek stock market, and would soon be followed by a political battle over austerity.

2017-09-29

Invest in Nuclear or Short California Real Estate

The Sacramento Bee: California lawmaker wants to ban gas car sales after 2040
Ting is among the policymakers pushing to increase incentives for drivers to ditch their gas guzzlers. He is also working on legislation that would overhaul California’s electric car rebate program by making more money available for rebates, then ratcheting down the value of those discounts as the state hits sales targets.

“California is used to being first. But we’re trying to catch up to this,” Ting said.

France and the United Kingdom both announced this summer that they would ban the sale of new gas and diesel cars after 2040. India is aiming to get there by 2030. And China said this month that it would stop the production and sale of vehicles powered solely by fossil fuels in the coming years.
I'm not up-to-date on the UK, but India plans to increase nuclear power 9x by 2032 and to generate 25 percent of electricity with nuclear. France gets nearly 80 percent of its electricity from nuclear reactors. China is building them like crazy. In other words, these countries have already built or have started work on the infrastructure needed for electric cars.

Clownifornia, not so much. If they push forward with electrification, they'll have a significant power deficit. Either the state will have sky-high electricity prices, killing the economy and spreading poverty across the state, or they'll pay through the nose to build nuclear as they try to make up for decades of poor planning.

2017-09-28

China Rebound or Head Fake? Red Line Approaches

For the past year, a commodities rebound has pointed to a rebound in the global economy. As a skeptic of this growht, I've been wondering how much of the global "rebound" (the data is less bad, not great) was driven by Chinese credit growth and how much was a real turnaround.

Chinese are asking similar questions.

Caixin: Opinion: Is China’s Economy on the Cusp of a New Boom Cycle?
By digging out the cause behind the rally of industrial indicators and looking into China’s growth engines, we think it is premature to draw such a rosy conclusion at this stage.

A closer examination on the increased industrial profits since last year showed that the improvements were not spread out evenly across sectors and various types of producers — specifically, upstream sectors such as coal, metallic metal, oil and gas mining and midstream manufacturers in heavy industry — wherein large state-owned enterprises preponderated, accounting for most of the rebound in profits.

...The varying profitability made sense, for the substantial growth up till now stemmed from China’s “supply-side structural reform,” intended to cut capacity in heavy industry since early 2016. As steel mills and coal mines were shut, supply decreased and price soared.
I'm not sure what this last sentence means, steel production is near record highs. And how about aluminum?

Caixin: Aluminum Prices Surge as China Imposes Curbs
China’s aluminum industry is being hit by a double whammy — forced closures of unapproved plants to curb overcapacity and heavy cuts in production over the winter months to ease choking pollution. But the bad news has been good news for investors, speculators and some companies.

The price of the metal, which is used in a wide range of industries including aerospace, construction and packaging, has surged in domestic markets as speculators anticipated a repeat of the bull market already seen in coal and steel after the government ordered cuts in capacity and output in those industries.

...“The current market boom is not being caused by (changes in) the relationship between supply and demand,” Wang Qiang, an industry insider close to policymakers, told Caixin. “It’s being caused by speculation funded by borrowed money.”
How about those production cuts?
Desperate aluminum producers scaled back output at the end of 2015 in a bid to boost prices, which Antaike described as the “largest cutback in nearly seven years.” As a result, production of the metal rose by only 1.3% in 2016 to 31.87 million tons, collapsing from 2015’s growth rate of 11.3%, NBS data show.

...Production is still outpacing demand, however. In the first half of this year, total output jumped by 20.9%, while consumption only rose by 11.5%, data cited by Chalco show.
China uses the same math as politicians in Washington, where a cut is a reduction in the rate of growth, not an actual reduction. China isn't cutting, it is slowing the buildup of overproduction and inventory in the hopes that a jump started economy will absorb the supply. China is getting worse more slowly than before.

Back to the econ article:
Even though corporate treasurers decide to invest in fixed assets as profits rise further, the credit environment may not be in their favor. China ranked the highest in the ratio of nonfinancial corporate borrowing to gross domestic product (GDP), surging from 99% to 170% since the global financial crisis. As the debt risks drew increasing attention, this year the financial regulatory authorities have strengthened supervision to prevent systematic financial risks. The interest rates rose significantly, resulting in higher costs of financing investment. And there is no sign of loosening monetary policy in the short run.
ng 3.9% and 3.8% respectively, in contrast to 4.6% in June. More essentially, China’s investment-led growth has run out of steam. The proportion of investment in GDP has plummeted from 86.5% in 2009 to around 41% in 2016. Since the global financial crisis, China’s investment has been mainly driven by a booming property market and infrastructure financed by local government debts. But their roles are also fading as the housing market showed signs of stabilizing and Beijing pledged to curb government debts. What matters more: None of these factors is unconventional, which cannot justify a new boom cycle.


