Chinese Fund Companies Have Exhausted 2018YE Cash Positions

A report from Galaxy Securities shows Chinese fund companies have exhausted all but 79.5 billion yuan in buying power based on the year-end portfolio snapshots. Although animal spirits revived in the Chinese stock market, investors haven't been buying funds. Money is flowing out of bonds and money markets, and into stocks. There was a large spike over the past week. The takeaway: capital is rotating from debt and cash to equity, but for this market to have legs it will require wider participation and new buyers stepping in.

21st Century:公募仅剩795亿子弹可打?热门指基连迎十亿级净申购
On February 26, a report released by the Galaxy Securities Fund Research Center showed that among the active stock funds, the remaining funds available for buying stocks based on the latest fund's net asset value were 79.5 billion yuan.

This data has caused huge market attention.

According to the report, the above analysis is based on public fund data at the cut-off point on December 31, 2018. If there are a large number of large purchases in the near future, the new funds will be improved. However, from the perspective of the information from various angles, there has not been a clear phenomenon of large-scale subscription of public funds in the whole society.
Capital is flowing away from bonds and money market funds though:
The 21st Century Business Herald reporter learned from a number of fund companies that the recent huge purchases have rarely occurred, but the situation of a significant increase in net purchases is constantly occurring, especially index products are leading the way.

Another noteworthy sign is that some of the recent redemption of money funds and bond funds has intensified, and the “stock bond” effect has begun to emerge.
If this is a new bull market in China, it is in its very early stages. Weekly account openings are one-fifth of the prior bull market peak:
According to data disclosed by China Settlement Disclosure on February 26, the number of new investors in China's securities market last week was 316,100, with a previous value of 208,600, a 53% increase from the previous month. This is the first time since April 2018 that the number of accounts opened in the first week exceeded 300,000. However, during the last round of bull market, the highest number of weekly accounts opened exceeded 1.6 million, far higher than the current number of accounts.
Some investors are heading for the exits though as redemptions pick up:
Insiders of a fund company in Shenzhen revealed to reporters on February 27 that during the downturn of the stock market, the total redemption amount of the company's cargo base was roughly 700 million yuan to 800 million yuan, but on February 25 and 26, the company's goods The net redemption amount of more than one billion and two billion, respectively, has risen significantly.

This situation is not a case. According to Wind statistics, as of February 27, 2019, the Monetary Fund's on-market circulation share was 188.46 billion, a decrease of 11.433 billion from the 1998.99 billion at the end of 2018; if compared with last Friday, that is, February 15 It is a reduction of 15.38 billion. It can be inferred from the two differences that the on-site cargo base suffered a significant redemption this year, and the redemption was mainly concentrated in the most recent week.

The situation of some bond funds is also very similar. A public fundraising director in South China bluntly told reporters that several of the bond funds they were responsible for had recently redeemed between 10% and 20%, with a majority of third-party sales platforms redeeming.


Chinese Bankers Expect Home Sales and Prices Stable or Rising

Caijing: 报告称超七成银行家预计房地产将量价齐升或持平
On February 26, the China Bankers Survey (2018) jointly issued by the China Banking Association and PricewaterhouseCoopers pointed out that more than 70% of bankers believe that real estate prices and sales will rise or remain flat.

It is learned that for the first-tier urban real estate market, 70% of bankers believe that the sales volume of the real estate market will rise or remain flat, and more than 80% believe that house prices will rise or remain flat.

For the second-tier urban real estate market, nearly 90% of bankers believe that the sales and prices of the real estate market will rise or at least remain flat; for third- and fourth-tier cities, more than 60% of bankers believe that the sales and prices of the real estate market will rise or remain flat. Compared with 2017, these two figures fell by 3.6 and 6.2 percentage points respectively.

Demon Stocks Back in the News

Demon stocks (妖股) are back. Shares that move wildly out of sync with the broader market for no apparent reason. Speculators often trade these shares because the runs can be spectacular, but there's always the risk they will blow up.

