2018-12-11

SEC Puts Out Timely Reminder on Remedial Actions for U.S.-Listed Chinese Companies

SEC: Statement on the Vital Role of Audit Quality and Regulatory Access to Audit and Other Information Internationally—Discussion of Current Information Access Challenges with Respect to U.S.-listed Companies with Significant Operations in China
The inability to date to achieve this level of regulatory cooperation with Chinese authorities raises a number of investor protection and general oversight issues.

The U.S. stock markets have long been attractive to foreign companies because of their efficiency and liquidity as well as the potential benefits offered in the form of brand-name enhancement and increased visibility. Many China-based companies, and companies that have significant operations in China, have sought these benefits. The factors driving these benefits include the application of U.S. disclosure requirements as well as regulatory oversight and enforcement.[23]

However, the barriers to information access discussed above may adversely affect investors in the U.S. markets and the interests they own in companies that are China-based or have significant operations in China, including because they reduce the certainty provided by U.S. law and oversight. We note that this risk is present for a company and its investors even if the company’s financial statements are complete and accurate and the audit was appropriately conducted. For example, when faced with increased uncertainty about the reliability of financial reports, investors may “price protect” that risk by increasing the companies’ cost of capital.[24]

While a reduction in oversight, and a related increase in uncertainty, may have broad market confidence-related effects, constraints on oversight also raise company-specific risk. For example, information barriers that inhibit oversight may allow bad actors to more effectively hide fraud. In addition, as we know all too well from our experiences with Enron, WorldCom, Adelphia and others, fraud in one company, or just a few companies, can undermine confidence more broadly.[25]

We believe it also is important to recognize that PCAOB inspections and SEC regulatory activities not only help to improve audit quality for the inspected foreign auditors’ U.S. listed clients,[26] but also provide benefits that may spread to these auditors’ non-U.S.-listed foreign public clients.[27] Said another way, the PCAOB inspection process that focuses on audits of U.S.-listed companies may drive the subject audit firm to improve its work in respect of companies that are not U.S.-listed.

Finally, we note that, depending on various facts and circumstances, including company-specific considerations, if significant information barriers persist, remedial actions involving U.S.-listed companies may be necessary or appropriate. In the past, remedial measures have included, as examples, requiring affected companies to make additional disclosures and placing additional restrictions on new securities issuances.
And delisting...

The list of all companies, not only Chinese, is at PCAOB: Issuers that are Audit Clients of PCAOB-Registered Firms from Non-U.S. Jurisdictions where the PCAOB is Denied Access to Conduct Inspections

2018-12-03

France Gives Warning of Inflation Riots to Come

The French stock market peaked in 2000. The 19th year of a bear market has recently begun as the market likely achieved its second bear market rally peak. Mood is turning down again within this overall negative trend.

Evening Standard: Paris riots: 133 people injured in France and over 400 arrested as protesters rage at rising cost of living
In the United States, President Trump was elected to reverse falling living standards falling life expectancy, porous borders, and low employment. He is not succeeding on any of these issues. Most of his challengers (in both parties) want to make these problems worse by doubling-down on existing policies that created the mess. Even if the establishment unleashes a major reform effort to solve these issues, the situation hitting France is coming anyway because the U.S. dollar will eventually succumb to revaluation along with all the fiat before it.

Another lesson from France: even regime opponents are lumped in with the establishment. Le Pen is as likely to go the way of the dodo as the establishment of France because they go together like yin and yang. The collapse of the GOP establishment along with the Democrat establishment in 2016 was a small taste of what is brewing.

Macron was the poster boy for the globalist establishment. He was a sign in 2017 that populism could be stopped. Instead, he has ignited a more violent response to globalist, establishment thinking. It is better to have reform come early and be successful than to deny "populists" power. If Trump fails in the U.S., the result will not be pretty. Parties shut out of power in Europe are more likely to win total control over political power when the public finally revolts. Those in power, such as 5-star and the League, are as likely to be tossed as anyone unless they take bold steps to change course.