...The most important event in China this year will come soon. The National Congress of the Communist Party is expected to convene on Oct. 18. Will it herald a new round of reform in China? Only reform can unleash China’s growth potential. The reform package should include restructuring state-owned enterprises and opening the service sector to genuinely embracing private investment. Allowing private capital to engage in health care, education, communication, etc., is essential to improving social infrastructure and encouraging consumption. Plus, China should promote urbanization and environmental protection in a more market-oriented manner, advancing the transition to a more-sustainable, inclusive growth.

2017-09-26

Shift in Social Mood Among Investing Public

Much of the investing public understand that low returns require much lower spending and much higher savings levels. Social mood has shifted from greed to fear, from wanting an early retirement, to wanting any retirement at all. Generation X experienced two stock market crashes and is generally more practical than the Boomer generation. The Millennials watched parents and friends lose their homes during the financial crisis. These are not temporary shifts in attitude. People who lived through the Depression never changed their ways even into the boom years of the 1980s and 1990s.

I've written a lot about the gap between public opinion on issues such as immigration and nationalism versus the established political powers in many Western countries. There's also a massive gap between public understanding of finances and the behavior of the establishment. This could lead to major political upheaval when pension funds fail, or worse, bond markets and currencies, because the public will not accept excuses having adjust their own behavior.

Marketwatch: This person asked the internet if it was necessary to save so much for retirement — the response was surprising
He got his answer. Reddit users took to the platform reminding him of other expenses he’s not considering, such as possible illness, job loss, divorce, a stock market crash, health care and other long-term care planning, and even taking care of parents when they get older (caregiving is not just a physically demanding role, but a financially demanding one).

“Your calculations are figured for perfection,” one user wrote. “Also remember your kids can borrow for college but you can’t borrow for retirement.” They also tore into his estimations — explaining that interest rates are just coming from all-time lows and that there is no guarantee he will see a 6% annual return for the next 40 years. “How does your planning work out if the market returns 3% per year in real terms?”

Other commenters added that there are so many unknowns in the next four decades. “I think it’s good to maximize retirement savings when you can as there may be periods of your life where you’re unable to do so for one reason or another,” SpidermansMom said. People shared personal stories: that user said her husband fell ill and lost his job, and they suddenly went from two salaries to one. He was too sick to watch their son, who stayed in day care, and she couldn’t save as much for retirement, but felt comforted by the fact they had been maxing out their retirement plans for years before.

Another user said his perception of his retirement changed after his dad died at 69 and he realized he’d personally rather have 15 solid years of retirement compared with his father, who only had three. Another shared that his father made $150,000 a year but today is unemployed with no money. “Fortunes change,” user palsh7 wrote. “Don’t assume anything. If you’re still feeling good at 55, by all means, cut back, but right now you want to invest.”

2017-09-25

2017 Picks: A Mixed Bag

At the end of 2016 I made a few predictions for 2017.

I thought Turkey and Mexico (TUR and EWW) would decline. I missed the broader emerging market trend and the extent to which the U.S. dollar would correct, although in Turkey's case, the rally is almost entirely driven by equities, not currency.

I thought FCG was a good speculation at the end of 2016 considering it was very cheap relative to the energy sector. I thought it would at least perform no worse than energy, but it underperformed again. Still, it did not hit a new relative low versus SPDR Energy (XLE). FCG's relative low was achieved in early 2016. I still like it as a relative bet on energy for anyone who is bullish on energy. I make no call on the overall energy sector; I currently own November puts on SPDR Energy Exploration & Production (XOP).

I was right on the solar (TAN) call. And the Chinese yuan.
In the near term, the Chinese yuan looks a little oversold. I expect a bit of a rally after it cracks 7, even better if it rallies before since it will catch the bears. A 3 percent rally takes USDCNY to about 6.75, a 5 percent rally to 6.60. The PBoC has given bears nice entry points before, hopefully they provide another one. I don't think USDCNY will be the best currency play.
It ran all the way to USDCNY 6.48 on September 8. On September 10, I wrote: Time to Short the Yuan? USDCNY hit 6.62 today.

