1000 employee factory cannot earn 1/30 the profits of 1 wife speculating in real estate

温州企业主：开千人大厂利润不及老婆1人炒房所赚1/3

一位不愿具名的企业主向晨报记者介绍，自己的工厂有1000多名员工，然而一年辛苦下来利润不足百万，而老婆在上海投资了10套房产，8年间获利超过3000万。

One factory owner unwilling to be named told the Morning Post, after a hard year's labor, profits don't even reach 1 million yuan, but his wife bought 10 apartments in Shanghai and over 8 years she has earned more than 30 million.

Wenzhou loan sharking case grows; government officials involved in loan sharking; Premier Wen Jiabao travels to Wenzhou

Authorities have broken a 1.3 billion case in Wenzhou. The loan sharks are government officials.
温州破获13亿高利贷案 八成债主竟是官员

Premier Wen Jiabao headed a government rescue team sent to Wenzhou
温州许多中小企老板欠高利贷外逃 温家宝率大批高官到浙江救局

On the cusp of deflation?

Shanghai Tang homeless ... for now

Luxury brand Shanghai Tang plans to move into a group of tents at a ferry pier after becoming the latest victim of soaring commercial rents in Central.

The iconic Hong Kong clothing company is quitting the Pedder Building premises that housed its flagship store for 17 years after the monthly rent more than doubled to HK$7 million. It plans to move the flagship store to a four-storey building 350 metres east of the Pedder branch in March next year.

Rioting in model village attests to graft woes

On the morning of September 21, hundreds of villagers took to the streets and staged a sit-in protest against local officials for "secretly selling" hundreds of hectares of collectively owned farmland to a real estate developer and "embezzling" more than 700 million yuan (HK$853 million) of compensation money since 2006, a young woman who saw the protest said.

"Some policemen were sent in and severely beat some teenage schoolchildren who had sounded the brass gong to urge fellow villagers to join the protest that morning," she said. Upon hearing that several of the youngsters had been seriously injured and sent to hospital, hundreds of furious villagers fought back before laying siege to a local police station in which 30 to 40 officials and policemen had taken refuge.

Hundreds of fully equipped riot policemen then engaged in a stand-off with peasants armed with iron bars or wooden clubs. "At this point, some said two of the teenagers were severely hurt and in critical condition," she said.

"Others suggested they might have died because no one knew their whereabouts in the hospital."

The rumours spread like wildfire and thousands of villagers blocked the nearby highway and smashed the windows and overturned at least six police vehicles.

This village is in prosperous Guangdong province.

  Net tightens on online rumours

"The central government has recently passed new measures to manage [mainland microblogging site] Weibo," Song said, adding that provinces and municipalities were also experimenting with new controls.

"For example, Beijing's municipal government is likely to promulgate a real-name requirement system to regulate Weibo soon."

China's subprime mortgage crisis

中国式次贷危机 A Chinese website is tracking what the Chinese are dubbing China's subprime crisis. Bookmark it if you want to stay on top of the news.

Sign of the times

This advertisement from Shanghai is offering discounts off the new home price. Companies are selling SOHO apartments with the pitch that they don't qualify for government restrictions because they are offices, not homes. Anxious developers use every trick in the book

Is gold a bubble?

I've noticed two different arguments for why gold is not a bubble. One is that gold is not a bubble because hardly anyone owns physical gold, very few people own mining shares and institutions are under-exposed. Most of these commentators are looking at Western investors, perhaps mainly U.S. Another thing one hears, and which is fully backed by the data, is that the gold market is international and actually driven by Chinese and Indian demand. These two facts are exclusive. Of course U.S. and especially Western markets are wealthy, and if they decide to seriously buy gold, the price will advance strongly. That said, the Western markets may be superfluous. For a long-time the world has watched the U.S. equity and bond markets for signals, but now the time has come to watch Indian and Chinese sentiment on gold. And in China, gold is very bubbly.......although I haven't seen a gold advertising poster in my apartment building for quite a few months.

