2019-11-13

Rehypothecating Excavators

Rorschach test of your China view.

Is China in a building boom or is construction equipment being sold on credit or is it being bought on credit and rehypothecated for bank loans?

Caixin: Sales of Chinese-Made Excavators Hit Record Even as Economic Growth Slows
Sales of excavators by Chinese manufacturers have hit a record high this year as the central government ramps up efforts to bolster the country’s slowing economic growth by boosting infrastructure spending.

From January to October, 25 manufacturers in China sold 196,222 of the dirt-moving machines, which are essential for large construction projects, according to data (link in Chinese) released Friday by the China Construction Machinery Association (CCMA), an industry group. It was an increase of 14.4% year-on-year, although well below 52.5% growth (link in Chinese) for the same period in 2018. About 89% of the excavators, or 174,680, were sold in the domestic market.
I could be wrong about which way the Chinese economy goes, particularly in the short-term, but this is not good news for the health of the Chinese economy. In the best case scenario, it's a stop gap measure that helps the economy until a real recovery or positive black swan comes to bail out the global economy. There are no other good scenarios.

Latin American Currencies Ready To Stumble

All clear for global markets or are Latin American currencies about to light the next phase of the dollar bull market?

Bonus chart USDCNH.

2019-11-12

Civil War Makes It Into Mainstream Publication

What has been obvious for years, more like decades, is now being understood by mainstream publications. America is on a seemingly irreversible trend towards either a major political fracture or a civil war, or both.

The Atlantic: How America Ends
Today, a republican party that appeals primarily to white Christian voters is fighting a losing battle. The Electoral College, Supreme Court, and Senate may delay defeat for a time, but they cannot postpone it forever.

...The right, and the country, can come back from this. Our history is rife with influential groups that, after discarding their commitment to democratic principles in an attempt to retain their grasp on power, lost their fight and then discovered they could thrive in the political order they had so feared. The Federalists passed the Alien and Sedition Acts, criminalizing criticism of their administration; Redemption-era Democrats stripped black voters of the franchise; and Progressive Republicans wrested municipal governance away from immigrant voters. Each rejected popular democracy out of fear that it would lose at the polls, and terror at what might then result. And in each case democracy eventually prevailed, without tragic effect on the losers. The American system works more often than it doesn’t.
The problem is what is America becoming? More like Nazi Germany or Soviet Russia. The North and South had competing visions for America, but they were a common group of elites who shared a history, language, much culture and religion. Today, that is not the case.

Campus culture points to extreme racial hatred becoming the norm in corporations and government. Political correctness was a joke in the 1990s, it was an oddity. Today, it is mainstream culture. Thus any hope that moderate Republicans or moderate Democrats can find a new middle, must be tempered by the reality that American universities are a modern-day Hitler Youth or Maoist indoctrination centers, churning out hate at an industrial scale.
I went to Williams for a year before transferring because it was so bad I became severely depressed. It’s worse than you can even imagine. Literally every single class I took had an anti-white, anti-christian professor and agenda.

Economics? We discussed the racist wealth gap & how minorities poverty was due to institutional & structural racism. History of early modern Europe? We did a whole chapter on “minority voices during the slave trade.”
Apart from the anti-white agenda in the entire curriculum, it seeped through into the general discourse and atmosphere on campus as well. There was a gigantic mural of Trayvon Martin hung on the student center...

Despite the school bending over backwards to accommodate every single brown person's desire, they still felt oppressed & launched a “police brutality” campaign against our campus security officers claiming they were being harassed & abused by these half-asleep fat 70 year-olds.

When high schoolers toured the campus, they put up a gigantic mural of all the black people currently attending saying why they should come to Williams. Also, they hung fliers around campus explaining how every protected class would be welcomed to Williams.

Unsurprisingly whites were not given a reason to be welcome despite making up over half of the student body. I forget what it said but it was something along the lines of “black people, you will not be shot by police here.”
The melding of identity with ideology will be the Rubicon for a united American polity.

Sunspots, Wheat and USD

2019-11-11

China Money Supply Contracts in October, Matching Year-Ago Dip

M2 growth was 8.4 percent yoy in October as it fell 0.34 percent for the month, same as in October 2018.
TSF stock was similarly flat at 11 percent growth. The PBoC website says 10.4 percent (a significant slide towards the 10 percent area that accompanied deteriorating data earlier this year), but it's 11 percent based on their reported 2018 data.

Shenzhen Abolishes Luxury Real Estate Tax

iFeng: 深圳取消豪宅税,已有业主捂盘跳价…影响到底有多大?看7问7答
Buying a house and moving hundreds of thousands of "luxury tax", is this day to end? Shenzhen has adjusted the standard of “luxury line” for ordinary housing from today, so that the taxes and fees for most second-hand housing transactions will be greatly reduced.

"From today, the value-added tax standard for second-hand housing transactions in Shenzhen is adjusted. The new levy standard is for residential houses with a plot ratio higher than 1.0 and a building area of ​​144 square meters. The value-added tax is exempted for two years." Shenzhen Local Taxation Bureau 12366 staff The brokerage Chinese reporter said.

Subsequently, the Shenzhen Taxation Bureau also responded to this news and said it is true.

Shenzhen Housing and Construction Bureau also officially responded, "A few days ago, Shenzhen City adjusted the standard of ordinary commodity housing to: parcel floor area ratio of 1.0 or more and housing construction area of ​​144 square meters or less. This is insisting that the house is used to live. It is not used to speculate, to implement the national tax reduction and reduction spirit, and to take full account of the reasonable housing consumption of ordinary residents.

