How About Those Outflows? Still Going...

Bloomberg: Chinese Capital Outflows May Still Be Happening — But In Disguise
But a report from a Nomura Holdings Inc. team led by Chief China Economist Yang Zhao says these capital outflows have merely taken another form: the over-invoicing of imports from select locales. And this time, it's not just a Hong Kong story.

"A detailed breakdown by region shows imports from some tax haven islands or offshore financial centres surged" in the first half of the year, he writes, "against the backdrop of a large decline in overall imports."

ChiNext Uptrend Threatened

The uptrend in place since May is under threat in Monday trading. If it breaks, a test of the post-peak lows could be in play.

Banks Cut Funding to Land Kings

Land kings are now considered high risks for banks as they cut funding to these developers.

iFeng: 部分银行停止对地王放贷 开发商:这不怕 最怕监管层
Documents obtained by reporters, the bank called for strengthening the front-end financing management towards the national top 20 developers, financing ratio can not exceed 60% of the cost of land and other industries will not exceed 50%, in principle, to intervene in 2015 three after the quarter to take the land and the high cost of the project. At the same time, the document requires strict control of credit issued commercial office projects.
It's not only land financing that is being cut, but also any follow on financing:
Analysts said the bank does not intervene king, mean that these high-priced land developers want to get follow-up loans from banks, through mergers and acquisitions or equity financing partners, thus the possibility to participate in the development of the king is reduced. Currently, bank regulators did not see the introduction of relevant policies, it should be for individual banks or real estate project risk control policy adjustments.
The developers are not worried because banks are acting independently. They don't fear it, rather they fear regulators will step in:
In this regard, a developer on condition of anonymity admitted that the change in policy of individual banks is not terrible, terrible is regulators change their attitude towards the ever emerging land king situation.
This follows restrictions on listed companies ability to raise cash as well.

Reuters: China to tighten fundraising rules for listed property firms
China's stock regulator is preparing to tighten regulation of listed real estate companies using refinancing tools to supplement cash flows and pay off debt, according to comments by an unnamed official quoted in the official People's Daily.

The paper quoted an unnamed official from China's Securities Regulatory Commission (CSRC) saying during an internal conference on Monday that real estate companies should only raise capital for construction, instead of buying land and paying back bank loans.

Bearish Signal for Oil: Saudis Slashing Asia Price Again

The National: Saudi Aramco cuts price of oil as it enagages in ‘market battle’ for Asia
Saudi Aramco has lowered the pricing terms for Arab Light sold to Asia by the most in 10 months as refineries grapple with falling margins and oversupply.

The state-owned company said on Sunday it will sell cargoes of Arab Light in September at US$1.10 a barrel below Asia’s regional benchmark. That is a pricing cut of $1.30 from August, the biggest drop since November, according to data compiled by Bloomberg. The company was expected to lower the pricing by $1 a barrel, according to the median estimate in a Bloomberg survey of eight refiners and traders.

...All other official selling prices for Asian clients were reduced. The biggest cut was by $1.60 for Extra Light crude. Pricing for Light and Extra Light grades for US clients was cut, by 20 cents and 40 cents, respectively, while the Medium and Heavy grades were unchanged.

Loser Cities of the New 8x8 High Speed Rail Network

The old "iron age" rail network is on top, followed by the new high-speed rail system. The cities said to be losers, which figured into the old network but not the new, include:
High-speed rail era, why these cities become "losers"?

We are above "eight vertical and eight horizontal" make an overall inventory, respectively, to identify the Chinese city "high iron hegemony", "iron hot", "high-speed rail Rookie" and "high-speed rail losers." After the article was sent out, it caused great social repercussions, but always felt something more to say, because the article only sums up the phenomenon, there is no analysis of the reasons.

So, what is the reason decide who is the winner and who is the loser? We briefly review these "losers" of the rise and fall of history.

The first number of a lost belongings Zhuzhou . And Zhengzhou, Shijiazhuang, like Zhuzhou is a typical "train pull up the city." Poor iron age, Zhuzhou Beijing-Guangzhou line and the Shanghai-Kunming line of intersection, Zhengzhou is the Beijing-Guangzhou line and the Longhai line of intersection between the two famous, known as "the north of Zhengzhou, Zhuzhou south" of the story. Because the hub of the railway, Zhuzhou has also become a very important train and subway train production base, once fame.

After entering the era of high-speed rail, Zhengzhou Zhuzhou apparently not so good treatment. Zhengzhou Longhai line continues the glorious, is still an important node in road and bridge passages, but the Shanghai-Kunming high-speed channel change has not gone away and the provincial capital of Changsha, Zhuzhou, which makes the hub Zhuzhou plummeted.

Xiangtang (affiliated with Nanchang County) Zhuzhou somewhat similar situation, it was the Beijing-Kowloon Railway and Shanghai-Kunming Railway intersection, but after entering the era of high-speed rail, high-speed Shanghai-Kunming channel does not change to go to the pond provincial capital Nanchang, the xiangtang hub also plummeted.

Liuzhou is often a very agitated and "losers." In the history of a very long period of time, Liuzhou is a veteran railway hub in Southwest China, Guizhou-Guangxi Railway, Xiang-Gui railway, Jiaozuo-Liuzhou railway intersection here three trunk. Prominent hub, not only to Liuzhou become a well-known industrial city, but also to get a Liuzhou Railway Bureau organ, which is the only one not located in the capital city of the Railway Bureau. We are familiar with today Vanke head Pharaoh, his father had a job in Railways.

However, after the reform and opening up, Jiaozuo-Liuzhou Railway general decline in industrial city, Liuzhou hub is no longer so bright, Liuzhou Railway Bureau also relocated in 2007 to the provincial capital Nanning, renamed Nanning Railway Bureau, the only one not located in railway Bureau, the provincial capital of the past.

After entering the era of high-speed rail, Liuzhou hub is plummeting, Guiguang high-speed rail from the north of Liuzhou , Guilin roaring, South Takatetsu then straight south of Liuzhou, Nanning, Liuzhou sandwiched between two lines, described as "vain before village, after vain shop ", and called South Corridor north-south direction, did not choose to enter the Guangxi Liuzhou railway tradition portal. In contrast, general iron age very marginalized Guilin, become the intersection of channel and call the South Portland wide channel, Nanning is to become the call south, Guangxi wide, including three sea Route intersection.

Another frequently mentioned by people "losers" is Luoyang . Poor iron age, it is Longhai line with Jiaoliu line of intersection, Zhengzhou. But after entering the era of high-speed railway, the east-west Longhai railway line was promoted to the high bridge channel, but Jiaoliu line north-south were abandoned in favor of the call in the South Passage Way Zhengzhou, Luoyang lose a trunk north-south direction, the provincial capital of Zhengzhou Jingguang is obtained with two north-south trunk call south.

Our readers also highlighted Baoji . Poor iron age, the Longhai Railway and Baoji Baocheng - Chengdu-Kunming railway intersection in Xi'an, Shaanxi province is second only to the second largest railway hub, Shaanxi, Sichuan north portal is a transit land of Sichuan, Gansu . But after entering the era of high-speed rail, Jing Kun railway to Chengdu and Xi'an in direct communication, blue-Canton Railway communication directly from Lanzhou and Chengdu, Baoji do not need to pass. Hub Baoji plummeted.

There Dazhou. In Cape iron age, Dazhou, Chengdu, Chongqing, north of the River must pass through, but in the high-speed rail era, the necessary land into Chongqing's Wanzhou (along the river channel, called South Corridor, Cheng Yu-high-speed rail) intersection. I can guess, when two provinces of Sichuan and Chongqing high-speed rail competition for resources, prevailed municipality of Chongqing, Chengdu, Sichuan only ability to protect the status of other cities are both too busy.

Another may be less obvious "losers" is in Xiamen . Poor iron age, Fujian factors as location occupies a corner of the complex terrain and Taiwan relations, the status of the national railway hubs has been a marginal role, the two major cities of Fuzhou and Xiamen have no trunk around the country, it can be described as the radius eighty-two. Enter the high-speed rail era, Xiamen and Fuzhou appear in the distribution of high-speed rail a resource gap, Beijing, Hong Kong and Taiwan (the main line to the Beijing-Kowloon) channels are pulled from Hefei and Nanchang two branches access Fuzhou, rather than in more affluent Xiazhang Springs area.

In contrast, Xiamen Xia Yu access channel, its gold content than the Beijing-Hong Kong and Taiwan channel is much lower. There are, in theory, the access channel from Taiwan Fuzhou access rather than access from Xiamen.