It's no surprise they're back considering two factors. One, animal spirits are back. Two, the Chinese government all but welcomed manipulative speculators back to the market in November.

China Welcomes Stock Manipulators in Bid to Boost Liquidity, Australia Fraudulent Lending
On the mainland exchanges, "hot money" is returning to the market because Chinese regulators said they would intervene less in the markets. The dearth of trading has caused the shift in focus. According to one report, traders suspected of manipulation are no longer receiving warnings for their suspicious trading activity.

The hot money has always been adhering to the short and fast style. When the news was first seen, Mr. W entered the trading. In fact, Mr. W has been away for more than two years. In mid-October this year, he was told by the broker that his account had been removed from the blacklist.

“There were three transactions this week. I still received the supervision letter for the first time, but I did not receive window guidance or supervision letter the next two times. The trading environment is indeed picking up.” Mr. W’s feelings also led to other active funds around him.

A number of active investors focused on short-term trading said that through a week of operations, they found that the verbal instructions and warning letters received were indeed decreasing.
The stock widely discussed yesterday, Eastern Communications, is now more than 20 percent off its intraday high.

JRJ: "妖股崩了":最高2天暴跌26%!8亿游资爆炒"被埋"
"10 times the stocks" Eastern Communications ( , diagnostic stocks ) fell. It plunged more than 6% this morning, and yesterday it staged a "sky floor", which dipped in the end, from a daily limit to a 9% drop. One and a half days (6 hours trading), Eastern Communications fell from yesterday's high, and its stock price plummeted 22.34%.

...Another demon leading Guofeng plastic industry, yesterday from the daily limit price of 8.81 yuan to the limit of the "sky floor", this morning fell again 8.58% closed at 6.61 yuan, down from the high level of 24.97%.

...Fengfan shares fell below this morning. Lutong’s share price and Huaying Technology’s share price also fell again or near the limit this morning. From yesterday’s high, the three stocks fell by 25.97%, 22.74% and 15.24% respectively.
21st Century: 十连板“妖股”频现A股江湖 投机资金杀跌成“最后的晚餐”?


Chinese 5G Stock Rises 1000pc in 4 Months, Only Problem: Not 5G

Chinese stock speculators are as rational as ever. They've sent a communications company's shares up 10 fold since October on 5G hype despite the company coming out and repeatedly saying it has nothing to do with 5G. This anecdote comes from an article that asks, "Can we have a healthy bull market?"

iFeng: 我们能有一个健康平和的牛市吗?
Is this wave of bullish growth a healthy bull market, or is it a wave of speculation caused by large-scale hot money and institutions? In fact, from so many monsters and pseudo-concepts, you can immediately see it. Among them, we only need to look at the leader of the current round of "Oriental Communications" to understand.

Eastern Communications continued its daily limit on the 26th. Although it opened in the middle of the session, the stock still out of the 25 daily limit in 59 trading days, becoming the most aggressive listed company in the so-called 5G concept stocks this year. From the first daily limit on November 26, 2018, to the close of February 26, 2019, in less than three months, Eastern Communications has a daily limit of 25 times in 59 trading days, and the stock price is the lowest on October 19, 2018. Starting from 3.7 yuan, it climbed to 30.67 yuan per share on the 26th, and nearly 10 times in 4 months. 4 months to achieve a 10 times share, according to reason, this should be a "great company" that has undergone tremendous changes in business and company texture!