China at the edge

This is a long and detailed article covering some of the topics discussed recently and in the past (such as RMB depreciation). Anyone interesting in the Chinese economy and the global implications (just about everyone) should read it. China: Economy on the Edge of a Nervous Breakdown

In recent days, however, something else has happened that potentially has far more serious implications.  For the past decade, China has run surpluses on both its current and capital account.  When it comes to both trade and investment, China is a net importer of foreign currency, which places pressure on its own currency to appreciate in order to resolve the imbalance.  China has prevented the RMB from appreciating more rapidly than it desires by fixing a price at which it buys dollars (and other foreign currency) and stockpiles them as official reserves.  Because that price has always been fixed below the market equilibrium point (the RMB has been kept undervalued), whatever limited trading band was set, the RMB tended to bump up against the upper limit.  In other words, the RMB was a one-way bet, always under pressure to appreciate against the dollar.

Until this week, that is, when it started to bump up against the bottom of the trading band, implying that the RMB wanted to depreciate against the dollar.  Why?  Presumably because the capital account had flipped, and speculators were now rushing to turn their RMB into dollars in order to take their money out of China.  It’s important to clarify what this does and does not mean.  It does not mean that the RMB is now suddenly going to collapse in value.  China holds US$3 trillion in currency reserves, and can deploy those reserves to support any exchange rate it wishes.  Even if China were tempted to devalue (at the cost, it should be noted, of fanning inflation), the mounting political pressure in the U.S. Senate to take action against China for its undervalued currency would pose an obstacle to pursuing that path.

The author lives in China, note the implied social mood in the title.

Senate passes anti-China bill

China currency bill clears Senate hurdle

QE1 and QE2 were euro support programs

Even with massive Fed intervention, the euro could not break out of its bear market versus the U.S. dollar. The euro consistently falls ahead of the end of Fed intervention and continues falling until the time that a new QE is (accurately) rumored.

Protectionism beckons as leaders push world into Depression

This outcome in Europe is not deliberate (I hope); it is not a German plot; it is the unintended effect of a currency union created by ideologues against Bundesbank advice, and which has calamitous implications for German foreign policy and for Latin social stability. My sympathies go to the hard-working citizens of Germany, Spain, Italy, Portugal, and Ireland for being led into this impasse by foolish elites.

Social mood and innovation

Neal Stephenson, science-fiction writer, pens an essay titled: Innovation Starvation

Still, I worry that our inability to match the achievements of the 1960s space program might be symptomatic of a general failure of our society to get big things done. My parents and grandparents witnessed the creation of the airplane, the automobile, nuclear energy, and the computer to name only a few. Scientists and engineers who came of age during the first half of the 20th century could look forward to building things that would solve age-old problems, transform the landscape, build the economy, and provide jobs for the burgeoning middle class that was the basis for our stable democracy. The Deepwater Horizon oil spill of 2010 crystallized my feeling that we have lost our ability to get important things done. The OPEC oil shock was in 1973—almost 40 years ago. It was obvious then that it was crazy for the United States to let itself be held economic hostage to the kinds of countries where oil was being produced. It led to Jimmy Carter’s proposal for the development of an enormous synthetic fuels industry on American soil. Whatever one might think of the merits of the Carter presidency or of this particular proposal, it was, at least, a serious effort to come to grips with the problem.

Chris Matthews taps into the social mood

Watch this clip. He "gets it." Matthews: Obama Being Too "Debonaire" For The Mood Of The Country

China on a collision course

Slowdown in reform efforts under attack

Wu Jinglian , 81, who has been advising the mainland's top leaders since the beginning of the market-oriented economic reform, also called for the breaking away from old ideologies and for the continued reform of state-owned enterprises.

Wu is a researcher with the Development Research Centre of the State Council and a member of the Chinese People's Political Consultative Conference's national committee, a top political advisory body of the government.

With more public figures chiming in on the reform issue, opinions have been fermenting in the run-up to the Communist Party's transition of power set for autumn next year, and the consensus is showing a rising dissatisfaction with the slow progress in recent years.

Even Premier Wen Jiabao , in his speech two weeks ago in Dalian at the annual World Economic Forum, called for a systematic political reform to put more restrictions on the Communist Party's use of power.

Wu noted that state-owned enterprises had been rapidly expanding their monopolistic power as a result of the administrative protection they received, as well as from the massive credit support from the state-owned banking system in recent years.

