2019-03-31

Housing Bubble or Bust for Local Governments

A week ago I posted Housing Market Rescues Begin, Subsidies for Buyers, Lotteries Whip Up Speculative Fever. The thrust of the post was about land finance, as explained in this article:
Since 2012, the ratio of land use right transfer fees to local public budgets has remained above 0.4. In the past two years, as the land transfer fees have risen, the ratio to local general public budget income has also increased. 2017, 2018 The ratio rose to 0.57, 0.66, more than half of the local general public budget income.
I wrote:
Way back in 2012, the central government realized land finance was an issue. Around 2014, the government started talking seriously about the issue, along with replacement revenue. There was serious talk of launching a real estate tax. Municipal bond markets were pushed because cities had been relying on land sales, and financing borrowings with revenue from land sales. As debt levels increased, the cities became more and more reliant on a revenue stream that is at the mercy of the cyclical credit market.
In response to financial pressure, local governments have already begun loosening real estate policy. The local governments say the easing is rational. The central government says policy can differentiate based on local conditions. It also repeats the mantra that "houses are for living in, not for speculating on," but the reality is that local governments cannot afford a rational housing market in a nation with a falling population. The "war for talent" is already morphing into a war for population as cities cannibalize each others' under-50 population. Smaller cities need speculative activity to drive prices demand (prices and demand are positively correlated in speculative markets). Absent demand, they cannot invest for growth, absent growth the real estate market slows even more. The persistent deflationary pressure hitting rural areas all over the developed world has come to China.

How bad are local government finances? Caixin has an in-depth report on a couple of localities that includes some shocking aggregate figures for the country as a whole: Souring Debt in China’s ‘Lemon Capital’ Warns of Looming Local Fiscal Crisis
Many believe that Anyue and Yanjiang are only the tip of the iceberg, and that China’s other small local governments may be sitting on a ticking time bomb of unsustainable debt. At the end of February, local government outstanding debt on the books had reached 19.1 trillion yuan ($2.8 trillion), equal to more than a fifth of China’s gross domestic product last year, data from the Finance Ministry showed. The number could be much higher when off-the-books debt is added.
The debt level must be understood in the context of reliance on land finance. Local governments finance investment and GDP growth with land finance. It's not simply that they can't pay off debt, they also can't make investments needed to hit GDP targets.
Anyue and Yanjiang made their moves in response to deteriorating debt situations. In 2017, both of their annual interest payments on special-purpose government bonds as a percentage of expenditures of their government-managed funds exceeded 10%, a red line that triggers a fiscal restructuring under the 2016 policy.

Local governments’ special-purpose bonds, designated to fund public works projects including infrastructure, are generally repaid with returns from specific projects that receive the investment. Those projects are usually incorporated into local government-managed funds. The lion’s share of revenue for those local funds comes from land sales, with last year’s national average percentage at 91%, data from the Finance Ministry showed.
It's 2014 all over again, but with much higher debt levels and greater reliance on land finance. An optimist will say China can stimulate the real economy without creating more malinvestment, greater reliance on land finance and real estate. The realist will say, every round of stimulus has done just that. Barring a surprise policy move, it's once again housing bubble or bust for many local governments.

2019-03-29

Platinum-Palladium Ratio

Platinum-Palladium ratio, and then again with the U.S. Dollar Index inverted.

Socionomics Alert: Terror Pop

The horror genre has been dominating the box office for nearly 20 years now as social mood remains in long-term downtrend. See: Socionomics Alert: Stock Market Peaks Amid Record Horror Haul

Now a new genre has emerged: Terror Pop.

Guardian: Billie Eilish: When We All Fall Asleep, Where Do We Go? review – thrilling Gen Z terror-pop
Old people (in this case, anyone over about 23) may be quick to cite Billie Eilish’s obvious influences as evidence of the 17-year-old’s unoriginality: Lana Del Rey’s broken balladry, Lorde’s hip-hop-adjacent pop minimalism and witch house’s lo-fi spookiness all seethe through her debut. Eilish doesn’t hide the fact that she is a product of an online adolescence, steeped in a pop cultural morass with no beginning or end. But what she does with those influences is unique.

Like a horror auteur, Eilish uses intimacy to amplify scares. She sings in a discomfitingly close gasp, like an ASMR actor having a panic attack. Her well turned melodies often unfold like haunted music box ditties or ghostly show tunes, and suddenly snatch away to expose an annihilating lyric: “The way I’m drinking you down / Like I wanna drown / Like I wanna end me,” she admits, coolly, on standout Bury a Friend.

Palladium Bubble Pops

Also see: Palladium, PALL/Gold Ratio, SPX and the Gold Sector

2019-03-28

Canaries Dropping Against Dollar ARS,TRY,ZAR,BRL

Bloomberg: Zimbabwe’s Dollar Squeeze Worsens
Zimbabwe’s attempt to ease a dollar shortage and stop its currency from plunging in the black market is showing little sign of working.

The southern African nation’s currency, known as the RTGS$, fell to 4.2 per U.S. dollar Wednesday, its weakest level in more than five months, according to marketwatch.co.zw, a website run by analysts in Harare. That took its decline in March to 18 percent.

FT: Turkish officials just can't stop the lira's slide
And just like that, Turkey's currency has declined nearly 5 per cent against the dollar. The sell-off comes less than 24 hours after it cracked down on short-sellers by pushing the rate to borrow offshore liras overnight past 1,000 per cent. The rate settled around 750 per cent by end of day yesterday, and now sits at 32 per cent.

Today's catalyst: the $10bn drop in the country's foreign reserves last week, as Turkish officials desperately try to prop up the currency ahead of local elections on Sunday. That's a nearly 30 per cent drop from previous levels and brings reserves to just shy of $25bn.
The British pound slipped on Brexit news again and that spilled into euro today, both benefiting the U.S. dollar, but the usual suspects have been weakening for longer.

Post-Jobs Apple Has Arrived

USDHKD At Limit Again, Compared to US Financials

Whatever gets HKMA to intervene also appears to coincide with dips in U.S. financials. When USDHKD is below the limit or HKMA doesn't intervene, there's no pressure/ not enough pressure. I'm focused on USDHKD coming off the limit. I'm not forecasting or using this for a trade, only observation. Hypothesis is financials dip again when HKMA intervenes to lift HKD off the floor.

2019-03-27

Long-End of Yield Curve Steepening

The yield curve looks more like 2000 and 2007 than 2006 given the size of the inversion, and more like 2000 with the spreads between longer-dated treasuries already steepening.

Turkey Is Toast 2019

Back in 2015 I wrote Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?

If socionomic theory has some validity and technical analysis has some validity, then one can presumably spot potential geopolitical shifts by looking at major assets such as currencies and national stock markets. iShares MSCI Turkey (TUR) gives exposure to both Turkey and by extension, the Turkish lira. Back in 2015, TUR sported a major head-and-shoulders pattern indicating a target in the single digits from its then current price of $37 per share. Geopolitical and domestic political events deteriorated. President Erdogan has been turning the country into an Islamic state and Islamic states tend to underperform economically. Secular Turkey was a Middle East standout because of its economic success without oil. Islamic Turkey? Maybe yes, but the risks were and are increasing. Erdogan also consolidated power. Tensions with Greece escalated. Tensions with NATO escalated. Tensions with Russia escalated. President Trump, ISIS, possible detente with Russia (din't happen), NATO reform, nationalism rising in Europe, it all pointed and most still points in a negative direction for Turkey.

Turkey would bottom in 2016 and then rally withe emerging markets into the January 2018 global top. It then went on to lose more than 50 percent into a July 2018 low. That uptrend is broken and as of pre-market trading today, TUR is back below the descending support line that stretches back to 2010.
ZH: Turkey On Verge Of Collapse As Overnight Swaps Hit 700%, CDS Soar
It also means that Turkey is doing its best to burn bridges with all foreign investors, both bulls and bears, which for a country that for the past decade has been entirely reliant on outside capital inflows, could spell a death sentence.