However, this 5G concept stock, which was enthusiastically chased by the market, has repeatedly said that it has nothing to do with 5G. Even the company itself is embarrassed, and has repeatedly stood up and said that it has nothing to do with the 5G business label that the market sticks to itself! Oriental Communications' main business includes smart self-service equipment, information and communication technology services and operations, corporate networks and information security, and other industries. Dongfang Communications issued a number of risk warning announcements, saying that in the above four main businesses, the company's smart self-service equipment and other industries are not related to the construction of 5G communication network, and the company's enterprise network and information security industry related to the construction of 5G communication network are indeterminate. There is little uncertainty about the future participation of ICT services and operations in the construction and participation of 5G communication networks. The company made it clear in a risk warning to the 21st Century Herald that the above two industries “have no connection with the construction of 5G communication network” and “no operating income related to the construction of 5G communication network”.

Looking at the financial situation of Eastern Communications, it is even less optimistic. In recent years, the revenue and net profit of Eastern Communications have shown a downward trend. The only meager profit is mostly derived from non-recurring gains and losses.
The market may have finally figured this out because Eastern Communications (600776) fell 8.99 percent on Tuesday.

China's Depopulation Wave: Cities Fight for Families

The war for talent China's entry-level working age population peaked in the early 2010s and this cohort is now entering the family formation years. Cities that relied on urbanization for growth are now facing an existential threat: more attractive cities are pulling youth from father away, bypassing lower-tier cities with fewer public services and less job opportunities. As a result, some cities have already started easing real estate restrictions.

iFeng: 二三线城市宽松落户时代来临:拿什么抵挡大城市“人口虹吸”
Cities with public service advantages will attract a large number of registered households and promote the increase of permanent residents; but in third- and fourth-tier cities without public service advantages, the population may accelerate its loss, even in the eastern provinces.

After the Spring Festival, the settlement policies of some large and medium-sized cities have been relaxed.

...The 21st Century Business Herald reporter learned that from 2018 to now, the resident population and registered population in Hangzhou, Guangzhou, Shenzhen, Wuhan, Zhengzhou and other places have increased a lot, but some second-tier cities in the northeast and west, as well as some third- and fourth-tier cities, have a slow growing resident population or even a negative growth rate.
The talent was focused on college graduates in the past couple of years. Now cities are targeting families with policies aimed at people age 45 and younger:
For example, on February 12, Xi’an’s “Notice on Further Relaxing the Conditions for Admission of Some Households in the City” stated that those with undergraduate degree or above are not subject to age restrictions; those with undergraduate degree (excluding) or below are aged at Under the age of 45 (including), you can move to Xi'an.
Dalian is targeting people who are at least 15 years away from retirement:
Dalian Municipality recently issued a number of regulations on the management of household registration in Dalian, which states that there are legally stable residences in towns in the new districts or countries that have obtained full-time secondary vocational schools (including technical colleges) or above, or have studied in the city and have obtained primary workers. Professional qualification certificates, those who are more than 15 years from the statutory retirement age, can settle in the towns of the new district.
Top-tier cities remain the favored destination:
Generally speaking, the higher the city level, the higher the level of public service, and the greater the siphon effect that attracts the population. For example, some municipalities, sub-provincial cities, and provincial capital cities are attracted to the population because of the combination of better education, culture, technology, and financial resources.

This may lead to the influx of people from lower-tier cities to higher-level cities. For example, the rural population will be concentrated in towns and villages, the township population will be concentrated in cities and counties, and the population of cities and counties will be concentrated in provincial capitals, and the population of provincial capitals will be concentrated in sub-provincial cities, planned cities, and municipalities directly under the central government. In many provinces, there may be a situation in which a provincial capital city siphons the net inflow of permanent residents in the province. This is obvious in Shaanxi, Shanxi, Qinghai and other places.

In this regard, Li Yanjun, a professor at South-Central University for Nationalities, believes that there will be differences in the selection of people in cities in the future. For example, the policies of first-tier cities will be stricter, and some second-tier cities will attract a large number of people, but more remote urban populations lacking development opportunities may The loss is serious, which will affect the development of the industry and the need to avoid hollowing out.

