2018-08-17

Trump Looking for Pre-Election Deal or Knockout Punch

Given how events have played out to this point, I'm starting to lean away from expecting a pre-election deal and towards escalation with China. Putting odds on that is difficult because negotiating before the election makes sense either way. If Trump wants some type of pre-election deal to boost his poll numbers and stock prices, he has to do it soon. He doesn't have to give up everything on trade, maybe it's only a small deal, a "first step," but it has to happen soon because voters start early voting by late September and early October. It's also the best time to hit China hard because they likely believe he wants a pre-election deal. They might think they can take advantage of the U.S. election cycle. It is the perfect time to show how much cost he's willing to bear for the deal he wants.

The Guardian: China to send delegation for US talks to avert trade war
A Chinese trade delegation will visit the US this month to kick off a new round of talks, the first since negotiations broke down two months ago.

China’s ministry of commerce said the US had invited a delegation, led by vice-commerce minister Wang Shouwen, to meet a group led by US Treasury undersecretary, David Malpass.

Updated: Chinese Scholar Lights Up Social Media With Maternity Fund Idea

Update: An article with more detail on the policy proposal is posted at the bottom.

A Chinese scholar has come up with a fertility enhancing policy. Force everyone to have a savings account for children, but it can only be unlocked if you have a second child.

iFeng: 央视严批倡设生育基金“砖家”:少打群众的歪主意!
Original title: "Establishing a maternity fund system" is a ridiculous suggestion
What is ridiculous is family leave. Who pays for it? The company pays for it because the government simply mandates time off for workers. Do companies pay the full cost? No. They adjust their hiring practices to reduce the risk of paying family leave: hire fewer women of child bearing age. Family leave policies penalize the people they're trying to help.

Family leave is a perfect example of voters (in democratic countries) wanting something for free. Neo-Socialism is built around the idea of mandating actions, but not paying for it. Obamacare is an example of Neo-Socialism, albeit an extremely ineffective one that was instead designed to loot middle class Americans. Force everyone to buy insurance. The cost falls on the individual, not government. Family leave is another one. Force companies to bear the cost of the policy. Forcing everyone to have a savings account to finance family leave puts skin in the game.
Recently, some media published a signed article on "Improving Fertility: A New Task for China's Population Development in the New Era." Among them, the "establishment of a maternity fund system" triggered a strong rebound in public opinion, and social media was slamming.

First look at the expert's specific recommendations: the establishment of a maternity fund system, try to achieve the self-operation of the two-child birth subsidy. It is stipulated that citizens under the age of 40, regardless of gender, must pay a maternity fund at a certain percentage of their salary each year and enter their personal accounts.

The expert further pointed out that when a child has a second child or more, he or she can apply for a maternity fund and receive a maternity allowance to compensate women and their families for short-term income losses caused by the interruption of labor during the reproductive period. If the citizen has not given birth to two children, the account funds will be taken out when they are retired. The maternity fund adopts the pay-as-you-go system, that is, the maternity fund that has been paid by the individual but has not been taken out, and can be used for the government to pay the maternity subsidy to other families, and the insufficient part is subsidized by the state.
It would be more effective to confiscate the accounts after age 40 and use the funds to pay for the maternity leave. [Update: see below, this is in the proposal.] The state could see how behavior changes and could set the tax much lower assuming most people still only have one child. That's how China should carry it if it wants to maximize fertility because nudging works. Neo-socialism is often effective at changing behavior (even if it creates more problems down the road). Leaving the money in the account makes sense because people with fewer or no children need it for retirement, but as long as the state is providing pensions, confiscating it and making it a pure tax will lead to higher fertility.
These so-called suggestions give people a feeling of "suddenly separated from the world". If it is not in black and white, it can't be believed, even though we have seen many experts in these years.