I write to you, I believe we will soon reach a conclusion: the high-speed rail competition for resources, non-capital city is not simply rival capital cities, municipalities common identity nor opponent. However, if this phenomenon merely as the victory of the executive power, in fact, is not comprehensive. In addition to power, in fact, there are some quite complex technical and economic factors.

For example, Zhuzhou and xiangtang lost, and can not simply be understood as the capital city of the "bully." This is from the Zhejiang-Jiangxi (Shanghai-Kunming Railway rudiment) Speaking of history, the railway was built in the early 20th century, xiangtang Zhuzhou almost in a straight line with the Zhejiang-Jiangxi railway, the construction of these two places is the most economical choice . Also, if you take Nanchang (Jiangxi Cross River) and Changsha (cross Xiangjiang), it involves building bridges technology is more complicated. More importantly, the railway built at the time of the introduction of private capital also in Zhejiang, private capital costs must be preoccupied.

Visible, Nanchang and Changsha two provincial towns in that there was no access to Shanghai-Kunming Railway, in fact, is limited by economic and technological conditions. Today, these two are not the problem, the greater access to the Shanghai-Kunming high-speed rail traffic, the economy is more developed provincial capital, of course, it is the proper meaning. Moreover, Zhuzhou and Changsha have been integrated, Nanchang County Nanchang xiangtang belongs is hosting area.

Baoji loss and Zhuzhou has a similar logic, into the era of high-speed rail technology and money is not a problem, the economy is more developed, can be directly connected to a larger population size between the capital city, why else pass a prefecture-level city?

Another example Liuzhou and Luoyang loss, in addition to competition, there is a more important reason may be the provincial capital, that is, Jiaozuo-Liuzhou Railway with the decline. Jiaozuo-Liuzhou railway was built in the 1970s, is a north-south Beijing-Kowloon Railway Corridor than earlier, it shows the importance of this channel along the city. In fact, the Jiaozuo-Liuzhou railway connection at the time a lot of very bright industrial cities, such as Jiaozuo, Luoyang, Nanyang, Xiangyang, Liuzhou, this line can be compared to an industrial corridor.

But after the reform and opening up, especially in the coastal areas of China's economic center of gravity began to shift after the industrial city of Jiaozuo-Liuzhou railway is gradually fading, drop-economic status, the right to bring down the discourse, which led to its weight in the national trunk network traffic heavy followed the decline. Back to Guangxi province, GGR to be connected Guiyang and Guangzhou, Nanning-Guangzhou railway to connect Nanning and Guangzhou, Liuzhou had not the year that radiant Liuzhou, but a mediocre level city , of course, become a dispensable railway node.

So, whether or Liuzhou Luoyang, which became the "losers" in the high-speed rail plan, the root cause of the decline, or economic status. Imagine if the province has in Liuzhou Shenzhen as economic status, I believe, whether it is your Canton, Canton South still call the South, can not bypass it.

Speaking of Shenzhen , in this round of high-speed rail plan, which may be the only city not been a capital city "bully" the. Entering the era of high-speed rail, direct access to the coastal path and Shenzhen-Hong Kong (Taiwan) two lines passage, the provincial capital of Guangzhou in Guangdong Province, and almost double the central pattern is formed, in which all provinces in the first case. Shenzhen rely realize the impact of the provincial capital of the hub? Or by fundamental economic strength to enhance the right to speak to bring improvement.

Overall, the plan can not be static, but to the times, it should not only reflect the will to power, to be more realistic economic development needs , which may be the biggest on the basis of which a high-speed rail planning. The lost parts of the city simply understood as the power of "bully" is at least one incomplete interpretation.
iFeng: “八纵八横”时代,中国哪些城市将被抛弃?

CREIS: Home Prices Rise 1.63pc in July

Prices rise 1.63 percent nationally, up from 1.32 percent last month. The increase in the 10 largest cities also increased, from 1.52 percent in June to 2.20 percent in July.

Mostly the same names appear among the top gainers nationally. Shanghai was surprisingly high with a 2.93 percent gain. Tops was Jiaxing, uop 4.94 percent.

CREIS 100 City Survey 2016年7月百城价格指数
Google Translated: July 2016 100 City Index


China Real Estate Bubble: Gold Miner Parent Becomes Shanghai Land King

What better sign of a bubble in land sales than a gold miner, amid a revival in the sector and with a depreciating currency to spend, opts to buy land in China instead of productive mining assets. This is not the listed stock (600547), which only holds mining and processing assets. Still, the parent company thinks it a far better use of capital to spend on record high land prices instead of still depressed gold mines.

The real estate division of Shandong Gold Group has purchased a 3.1 billion plot of land in Shanghai, making it the new land king. The sale price is over 50,000 yuan per sqm. However, the new pricing scheme is in effect (in accordance with regulators' wishes) where instead of competing on price, above a certain level the competition switches to affordable housing and public facilities. As a result, Shandong Gold's real estate division effectively paid 92,506 yuan/ sqm of undeveloped land, and the final cost will rise well above 100,000 yuan/ sqm once construction costs are included.
July 29, after a 8.8 billion won gold two days during the year the total price of the king of Shanghai, Yangpu New Jiangwan Town N091101 unit A4-01 (B3) Lot has also entered into the auction site links. After the final competition for more than an hour of intense, financial letter to total 3.155 billion yuan won the first prize.

After calculation, the land auction floor price of 52,840 yuan / square meter, a premium rate of 51%. Excluding public facilities, affordable housing and self-sustaining part of salable part of the actual floor price of 92,506 yuan / square meter, future guaranteed price will be 10 million or more, a new Jiangwan City budding unit to the king.
Caijing: 融信“大战”山东黄金 31亿夺下上海新江湾城地王

4 Chaoshan Families Control More Than 1 Trillion Yuan in Assets

The Vanke takeover fight has the Chinese media digging into the Chaoshan families.

Vancouver Sun: High-powered overseas Chinese business group gathers in Vancouver
The Teochew people originate from the southern Chinese province of Guangdong, in and around the city of Chaoshan. Due to economic hardships back in the 19th century, the Teochew were among the first group of Chinese to emigrate in large numbers, settling primarily in Singapore, Thailand, Malaysia and Indonesia. Settlement in Canada grew in the 1960s, and there are currently about 200,000 Canadians who are of Teochew descent.

They have a reputation as a hard-working and business-oriented community, and it is estimated that Teochew businesses account for nearly 60 per cent of all overseas Chinese commerce.

Hong Kong business magnate Li Ka-shing is perhaps the most famous member of the Teochew community. He is ranked by Forbes as the 17th richest person in the world with an estimated net worth of $25.6 billion US. Locally, the Canada Chaoshan Business Association includes former B.C. Lieutenant Governor David Lam, who passed away in 2010, and Richmond MP and cabinet minister Alice Wong.
iFeng: 潮汕商帮的庞大帝国:四家族控制金融资产超万亿
Insurance as a breakthrough, almost Chaoshan background Businessman, business must go through to enter the path to the financial industry. "First Financial Daily" reporters after carding survey found that , as a breakthrough in the insurance, Chaozhou Merchants meddle, control of financial institutions, has reached dozens across the banking, securities, insurance, trust, fund, or even small loan companies, guarantees, factoring, financial and other Internet almost all financial fields.

Has always been low-key mystery, so unsure of financial institutions outside the control of Chaozhou Merchants, and the size of the corresponding financial assets, whether and to what extent large, but there is no doubt that this group under the control of the impact of the financial assets worthy He said the amount of days. According to public data estimated that only rich Fude, Baoneng Department, Chu Mang family, and three other Chaoshan Natives and Overseas Chinese Xin Group consortium, controlled by financial assets may be affected by at least had reached more than 1.1 trillion yuan.

...Despite the lack of complete and accurate data, financial institutions Chaoshan business to help make life difficult for outsiders to intervene, but their financial empire has become a monster, control, financial assets have been affected very alarming. Calculated in accordance with the above data, only the rich Fude, Baoneng, Chu Mang family Kingold four, control, financial assets, conservative estimates has affected more than 1.1 trillion yuan.

State Council Investigates Private Investment in 7 Provinces

The 7: Beijing, Liaoning, Anhui, Shandong, Henan, Hubei, Qinghai

Reuters: China sends officials to seven regions to probe investment slowdown
The teams will examine the way local governments have been implementing measures designed to stimulate investment and create a level playing field for private businesses, which have been struggling to gain access to funding and markets.

China's economy grew faster than expected in the second quarter of 2016 as a result of a housing boom and government infrastructure spending.