Yin Zhigang, executive director of the Beijing Institute of Demography, pointed out that the difference between some megacities and third- and fourth-tier cities is partly in the areas of social services such as social security and medical care. If these services are done well in third- and fourth-tier cities, the population does not have to go to a larger city.

Nine Developers Limit Up as Trade News, MSCI Including and Liquidity Flood Release Animal Spirits

iFeng: A股行情走强9只地产股涨停 多家机构看好今年楼市表现
With this hot market, real estate stocks are also full today. In the Shenwan first-class industry, the real estate sector rose by 5.51% today, with a 7.4% increase on the 5th. According to Wind data, there are a total of 9 real estate stocks closing daily limit; Eastern Fortune Choice data shows that today's real estate sector main fund net inflow of 1.16 billion yuan, second only to software services, insurance and banking three sections.

In fact, the macro fundamentals of the current strict regulation of the real estate market have not changed. Thus, for real estate stocks, what is the logic of this wave of upswing? Will the hot market sentiment continue? How do brokerage institutions and senior analysts view the market performance of this sector?
Analysts say the moves aren't warranted.
However, an analyst who did not want to be named reminded him of the risks that may be faced with speculating such stocks. "This will happen in the case of market enthusiasm. But investment stocks should still look at performance in the long run."

For today's real estate stocks, many analysts interviewed by the "Daily Economic News" reporter also said that they should not be overly optimistic, that this is a wave of "moving with the market." "Today, the entire market is rising, and real estate stocks are counting up," said an analyst who declined to be named.

...Liu Feifan, a researcher at Guotai Junan International Real Estate, said in an interview with the reporter of "Daily Economic News" that the market outlook for real estate stocks will be a volatile market, with profit bottoming and valuation at the top. “The profitability of (real estate stocks) is highly certain, so the decline is bottomed out. The fundamentals should be gradually weakened this year, which limits the room for valuation.”

However, some good information should not be ignored. A positive factor is that in 2019, well-known overseas institutions are increasing their stocks in mainland China. According to information disclosed by the Hong Kong Stock Exchange, on February 1, after more than five months, the Singapore government investment company (GIC Private Limited) again increased its holdings of 2,161,300 shares of Vanke H shares, involving 66.67 million Hong Kong dollars, holding shares. The ratio increased from 5% to 6.01%.

"In the context of MSCI's important increase, real estate needs to be allocated." Liu Feifan commented on the logic of foreign investment in real estate stocks.
Not mentioned is the possibility that real estate controls fail. In the past, the government has eased real estate restrictions along with monetary policy. In prior real estate downturns, prices fell along with sales. This time sales have started falling, but prices haven't started falling across the board yet. Assuming credit growth continues, real estate controls are facing their first big test - as are capital controls.

As for stocks, the government engineered a bull market amid a cooling economy and real estate market in 2014 and 2015. That bubble helped spark a real estate recovery in cities such as Shenzhen because Chinese investors still look at property as the best asset. Real estate has government support, prices are stable or rising most of the time and housing has relatively strong property rights. I doubt analysts will go on the record predicting the government's real estate policies will fail, but perhaps some investors are betting that way.


NDRC Calls for Easing Urban Residency Requirements

China.org: China aims to build world-class metropolitan areas by 2035
China aims to build several metropolitan areas with global influence by 2035, according to the country's top economic planner.

Notable progress should be made by 2022 with improvement in infrastructure integration, freer markets, more coordinated industries and more livable environments, according to the guidelines released by the National Development and Reform Commission (NDRC).
Chinese language news is focused on the specific guidelines.

iFeng: 发改委:放开大部分城市落户限制 (NDRC: liberalize most urban settlement restrictions)
To this end, the "Opinions" proposes to open up and widen the restrictions on urban settlement outside of some megacities, and to take the lead in realizing the mutual recognition of household registration access and urbanization in the qualified metropolitan area, speeding up the elimination of household registration barriers between urban and rural areas, and coordinating the promotion. The local population and the migrant population are urbanized to promote orderly flow of population, rational distribution and social integration. Promote the sharing of human resources information and public employment service platforms.