Kurds Vote on Independence

More bad news for Turkey.

CNN: Iraqi Kurds cast their votes in historic referendum
Iraqi Kurds have started casting their ballots in a controversial independence referendum Monday as tensions between Iraq's largest ethnic minority and the Iraqi government in Baghdad intensified.

Voting got underway at 8 a.m. local time (1 a.m. ET) and will end at 6 p.m. local time (10 a.m. ET). The first results should be known within 72 hours.

...Both Iran and Turkey have sizable Kurdish minorities and fear a vote for independence in Iraq might galvanize movements in their countries.
One of the more realpolitik solutions for Islamic terror was to blow up the entire Middle East via Kurdish independence, forcing jihadists to fight internally.

TUR broke out of the head-and-shoulders pattern, but it remains in a downtrend. I expect the rally in 2017 will prove to be a headfake.

2017-09-24

Third-Tier Cities Tighten Real Estate Regulations

iFeng: 七地发楼市新政 多限新购房再上市
Another wave of market regulation policies, and shift focus from a second-tier cities to second and third tier cities. September 22 to 23 in the afternoon, there have been Nanchang, Xi'an, Chongqing, Nanning, Changsha, Guiyang, Shijiazhuang 7 cities introduce new market regulation policies, Chongqing, Nanchang, Nanning, Changsha, Guiyang, Shijiazhuang 6 cities are new then make a limited purchase of housing on the market, ranging from 2-5 years time.

Asia-Pacific Urban Development Branch President Chen will keep the real estate yesterday in an interview with Beijing News reporter, he said that second-tier cities housing prices rose significantly, intensive introduction of restrictions on sale and other control measures, mainly in order to curb price gains.
Xinhua interprets: 新华社:2天8城楼市调控加码,释放什么信号?
So why these eight cities to be overweight regulation? Industry insiders believe that this round of regulation with a precision, "where prices rose significantly, points to where the regulation."

Reporters noted that this regulation to raise the capital city does not belong to more than 15 first- and second-tier cities hot spots, but recently a new round of price and trading volume rose city. These cities are mostly net inflow of population, there is upward pressure on prices, regulation of further tightening reasonable.

..."To give the market a clear signal that the market regulation will not relax for a period of time, will help guide market expectations." President Yang Research Institute is now home chain collar said.


Keer Rui Research Center analyst Yang Kewei that the impact of policies on the demand side restricted the biggest change is that the previous "urgent urgent buy sell" short-term psychological hold, by reducing transaction frequency, eliminating the short-term profit mentality, in order to curb investment speculative demand, in line with the central "room to live not fried" spirit.

Yang Kewei is expected in the short term, it will result in restricted or down real estate turnover, with elongated period of regulation, the possibility of some local developers to cut prices to take the amount of the increase is expected to more projects will accelerate the market.

Good Political News Peaks In Europe

Germany's high water mark in social mood sees the two major parties losing support and the populists rising. Since CDU refuses to partner with AfD and SPD refuses to partner with CDU, the only possible coalition is between CDU, FDP and Green, the "Jamaica" coalition (named for the three party's colors matching the flag of Jamaica).

This also marks the peak of a string of positive election results since Brexit. The road ahead is much less favorable with Italy on tap and Spain heading towards major internal conflict. The Catalonian indepedence vote is in October. The next big national election is in Italy, where right-wing and populist parties dominate the polling.

Reuters: Italy's 5-Star names youthful new leader as election nears

Guardian: The view from Madrid: anger and sadness as Catalans prepare for vote

Germany held Europe together, but if Merkel is as weakened as she appears, she will have a difficult time forcing austerity on Europe because she will need to keep the Greens happy to stay in power.

2017-09-22

AfD Could Become Largest Opposition Party in Germany; Catalonia Crackdown in Spain

Alternative for Germany (AfD) is currently polling in third place ahead of Sunday's election.

German election 2017: Polls and odds tracker as Merkel seeks fourth term as Chancellor

German social mood is among the strongest in Europe, yet the anti-immigration populists are moving into the pole position for opposition against what could be a "grand coalition" between the center-right and center-left parties. When social mood has its next leg down, the centrist parties will collapse and the leading opposition parties will take power.

Meanwhile in Spain, where social mood is already negative, the secessionist movement in Catalnia is spiraling towards Exit.

