Chinese Developers Spend $100 Billion on Ocean City

Remember when everyone was worried about Japan taking over the United States?

Bloomberg: $100 Billion Chinese-Made City Near Singapore 'Scares the Hell Out of Everybody'
The Chinese companies have come to Malaysia as growth in many of their home cities is slowing, forcing some of the world’s biggest builders to look abroad to keep erecting the giant residential complexes that sprouted across China during the boom years. They found a prime spot in this special economic zone, three times the size of Singapore, on the southern tip of the Asian mainland.

...The scale of the projects is dizzying. Country Garden’s Forest City, on four artificial islands, will house 700,000 people on an area four times the size of New York’s Central Park. It will have office towers, parks, hotels, shopping malls and an international school, all draped with greenery. Construction began in February and about 8,000 apartments have been sold, the company said.

...“The Chinese are attracted by lower prices and the proximity to Singapore,” said Alice Tan, Singapore-based head of consultancy and research at real-estate brokers Knight Frank LLP. “It remains to be seen if the upcoming supply of homes can be absorbed in the next five years.”

Game Over for the Wealthy: China Tightens Capital Controls

SCMP: China’s foreign investment ‘shopping spree’ over as Beijing moves to slash capital outflow
Tighter control of outbound investment is likely to put an end to a trophy asset shopping spree by well-connected companies such as Anbang Insurance and Dalian Wanda, with Beijing is ready to cut the supply of foreign exchange for such deals.

Shanghai’s municipal foreign exchange authority had told bank managers in the city that all overseas payments under the capital account bigger than US$5 million would have to be submitted to Beijing for special clearance before proceeding, the sources said.

...While the move did not necessarily mean all such deals would be vetoed, the regulatory procedures that would have to be navigated before completing them would take much longer, the sources said.
Capital outflows will increase if this is true, because anyone with legitimate reasons for moving money abroad has to know their window is closing. The next step, when the collapse begins, will be a total ban on outflows.


Tianjin and Shanghai Tighten Real Estate Controls

Reuters: China's Tianjin city steps up curbs to tighten mortgage lending
China's major port city of Tianjin on Monday announced stricter tightening measures to rein in a red-hot property market, by hiking the downpayment ratio for buyers of first and second homes.

The ratio has increased to 30 percent for first-home buyers borrowing from banks, versus 20 percent earlier, the central bank branch in Tianjin, near Beijing, the Chinese capital, said in a statement.

A higher downpayment, of 40 percent, is required from those with unpaid mortgages who plan to buy a second home, it added.
iFeng: 沪津楼市调控再加码:首付均提高 认房又认贷
Yesterday (November 28) evening, the Shanghai Municipal Construction Committee announced Mortgage policy: Since November 29, 2016, households buy the first home apply for commercial loans, the down payment cannot be less than 35%. If the buyer already owns a house in Shanghai, or doesn't not own a house in Shanghai, but has record of a applying for a mortgage, the down payment cannot be less than 50%; for the purchase of non-ordinary housing, the down payment cannot be less than 70%.

Venezuelan Currency Breaks Out of PSUV Logo


Capital Controls, Less Liquidity

ABR: China plans tighter capital controls
The State Council, China’s cabinet, will soon announce new measures that subject many overseas deals to reviews of “strict control,” according to people with direct knowledge of the matter and documents reviewed by The Wall Street Journal.

Targeted for particular scrutiny by the pending measure are “extra-large” foreign acquisitions valued at $US10 billion or more per deal, property investments by state-owned firms above $US1 billion and investments of $US1 billion or more by any Chinese company in an overseas entity unrelated to the investor’s core business.
Bloomberg: China Has Quietly Hiked Borrowing Costs With PBOC Operations
With economic growth stable, policy makers are trying to rein in leverage in the world’s No. 2 economy. The impact is being felt in the debt market, where the government yield curve has reached the steepest since April and the yield premium on three-year AAA corporate bonds is set for the biggest jump in seven months.

“China’s central bank has essentially raised rates by 25 basis points through money market operations,” said Deng Haiqing, chief economist at JZ Securities Co. in Beijing. “The bond market adjustment is only beginning. We expect the yield curve steepening to be the main feature of the market in 2017, driven by mild PBOC tightening.”

PBoC Pushes the Blockchain

China Daily: PBOC push gives blockchain tech a massive fillip
China is investing significantly to develop blockchain technology to reshape financial services. Digital currency and global payments may be the first applications.

This technology allows parties to carry out direct transactions without using an intermediary by providing a means for people to share reliable and tamper-proof lists of information known as distributed ledgers.