Meanwhile, unable to express their negative views on the economy via the currency - for now - Turkey bears have found a different way of betting on a Turkish economy implosion, namely Credit Default Swap, which soared to 454bps on Tuesday, a 40bps spike, and the highest since last summer's crisis.

Of course, Eedogan's vendetta against the shorts, and the elimination of virtually all liquidity just to force an FX squeeze, means that the broader economic slowdown and raging inflation, which is the true reason behind Turkey's simmering crisis, is about to get much worse. Meanwhile, with local banks burning through reserves to defend the currency on the front-end, and with shorts no longer present, it is only a matter of time before the currency collapses once more, only this time driven not by a flood of shorts but as longs capitulate ahead of what increasingly looks like another Turkish crisis.

Prior Turkey posts here.

2019-03-26

Central Bankers Follow the Market in Setting Interest Rates


From 2014: PBOC Reasons for Cutting Interest Rates Versus Reality of Deflation
In De-mystifying RBA Setting of Interest Rates, Steve Keen showed how the RBA followed the market's adjustment of interest rates.
The graph shows an almost 100% cor­re­la­tion between the cash rate and the 90-day bank bill rates. How­ever the data also shows that in almost every instance the RBA cash rate FOLLOWS the 90-day bank bill rate, rather than leads it. The data also shows that the RBA will gen­er­ally increase rates once the 90-day bank bill rate gets 50 basis points or more above the RBA cash rate. The actions on the down­side are not as tight, with decreases in cash rates occur­ring when the bank bill rate is any­where from 0 to 100 basis points below the 90-day bank bill rate. How­ever as a rule of thumb the RBA tends to decrease the cash rate when the 90-day bank bill rate is 50+ basis points lower than the cash rate.
The graph is currently down at the site. Here's EWI showing a similar pattern at the Federal Reserve: Here's How to Know When the Fed Might Raise Interest Rates. Here is an article from the Federal Reserve San Francisco Branch: Given the relatively small size of the federal funds market, why are all short-term rates tied to the federal funds rate? The article doesn't make the argument that central banks chase rates, but the chart on the page does:
Notice the Fed is following the market at turning points.

2019-03-25

Wholesale Pork Prices Rise 16pc in 10 Days

Chinese pork prices increased 16 percent in the 10 days ended March 20, from 13.1 yuan to 15.2 yuan per kilogram.

NBS: 流通领域重要生产资料市场价格变动情况(2019年3月11-20日)

Related: Pork Prices Will Soar in China

No Change in Real Estate Policy, Individual Cities Adjusting

This article is notable not so much for the content, but that it exists at all. The government is trying to maintain narrative control over the real estate market. Too soon to call this "Don't believe your lying eyes!"
iFeng: “一城一策”不等于放松调控 “房住不炒”定位没变
"One city, one policy" is going on

However, since the beginning of this year, news of the “relaxation” of individual local property market regulation policies has been heard from time to time. It is worth noting that many so-called policy adjustments are not supported by official documents, and are even explicitly denied by local governments. For example, the recent unspoken comments on the policy adjustments such as the cancellation of the price limit in Jinan have been circulated on the Internet. In response, the Jinan Urban and Rural Construction Committee spokesperson reiterated that the regulation of the real estate market will remain unwavering.

Observing the policy direction since this year, not only has the overall regulation and control not been loosened, but the trend of “one city and one policy” has become more apparent.

For example, Fujian Province proposed to implement the main responsibility of the city, prepare and implement the housing development plan, and implement the “one city and one policy” implementation plan in Fuzhou and Xiamen; Henan Province clearly adheres to local conditions and comprehensive measures, and implements “one city and one policy”; Shanghai said it is studying Formulate and improve the long-term mechanism for the regulation of the “one city and one policy” in the real estate market. In addition, Hangzhou, Ningbo, Chengdu, Changsha and other places will clearly carry out the pilot of the “one city, one policy” regulation of the real estate market. Preventing high land prices, high housing prices, and high leverage risks are still the focus of the local two conferences at the beginning of the year.

Zou Linhua, head of the housing big data project team of the Institute of Finance and Economics of the Chinese Academy of Social Sciences, analyzed this reporter's analysis. The real estate market varies greatly and the situation changes rapidly. The central government proposes to consolidate the city's main responsibility, that is, to let local governments implement according to specific conditions. Regulation and control, combined with local conditions to complete the regulatory objectives. Local governments should avoid losing control of the property market, neither big nor big, or they will assume responsibility. In the process of urban policy, it is necessary to be wary that the impact of individual local governments' impulses or regulatory policies for growth and demand and financial pressure is inconsistent with the original intention, but "one city, one policy" is still the future direction.

Adhere to the regulation of the property market without wavering

Wang Menghui, Minister of Housing and Urban-Rural Development, said recently that since last year, the real estate market has generally maintained a stable operation, and market expectations have also undergone positive changes. First, the growth rate of housing transaction area slowed down; second, the housing transaction price was generally stable; third, the housing market is expected to gradually become rational.

Can this steady state potential continue?

Zou Linhua believes that the property market in the second and third quarters will still be based on stability. On the one hand, the central direction of regulation will not change in a short period of time, and local regulation will be carried out under the supervision of higher authorities; on the other hand, the real estate market needs the support of funds and credit, and there is no major adjustment in this aspect. The possibility. Individual cities have a slight warming phenomenon, but will not affect the basic trend of the country.

Wang Menghui said that in 2019, the long-term mechanism work plan for the stable development of the real estate market will be implemented steadily, and five adherences will be made: the first is to insist on the position that “the house is used for living, not for speculation”; The housing market system and the housing security system; the third is to adhere to the implementation of the city's main responsibility, due to urban policy, classification guidance, the implementation of stable low prices, stable prices, stable expectations; the fourth is to adjust the structure, transfer methods, and vigorously cultivate the rental market Focus on solving the housing problem of new citizens; the fifth is to maintain policy continuity and stability and prevent ups and downs.

2019-03-24

China Cuts Social Security, VAT Taxes

iFeng: 财政部部长刘昆:5月1日起下调城镇职工基本养老单位缴费比例
Minister of Finance Liu Kun confirmed at the China Development High-Level Forum held on the 24th that the contribution rate of urban employees' basic pension insurance units will be lowered from May 1st, from 20 % dropped to 16%.

"At the same time, we will continue to implement the policy of reducing unemployment and work injury insurance rates in stages. We will increase the stability of social security and social security subsidies for labor-intensive enterprises, and through these measures, we will effectively reduce the social security contribution burden of enterprises." Liu Kun added.

Liu Kun said that this year the central government will allocate 53.9 billion yuan in financial employment funds. By adjusting the expenditure structure, it will vigorously promote employment and entrepreneurship, focus on solving outstanding problems in education, medical care, and social insurance that the masses care about, and support development to be fairer and more quality. Education.
China Economic Review: China cuts taxes and social security fees by RMB 2 trillion
The rate of value-added tax (VAT) for manufacturers will be reduced from its current 16% to 13% and the VAT rate for the transportation and construction sectors from 10% to 9%.
While the VAT tax is a pure cut, the social security reduction may not be. Last year, China began cracking down on very, very widespread underpayment by workers and employers. Chinese SMEs Can Only Survive Through Tax Evasion, Social Security Reform Could Be Killer covered SMEs screaming about the crackdown and the high cost of making up underpayment in prior years.