The staff of Lejia Real Estate said that when colleagues took customers to pay taxes and paid taxes, they could not be brushed out. He also said that after hearing the news, some owners have already sold their houses.

Swine Flu Wave Two, Three Underground Vaccines Widely Used

Winter seems to be slowing the spread of swine flu in the north, but there's a rebound of infections in the south. Swine herds, including sows, are still declining nationally.

财新: 特稿|养猪业复产艰难 疫情第二波疑现地下疫苗
Pigs are still decreasing. According to data released by the Ministry of Agriculture and Rural Affairs on October 14, the number of live pigs in 400 monitoring counties in September 2019 decreased by 3% from the previous month, down 41.1% year-on-year; the number of capable sows decreased by 2.8% from the previous month and decreased by 38.9%. This is the third consecutive month of decline in national pig stocks after a non-defeating outbreak.

  The good news is that in the north, the savage African swine fever virus seems to have died down. According to data from the Ministry of Agriculture and Rural Affairs, the number of live pigs in the seven provinces of Liaoning, Shandong, Heilongjiang, Hebei, Shanxi, Gansu and Jilin increased by more than 3% in September, and eight in Gansu, Ningxia, Heilongjiang, Shandong, Tianjin, Shanghai, Beijing and Liaoning. The province's ability to breed sows increased by more than 3%. From a regional perspective, the growth of pigs in the northeast, north, northwest, and parts of the Central Plains has declined.

  However, the southern region is still in the process of bottoming out. On July 14th, Guotai Junan reported that according to Xinmu.com, as of the end of June this year, compared with the number of pigs released in 2018, the national median pig production capacity was 50%, of which Guangdong, Guangxi, Anhui and Jiangsu decreased respectively. 70%, 75%, 70% and 85%.

  What is worrying is that after entering the hot and humid summer, the African pig swine, the number one pig killer, has made a comeback in some areas.
Many farmers aren't waiting for the government sponsored vaccine which is in clinical trials. They've opted for one of at least three underground vaccines.
On September 10, the Chinese Academy of Agricultural Sciences announced that the African swine fever double gene deletion vaccine has completed laboratory safety assessment and effective trials and is about to enter the clinical trial phase. However, many insiders told Caixin reporter that due to the fierce epidemic, the underground vaccine, which has not reached the commercial maturity, is also popular in the industry when the official vaccine is still in the pilot stage. At present, there are at least three kinds of “black market seedlings” in circulation. .

  The aforementioned Jiangsu veterinary experts also said that according to his understanding, the use of underground vaccines is very large. In June and July, large pig enterprises began to use, inoculated with millions of pigs, and pig farms with negative detection of nucleic acid in Africa. The vaccine can achieve a protection rate of at least 70%, but the vaccine itself is very low in safety and can directly cause pig skin necrosis, pig death, sow abortion, abortion rate of 4%-8%; In the farms where the nucleic acid test was positive, the vaccine mortality rate was extremely high and almost disappeared.

All is Well: Regulators Deny Forced Mergers to Stabilize Banking System

Caixin: China Is Said to Mull Wave of Bank Mergers to Bolster Stability
Chinese authorities are considering a sweeping package of measures to shore up smaller lenders, escalating efforts to contain one of the biggest risks facing the world’s largest banking system.

Problematic banks with less than 100 billion yuan ($14 billion) of assets would be urged to merge or restructure under a plan being discussed by financial regulators, people familiar with the matter said. Local governments would be held responsible for dealing with troubled lenders, with the central bank providing liquidity support if necessary, the people said, asking not to be identified discussing private information.
Later in the day, also from Caixin: Banking Regulator Denies Sweeping Plan to Force Mergers
Zhou Liang, a vice chairman of the China Banking and Insurance Regulatory Commission, told Caixin on Sunday the regulator would instruct some small banks to shrink their interbank businesses and those outside their registered region and industry. But he said it would be impossible to take the kind of comprehensive measures reported.

2019-11-10

Mortgage Slavery Outweighs Wealth Effect for Chinese Homeowners

Analysts at Oriental Securities compare China's real estate market to the U.S. and see parallels. Although they find China hasn't yet reached the levels of financialization seen ahead of 2008, many households are already constrained by their mortgages such that they do not experience a wealth effect from rising prices.

iFeng: 被金融裹挟的房地产:房奴效应大于财富效应
From the dynamic path of leverage in China's physical sector, the resident sector has been increasing leverage since 2008. In 2008, the debt leverage ratio of the resident sector was 18.77%, and it rose to 55.30% in the second quarter of 2019, an average annual increase of 3.3 percentage points.

The most important reason for the rise in housing prices is the rise in housing prices. People only talk about the wealth effect, but they ignore the “house slave effect”. The latter refers to the increase in housing prices and the increase in residents’ housing and rental expenses.

Empirical studies show that China is a house slave effect greater than a wealth effect. While rising house prices have increased the debt burden of the residential sector, they have also suppressed consumer demand and squeezed out investment in the physical sector, hindering productivity. It is the realization of the negative effects brought about by the excessive expansion of the real estate market. The "7·30" Politburo meeting not only re-emphasizes the positioning of "staying and not speculating", but also for the first time clarifying that "real estate is not a means of stimulating the economy in the short term." But from the latest data on real estate transactions and prices, market inertia is still significant.

From the analysis of this paper, we can see that from the perspective of realizing the policy objectives of real estate regulation, one way to refer to is to constrain the financial properties of real estate. The commercialization and financialization of China's real estate began in 1998. If China's real estate market is compared with the United States, China is still in the early stages of financialization. If real estate is left with financial development, then the story of the United States in 2008 is likely to repeat itself in China.