The People's Bank of China said earlier this month that it would recruit personnel to develop digital currency.

"Blockchain technology can be applied to many areas, and digital currency and global payment systems may be the first applications," said Xu Mingxing, CEO of a blockchain payment company OKLink.
Information on nearly every transaction in the economy will be in the hands of the government. Peak totalitarian government and central planning failure lies ahead.

Shadow Banks Out of Beijing's Control

A good follow-up to the previous post Beijing Can't Even Control Beijing

Caixin: China Tries to Rein In 'Barbarian Growth' of Shadow Banking
Making banks clearly reflect that risk on their balance sheets has been a priority task for the China Banking Regulatory Commission (CBRC) for years. This most recent effort includes substantial revisions to rules published in 2011 on how banks should control the risk of their off-balance-sheet business.

The regulator released the draft policy on Wednesday and will seek public opinion until Dec. 23.

The policy greatly expands the range of operations that banks must now monitor and report for credit-risk purposes. These include when they provide guarantees for loan payments and also an array of so-called investments and intermediary services, such as lending to a specific borrower on the instruction of the company that provides the funds. This is known in China as making an "entrusted loan."

The proposed regulations also apply to so-called entrusted investments, in which the bank invites a specialized investment firm to manage its own capital or wealth management products. Entrusted investments have received much attention this year in China's financial circles because the funds it channeled to bond traders played a big role in fueling a rally that led to central bank intervention.

...Facing so many difficulties, "it's hard to know how far the regulators will be able to go on supervising and controlling off-balance-sheet business," another CBRC official said.

"But there is one thing for sure," he said. "That's the goal of what we're doing with off-balance-sheet operations — they cannot continue this barbarian growth anymore."

Beijing Can't Even Control Beijing

Caixin: Beijing's Push to Curb Population Growth Hits Snag
Attempts by Beijing city authorities to reduce the population in the city's six bustling downtown districts have failed to meet annual targets despite the relocation of dozens of markets and the shuttering of hundreds of schools for migrant children.

Official records show that the number of residents in the capital's six overcrowded central districts in the first nine months fell by 96,000, one-fourth the annual target, Lu Yan, head of the Beijing Municipal Commission for Development and Reform, told The Beijing News.

Authorities have tried to push out low-income migrant workers from the city center as part of its efforts to cap the Chinese capital's population at 23 million residents by 2020.
I don't post this to mock Beijing, it's actually not a bad first start considering the difficulty of the situation. It's also a great study in Chinese culture: most of the policies are aimed at shutting schools, making it harder for migrants to enter schools and freezing college enrollment.

The key statistic: "70% of migrant children whose schools were shut down chose to stay in Beijing with their parents even though they had no place to study."

Remember this when someone tells you China can stop currency outflows and control the value of the yuan.

The biggest risk for financial markets isn't that Beijing can't control the economy, it's that so many people still believe it can.


Beijing: Investors Leave Housing Market

iFeng: 投资客撤离 近三周京商住楼成交量低于1000套
However, as the property market cooling, heat reduced investment, commercial and residential projects as a whole into the wait period, some investors choose to temporarily withdraw to seek new investment channels. Interview of a residential project sales staff, said: "Buyers in the commercial and residential investors low price category accounted for a substantial proportion, after the New Deal investors also significantly reduced."

A Bad Year for Turkey, But Could 2017 Be Worse?

One of my few forecasts for this year was 2016 Will Be A Bad Year for Turkey and 2016 Forecast: Turkey Collapses. Shares started the year heading lower, but then rebounded with global markets. A coup in July delivered the expected geopolitical shake-up, and the chart again broke down this week after the lira tumbled.

The thesis was based a post a few months earlier, Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?

Given the events of the past month and potential changes in Europe, things could get a lot worse for the country. Already, Turkey's accession to the EU is all but dead.

RT: EU lawmakers call for halt to Turkey membership talks over post-coup crackdown

His response: Furious Erdogan Lashes Out, Threatens To Let 3 Million Refugees Into Europe
To be sure, this is not the first such gambit by Erdogan, who has previously warned that he could put refugees “on buses” to Europe. However, in the past Europe had never escalated to the point where the vast majority of the EP made it clear that unless Erdogan backs off his authoritarian ambitions, the key negotiation in progress with Turkey would end. As such, it puts Erdogan in a tight spot: concede domestically, and be seen weak, or push on hoping that his threat will force Europe to de-escalate.