ZH: Unintended Consequences & Ugly Repercussions: It's Getting Worse In Catalonia
But, as WolfStreet.com's Don Quijones points out Madrid’s crackdown on Catalonia is already having one major consequence, presumably unintended: many Catalans who were until recently staunchly opposed to the idea of national independence are now reconsidering their options.

A case in point: At last night’s demonstration, spread across multiple locations in Barcelona, were two friends of mine, one who is fanatically apolitical and the other who is a strong Catalan nationalist but who believes that independence would be a political and financial disaster for the region. It was their first ever political demonstration. If there is a vote on Oct-1, they will probably vote to secede.

The middle ground they and hundreds of thousands of others once occupied was obliterated yesterday when a judge in Barcelona ordered Spain’s militarized police force, the Civil Guard, to round up over a dozen Catalan officials in dawn raids. Many of them now face crushing daily fines of up to €12,000.
Spain offered some concessions to Catalonia, similar to those given to the Basque region.
Catalans want a new constitution to replace the one adopted in 1978 following the death of longtime dictator Francisco Franco and a statute like the one in place in the northern Basque Country which collects its own taxes and contributes little to Spain's central coffers, Bartomeus said.

Juan Montades, a political scientist at the University of Granada, said that if the rules are changed, Andalusia, Spain's most populous region which benefits from the redistribution of wealth from Catalonia, has warned that it would "be in the front line to defend its interests."
The battle in Spain is strong because Catalonia is wealthy. It is more leftist than the rest of Spain. It also has a long and unique regional history, including local dialect. The last part is the most important for most secessionist movements.

Meanwhile in America, getting a raw deal (or seeing that the future is set) is enough to propel separatist movements such as the American Revolution and Confederacy in 1861. American secession seems laughable with social mood at a bear market peak, but #CalExit is getting off the ground. Many residents in California are foreigners, recent immigrants from all over the world, but mostly from South and Central America. This doesn't create ethnic unity, but it adds a layer of ethnic separation from the rest of the country on top of political and economic issues.

Furthermore, blue states such as California are the strongest opponents of secession and devolution of powers favored by red states. Both left and right will see themselves as winners if California leaves. Although negative social mood and hateful rhetoric will fuel a separation, it is more likely to be amicable given the political background. The risk is that other blue states such as New York threaten to leave as well because the country will move right, and then blue states such as Washington, Illinois, New York threaten to kick out the blue cities such as New York, Seattle and Chicago, turning the states as red as the Deep South.

2017-09-19

Beijing Banks Raise Mortgage Interest to 20pc Premium

iFeng: 央行北京营管部:支持北京房贷利率调整
According to Securities Daily informed that since September 14, a number of banks in Beijing the first suite of lending rates continue to rise, after the adjustment, the first suite of mortgage interest rates go up 5% to 10% into the mainstream, while individual banks adjusted to the lowest performing reference interest rates go up 20% of the interest rate policy, there are more outlets of individual banks first suite collective "pause orders."

"Securities Daily" quoted the news that the number of real estate agent, has been notified of two state-owned big firms, September 14 started the first suite of 5% of the lowest floating interest rate policy; at the same time, the implementation of individual banks adjusted to the lowest benchmark interest rates go up 20% of the interest rate policy; as well as the first suite of individual banks to suspend orders.

New Home Prices Rise 0.2pc in August

Although prices rose in 46 cities last month, the number of cities seeing price declines jumped to 18 as the average increased fell to 0.2 percent. Existing home prices increased 0.3 percent, with 54 cities seeing rising prices.

Recent months still saw large single month prices increases, but that wasn't the case in August. Guilin and Harbin saw the largest increase in new and existing home prices respectively, both rising 1.1 percent.

2017-09-18

Everything is Destroyed, Even the Dreams: Huobi, OKCoin Executives Told to Stay in Beijing

iFeng: 火币网、OKCoin负责人、高管被要求不得离京
A number of informed sources, the current Bitcoin trading platform each person in charge, and so not to leave Beijing executives to cooperate with the investigation. In accordance with regulatory requirements, the trading platform for shareholders, actual controllers, executives, such as chief financial officer during the cleanup exit to fully cooperate with relevant work in Beijing.

The industry believes that, with the two virtual currency trading platform shut down all operations, is expected to Bitcoin prices will fall. However, now with the basic out to do bad, investor sentiment being stable, Bitcoin stabilize prices for the time being. As of press time yesterday, reporters, Bitcoin prices declined slightly, quoted near 19,000 yuan.