But growth in investment by private firms, which accounts for over 60 percent of total investment in China, fell to a new record low in the first half of the year as businesses retrench in the face of a sluggish economic outlook and weak exports.

iFeng: 国务院派督导组分赴7省市开展民间投资专项督导
It is understood that the field supervision time is 5-10 days. Each steering group will take to hear reports, field visits, exchanges and discussions, seminars and access to documents and other means, to promote private investment in the region concerned to work to make overall evaluation, point out the problem, analyze the causes and timely feedback to local governments Steering views put forward opinions and suggestions to further improve and perfect the work of the national development and reform Commission is formed by a composite summary report of the State Council.


Will New WMP Regulations Kill Baoneng's Vanke Takeover Attempt?

Baoneng is raising money from WMPs for its takeover attempt (WMPs Funding Vanke Takeover Battle), but new regulations could kill the strategy. (WMPs May Be Banned From Stock Market)

QQ: 理财监管新规出台 宝能系还有“弹药”么?
Shenzhen huge Shenghua Company Limited (hereinafter referred to as huge Shenghua), and continues to increase holdings of Vanke (000002.SZ) share the money come from? Bank financial capital is an important "golden master", it reported that Zhejiang Bank has provided funding for a huge treasure energy system, and a considerable part of these funds which could be used to acquire shares of Vanke, but in financial CBRC promulgated new regulations draft after Boland Department financing capacity may be limited.

...Zhejiang Bank official to CBN reporter, said that the new regulations on banking financial services introduced, with the cooperation of China Zheshang Bank Po Energy will have an impact, the bank is currently studying with in-house experts, the case needs also we continue to understand.
China File: New Territory For Financial Oversight Reform
Vanke management put more pressure on Baoneng July 19 by asking the stock exchange and the China Securities Regulatory Commission (C.S.R.C.) to investigate the stakeholder’s insurance subsidiary Shenzhen Jushenghua Co. for allegedly breaking securities laws and failing to meet information disclosure requirements.

The bitter controversy has focused on Baoneng’s funding arrangement. Many want to know exactly where the money has been coming from, but so far neither Baoneng nor government regulators have straightforwardly revealed Baoneng’s funding course.

Baoneng apparently used a complex financing mechanism that included high-interest-rate borrowing. Knowledgeable sources told Caixin that separate investigations by the C.S.R.C., China Banking Regulatory Commission (C.B.R.C.) and China Insurance Regulatory Commission (C.I.R.C.) found no irregularities tied to Baoneng’s means of fundraising. But market players and analysts have expressed skepticism.

Liaoning GDP Expected to Contract for Third Consecutive Quarter, No Recovery In Sight

According to "21st Century Business Herald" was informed that the first half of Liaoning Economic growth is expected to be about -1%, one-quarter economic growth was -1.3%, which is already Liaoning economy is the second consecutive quarter of negative growth. However, the economic decline in the second quarter is expected to slow.

...Liaoning economic rebound in the second half to achieve it? Analysts say unlikely. The main reason is in Liaoning industrial economy accounted for a large, negative growth is still difficult to stimulate economic growth rose. At the same time in the overall context of the Northeast economy, the economy is not yet out of the woods.
iFeng: 辽宁经济增速连续第二个季度负增长 短期转正无望

Commodities Rally Helping Borrowers

Bloomberg: China Coal Firm Makes Bond Payment It Missed as Market Improves
A Chinese coal company made a full bond payment it missed in June, in another sign that conditions are improving in the onshore note market this month.

Sichuan Coal Industry Group LLC, based in the southwestern province of Sichuan, said it transferred all the money to a custodian agency Wednesday, according to a statement on Chinamoney website. The funds include 1.057 billion yuan ($159 million) for principal and interest and 9.325 million yuan for a penalty fee, the statement said.

Catalonia Still Moving Towards Secession

Guardian: Separatist movement in Catalonia steps up battle with Madrid
The separatist movement in Catalonia’s parliament has escalated its battle with Madrid after it defied Spain’s constitutional court by debating a controversial pro-independence roadmap, and the region’s president announced a confidence vote to consolidate the move towards sovereignty.

The angry, last-minute debate – in which the pro-independence Together for Yes coalition and the smaller, far-left Popular Unity Candidacy secured approval for the unilateral disconnection plan by 72 votes to 11 – represents another open challenge to the Spanish judiciary and to Spain’s acting prime minister, Mariano Rajoy.

It also provoked a furious reaction in the Catalan parliament from Ciudadanos and Popular party MPs who left the chamber rather than take part in a vote they described as “illegal” and flagrantly undemocratic. One Ciudadanos MP accused the separatist faction of “wanting to take us not only out of Spain and the EU, but out of the 21st century and modern democracy”.

...“The Spanish government uses the question of legality a lot,” he said. “But legality is an instrument; it needs to adapt to reality and to democratic will, and not the other way round. People around the world need to understand that what we’re doing is fundamentally legitimate and is not illegal.
One cannot be pro-democracy and anti-secession and remain consistent. If the will of the voters is sovereign, secession is legitimate. It cannot be stopped by the EU or the United States. If negative mood continues for another couple of decades, a shock break up of the United States would not be out of the question.

Fortune: In Politically Polarized U.S., State Secession Talk Gains Steam
Texas, which was an independent republic before joining the U.S. Texas holds a strong state identity and more conservative ideology than much of the rest of the country. With a higher per capita income than the rest of the nation, Texans can make an economic argument that they’re contributing more to the union than they’re receiving. “The main dampening factor is that Texas has contributed so many presidents that it’s hard to say they’re discriminated against, when they have so much political influence,” Sorens notes.

Vermont’s secessionist movement, the Second Vermont Republic, contributed candidates for governor and state Senate in 2010. The movement was launched when Vermont separated from New York in the 1700s. “The most interesting secessionist movement in the country is Vermont,” says Sanford Levinson, a law and political science professor at the University of Texas, Austin. Levinson notes the state’s history of independence and that one of the movement’s leaders wrote the book Secession: How Vermont and All the Other States Can Save Themselves from the Empire.

Alaska, oil-rich like Texas, has historically contributed more financially to federal coffers than it has received. And it’s the only state that hosts a secessionist movement with its very own political party: the Alaskan Independence Party. In 1990, the party won control of the governor’s mansion but didn’t push for secession from the union.

New Hampshire receives only 70 cents in federal spending for every dollar it sends to D.C. A strong libertarian base is driving the state’s secessionist movement, which is larger than Vermont’s but still small. “There is an economic case for independence because of the fiscal numbers, but there’s not nearly the cultural basis you might have in Vermont or Texas,” Sorens says.

Hawaii boasts a culture distinct from the mainland, which has driven its secession movement in the past. But the state has become more diverse amid rising immigration from Japan. “There’s a little movement in Hawaii,” Sorens says. “Only a small minority of residents has native Hawaiian ethnicity.”
American secession movements aren't as developed as in Catalonia or Quebec. Catalonia is almost guaranteed to secede if social mood remains negative for a few more years. An exit by states such as Scotland, Quebec and others is next highest probability, followed by a breakup of Belgium, and then the various areas with nascent secession talk such as in the United States and Italy.

CSRC Says Developers Cannot Refinance to Buy Land or Repay Bank Loans

China Securities Regulatory Commission (CSRC) says developers cannot refinance loans with the goal of buying land or repaying bank loans, which would deliver a blow to speculative and Ponzi finance. (Speculative borrowers need to borrow new to pay old, Ponzi borrowers need to borrow to pay interest)

JRJ: 证监会官员:房企不能将募集资金买地和偿还银行贷款
Commission officials sponsor special training session on Monday pointed out that enterprises raise the refinancing proceeds to discourage used to supplement working capital and repay bank loans and require detailed disclosure of the actual funds raised to invest. It does not allow the real estate business through refinancing of working capital to supplement funds raised can only be used for real estate construction and can not be used to buy land or to repay bank loans.

...Public issuance of convertible bonds does not allow to repay bank loans.
There's always a way around the rules in China. If not, the second-half real estate slowdown is now guaranteed.

What If the Clients Are Right

FT Alphaville: This is nuts. But cheer up?

Covers a Credit Suisse report on unhappy (bearish) clients.

