Mass Deportations Coming to Italy

The EU will crumble when the Italians begin deporting migrants. That looks increasingly likely given that Italians are kicking out paying tourists. The case for restricting tourism is rests on the same argument as restricting immigration: the policy should benefit the citizens. The crucial difference is tourists spend money and most immigrants into the West consume more in social services than natives.

Express UK:Venice tourist crackdown SPREADS across Italy - Anger as Capri and Garda near ‘EXPLODING’
The Island of Capri wants to follow Venice in bringing in crowd control measures, which saw the installation of check points in some of the most congested parts.

The mayor of the island just off Naples said with two million tourists a year the destination could “explode” from the weight of visitors.

Hotels and B&Bs on the island had already reached 90 percent for the first long weekend of the high season leading the Capri Mayor Gianni De Martino to reconsider how the town manages the flow of tourists.

He said: “The problem is not the turnstiles, but to find a system and a host organisation at the port and at Marina Grande capable of managing the remarkable tourist flows in our territory in an orderly and adequate manner without creating overcrowding.”
Venice increased its tourism crackdown:
Over the Sardinia Day holiday this weekend Venice installed metal barriers to divert tourists down less populated alleyways so workers and locals didn’t have to continuously dodge tour groups and visitors with bulky suitcases.

This move brings Venice closer to limiting the number of tourists allowed to enter the lagoon city, which currently sees 25 million visitors a year.
Locals still aren't happy:
However, checkpoints were immediately removed by protestors after demonstrating against the mass influx of tourists.

They had been installed overnight but furious locals tore them down.

One protestor said: “It's not the mayor who owns the city. It's not the police and not the tourists either. It's the people living in Venice.
Italy's stock market is near a post-2008 high. Social mood is positive at the moment.
The 5-Star Movement is calling for new elections.

Reuters: Italy's 5-Star calls for snap election after govt talks flounder
“At this point for me there is no other solution. We have to go back to the polls as soon as possible,” Luigi Di Maio said on Facebook, blaming center-left and center-right parties for refusing to negotiate with 5-Star.
Who is rising in the polls? The nationalist League and nationalist 5-Star:
“Another election increases the probability of a League/5-Star government, which is the least market friendly outcome,” said Rabobank’s Lyn Graham-Taylor.
Bet early and bet often against globalism.

DXY Approaching 200-day MA


Negative Mood Rising: NY Subway Edition

CBS: ‘You Just Don’t Know What To Expect:’ Subway Attacks Leave Straphangers On Edge
“It is definitely scary,” one rider said.

It happened Wednesday at the Fulton Street station. But for some riders, it’s yet another example of wild and dangerous behavior on the subway that has left them uncomfortable and nervous, CBS2’s Scott Rapoport reported.

“Scary, scary. Truthfully, scary. You just don’t know what to expect,” said another rider.

...“I can’t think about it,” one woman said. “Because if you think about it, then you will be afraid to leave your house.”

“I think that riders are scared and they’re frustrated, because they don’t know what to expect on the train every day,” said Jaqi Cohen, of Straphangers Campaign.

The NYPD insists the number of reported crimes on the subway is down 9.5 percent over last year.
It would be a clearer mood signal if the NYPD is reporting solid numbers because that would reflect changing mood, people feeling less safe despite a decline in criminal activity. A 10 percent decline in "reported crimes" might not capture "scary" incidents on the subway though, since not all of those may be reported. Either way, it is a sign of a declining mood.


Federal Reserve Adds Treasuries, Sells MBS, Net Reduction $13 B

The Federal Reserve increased its treasury holdings by $0.1 billion in the week ended April 25. It reduced MBS by $13.1 billion, for a total reduction of $13 billion.
Are Fed balance sheet changes correlated with the stock market?
This second chart is the S&P 500 compared to Federal Reserve balance sheet, both indexed to 100 as of December 31, 2017.

Sell The Korean Talks

Whether this time is different, it's a sign the stock market and global economy are topping.

Winter is Coming to China, Tax Cuts and Infrastructure or Bust

iFeng: 预警!美元寒冬逼近,中国楼市悬了

China can't ease monetary policy.
According to the analysis of the previous two sections, if the Chinese currency chooses to relax at the moment, the Chinese government bond yield curve will shift downwards, and then the spreads between China and the United States will be further squeezed, which means that the renminbi will be subjected to tremendous devaluation pressure.
China can't devalued the renminbi though, since it will exacerbate trade tensions:
On the one hand, Trump will not allow China to resolve the dilemma of declining external demand through the devaluation of the renminbi, which is inconsistent with the United States’ stance of launching a trade war.

On the other hand, China’s efforts to enhance product competitiveness by devaluing its own currency will also hurt its trading partners outside the United States. Under the current environment of confrontation between China and the United States, it is obviously unfavorable to China.
China also can't tighten monetary policy as the trade surplus declines.
How to expand domestic demand? The total output of a country, divided according to demand, can be divided into three parts:

Investment + consumption + net exports, the first two parts are domestic demand, and the last one is foreign demand. Now that external demand is not working, it is logical to either expand consumption or expand investment, there is no other way.

Is it easy to expand consumption? Very difficult.

Taking into account the arduous efforts made by the Chinese resident sector in the past two years to “de-stock,” mortgage loans for decades have completely overdrawn most of the residents’ spending power and willingness to consume.

Therefore, only investment is left. Investment can be divided into manufacturing, infrastructure and real estate.
Manufacturing? Unlikely.
Is manufacturing investment easy to start? The same is very difficult!

Why? Because manufacturing ROE (return on investment) has been significantly squeezed out of finance and real estate, it is almost zero, or even negative. The ROE that reshapes the manufacturing industry is a relatively long process. It may be that the entire process of supply-side reform and de-leveraging is completed and that the market is only possible once it is cleared.
Real estate? Also unlikely.
The key point is that the level of residents' debts is increasing very quickly. It's scary! Resident debt ratios ranged from 20% to 50%, the United States spent 40 years, and China only spent 10 years. At this rate, within the next three to four years, the United States could reach the top of the bubble in the last round of housing bubbles by 73%.