2019-11-09

Chinese CPI Starts Soaring As Porkflation Hits and Comparables Bite

China's headline CPI spiked to 3.8 percent in October as pork prices jumped and unfavorable year-on-year comparisons started showing up. First the food, alcohol and tobacco category spiked 2.7 percent in October and up 11.4 percent year-on-year. Pork alone spiked 20.1 percent in October from September. Even though it has been talked about and prices rose over the past year, pork prices were actually relatively stable in late summer. This latest spike is a new round of increase and it took the year-on-year increase to 101.3 percent and 29.7 percent YTD. Overall meat prices are up 66.8 percent yoy and 20.5 percent YTD.

The next two month's comparisons are against negative 0.3 percent and 0.0 percent. If food inflation ran at similar levels for the next two months,the headline CPI could be pushing 6 percent by December.
As for the PPI, it was stable with a 0.1 percent increase from September. The headline number cratered to negative 1.6 percent because of higher inflation (crude oil) from this time in 2018 dropped out of the calculation.

2019-11-08

Pivot Time: Another Bank Run, This Time in Troubled Liaoning

Another bank run, this time in Liaoning. The authorities have arrested people on charges of spreading rumors. After seeing China bottle up its troubles, it's unclear whether China's banking system is finally cracking or whether these are isolated incidents. Chinese culture has more herding than Western culture. A bank run is like a Black Friday sale in the USA, in that the crowd itself attracts more people. However, they are connected by one sure thing: social mood. Rumors of bank runs can happen anytime, but they only become serious when people have a reason to think they might not get their money back.



Sina: 辽宁营口沿海银行遭“挤兑” 回应:现金充足
On the afternoon of the 6th, the official microblog of the Public Security Bureau of Yingkou Economic and Technological Development Zone, the Public Security Bureau of Yingkou Development Zone, issued a notice saying that today’s online rumors of false rumors about the financial crisis in Yingkou’s coastal banks have led to a large number of The depositors went to the bank to cash in, and the staff gathered, causing the normal business order of the bank outlets to be disordered, and the surrounding security environment was unstable. After receiving the police, the Public Security Bureau of Yingkou Development Zone dispatched the police force to the six Yingyingkou coastal banking outlets in the district for security order maintenance, and brought a leading troublemaker suspected of disturbing public order to the Public Security Bureau for investigation. deal with.

  On the evening of November 6, the staff of Yingkou Coastal Bank Gaizhou Branch said to the news that at present all the outlets of the bank are in normal business operations, and there are still a large number of customers coming to withdraw funds, but the bank's cash is sufficient, "the special period is overtime. Avoid causing panic, let everyone know that they are doing business normally.
Yingkou is a city covered here before. About 18 months ago, the AA-rated port defaulted on its debt.

IICS: Update: AA+ Rated Yingkou Port Defaulted on ¥530 Million, Has ¥78.1 Billion in Debt

Way back in 2014, Liaoning was the epicenter of the real estate bust.

IICS: In Yingkou, Liaoning Unfinished Buildings Stretch For 50 Square Kilometers; Real Estate Graveyard

Later that year, I posted Liaoning Sounds Warning on Chinese Economy

If China's problems a systemic, it isn't surprising to see issues pop up in Liaoning.

FT: China’s small lenders suffer bank runs as economy slows
This week, police in Yingkou, a city of 2.5m people in the north-eastern province of Liaoning, arrested nine residents for posting “inappropriate remarks” on social media that Yingkou Yanhai Bank, a local lender, was in a “deep financial crisis”.

The online comments prompted local residents to flock to the bank’s branches to withdraw their savings. “Everyone says YYB is running into trouble,” said a Yingkou resident. “There must be an element of truth in it.”
Zhuang Bo, an economist at TS Lombard, a research firm, said YYB exemplified the difficulties faced by China’s small lenders that had expanded their footprint by issuing shadow banking products, which could include off-balance-sheet lending, peer-to-peer transactions and credit extended by asset managers.

Quick history lesson

Liaoning suffers from protracted industrial/commodity slowdown that starts in 2011
Liaoning goes all in on real estate development to boost growth
Liaoning real estate model implodes in 2014
Liaoning banks moved into shadow banking, WMPs to fuel growth
Liaoning banks hit a wall in 2018
Liaoning banks are going bust

Yes, Yingkou isn't the first Lianoning bank in trouble. The other was Bank of Jinzhou. It IPO'd in late 2015 as China's last round of stimulus was starting to have a positive impact. As I wrote then:
My curiosity got the better of me when I saw the bank is growing 50%+ yoy. I want to see how the bank increased assets to over 300 billion yuan with only 90 billion in loans. What are these assets? They're listed as debt securities classified as receivables. A look at the notes: wealth management products. The bank, as of June 30, had 90 billion lent out in normal banking and 125 billion lent out through shadow banking. Also from the notes: the average yield on their assets rose from 6.04% in the six months ended June 2014 to 7.80% in the six months ended June 2015.
And then in spring of 2019: PBoC Steps in to Support Bank of Jinzhou

Back in July I wrote China Credit Growth and Risk of Financial Crisis. Nothing has materially changed. Right here, right now, it looks like an important pivot point for the global economy and global financial system. If things progress in the direction of the past 8 weeks or so, then maybe the bank issues is overblown for now. "Trade talks" and the Fed's decision to grow the balance sheet will hit the pause button, at least until the Fed stops increasing its balance sheet in 1H 2020. If this is a pullback within a larger move, the denouement of central bank efforts since 2009, markets will deteriorate quickly given the widespread expectation (myself included) of at least a year-end rally in equities.