Earlier in 2016, in exchange for a series of promises, including accelerated membership talks and steps towards visa-free travel for Turkish citizens to the EU’s Schengen zone and billions in promptly embezzled funds, Turkey agreed to crack down on smugglers and to accept migrants and refugees returned from Greece. The agreement and other measures have dramatically reduced the numbers crossing the Mediterranean, but it has been complicated by growing anti-EU sentiment in Turkey and fears of increasing authoritarianism that have only deepened since July’s aborted coup attempt.
The pain for Turkey is not over. The chart says it is just getting started.

Depreciation Bites: Dollar Home Prices Falling in Most Cities

The renminbi devalued 5 percent from July 1 through today. Of the 70 cities in the NBS housing survey, only 22 have price rises that exceed the devaluation. All 22 have implemented buying restrictions.

iFeng: 中国仅22城房价涨幅超过人民币贬值速度 有你家吗?

The right column in the chart below shows the second half price rise. The left column shows the October price change.

The brakes are also being put on real estate companies. Caixin covered some of the tightenting last month: Regulators Beef Up Curbs on Property Developers' Efforts to Generate Funds
Specifically, the two government bodies will no longer approve requests from property firms to issue bonds at home or overseas, according to sources. Tapping the Hong Kong stock market for funds will also be out of the question because the CSRC will reject an IPO plan if it's filed by a real estate company, sources said.
The table below is from the iFeng article, showing a collapse in debt issuance.
Exchange-rate adjusted home prices are decelerating or falling.

HK-SZ Connect Starts Dec 5

SCMP: China gives the nod for Shenzhen-Hong Kong Stock Connect to commence on December 5
The programme allows overseas investors to trade in 881 stocks on the Shenzhen Stock Exchange, while giving mainland Chinese brokers access to execute transactions in 417 stocks in Hong Kong, according to a joint announcement by the China Securities Regulatory Commission and Hong Kong’s Securities & Futures Commission.


Home Prices Rise 1pc Nationally in October

The top-tier and hot second-tier cities saw prices slow in the second half of October. Cities with the largest gains for the month of October were those who were not in the initial wave of buying restrictions, such as Changsha, Jinan, Wuxi and Zhengzhou.

NBS: 2016年10月份70个大中城市及10月下半月一线和热点二线城市住宅销售价格变动情况
The three columns below show the price increases in the second-half of October, first-half of October, and September.
Table 1: 15 first-tier and second-tier cities hot new commercial housing price changes comparison table
New commercial housing price index
10 second half of May
10 first half of January
. 9 Yue

The People's Bitcoin

SCMP: China’s central bank steps up efforts to create digital currency
The People’s Bank of China (PBOC) is stepping up its research on a “sovereign digital currency” as it joins other central banks and financial institutions in exploring future forms of money.

...According to a 2017 hiring plan published by the PBOC, the central bank’s scientific research institute is recruiting six researchers to study the technological architecture of digital currencies.
For central control of an economy, nothing beats having an open ledger that allows the government to see every transaction.


Regulators Swoop in as 20pc of Futures Accounts Suffer Historic Losses

iFeng: 部分期货公司被调查 20%账户单日亏损超历史极值
Today, commodity futures and collapse. Climb high fall hard from early differentiation trend once again turning a large area of diving, Black commodity fall most miserable. At the close, hot rolled, thread, iron , glass all four commodities benchmark contract closed in the daily limit. Coke, coking coal and Zheng also a substantial correction, decreases of 8.56%, 5.92% and 3.49%.

Today, November 15, when the night of the disc, the domestic futures market opening night disc Black, non-ferrous metals continued to fall, iron ore, fell 6.65%, down 4.4% steel, hot rolled coil fell 3.73%, copper, tin and Shanghai fell nearly 3 %.

...An individual investor with 10 years of commodity futures trading experience, said the afternoon of November 14, after the close that he received a number of phone calls from futures companies warning, "they will be regulatory investigations, remind me not to have any illegal positions. "
According to reports, 66 percent of accounts lost money on November 14, with 20 percent losing the maximum amount possible, shattering the record.

ZH: Another Chinese Speculative Buying Frenzy In Commodities Collapses
BI: Chinese iron ore futures continue to collapse

Epic Dollar Rally Comes Into View, Yuan Appreciating

Macro Man sees what we dollar bulls have been seeing in DOLLAR HOLLER
What's really scary (or thrilling if you're a punter) is that on a more strategic basis the set-up is eye-wateringly good for gains of another 15-20%. The monthly chart of the DXY (i.e., the euro with a prom dress on) has shown a classic period of consolidation after the rapid advance of 2014-15. You don't have to squint too hard to see three waves there. The dollar is now at the very top of the range; probably not the greatest place to establish a long, but man, if we get a monthly close above 100.50 or so there is almost nothing but fresh air until 120.
As for the Chinese yuan, despite it knocking on the door of USDCNY 6.9, it has been appreciating against foreign currencies. It is riding U.S. dollar higher right now, something it hadn't done for most of this year. A change in policy? Political concern with Trump presidency? Or temporary blip that will be "corrected" in the weeks/months ahead?