It is also the madness of residents that increases leverage and restricts the contribution of consumption to economic growth. The growth of real estate investment is based on the overdraft of residents' consumption in the coming decades.
If the currency depreciates, the real estate market will suffer:
Especially with the United States in the cycle of rising yields, if China's currency cannot tighten to maintain spreads (in fact, it cannot), then the renminbi has a greater depreciation pressure to start real estate and may cause house locks. Without the liquidity, there is a systematic risk that the capital flight will lead to the passive rupture of the real estate bubble. This result is very damaging! This is also the fundamental reason why the exchange rate cannot be depreciated significantly.
What is left? Centrally planned infrastructure!
However, I believe that, based on the above analysis, the top management is likely to abandon this short-term goal and instead tolerate the short-term increase in the level of local government debt, in order to achieve the goal of “expanding domestic demand”. In connection with the latest Politburo meeting's description of the “Rural Revitalization” strategy and the “Out of Poverty Alleviation” program, I think it is possible and feasible to promote domestic demand through the expansion of rural infrastructure.

This kind of deduction is also in full accord with the statement made by the Politburo meeting on "adhering to a proactive fiscal policy." The implementation of a proactive fiscal policy, which is implemented in concrete terms, is most likely a result of the foundation of the infrastructure (economy) (domestic demand).

Therefore, fiscal policy points out that tax cuts and infrastructure will continue to be “positive”.
Tax cuts and infrastructure.
China will face a dilemma in the selection of any kind of policy tools. However, taking into account the circumstances that lead to the smallest possible systemic risk, only an active fiscal policy is the current way out. Specifically, it is a tax reduction and maintaining a relatively positive infrastructure.

Monetary policies may remain neutral, and they cannot be significantly loosened, nor can they be tightened. There will be a small depreciation of the exchange rate, but there is no long-term depreciation condition.

As regards tolerance of local government for increasing leverage, local government debt and bank's possible bad debts can be regarded as the opposite of the government. It is possible to temporarily relax the restrictions.
Politically, China can no longer allow the renminbi to depreciation. Yet depreciation is where the market wants to go. China boxed itself into a corner. It is now at the mercy of the markets. Positive economic shocks can bail it out. Strong growth overseas could bail out a China. A resumption of global growth to pre-2008 levels, with massive U.S. dollar credit growth and depreciating USD, can bail them out. Otherwise, the are walking a tightrope and any mistake leads to currency depreciation.

The author of this piece finishes with some investment advice based on the above:
Based on the above analysis logic, the trading strategy is self-evident.

The stock market will not have major systemic opportunities.

The reason is that the currency will not relax and the risk-free yield will not decline. Corporate earnings are also difficult to exceed expectations in the face of demand pressure. The turbulence in the box and the concept of fried items are the main theme of this year (for example, Hainan, semiconductors, etc.).

The bond market will move slowly down the high.

The reason for not making a sharp turnaround is because there is no inflation expectation in China and there is no possibility that growth will exceed expectations. However, taking into account the traction of the U.S. debt, it is possible that the Chinese government bond yields will slowly increase.

Goods are the only major assets that may have opportunities.

Logic is a foundation. From the previous year to the present, commodities represented by black lines have plunged in pessimism. I think this pessimistic expectation may be remedied with the introduction of more measures to “expand domestic demand”. In addition, inflation in the United Stat es may raise the price of bulk commodities globally.

Finally, talk about real estate alone.

Regardless of how the cannon was said, or the six purses and the seven purses, I always believed in my own logic, that is, real estate could not be restarted at present, for reasons that have been detailed before. If I was beaten later, I would accept it willingly.

In this world, there are too many things that are beyond our knowledge. We cannot calculate their probabilities. But what we can do is to limit the possibilities of infinite with limited knowledge.

If not, what is the difference between each of our actions and gambling?

PS: People shouting that the government should restart real estate, do you forget that in the midst of ZTE's battle, we feel the helplessness and incompetence? Real estate not only fails to save the country, but also buries the future of the entire nation.
Hope is the strategy now. Hope that U.S. growth and inflation picks up, boosts commodities, and more Chinese infrastructure can boost the economy there.


Can You Take This Risk For Me?

Marketwatch: Fed’s Quarles: 30-year fixed-rate mortgage ‘probably’ doesn’t need government backstop
At a Senate Banking Committee hearing, Fed Vice Chairman for Supervision Randal Quarles was asked by Sen. Heidi Heitkamp, Democrat for North Dakota, whether a government guarantee was “essential” for “retaining” the 30-year mortgage instruments. Quarles replied: “My belief today is probably not.”

Heitkamp indicated she disagreed strongly.

“There are a number of people in smaller or mid-sized institutions who believe it would be difficult to take a 30-year interest-rate risk without some kind of assurance they could offset that risk,” Heitkamp said.

Apple Drops Out of Top Four Smartphone Sales in China

Yuan Talks: Chinese smartphone sales down 21 per cent in Q1, Apple drops out of top four
Chinese smartphone shipments suffered a hard decline of 21 per cent year-on-year in the first quarter 2018 to 91 million units, the lowest shipments since the fourth quarter 2013 and the worst drop that Chinese market faced since the beginning of 2012, according to the latest report released by market research firm Canalys on Thursday.

...Top four vendors are all domestic companies, namely Huawei , Oppo, vivo, and Xiaomi.

...Apple dropped two spots to the sixth place in the market after a “significant decline” in shipments from the previous quarter, according to Canalys, but the research firm declined to say how many iPhones were sold in China.

Digital Maoism in America

China and the Untied States are moving towards a similar point, converging through different methods and from different starting points. China was poor and never had an open system. China is becoming wealthy and sometimes there are cracks of openness, but then central control takes over. China is becoming a rich country without political freedom and history is full of these examples.

The United States was a rich and free country in the past, but now it is becoming a poor and closed country. Universities are indoctrination centers, media are propaganda outlets, Big Tech companies remove dissident content in a manner too consistent with George Orwell's 1984.

China is supplementing and upgrading its existing system with technology. America is using technological change to implement political change in an authoritarian direction. The two regimes are headed in the same direction.