New Home Supply and Sales Falling in Lower-Tier Cities

With the January surge in liquidity looming in the distance, the Chinese real estate market is hitting an important turning point.

iFeng: 2019年楼市或加速分化 楼市成交整体走低
According to the statistics of the Krui Real Estate Research Center, during the Spring Festival, the data of more than 40 key monitoring cities showed that the supply decreased by 29% year-on-year, and the supply was insufficient. Researcher Shen Xiaoling of the agency pointed out that during the Spring Festival, the intensity of discounts and marketing efforts have declined compared to last year. The developers’ own sales expectations have also been lowered. There is no hope that the home buyers will drive the “purchase of house purchases” as in previous years. There is not much special promotion for the marketing plan of the Spring Festival market. The “Spring Festival is not fighting” of some real estate enterprises only maintains basic operations, and has not launched specific profit-making activities.

...Since the second half of 2018, real estate enterprises have accelerated their inventory sales in order to improve sales performance, and special room promotion activities have increased significantly until the Spring Festival of 2019. Judging from the strength of special room discounts, it is mostly concentrated between 8.2-9.8 folds [2-18% discount], which is a significant drop from the 6.4-8.5 fold [15-36% discount] of last year. Judging from the way of giving away gifts in kind, in 2018, some real estates have sold high-value physical objects such as BMW cars. However, during the Spring Festival of 2019, gifts were mostly low-value items such as home appliances and mobile phones.
The "talent war" is also soaking up housing demand as young workers move to the more attractive first- and second-tier cities.
Shen Xiaoling said that the deepening of the regulatory policies and the decline in the return of home ownership have led to a flat performance for the Spring Festival. During the Spring Festival, housing enterprises generally lowered the intensity of new referrals, and marketing enthusiasm declined significantly. There are two main reasons for this phenomenon: on the one hand, with the gradual deepening of real estate regulation and the continuous development of long-term mechanism, the real estate market in the Spring Festival in 2019 continues to turn cold, and the wait-and-see attitude of buyers is stronger than in previous years. On the other hand, with the frequent introduction of preferential policies for talents in first- and second-tier cities and the continuous standardization of the rental market, the difficulty of “outside drifting families” in homes in the working city and long-term life is gradually decreasing. Compared with the intention of returning home buyers in 2019 A slight decline last year has caused housing companies to expect a lot of decline in their return to home ownership.
Analysts see the top-tier cities outperforming moving forward:
In Shen's view, this also shows that the property market in first-tier cities and some second-tier cities has begun to cool down in 2017. The volume of such cities has been consolidating for two years and above. In 2019, there is limited space for decline, especially in Xiamen and Beijing. Shanghai is expected to take the lead in stabilizing and even rebounding; while some weak second-tier cities and third- and fourth-tier cities have risen for two consecutive years, and the downside risk is greater in the next year or two.

It is worth mentioning that from the perspective of the whole year of 2018, the trend of large-scale and industry concentration between housing enterprises has become more apparent. At the same time, with the deepening of regulation and control, the financial risks brought by the slowdown in sales of enterprises and the difficulty of financing have gradually emerged, and the overall risks of the industry have accumulated. In this context, benchmarking housing enterprises are concentrated in the first- and second-tier mainstream cities for land reserve layout.
Analysts see downward pressures in 2019:
For the third- and fourth-tier cities, Yang Kewei, a researcher at the Cree Real Estate Research Center, further analyzed that “the tides of returning to the hometown and buying real estate in the third- and fourth-tier cities during the Spring Festival of 2019 were obviously eclipsed, and the volume of Xuzhou and Huai’an was lower than that of the year-on-year, Shaoguan and Jinjiang. On the one hand, the prices of third- and fourth-tier cities have risen to a stage high, and the purchasing power of the market is inevitably overdrawn. On the other hand, since the fourth quarter of last year, the real estate market in the third- and fourth-tier cities has been adjusted and market transactions have been completed. Significantly slowing down. Under this background, it is normal for the third- and fourth-tier cities to show no obvious Spring Festival return home."