First of all, fertility is the basic right of human beings. It is the freedom of individuals and families to live or not. We can encourage fertility through propaganda, or we can formulate incentives to guide fertility, but we cannot punish those who are not born or have fewer families in the name of “establishing a maternity fund”. This kind of suggestion is unfounded, unreasonable, and inconsistent. It is contrary to common sense and exposes the lack of professionalism of researchers.
Anyone who uses a system such as Social Security and doesn't have children is effectively taxing families. A person with children must pay for their own children, plus retired people. Social Security is a ponzi scheme based on rising population. If you do not have children, you are "stealing" from the fund. That's not hyperbole. There's no savings in the fund. Your retirement is paid by younger workers. If you don't add new workers to the pool, you're "stealing" from the fund.

This is how things work in socialist systems. Personal responsibility and incentives get lost in the complexity and the rearranging of social relationship. If there's no social security, then people understand the incentive to have children for old age. If they don't want or can't have children, they know to save all that money they would have spent on children for retirement, to pay someone else's children to take care of them. Social security creates free riders who do not have children and do not pay into the system.
Secondly, if you don’t want to beat the masses, don’t move. In recent years, with the rapid economic growth, the people's living standards have improved significantly, but at the same time we have to see that the burden on housing, education, medical care, etc. is still very heavy, and the level of Chinese household debt has remained high for a long time. According to a report just released by the Institute, as of 2017, the ratio of household debt to disposable income in China is as high as 107.2%, which has exceeded the current level of the United States.

The reason why China's current fertility rate is not high, in addition to economic and social development, women's labor participation and other objective reasons, the sharp rise in the cost of raising children is an important reason, this is the consensus of the community. Some young people want to have children, but they are really under pressure. The cure for the right medicine is to solve the reality and worries of people's births through a series of effective preferential fertility policies and public investment in real money, rather than the opposite. In fact, the wool from the people, it seems to be a national worry, but it is a high-level black. This is also the key to why such a proposal will be unanimously criticized by public opinion.
People always want free stuff.
Moreover, China's economy is in a critical period of transformation. Faced with the uncertainty of foreign trade and the diminishing marginal effect of investment, the role of domestic demand in economic development has become more apparent. We must do everything possible to reduce the taxation, reduce fees, improve social security and other policy measures, enhance the momentum of domestic demand, and promote the transformation and upgrading of consumption, rather than the so-called "fertility fund" to increase the burden on the masses. Therefore, whether it is from the improvement of people's lives or from the long-term consideration of healthy economic development, we should try our best to let the masses' wallets bulge, instead of squatting.
The critics are right about the tight finances of Chinese consumers. People don't have spare capacity to be paying into a maternity fund. It's also true that lowering home prices would be a more effective policy. Where family formation is affordable, people have more children. (A big reason why mass migration costs are under estimated is the pressure it puts on real estate prices. Migration policies are annihilating living standards in many Western countries. China's urbanization policy is driving its GDP and also crushing its fertility.) However, China struggles with lowering real estate prices and instead comes up with policies to correct the problems caused by planning, or more fundamentally from having an atheist-materialist value system at the core of the CCP.

The best policy is do nothing. Don't create socialist systems that destroy civilization from the ground up and people will deal with the problems in organic, sustainable ways. A maternity fund only looks like a bad idea because the family leave and social security are very stupid ideas that create massive unintended/unseen costs. Institutionalized stupidity is expensive and socialism is a low intelligence system down to its dysgenic effect on fertility. Stupid people also don't understand how socialism inevitably leads to totalitarian systems or collapse because they don't work. Government increasingly becomes involved with healthcare, education, even fertility, because its own policies creating massive contradictions in the society.

When it comes to fertility, it's not only socialism destroying the society. It's also capitalism. As some have put it, the cities are "IQ shredders" that maximize current GDP, but will eventually collapse future GDP because the people producing high levels of GDP leave few to no heirs. An extreme example of eating your seed corn. Until policymakers understand the fundamental flaws of their systems, unlikely because they are ideologically and even morally opposed, the countries they "manage" are headed for extreme downward adjustments. They have a massive turkey problem that is playing out on multi-generational time scales. The benefits are collected by those living today and the costs will be borne by future generations.