The wall of worry:
We find the list of client worries very long:

■ US corporate earnings appear to have peaked, with labour increasingly gaining bargaining power (relative to nominal GDP of just 3.3%);

■ Equities are not cheap in absolute terms. The trailing P/E ratio of the S&P 500 is c.28% above its 50-year average, while the Shiller P/E is about 33% above its 50 year average;

■ Some mixed readings on US growth (with a number of clients citing the Fed’s change in labour market conditions index having fallen to its most negative since 2009, although admittedly in the last month it has turned up);

■ The lack of rebalancing in China and ongoing weakness of the RMB (which is down c.2.6% YTD versus the USD);

■ The lack of policy weapons left if there is a shock to growth (into a recession, real rates have fallen by c.5%, on average) requiring, of course, fiscal QE;

■ Abnormally high political risk reflecting itself in increased protectionism, a desire to reduce immigration, and a boost to minimum wages to rebalance the economic rewards towards labour and away from corporates;

■ Significant business model risk. Some clients thought that the single biggest risk was disruptive technology shortening asset lives, creating price visibility, lowering barriers to entry and driving down demand (via the sharing economy). In addition, corporates are facing a growing competitive threat from China exporting its excess capacity on the wrong cost of capital (SOEs have an RoE of 3% but account for 55% of investment, against just 22% of GDP)
Normally going against the crowd is the right move, but what if as in the political market, the "smart money" is completely wrong? Very few people predicted Trump would win because they are inside an echo chamber that is almost completely separated from the reality experienced by most Americans. Furthermore, it is an echo chamber that demands obedience. Even if you support Trump or plan to vote for him as the least bad, you wouldn't say that publicly. Therefore, anyone within the echo chamber would come away thinking no one supports Trump or that his support is very shallow and would peak at 20 percent of the GOP base. (Then 30 percent, then 40 percent ceiling, then....)

In political market, the mass of people win because one-man, one-vote. In the market, voting in skewed: more money, more votes. The smart money can beat the masses back for a long time and create a self-fulfilling prophecy, but reality eventually intrudes once the money runs out.

I predicted a candidate such as Trump could win the presidency by running on the immigration issue 2 years ago, and I was proven exactly right. Which isn't to toot my horn, rather to say the evidence was there for anyone who wanted to look, but it was never discussed in any mainstream outlet. In fact, mainstream propaganda put out the opposite message, such that most people wouldn't even think to look for contrary data. A good question is whether the financial markets, typically far more objective, aren't also compromised as an information source. What if the bulls have lost the majority of market participants? What if the evidence is correct, the market is overvalued, and it should fall, but the "experts" get more votes and have central bank support? If that's the case, market prices will prove to be as accurate as the near universal dismissal of Trump among the "expert" class.

KKR Finds Growth in China

BI: A Wall Street investor is trying to cash in on one of China’s most pressing problems
"We're seeing opportunities in private equity that really don't show up in the public markets," Scott Nuttall, KKR's global head of capital and asset management, said in an earnings call on Tuesday.

..."I think looking at the public market, especially in places like China, really, what you've got us a lot of SOE, state-owned-enterprise-type companies that it's not really where we spend our time. I'd say one big theme has been for us investing in growth companies that are basically exposed to the growth of the middle class and the rise of the consumer. And we're finding a lot of opportunities off the beaten track. We have a big team in China where we see those opportunities."

His optimism is bolstered by KKR's Asia II private equity fund's latest performance, which saw a 36% gross internal rate of return as of June.
There are always pockets of growth, even during depressions. Since credit is politically controlled in China, there are industries starved for capital. Xi and Li proposed reforms to get capital moving into the right areas, but at the first sign of a transitory bump, the Chinese political machine doubled down on its failing growth model. Private industry is more starved than ever at the same time there's a credit bubble threatening the currency. Remember at the peak points in the U.S. credit cycle, you hear stories about stupid companies with terrible business plans receiving hundreds of millions of dollars from venture capitalists. Every good idea is funded and excess credit flows to the bad ones. Or in housing, every good credit has a mortgage, so they gave $1,000,000 NINJA loans to illegal immigrant gardeners. In China, the money pours into infrastructure investment, real estate and SOEs.

Swiss Gold Exports to USA Explode

Chinese are intrigued by this story posted at ZeroHedge: "An Extraordinary Development": Record Swiss Gold Flow Into The United States
However, something motivated this huge trend change in normal gold movements to Switzerland. Moreover, total U.S. gold imports in may shot up to 50 metric tons, almost double the 26.5 mt figure in April. In addition, total U.S. gold exports hit a low May as only 20.2 mt were shipped to foreign countries. Total U.S. gold exports Jan-May 2016 of 139 mt are down 28% compared to 195 mt exported during the same period in 2015.

So what’s going on here? Why the declining U.S. gold exports or surging gold imports from Switzerland? Are foreign countries demand less gold?? I doubt it. Or how about the massive increase in supposed gold flows into the Global Gold ETFs & Funds?? While there is no way of knowing how much gold these Gold ETFs & Funds hold, something seriously changed in May as the Swiss exported more gold to the U.S. in one month than they have every year for several decades.

Are wealthy Americans finally acquiring a lot more gold?

It will be interesting to see that data for the next few months when the USGS releases their Gold Mineral Industry Surveys.
iFeng: 外媒:瑞士黄金出口量翻50倍 全都流向美国?

16 Provinces Issue More Bonds in H1 Than in All of 2015

According to "Economic Information Daily" statistics, as of July 27, China's local government bond issuance reached 3.77 trillion yuan, approaching the total circulation of 3.8 trillion yuan last year. Among them, the new bond issuance amounted to 963.1 billion yuan, accounting for 25.56% of the total issued, exceeded 1.18 trillion annual index of eighty percent.

Regionally, the statistics show in the first half, Jiangsu, Shandong, Zhejiang, Guangdong, Sichuan, Hubei and other issuance volume of 1800 billion yuan, issued the largest amount of Jiangsu Province reached 241.66 billion yuan, and there are 16 provinces half of local government debt issuance has exceeded the 2015 full year, particularly in Guangdong, Hubei, Shandong, Hebei, Tianjin, more than 2015 annual issuance volume by more than 48.1 billion yuan, 32.3 billion yuan, 32.3 billion yuan, 26 billion yuan and 243 billion.

From the time of issuance, the local debt issuance rhythm rendering speed characteristics: a quarter issued 955.42 billion yuan, 2.62 trillion yuan issued in the second quarter. As of the end of June, the amount of local government debt reached 8.29 trillion yuan custodian. Guotai Junan [0.00%] Equity Research expects the 2016 local government debt issue size, the estimated annual issuance volume of 5 trillion to 6 trillion yuan, including: new general local government debt is about 850 billion yuan, including 600 billion yuan local budget deficit and 234.6 billion yuan of local government debt maturity; new projects 150 billion yuan in local government bonds to make up the national government budget revenue fund; local government debt is expected displacement 4 trillion to 5 trillion yuan.
iFeng: 16省半年地方债发行达3.77万亿 发债规模超去年全年


June Private Company Profit Growth Slides, Investment Recovery Delayed

anuary to June 2016, the industrial enterprises above designated size profit cumulative increase of 6.2%, the previous value of 6.4%; main business income of the cumulative increase of 3.1%, the previous value of 2.9%.

...Overall industrial production running smoothly in the second quarter, economic efficiency has declined. YoY from the profits of industrial enterprises, the benefit from the rebound in the price and supply of bulk shrinkage mining industry profitability continued to improve in the second quarter as a whole is profitable, but manufacturing and public utilities such as water and electricity gas profit growth continued to drop. Finished goods inventory from the point of view of industrial enterprises in general are still destocking, but the steel industry stocks fell year on year in absolute terms and rebound. Of particular note is that private industry growth in corporate profits continued to rise in early May, but dropped again in June, the cumulative growth rate of 8.8% over the previous value decreased by 0.6 percentage points. Constrained by lack of confidence in the future and return on investment in the doldrums, private investment has been falling rapidly from the beginning of the decline of the fastest speed in which the tertiary industry, industry will be slower compared to. If profit improvements at private industrial enterprises is not revived, pick up private investment will be more difficult.

iFeng: 6月私企利润增速年内首次回落 民间投资回暖将更困难

4 Trillion Yuan of Debt Matures in H2

Three most at risk industries account for 16 percent of 4 trillion yuan of matures in H2 2016.

Wind News Agency reported that this year, the domestic bond default status frequent, there are 38 bond payment default, involving 18 issuers, default amount of up to 24.761 billion yuan. Whether it is from the amount of the number of defaulted bonds or default, we have reached twice last year. The second half, the size of the domestic bond market maturity will reach 4.44 trillion yuan, of which bond defaults, coal, steel and other industries high maturity scale about 700 billion yuan. Domestic bond market or will face unprecedented redemption pressure.
While 38 defaulted bonds since 2016, a total of seven steel industry, involving an amount of 4.77 billion yuan; total of five coal mine metal industry, involving an amount of 3 billion yuan.

This calculation, as of July 26 this year, the steel and coal industry accounted for 31.6% and 31.4%, respectively of the number and amount of defaulted bonds.