2019-11-06

Real Estate Rage Returns

WSJ: China’s Housing Market Is Finally Cooling. Some Homeowners Are Furious

青岛新闻网:济南楼市:房价降了 每平米1万元出头的房明显多了 (Jinan property market: the price dropped, 10,000 yuan per square meter seen)

Aside from falling prices, what's notable about Jinan is existing-home listings are at an all-time high and rising as prices drop:
According to the transaction data of the chain home, the number of listed houses in Jinan reached 43,313 sets. In recent months, the number of new homes in the chain has been on the rise. In May, the growth of listings reached a peak of 6,617.

Although the number of second-hand houses listed is high, the house prices are falling silently. According to the data of the chain home, the average price of second-hand houses in Jinan in September was 18,411 yuan, and the average price was 16386 yuan/square meter. In October 2018, the price of second-hand houses in Jinan was 20,915 yuan / square meter.

"Some second-hand houses are obviously cut in price, but in fact, the price that was previously hanged is also high, and there is no market for price." Chu Xin told the Economic Herald reporter that many of the second-hand houses that are now sold are constantly adjusting prices. Only when there is a deal, there is basically room for bargaining.

iFeng: “银十”以量换价 房企降价冲刺将成普遍趋势
From the sales model, most of the housing companies increased their supply in October. At the same time as the pace of the push-up increased, the trend of price reduction promotion was obvious. Industry insiders expect that under the pressure of annual performance targets, the final two-month price sprint of real estate enterprises will become a general trend.

...In this regard, Zhongda Real Estate Principal Analyst Zhang Dawei said that compared with the data for the same period in 2018, the sales of housing enterprises continued to differentiate in the first 10 months of 2019. In the same period of 2018, the sales amount of real estate enterprises increased by more than 50% year-on-year, while in 2019, the sales of most enterprises were relatively stable, and the growth rate of some enterprises slowed down noticeably.
The average selling price has been lowered

From the average selling price, the average selling price of some real estate enterprises in October was lower than that in September. Taking China Evergrande as an example, the company's October sales brief showed that in October 2019, the company's contracted sales average price was 9336 yuan / square meter, and the average contracted sales price in September was about 10054 yuan / square meter.

The industry generally believes that from the sales performance, many housing companies have harvested "Golden September and Silver 10", but most of the housing enterprises have increased the supply, and some companies have significantly adjusted the price promotion. In order to scale up, the possibility of looting will not be ruled out in the last two months of the housing business.

A medium-sized housing enterprise executive told the China Securities Journal that in the current environment where the profit margin of the industry is squeezed, the profitability of future housing enterprises will depend more on the company's own refined operations and product strength.

It is worth noting that since October, some third- and fourth-tier cities have seen an increase in the property market and the average price has increased. 58 City and Anjuke data show that in October 2019, the national key monitoring 67 city online new home average price of 16,491 yuan / square meter, up 0.47%, the second-hand housing listing price of 15,432 yuan / square meter, up 0.08%. The price of first-tier cities is at a high level, the fluctuations are small, the prices are stable, the second-tier cities are basically flat, and the heat of the third- and fourth-tier markets is slightly higher, and the chain trend has changed from a decline in September to a rise of 3.7%.

In response to the trend of the property market in the later period, many industry insiders pointed out that the follow-up market is expected to continue to be stable. From a national perspective, in October 2019, the overall sales data of real estate enterprises is not low, but it is expected that the sales pressure of real estate enterprises in the next two months will remain very large. From the policy expectation, policy tightening expectations are apparent, and policies such as credit will curb the market, and the follow-up market may continue to decline.

Land market volume fell

The Kerry research report pointed out that in October, new homes, second-hand houses and land markets continued their downward trend in September, and they all continued to turn cold. The volume of new houses in key cities was down year-on-year and the chain was down. The transactions in Hangzhou, Ningbo and Xuzhou were significantly reduced. The volume of second-hand housing transactions fluctuated within a narrow range, and the chain also fell slightly. The volume and volume of the land market fell, but the land auctions in key cities have improved significantly, and the number of shots has decreased significantly from last month.

Ke Errui pointed out that the transaction volume of the land market fell again in October. However, under the support of the increase in the supply of high-quality land in Beijing and Wuhan, the transaction heat did not continue to fall, and the average premium rate was roughly the same as last month. Although the urban land market of all energy levels shows the same volume and price, the market heat is completely different. Among them, the transaction premium rate of first- and second-tier cities has rebounded from the previous month, while the third- and fourth-tier cities have continued to fall due to the market's continued coldness. The premium rate has also declined for many consecutive months, and this month has fallen to a low level below 10%.
Sohu: 原创楼市开始“煮温水”,两大明确信号已出现,李嘉诚、潘石屹不谋而合?
From the perspective of regulatory attitudes, it is highly probable that housing and housing will not become a social consensus, and the regulation of the property market will continue to deepen. According to statistics, in 2018, the regulation was issued 450 times throughout the year. By 2019, only 415 times were released in the first nine months, with an average of 1.5 times a day. The intensity has once again set a new record, and the number of times over 2018 is obviously a high probability event. It is worth noting that this year, the central bank lowered the release of 900 billion yuan, the loan interest rate also entered the LPR era, and the environment for reducing financing costs gradually formed, but the mortgage interest rate did not fall, but the housing finance continued to tighten. This means that the use of financial leverage to spur the land price and housing prices has greatly reduced, the country will obviously not rely on real estate to stimulate the economy, the property market regulation will continue to deepen.