2017-09-17

Why Did Real Estate Stocks Skyrocket in the Past 6 Months?

An article in iFeng asks why real estate stocks skyrocketed: 地产股为何半年内普遍疯涨三到五倍?答案令人震惊
So the question is: In the past six months is the period of the country continue to tighten regulation of the property market, the property market is gradually cooling. Now, the regulation has been extended to the northeast and western regions, in which case, why real estate stocks also so cattle?

A few examples from the article:
Two days ago, our team of "Financial Powerhouse (ID: tttmoney8)" by National Bureau of Statistics has just released analysis of the current dangerous situation facing the housing market. In a nutshell - due to the inventory moving very quickly, the current average digestion cycle of new housing is only three months or so; overall, the average real estate digestion period (including office buildings, commercial property) is only over five months a. But the "office" and "commercial space business" is still very long period of digestion, were 10.6 months and 18.4 months.

In other words, residential developers to continue re-stocking phase (of course, there is still excess partial).

But this is far from the real estate reason leading shares rose.

The core reason is the rapid rise in land prices, so that value of the large land banks rose significantly.

...A large international investment bank for this housing prices made an estimate, this time scored above the land of housing prices is to spend 458 billion yuan, but now the value has risen to 9,000 billion yuan. In other words, this intrinsic value of housing prices rose by 450 billion yuan, but its total current market value of only 300 billion yuan (RMB) or so.

Do not think the developers have significant "cover" behavior, in my observation, this is a fast development, rapid sales characterized by housing prices, the products are mostly for just need to improve the type of demand, rarely engage in particularly high real estate. However, the past couple of years land prices rising too fast, so reserve value of the land it has quickly doubled!

And that is an important reason for the stock price soaring ward rate.

2017-09-15

TSF Credit Growth Up 21.5pc YoY

Too soon to say if growth peaked in July at 24.3 percent, but it may have given the crackdown on shadow lending. If both TSF and M2 decelerate together, credit growth contraction in China will finally begin in earnest.

China's Reserve Coverage of M2 Slips to 12.4pc

The yuan is rising, but there's no fundamental pressure pushing the yuan up. It is solely dollar weakness. Chinese FX reserves are down to 12.4 percent of M2. This number does not matter to the markets and it may never matter if the fundamentals reverse, but we're getting within striking distance of 10 percent.

The Chinese government cracked down on overseas acquisitions, requires paperwork for foreign currency transactions over $147 and told multinationals not to take their money home for a reason, and it isn't because the yuan is fundamentally strong. The yuan was more useful three years ago.

M2 Slows to New Low in August

M2 growth slowed to 8.9 percent over the past 12 months, but 3-month annualized growth ticked up to 11.3 percent. The latter number is 2.8 percentage points below the August 2016 pace.

M2 historically slows sharply in September and October.

2017-09-14

What A Steel: Chinese Production at New High in August

China Daily: China, US recognize that steel overcapacity requires global solution
Meanwhile, the Chinese delegation told the US side that China had actively taken measures to cut steel overcapacity, Zhu said, citing China's plans to reduce steel capacity by 100 million to 150 million metric tons from 2016 to 2020.

Bloomberg: China’s Steel Mills Run at Full Tilt as Output Hits New Peak
Crude steel output climbed to 74.59 million metric tons last month, surpassing the previous peak of 74.02 million in July, and up from 68.57 million in August 2016, according to the statistics bureau Thursday. While that’s an all-time high for the month, daily output was less than the record in June. Production surged 5.6 percent to 566.4 million tons in the first eight months, also a record.
Extrapolate the August 2017 increase from August 2016, and you get 72 million tons of increased production. Year to date, production is up 30 million tons.

By the time China cuts 100 million tons of production, it will be back to late 2016 levels.

Tariffs are coming.

Real Estate Investment Steady in August

Real estate investment growth rose 7.9 percent YTD, 7.8 percent in August.

NBS: 2017年1-8月份全国房地产开发投资和销售情况

Fixed Asset Investment Tumbles in August, Primary Industry Investment Collapses

Fixed asset investment rose 7.8 percent YTD and 3.8 percent in August.
Private FAI increased 6.4 percent YTD and 3.0 percent in August.

Private investment in primary industries has been double digits for months on end, but fell to 1.5 percent in August. Although it is only 4 percent of total private investment, it is the beginning of the economic cycle. It may be China is finally cracking down on overproduction.