NY Mag: ‘One Has This Feeling of Having Contributed to Something That’s Gone Very Wrong’ (H/T Digital Maoism)
global system in which they’re supposed to work together toward some sort of dominating megabrain that’s the one truth didn’t seem to bring out the best in people, that people turned aggressive and mean-spirited when they interacted in that context. I had worked on some content for Britannica years and years ago, and I never experienced the kind of just petty meanness that’s just commonplace in everything about the internet. Among many other places, on Wikipedia.

On the one hand, you have this very open collective process actually in the service of this very domineering global brain, destroyer of local interpretation, destroyer of individual voice process. And then you also have this thing that seems to bring out this meanness in people, where people get into this kind of mob mentality and they become unkind to each other. And those two things have happened all over the internet; they’re both very present in Facebook, everywhere. And it’s a bit of a subtle debate, and it takes a while to work through it with somebody who doesn’t see what I’m talking about. That was what I was talking about.

But then there’s this other thing about the centralization of economic power. What happened with Maoists and with communists in general, and neo-Marxists and all kinds of similar movements, is that on the surface, you say everybody shares, everybody’s equal, we’re not gonna have this capitalist concentration. But then there’s some other entity that might not look like traditional capitalism, but is effectively some kind of robber baron that actually owns everything, some kind of Communist Party actually controls everything, and you have just a very small number of individuals who become hyperempowered and everybody else loses power.

And exactly the same thing has happened with the supposed openness of the internet, where you say, “Isn’t it wonderful, with Facebook and Twitter anybody can express themselves. Everybody’s an equal, everybody’s empowered.” But in fact, we’re in a period of time of extreme concentration of wealth and power, and it’s precisely around those who run the biggest computers. So the truth and the effect is just the opposite of what the rhetoric is and the immediate experience.

A lot of people were furious with me over Digital Maoism and felt that I had betrayed our cause or something, and I lost some friends over it. And some of it was actually hard. But I fail to see how it was anything but accurate. I don’t wanna brag, but I think I was just right. I think that that’s what was going on and that’s what’s happening in China. But what’s worse is that it’s happening elsewhere.

The thing is, I’m not sure that what’s going on in the U.S. is that distinct from what’s going on in China. I think there are some differences, but they’re in degree; they’re not stark. The Chinese are saying if you have a low social rating you can’t get on the subway, but on the other hand, we’re doing algorithmic profiling that’s sending people to jail, and we know that the algorithms are racist. Are we really that much better?
I can't get worked up about Chinese abuses when the U.S. government, major corporations, universities and media are moving the nation is the same direction as China. If anything, I prefer China because as a foreigner I do not have a personal interest in their politics. Moreover, Chinese censorship tends towards the narrow, whereas American censorship is broad. China has digital mobs, but most censorship is state managed. Mobs are only allowed to run wild when there's a state political goal (such as anti-Japan). From my experience, you have to try to get an account banned or a post censored in China (except when they suddenly make a word verboten for a time, then you might see a post randomly disappear).

In America, the mobs get state and corporate support. Polling shows a large portion of Millennials oppose the first amendment. They aren't a "wumao dang," but they serve the same purpose. Even many libertarians will defend YouTube's right to kick people off its platform for whatever violation (how much is corporate controlled and mob abuse of reporting systems is unknown), despite the social and political impact being the same as in China. Moreover, posts and accounts are banned with seeming randomness. Sometimes censorship is driven by advertisers, but it also tends to be political. If you have right-leaning opinions, you are much more likely to run afoul of the censorship algorithms.

Expansive free speech in America was always more a cultural than a legal right. Political speech was protected, but there were blasphemy laws and pornography was banned. America isn't going back to a time of freewheeling political speech and limits on blasphemy and pornography, it is moving to a world where political speech is limited and pornography is unlimited. It is moving in a direction very similar to China, where important topics cannot be discussed, but the public is free to distract themselves with unimportant topics as much as possible. The technology China will use to exert totalitarian control, social credit and next the public blockchain, are also being built in the West. China is more explicit in its censorship, it is top down. American censorship is bottom up, veiled behind property rights if a private entity or egalitarianism if public. Mao removed enemies of the regime, and those proclaiming diversity and inclusion also remove enemies of the regime.

Crunch: First-Tier Banks Tighten, Halt Home Equity Lending

21st Century: 一线城市住房抵押贷款变局: 利率走高、审核趋严 部分银行停贷
According to a 21st Century Business Herald reporter’s interview, in the first-tier cities such as Beijing and Shanghai, once-hot home mortgage loans tended to decline. At present, Beijing, Shanghai, a number of stock companies, small and medium banks have suspended personal residential mortgage consumer loans. Among other banks that did not stop housing mortgage loans, there were also cuts in the number of loans, upward interest rates, and tightened lending standards.

...“Home mortgage is one of the major businesses of our guarantee company. We have cooperation with dozens of banks in Beijing, but from the fourth quarter of 2017, we obviously felt that the mortgage interest rate rises again and again.” April 25th, Li Xiang Said: "In terms of consumer loans, most of the banks we cooperated with in the fourth quarter of last year were able to achieve a minimum annualized interest rate of 5.39%, but now consumer loan approval loan rates are generally between 6% and 7%."

In addition, according to Li Xiang, the approval of mortgage loans is also tightening. “The approval of the state-owned banks such as ICBC and Bank of China and the stock exchanges of CITIC and Xingye are tightening.”

On April 25, an account manager of a certain loan department of the Bank of Beijing told a 21st Century Business Herald reporter that the maximum amount of personal consumer loans has been reduced from 1 million yuan to 300,000 yuan, and the loan interest rate has risen at least 20% (annualized 5.88%) , and it is not allowed to mortgage personal unique housing.

On April 25, a customer manager of China Merchants Bank in Beijing also stated that China Merchants Bank’s consumer loan policy has been tightened this year. The current consumer loan interest rate has increased from the lowest of 6.03% at the end of last year to about 6.9%, and the number of years from the previous 10 will be shortened to 5 years, which means that the monthly repayment amount will be doubled under the same amount.
Taking CITIC Bank as an example, at the end of February, China CITIC Bank announced the suspension of personal housing mortgage loans of more than 2 million yuan in the Beijing area. (See Global Times: Bank halts home equity loans in Beijing, as measures to rein in real estate continues) On April 25th, when the 21st Century Business Herald reporter called the account manager of the credit loan department of CITIC Bank once again, the account manager told the 21st Century Business Herald reporter that the current maximum amount of housing mortgage consumer loans of China CITIC Bank was 1 million yuan, but the home mortgage business loan The ceiling has been lowered from the previous 10 million yuan to 2 million yuan, and the interest rate has generally risen from 40% (6.86%) in the beginning of this year to about 7.03% now, but the specific interest rate will be adjusted according to the different qualifications of customers.