2019-03-23

Housing Market Rescues Begin, Subsidies for Buyers, Lotteries Whip Up Speculative Fever

Third- and fourth-tier housing markets have cooled down enough that governments are launching rescue efforts. Meanwhile, first- and second-tier cities have seen increased use of housing lotteries. As before, the lotteries are whipping up speculative fever because homes are sold at below market prices.

iFeng: 楼市降温!三四线已有城市开始酝酿“救市”
In 2018, due to the cooling of the property market and the retreat of the shed, the land market cooled down and the growth rate slowed down. In some third- and fourth-tier cities with high financial dependence on land, cities have begun to “save the market”.
The end of cash payments for shantytown renovations hit smaller cities hard.
Lu Wentao, an analyst at Shanghai Zhongyuan Real Estate Market, said in an interview with the reporter of China Times that the change of the shed reform policy has a certain impact on the land market. With the reduction of monetized resettlement, there is a lot less demand for home purchases in the market. Especially for the third- and fourth-tier cities, there is not much endogenous demand. The demand for home purchases has been released when the previous wave of house prices grew rapidly. There may be fewer needs. Housing companies will naturally look at these markets with caution and will be more cautious when buying land.
BAck in June 2018, there were doom and gloom articles about lower-tier housing markets because this policy was ending. See: Third and Fourth-Tier Cities Doomed As PSL Goes Away, Deleveraging Will Not End

Many Chinese cities rely on land sales for revenues.
Since 2012, the ratio of land use right transfer fees to local public budgets has remained above 0.4. In the past two years, as the land transfer fees have risen, the ratio to local general public budget income has also increased. 2017, 2018 The ratio rose to 0.57, 0.66, more than half of the local general public budget income.

Zhuge looked for housing analysis. From the ratio of land use right income to local general public budget income, it can be clearly seen that local governments have always relied heavily on land finance. Local governments hope to sell land to make up for and maintain local fiscal revenue and expenditure gaps. However, in recent years, the negative impact of excessive reliance on land sales revenue has become more and more serious. The dependence on land finance has gradually become one of the important factors leading to the rise of housing prices, and it has also increased local debt risks and financial risks.

From the perspective of cities, in 2018, the average ratio of land transfer fees in first-tier cities, second-tier cities, and third- and fourth-tier cities to local general public budget revenues was 0.4, 0.91, and 1.51, respectively. Third- and fourth-tier cities have the highest dependence on land finance.
Way back in 2012, the central government realized land finance was an issue. Around 2014, the government started talking seriously about the issue, along with replacement revenue. There was serious talk of launching a real estate tax. Municipal bond markets were pushed because cities had been relying on land sales, and financing borrowings with revenue from land sales. As debt levels increased, the cities became more and more reliant on a revenue stream that is at the mercy of the cyclical credit market.

2014: China Will Have a New Housing Minister; Nanning Fires First Rescue Shot; More May Come in Second Half of 2014 (a good reminder for those looking for stimulus and/or housing recovery that China started rescuing housing in 2014, but the cycle bottom was in 2016)
2015: The Age of Land Finance Is Over
In the first quarter, land finance only made up 32% of government revenue (as Chinese media reports it), down from 60% in 2013. The 32% figure is equivalent to about 25% of total government revenues. This has serious implications for local government finances, since some local government debt is backed by land sale revenue and land sales fuel development projects.
2017: The End: Provinces Plan 45 Trillion Investment Binge
Back in 2014, flaws in the land finance model were exposed. The need for reform and a new revenue stream, via a property tax, was identified. Instead of reform, the Chinese economy got more credit. The only thing forestalling a significant deceleration is still massive credit growth. Remove the credit and there will be a reckoning.
Nothing has changed. If anything, the problems from 5 years ago have grown worse, particularly for smaller cities.
Zhuge looked for housing analysis, the first-tier city industrial transformation, and gradually entered the post-industrialization stage, the industry is reasonable, the government generally has higher public budget income, and the land financial dependence is at a lower level; the second-tier cities are in a period of rapid expansion, demand is strong, and the market is hot. The scale of land supply is large and the competition of housing enterprises is fierce. The land financial dependence is slightly higher than that of first-tier cities. The third- and fourth-tier cities have limited economic resources and insufficient anti-risk ability. However, under the circumstance of the shed reform and the industry's upward cycle, some cities have land transfer. The income has increased substantially, and the land finance reached its highest dependency in 2018.
No wonder that smaller cities are starting their "housing market rescue" efforts.
Some third- and fourth-tier cities are brewing "rescuing the housing market"

At the end of 2018, several cities began to quietly loosen their control policies. Heze canceled the policy of restricting sales, the social security requirements for the relaxation of housing purchases in Hangzhou and Zhuhai, the cancellation of the implementation of the lottery policy issued by the Qingdao High-tech Zone six months ago, and the loosening of restrictions on purchases by Hefei. These cities have opened a small climax of local relaxation and purchase restrictions.

Recently, some local governments have started the “bailout” policy. Heze Chengwu County has introduced a new real estate policy, stipulating that farmers in the towns can enjoy a discount of 300 yuan/square meter for the first suite. The down payment is no more than 30%. The lower limit of the loan interest rate is 0.9 times the benchmark interest rate of the loan. The upper limit does not exceed 1.25 of the benchmark loan interest rate.

In this regard, Lu Wenzhao said that buying a house subsidized housing, this is the most direct stimulus, the action of Chengwu County to save the city has been very obvious. In some places, relying too much on land finance, if the house is not sold well, and the land cannot be sold, it will directly affect the income of the local government. This is definitely not acceptable to the local economy. Third- and fourth-tier cities, especially those with high financial dependence on land, will definitely find ways to loosen their policies. There are still many cities like Chengwu County in the future.

Guo Yi also said that this year's real estate regulation and control implements “implementing the main responsibility of the city”. All localities need to introduce regulation and control policies according to the characteristics of the city. Some cities with demonstration effects are not stopped by the central government. It is expected that more cities will carry out the property market this year. Moderate loosening, but this loosening will be a gradual, tentative. If the market is overheated, the loosening will not continue, because the local government still has to be responsible for the results of the regulation, and keep the bottom line of "house is for for living, not speculating."
While smaller cities are loosening and even beginning direct subsidies, first- and second-tier cities are experiencing a revival of animal spirits.

CNStock: 万人摇号买房又出现!楼市迎来“小阳春”?
The property market, which has been depressed for half a year, is heating up with the warming of the weather.

On March 21st and 22nd, two buildings in Hexi, Nanjing, were publicly shaken. A total of 7766 people participated in the purchase of the house, and the winning rate was about 6% and 7.8% respectively.

Similar buying scenes have been staged in hot cities such as Beijing, Hangzhou and Chengdu after the Spring Festival. Individual real estates have also seen thousands of people participating in the lottery.

Not only is the property market, but the land auction market is also heating up.

Since the Spring Festival, the volume of high-value plots has increased significantly, and the premium rate capping and the highest unit price of the region have flashed from time to time.
The Chinese government has never had success with real estate controls. The only time controls have worked is when the credit cycle is working in their favor. When controls are put in place in the growth cycle, speculative fever surges as buyers rush to grab property because the next time policy eases, prices will surge along with credit growth. When controls are lifted, it often leads the credit cycle and has seemingly no effect until the credit shows up.

For now, there is no major stimulus effort in China. Real estate easing should have some positive effects, but not as much as anticipated. If the economy stalls and stimulus is pushed, the door is opening for another inflation of the housing market.

2019-03-22

Pork Prices Will Soar in China

Back in 2015, during the last slowdown in the economy and right around when the yuan devalued (strange coincidence) China was suffering from rising pork prices. Almost all of CPI "inflation" was in pork and fresh vegetables. At that time, the spike was blamed on rising piglet prices. Pork has higher and lower stages of productions and as the price of the inputs increased, rising costs filtered down to the lower stages, the retail market.