M2 Growth Slows in October, TSF Still Growing

M2 grew 0.21 percent in October, the third slowest monthly increase in 2016. Thanks to favorable yoy comparison, M2 12-month growth increased from 11.58 percent to 11.64 percent.

The 3-month growth rate in M2 was 7.7 percent, well ahead of the 2.3 percent growth rate in October 2015.

M2 growth began accelerating in November 2015. Given the tightening in the real estate market alone, I expect M2 growth will not match last year's increase. A credit driven slowdown is coming unless the government forces more credit into the system.

Yuan Depreciation: Buy A-Shares and Gold

Former State Administration of Foreign Exchange Balance of Payments Division Guan Tao says:
In fact, the current level of the RMB exchange rate is overvalued or undervalued from a different point of view is not the same. For example, from a trade perspective, we (the Chinese) are still relatively large trade surplus, exports more competitive, so the RMB exchange rate is not overvalued, which is more agreeable to the official advice. But if from the financial point of view, especially in the current economic downturn more than discussion, external dollar, the information market volatility is relatively large, relatively large mood swings, there is more money in circulation, from this perspective, we may find short-term the yuan has been overvalued.
He later says:
Where monetary policy is concerned, when faced with steady growth and stable exchange rate conflict, as once said Zhou Xiaochuan, the country should give priority to the domestic economy, the monetary policy should give priority to steady growth, rather than the exchange rate stable, but I am not saying that the exchange rate stabilization objective can not. It is possible to pick two, the question of the stability of the exchange rate can use another tool to solve, but monetary policy should be based on steady growth priority.
China will choose growth over a stable exchange rate. In light of depreciation risk, GUan Tao is buying A-shares and gold:
Guan Tao: I think we are very concerned about this issue - now my own financial management is mainly what? I still feel familiar to you to buy some products, domestic financial aspect, I mainly bought some stock funds. I think the Chinese (economic) transformation and upgrading there are still many opportunities for the Chinese stock market after last year's adjustment, relatively speaking more fully packed foam, plus there are a lot of structural opportunities. This year, I configured a number of industry stocks, has until now returns 10 to 20 percent, people may feel that economic studies only make so little money, but I have been very satisfied, can hedge against RMB dollar risk.

Reporter: Can you disclose what industry do?

Guan Tao: Buy some green, entertainment, sports and culture (industry shares), which are part of the concept of consumption upgrade, the next step China to engage in "Beautiful China", belonging to the ecological environmental protection concept, there are some opportunities. Now the process of international financial risk is still being released, there are many uncertainties, so chaotic city configure some relationship with gold financial assets it is also quite good. I did not buy physical gold, just bought some gold ETF , gold stock fund category, this year's income is also good. Of course, everyone's different risk preferences, I am not against you to configure some of the foreign assets, but the key is to understand what you are buying, not just because of fear of possible exchange rate depreciation (away investment). We also see that many of China's big last year spent so much money to take England to buy a house, but who thought of the British referendum will pass it off to Europe?

On the Edge of Historic US Dollar Bull Market

Jeffrey Snider at Alhambra has been doing the yeoman's work of explaining the global dollar deflation. His latest is here: ‘Rising Dollar’ Again To Start This Week

At FT Alphaville, Izabella Kaminska digs into how dollar shortages affect global trade financing in: Dollar shortage *alert* (plus global trade *alert*)

She relays a recent speech by Hyun Song Shin, Economic Adviser and Head of Research at BIS. The first chart below pretty much says it all though. The collapse in leverage at U.S. securities firms is the collapse in eurodollar funding which has been Mr. Snider's focus. To boil it down into the most simplest of terms, the money supply is made up of money and credit. Credit far outstrips money as a share of total money supply in nearly all modern economies. The credit created on U.S. securities firms and mega bank balance sheets in the form derivatives such as credit default swaps was the outer edge of credit supply. It collapsed in 2008.
Look at that first chart of leverage compared to this chart of credit default swaps posted by Snider in The Eurodollar Decay
Money "printing" by central banks was a drop in the bucket compared to total deflation.