In addition, more stocks with smaller stocks or some city commercial banks simply stopped their consumer mortgage business. For example, customer managers of Zheshang Bank Beijing Branch and Bank of Jiangsu Shanghai Branch all told 21st Century Business Herald that they have not used personal housing mortgage loans, and the discount rate on mortgage loans for home mortgages has also been reduced. “In the past, most companies could loan 70% or 60%, but now the discount rate for mortgage loans for SMEs is only around 50%.” On April 25th, an account manager of the Shanghai branch of Jiangsu Bank stated.


The Trump "Boom"

There is no Trump boom. There are signs of improvement in some areas of the economy. Some of these are from Obama lows. In other areas such as lending, there is an increase in growth, but it is well below Obama highs. GDP growth is not accelerating.

New home sales are pushing on the upper limit of the post-2008 recovery. It could breakout, but hasn't yet.
Producer prices have broken out of the prior uptrend. I argue this is a peak in commodity prices, but if I'm wrong, this is where I'd look for a trend. This is the only data point that is breaking from trend under Trump. And I say it's China, not Trump, that caused this.
There are signs lending could be picking up, but an increase in growth only gets back to the faster growth rate seen several years ago. As the chart shows, teh slope of the current trend, even with a breakout, is lower than before.
Average hourly earnings are increasing a bit faster since 2014, but no breakout that suggests serious wage inflation.
Consumer prices are rising at the same pace for years on end.
Inflation expectations are in a downtrend.
The "inflationist" camp has been wrong at every single point since 2008. Most were calling for a dollar crash then and it never came. Inflation was supposed to take off. Interest rates were supposed to soar. At every turn they have been wrong because their economic model is wrong. QE doesn't work. If people don't borrow, credit doesn't flow into the economy, money supply growth is stagnant. Deeply indebted companies (crucially banks) will not borrow (or lend).

Ironically, I'm more open to a potential change today because the Federal Reserve is shrinking its balance sheet. That is a meaningful change. The Republicans were willing to boost deficit spending for tax cuts and military spending under President Trump. I don't know if that's enough to cause a major uptick in GDP growth, we'll soon find out. The question is whether rising interest rates will spark an uptick in economic activity, a rush to borrow and buy homes, a rush to borrow and invest in new businesses, new plant and equipment, before rates go higher. If yes, there's a case for inflation. If not, then the Fed was probably holding deflation at bay and the next downturn will be uglier than in 2011 and 2014.
The other key component is the U.S. dollar. It broke out of its 16-month downtrend this week.
A rising dollar amid rising interest rates is not only a deflationary scenario, it's the nightmare scenario for the global economy.

China ETFs, Tech Stocks Looking Plungy

The bottom chart is the 3X Daily Inverse China fund, YANG.
Here are some tech-related China stocks listed in the U.S. Alibaba (BABA), CTrip (CTRP), Fang Holdings (SFUN), Weibo (WB) all display topping patterns, Jingdong (JD) and Netease (NTES) already breaking down.


Internet Dustup: Empty Six Bank Accounts to Buy Home

Fan Gang caused a stir by saying young couples should consider six bank accounts to buy a home: both of their parents, and all four sets of grandparents. Youthful netizens were not amused.

iFeng: 央行专家提"六个钱包买房" 为何戳中年轻人的心?
To be fair, since the individual media were taken out of context, the public’s original intention of Fan Gang was actually misunderstood. Looking back at the prevailing context, when the audience asks whether the young people want to buy a house, Fan Gang’s original intention is to say that “six wallets” are important indicators for measuring family conditions. If financial resources permit, they should make use of the mechanism of mortgage loans. If financial resources do not allow it, you should consider renting , and don't just "get in the car."

As an expert in real estate policy research, he called on young people to act in a decisive manner. Fan Gang's statement was in fact nothing wrong. However, under the circumstances where many young people are anxious about housing prices, Fan Gang’s speech just activated the public’s “angry point.”

Stress: 2nd-Tier City Deposit Rates Soar at End of Q1

Interest rates for mortgages and deposits are going up at the same time there's a massive rally in government bonds.
iFeng: 二线城市存款利率大幅上浮 一年定存利率超基准170%
With the continuous progress of the interest rate liberalization process, the “price gap” in bank deposit interest rates has become increasingly apparent.

Recently, the "Securities Daily" reporter visited and found that the current bank deposit rates represented by the city of Beijing did not show significant adjustments, while the interest rates of small and medium-sized banks in the second- and third-tier cities rose by a relatively large margin. The highest benchmark interest rate went up by 170%. In addition, the banks’ enthusiasm for issuing large certificates of deposit and raising interest rates has increased. Some banks have increased their interest rates on large deposit certificates, which have risen by up to 55% from the benchmark interest rate.

At the end of March this year, our reporter visited the Beijing area’s state-owned banks and found that, except for Bank of China’s short-term fixed deposit interest rates, which have risen by 40%, the highest floating rates of other large bank deposits have averaged between 20% and 30%. Bank deposit rates rose by more than 40% from the benchmark interest rate. Today, less than a month later, the reporter visited the survey again and found that major banks have not changed their interest rates on fixed deposits. However, a number of banks recently raised interest rates on large deposits one after another, and some city commercial banks have the highest interest rate on large deposit certificates, which is 52% higher than the benchmark.
Deposit interest rate rise eye-catching

In some second- and third-tier cities, some banks not only drastically increased deposit interest rates, but also raised interest rates on large deposit receipts. Our reporter found during the investigation that some bank deposits with one-year deposits had the highest interest rate of 170% over the benchmarks. The highest deposit price is 55% higher than the benchmark.