This post has links to all prior articles on the topic. The Porkpocalypse:Pork Prices Rise 7.7% in August, Up 19.6% YoY

The current situation in China will eventually make that episode look like a bump in the road. African Swine Flu is spreading all over China and pigs are either dying or being killed to prevent its spread.

SCMP: China declares victory over African swine fever but cover-up claims call success into question
A general manager from a large animal vaccine company in Beijing who asked to remain anonymous said about 60 or 70 per cent of major farms in Hebei had been affected.

“Many small farms and some medium and large-scale farms are still selling the pigs even though they have found swine fevers,” he said. “There are 99 core pig breeding farms in China. As of the end of February, fewer than 20 have not been hit by the fever.”
Pigs aren't like widgets. You can't call the factory and tell them to switch production lines to piglets (yet). The breeding stock is gone. Unless they can find outside sources of piglets, replacing the lost swine supply will require generations. I"m not an expert in pig farming, but a quick search indicates pregnancy lasts about 3 to 4 months, and a sow will be ready to reproduce after 5 to 6 months. Factor in considerations such as current pork demand and selective breeding.

SCMP: China pushes for swine fever subsidies to help pig industry get back on its feet
China, the world’s biggest pork consumer, has reported 114 outbreaks of African swine fever since August, although many in the industry believe it is worse than officially reported.

The disease kills around 90 per cent of pigs and there is no cure or vaccine. Around 1 million pigs have been culled so far to contain the disease although many more could have died in unreported outbreaks. The disease is not harmful to humans.

...China is urging rural governments to offer temporary subsidies to pig breeding farms and large-scale producers to help stabilise hog production, as the worst disease outbreak in years threatens to slash pork supplies.

The agriculture ministry outlined measures on Friday to ensure a quick return to stable pig production, including subsidies for breeding farms and support for small producers seeking to scale up.
Scaling up takes time.

2019-03-21

Nationalists Resurgent in Netherlands

It appears the second phase of the nationalist rise is underway, where parties on the edge of power or even completely unknown, suddenly sweep into power as the largest party. The final phase will come when they win complete control over the government.

FT: Dutch Eurosceptic party storms to victory in regional elections
An upstart Eurosceptic party that supports a Dutch exit from the EU has stormed to victory in regional elections to become the joint biggest party in the Netherlands’ upper house of parliament.

The far-right Forum for Democracy (FvD), an anti-elite party formed in 2017, swept the vote to win 12 seats in the country’s Senate, making it the joint largest party along with Prime Minister Mark Rutte’s centre-right VVD.

...“Rutte governments have left our borders wide open, letting in hundreds of thousands of people with cultures completely different to ours,” said Mr Baudet in his victory speech. “We are being destroyed by the people who should protect us.”
Until the establishment parties cease being enemies of their own people, they will continue losing by larger and larger margins. Though at this point its difficult to say they're not determined enemies of their own people, since at every opportunity to take level headed action such as slowing the flow of migration, in almost all cases they've adopted a more extremist policy.

Now we'll see if the Dutch stop the bleeding with a populist coalition or if they'll ice out the upstarts and pray that a massive multi-decade, multi-generational trend stops for some unforeseen reason.

2019-03-20

Chinese Industrial Production Bifurcates As Growth Moves West

Top 5: Hainan, Yunnan, Hubei, Guizhou, Anhui. Bottom 5 (from bottom up): Shanghai, Shandong, Jilin, Tianjin, Tibet.

21st Century: 马达轰鸣工业增速分化:东部放慢中部坚挺
How to find new growth industries
The 21st Century Business Herald reporter learned that the slowdown of the national industry in the past few years was mainly due to the slowdown of the Northeast region, and then spread to the northwest region, and then spread to the North China region and the East China region. At present, the industrial development in the eastern region has slowed down and become a new feature.

Why is the industrial development in the eastern region the slowest?

This is because the industrial consumption characteristics of the eastern coastal areas are obvious, with the decline in demand for mobile phones, home appliances, automobiles, etc., coupled with the slowdown in residential consumption and the slowdown in household income. In the past few years, the demand for heavy industry in the Northeast has been reduced, which has led to a slowdown in the economy. However, the state has reduced production capacity for steel and coal, and the price of steel and coal in these areas has rebounded, which has given the economy a certain improvement.

Jiang Feitao, a researcher at the Institute of Industrial Science of the Chinese Academy of Social Sciences, pointed out that the eastern industry is now shifting to the central and western regions, and the central and western regions still have great development advantages.

“The land cost, labor costs, and cost of living in the eastern region have risen rapidly, which has led to the transfer of industrial low value-added industries to the central and western regions. This has become a law,” he said.

According to our understanding, many commodities have low demand in the east, but they are not the same in the Midwest. For example, in the case of automobiles, in addition to some growth in Zhejiang in the eastern region, other regions generally have a low growth rate in the first two months of this year, but production and sales in some areas in the central and western regions have grown rapidly.

For example, Henan's automobile production in January-February was 108,100 units, a year-on-year increase of 39.2%, and automobile consumption was 35.19 billion yuan, an increase of 7.5% year-on-year. This is in stark contrast to the negative growth of automobile production and sales in the country.

The slowdown in consumption of household appliances in the country is actually related to the slowdown in residential sales, especially in the east. In January-February, the sales area of ​​commercial housing in the eastern region was 54.37 million square meters, down 9.7% year-on-year. The decline was 4.7 percentage points higher than that in 2018; sales were 684.4 billion yuan, down 1.2%, and the annual growth in 2018 was 6.5%. In the first two months of this year, the sales area of ​​commercial housing in the central, western and northeast regions only fell by 0.6%, by 2.2%, or by 4.8%.

Liu Xuezhi believes that the eastern coastal areas are now facing rising costs, mainly due to rising house prices and land prices, which have led to the squeeze of the survival of enterprises with low added value. The economy in the eastern region needs to reduce its dependence on the secondary industry and gradually improve the tertiary industry. The proportion, from the industrial field alone, the eastern region should shift from low value-added industries to high value-added industries, such as improving product quality, product technical content, product R&D and design.

"In the eastern region, industries should expand their industrial chains, such as upgrading services and brand building. The western region should increase its revenue as soon as possible, digest industrial products, and then generate momentum for economic development," he said.

2019-03-19

Socialism's Big Problem: Venezuela

When Chavez came to power in Venezuela, it was a foregone conclusion the country would collapse. And it has. Inflation off the charts and shortages everywhere. I'd argue anyone who didn't predict the collapse of Venezuela should be ignored in political matters, but certainly anyone who is looking at the situation today and doesn't understand why the country collapsed should be kept 10,000 feet away from any form of political power. Either sheer stupidity or more likely, an ideological devotion that turns evil when the truth reveals reality: socialism is an utter failure.

Whether or not there should be U.S. intervention is an entirely separate question.

ZH: "Guaido Is The Most-Hated Man In Venezuela" - On-The-Ground In Caracas Versus The Media Spectacle
PC: How did being in Venezuela compare to what you were seeing in Western media?

Carolina Graterol (CG): I am a journalist, I have family in Venezuela, and I knew the reality was very different from what the media is portraying, but still I was surprised. The first thing we noticed was the lack of poverty. Alan wanted to film homeless and poor people on the streets. I saw three people sleeping rough just this morning in London, but in Venezuela, we couldn’t find any, in big cities or towns. We wanted to interview them, but we couldn’t find them. It is because of multi disciplinary programmes run by the government, with social services working to get children off the streets, or returned to their families. The programme has been going on for a long time but I hadn’t realized how effective it was.
Hey, look how effective these authoritarians are at cleaning up the streets!
PC: Alan, what surprised you?