NBS: 2017年1-8月份民间固定资产投资增长6.4%
NBS: 2017年1-8月份全国固定资产投资(不含农户)增长7.8%

2017-09-12

Apartment REITs Coming to China

iFeng: 住房租赁REITs酝酿启动 证监会相关政策在制定中
In essence, REITs (Real Estate Investment Trust) is a way of asset securitization. Some real estate companies have tried to launch "category REITs" products. However, these "category REITs" products mainly for institutional investors, the real public offering REITs products have not yet launched.

China Real Estate Development Group Chairman Meng Xiaosu previously disclosed in public, recently the China Securities Regulatory Commission to China Securities Industry Foundation of the Association of the name of the organization organized a special committee to promote real estate securitization. The reporter also learned that the current domestic long-term rental apartment management enterprises in the active contact with the SFC issued housing leasing asset securitization projects, especially the REITs project.

...Driven by the relevant policies, the industry is expected, housing rental market space will be very broad. Studies have predicted that in 2020 the size of the domestic housing rental market up to 1.6 trillion yuan, 2030 can reach 4 trillion yuan. First-tier cities in the net population inflow, especially in the north of the three major cities of the housing rental market to an average annual rate of 15% growth.
For those interested, there's also a poll on fertility and real estate under the article, asking readers if they plan on having 2 children, reasons for and against, if they would move with two children, how large an apartment they would want with two children. Note the link goes to iFeng Wuhan. There are probably multiple surveys for different cities.

Global Times: Time is right for China to embrace REIT benefits
The Chinese government has recently called for ramped-up development of the home rental market in bigger cities. A total of 12 cities including Guangzhou, Zhengzhou and Hangzhou have been designated for a trial program that aims to give renters the same rights as homeowners so as to jumpstart China's rental market. This could provide impetus to set up the country's REIT market as well, as it will encourage the professional leasing business, which can ensure yields from securitized property assets. It's noteworthy that the shift from reaping rapid gains by buying land for development toward earning long-term rewards through leasing businesses will fuel demand for REITs over time and ultimately result in a breakthrough in the country's efforts to set up its REIT market.

Progress with REITs could begin with a pilot program on a city-by-city basis, as it will be easier to manage. And various participants such as banks and lawyers can consider a workable framework for a nationwide launch.

Unrestricted Warfare Author New Book: China One of Three Powers

Wang Xiangsui wrote Unrestricted Warfare at the turn of the century. The book is essentially the case for asymmetric warfare.

Now Wang has a new book out.
Beijing Youth Daily: 《三居其一》建言中国复兴战略
In the "Sanju one: the world's future positioning of China," a book, WANG Xiang Sui boldly made a "world order reconstruction, third world" prophecy. On the one hand the United States may abandon its single-handedly created the global system, and focus on the United States itself, back to become "America America"; Europe will endeavor to prevent re-fragmentation of the European trend off, continue to follow the path of the European Communities; and with the China "along the way" initiative to promote win-win cooperation in the Pan-Asian community has been created. "Once we dominate the world of modern capitalist system a serious rift third of the world is becoming a new trend of history."

Accordingly, the book creatively put forward the position of China should "Sanju one", that "there is one-third of the world, various models have one." China does not attempt to dominate the world rule, does not seek global hegemony, neither do not want to undertake the United States as another empire. China asked for "a" spatially limited area, in the model is to provide an alternative development path and way of life. "Sanju First" is the Chinese path and model will become a model for the modernization of the road with the West on behalf of the United States, Europe coexist, which is conducive to developing countries to get rid of dependent development patterns and marginalized in the development and way of life on just one of many modes.
A half-hour discussion with Wang about his new book is here: 王湘穗:未来世界三分 中国必居其一

No Easing of RE Restrictions, May Even Intensify as Beijing Investigates Consumer Loans

Beijing investigators are looking into consumer loan proceeds misappropriated for real estate investment.

iFeng: 楼市调控无松动迹象:反弹激烈地区不排除进一步升级
In early September, Beijing Banking Regulatory Bureau, the People's Bank Business Management Department jointly issued a circular calling for banking financial institutions to carry out checking work for personal business loans and consumer loans, focus on examination of the "room repay loans" and other illegal funds flowing into the real estate market Happening. Beijing Municipal Construction Committee issued a document at the same time, requiring brokers to carry out self-examination irregularities, including the content of "more than a single loan amount of $ 200,000 loans for personal consumption." Subsequently, Shenzhen, Jiangsu, also came news thorough investigation of consumer loans into the real estate market, and ultimately confirmed.