Update: In the post, I said the proposed fertility-boosting policy would work better as a tax. The article I read didn't fully explain how it would work. It turns out, the scholar did propose it as a pay-as-you-go system where the money would be taxed from people with one or fewer children, to pay for maternal leave of people with two (or more?) children. The money would be replaced when they are in retirement, in a roundabout way by the children the policy is designed to help.

提高生育率: 新时代中国人口发展的新任务
Establish a maternity fund system and try to achieve the self-operation of the two-child birth subsidy. It is stipulated that citizens under the age of 40, regardless of gender, must pay a maternity fund at a certain percentage of their salary each year and enter their personal accounts. When the family has a second child or above, they can apply for the withdrawal of the maternity fund and receive a maternity allowance to compensate the short-term income loss caused by the interruption of labor during the growing period of women and their families. If the citizen has not given birth to two children, the account funds will be taken out when they are retired. The maternity fund adopts the pay-as-you-go system, that is, the maternity fund that has been paid by the individual but has not been taken out, and can be used for the government to pay the maternity subsidy to other families, and the insufficient part is subsidized by the state.

2018-08-16

Biggest QT Week Yet, $29.1 B Reduction, Only $12.5 B in Treasuries

The Fed reduced its balance sheet by $29.1 billion this past week. It was the biggest $QT week thus far, but only $12.5 B in Treasuries, less than I anticipated. The S&P 500 lost 39 points.

While the S&P 500 is relatively correlated on a weekly basis, it hasn't tracked the Fed balance sheet over the longer-term, though it looks like a headwind. The Chinese yuan has tracked more closely.

Central Planning Goes Haywire: Beijing Rents Soaring

Cities leading the way in cracking down on home price increases, such as Shenzhen and Beijing, are now experiencing soaring rents. Speculators are blamed for moving into rentals and buying up properties to control the market. Intermediaries are also blamed for helping. The work of the central planner never ends because the harder they work, the worse things get.

The headline of the second article highlights the potential PR disaster if prices aren't stabilized: Rising home prices are an economic problem, rising rents are a societal problem.

iFeng: 上涨15.5%!停不下来的北京房租
Zhongxin Jingwei client August 15 (Luo Huanlin) Before entering the Beijing Film Academy officially, the graduate student Qi Ming needs to find the house first.

In mid-August 2017, at this time last year, he and his friends shared a 60-square-meter two-bedroom house in Jiandemen. The house is the landlord who is contacted by the intermediary, and the monthly rent is 6,500 yuan.

In mid-August of 2018, You Qiming finally succeeded in finding a new residence, which is also a 60-square-meter two-bedroom, this time also 6500 yuan per month. But the difference is that he originally went to Beijing Film Academy and only needed to ride 3 kilometers, which took less than 15 minutes. Now it takes at least 1 hour to get to the school by subway. The small two houses around BFA have generally risen to 7500 per month. Above that, he can't afford it.
Beijing rents top in the country

The excuse of You Qiming is not an example. According to a report compiled by the Shell Research Institute from the Real Data database, Beijing has taken the lead in a number of housing rental data. In the first half of 2018, the absolute value of rent in Beijing reached 76.1 yuan per square meter per month, while the second place in Shenzhen was only 68.8 yuan per square meter per month.

Beijing's rental income ratio reached 29.81%, and the total rent was as high as 137.63 billion yuan. Compared with this, although Hangzhou surpasses Beijing in the per capita annual rent to reach 16,375 yuan, the total rent is only 38.67 billion yuan. The Beijing housing leasing market is huge and the price is high, basically forming other cities in the country. "The situation."
Similarly, Yu Qiming issued a sigh of "prices all the way" and there is data to support it. According to a report compiled by the Shell Research Institute from the Real Data database, the average rent for rents from August 6 to 12, 2018 was sampled, and the average rent for rent in Beijing increased by 15.5% year-on-year. In the rental market Beijing and Shenzhen are leading the way.