Among them, some city commercial banks in Xinghua City, Jiangsu Province, before this time, the rate of fixed deposits in each term floated 30%. After this time, the newspaper reporter found out that after dialing the bank outlets, the corresponding term deposit rates rose by 45%. The large amount of deposit certificates has been raised even more. Deposit interest rates for all periods prior to the RRR cut have risen by 45%, and they have risen by 55%.

At the same time, according to the “Securities Daily” reporter, some banks in Shenyang, Liaoning Province, will raise the interest rate for one-year deposits. Among them, the one-year fixed deposit interest rates of a rural commercial bank in Shenyang area and a city commercial bank in Liaoyang area were 4.05% and 3.6%, respectively, which was much higher than the interest rate of large deposit certificates in Beijing, and was 170% higher than the benchmark rate and 140% higher, respectively.

In the Hubei area, the interest rate for one-year deposits of individual urban commercial banks reached 2.94%, which was 96% higher than the benchmark interest rate. At the same time, the bank has also recently raised the interest rate on personal large deposit certificates, in which the 3-year large deposit bill interest rate has been raised from 3.99% to 4.26%, which has risen by about 55% over the benchmark interest rate after the increase.

According to industry sources, asset management regulations are about to come to an end, and bank assets are returning to the table. Many banks have responded to the bank's financial transformation pressures and storage pressures by issuing structured deposit products. After the floating ceiling on bank deposit interest rates was gradually liberalized, various types of banks not only adjusted the interest rate on large deposit certificates, but also made certain adjustments to other kinds of deposit products. Overall, bank deposit rates have remained stable or even upward.

Shocker: China Spends on Muslim Surveillance

Bloomberg: Foreigners Can't Get Enough of This Chinese Surveillance Stock

The rapid growth of the police state in the West is largely a result of Muslim terrorism. London is covered in security cameras. The resources devoted to anti-terror efforts in the U.S. are massive. This is going nowhere fast.

Start The Countdown to Yuan Devaluation, USDCNY Back to Old Peg Value of 8.28

ZH: Grant's Almost Daily: China Impulse Control
Could another Chinese currency devaluation be in the cards? Recall that the August 2015 yuan deval was followed by a severe bout of global risk aversion, culminating in a 9% intraday decline in the S&P 500 on Aug. 24, 2015. On that day, a trading halt in eight S&P 500 stocks cascaded into an ETF pile-up featuring major dislocations to net asset value and stoppages of 42% of all equity ETF’s. Will this time be different? The bulls hope so.
History repeats, only this time much bigger.

The 2011 slowdown in Chinese growth and reserve decline peaked at 2.8 percent yoy in May 2012 accompanied by mild yuan depreciation, mostly centered in offshore CNH.

In the ensuing growth wave, reserve growth peaked at 15.4 percent yoy in December 2013, adding $800 billion into the peak of $4 trillion in June 2014 (the U.S. Dollar Index began to rally in July).

In the ensuing contraction, reserve decline peaked at 15.8 percent yoy, taking off a $1 trillion and bottoming out at $3 trillion in January 2017. The yuan devalued 11 percent from peak to trough, including the 3 percent "shock" devaluation in the month of August 2015.

This wave of reserve accumulation peaked in January 2018 at 5.4 percent growth, adding $140 billion. We may see a few more months of accumulation or not, but it won't be meaningful. This entire accumulation will be wiped out in a single month during the coming contractionary wave.

China has added credit controls, but there's also much more renminbi floating around with a claim on reserves. Even though there are fewer holes, adding water to the bucket increases pressure on the existing holes. Outflows will be substantial if China doesn't allow for a larger decline in the yuan, especially if it reverses on credit and prints/lends to keep nominal GDP growth elevated.
China's reserve backing of M2 money supply is already below that of the Asian Tigers heading into the 1997 Asian Crisis.

Here's a scenario to show how quickly China's reserve position versus money supply can deteriorate. Assume credit growth of March 2018 continues at 7.7 percent annualized growth (this is a slow rate that assumes no pick-up in credit. The economy will slow further at this rate of M2 growth). Assume reserves peaked and will drop to around $2.6 trillion by April 2019, a decline of around $50 billion a month. In order for reserve coverage to be the same 11.4 percent of reserves as in March 2018, the yuan would have to devalue to around USDCNY 8.28, the peg level from the mid-1990s through the mid-2000s.

Events may not play out that quickly, credit growth could accelerate and reserves could decline more than expected, although $50 billion seems like a conservative estimate to me. Yet that puts China in a precarious position if there's a run on the yuan.

In order to preserve it's reserve position, it would have to do a much larger devaluation such as 10 percent, and then use reserves to defend from there. Last time the 2 percent "shock" ended up as an 11 percent total depreciation, higher form the yuan's peak value. Outflows peaked after the devaluation as well, not before.

The key for a big depreciation is disinflationary/deflationary global monetary conditions that causes the U.S. Dollar Index to rise. If the U.S. dollar depreciates, the yuan can piggyback it and avoid a crisis. Global inflation will boost global growth, USDCNY would fall and Chinese reserves might stabilize or even rise. I don't think this scenario is likely. Instead, it looks like growth and inflation are peaking. China is on a glide path to a major depreciation in the yuan. Any additional pressures from trade conflict or a recession in the U.S. or financial market panic/bear market and things could get ugly in a hurry.

Litecoin, Decred, Ethereum, Omisego Blast Off

Still waiting on a Monero breakout. This is probably the most bullish sign for the Nasdaq right now, that speculative fever in cryptos isn't dead yet.

Illegal Fundraising Falls in 2017

Illegal fundraising saw 5052 cases and 180 billion yuan in 2017, down from the year before. Cases continued falling in early 2018. However, there are still 13,000 cases outstanding and the caseload is still growing.

East Money: 非法集资持续“双降” 2017年未处置存案1.3万起
On April 23, the information released by the Inter-Ministry Joint Conference Office on Disposal of Illegal Fund Raising (hereinafter referred to as "the Office") showed that illegal fund-raising cases continued to "double down", but the overall situation was still severe. In 2017, a total of 5052 new illegal fund-raising cases were filed across the country, involving a total amount of 179.55 billion yuan, a year-on-year decrease of 2.8% and 28.5% respectively. From January to March 2018, there were 1037 new illegal fundraising cases, involving a total amount of 26.9 billion yuan, down 16.5% and 42.3% year-on-year respectively, and continued to maintain a “double down” trend.