If the central bankers of the world hadn't convinced enough people that they'd solved the crisis, right now we'd all be calling this The Greater Depression. Social mood is very negative and the establishment is still pushing more extreme versions of the very policies that ignite public rage. Immigration should have been restricted after the year 2000, but politicians are calling for open borders and mass migration. Banking should have been reformed after 2008, not rebooted. In the U.S., healthcare should have been reformed, instead Obamacare was a giveaway to insurance companies and made the IRS their enforcers.

Finally, a key to the French riots is they are leaderless. It's a genuine mass movement. There's no one to negotiate with. When this comes to the U.S., there will be completely different groups and ideologies rioting in the cities and rural areas. These groups will have 180 degree opposite demands. The center is already collapsing, but when the riots hit, it will be gone. If establishment centrists hold power at that time with a puppet like Macron, they will be powerless.

2018-11-30

President Trump Impeachment Odds in One Chart

2013: Will Obama Be Impeached? Watch The Stock Market
2017: Will President Trump Be Impeached? America Edges Towards Social Unrest
2018: Will President Trump Be Impeached?

If Trump were to be impeached and removed, a likely minimum target for the S&P 500 is 2400 if its serious enough a charge that GOP Senators would vote to convict. Then the next target would be the resistance line from 2000 to 2008, around 1500, now long-term support if he is removed or resigns. The market will have to tank relatively hard in 2019 to crush Trump's approval because there won't be impeachment in an election year.

PBoC No Reverse Repos For One Month, Waiting for G20

Reuters: China c.bank may have revived repos to drain liquidity in Oct - CSJ
China’s central bank may have drained short-term funds from the banking system in late October by quietly reviving a tool to mop up excess liquidity, a state-run newspaper reported on Monday, citing analysts.

But the China Securities Journal said the possible re-launching of repo operations for the first time in years did not signal a shift in the central bank’s monetary policy stance.

Beijing has loosened monetary and fiscal policy conditions this year as it seeks to cushion the cooling economy and encourage more lending to private enterprises, with further growth boosting measures expected in coming months.

The People’s Bank of China has almost exclusively relied on reverse repurchase agreements, or reverse repos, to pump liquidity into the banking system in recent years.
Chinanews: 央行逆回购连停创纪录 市场猜测货币政策是否转向
Whether monetary policy turns

  What is the central bank's reverse repurchase? The People's Bank of China purchases securities from primary dealers and stipulates that the sale of securities to primary dealers on a specific date in the future will be aimed at releasing liquidity to the market.

  Ping An Securities believes that the suspension of the reverse repurchase by the central bank does not mean that monetary policy is tightening. The central bank's move may be based on the following considerations: First, the current liquidity of the banking system is still at a reasonable level. Second, market interest rates remain low and run smoothly. Third, marginal mitigation of the pressure of RMB depreciation brought about by the US-China spread.

  In this regard, Hongye Futures also said that regardless of whether the central bank has conducted a repurchase operation and the current suspension of reverse repurchase operations, it cannot mean that monetary policy will be tightened. Although the liquidity will converge under the pressure of the tax period or the impact of the end of the month, the overall situation remains reasonable. Usually, at the end of the year, there will be a large-scale fiscal deposit, and with the fiscal expenditure in place, the liquidity problem will be alleviated.

  Looking forward to the future, Ping An Securities said that the tone of China's monetary policy is still neutral and loose, and it will neither turn to tightening nor be fully lenient. First, the current downward trend in economic growth is obvious, and steady growth has become the primary task of monetary policy, which determines that monetary policy will not turn to tighten in the future. The third quarter monetary policy implementation report also proposed to maintain a reasonable and sufficient liquidity, and help stabilize growth through the formation of a “triangular support framework”. Second, the future liquidity is still reasonably abundant, and the liquidity operation continues the management idea of ​​“locking short and prolonging”. The RRR reduction and 1-year MLF operation are more worthy of expectation.
After the Shanghai G20 meeting in 2016, China cut the RRR.