And specific to individual communities, there is a greater increase. For example, Tiantongyuan [In Changping, North Beijing], which was dubbed by the netizens as “the largest community in Asia”, rented two houses in the East 2nd district for 4,300 yuan per month in the same period of last year. It has been rising since the end of last year and has risen to 6,000 yuan per month as of July 30. The increase is nearly 40%.
The first table below shows rising rents in Tiantongyuan. The second shows Beijing and Shenzhen leading the country with average rent increases of 15.5 and 16.1 percent.

Zhaopin: China White-collar Average Salary Dips in the First Quarter of 2018
First-quarter of 2018 China white-collar labor market highlights:

The average monthly salary for white-collar workers fell to RMB7,629 in the first quarter of 2018, down 2.1% over the fourth quarter of 2017.

Beijing continued to be the city with the highest pay in the first quarter of 2018, with an average monthly salary of RMB10,197, slightly below RMB10,310 in the fourth quarter 2017.
Back to the iFeng article:
Qian Gang is a “free housekeeper” who rents a room freely. He told the Zhongxin Jingwei client (WeChat public number: jwview): “The media reported that the Beijing rent increase of 10% in July is not new, in fact, Beijing. The rent has already risen for half a year.” He said that since Beijing’s efforts to regulate the housing rental market at the end of 2017, “Beijing’s rent from south to north has suddenly risen.”

Qian Gang observed the housing data of the area he was responsible for. He believed that the rent increase from last year to this year was “very fierce. Many houses were originally priced at 5,000 yuan. It is difficult to find a house below 5,500 yuan.
A couple of white collar workers would have a household income of about 15,500. If they keep housing costs to one-third of salary, they could only afford a 58 to 68 sqm apartment based on Beijing's average rental (going by the two different numbers above). Fertility crushed.

A crackdown, justified or not, may be coming as some blame the rental agencies for driving up rent:
According to industry analysts, the current free-to-market, eggshell and other rental mediation platforms have begun to form a monopoly. Zhang Dawei also analyzed that more than half of the current rental market has been monopolized by various leasing agencies, and the largest leasing institution has controlled hundreds of thousands of suites. It is true that the fundamental contradiction is the tight supply and demand structure in the leasing market. In particular, some suburban housing units have been strictly regulated in the past year and cannot be rented out. In addition, the rental-to-sale ratio is too low, and there is a general expectation of rising rents. Fundamentally, there is nothing wrong with the intermediary.

"Intermediaries can't create panic, but they can amplify panic and use panic to make more money." Zhang Dawei said that from the perspective of capital, intermediaries are now generally engaged in investment business, generally locking in the 3-5 year lease period and earning the difference. In this case, the rising space for future rents is the intermediary's profit. From the perspective of the listing itself, the low-end and mid-range listings were packaged into medium-to-high-end rental listings, which also significantly increased the rent.
iFeng: 北京房租上涨背后的资本逻辑:房价是经济问题 房租是社会问题
Each group has different needs for leasing. High-income groups, although they have the ability to buy a house, need to rent a house nearby because of changing jobs or going to school. The middle-income group is mainly composed of new graduates such as fresh graduates, freelancers, and migrant workers. It is the main demand group in the leasing market, with the largest base and increment. Low-income groups with housing difficulties are in desperate need of the most basic housing security.

These three groups have a common appeal, that is, the lease period is stable and the rent is reasonable.

House prices are an economic issue and rent is a social issue. The rise in housing prices affects economic stability, and the rise in rents is quietly damaging, damaging people's quality of life and willingness to consume, and laying a hidden danger to the competitiveness of a city. Rents are more scary than house prices.