  However, Yang Yuzhu, director of the office, also stated that the current total case rate is still operating at a high level, the number of people involved in fundraising continues to rise, inter-provincial cases continue to occur, and serious cases involving multiple provinces and even the whole country still occur from time to time. The overall situation is still severe. .

  It is reported that in 2017, various provinces (autonomous regions and municipalities) combed over 13,000 cases of Chen’s case that had not been disposed of.
What is illegal fundraising? It includes everything from fraud and Ponzi schemes to companies misrepresenting themselves:
Companies that are not financial institutions or engage in financial activities do not use "exchange", "exchange center", "finance", "asset management", "financial management", "funds", "fund management", and "investment management" in principle. "Wealth Management," "Equity Investment Fund," "Internet Lending," "Internet Lending," "P2P," "Equity Crowdfunding," and "Internet Insurance.""Pay" and other words.
The Supreme People's Court stated that the people's court has always adhered to the principle of strict punishment and severely cracked down on illegal fund-raising crimes in accordance with the law to ensure the effect of punishment. From 2015 to 2017, the rate of heavy penalty for illegally assaulting public deposit crime cases (the rate of sentence of imprisonment of more than five years imprisonment) was 23.17%, 19.42%, and 18.4%, respectively, and the conviction rate for fund-raising fraud cases was 75.03% respectively. , 77.77%, 77.22%. The imprisonment rates for illegally absorbing public deposits were 71.20%, 72.91%, and 78.36, respectively. The imprisonment rates for fund-raising fraud cases were 93.44%, 94.82%, and 93.66%, respectively.

Some Fossils are Better Than Others

Bloomberg: Electric Buses Are Hurting the Oil Industry
Suddenly, buses with battery-powered motors are a serious matter with the potential to revolutionize city transport—and add to the forces reshaping the energy industry. With China leading the way, making the traditional smog-belching diesel behemoth run on electricity is starting to eat away at fossil fuel demand.

The numbers are staggering. China had about 99 percent of the 385,000 electric buses on the roads worldwide in 2017, accounting for 17 percent of the country’s entire fleet. Every five weeks, Chinese cities add 9,500 of the zero-emissions transporters—the equivalent of London’s entire working fleet, according Bloomberg New Energy Finance.
CTRL-F "coal" produces zero results.

Chinese Stocks Pop After Politburo Hints at Inflation Solution

Yesterday I posted Politburo Watching All 5 Major Financial Markets. The statement from the latest meeting on April 23 said the party is watching credit, real estate, currency, bond and stock markets, something that has never happened before. They've mentioned property markets often, and focused on other markets at times, but never all five. While they didn't say credit easing was coming, the statement was interpreted as dovish because it didn't reference deleveraging.

Chinese traders took the news to be very dovish on Tuesday and they bid up Chinese stocks, sending the Shanghai Composite up 2 percent and the ChiNext up 3 percent.

Bloomberg: Xi Ready to Respond as China Rattled by Trade, Debt Risks
China’s leaders are giving their strongest signal since 2015 that growth in the world’s second-largest economy could slow -- and that they’re prepared to tweak policy if trade or financial risks threaten a sharp deceleration.

Hard work is needed to meet this year’s economic targets amid an increasingly complicated geopolitical situation, according to a statement released by state media Monday following a Politburo meeting led by President Xi Jinping. Though growth remained robust in the first quarter, forecasters still see the economy slowing this year as trade tensions with the U.S. and the campaign to clean up the financial sector remain as downside factors.

As the Politburo statement mentioned the need to boost domestic demand for the first time since 2015, and dropped a reference to deleveraging, investors are interpreting the change in tone as a signal that the government may ease off tightening measures if warranted. Stocks in Shanghai rallied the most in two months Tuesday.
For years, I warned that China had to reform its economy and currency. As credit expanded, the cost of a crisis increased. China has no excess reserves, it expanded its financial system along with reserves and then far beyond post-2008. As time passed amid a period of negative mood, the risk of an external shock such as U.S. trade retaliation increased. When that shock came, it would force China's hand. Now the end game is in sight. China is losing control of its currency and its economy. It is dependent on a falling U.S. dollar to keep the yuan stable and it is dependent on U.S. trade relations (more broadly global economic growth) to keep its deleveraging plans on track.


Monetary Stimulus Loses Effectiveness

China Reverses Reforms in Heavy Industries

Bloomberg: China's War on Pollution Fuels State Takeover of Heavy Industry
President Xi Jinping’s big push to curb pollution and excess capacity in steel and other industries is also consolidating his government’s control over them.

Just last year, the state’s share of steel capacity increased to 67 percent from 60 percent while aluminum smelting saw about an equal increase, J Capital Research Ltd. estimates. In coal, which began consolidating years earlier, the government now controls 80 percent of capacity compared with about 45 percent in 2010, according to the Hong Kong-based firm.

China/Dollar Shock Incoming

Bloomberg: China Yield Slide May Pose Greatest Danger to Emerging Markets
“What makes the move more disconcerting is that there has been a very close correlation between China yields and the global economic surprise index over the last year,” the strategists wrote. “This raises the question as to whether China is the potential source of slowing economic momentum through the global economy.”

Dollar Breaks 16-Month Downtrend

Vietnam Bounce or Bust

Politburo Watching All 5 Major Financial Markets

iFeng: 史无前例!政治局会议同提五大市场(附解读)
To promote the healthy development of credit, stock market, bond market, foreign exchange market and property market”, today's Xinhua News Agency suddenly broke through the news and announced the important contents of the 423 Central Political Bureau meeting. This sentence has become the most central expression! The meeting also mentioned the names of the five markets of credit, stock market, bond market, foreign exchange market and property market, which has never been done before.
There is only one way to make all of these markets healthy: major free market reforms. Otherwise, one or more of these markets is being manipulated to keep the others healthy, as is the case with property, credit and foreign exchange at the moment.
The Politburo meeting held today, compared with the meeting on February 24, has changed its expression. The added content is mainly in four aspects:

First, continue to expand domestic demand

The second is to strengthen the key core technologies and actively support the development of new industries, new models, and new formats.