Yang Kewei said, "The downward pressure on the real estate market in 2019 should not be underestimated. The growth rate of the sales area of ​​commercial housing in the country has entered a negative growth rate. It is a high probability event. The volume of first- and second-tier cities may remain stable under the policy slowdown, but the three-fourth Line cities are expected to face greater adjustment pressure."
Whatever the Chinese government does with monetary and fiscal stimulus, demographics will ensure that the real estate market starts differentiating as it has in developed nations. If the January liquidity boom is a trend instead of a one-off burst of stimulus financing, the likely spots for a renewed housing bubble are the first- and second-tier cities.


Big Trouble in China Housing: Govt Bans "Malicious" Price Cuts

Pizhou, Fujian has a solution to falling home prices: ban them. They're not alone in using this strategy. Other cities have told developers to reverse price cuts and one went so far as to punish a developer's creditors.

iFeng: 房企“恶意降价”被紧急叫停,房价到底能不能降
On the finite price, the price can not rise. And the property market environment is so cold, the price of the house is not good to sell. It is not easy to cut prices. After the new term "price reduction attempt" was born, a new word appeared in Zhangzhou City, Jiangsu Province, "malicious price cuts."

This is really an anecdote. Developers who have such a big hatred, do you have to carry "malicious" to cut prices? Who is going to be malicious?
A developer was warned about cutting prices to move inventory:
At the beginning of February 2018, the Real Estate Chamber of Commerce of Zhangzhou City, Jiangsu Province issued a "Circular on the recent sales chaos in the real estate market in Zhangzhou", which was circulated on the Internet. It has attracted many onlookers.

The announcement states:

There are some properties in Zhangzhou that have disrupted the market with low prices and unfair competition. The sales price is seriously lower than the filing price. The individual properties have dropped by 2,000 yuan/square meter. This kind of behavior has seriously disrupted the order of the real estate market.

The Zhangzhou Real Estate Chamber of Commerce requires housing companies to sell according to the record price, and must not provoke a price war.
Neither the public nor the developers are amused.
The price cut is to disrupt the market order. This wave of operation not only makes the developers of price cuts a bit confusing, but also makes the masses of people somewhat shocked. When the housing enterprises raised their prices, they never saw someone saying "malicious price hikes" and "disturbing the market order." When the house prices fell, the market order was disrupted.

Coincidentally, just a few months before the “bad price cut” in Ganzhou, the neighboring Anhui Province had a joke about the developer’s “price reduction attempt”.

In November 2018, a property in Hefei, Anhui Province, reported a price reduction of 6,000 yuan / square meter, the results did not take long, the local real estate director personally went to the investigation, and the price back went up again. Immediately after the price reduction of a real estate in Lushan, the local government organized a symposium on “the attempt to reduce the price”, suspended the pre-sale permit for the relevant real estate, and imposed penalties on the four cooperative banks.
Propping up home prices isn't only a strategy for keeping the people content. The main goal may be supporting land sales that fund local governments. Cities are racing against the credit impulse though. If inflation arrives in time, nominal prices can rebound. If not, developers are going to be stuck will immobile inventory as debt comes due. And then it will be the bond market's problem.


2nd Tier Developer Sales Offices Deserted

The initial post-Spring Festival reports from the housing market indicate lower buyer interest, but prices remain stable for now. Since price follows volume, a downturn in home prices is still ahead.

iFeng: 二线城市春节楼盘不“打烊” 售楼处门可罗雀
“We arranged the duty during the Spring Festival, which is normal business, but basically two or three groups of customers will see the house one day.” The salesperson of a real estate in Beijing’s South Third Ring Road told China Securities Journal, during the Spring Festival and after the holiday, There are no promotions for the property.