Caijing: 下半年4万亿债券兑付洪峰将至 三大高危行业占比近16%

Beijing Villa Sales Hit New Record in H1

Sales crossed 1000 for the first time in June. Outer districts dominated the sales.
the first half of Beijing villa volume presents increasing trend month by month, June is the first time exceeded one thousand units mark, setting a historical record monthly volume of Beijing villa. However, in June, Beijing villa transaction volume rose 46.4% MoM, while the average transaction price but the chain fell 18.1%. Cause I love my family group vice president Hu Jinghui analysis said that in recent months, some of the lower rates and amounts of economic model villa supply increased, stimulating trading volume rose, but also makes the overall average transaction price Villa appeared structure pullback.

By region, the largest turnover in the first half Villa Shunyi District, 721 sets; followed by Daxing District, 703 sets; again Changping District, Fangshan District, Tongzhou District. Villa majority of transactions are in the outer suburbs.
iFeng: 上半年北京别墅交易量创历史新高 远郊区居多

WMPs May Be Banned From Stock Market

The impetus for the A-share slide:

Bloomberg: China Stocks Tumble on Report of Wealth Management Product Curbs
China’s banking regulator is considering tightening curbs on the nation’s $3.6 trillion market for WMPs, the 21st Century Business Herald reported, citing people it didn’t identify. Authorities may set a limit on how much WMPs can invest in equities and “non-standard assets” such as loans, the report said.

“There’s an obvious trend that the regulators want to strengthen market monitoring and lower the use of leverage in financial markets to control risks,” said Dai Ming, a fund manager at Hengsheng Asset Management Co. “Under such circumstances, ChiNext is especially vulnerable, given its high valuations and the recent gains.”

The China Banking Regulatory Commission met with some lenders this month on the rule revision and a final version hasn’t been drafted, the 21st Century Business Herald report said. The CBRC didn’t immediately reply to a fax seeking comment.
Bloomberg: China Said to Weigh Tighter Rules on Wealth-Management Products
The China Banking Regulatory Commission has drafted regulations designed to protect mass-market investors, limit the involvement of smaller banks and ensure that lenders have adequate capital to cushion against potential losses, said the person, who asked not to be identified discussing private information.

Restrictions would be placed on banks with less than 5 billion yuan ($750 million) of net capital or fewer than three years of experience with wealth-management products, the person said. They would be required to invest the proceeds of any WMPs they issue in less-risky assets, such as government bonds and bank deposits, the person added.

Larger, better-capitalized banks would be allowed to conduct "comprehensive" wealth business, and allowed to put the money into equities and other riskier “non-standard assets” such as loans, the person said.
The draft text of the new rules is posted at iFeng along with some analysis from Guotai Junan: 史上最严银行理财意见稿已下发(全文+解析)

Where Real Estate Investment Slowed in June

All data from NBS.

June Fixed Asset Investment Falls 72pc in Liaoning

Soure: NBS.

Yunfeng Defaults for 6th Time

Bloomberg in March: China's No. 3 Developer Makes Deals as Default Risks Escalate
China’s third-largest developer is sustaining its pace of deal making even as bond investors start to price in a higher risk of default.

The yield spread on Greenland Holdings Corp.’s $600 million 5.875 percent 2024 notes over U.S. Treasuries has widened 47 basis points this year to 404. There is a 6.89 percent probability it will miss debt payments in the next 12 months, according to the Bloomberg Default Risk model that tracks metrics including share performance, debt and cash flow. While the risk of default has declined from a late-January peak of 8 percent, it’s the highest among the nation’s biggest developers.

Greenland announced 2 billion yuan ($308 million) in Chinese acquisitions since December -- after buying properties in Los Angeles and Toronto in a global push since 2012 -- and on Friday said it will list hotel-focused real estate investment trusts in Singapore. China International Capital Corp. said the expansion had burdened Greenland with debt and that the company’s reputation could be damaged after a Caixin magazine report on March 1 that 20.5 percent-owned affiliate Shanghai Yunfeng Group Co. was in default.
Fitch in March: Reported Default by Yunfeng Will Not Affect Greenland's Ratings
Fitch Ratings says that the ratings of Chinese homebuilder Greenland Holding Group Company Limited (Greenland; BBB-/Negative) are not affected by the reported missed payments by its 20.5%-owned associate Yunfeng Group Limited (Yunfeng) on its onshore debt instruments. This is because Yunfeng's debt is non-recourse to Greenland. Furthermore, if Greenland decides to assist Yunfeng - or is directed by its shareholders to do so - such assistance will not be sufficient to hurt its credit profile, since Yunfeng's net debt represented only 5.5% of Greenland's debt at end-June 2015.

Media reported in late February 2016 that Yunfeng had missed the coupon payment on a privately placed onshore debt instrument in early 2016, and failed to redeem another similar debt when Yunfeng's leverage ratio breached debt covenants and bondholders exercised their put option for immediate repayment. Fitch has been unable to verify the details of Yunfeng's alleged default.

Yunfeng, which operates in the energy industry, ceased to be a subsidiary of Greenland - the second-largest homebuilder in China by contracted sales - on 1 October 2015. This was after Greenland ended the equity custody agreement with Shanghai Greenland Assets Holding Co. Ltd (Greenland Assets), a 34% shareholder of Yunfeng. Both Greenland and Greenland Assets are ultimately owned by the Shanghai municipality.

Greenland, in an announcement on 1 March 2016, said that Yunfeng has been operating independently and that it has not provided any debt guarantee to Yunfeng. Nonetheless, Greenland said that, as one of the shareholders, it would assist Yunfeng to "properly handle the related matters", provided that it is compliant with relevant laws and regulations.
Yunfeng recently defaulted for the sixth time.

Sina: 云峰债六次违约 投资人要求证监会全面彻查绿地上市
Sina Financial News July 27 message, according to financial reports, "15 Yunfeng PPN004" (Yunfeng private debt) is about to expire on July 30, the lead underwriter Guangdong Development Bank has verbally inform investors, the current private debt will continue to default. This is since January this year, Yunfeng PPN six consecutive breach of contract.

  July 26, "15 Yunfeng PPN001" Fifth holders meeting voted to adopt a "15 Yunfeng PPN001 holders meeting vote on the motion book." Vote book suggested that "in view of the existence of the Green Group Tao Feizhai behavior, there is a huge difference in the financial data and financial data disclosed in the listing documents with the Greenland Group Yunfeng Group disclosure requirements of China Securities Regulatory Commission to thoroughly investigate the Greenland Group listed Compliance , a thorough investigation of the existence of financial fraud "; and requested" green holding Group Co., Ltd. of Shanghai Yunfeng (Group) Co., Ltd. issued '15 Yunfeng PPN001 'unconditional and irrevocable joint and several responsibility to ensure security until maturity payment. "

  Investors believe Yunfeng private debt defaults are "Greenland Group, the largest shareholder did not return the money, malice the default, and questioned the use of the Green Group and Yunfeng Group table listing and financing, after the announcement that is listed on a piece of paper lifted Yunfeng stake hosting relationship with burden rejection suspect fraud IPO's. "

A Shares Slide in Morning Trading

Only 140 A-shares up in the morning session, 2435 down. Shares held up until near 11 am.

There are three speculations on the drop today.

First, A Politburo meeting yesterday mentions inhibiting asset bubbles, but this news was ignored until 11 am...

iFeng: 政治局释放重磅信号:改革、楼市、股市怎么变

Second, tougher regulations on the market, again out early and ignored until 11 am...

Sina: A股降“妖”警报拉响 交易所盯盘盯得更紧了

Third, faster IPOs. There have been about 1 IPO a day since they restarted in November, but the pace is accelerating. But this story is the oldest, out yesterday...

Sina: IPO加快发行节奏的压力:有利也有弊

Maybe it is just time for a drop...

Irony of the day: a stock due to be delisted in two weeks (recently covered here) is limit up.

Lack of Credit and Trust Crushing Private Investment

People's Daily: 提振民间投资 还需政策定心丸
It should be said that these are important factors that can not be ignored, but not the key factor, trust and lack of credit is the cause of private investment growth slowed the most important reason.

 In a market economy, trust and credit is very important. In the 21st century, especially since the global financial crisis, the government and state-owned investment has been very strong background, private investment has been seriously marginalized. In recent years, private investors about bartering case was investigated and continuous exposure, all sectors of society in the face of social credit private investors and the government, social image, reduced social trust. A few years ago the government through debt construction project, there has been a lot of lack of credit phenomenon, private investors can not get their own returns; in some places because few private investors to financial strength is not strong and have a "uncompleted project", making the government private investors and mutual trust in serious decline.