...In fact, in the face of the changes that have occurred in the property market and possible changes, many real estate giants have smelled the taste early and have already acted. Take Li Ka-shing, who is most familiar with everyone, from the large-scale layout to the choice to leave, as early as 2013, the process of selling real estate began. This year, the project of Dalian, which has been held for 8 years, was sold again for 4 billion yuan. . In this regard, in an interview, he said that he would not risk to make the last copper plate. There is no such thing. News about the real estate giant Pan Shiyi’s “selling a house” is also constantly appearing. According to several authoritative media reports, SOHO China is selling core assets. The total value of these 8 projects in Beijing and Shanghai is between 50 billion and 60 billion yuan. In this regard, the industry believes that following Li Ka-shing, SOHO China's core assets in China will be almost empty. Then, in the face of Li Ka-shing and Pan Shiyi’s “selling house” behavior, how should buyers choose?

Yu Yongding Calls for Stimulus

Caixin: Yu Yongding: China Needs Stimulus
This approach is misguided. While structural adjustment is crucial, slower economic growth is not a prerequisite for success; on the contrary, it would impede reform. Moreover, given that the complexity of China’s labor market impedes data collection, it is likely that China’s employment situation is not as strong as many believe.

In this context, the Chinese government’s top priority should be to arrest the decline in GDP growth — not least to prevent a kind of snowball effect that will make restoring growth far more difficult later. After nearly a decade of continuous deceleration, with no end in sight, investors and consumers are becoming increasingly reluctant to spend. Serious financial vulnerabilities will only deepen their concerns; ceteris paribus, declining growth will worsen all indicators of financial stability.

...China has the policy space to implement a powerful economic stimulus package. While the side effects and limits of such a package should be fully recognized, the risks of a continued slowdown — not only for China, but also for a global economy primed for recession — dictate that the government should use it.

She's Out Back Counting Stars

11/6/2019: Maybe a shooting star...the whole sector of healthcare providers is worth getting acquainted with if only because it's likely the Democrat nominee in 2020 will cause at least one panic for the industry.


11/7/2019 Update: Looks like more room for a bullish thrust

2019-11-05

China Will Deny Medical Care to Regime Critics Under Expanded Social Credit

China has been building its social credit system for years and already bans citizens with low scores from boarding planes and trains.

Guardian: China bans 23m from buying travel tickets as part of 'social credit' system
China has blocked millions of “discredited” travellers from buying plane or train tickets as part of the country’s controversial “social credit” system aimed at improving the behaviour of citizens.

According to the National Public Credit Information Centre, Chinese courts banned would-be travellers from buying flights 17.5 million times by the end of 2018. Citizens placed on black lists for social credit offences were prevented from buying train tickets 5.5 million times. The report released last week said: “Once discredited, limited everywhere”.
Now it will expand the ban to medical care.

Just kidding. It's the United Kindgom's National Health Service.

Breitbart: National Health Service to Deny Treatment for ‘Racist or Sexist Language, Gestures, Behaviour’
A National Health Service (NHS) trust has announced that it will withdraw treatment from patients it deems to be racist or sexist.
The North Bristol NHS Trust announced that patients will be subject a “sports-style disciplinary yellow card and then final red card in which treatment would be withdrawn as soon as is safe” on its official website.

The policy would cover not just “Threatening and offensive language” but also “Racist or sexist language, gestures or behaviour” more generally, as well as “malicious allegations” — a rather troubling caveat, given the NHS has in the past been entangled in large-scale malpractice scandals which hospitals and staff have initially denied.

2019-11-02

Lou Jiwei Sees Ponzi Finance in Private Equity

Sina: 楼继伟:投资领域应采取盯市制度,防范“庞氏骗局”出现
First, there is a large number of Ponzi financing and Ponzi investment phenomena in the primary market. In the mature private equity market, a general partner (GP) manages only one fund in phases according to its own strengths and strengths in the same industry (information technology, biomedicine, etc.) or at the same stage (angel, venture capital or merger). The territory is highlighted by the fact that a GP manages multiple private equity funds of the same type. It is likely to reverse the project among various funds, manipulate the performance, and undertake the poor quality projects of the old funds through continuous new funds. Ponzi financing is supported by Ponzi's investment. For various reasons, the relationship between the general partner (GP) and the limited partner (LP) is abnormal and lacks trust. For example, LP requires a large proportion of fund shares, and has the veto power of investment projects, or turn GP into a project source team that seeks investment opportunities. The board of directors checks all levels and does not invest in similar private equity funds. The funds invested are head funds in the market. However, through extensive contacts with market institutions, it has been found that many institutions in the market have a tendency to have the above problems. The Council uses its unique market position and always emphasizes the constant standardization of the professionalism and focus of the GP team. Taking into account the particularity of the domestic market environment and stage, the Board appropriately relaxes the relevant requirements compared with the mature market, allowing GP to manage different styles and industries while fully segregating and sharing only the legal, IT and financial backgrounds. And a single fund at the stage, but with strict restrictions on the cross-cutting of each type of fund.

2019-10-31

Fourth Chinese Bank on Brink After Rumor Spurs Depositor Exodus

ZH: Chinese Bank On Verge Of Collapse After Sudden Bank Run
"Our bank is state-backed, and your money is insured by deposit insurance," one female manager told her, but Ms. Li refused, her confidence in the state's lies crushed.

“We really can’t afford to lose the money,” she said.