The Trump win takes ongoing economic trends in the global economy and steps on the gas. Even if Trump does nothing but pursue a pro-American domestic agenda, he will achieve his trade goals because the Federal Reserve won't stop the dollar deflation. Higher interest rates, higher U.S. dollar, lower energy imports and more domestic manufacturing. If there's even a little bit of trade balancing, we could see an incredible rally in the U.S. dollar and a collapse in emerging market currencies before the cycle completes.

The index to watch is the U.S. Dollar Index. It hit a multi-year high today, intraday. We'll see if it holds or not. I expect it will based on everything I've been blogging about the past several years, but the market is final evidence. A short-term pullback in the dollar is likely, a possible handle on a large saucer bottom.
The Asian Dollar Index has broken it's long-term uptrend, fell below 105 in the past week. ADXY is calculated the opposite way of DXY, falling ADXY shows USD strength.
US dollar also consolidated for 2 years after early 1997 breakout. We are approaching 2 years of consolidation following the 2014 breakout. The long-term chart of the dollar also shows a similar pattern stretching bank 18 years. An upside breakout is imminent assuming the analog holds.

Real Estate: Second Wave of Policy Tightening Arrives

iFeng: 楼市调控第二波:杭州、武汉、深圳升级调控政策
November 14 evening, Wuhan City housing security and the Housing Authority official website "Municipal People's Government on further promote the sustainable and healthy development of the city's real estate market is stable and opinions." "Opinion" is introduced to implement the national real estate market macro-control requirements, further promote the sustainable development of the city's real estate market is stable and healthy.

"Opinions" to strengthen the credit limit the purchase of housing measures. The purchase of credit limit in the range of riverbank, Jianghan, Qiaokou, Hanyang, Wuchang and other main city of Wuhan.

For Wuhan residence households, in the main city of the first suite (including new housing and second-hand housing) apply for first home minimum down payment of 30%, second home down payment for ordinary commercial housing is 50%; the minimum down payment ratio for second homes of non-ordinary housing is 70%. Already own two or more houses in the above areas, cannot buy another.

...On the same day, Shenzhen also adjust the housing provident fund loans down payment ratio, as workers paid into the fund family name no room in Shenzhen, use the public loan funds to buy the first home, down payment minimum of 30%; if already own a home, tapping the fund again requires a minimum down payment of 70%.
Hangzhou is also tightening policy along similar lines.

Industry insiders fear the change market trends will accelerate now that the strictest control policies ever are in force.

iFeng: 楼市遭遇史上最严调控 四季度楼市变化来了!

Beijing Nov Home Sales Down 26pc From Sept

The first 10 days of data are in, and Beijing homes sales fell 26 percent from the first 10 days of September.
iFeng: 11月上旬北京新房网签量较9月上旬下降26%


Bears Now in Control, USDCNY Crossed 6.83

USDCNY at 6.84 right now, with U.S. Dollar Index just below its 2-year high.

A big move lower is not necessarily right around the corner, but the move in the yuan is one half of a green light to the bears. If the U.S. Dollar Index breaks out to a new high, it will confirm that a new drop in the yuan is coming. Since the market was completely manipulated beyond this point, there is no technical support of any kind except for psychological round numbers and the old peg of 8.28.

This is not secret knowledge either, here's an article on the renminbi that has two sub-headers within it, "6.8 isn't scary" and "Scary is 6.83"

Sohu: 人民币离最危险的6.83已不太远 这是最全面的资产配置清单

Depreciation expectations among ordinary Chinese is about to increase, and those investors who already expect depreciation will expect acceleration.


CBRC Investigating Mortgage Lending in 16 Hot Cities

iFeng: 16个热点城市全覆盖 银监会严查银行房地产业务\
The past two months, China Banking Regulatory Commission concerning the real estate credit business oriented increasingly cautious. Banking Regulatory Commission Chairman Shang Fulin Speaking earlier at a meeting held in mid-September, which stressed the need to strengthen the real estate credit risk stress testing and testing. In the October 21 meeting of the third quarter, the CBRC economic and financial situation analysis meeting, the CBRC once again proposed to strictly control the real estate finance business risks, including strict control of financial funds from banks into the real estate fields.

Local banking regulatory bureau has also taken action in accordance with the spirit of the CBRC. For example, in less than a month, the Shanghai Banking Regulatory Bureau requiring commercial banks to continue to strictly enforce limited credit policies to prevent disguised relax the requirements of the policy edge ball playing, and reiterated to the down payment funding review. Thus, the Shanghai real estate regulation and further overweight.