  Trust and credibility in the fall, there is no doubt that private investment will have an extremely negative impact, thereby affecting the growth rate of private investment. In the more popular PPP project as an example, although private investors wishing to participate in PPP projects, will be in the hands of social capital, more contributions to society, but also derive a certain return, but in practice it is not so easy.

  On the one hand, the government for political risk considerations, is often difficult to effectively grasp the scale of cooperation, give private investors an acceptable rate of return is not a political risk, which could have so many cooperation projects, difficult to promote the emergence of phenomenon. On the other hand, even if the two sides can reach a consensus on cooperation projects, but private investors are worried that the government of bad faith, once the leadership change may be difficult to fulfill the agreement, not sure. Ultimately, the project is also making a lot of talk and no results.
For it's part, Beijing is launching a bunch of projects to attract investment.

Sina: 北京将分批推出吸引民间投资项目清单 吸引民资需大手笔
n order to reverse this year in April a continuous downward trend of private investment, Beijing has issued "on promoting supply-side structural reforms to further improve the work of private investment measures" to come up with 27 specific measures. Where major projects around the 2022 Winter Olympics, the Beijing city center, the construction of the new airport, will launch a batch list of projects to attract private investment.

Provinces Drag Heels on Overcapacity Cuts, Push Credit to Zombies

Reuters: China's provinces enlist banks to defy overcapacity cuts
In Shanxi province, China's top coal producing region, the government told financial institutions to maintain coal sector lending at least at last year's levels, increase awareness of the industry's "pillar and strategic status" and not recall loans to seven local government-owned coal groups, according to a document released on the government's website in May.

Shanxi's deputy governor Wang Yixin told banks at an industry event on Wednesday that it was in their mutual interest to support the seven, which at the end of 2015 reported total liabilities of more than 1 trillion yuan ($150 billion) and an average liability-to-asset ratio of about 83 percent, according to Reuters calculations.

"What Shanxi's good coal companies need the most right now is the confidence of investors and the help from financial institutions - as we cross the river on the same boat," Wang said, and urged banks to roll over the companies' loans and buy their bonds.

Three senior executives at China's top coal producers all said they could secure loans at a rate equal to or lower than the central bank's benchmark rate, suggesting banks were lending a sympathetic ear to that call.

"In China, the most important thing is stability," said a manager at the Shanxi branch of one of China's big four state-owned asset management companies that help banks dispose distressed loans.
China.org: Excess coal output cut by 29% in H1
Local governments and state-owned firms in China have completed 29 percent of the 2016 coal overcapacity reduction target in the first six months, with some regions still yet to take concrete action, officials said Tuesday.

Seventeen provincial-level governments and some of the country's largest state-owned companies have jointly cut 72.27 million tonnes in coal production capacity, about 29 percent of the 250-million-tonne coal reduction target for the year, according to the National Development and Reform Commission.

Central province Hunan and eastern province Jiangsu completed 82.9 and 78.2 percent of their cuts in the first six months, while Beijing, the northern province of Shanxi and northwestern Xinjiang were halfway through. Nine other provinces have yet to make any dent to their coal production overcapacity.
Cut 100 percent on December 31. Goal hit! The real worry isn't the slowness to cut production, but the increase in debt. Slowly reducing overcapacity amid a short-term price bounce is understandable and there's not a guarantee of trouble down the road. Add more debt to a zombie firm and a crisis is a near certainty.


Shenzhen Court Orders Homebuyer to 1.1 Million Yuan for Breach of Contract

Fearful that buying restrictions announced on March 25 would deflate the housing market, in addition to making it impossible for him to borrow enough money under the new rules, a Mr. Zhang backed out of a deal to purchase a home. Mr. Zhang sued to get out of the contract. The seller counter sued for breach of contract and won. The court ordered the return of Mr. Zhang's 500,000 yuan deposit, but also ordered him to pay 1.1 million yuan in damages for breach of contract. The house in question was originally priced at 9.4 million, cut to 9.22 million after renegotiation.

iFeng: 怕房价会下跌购房者毁约 结果损失了100多万

Trump Leads In Key Swing State Counties

Axiom Strategies, in collaboration with Remington Research Group, has studied election results in seven battleground states to identify Axiom’s Battleground Counties. These counties historically reflect statewide results, so monitoring them will be key in analyzing the 2016 presidential race. Check back regularly to see the latest polling in these counties, which may determine the next President of the United States.

Trump is currently holding a landslide lead.

Home Interest Mortgage Deduction Coming to China

Expected to shave 15-45% off the cost of a mortgage, though a final policy is not yet set in stone.
Jia Kang told the media: "Personal Income Tax deductible mortgage has made it clear, as progress, time to look at tax reform of the central requirements of the time is about 1 year, but this year could not keep up with the certainty that this program will be. across the country. "

Jia Kun at the forum also suggested that first-tier cities and popular second-tier cities, Nanjing, Xiamen, Hefei has been the introduction of property tax conditions. "Real estate tax difficult indeed but I think, a second-tier cities may be relatively hot first pilot through legislation after the real estate tax."

...Asia-Pacific Urban Real Estate Research Institute Xie Yifeng said, "For most people, they can save 15% - 45% of mortgage interest."
iFeng: 个税将抵扣房贷啦 以后房贷利息可省15-45%

Black Swan: Trump Wins Presidency, Blows up WTO; Bet on Trump Winning

So, if elected Trump, the global trading system is like "a bull into a china shop", many unpredictable risks will occur. For example, China will suffer more trade barriers, China's exchange rate policy will be more pressure. If the United States take the lead in closing doctrine, national foreign trade barriers will enhance the global economy will fall into a new round of recession.

Fortunately, Trump understand the basic principles of the economy, he said that like the low interest rates. In fact, if the United States withdraws WTO, aside TPP, re-signed NAFTA, the Fed will not be able to raise interest rates, but will restart QE job because a new round of US recession will officially open.

By then global markets swooning, the only benefit is gold.

Trump said that he likes gold.

He also said that if given the chance, he would make the current Fed Chairman Xi Yelun unemployment.

By that time, Trump will be a showdown with China? Maybe it will. But at that time a lot of America's enemies, in addition to the EU, as well as Canada, Mexico and Japan.

In short, Trump will be the election of 2016, the largest black swan. In his success, inspired by the British off Europe, the European extreme right will open a new round of revelry. Next, either the euro to disappear, either EU disintegration.

A new round of changes will occur in the world!

Another reported that a third of America's wealthiest are dumping stocks.
This is referring to this article at CNBC: Nervous millionaires may bail on stocks after election. The article doesn't say much though, because wealthy investors are split 50/50 on the election.
iFeng: 最大的黑天鹅来了?1/3美国富豪投资者或抛光股票

Hillary should get a convention bounce, but if I'm right about the social mood, I don't expect her to exceed the margin of error. People saying Trump is going to lose are living in an echo chamber; he is likely to win in a blowout landslide.

In addition to predicting the rise of Trump, I laid out exactly what 2016 might look like back in 2014: GOP Civil War Nearing Completion, But Democrat Civil War Just Beginning
Every single political analysis I've seen things the GOP will harm itself in 2016 with primary battles and that the Democrats will have smooth sailing with Hillary. That may end up being the case, depending on how things play out, the question is whether the GOP and the nation are ready for reform in 2016 or whether it will take until 2020. Should the GOP lose in 2016, by 2020 it would have changed greatly on the issues and will likely nominate (or the party that replaces it will nominate) an anti-interventionist, anti-free trade, anti-bank, anti-immigration candidate. Meanwhile, by then the Democrats may be having riots in the streets again.
Trump is that candidate, the only part of that plank he hasn't been campaigning on is anti-bank, though he says he wants Yellen to be unemployed. On the other side, Obama is leaving office with a wave of cop killing and racial violence. The GOP completed its civil war and is headed for battle relatively unified, but more importantly, with a candidate who fits the current mood of the country. The Democrats are falling apart due to the leaked emails which show the party was working against Bernie Sanders. To put it in market terms, the GOP let the market decide and the Democrats fought the market. Between now and November, the Democrats need a countertrend rally. The GOP only needs the dominant trends to continue.

As for the emails, the WaPo has fluff coverage: Here are the latest, most damaging things in the DNC’s leaked emails. The WaPo article mainly deals with infighting. If the Sanders voters stay home that is important, but the bigger news may be corruption: the sale of appointments to commissions and boards, which is right in the Trump campaign's wheelhouse. Leaked DNC Documents Show Plans To Reward Big Donors With Federal Appointments. If more stories like this leak, it may be enough to seal the election. That and I expect Patricia Smith be part of a "Swiftboat" advertising push come September.