The bank run at Yichuan Bank, located in China's landlocked province of Henan, makes it at least the fourth bank that authorities have rushed to rescue this year. It won't be the last.
Sina: 河南一银行储户集中提款 央行分支机构紧急澄
In county-level cities, rural commercial banks (formerly rural credit cooperatives) are the most widely distributed financial institutions, which are crucial to the production and life of local people.

  On October 29th, the Yichuan Rural Commercial Bank in Luoyang, Henan Province, experienced incidents in which depositors concentrated their business. According to the Beijing News, a queue of tickets for personal business on the Internet shows that a man took a photo with a single number. The platoon number is displayed, its number is 1490, and there are 419 people queued in front. There are many people waiting in line at the bank.

The Chinese article says a woman started a rumor that the bank would go bust:
On the 30th, Yichuan Rural Commercial Bank announced that it was originally a woman who wanted to go bankrupt. Soon after, the police informed that the rumored woman was detained for five days in accordance with the law.

At the same time, the official also announced that the former party secretary and chairman of Yichuan Rural Commercial Bank Kang Fengli (Li) was investigated.

Because of a rumor, savers concentrate on business
However, even after coming in with cash and putting out the message about rumors, depositors were still taking their cash home:
Surprisingly, it did not work in China, as people continued to show up, adamant about withdrawing their funds; the bank run was accelerating, and nothing officials did could halt, or reverse it.

Zhang Yanting, a 51-year-old farmer, decided after several days of trying to pull his money out of the bank that he would keep his account open to collect the few dollars in grain subsidies he receives each year from the government. But Zhang still wanted most of his 13,000 yuan in deposits back.

After hours in line Thursday, the bank cashier handed him a wad of cash, which he happily stuffed into his bag. Zhang was unmoved by the promise of gifts, save for a bottle of water that he sipped from while waiting.

“I’ve been with the bank for 10 years and have never seen service this good,” he said.

Banks, Run!

If rate hikes are done, banks are in trouble.

Return to Buffet

Follow up to this post.

Software Still Looking Weak

2019-10-30

Is the Bubble Back? Shenzhen Homebuyers Pledge 5M Yuan to Wait in Line, Only 2 Min to Select Property

iFeng: 深圳楼盘火爆“打新”:1508万起步 排队1小时选房2分钟
million yuan sincerity gold, 15.08 million yuan admission fee, Shenzhen high-end real estate project "Shenye Midtown", which has received much attention due to high prices, officially opened this morning.

Shenye Zhongcheng has 2,794 sincere registrants, but today only the top 500 singer can enter the house to choose a room, and the time for selecting a house cannot exceed 2 minutes.

This means that Shenye Zhongcheng will usher in a fierce scene of 500 people competing for 192 listings.

The China Securities Journal reporter came to the opening scene early in the morning and found that at 9:30 in the morning, there were customers who rushed to the scene to "occupy the place" and the materials for holding the documents were waiting.
A frenzied housing lottery in June 2018 did not herald a turn in the market, but Shenzhen real estate was an early indicator (summer 2015) of the prior cycle's turn.

2019-10-21

China's Giant Ball of Money

Deep Throat: Repo-Acalypse Now....
5.) Most importantly, again for emphasis, the Global USD increase over the last two years was primarily attributable to domiciles outside the United States (88%), with only 12% of the USD increase attributable to US Cross-Border Bank Liabilities/Deposits. In other words, the Global inventory of "newly printed" USDs is rapidly being absorbed by foreign ownership.
Not from the same list:
7.) When we examine the M3 Chart above we also see that China (RED) is the outlier, more than doubling their domestic money supply when compared to the US, Europe and Japan. The PBOC has been able to accomplish this "say so" exchange rate since the RMB, again, like so many things Chinese, is a fake currency with a pegged value which has nothing to do with economic reality. The second largest economy in the world has a closed, inflated currency which nobody uses. Yup....that's a fantastic idea. As you historians might recall, the Reichsbank tried the same thing in 1920. But they didn't have computers/wires/SWIFT so it was easier to spot. The reason the Mark failed was that they actually tried to use this currency to pay their international bills (WWI Reparations) and the Allies caught on.
Where's the Money Lebowski?

After decades of $500 Billion (plus/minus) annual global trade surpluses you'd suspect that the Chinese must own not only a significant amount of US Dollar deposits scattered all over the world, but significant financial assets (Stocks, Bonds, Real Estate, etc.) as well, and you'd be correct. Over the last two decades the West has transferred roughly $11.266 Trillion (in Dollars, Euros, Yen, Sterling, etc.) as a result of these trade surpluses.

Through the miracle of compounding interest, we can estimate that the value of Western Assets (including the Chinese portion of the above described bank deposits) controlled and direct-able by Chinese Communist Party, members and agents is roughly $27.321 Trillion (give or take) if invested at the S&P Total Return as described in the table below. Again, we know this with certainty, since there are no material RMB deposits or RMB denominated financial assets in any non-Chinese Banking systems anywhere in the world. This $27.321 Trillion can move freely around the globe between US Dollars, Euros, Sterling, Yen, Hong Kong Dollars, Canadian & Aussie Dollars, Rupees, Pesos, etc. etc. etc., but it's never been converted to RMB.

This approximately $27.321 Trillion, Chinese money/assets is still lurking in the Western Financial System somewhere.