Why is Beijing rent rising? On the surface, the supply is reduced, the simple houses with safety hazards are removed, and the group rent is forbidden; the demand has increased. Every year, new employment groups in Beijing want to rent houses, and a large number of young people with “Beijing Dream” come to the city. . The gap between supply and demand leads to rising rents, which is a concise economic logic.

But this time the rent has risen, there are still differences.

Driven by the policy enthusiasm, the participants of long-term rental apartments have a strong impulse to seize the track and market share. At present, many long-term rental apartments operate as “two-host mode”. Under the pressure of huge housing competition, aggressively expand housing and seize the market. The founder of an apartment once said that the company is about to complete a new round of financing, and that the money will be used for the company's nationwide expansion, even at no cost. Such radical listings will inevitably push up the market rent. The various parties in order to compete brand market share, high probability will select "financing - Get project - refinancing - and then get the project," added leverage development model to scale-oriented. Large-scale financing, aggressively grab the housing, seize market share at all costs, and strive for the pricing power of rent. Capital is eager to move from a money-burning model to a money-making model, and rising rents are an inevitable result.

And this is the capital-driven logic of this Beijing rent increase.

"Once the capital is selected, it will only continue to raise on it in the future. If the latecomer does not have a way to live, he will not be able to get the money." One founder once felt so. “burning money” burned out industry barriers and burned out the pricing power of the industry. Companies with insufficient capital strength could not enter the market or they could only stand by.

Along with the competition for housing and the rise in rents, it is the operational risk of the operating agencies. In the case of hoarding during the aggressive expansion period, the base rent may be too high, and the price of flour and bread may be upside down. Under the pressure of huge housing competition, there may even be some operating agencies, which are not perfect in preparation in the early stage. Long-term leases have houses with property rights. After entering the operation, they will face the change of property rights and the change of leases, and benefit the tenants. Caused great losses. From the perspective of externalities, the operational risks of an organization are also transmitted to competitors, and their operational risks are transmitted to the same institutions. Leasing institutions with poor management and high financing costs are likely to have insufficient cash flow to cover costs and constitute a substantial default. Eventually leave a local feather in the rental market.

Under the guidance of "the house is used for living, not for speculation," it is necessary not only to prevent speculation in the house, but also to avoid speculation in rentals. The regulation of the leasing market requires legal and institutional norms, and it requires more strong supervision. It must be bound by capital, and the policy orientation is people's livelihood. Rather than being in the jungle of capital, capital is king, and markets are sometimes out of order in the field of public goods supply.

Cities Ramp Up Real Estate Regulations Following July Price Rise

Althoguh they weren't at the heart of the problem last month, Shenzhen and Suzhou announced a renewed attack on speculators and vowed to clean up the housing market. Ten and nine government departments, respectively, issued a joint statement in those cities. Last week, the central government said it will hold cities accountable if they fail to control real estate prices.

Caijing: 深圳十部门联合出击整顿楼市 严禁投机炒房等行为
On the afternoon of August 14, Leju got a joint report issued by the Shenzhen Ministry of Land and Resources, the Municipal Supervisory Committee, the Housing Bureau, the Public Security Bureau, and the Taxation Bureau, jointly launched the fight against the violation of the interests of the masses and the violation of laws and regulations to control the real estate market chaos. The Special Action Work Plan has severely cracked down on the chaos in the property market.
Suzhou issued a similar statement and outlined all the illegal activity it will target.

Caijing: 苏州九部门联合发文:开展规范房地产市场秩序专项行动
In addition, according to the summary of Suzhou Housing Construction, there are 31 illegal activities in this special action focused on rectification.

Among them, there are 8 speculative real estate speculations, including bundled sales in the form of marketing channels, starting prices, monopolizing housing, and manipulating housing prices; after entering the sales chain, reluctant to sell or disguised hoarding housing; through newspapers, radio, television, websites, New media and other means to fabricate and disseminate real estate virtual information.