Why Trump Won II

Deadline: Stunned By Trump, The New York Times Finds Time For Some Soul-Searching
For starters, it’s important to accept that the New York Times has always — or at least for many decades — been a far more editor-driven, and self-conscious, publication than many of those with which it competes. Historically, the Los Angeles Times, where I worked twice, for instance, was a reporter-driven, bottom-up newspaper. Most editors wanted to know, every day, before the first morning meeting: “What are you hearing? What have you got?”

It was a shock on arriving at the New York Times in 2004, as the paper’s movie editor, to realize that its editorial dynamic was essentially the reverse. By and large, talented reporters scrambled to match stories with what internally was often called “the narrative.” We were occasionally asked to map a narrative for our various beats a year in advance, square the plan with editors, then generate stories that fit the pre-designated line.
This is why the University of Virginia rape hoax was uncritically reported, and why every white cop shooting of a black suspect immediately became front page news.

Reality usually had a way of intervening. But I knew one senior reporter who would play solitaire on his computer in the mornings, waiting for his editors to come through with marching orders. Once, in the Los Angeles bureau, I listened to a visiting National staff reporter tell a contact, more or less: “My editor needs someone to say such-and-such, could you say that?”

The bigger shock came on being told, at least twice, by Times editors who were describing the paper’s daily Page One meeting: “We set the agenda for the country in that room.”
As Steve Sailer comments:
You can see this in agenda-driven stuff like World War T and the Military / Campus Rape Culture hysterics. These are not news, they are planned campaigns of psychological warfare.
Also the entirely contrived "race war" started with the Trayvon Martin shooting and continuing through to this day (though suddenly disappeared in the heat of campaign season).

The effort backfired because it caused two divergent effects. One, it pushed much of the country to the right, priming the country for Trump. Two, it blinded much of the left, who believed they were reading news stories and not a propaganda effort. The result was wildly divergent expectations on Election Day, leading to confirmation of reality for one side, and Narrative-collapse on the other. It is unclear at this early stage whether the narrative will be dropped or will be amplified because America is far more racist, sexist, homophobic and xenophobic than previously believed.


Secession Talk Heats Up Again

CNN: Interest in #Calexit growing after Donald Trump victory

Oregon Live: After Donald Trump victory, Oregonians submit ballot proposal to secede from the union

While this is probably no more than immediate post-election emotion, there are already growing secession movements in America. This is reflective of social mood and if mood continues to worsen, one or more of these movements could eventually morph into something serious. For now it is talk.

Prior posts: Secession movement in Northern California picking up steam; the rise of the American city-states?
As Goes California, So Goes the Nation
More American Secession: Ignore At Your Own Peril

China Inflation Running Hot

Producer price inflation over the past two months is running at a 7.4 percent annualized rate.
Consumer inflation shows no acceleration and would be barely increasing if not for the Chinese New Year spike.

Producer Prices for the Industrial Sector for October 2016
Consumer Prices for October 2016

Chinese Mortgage Debt Numbers Too Low

Balding's World: Is Chinese Mortgage Data Waaaay To Low? (No, seriously)
For conservatism, data, and simplicity sake, I am going to limit the analysis to urban housing units. In other words, let us assume that all mortgage and medium to long term household debt is owed only by urban households. This does not change the outcome in anyway and if anything make it much more conservative than it would be otherwise.

The primary thing we want to do is adjust for the number of households in urban China. Without going into all the underlying calculations, which come from all official data, there are approximately 272 million urban households in China and according to official data, only a very small number of households do not own their housing. Again, this is all relying and strictly using official data.

If we then estimate urban residential real estate wealth using the 100 City Index price per square meter as our high value and the Third Tier City Price per square meter as our low value, we have both a high and low value for our estimate of urban residential real estate wealth. This gives us an estimated upper bound of 330 trillion RMB and a lower range of 189 trillion RMB.

Here is where it gets interesting. If we translate this into a broad loan to value number, this means that urban China has an estimate loan to value ratio on its real estate holdings of 5-9%. In other words, almost all of urban Chinese real estate is owned almost entirely free and clear according to official statistics.

If we apply this analysis backwards, the numbers are even more nonsensical. In 2011, the urban loan to value ratio ranged from 3.3-4.5%. If we use absolute numbers, the appear even more absurd. When the average housing unit in 2011 cost 665,000 RMB using the third tier city price and 910,067 using the the 100 City National Index, mortgage debt totaled only 29,675 RMB per urban housing unit.
More at the link.

My concern moving forward is the high loan to sales ratio being reported in the press, which indicates the marginal buyer needs a large and rising LTV to maintain price appreciation.

FX Reserves Slip in October


Real Estate Price Listings Investigated

China is taking no chances in its effort to slow home price appreciation, now going after realtors for shady pricing behavior.