China has painted itself into a corner with its currency, credit and economic policies. The situation in Wenzhou is the tip of the iceberg. Private companies are taking massive risk because they have no access to capital. One part of the economy is coddled, riddled with bad debt and inefficient. The other is drawing blood from stone, overcoming crushing interest rates and managing to survive a difficult period in the global economy, only to finally succumb as Europe and the U.S. fall back into recession. There is a path forward, one of reform, and it is the only path that is littered with low-hanging fruit. Economic power must shift from the public to the private sector in the next great wave of reform. Chinese consumers and entrepreneurs receive the short-end of the stick in a system that favors state-owned companies and local governments, and this must change. I believe a major privatization wave is in front of us. It is something that I have been in favor of for a long-time because it is a great way to close the wealth gap and hand over more economic power to the people. If the Chinese government transfers its share of state-owned companies to the people, the poor will receive assets similar in value to their savings, while for the rich, it will be small change. If they do not transfer the assets directly, they may use them to fund a pension system for the country, among other possibilities. Either way, it can increase efficiency and send stocks rallying as former SOEs turn into privately run companies. The weak companies will die off and the private sector will see an explosion of profitability as credit flows to private business. All of this will put a strain on labor, which thanks to the one-child policy, is seeing the entry-level workforce population start to decline. In sum, a great combination to rapidly accelerate wage growth.

SCMP covers Wenzhou loan sharking

Here's an English article on the situation in Wenzhou. Wenzhou in bid to curb loan sharks

One of many company bosses who fled Wenzhou after finding himself unable to pay off maturing corporate loans is returning, mainland media reported, as the city government steps in to save businesses from ruin.

Hu Fulin , chairman of one of Wenzhou's biggest makers of spectacles, Zhejiang Centre Group, has decided to return to the mainland's entrepreneurial capital to deal with a 2 billion yuan (HK$2.4 billion) debt, The Beijing News said.

Hu admitted to colleagues via phone on September 21 that he had run away because he was not able to repay debts to banks and loan sharks.

He was among at least 26 bosses of small and medium-sized Wenzhou businesses to go into hiding due to their debt burdens, said the municipal financial office, China Business News reported. It said nine did so on September 22.

Zhou Dewen , chairman of the Wenzhou Medium and Small Enterprise Association, said the central government's tight monetary policies and high interest rates for private credit were the two main causes of the SMEs' financial woes.

Private lenders in Wenzhou charge interest rates of 25 per cent, up from 23 per cent since January.

Martin Armstrong Interview with Eric King

Martin Armstrong: Former Head of Princeton Economics Ltd.

More deflation mechanics

Mish Shedlock has a post about deficiency judgements. Go there to read it all, I just want to pick out a snip from an article on the post. House is Gone but Debt Lives On; Expect Huge Surge in Deficiency Lawsuits

Silverleaf says its collection efforts are limited. "We are waiting for the economy to somewhat heal so that it's a better time to go after people," says Douglas Hannah, managing director of Silverleaf.

Investors know that most states allow up to 20 years to try to collect the debts, ample time for the borrowers to get back on their feet. Meanwhile, the debts grow at about an 8% interest rate, depending on the state.

Debt haunts the economy. If people borrow money, it might be to pay off their debt...

Mechanics of deflation

In order to have deflation, there must be a contraction of credit. We have seen consumers use less debt, along with rising fees and interest rates. Now, the debit cards are getting in on the act. If nothing else, it is safe to assume that rising debit card fees will cause customers to use their cards less or cancel them completely, leading to reduced velocity of money. Citi Follows Bank Of America In Instituting Debit Card Fee, $1.9 Trillion In Deposits At Risk Citi and BofA will charge up to $5 a month for debit cards. ZeroHedge takes stretches this into potential bank runs and certainly some consumers may move to smaller banks. However, the definite effect will be reduced consumption as consumers see their ability to spend slowed.

Casino stocks tumble in HK

Macao casino operators hit by China fears

The sell-off appears to have been triggered by rumours that some junket operators were in trouble. These are companies responsible for drawing so-called VIP gamblers to Macao casinos by extending them generous credit and, sometimes, by being flexible about debt collection.

A junket operator in Macao who spoke on condition of anonymity said he was not aware of rivals experiencing a credit crunch. However, he had heard of mainland Chinese investors pulling capital from their investments because of monetary tightening at home.