Vancouver Passes Real Estate Tax on Foreigners

ZH: Vancouver Finally Cracks Down On Chinese Home Buyers With 15% Real Estate Tax

Hope You Like Getting Paid in Depreciated Yuan

No moral hazard here. Local governments financial vehicles, which can pass the buck onto the local government, who passes in on to the central government, and finally the central bank, are borrowing at high yield in appreciating U.S. dollars. They local governments are broke, can't access credit, or funding their spending with a land bubble.

Reuters: China's local government bond risks flow to yield-hungry foreign buyers
Local Government Financial Vehicles (LGFVs), created by China's local authorities to bypass restrictions on their borrowing, have so far this year issued $3.4 billion of high-yielding dollar-denominated bonds, within reach of the $4 billion record for the whole of 2015.

...Beijing Infrastructure Investment and Guangzhou Metro Group, two LGFVs that manage urban transport systems, were able to sell global bonds even though at the current pace of cash generation it would take them 324 and 750 years, respectively, to repay their debt, according to DBS Group Research.

...Tianjin Binhai, which develops infrastructure in the Binhai new Area, would have been rated eight notches lower than its A3 rating from Moody's without the very high level of support from the Tianjin Government, according to Moody's, which said in March the vehicle had a "weak standalone profile with little commercial viability".

When it launched its $500 million, five-year bond in 2015, Tianjin Binhai received orders for over $1.9 billion as investors were attracted by its pricing at 245 basis points over corresponding U.S. Treasuries.

Empty City and 104pc GDP Growth

SCMP: Despite 104pc growth, China’s ‘Manhattan’ remains cautionary tale of economic zeal
A decade ago, officials embarked on a plan to turn a marshland in the port city of Tianjin into a world-class financial centre. Yujiapu has a high-speed rail, malls stocked with Japanese goods and luxury car dealerships. All that’s missing are people.
I covered this earlier here: Tianjin Rebuilds Manhattan in Binhai; Has 90% Empty Ghost City in Baodi

PBoC Deals With Impossible Trinity in a Time of QE

A timely working paper release ahead of this week's Federal Reserve meeting.

iFeng: 中国央行:单纯依靠汇率浮动不足以抑制资本流动
The central bank said, according to the impossible triangle theory, a country's monetary authorities between independent monetary policy and free movement of capital and a stable exchange rate of the three objectives must be given a choice, can only meet two objectives, and give up another goal. However, since 2008 the international financial crisis, central banks in developed economies, quantitative easing monetary policy put in a lot of excess liquidity, the liquidity did not enter the real economy, but the global financial markets arbitrage, so that capital flows are very large, and often flow there will be drastic changes. This leads to the importance of the impossible triangle free movement of capital significantly improved, and the importance of exchange rate stability and an independent monetary policy is relatively decreased. In other words, in the large-scale economic and financial globalization and capital flows in the background, the floating exchange rate is not sufficient to inhibit the flow of capital, and therefore can not guarantee an independent monetary policy. Taking into account both capital flows to a country's economy may bring positive spillover effects, may also be a negative impact on country's economy, and rely solely on exchange rate fluctuations can not fully offset this, if you want to get the overall balance of the macro, we need to efforts in three areas: First, greater exchange rate flexibility; second is to improve cross-border capital flows, macro-prudential policy framework; third is to strengthen international coordination of monetary policy.
Based on a two-country Stackelberg game theory model, this paper conducted research on the impact and effectiveness of monetary policy coordination among large open economies with different spill-over effects. The paper finds that when policies are coordinated, there is an improvement in total welfare compared with the scenario when there is no monetary policy coordination.


Anxin Says Real Estate Could Settle into Permanent Bull Market

Anxin has a 70 page report on real estate which says:
1, the average price nationwide is not obvious bubble, after 2014 Shanghai and other first-tier cities housing prices have signs of a bubble;

  2, per capita income indicators can well explain the housing prices, it is representative of the population, currency and economy;

  3, Global real estate prices rise historically, up is the norm, after falling more than make up the decline, the length of time depends on the short-term economic potential;

  4, we will not repeat Japan and Russia in exchange rates and housing prices pick one model, it is expected there will be a US-style long and slow real estate bull market;

  5, reasonable income growth over time, in a life cycle prices will rise forever;

  6, house prices fell the most direct factor is interest rates and monetary tightening, while the impact of the exchange rate has become more and more uncertainty, the current situation does not have the above conditions, prices still will not collapse.
Sina: 安信证券70页重磅地产研报:有一种永远振荡上涨的房价

Volatile PMI Gone

Bloomberg: China Factory Gauge Suspended, This Time ‘Indefinitely’
The indicators, which track manufacturing and services, were more volatile than the official PMI from the National Bureau of Statistics.

...“We are facing some pressure,” Jia Kang, director of the Beijing-based academy, said by phone Thursday, declining to offer more elaboration. “It’s difficult to say.”

Identity Politics Rises in Hong Kong and Taiwan

SCMP: More young Hongkongers back independence and are less supportive of peaceful protest, poll shows
Asked if the “one country, two systems” principle should be extended after 2047 – the end date of Beijing’s promise of 50 years without change after the 1997 handover – 69.6 per cent of poll respondents said yes, while six per cent said no.

As for whether the city should become independent, 17.4 said yes while 57.6 per cent said no.

Another 13.8 per cent said Hong Kong should be ruled directly under Beijing, while 59.2 per cent opposed that idea.

Among respondents aged 15 to 24, supporters of independence formed the majority as 39.2 per cent said they supported the idea, compared to 26 per cent who opposed it.
Wapo: Taiwanese President Tsai Ing-wen: Beijing must respect our democratic will
Q: You represent many of the youth who think of themselves as being Taiwanese, not Chinese. They are more pro-independence than the older generation. As president, you want to maintain cross-strait relations for stability, but at the same time, you must keep your followers happy. How do you balance these factors?

A: Different generations and people of different ethnic origins have different views on China. But they all agree on one thing. That is democracy.
FP: Taiwan’s Kids Are Not All Right
Tsai’s rhetoric is not nearly as bold as some of her supporters. Her cautious approach served her well in academia, and may yet help deflect confrontations with Beijing. She does not use the term “independence” in her speeches. Instead, she emphasizes Taiwanese identity. This balancing act was evident in a measured statement at her victory rally. “The results of today’s election prove to the world that the Taiwanese are a free people; the Taiwanese are a democratic people,” Tsai told the assembled throngs. “As long as I’m president, I will work to make sure that not one of my citizens ever has to apologize for their [national] recognition.” The line earned perhaps the loudest cheer of the night, a subtle signal that Tsai, like her supporters, sees Taiwan as a distinct and internally coherent entity. In such a giddy setting, it was enough. But the forces that brought Tsai to power do not share her subtlety. They may end up sweeping her along, or aside, no matter what her careful plans.
Cautious or not, identity politics continues to rise around the world.

Government to Offset Decline in Private Investment

It appears there will be no meaningful recovery in private investment as the government plans to continue its bailout efforts.

China to boost public investment due to lackluster private capital
"Given the slowdown, the government should begin to invest more, partly through special construction funds, to stimulate investment and stabilize the economy," Zhang Yong, deputy head of the National Development and Reform Commission, China's top economic planner, said during a press conference on Monday.

Government investment will continue to focus on infrastructure construction and projects that affect quality of life, he said.

Zhang's remarks came as Chinese entrepreneurs appeared to remain reluctant to invest during the current economic downturn. Private investment increased only 2.8 percent in the first half of the year, down from 3.9 percent growth in the first five months and 5.7 percent in the first quarter, official data showed. In the past decade, private investment saw stellar year-on-year growth of over 20 percent.

"As private capital is concentrated in traditional industries, it needs more time for investors to find new bright spots in the economy during the current economic transformation," Zhang said.

In response, China has channeled more energy into infrastructure improvement, with growth of investment in the sector accelerating to 20.9 percent in the first half.
It turns out the switch to a consumer, domestic, private, services-led economy takes time. In the meantime, the government will worsen the situation by added more debt and malinvestment.

China State Council meeting as debt/GDP ratio hits the red line:

SOE Profit Decline Narrows in June

Xinhua: China's SOE profits post milder decline
China's state-owned enterprises (SOEs) posted a milder decline in profits in the first half of this year as the economy showed signs of stabilization, official data showed Monday.

Profits fell 8.5 percent year on year to 1.13 trillion yuan (169 billion U.S. dollars) in the first six months, narrowing from a 9.6-percent slump in the January-May period, according to statistics from the Ministry of Finance (MOF).