AG: We have to be realistic. Things look worn down and tired. There is food, there are private restaurants and cafes open, and you could feel the economic crisis kicking in but poverty is not as bad as what I’ve seen in Brazil or Colombia, where there are lots of street children. Venezuela doesn’t seem to have a homeless problem, and the favelas have running water and electricity. The extreme poverty didn’t seem as bad as in other South American countries. People told me before going I should be worried about crime, but we worked with a lady from El Salvador, and she said Venezuela was easy compared to her country, where there are security guards with machine guns outside coffee shops. They also say a lot of Venezuelan criminals left as there’s not that much to rob, with better pickings in Argentina, Chile or wherever.
Again, the authoritarian government supposedly has the streets safer than we've heard, but the economy is so bad that even the criminals have emigrated.
PC: How have the US sanctions impacted Venezuelans?

CG: Food is expensive, but people are buying things, even at ten times their salary. Due to inflation, you have to make multiple card payments as the machine wouldn’t take such a high transaction all at once. The government has created a system, Local Committees for Production and Supply (known by its Spanish acronym CLAP) that feeds people, 6 million families, every month via a box of food. The idea of the government was to bypass private distribution networks, hoarding and scarcity. Our assistant was from a middle class area in Caracas, and she was the only Chavista there, but people got together and created a CLAP system, with the box containing 19 products. Unless you have a huge salary, or money from outside, you have to use other ways to feed yourself. People’s larders were full, as they started building up supplies for emergencies. People have lost weight, I reckon many adults 10 to 15 kilos. Last time I was in Venezuela three years ago, I found a lot of obese people, like in the US, due to excessive eating, but this time people were a good size, and nobody is dying from hunger or malnutrition.

PC: So what are Venezuelans eating?

CG: A vegetarian diet. People apologized as they couldn’t offer us meat, instead vegetables, lentils, and black beans. So everyone has been forced to have a vegetarian diet, and maybe the main complaint was that people couldn’t eat meat like they used to do. The situation is not that serious. Before Hugo Chavez came to power, Venezuela had 40% critical poverty out of 80% poverty, but that rate went down to 27%, and before the crisis was just 6 or 7% critical poverty. Everyone is receiving help from the government.

PC: So food is the main concern?

CG: The real attack on the economy is on food. When you have hyperinflation everything goes up in price, but food has become the main source of spending because this is the variable going up in price at exorbitant levels. Bills like water, electricity, public transport haven’t gone up that much and represent a small percentage of any family spending. This is why the distortions in the economy are not intrinsic, but caused by external factors, otherwise everything should have gone up, no matter what it is.
Leftists will never learn, or if they do, they cease being leftists. Anyone with a basic understanding of economics predicted doom and hyperinflation for Venezuela long before any sanctions showed up. Now that the U.S. is starting to pressure them, progressives and leftists are blaming nearly 2 decades of economic mismanagement on the United States. It's as it ever was, going back to the Cold War. If you give these people power, they will destroy your country and salt the Earth. They will never admit or understand why they are solely responsible for the destruction, instead they will always blame some third party. The response to failure will always be more socialism and repressive crackdowns on the remaining "capitalists" or whoever is the regime enemy of the day.

Countries that go full socialist end up with mass graves or mass starvation. Western journalists stand right behind the graves and film the lovely wildlife scene in back, while reporting accounts of harmony and peace and progress. Fake News is real. It has been going on for 100 years in service of communist and socialist revolutions, and also picking up new agendas such as stopping Trump. The root of the lies always goes back to a communist/socialist/progressive agenda based on lies and in opposition to the Truth and reality.

2019-03-17

Optimism Abounds in China Housing Market as Restrictions and Mortgage Interest Declines


21st Century: 成交量明显回暖 “因城施策”进一步深化
According to the statistics of comprehensive multi-agency institutions, since the Spring Festival, cities such as Beijing have taken the lead in showing signs of recovery. According to the data on the Anjuke line, the increase in January was 18% in January, and the increase in the third- and fourth-tier cities was even more obvious at 22.6%. In March, the heat of finding houses in third- and fourth-tier cities continued to increase. Hengyang, Jiujiang, Yueyang, Shantou, Hengshui and Huizhou were all cities with high activity in recent housing. From the heat performance of different cities, the city level has an impact, but the impact is greater on the shed reform policy and regional planning. The urban market in which the sheds have been continuously implemented has remained relatively hot, and the recent “Hong Kong, Macau and Macau Bay Area”, which has a strong sense of topic, has affected the heat of finding houses in Huizhou and Zhuhai, and has led to an increase in the volume of transactions in the region.

Can a short-term warm recovery continue? This is the industry's current biggest concern. Hu Ruoxiang, vice president of Longhu Group, predicted that the real estate market this year is “both optimistic and cautious”. “The optimistic side, regardless of the strength of the policies introduced now, the market is developing in a loose and favorable direction. In addition, the financial environment is gradually loosening. The interest rate of the first suite in the country has been falling for two consecutive months. The interest rates of the second suite have been continuously Three months down, this is also the reason why the market is gradually stabilizing in February; on the one hand, the market challenge in 2019 is still relatively large. It is expected that in the future, even in different sectors between cities, market differentiation will be very obvious. There will be a certain window period in the market, but in which cities, when, and how long this market window will last, the uncertainty of these issues is very strong."

...With the loosening of the overall regulatory environment, the property market has indeed begun to show a warming trend.
One analyst sees an upturn in Beijing. First-tier cities have historically led the national housing market:
Guo Yi believes that the current market situation needs to be analyzed in detail. "This is actually a problem at two levels. One is the second-hand housing market and the other is the new housing market. Take Beijing as an example: For the new housing market, the most important reason for the increase in trading volume is the increase in supply. The listing of limited-competition houses and the listing of some high-value, optimistic expectations of the public's expected value have led to a wave of overall market sales. Therefore, from the perspective of new houses, based on the single-selling case, Some projects have been promoted, which has formed relatively good feedback on the overall market transaction. In addition, some projects have made some adjustments and concessions on the price, and the cost performance has increased, which has also driven the volume of transactions; Differently, the second-hand housing market is actually heating up the overall demand. At the same time, from the current point of view, the demand for improving the sale of old or new ones, or the sale of old ones, has ushered in a new market after a period of market savings. A round of release opportunities. The key point that prompted this round of volume increase is still the regulation and control policy. A loose state, so that confidence in the market outlook has increased, resulting feedback to the transaction data. "
iFeng: 楼市房贷利率“连降三级”打折不远 房价会涨吗?
The property market regulation policy has been reversed. The interest rates of mortgage loans across the country have been continuously lowered. The real estate control policies have been relaxed and the signals for buying houses have been encouraged.

The reporter learned that the five major banks in Xiamen's first home loan interest rate fell to the benchmark, before the floating has been canceled; the five major banks in Shenzhen, the first home loan interest rate was reduced to 5%, other cities have also been continuously lowered. Last year, the first home loan interest rate benchmark was up 20% or even 30%. What is the difference? A house with millions of loans can save hundreds of thousands of interest rates today.

“The interest rate of mortgage loans has returned to the benchmark and even discounted. It is possible, and it will take time, not so fast.” A Shenzhen-based loan manager of a joint-stock listed bank told the China Times reporter.

In the past, in order to encourage the purchase of houses, the bank mortgage interest rate can be used at a discount of 30%. Now this trend is coming back.
Xiamen and Shenzhen are two cities that led the housing rebound in 2015 and 2016.

Not everyone is sure about a rebound in the market though.
The China National Index Research Institute expects the real estate market in 2019 to assume that the overall operation of the national real estate market will be under pressure in 2019. The annual sales scale is expected to fall between 5.0% and 7.0%, and the probability of a slight rebound in the sales area of ​​first-tier cities is relatively high. The second-tier cities have achieved significant differentiation, and the support base of the third- and fourth-tier markets is relatively weak, and the downward pressure on sales areas is relatively large. In terms of price, as the price stability expectation is further consolidated, the price of commercial housing will be stable, and the possibility of a slight decline will not be ruled out, but the decline will be controlled within 2.5%.