“There are many wealthy factory owners from the east coast of China who have been making good returns from Macao simply by lending money to junket operators in return for 1-1.5 per cent in monthly interest. They have seen Macao as a profitable sideshow to their real business, which is experiencing a slowdown. However, some of them are in need of cash at home and have trouble borrowing from banks. So they are cashing out from Macao,” he said. So far, this only had a limited impact on the junket operators, he added, as they were still seeing strong growth in business.

Consider this story in light of my earlier post, Wenzhou factory owners run away from debt.

Liu Jun Luo on Operation Twist & U.S. strategy

I have translated this shorter post from Mr. Liu. Note that for number 5, he is referring to QE1. The Fed extended the program with QE2, but it concluded at the end of June.

America's Operation Twist and Happy National Day

On September 9, 2011, America's central banker Bernanke started replacing U.S. short-term Treasuries with long-term ones, the market nicknamed it "Operation Twist." Today, no matter which market, the U.S. has already completed a perfect opening. In June 2010, I published "China's Kidnapped Economy", in which I pointed out after America completed its macro-strategy layout, the start of the dollar rally offensive would be signaled by:

1. Strengthen financial oversight

2. Start large scale debt issuance procedures

3. America's central bank replaces short-term Treasuries with long-term Treasuries

4. America's central bank stops mutual action with other central banks

5. America's central bank ends it's 1.3 trillion in purchases

6. American hedge funds short Japanese long-term government debt

Today just as I said, the third offensive signal is "America's central bank replaces short-term Treasuries with long-term Treasuries." Indeed, America is already too powerful, and in the rear of this formidable America , merely China's central bank sparing no effort to strike at inflation and China's media doing it's utmost to brainwash the Chinese people into madly buying gold.

This has already developed into a national disaster, our national catastrophe comes from ignorance, arrogance and discrimination.

Wish you a happy National holiday

Liu Jun Luo

October 1, 2010

美国的“扭曲操作”和国庆快乐

2011年9月21日，美国央行伯南克开始了用美国短期国债置换美国长期国债，市场也称之“扭曲操作”。今天，不论从任何市场来说美国已经完成了完美的布局。2010年6月本人出版的《被绑架的中国经济》一书中，指出美国完成宏观战略布局后，发动美元上涨的总攻信号是：

1.加强金融监管；

2.开动大规模发债程序；

3.美国财政部用短期国债大规模置换长期国债；

4.美国央行停止与其他央行货币互换行动；

5.美国央行1.3万亿美元购买结束；

6.美国对冲基金做空日本的长期政府债券。

今天正如本人第三条的总攻信号是“美国财政部用短期国债大规模置换长期国债”。的确美国已经太强大了，而美国这个强大的背后，只是中国央行奋力地反击中国通货膨胀和中国媒体拼命地洗脑中国民众疯狂购买黄金。

这已经演变成了我们的一场民族灾难，我们的这场民族灾难是来自于愚昧、自大和歧视。

祝国庆长假快乐

刘军洛

2011年10月1日

Social mood and Europe in a nutshell

No, it isn't Ambrose Evans-Pritchard's latest piece. Although he's been accurate, I want to focus on the comments of a Nobel Prize winner towards the end of this article. NEIN, NEIN, NEIN, and the death of EU Fiscal Union

“All I heard was Germany, Germany, Germany. There was nothing about Europe. It was astonishing,” said Myron Scholes, the winner of the 1997 Nobel Prize. Indeed it was. Fellow laureate Joe Stiglitz said that if President Wulff’s views reflected the outlook of the German government, monetary union would have collapsed already.

The whole thing is worth reading, but this encapsulates the social mood. This is a political crisis! There are economic and sovereign debt problems, but at it's heart this crisis is driven by social mood and the desire to preserve the nation state. On to the euro. A number of people were looking for a bounce due to very negative sentiment. However, an even larger gap opened this week and despite a brief post EFSF-vote rally, the euro closed at a new low for the year. This is going to get resolved with a lot of shorts coming out of the market or a steep drop in the euro. If this wave down is larger than 2010, then we should expect the number of speculative shorts to exceed those in 2010, thus there's room for much more shorts to pile in here and open the trap door underneath the euro.