It was only yesterday (November 8), this Regulation re-upgrade - Development and Reform Commission, Ministry of Housing and Urban jointly issued a document, will conduct a special inspection for the provinces, autonomous regions, municipalities and cities, sub-provincial capital cities of the real estate sales price tag one month (November 10 - December 20), check the objects involved in real estate development companies and real estate agencies. Before acting alone and each city is different, this regulation has been significantly upgraded specifications.

Some analysts pointed out that the special inspection is actually aimed at the hoarding behavior aspects of real estate sales. Overall, including the special inspection and previous purchase of the credit limit, there is a round of regulation is a consistent core, that is in many ways regulate market transactions, and thus play a role in suppressing asset bubbles squeeze. From the follow-up impact point of view, the special inspection will help guard against the phenomenon of inflated housing prices, buyers will be reduced concerns, emboldened to buy a house will increase.

New Regulations Lower Mortgage Lending

iFeng: 监管部门要求控制房贷总量 做到月度增量环比下降
Reporters from the latest number of banks was informed by stakeholders, regulators differential housing credit policy for personal housing mortgage loans has not changed, but more stressed before the lenders verify the authenticity of information, while the payment of the amount of personal housing mortgage loans on the requirements to achieve incremental monthly decline. That November, compared with October of incremental housing loans is lower than in October compared with September increased volume, and so on.

Insiders said the respondents, one of the major banks will continue to be regarded as personal housing mortgage loans to retail strategy. Next, the bank will force the consumer credit, the focus of high-quality state-owned enterprises, private enterprises quality, excellent listed companies and good growth of SMEs, to seize the opportunity "along the way" the construction of the national strategy.

Previously, regulators held a conference on housing commercial bank credit, requiring commercial banks to rational treatment of the property market, strengthen housing credit management, control-related credit risk.

A source close to the regulators said the bank needs to prevent excessive expansion of the real estate credit. Banks should focus on the aging population, the future of the credit crunch, real estate prices, "gathered in the head" of possible scenarios, prospectively proper risk monitoring, stress testing and risk management, "rainy day" to further increase the provision and enhancement capital.

USDCNH Blows Through Red Line of 6.83

USDCNH has taken out the 2008 USDCNY peg level. USDCNY holding below 6.80 and not following, and USDCNY would need to follow to signal a breakdown in the yuan. The PBoC will still be intervening, but above 6.83 there's going to be an uptick in the depreciation expectation. Technical traders in China and out will be looking for a breakdown. The pressure rises and the market will be looking for any opening to take yuan lower. USDCNY 7.00 is the next target. After that the next anchor price is 8, then quickly USDCNY 8.28, and beyond that it's uncharted territory.

Why Trump Won and Why So Few Expected It

I had my best trading day in my life on Tuesday night in the prediction markets. I have been buying Trump in the the Iowa Electronic Market since August, and sold out at a little over 4 times profit on Tuesday night, before buying Hillary at firesale prices, as sellers dumped without realizing Clinton was on pace to win the popular vote. The IEM Winner Take All contract pays out on the popular vote. It looks like I will make about 10 times profit on those Hillary trades. Overall, I made somewhere around 17 times profit on my capital at risk. I also made about 4x profit on a smaller bet on Republicans retaining control of Congress.

I made the Trump bets because I felt the market was highly distorted by bad information which does not reflect changes in mood and society. My working hypothesis (Socionomics has been very helpful in providing a predictive framework) is social mood has been declining since 2000. This puts the advantage into the hands of outsiders and they continually gain strength as mood sinks. I do not believe social mood has bottomed yet. Overlayed is the establishment's attempt to hold power as technology forces a institutional change. The Internet is tearing down media. Anyone has as much potential reach as major media outlets such as the NYTimes. What the industrial revolution did to the wealth and lifestyle gap between rich and poor, the Internet has done for those rich and poor in broadcast power. You don't need to buy a TV station or a newspaper to influence society. A Twitter account may be enough.

In response to the loss of signal power over the past 10 to 15 years, the establishment decided to ramp up censorship and taboos, avoiding discussing anything that could threaten the establishment's control. The 2016 election should make clear the media establishment completely failed. (Had Hillary won, I have no doubt the censorship and taboos would have ramped up considerably.) Not only is control being threatened as rival voices gain currency, but the mainstream is hobbling itself by blocking these voices, sending itself into battle without knowledge its enemy. If you have read Sun Tzu you understand that not knowing what your enemy is a major disadvantage.