(Note: The figure could be much greater since the Chinese, as large depositors, have had unlimited access to excellent financial advisers, and leverage, provided gleefully by our friendly US Investment Bankers. The CPC has most likely beaten the S&P Returns with consistency)

China Says Foreign Concern on Slowdown "Baseless"

Don't make too much of this, but the top headline in the finance section today is the CCP rebutting pandas.

iFeng: 外媒称中国经济“严重放缓” 发改委:无任何依据
On October 21st, Chinanews.com responded to China’s economic data by individual foreign media and believed that China’s economy was “seriously slowing down”. Yuan Da, director of the Policy Research Office of the National Development and Reform Commission, spoke on the 21st, saying, “This is no Any factual basis, untenable."
Xinhua: Skepticism about China's economic growth "groundless": spokesperson
"There is no basis for such skepticism," the spokesperson Yuan Da told a press conference, citing a series of robust economic indicators.

Over 500 million people hit the road during the seven-day National Day holiday. China's power use rose 4.4 percent in the first nine months, while cargo volumes increased 5.9 percent during the period.

"The indicators were the most direct reflections of economic growth, which prove that the national economy maintained overall stability," Yuan said.
If China's economy were growing fast enough, they would have already agreed to a small trade deal. They could afford to give Trump a face-saving short-term win that left them on a strong long-term footing. The trade conflict is a big deal for China because they can't handle a deterioration in trade at this moment.

Reuters: China more than doubles Sept approval for fixed-asset investment projects
China’s state planner in September more than doubled its approval for fixed-asset investment projects, as Beijing looks to step up support for an economy expanding at the slowest pace in nearly three decades.

...The National Development and Reform Commission approved 177.8 billion yuan ($25.15 billion) of investment in 14 fixed-asset projects in September, a commission spokesman Yuan Da told reporters in a briefing on Monday, adding that the investments were mainly in the transportation sector.

That compared with its August approval for 68.9 billion yuan worth of projects.

On Friday, China reported third quarter gross domestic product growth of 6.0%, marking a further loss of momentum for the economy from the second quarter and hitting the lower end of the government target of between 6.0% to 6.5% for the full year.

The September value was also the highest since at least April, official data showed.
Finally:
“As China’s economy shifts from a high-speed growth stage to a high-quality stage, as long as the employment expands, income increases and environment quality improves and economic efficiency increases, it is acceptable for the economic growth to be a tad lower or higher,” Yuan said.
This is on par with the Federal Reserve (or any central bank) claiming it knows the proper level of interest rates. Moreover, like the Fed's intervention plainly rebutting it's own rhetoric, the increase in fixed-asset investment that will be backed by more debt is exactly the type of low-quality "growth" that is causing China's economic slowdown.

2019-10-18

Beijing Has Stricter Residency Requirements for Chinese than USA Does for Foreigners

Caixin: Chart of the Day: Beijing Points System Mints 6,007 New Residents
Out-of-towners looking to land a coveted Beijing residence permit might think of taking up jobs as technicians in banks, internet firms or state-owned enterprises.

That’s one of the main messages in the second year of a new program allowing non-Beijing residents to apply for residency in the Chinese capital using a system that awards points for things like one’s education level, stable living situation and how many years they’ve paid local taxes.

...Beijing first rolled out its points-based residency application system in 2017, and made its first awards last year. This year 6,007 people made the cut, or about 5% of the more than 100,000 people who applied, according to data released this week by the Beijing Municipal Human Resources and Social Security Bureau. Of those, the oldest person was 60, while the youngest was 32. The numbers are still a tiny fraction of Beijing’s population of nearly 22 million, only about 60% of whom have official residency.
Beijing's system is unfair, but very beneficial for its members. The United States is so fair that it is almost a negative to become a member, because the obligations outweigh the benefits.

2019-10-15

Pork Prices Keep Rising, CPI up 0.9pc in September

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

Reuters: China's pork, beef imports surge in September
The deadly African swine fever has reduced the world’s top pig herd by almost 40%, according to official data, after spreading unchecked throughout the country and leaving many farmers unwilling to replenish their farms.

The slump in the herd has pushed retail pork prices up by 84% year-on-year to 43.4 yuan ($6.14) per kg while the country’s food price index is at its highest since January 2012.
NBS: 2019年9月份居民消费价格同比上涨3.0%
Producer prices were up 0.1 percent in September. NBS: 2019年9月份工业生产者出厂价格同比下降1.2%

Money Supply Growth Still Slowing

Although the year-on-year comparables were positive, lifting yoy M2 growth from 8.2 percent to 8.4 percent. The rolling 3-month growth rate shows the most recent quarter is slower than last year at 6.6 percent versus 7.3 percent one year ago.
Total social financing increased 11 percent. Closer to 10 percent or below is where the economy runs into trouble.

Reuters: China September new bank loans beat expectations, more easing seen
Official reserves were steady in September., as they have been for months.

2019-10-10

Local Govts Start Subsidizing Home Buying Again

iFeng: 贷款额度提升、买房补贴现金…楼市要“闹哪样”?
Phenomenon I, Yangzhou: The accumulation of provident fund loans from 350,000 to 500,000

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

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

This time, Yangzhou acts!

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

From 350,000 to 500,000, this range is not small. For the just-needed group whose money is not plentiful, it is undoubtedly good news.
Suzhou, once a "hot" city subject to strict controls, is handing out cash subsidies:
Phenomenon 2, Suzhou: the first suite to subsidize 20,000 yuan

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

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

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

Although the subsidy of 20,000 yuan is not too much, don't forget that compared with some hot cities, the price of Suzhou is not high. Moreover, compared with other cities, high-education people are required to purchase housing subsidies, and Suzhou workers are included in the scope of subsidies!
The article states this is not a general easing, that housing policy is still "one city, on policy" where local conditions play the largest role.
First of all, the strength of the property market regulation has not been reduced. Statistics show that in September, the number of national real estate regulation and control policies was published up to 48 times. In the first nine months, the total number of real estate regulation and control was 415 times, and the intensity reached a new historical record. From these figures of regulation, there is no sign of the relaxation of the property market.