In the first half, profits of SOEs under central government control dropped 9 percent from a year earlier, while those of locally administered SOEs slipped 7.1 percent, both milder than the decreases in the first five months, the MOF said.

...SOEs in the coal industry reported profits for the first time this year, but steel and non-ferrous metal industries continued to suffer losses.

SOEs in the oil and chemical sectors posted substantial profit declines compared with a year earlier, while pharmaceutical and real estate construction companies posted big profit increases.

Draft of Real Estate Tax Expected in 2017

Xinhua: Draft of real estate tax law expected to unveil in 2017, tax rate a concern
Legislation on real estate tax once again becomes a highlight on the market.

This issue was proposed by the finance minister Lou Jiwei this time. At the High-level Tax Symposium of the G20 Finance Ministers and Central Bank Governors Meeting held on July 23, Lou said it is regret that reforms on real estate tax and individual income tax have not been introduced, due to weakness in information gathering and hindrance from interested parties. But he indicated that China will “proceed without hesitation on this issue”.

China Business News learnt that draft on real estate tax law currently is still under preparation, and there are many difficulties to be addressed. However, information gathering work on levying real estate tax on natural person has been accelerated. The Ministry of Land and Resources (MLR) has vigorously pushed forward unified registration of real estate. This will provide regulators with better knowledge on the real estate industry and lay a more solid foundation for the launch of real estate law. The State Administration of Taxation (SAT) this year has introduced the Third Phase of the Golden Tax Project in all the provinces nationwide, for the purpose of creating files on every natural person, including personal information on property. This measure has paved the way for real estate tax reform.

...How to determine the tax rate of real estate tax is also a key issue attracting much attention. In Shanghai, different tax rates from 0.4 to 0.6 percent are implemented, and 0.5 to 1.2 percent for Chongqing.

Many experts now believed that exemption scope should be designed after real estate taxation, and only the parts excessive to basic demands of a person’s living could be taxed.

However, there are two different views in the market to this respect. Some believe that exemption scope should base on living area per capita, for example, living area of 60 square meters is not taxed in Shanghai according to the pilot real estate tax. But others think that the exemption amount should base on house value, as values of the same living area may differ a lot in different areas, and exemption based on living area per capita will benefit high price house owners, but not favorable for low-price ones.

Steve Keen on People's QE

Interview with Steve Keen at Moneyweek.

Steve Keen: Avoid the next financial crisis with People’s QE and a debt jubilee

China Cracks Down on Independent Journalism

ZH: China Bans Websites From Original Reporting

According to The Paper, major internet portals in China including Sina, Sohu, Netease and Ifeng.com have shut down some of their original reporting operations after receiving “harsh criticism” from country’s top industry regulator.

As Bloomberg adds, the Beijing branch of Cyberspace Administration of China has set deadlines for portals for rectification. It also reports that an unidentified head of Beijing branch cited portals for violating China’s internet regulations by carrying plenty of news content obtained through original reporting.
Source: 北京市网信办责令新浪搜狐网易凤凰限期改正违规行为
Recently, the Beijing Information Office of the territorial network Sina, Sohu, Netease, Phoenix and other sites provide a large number of illegal behavior in the presence of Internet News Information Service raised harsh criticism, ordered the site to be a deadline for correction.

Currently, Sina has been shutting down "Geek News" section, are cleaning "Sina studio" section of the offending content; Sohu has been shutting down "News party", "rad", "click Today" and other columns; Netease been shut down. " echo "," roadmap "and other columns, is cleaning" School of Journalism "section of the offending content; Phoenix has been shut down" serious report "section. All shut down, cleaning section including website pages, mobile clients, micro-channel public account other publishing platform.

Beijing letter network do the responsible person, said the channel was ordered to rectification column, a serious violation of the national "Provisions on the Administration of Internet News Information Services" provisions of Article XVI, were published a large number of self-editing of news and information, and serious violations , a very bad influence. Beijing Information Office in addition to ordering the territorial network related sites suspected of illegal channels to be rectification column, the law will give a warning and impose a fine of administrative penalties.

The next stage, the Beijing Municipal Information Office will continue to increase network administration and law enforcement, standardize territorial website news and information service activities, maintain good order in the Internet industry. Welcome to the majority of users of the Internet illegal and unhealthy information supervision and reporting, and jointly create a good ecological network.
So far they haven't gotten around to the economic reporting...

Real Estate Now A High Risk Industry

High risk because the crisis is inevitable: real estate buying restrictions will make life miserable for most developers diving into the high-priced land market.

Has it become a "high risk" market?

Where will prices go from here?

Gu Yunchang predicted that by 2017, real estate sales or slowing down, or even negative growth. Sales fell mainly because of the early demand overdraft, but the property market downturn period is precisely the stage to get the purchasing power of their savings back, then prices rise again.

In fact, the soaring house prices in the first half of the industry is, in essence, financial.

Since 2016, credit continued expanding. In the first quarter of this year, the new RMB loans 461 million yuan; which new individual housing loans to 1 trillion, hit a record high since 2010, the central bank began publishing loans from financial institutions to invest in the report.

Beijing new record high to help accounting firm responsible for Huang believes that in addition to the expansion of credit, tightening the real economy, investment, stock market tightening, as well as first-line property market credit crunch, it is the main reason for the sudden increase in second and third tier property market.

Duan Shuhuai believes that chaos is only appearance, the root causes are complex, housing prices need to be analyzed from the land market (land supply side), real estate (real estate providers) and buyers (demand) three aspects to analyze.

"Analysis of the land price trends can 'raise the overall level of development of urban planning of Beijing City' from June 13 Beijing municipal government documents discerned: promoting urban planning and construction to pay more attention to the reduction and quality and change, within the Fifth Ring Road prohibited new construction sites, and strictly control the scale of construction, it is easy to conclude that 2020 Beijing land supply is only possible tighter impossible volume; therefore, the Beijing housing prices would continue to rise "section of quieting said.

Duan Shuhuai also believes that the real estate industry now belongs to "high risk" industries.

"Unless Beijing continues to attract high-income groups to enter the city, cannot rely solely on qualified buyers who can not afford the current prices, but Beijing strict restriction policy makes this possibility of reach..."
iFeng: 房地产已成高危行业:都在赌会不会接到最后一棒

Preparing for the End of the Dollar Era: China Plans SDR Bond Issuance

The dollar won't cease to be a reserve currency, but the path to the SDR or multi-currency future is being forged by competitors such as China. The political need will drive this development: countries need an asset than cannot be rendered worthless by a hostile U.S. government.

The evening of July 23, during the G20 finance ministers and central bank governors People's Bank of China International Secretary Zhu Jun held in Chengdu, told Caixin reporters, is preparing for an international development agency's first SDR-denominated bond issue, the relevant details are still Finally, under negotiation. "SDR-denominated bonds can provide a wide range of investment products, reducing the exchange rate and interest rate risks, the official beginning of the investors particularly appealing. As the market continues to advance construction will attract more private sector involvement, thereby gradually SDR bonds development of the market up. "

Zhu Jun also introduced a long time, the use of enhanced SDR faced with a problem that developed countries hold more SDR but reluctant to use, but more needs to hold more willing to use the emerging markets and developing countries rarely SDR current G20 parties also studying how to make SDR better play its role as a supplementary reserve asset.
SDRs also raise the possibility of a global central bank, likely the IMF, unrestrained by any government. If you think central banks are doing a great job, the IMF as central bank will do an even greater job.

Finally, although this is often reported as a negative for the U.S. dollar, the greenback cannot serve as the world's reserve currency for much longer, for reasons of math. The dollar could barely handle the rise of China and it would be unable to handle a similar rise by India. One way or another, the dollar is set to decline along with the U.S. economy in terms of relative size. Both can continue to grow, but they will become a smaller part of the global economy. This process was accelerated by the use of financial weapons and economic sanctions in recent years, and will likely accelerate further should Trump win and reorient American policy towards the national interest.

Caixin: 独家∣首只SDR计价债券有望8月底发行


China Solution to Dollar Short: Bigger Dollar Short

Bloomberg: China State Firms Help Offset Outflows With Overseas Debt
After stepping into the currency and equity markets repeatedly over the past year to stem declines, government-linked entities are now spurring capital inflows by raising money offshore and bringing it home. Sales of dollar bonds by some of China’s biggest state-run firms rose to a record $18.7 billion in the April-June period, about 80 percent higher than the average of the previous four quarters.

...Chinese authorities have a long history of encouraging state-owned enterprises to act in policy makers’ interests rather than their own.