Beijing, Shenzhen and Jiangsu Province, Nanjing, Suzhou, Wuxi and other cities, market regulation are "hot cities": tighter regulation after this year's market trading volume also showed a visible decline. At this point, consumer loans remained "contrarian" to enter the property market, the logic behind the concern. Consumer credit flows thorough investigation of the significance of the signal, the same can not be ignored.

Wind data show that from January to July 2017, residents of the new short-term consumer loans reached 1.06 trillion, up by 713.7 billion and 830.5 billion has been far more than the level of last year. But some consumer loans how many entered the real estate, is hard to estimate.

2017-09-10

Signs of a Credit Bubble: A-Shares Firms Loading Up on WMPs

iFeng: A股公司理财规模近万亿 五年暴增近300倍
986.3 billion yuan, which is this year, A-share listed companies to buy financial products in the total amount equivalent to half of the balance of Yu E Bao.

China Securities Journal (ID: xhszzb) Choice reporter access to data discovery, this year a total of 974 A-share companies to buy financial products, accounting for more than 29%. Purchases equivalent to 127.5% of last year. 413 companies to disclose financial products yield to maturity in the statistics, 38 companies financial products yield to maturity is higher than the semi-annual reported net profit.

...From 2.75 to 773.3 billion in five years

Choice according to statistics, as of September 10, this year has 974 A-share companies involved in the purchase of financial products, the cumulative size of 986.3 billion yuan; while last year a total of 774 listed companies involved in the purchase of financial products, the cumulative number of financial management to 10076 times, total purchases of about 773.3 billion yuan. In other words, this year more than 29% of A-share companies to buy financial products, and purchases are equivalent to 127.5% of last year.
The chart below shows year, number of firms buying WMPs, number of purchases of WMPs, and total value. The bottom row is the cumulative total over the past 5 years.
These are the top ten firms buying WMPs this year. I've made a paper portfolio of them, 10 percent equal shares.
China Shenhua Energy Company Limited 601088
Xinhu Zhongbao Co Ltd 600208
Guangdong Wens Foodstuff Group Co Ltd 300498
China Shipbuilding Indusr Grp Pwr Co Ltd 600482
Minmetals Capital Co Ltd 600390
JiangSu Bicon Pharmaceutical Listed Co 002411
Changsheng Bio-technology Co Ltd 002680
Sany Heavy Industry Co., LTD 600031
Oriental Pearl Media Co Ltd 600637
GUANGZHOU ZHUJIANG BREWERY CO.,LTD 002461

Seven companies are profitable thanks to WMP earnings, while 31 others earned more from WMPs than from their operations:
Choice statistics show that 413 companies to disclose the yield to maturity of statistics in the first half of 2017, a total of 38 financial products yield to maturity is higher than the company's net profit, which ST Minco, Yin Fung Holdings, * ST good power , etc. 7 companies rely on income investment products obtained resulting in net profit is positive. For example, ST Minco show net profit of 14.8103 million yuan in the first half, while its financial income of up to 31.1575 million yuan, equivalent to 2 times more than the net profit.

...An investment banker, told reporters, bank financing yields continued to rise this year to some extent stimulate the investment enthusiasm of listed companies, in many cases, banks are disguising WMPs sales as loans.

"Banks currently weak growth in deposits, banks Lanchu fierce competition, at the introduction of high-yield financial products to attract customers, the cost of liability-side end uplift lead to asset yields continued upward. This will lead to the end of financial products on the one hand debt yields continues to rise, on the other hand assets end interest rates have been increased public borrowing, "the investment bank explained," for the banks, listed companies are relatively high-quality customer base, in order to retain customers, banks issued to listed companies when liquidity loans tend to match sales of financial products, in order to yield financial products to cover the cost of increased interest rates rise. "

"Operationally, such as the essence of the company only needs two hundred million funds, which banks on the basis of the amount of the extra point, but requires listed companies to go beyond this part of the borrowed funds used to purchase financial products for banks, able to retain customers, completion of lending and financial management tasks, while companies can take to cover the rising cost of borrowing, both sides are willing to accept such an operation. So you can see, the listed companies to buy financial products, banks are often its counterpart of bank credit. "the investment bank It pointed out.