The third is to reduce corporate financing, energy use and logistics costs

The fourth is to promote the healthy development of credit, stock market, bond market, foreign exchange market and property market

Looking back at the February 24 meeting, we emphasized these aspects:

First, to achieve the objectives of economic and social development this year, it is necessary to maintain the stability of macroeconomic policies and implement a proactive fiscal policy and a prudent monetary policy.

The second is to further promote supply-side structural reforms, speed up the building of an innovation nation, deepen reforms in basic and key areas, and resolutely fight for the three major challenges.

Third, implement the strategy of rejuvenating the countryside, promote a coordinated development strategy for the region, expand consumption and promote effective investment, promote the formation of a new pattern of comprehensive openness, improve protection and improve people’s livelihood.

The fourth is to comprehensively strengthen the government's own construction, adhere to administration in accordance with the constitution, administration according to law, improve government effectiveness, and better serve the people.
Guan Qingyou mentioned that there are many signals worth attention:

First, there is no worry about the economic downturn caused by squeezing liquidity and squeezing bubbles.

Second, the monetary and fiscal tone does not seem to change, but it actually leaves an opening for easing.

Third, we continue to dilute the aggregate indicators, and we must look at structural indicators in the future.

Fourth, the changes in the top-level leadership mechanisms will become clearer and their execution will increase significantly.

Fifth, stressing the opening of the Boao Forum for Asia and Hainan is a strong signal of reform and opening up.

Sixth, high-quality development requires new “anchors”. The comprehensive statistics of the central bank’s financial industry is just the beginning. These anchors are estimated to be launched one after another.

Seventh, 2018 will become the core technology dividend year. The trade war between China and the United States is not terrible. The terrible one is the financial and technological warfare. The ZTE incident has sounded a warning to China and the Central Government has taken it seriously. In the core components, core infrastructure, especially the network infrastructure is subject to people, is China's largest weakness. Recently, the central government has held consecutive meetings and there will certainly be a large number of supporting funds and policies. However, we must also realize that these technologies are not the same as nuclear weapons, they have objective laws, they require time and accumulation, and the question of whether the nationwide system can work is a question mark. However, we have no other choice.

Eighth, the central government is not only concerned with banks and the property market. Now more than ever, it must pay attention to capital market risks. Specifically referring to "promoting the healthy development of credit, stock market, bond market, foreign exchange market, and property market," the names of the five markets have been set. This has never happened before. Credit is a traditional banking risk, and the property market is a traditional real estate risk. Adding the stock market, bond market, and foreign exchange market is an important change in recent years. This is mainly because these markets have exposed major risks. The money shortage in 2013 and the debt crisis in 2016, the stock market disaster in 2015, and the evacuation of foreign exchange reserves after the 811 (August 11, 2015) fell 1 trillion yuan, what are the market risks in such a system? Layers must not be missed.

A-Share ETF Over the Precipice

China Tech Topping

China tech could be in serious trouble. Related: Do or Die for Tech

USDHKD Moves Further Off Limit

USDHKD eased to 7.8430 at the moment. The dollar stress in the exchange rate may be over, but if so, the stress will migrate to a new target.

SCMP: Higher interest rates after HKMA intervention stoke property and stock worries
For the past three years, even as the HKMA increased its base rate six times in lock step with the US Federal Reserve, local commercial banks have managed to keep lending rates low, thanks to the abundant inflows into the city’s assets.

So much so that some market watchers are worried about the potential impact of higher borrowing costs on the city’s red hot property and equity markets.

The HKMA has used HK$51 billion (US$6.5 billion) of its US$440 billion in foreign reserves over the past week to purchase the local currency, mopping up cash from the banking system, which could finally compel commercial banks to raise rates to be in sync with their US counterparts.

Ethereum and Litecoin Back at Major Resistance

If Bitcoin broke through last week, if it holds look for ETH and LTC to follow through, followed by Monero XMR.


Funds Cut ZTE Valuations 19 to 36pc

iFeng: 中兴通讯危局第6天!或现转折点逾40家基金下调估值

No Deleveraging in Real Estate

iFeng: 一季度房产开发贷款余额7.7万亿 同比增长25.3%
According to the website of the People's Bank of China, the central bank yesterday issued the "Statistics Report on Loan Investment of Financial Institutions in the First Quarter" (hereinafter referred to as the "Report"). According to the report, the Central Bank statistics show that at the end of the first quarter of 2018, the RMB real estate loan balance was 34.1 trillion yuan, an increase of 20.3% year-on-year, a deceleration of 0.6 percentage points from the end of the previous year, and an increase of 1.9 trillion yuan in the first quarter, accounting for various items of the same period. The proportion of loan increments was 2 percentage points lower than the level of the previous year.

The "Report" pointed out that at the end of the first quarter, the balance of real estate development loans was 7.7 trillion yuan, a year-on-year increase of 25.3%. The balance of affordable housing development loans was 3.8 trillion yuan, an increase of 37.9% year-on-year, and an increase of 447.9 billion yuan in the first quarter, which accounted for 64.7% of real-estate development loans for the same period, 16 percentage points higher than the level of the same period of the previous year. The balance of real estate development loans was 1.4 trillion yuan, an increase of 2.2% year-on-year. The balance of personal housing loans was 22.86 trillion yuan, a year-on-year increase of 20%. The growth rate was 2.2 percentage points lower than the end of the previous year. It increased by 999.4 billion yuan in the first quarter, a deceleration of 175 billion yuan year-on-year.


Potential China Boycott Highlights Asymmetries in Trade War

In March I wrote: Prepare for Smashed Up KFCs and McDonald's. China's ultimate (as in the last option, not the best option) weapon in a trade war is aggressive nationalism. Mass protests similar to anti-Japanese riots could be unleashed on visible American brands in China. However, a wider boycott of U.S. products will have less of an impact because most manufacturing is done outside the U.S. Apple (AAPL) is not General Motors. While it's profits would fall and its stock price would tumble, the economic blow from an Apple boycott would hit Chinese (and overseas) employment harder than the U.S., where Apple retail jobs dominate.