The most authoritative is to look at the government work report published during the two sessions, which set the tone for real estate in 2019, mentioning “promoting the stable development of the real estate market”, “renovating the shantytowns”, and “collecting land for collective construction”. “Central cities and urban agglomerations”.

In the 2018 government work report, the key words are “Room and Housing”, “Real Estate Tax” and “Leasing and Selling”.

Comparing the two-year government work report, it can be seen that this year's stable housing prices replaced the last year's control of housing prices. This is also the purpose of the continuous reduction of mortgage interest rates. Stabilizing housing prices does not fall, and even some housing prices in some cities are ok. As for the tolerance of the rise in housing prices, some experts believe that it can be maintained in the income growth rate of residents or the growth rate of GDP.
The Chinese housing market has slowed and will continue slowing. Sales turned negative year-on-year in the January-February period. Policy easing takes time to kick in. The difference with the prior cycles is there's no credit stimulus yet. Some point to the 2017 spike in TSF, but the real boost started in 2015 (back to 2014 if you count the stock market bubble) and then again in early 2016. The spike in 2019 appears like a one-off event.

Without monetary or credit stimulus, the housing market will either continue slowing or stabilize in the second-half, depending on your macro view. However, if stimulus does come along and credit controls fail or are weakened, it is easy to see another round of home price inflation. The foundation for one is being laid right now.

2019-03-15

China New Home Prices Rise 0.5pc Nationally in February, Talent Winners Lead

New home prices increased 0.5 percent in February. Two cities leading the talent war, Xian and Wuhan, saw prices rise 1.1 percent. Existing homes saw a smaller increase of 0.3 percent.

The number of cities with rising prices has been steadily decreasing, but the vast majority of cities still have rising prices.

2019-03-14

The War for Population Loosens Real Estate Restrictions

as the talent standards are getting lower and lower, more people can easily obtain the qualification to buy a house.
Local governments in China are easing real estate restriction through their "talent war" policies. China is aging and the cities that attract the most youthful and productive workers will be the most prosperous in the future. One of the best ways to attract them is with easy home ownership, infrastructure development and overall quality of living. The dividends are immediate. Cities that have loosened housing policies through the "talent war" loophole have the strongest housing markets over the past two years. Seeing this success, every city is implementing "talent" policies while at the same time watering down the rules to cover everyone under the age of 50. If China were to launch a stimulus or monetary easing effort with these loopholes in place, it's almost a guarantee that a new real estate bubble will emerge in the most attractive cities.

iFeng: 人才落户政策扰动楼市 限购缺口将敞开?
According to statistics from the Central Plains Real Estate Research Center, as of the date of the 2019, there were nearly 30 cities that announced various talent introduction and settlement policies. Throughout the talent policy in recent years, Zhang Dawei, chief analyst of Zhongyuan Real Estate, analyzed that in 2017, the new talent policy was mainly based on a few second-tier cities. In 2018, more than 100 different levels of cities across the country have issued talent policies. By 2019, the talent policy has basically blossomed everywhere, and the cities that have tasted the sweetness continue to increase in size, and the standard of talents has gradually decreased, which has largely begun to become a labor dispute.
Cities that attract population are growing, cities that lose population are shrinking. The battle for population is a battle for raw GDP growth. On the bright side, China isn't crushing its own population with mass immigration to drive down labor costs and drive up real estate costs. Instead, the benefits of this battle are at least accruing to the native population——as long as they live in a growing city.
Xie Yifeng, dean of the China Urban Real Estate Research Institute, told the Zhongxin Jingwei client that the talent policy has been introduced in recent years, which is related to the increasingly fierce economic competition between cities and the property market purchase restriction policy. He said that the cities that introduced the talent and household registration policies were basically consistent with the cities that implemented the policy of restricting purchases and loans, and the numbers were relatively consistent.
The war has reached the point where real estate restrictions are eroded by "talent war" incentives.
After the rise in housing prices since 2016, the first- and second-tier cities and some third- and fourth-tier cities have basically implemented a purchase restriction policy. This policy will not block household registration and foreigners who do not have a certain number of years of social security or tax, and can be said to be a "profit weapon" for the property market to cool down. . However, the introduction of talents and the loosening of household registration in major cities across the country have caused one to bypass the purchase restriction, and as the talent standards are getting lower and lower, more people can easily obtain the qualification to buy a house.
Cities that fight the talent war have the strongest housing markets.
According to the changes in the sales price of commercial residential buildings in 70 large and medium-sized cities in January 2019 issued by the National Bureau of Statistics, the number of new commercial residential buildings in Xi'an increased by 23.5% year-on-year, ranking the top in 70 cities. In September 2018, the number of new commercial residential buildings in Xi'an increased by 6.2%. The increase is ranked first in 70 cities. Zhang Dawei said that from the cities where house prices have risen in the past two years, most of them have issued talent policies. The rise in housing prices in Xi'an has a lot to do with the loose talent introduction policy.

Zhang Dawei believes that the disguised form of talent policy has lowered the threshold for purchase restrictions and pushed talents into the real estate market, which has a tight supply and demand structure, which has brought up expectations. In the past two years, housing prices in many cities in the country have rebounded, especially in some second-tier cities. The most important reason is that the talent new deal has relaxed the purchase restriction policy.

Yan Yuejin, research director of the Yiju Research Center, said that the starting point and feedback of the talent policy are very good, which reduces the cost of talent introduction in many cities and optimizes the talent structure. Although the policy intention is not to relax regulation, but the effect is not much different from relaxation. Some provincial capitals have strict housing purchase policies, and there is a possibility that buyers will drill down on policy loopholes, which in turn will lead to rising house prices.
Analysts go on to discuss how cities can manage housing without passing what amounts to real estate relaxation policies.
Although the talent introduction policy is suspected of disguised relaxation and restriction, Xie Yifeng said that on the one hand, talent introduction and household registration reform have a role in promoting urban development and promoting urbanization. In the downturn of the property market, the market cooling rate has also slowed down, and the property market will not appear. Big ups and downs.

On the other hand, after the introduction of talents, it is also necessary to solve the reasonable living needs of the new citizens. Blindly, across the board, the talent policy will be discounted. Therefore, local governments need to balance the relationship between talent introduction, household registration reform and stable real estate market.

Zhang Dawei said that the talent policy should not be linked to the purchase restriction of the property market. Talents can directly subsidize the purchase of house vouchers and provide talented apartments instead of attracting talents as attracting buyers. Yan Yuejin said that the key is to further subdivide the policy of purchasing talents. For example, after the purchase of a house, the house is not allowed to be transferred at will. After the settlement, it is necessary to pay 6 months of social security to enhance the authenticity of the purchase. Xie Yifeng said that population or talent inflows should increase land supply and increase policy housing supply for affordable housing, shared property housing, public rental housing, and affordable housing to ensure a stable market.

Recently, the official has repeatedly expressed its position on real estate regulation and control. Housing and housing are not speculative, because of urban policies, “stable prices, stable prices, stable expectations” have been repeatedly mentioned. Yan Yuejin analyzed that the “three stables” policy indicates that follow-up control will continue. Although there is a possibility of policy relaxation, there will still be supervision in the financial system and transaction order.
The complication for Beijing is local incentives. Given Chinese fertility rates, every city is at risk of losing population. Every city has an incentive to beggar thy neighbor's population. A slowing economy exacerbates this competition. In a growing economy all cities can prosper, but if growth slows or even worse stagnates, population movement can become a significant portion of GDP growth. If one city is fighting the "talent war", all cities must fight it or risk falling behind. Beijing and Shanghai have announced population caps that remove them from this war, but population mobility is important for economic growth as new industries grow. China has eased the household registration system in recent years to facilitate greater mobility. Despite the central government's wishes, local governments are going to keep fighting this war and ending it risks further weakening the housing market and economic growth.