There are 10 illegal and illegal acts of brokerage institutions, including “Yin and Yang Contracts”, and the provision of false materials to defraud the purchase of housing.

There are 7 violations of laws and regulations of real estate development enterprises, including the purchase, approval, reservation, numbering, sale of cards, bank deposit funds, etc., before the acquisition of the pre-sale permit for commercial housing, or the deposit of the deposit, disbursement, In good faith and other acts.

There are 6 advertisements for publishing false real estate advertisements, including the publication of false and homophonic advertising terms, such as: × city pursuit, "up" sound, confusion, consumption and other behaviors.

Sweden Democrats Should Surprise in September Election

Sweden Democrats have been polling between 17 and 25 percent, but this story below makes it sounds like there could be shy SD supporters who will show up at the ballot box.

ZH: "I'm Not A Racist, But I'm A Nationalist": Why Sweden Faces A Historic Election Upset
“Trains and hospitals don’t work, but immigration continues,” Roger Mathson, a retired vegetable oil factory worker in Sweden, told Bloomberg on the same day as the violent, coordinated rampage by masked gangs of youths across five Swedish cities.

...“I’m not a racist, but I’m a nationalist,” Mathson said. “I don’t like seeing the town square full of Niqab-clad ladies and people fighting with each other.”
Trump voters didn't want to tell pollsters they supported Trump because they thought it was socially unacceptable to some degree. It is far worse in Sweden for SD supporters. I suspect the polling underestimates their support, but we'll see.

Additionally, voters who want to send a signal to the establishment have one option: Sweden Democrats. It's the only opposition party because it's the only party that has been rejected as a coalition partner by every other party. Mainly on migration, but if a voter considers migration important enough to vote on, then they are also more likely to vote SD. The only vote that will "make them listen" is one for SD.

Look for SD to surprise on the upside.

Spray and Pray Faster: 1 Trillion Yuan Infrastructure Bonds in August

SCMP: China’s finance ministry goes back to old playbook with move to spur bond sales
The move also indicates a return to Beijing’s old playbook of relying on debt-fuelled state investment to keep economic growth on track at a time when the leadership is worried about dangers beyond its control, though it has refrained from an all-out stimulus strategy, analysts said.

The Ministry of Finance issued the order on Tuesday, after Beijing decided to prioritise maintaining growth over cutting debt due to headwinds from a trade war with Washington and decelerating investment at home.

The cabinet had already said it would allow local governments to issue 1.35 trillion yuan (US$195.12 billion) of “special purpose” bonds for infrastructure investments. But the finance ministry took it a step further, telling local governments to sell at least 80 per cent of those newly approved special purpose bonds before the end of September. Most local government bonds are sold to the country’s financial institutions and a surge in their supply will in turn put pressure on the People’s Bank of China to loosen its monetary policy.

...Local governments have been quick to take advantage of the new opportunity to raise funds.

In Guangdong, the provincial authorities released three bond sale prospectuses on Tuesday, aiming to raise a total of 44 billion yuan for urban development, affordable housing and water treatment projects in the Pearl River Delta region. The bond issues were described as “extremely urgent” by the Guangdong government in the official documents.

Local government bond sales could raise more than 1 trillion yuan this month, official newspaper the China Securities Journal reported.
A couple of days ago it was supposed to take 4 months. Spray and Pray: Work Round the Clock to Issue Local Govt Debt, 1 Trillion in 4 Months

2018-08-15

Rush to Buy New Homes Pushes Prices Up 1.2pc Nationally in July

It looks like Chinese homebuyers rushed to buy in July with new home prices rising 1.2 percent. Larger gains were seen mainly in lower-tier cities.

Reuters: China's new home price growth hits two-year high as small cities boom
Outside the recent boom periods of 2016 and early 2013, monthly price gains of more than 1 percent have been rare in China's official home price data.