Trump's path to victory was almost a slam dunk if you understood demographics, social mood and paid attention to what voters were actually saying by supporting candidates such as Ron Paul and Bernie Sanders. Going a little further back, the Tea Party and Occupy Wall Street had far more overlap than most people in the mainstream were willing to discuss. Betting on Trump was a slam dunk given the odds in the market, although even I was made cautious by the overwhelming mainstream consensus.

Trump's victory in 2016 was actually outlined in 2000 by Steve Sailer: GOP Future Depends on Winning Larger Share of the White Vote.
So where could Bush have picked up an additional 3 percent of the white vote? The most obvious source: white union families. The 26% of the electorate with a union member in their households voted 59% to 37% for Gore. For the time being, most union families are still white. So if Bush could have won enough white labor families to raise his total labor vote from 37% to about 46%, that would have done the trick of lifting his share of the white vote from 54% to 57%.

What could persuade more white union families to vote Republican when the current AFL-CIO leadership is so leftist? Here`s a suggestion.

The labor bosses are selling out their old time members` interests in order to try to pad their membership with immigrants, legal and illegal. That`s why the AFL-CIO supremos recently called for another amnesty for illegal immigrants. Immigration should be the perfect issue for the GOP to use to split the rank and file from their Democratic bosses.

Since union efforts cost Bush Michigan, Pennsylvania, and Wisconsin (at a minimum), you`d think that the GOP would be hot to win back the Reagan Democrats.

Don`t count on it, though. It`s just so much more fashionable to continue to chase futilely after Hispanics.

In summary: the GOP could win more elections by raising its fraction of the white vote minimally than by somehow grabbing vastly higher fractions of the minority vote.
Even on Fox News last night at about 8 PM, as early results were coming in, the pundits were looking at Trump underperforming Romney in some areas and saying the GOP must increase it's share of the Hispanic vote. Instead, Trump ran on immigration and trade and won the exact voters Sailer predicted would deliver victory to the GOP. Yet Steve Sailer does not get invited on major media shows to discuss the election, and rarely gets mentioned at all because the mainstream doesn't even want to engage him in debate.

For a less political view, this is a good article describing some of the larger technological changes underway: Democracy's Destabilizer: TMI
We are in the very early days of what he calls the Fifth Wave. Institutions that developed in the age of industrialized, top-down mass media are losing legitimacy while new arrangements have yet to evolve. The challenge is to manage the hazardous transition to a new stage without falling into nihilistic chaos and destruction.

Neither celebrating nor denouncing the collapse of authority, Gurri seeks to understand its implications. He offers a disturbingly convincing model uniting such disparate phenomena as the Arab Spring, the 2011 protests in Spain and Israel, the Tea Party and Occupy Wall Street, and, although he doesn’t discuss them, Donald Trump, Bernie Sanders, Black Lives Matter and Islamic State.
Also: Blame Rich, Overeducated Elites as Our Society Frays

In sum, the prediction markets and polls were totally wrong because most people had no idea that what Trump did was not only possible, it was actually highly likely to succeed. I have been expecting a shift at some point, arguing the GOP should have nominated Ron Paul in 2008 because even if he lost, the GOP would win in 2012 and thereafter by realigning the party with social mood and popular issues that were not being represented by either party (immigration, anti-Wall Street, anti-war and protectionist sentiment).

In this 2014 post, I ended it by saying Trump could have an opening if no one took up the immigration issue: Immigration Issue Set to Explode in America; Prepare for Political Volatility

Also: Nigel Farage Was Right (note he was called a bigoted menance back in 2014, went on to win Brexit, a predicted a Trump win)

As for implications vis a vis China: The Logic of Strategy: Yuan Devaluation and the Road to Trade War

Trump may get along far better with China than I expected in that post, but we'll have to see how China policy shakes out. Those favoring an economic containment strategy are very much in tune with Trump's thinking on trade, so there's at least the potential for restrictive trade policies.

The Future

The establishment could have forestalled this collapse by examining its policies and assumptions and making adjustments, but I believe the total failure of pollsters reflects a larger problem: the establishment believes its own lies because it repeats them to itself over and over. There is no conversation taking place in mass media. Much of the real debate is online and in the shadows. If we take the technological change to its conclusion, eventually the dissident right will build its own echo chamber and be as out of touch as the establishment is today.

As for making money, profits will not be limited to the prediction markets. The entire society is riddled with bad information. Great fortunes will be lost and made in the coming years as reality intrudes on false narratives. Looking to the near future, in Europe there is the Italian referendum next month, and German and French elections in 2017. We may be back to euro troubles very soon, which will set off the next leg of the dollar rally and force the Chinese to devalue the yuan......