China Stimulus Hopes Vaporized as Slowdown Continues

There was stimulus hope in January when China announced one month of credit growth exceeded the 2008 stimulus package in nominal yuan and dollars. That hope was left standing on one leg after China reported February credit growth reverted to trend. The other leg was taken out overnight when China showed retail sales slumped along with industrial production in the first two months of the year and fixed asset investment growth decelerated from 2018. Only real estate investment growth improved, but it was accompanied by a year-on-year decline on sales.

Here's the relevant charts from the real estate report: 2019年1-2月份全国房地产开发投资和销售情况
This chart is good news for GDP uber alles, but bad news for quality growth from other sectors of the economy. When coupled with the other data released today, it paints a bleak picture of the Chinese economy.

Here is real estate sales, by area in yellow and yuan in blue. The comparisons were harder because of double-digit growth in 2018, but this is a substantial slowdown if it holds. Adding to the "good news is bad news" narrative, real estate investment might be signaling the dry tinder for a fire exists. Each stimulus has sparked a surge in real estate activity and home prices, and there's good reason for Chinese officials to worry this time isn't different. Aside from losing control of the sector, a reinflation of the housing bubble could seriously and perhaps permanently end the domestic and international public's belief in the omniscience of Chinese central planners.
Fixed asset investment growth ticked higher, but that was all due to real estate. A positive in the report was a spike in mining investment.

The main takeaway and perhaps the biggest blow to the stimulus hopes however, is the year-on-year FAI growth change from 7.9 percent to 6.1 percent. There is no stimulus visible. 2019年1-2月份全国固定资产投资(不含农户)增长6.1%
If fixed asset investment is bad for stimulus hopes, retail sales might be the kill shot. This isn't a terrible number given it is on trend, but the Spring Festival period is like Christmas for China. Retail sales showed no holiday impact. If anything, they could be masking a slowdown about to hit in the ensuing months. 2019年1-2月份社会消费品零售总额增长8.2%
Energy production was negative year-on-year. 2019年1-2月份能源生产情况

Finally, industrial production shows the manufacturing sector is still decelerating. 1-2月份规模以上工业增加值增长5.3%,剔除春节因素增长6.1%
Auto production yoy:
You will no doubt see reports touting the growth of electric cars, up 53.3 percent yoy. That is indeed good news if you are focused on that sector, but look at the raw numbers of autos produced:
And look at that line item right above autos: industrial robots. Another important indicator moving in the wrong direction.

2019-03-12

1998 Scenario Still in Play

Back in September I posted: It's 1998

Looking at various tops using the ratio of the Dow Industrials to the 30-year Treasury bond price showed:
All the overbought periods marked a short-term top in the markets (such as the 1987 crash). There was one exception: 1997. There was a dip in the stock/bond ratio in 1997, but it went on to a new high in 1998 before a major correction unfolded. Stocks would then go on to peak in 2000 as bonds bottomed, but as the ADX line below shows (black), the 1997 market decline marked the peak in stock/bond trend strength.

The difference between 2018 and 1998 is the trend strength is still rising. (The S&P 500/30yr ratio is already at a new high). Maybe this time is different (for the ratio) because bonds will lead the decline, but in either case a big correction in stocks looks very likely in the coming months.
Similarities with 1998 remain:
On December 26, I posted: What a Tantrum, Is 1998 in Play?
Bull scenario: the economy will hold up and avoid recession. Interest rates are rising and will remain elevated because there's no recession and core inflation will stay near 2 percent. The spike in volatility is the "equal and opposite" reaction of ultra-low volatility during QE, especially the final phase from June 2016 through January 2018. Investors expect low or even no volatility and an accomodative Fed. Investors were asking the Fed to stop hiking or even cut interest rates after a modest double-digit decline. They are behaving like coddled children throwing a tantrum and the Fed is the parent putting their foot down. Investors reacted by losing their minds, full blown on the floor kicking and screaming tantrum.

The Nasdaq fell 20 percent in 1998. Credit risk spiked in 1998, as it is spiking now. There are signs the global economy is weakening, but there were also clear signs in 1998 because that sell-off came at the tail end of the Asian Crisis. I remain bearish, but 1998 is the only non-bear scenario left. Even that scenario is not very bullish, since the top was 18 months after the 1998 correction.
There's a better macro case for bearishness in 2019, but everything is much less volatile because of central bank intervention. A rally here won't be as powerful as the final 18 months of Dotcom Bubble for the same reason East Asian economic activity hasn't imploded.

Chartists at Bank of America also see a 1998 rhyme. ZH: Is This Just One Giant Bear Market Rally? Here's What History Says
Interestingly, the Aug-98 event was one of the early scenarios when the Fed cut rates to fight market weakness. It is worth noting that while the Fed has not cut rates - yet - in the most recent bear market rally, the catalyst for the rally was the Fed's reversal from a hawkish tightening bias to a dovish one, where the Fed said it would adjust the shrinking of its balance sheet and would be "patient" about future rate hikes. In other words, the two fastest bear market rebounds in history were both the result of direct Fed intervention. It goes without saying that while the 1998 rally persisted for several years, it eventually culminated in the dot com bubble and the first Fed-induced bubble burst.

How and when the current bear market rally (and bubble) ends, is still unknown.
The Fed cut rates in 1998, but commodities and East Asia had just bottomed. The Dotcom Bubble accelerated. The Fed also had some ridiculous reasoning for its cut, namely fear of the Y2K bug. It also held rates low for too long. As soon as the Nasdaq achieved a new high (three months after bottoming), the Fed should have realized its error, but instead it would not set rates above September 1998 levels until February 2000, one month before the Nasdaq peaked.

This time the Fed hasn't cut rates. It could and should put June rate hikes on the table as a shot across the bow of speculators. It probably won't, but it could without reversing policy or even committing itself to a hike. It probably will hike in December if economic growth stabilized. That in turn should lift the U.S. dollar and short-circuit any rally.

Another view: Jeffrey Snider at Alhambra posted this chart comparing the CPI in the 1990s to now. What Is Missed Inflation
Clear as mud some would say, but if you're time frame is 18 to 24 months, it doesn't really matter. The bull market is either dead or on its last leg.

2019-03-10

The Bipartisan Anti-BigTech Push Reveals Tech is Already Doomed

Negative social mood is ushering in negative views of technology. Instead of ushering in utopia, technology and technology companies will enslave the world to racist/SJW/CCP AI, take everyone's jobs and destroy the world. The shift in sentiment accompanied the ever sinking social mood. Attention from politicians also tells us the time to short technology is at hand. The last major tech anti-trust case came as the market was peaking and wasn't concluded until the bear market was underway.

Big Tech Will Be Broken Up
How Tech Crashes: Hope Meets Reality Or at Least Negative Mood
Socionomics Alert: Technology Makes Our Lives Much Worse

Elizabeth Warren is the latest politician to make an explicit threat against Big Tech.

Ard Technica: SXSWarren: A day later, Elizabeth Warren defends her Big Tech breakup proposal
"Today, we have companies like Amazon: they have a platform. I buy a coffee maker and use it all the time, but Amazon also sucks out an incredible amount of info about every buyer and every seller. Then, Amazon makes the decision to have a competing coffee machine and drive out the business in that space," she explained. "They have this incredible advantage from the information they get from their platform and the fact they can also manipulate the platform, putting themselves on page 1 and put the competitor on page 16 where no one ever goes... My view is break those things apart, and we'll have a more robust market in America."
Governments always close the barn door after the horse is long gone. Sarbanes-Oxley and Dodd-Frank were passed after major financial crises. Regulations are often cut to spur an economy, but politicians also often top-tick social mood and the economy. The Depression Era Glass-Steagall law was repealed in the late 1990s, not in the 1940s or early 1980s when it would have made more sense from a policy perspective.