In Xi'an City, Shaanxi Province, Nanjing City, Jiangsu Province, and Fuyang City, Hubei Province, China Securities Journal also found that the property that was known as “the Spring Festival is not fighting” did not appear to be selling well during the Spring Festival, and the sales office was deserted, home prices stable.

...The flatness of the property market during the Spring Festival may be a microcosm of the whole year. Yan Yuejin, research director of the think tank center of Shanghai Yiju Real Estate Research Institute, said: “The current market is in the expectation of cooling. From the real estate sales office, blind sales promotion may not bring the transaction volume up, so the rhythm will also Slightly slower."

“Policy determines short-term demand, and real estate sales are mainly affected by mortgage loan and provident fund loan conditions.” Zhang Wenlang, a macro analyst at Everbright Securities, said that the central bank’s depositor survey showed that the proportion of home buyers’ expected price increases began in June 2018. It began to decline, reflecting that the wait-and-see mood in the market began to increase. Mortgage and provident fund loans in 2019 may only be marginalized.

Shen Yi, a researcher at the Shanghai Yiju Real Estate Research Institute, said that as the effects of regulation continue to appear, it is expected that the overall property market turnover will fall back and the market will return to rationality.

Most Important Currency Chart

This is the broad trade weighted U.S. dollar index. It includes, importantly, currencies such as the Chinese yuan. The index made a short-term high on December 14, 2018. The chart looks similar to the U.S. Dollar Index (DXY) over this time frame, with one difference: it made a higher high in 2018. DXY still has not exceeded its 2017 high and it was still 5 percent off the high at its 2018 peak.
Money has moved into emerging markets on the expectation that a repeat of 2016-2017 is underway. The post-election spike in USD was a temporary move in the midst of a broader rally in emerging markets and commodities. Tthese investors are betting USD has peaked, at least temporarily, and another rally in emerging markets and commodities is underway. They may even believe this is the big one and the U.S. dollar had made its ultimate peak for this bull cycle, in which case this index will break the lower trendline and keep falling all the way through 100.

A longer-term look at the chart shows why dollar "bulls" aren't throwing in the towel. The index was 126.16 on February 4 (it will be higher at the next update), a 2.5 percent move away from taking out the December high. It is also only 3.3 percent away from taking the all-time high of 130.21 set on February 27, 2002.
The two key components are the euro, which is by far the largest developed market currency, and the Chinese yuan, king of the emerging markets. For the U.S. dollar broad trade weighted index to break out or break down, both the euro and yuan will confirm it.
I remain "bullish" on the dollar. The bounce in the yuan and EM currencies was a relief rally with some possible political adjustment of the yuan ahead of major trade negotiations with the United States. The European and Chinese economies remain weak. Fiscal or monetary intervention is increasingly likely. Most importantly for the market narrative, the Fed is still tightening. If Europe and China ease and that in turn boosts global growth, the Federal Reserve will likely resume tightening. The divergence in monetary policy could power another bullish leg for USD. Finally, I still believe the euro is politically unstable and the final stage of this economic cycle will be deflationary/dollar bullish.


Turn in Social Mood: Internet is Totalitarian Tool, Americans Itching for Trade War

Technology is a tool, like a hammer, an automobile or a gun. These can be used to build homes, transport goods and keep order. They can also be used to smash buildings, move soldiers for an invasion and murder people.

When people are optimistic, they prefer the positive and optimistic views of technology. The Internet became a mass phenomena at peak social mood. People mainly focused on the benefits and ignored costs for many years. They thought it would unite the world, expand people's right to free speech and even break totalitarian regimes as online freedom directly or indirectly triggers demand for more liberty in the wider society. Instead, social media tears diverse nations apart because each subgroup (however defined) can form its own media and narratives about society. Internet companies that used to be at the forefront of the "information wants to be free" zeitgeist, are now among the most secretive, they're serial violators of privacy. Some, such as Google, Facebook and Twitter, are the most repressive companies in the world when it comes to speech rights. Finally, authoritarian regimes led by China are harnessing the power of the Internet.