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

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

2019-10-08

Proctor & Gamble Wedgie

Maybe nothing

Turkey is Toast 2019 Edition

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

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

2019-10-06

Groundwork for Yuan Devaluation

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

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

财新:浮动汇率不可怕 是经济自动稳定器

As I've been saying here for many years, I expect China will implement a large one off devaluation that undervalues the yuan and then allow the yuan to float. Capital outflows occur because investors expect the currency will lose value. By slashing the yuan and allowing it to float, the market will bid CNY up as foreign and domestic investors repatriate funds and buy undervalued assets. Zhang Bin says much the same thing in this article.
There is a general concern that currency depreciation can lead to instability of confidence and capital outflows. This is a misunderstanding that does not distinguish between depreciation and depreciation expectations.

  Under the intervention of the monetary authorities, if the market-driven demand-driven currency depreciation is not realized or fully realized, the currency depreciation is expected to exist. The purchase of foreign currency financial assets will receive an additional expected premium, and the repayment of foreign currency liabilities will receive additional expected subsidies. Incentive capital outflows and reduced capital inflows, net capital outflows increase. This is a depreciation expectation, not a depreciation itself, driving a net outflow of capital. If sufficient depreciation is achieved in accordance with market supply and demand, in the absence of further depreciation, capital outflows have no additional expected returns, capital inflows have no additional expected subsidies, and net capital outflows are more stable.
He argues the yuan will not depreciate excessively:
Another concern about the introduction of floating exchange rates is that the RMB exchange rate under market supply and demand decisions will depreciate excessively. Based on international experience, the probability of this happening is very low.

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

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

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

2019-09-26

US Visa Approval For Engineering Students Taking Longer

Visa applications that used to take 4 to 6 weeks are now stretching beyond 3 months.

财新: 特稿|被延误的赴美留学
This is similar to the feedback most students get. In the waiting period, almost all of the other students interviewed turned to the embassy, ​​the US Senate, and the school, but the results of the review were still unsound. According to Caixin reporters, a large number of students who have not passed the examination for a long time are almost all from engineering majors. Zhu Quan told Caixin reporters that several of them were considered to be "sensitive".

  Since 2018, there has been a harbinger of a high refusal rate for “sensitive professionals”. In May 2018, the Associated Press quoted the US State Department as saying that from June 11th, Chinese graduate students or doctoral students studying in the fields of robotics, aviation and high-end manufacturing will only be able to obtain a student visa valid for one year at most. . At that time, the US Senate held a special hearing on the issue of Chinese student visas. Edward Ramotowski, deputy assistant director of the US Department of State’s Bureau of Consular Affairs, confirmed for the first time that it had issued very Specific instructions require them to conduct additional reviews for Chinese students studying in “sensitive areas”.
The Michigan Daily: Visa delays force Chinese international students to defer acceptances
The University’s International Center is aware of approximently 30 students who could not begin classes in Ann Arbor because of delays in processing and approving visas from the State Department, Broekhuizen wrote in an email to The Daily. She noted the majority of the students affected were enrolled in graduate programs at the University.

...John came to his visa interview ready to tell his interviewer about the program he planned to attend in the University’s College of Engineering, but he was only asked about its geographical location and prior leadership experience. Three months later, after what he felt was an unusually short interview, he remains on administrative processing — or a “check,” as he and other Chinese students commonly refer to the heightened background check.

“I feel confused,” he said. “I heard about administrative processing. In China, we call it a ‘check’ because it’s a process for checking your background.”
Boston Globe: UMass Boston targeted in Chinese visa fraud scheme

WSJ: Chinese Official Charged in Alleged Visa Scheme to Recruit U.S. Science Talent
A Chinese government official and his allies allegedly tried to convince at least seven U.S. universities to sponsor visas for purported Chinese research scholars who in reality aimed to recruit American science talent, according to a recently unsealed criminal complaint filed by the Justice Department. They succeeded at least once, the complaint says.

The Wall Street Journal has identified two of the targeted institutions as the University of Georgia and the University of Massachusetts Boston.

Hong Kong ETF Below 2008 Trendline

iShares MSCI Hong Kong (EWH) has slipped below 2008 support again. EWH would need to rally above $23 to recover support. The pattern in $HSBC looks similar to the 2008 top, albeit weaker.

2019-09-25

Bears Will Feast If This Correlation Holds Up

The Korean won is key currency for global trade and is heavily influenced by China, it's largest trading partner. USDKRW formed an inverse head-and-shoulders pattern that could carry it to a breakout at around USDKRW 1250. This is key because that in turn completes a basing pattern that points to another 15-20 percent upside in USDKRW.

KRW will probably weaken more then CNY, but that too will likely decline double-digits if this scenario unfolded. Hence, my general bearishness on markets and willingness to sit tight with a heavily-leveraged short portfolio with the risk of a melt-up rally constantly stabbing at my amygdala.

I came across something today that totally confirms my bias. Which is to say, I'm biased. But if you don't see the USDKRW pattern, this chart comports with crazy target of USDKRW around 1450-1500 when this is all over.
The chart doesn't have a clear x-axis, but if the correlation holds, it looks like 6 months of hell is about to unfold for anyone who isn't short various asset classes and long U.S. dollars. I suspect gold will do well, but not as confident. There could be an initial sell-off as the "strong dollar, weak gold" traders and investors are flushed from the market.