NYTimes: In a Trade War, China Might Boycott U.S. Goods. That Could Backfire.
Some Chinese state media outlets have hinted darkly that Beijing could weaponize its hundreds of millions of shoppers should Washington go through with its recent tariff threats and start an all-out trade war. On Weibo, China’s version of Twitter, there are sporadic calls to boycott Apple’s iPhones. Beijing has done it before, ably punishing Japanese, South Korean and Philippine products and companies over political disputes.

...If China calls for a boycott of American goods, Chinese workers like David Xu could be in trouble.

Mr. Xu is one of thousands of residents of this port town who cash paychecks from American companies. He works as a technician at a Procter & Gamble manufacturing and distribution center here, one of the company’s biggest in China. Across town, Nike has opened a huge distribution center, its largest in Asia.
That isn’t to say that the idea is off the table.

The Global Times, a nationalist tabloid controlled by the People’s Daily, the Communist Party’s official newspaper, warned that a “people’s war” could be waged against the United States. On Chinese social media, the phrase “China is not scared!” has become a popular hashtag, the People’s Daily illustrating it with an image of Chinese and American boxing gloves.

“The patriotism and collectivism of the Chinese people will likely play a role,” the newspaper said in an editorial last month. “And the slogans to boycott American cars and other big commodities may ring through the Chinese internet and get a response.”
As I wrote before, if I was an American company I'd probably work to reduce my "Americaness" in China even without a trade war because negative social mood and rising nationalism could provide a flash point in the future.
Consumers in China can be a potent force. In 2012, Chinese nationalists wrecked Japanese stores and car dealerships and boycotted Japanese cars because of a territorial dispute, hurting sales for years. In 2016, online vendors stopped selling dried mangoes from the Philippines after a United Nations tribunal ruled in favor of Manila in another territorial dispute.

Last year, the South Korean conglomerate Lotte was forced to shut down more than 80 stores in China after the South Korean government provided land for an American missile defense system that Beijing strongly opposed.

More recently, Chinese nationalists have besieged the social media accounts of Western companies that labeled Taiwan, a self-governing island that Beijing considers a breakaway region, and Tibet as countries.
It is wrong to think of a trade war solely in economic terms, just as it is wrong to think of a war solely in terms of the cost of human lives and materials. In both cases, a pure cost calculation always tells you wars are destructive and should never happen. Yet they happen with regularity throughout human history because the people in charge do a net present value analysis and get a positive value. The issue of going to war is binary, it either happens or it doesn't.

A trade war is stupid from the U.S. perspective because, as even Trump points out, China didn't maliciously attack the U.S. economy. It's own leaders stupidly gave everything away and put the U.S. in a weakened position. The biggest weakness for the U.S. economy is the U.S. dollar's status as sole reserve currency. Solving China trade will only shift the trade deficit to other nations. Targeting China pushes the costs of U.S. policy errors onto China, forces them to increase imports to offset the weaknesses in American economic policy.

Even without incompetent or malevolent elites, American workers face a doubly weak position in a global economy as a high-wage economy that issues the reserve currency. Domestic economic reform, global monetary reform and domestic monetary reform are needed. But those aren't coming. Trade war is coming. The U.S. has an advantage in a trade war because it will lose far less than China and can absorb the pain (political, social) better than China. As nationalism increases on both sides, the NPV calculation will turn more positive as it increasingly relies on the psychological value of "winning."

Socionomics Alert: Beijing Restricts Building Height

The Skyscraper Index is a social mood indicator that shows correlation between economic cycle peaks and the building of the world's tallest skyscrapers.
The first notable example was the Panic of 1907. Two record-breaking skyscrapers, the Singer Building and Metropolitan Life Insurance Company Tower, were launched in New York before the panic and completed in 1908 and 1909, respectively. Met Life remained the world's tallest building until 1913. Another string of supertall towers – 40 Wall Street, Chrysler Building, Empire State Building – was launched shortly before the Wall Street Crash of 1929.

The next record holders, World Trade Center towers and Sears Tower, opened up in 1973, during the 1973–1974 stock market crash and the 1973 oil crisis. The last example available to Lawrence, Petronas Twin Towers, opened up in the wake of the 1997 Asian Financial Crisis and held the world height record for five years. Lawrence linked the phenomenon to overinvestment, speculation and monetary expansion but did not elaborate these underlying issues.[4] The concept was revived in 2005, when Fortune warily observed five media corporations investing in new skyscrapers on Manhattan[3] (none of them, including the tallest New York Times Building, broke any records).
There are several different takes on the Skyscraper Index, and it has corollaries such as new, lavish corporate headquarters sometimes signaling a peak in a company's fortunes.

The social mood argument is simple: when a society is at peak optimism, it reaches for the heavens. This news out of Beijing signals the massive change in social mood and thinking in China.

The Beijing government has retroactively restricted the height of buildings in a prime plot of the city’s core business district to as low as 100 metres, truncating the building heights and potential investment returns of developers who purchased more than RMB 8.6 billion ($1.37 billion) in sites in the area at least seven years ago.

...The affected area in Beijing’s CBD is located north of Jianguomen Outer Street and east of Third Ring Road in the capital’s Guomao commercial zone, and lies just south of the landmark CCTV Tower. The mega-site, which was characterised in a JLL report last year as Beijing’s “superblock,” is made up of 15 plots, which were sold in 2010-2011, anchored by CIC and CITIC’s 528 metre China Zun tower.

...“The completion of these projects will thus be postponed for at least a year as redesigning and government approvals take time.” The projects are now expected to be completed in 2022-23, Cao added.

The office supply in floor area in the affected area will decrease by 10 to 30 percent due to the height restriction, Cao predicts.
Not everyone will lose out. Early builders get around the restrictions and will now have a larger slice of office supply in the area.
The future headquarters of CITIC Group, China Zun, a substantially finished 108-storey building will reach 528 metres — 198 metres higher than the China World Trade Centre Tower III, and some 340 metres above the new guidelines.
The takeaway from a Socionomic perspective is Beijing is no longer reaching for heaven, by trying to cap growth and population, and worrying about oversupply. It is a local regulation and China is still reaching for the heavens with Moon missions, but it is also China's capital city. A shift in mood is underway.

Bitcoin, Decred Breakout, Litecoin Fails at Resistance, Waiting on Ethereum and Monero