2018-11-26

Fed Slashed $39.7 B Last Week

The Fed rolled $17.3 billion in treasuries and $39.7 billion total off its balance sheet for the week ending November 21. If the Fed sticks to the monthly $50 billion target for November, it has to reduce about $16 billion this week. Most of that will come on Friday when treasuries mature, the Fed needs another $13 billion in treasuries to hit its November target. If the Fed plays catch-up for October (and prior months) it could reduce as much as $32 billion.

The S&P 500 Index fell 52 points last week.

2018-11-25

Real Estate Investment Share of GDP by Province

Hainan was tops in Q3 at 34 percent according to NBS data. Anhui, Chongqing, Yunnan and Zhejiang round out the top 5.

2018-11-21

China Housing Squeeze: Mortgage Rates Rise as Govt Bond Yields Fall

iFeng: 首套房贷利率创年内新高 房贷政策松绑短期无望
Rong 360 data shows that in October 2018, the national first-home loan average interest rate was 5.71%, equivalent to the benchmark interest rate of 1.165 times, refreshing the year high, which is the first-home loan interest rate for 22 consecutive months. The average interest rate of the second home loan in the country rose slightly by 1 BP from the previous month, reaching 6.07%, and also hit a new high in the year. At present, over 90% of the banks have raised the interest rate of the second suite by more than 10%.

The data shows that the top ten cities with the lowest average interest rate in the country's first suite are: Shanghai 5.19%, Xiamen 5.39%, Kunming 5.39%, Urumqi 5.39%, Dalian 5.44%, Fuzhou 5.49%, Beijing 5.49%, Taiyuan 5.49%, Haikou 5.58 %, Chongqing 5.62%.

Banking industry insiders said that if it is purely from the perspective of doing business, banks are still willing to do mortgage business. First of all, the current probability of bad mortgage assets is very low. Second, the loan loan amount is large, long-term, and profitable. A set of mortgages in the north, Guangzhou and Shenzhen are generally above one million. The loan time limit is generally more than 20 years, which can form a very stable asset of the bank.
Chinese government 10-year bonds yield 3.40 percent. The U.S. 10-year yields 3.07 percent. The average 30-year fixed rate mortgage in the U.S. yields 4.94 percent.

2018-11-20

Coinpocalypse Begins, Bear Market for Stocks

In September: Crypto Selling Resumes, Monster Topping Pattern on Ethereum, Watch Out FANGs
Finally, cryptocurrencies were the bleeding edge of speculative activity. The breaking of topping patterns in majors such as Bitcion and Ethereum will be a signal that stocks, particularly the FANGs, are on thin ice. Here's Alibaba (BABA), for example, sporting a topping pattern similar to Ethereum. Not as massive a topping pattern or with as low a target, but it will cause far more losses. Ethereum has a $20 billion market cap that could go back to $1 or $2 billion, an $18 or $19 billion loss. Alibaba's market cap is $417 billion. A measured move off its topping pattern would cause $117 billion in losses.

In August: The Coinpocalypse
Finally, this is a classic collapse of a speculative bubble. It might benefit stocks in the near-term, but it strikes me as bearish, and not only because the stock market was tracking with cryptocurrencies earlier this year. Consider a stock such as Nvidia (NVDA) that sold the GPUs used by cryptocurrency miners...
NVDA lost 20 percent on Thursday last week and 12 percent on Monday, and down another 6 percent this morning in pre-market trading. It is down 53 percent off its high in about 6 weeks.

There is very little support for alt-coins and even some that appear to have support levels, such as Monero (XMR) will probably be pulled lower by the undertow. The targets for Ethereum (ETH) and Litecoin (LTC) are in the single digits, if not below $1.

As for stocks such as NVDA, well the pain may have only begun. Support for NVDA is below $50. Initial support is 77 percent below the current price. If this is a bear market and not a deep correction, there is a lot of selling to come.