Similarly, the attention to BigTech comes after the company has dominated its market and is on the way to possibly losing the next one. The last major anti-trust case was against Microsoft (MSFT) in the 1990s and it wasn't decided until June 2001, after the stock market had entered a bear market. The Nasdaq had already lost two-thirds of its value. Moreover, Microsoft was already well on its way to losing its dominant market position.
Now Google (GOOGL), Amazon (AMZN), Twitter (TWTR) and Facebook (FB) face scrutiny. These companies have more power than Microsoft in the 1990s and they've abused it in ways that go far beyond Microsoft keeping competing browsers off new PCs. They've violated free speech rights and data privacy laws. They've created Orwellian systems to control thought and speech that mirror China's extensive censorship system. Amazon in particular has taken advantage of extremely outdated legal theories of monopoly and anti-trust. It used to be that a grocery store and a car dealer had little in common. A conglomerate with control of both couldn't transfer monopoly power from one to the other. In the Information Age, everything is linked. Amazon will wipe out pharmacies and groceries soon if something isn't done.

Amazon is probably the most similar to Microsoft and Standard Oil because it is more focused on commercial profit. Absent government regulation, it appears as if Amazon will continue dominating markets. Twitter, Facebook and Google, on the other hand, are interfering in elections and public debate. That they are doing this at all is a sign that they have probably reached the limits of their markets or at least the accelerating growth phase. They've shifted from growing their market to abusing it, turning off customers or banning them outright. Many technology companies are riddled with employees who put politics above profits. In some cases, they're already in upper management and it's unlikely the companies will ever recover. The decadence takes a different form, but it always marks cyclical peaks.

The right and the left hate BigTech. Anyone who wants to punch BigTech will find a bipartisan audience cheering them on. Many are focused on how this will harm BigTech companies, but the larger truth is that it's happening because BigTech's peak in this cycle has already passed. By the time government gets around to regulation and anti-trust, some of these companies may already be on their way out, if not gone, or their stock prices down 50 to 90 percent.

2018 Redux: Money Supply Reverts to 2018 Growth Rate

Chinese M2 money supply grew only 0.08 percent in February. The two-month growth rate is below that of Jan-Feb 2018.
Caixin: Major Shareholders Cashing Out of Bull Market
Just as mom-and-pop investors are eagerly jumping back into the stock market thanks to this year’s dramatic turnaround, many major shareholders of listed companies are marching toward the exit door.

So far this year, more than 350 listed companies in Shanghai and Shenzhen have given notice that a major shareholder will sell at least some of its shares in their companies, with 161 such notices issued since March 1, according to data compiled by Caixin. Those 161 notices announced stock sales worth 8.37 billion yuan ($1.25 billion) in total.
Caixin: Central Bank Says Still Room for Reserve Ratio Cut but Less Than Before
There is still room for China to cut banks’ reserve requirement ratio (RRR), but the room is much smaller than in previous years, central bank Governor Yi Gang said Sunday.

Yi’s comments come as market participants have high hopes for more monetary easing steps this year when the world’s second-largest economy is still plagued by sluggish growth amid a trade war with the U.S.
An RRR cut isn't easing unless the banks boost lending. They've failed to spur lending before and been associated with a rising U.S. dollar. With the Hong Kong dollar back at the peg limit, it looks like conditions are ripe for another U.S. dollar rally.

International Travel Headed for A Decline

NYPost: EU will soon require US visitors to apply for visa-like travel pass
Americans traveling to Europe will soon have to add a new item to their packing lists.

Starting in 2021, the European Union will require US visitors to get a pre-approved, visa-like travel pass issued by the European Travel Information and Authorization System.

The permit will cost about $7.90 and will have to be requested at least four days before the journey—making romantic last-minute jaunts to Paris impossible.
This throws a wrench into international travel, but the bigger wrench will come when the EU collapses.

2019-03-09

Here We Go Again: USD Pressure in HK, China Slowdown, Breaking 7 is Back

SCMP: Hong Kong’s monetary authority sells US dollars to prop up local currency, the first intervention since August 2018 as rate gap widened
Hong Kong’s monetary authority has sold HK$1.5 billion (US$191 million) of US dollars in the foreign-exchange market to prop up the local currency’s value against the greenback, the first intervention by the city’s de facto cental bank since August 2018.

The move, undertaken through the “weak-side convertibility undertaking (CU),” was triggered when the local currency touched 7.8500 per dollar, the lower limit of a trading band in place since May 2005. The aggregate balance of Hong Kong’s currency reserve would fall by HK$1.5 billion to HK$74.802 billion after the intervention, the Hong Kong Monetary Authority (HKMA) said in a statement on Saturday.

The local currency weakened to touch the lower limit of the trading band because a decline in banks’ funding demand had led to a drop in interbank rates for Hong Kong dollars, which widened the gap between local-currency and US dollar deposit rates. The gap in overnight rates was between 150 and 200 basis points, while the difference in 1-month rates was at about 150 basis points.
Last year, HKD was in a slow motion crash towards the lower bound of the peg. It got there in late March. China cut its RRR a month later and the U.S. dollar began a broad rally against everything. Emerging markets went down and didn't bottom until six months later.
Alhambra: The Big Minus Wasn’t Actually China’s Big Contraction In Exports
In the space of maybe six or seven months, everyone goes from huge global boom to maybe some slowing to China is outright contracting. And is still contracting after the full reach of its New Year holiday.

The effects have already been profound; the ECB yesterday singling out weak Chinese demand for it having to unleash a third (absurd) T-LTRO in place of a booming monetary policy exit. The OECD did the same when downgrading its forecasts for the global economy.

So, what is China’s problem? There’s trade wars and record (misleading) Total Social Financing, confusing monetary policies where banks are issuing bonds that are really equities and the central bank is swapping them for bills that are bonds but belonging to the central bank. There does seem to be a confusing mess coming out of Beijing.

...Much more than US GDP or payrolls, Europe’s LTRO’s (naked, or with a T) or Jay Powell’s chicken pause, Chinese demand for foreign commodities and goods more than suggest this thing is just getting started. What it actually might be when all is said and done, we don’t know. But the probability of just bouncing off a small, temporarily annoying global soft patch is very much diminished with China spreading this kind of persisting disorder and distress throughout the rest of the world.
The final piece to the puzzle is yuan depreciation, but I do not expect any while trade negotiations are ongoing unless this turns into a really big deal that allows U.S. tariffs to offset yuan depreciation with no retaliation, something that the U.S. said it wants, but isn't part of any agreed upon points made public.

There's only about 1.2 percent of appreciation left for CNH/EUR before it hits a resistance line that marked peaks in 2016 and 2018. Assuming a reversal, it could come as early as next week given the volatility of EUR/USD.

When CNH/EUR declines because CNH tracks with weaker USD it has been good news for global markets and the global economy. When CNH drops against both EUR and USD, the "double depreciation" that started slowly in April 2018 and all at once in August 2015, it has been bad news. If the U.S. dollar continues to strengthen against the euro, it looks like the yuan is about to weaken. Emerging markets are about to significantly underperform U.S. stocks. Moreover, if the current level of EUR/USD holds and CNH/EUR retraced to its 52-week lows, it would take USDCNY through 7.00. There are many moving parts in currency markets, but if DXY achieves a bullish breakout here, watch out.