Instead of preventing 1984, the Internet has enabled totalitarianism like never before. Fifty years ago, extreme repression was required for totalitariansm because thought control required physical control and punishment. Today, the government can control what you think by controlling the information you receive. It knows what you're thinking if you are online. It can implement a thorough totalitarian program without you ever seeing a secret police officer. In fact, you might not even have a negative experience as your life is gameified. You will get dopamine hits for doing what Big Brother wants. Digital currencies will eventually give the government 100 percent control over your economic life. Unless you wander into the woods and become a hermit, you will be at their mercy. Most terrifying for those in the West is that the framework of this system is already being implemented by Silicon Valley companies. Good think is rewarded and bad think punished by social media companies. The end goal in China and Silicon Valley is the same, to use technology as a means for totalitarian control over society.

Turning back to social mood, China also benefited from positive mood. It was a country experiencing rapid economic growth. It was the future, a land of opportunity, and one day an partner for developed countries. As mood turns negative, China is a military, economic and political threat. Any negative story about China gets covered like never before.

Boston Globe: China and the AI threat to open societies
I want to warn the world about an unprecedented danger that’s threatening the survival of open societies.

The rapidly improving instruments of control that machine-learning and artificial intelligence can produce are giving repressive regimes an inherent advantage. For them, these instruments of control are a help; for open societies they constitute a mortal danger.

In China, President Xi Jinping wants a one-party state to reign supreme. Xi is trying to consolidate all the available information about a person into a centralized database to create a “social credit system.” Based on these data, people will be evaluated by algorithms that will determine whether they pose a threat to the one-party state. People will then be treated accordingly.

The social credit system is not yet fully operational, but it’s clear where it’s heading. It will subordinate the fate of the individual to the interests of the one-party state in unprecedented ways.

I find the social credit system frightening and abhorrent. Unfortunately, some Chinese find it attractive, because it provides information and services that are not currently available and can also protect law-abiding citizens against enemies of the state.
The irony is that's written by George Soros, one of the advocates of implemented a velvet-gloved version of this system in the West.

PJ Media: SPLC Leads Soros-Funded Groups in 'Orwellian' Attempt to Ban 'Hate Speech' on Social Media
Last week, the Southern Poverty Law Center (SPLC) teamed up with five other groups funded by George Soros to pressure tech companies to "reduce hateful activities on their platforms." While this sounds like a noble goal, mainstream conservative and Christian groups that have fallen afoul of the SPLC warned that these liberal organizations have an "Orwellian" definition of hate that most Americans would disagree with. Worse, social media companies already seem biased against conservatives, and this SPLC campaign would only embolden that bias.
The difference between Soros, Silicon Valley and China is the latter has more power and far less fear of reprisal. Both think they are doing good for their society and moving it forward into a progressive, socialist future.

MIT Technology Review: The real reason America is scared of Huawei: internet-connected everything
5. Why is Huawei’s 5G causing so much concern?
As the world’s biggest supplier of networking equipment and second largest smartphone maker, Huawei is in a prime position to snatch the lion’s share of a 5G market that, by some estimates, could be worth $123 billion in five years’ time.

Stalling the company’s expansion into Western markets could have the convenient side effect of letting competitors catch up. But there are also legitimate security concerns surrounding 5G—and reasons to think it could be problematic for one company to dominate the space.

The US government appears to have decided that it’s simply too risky for a Chinese company to control too much 5G infrastructure.

The focus on Huawei makes sense given the importance of 5G, the new complexity and security challenges, and the fact that the Chinese company is poised to be such a huge player. And given the way Chinese companies are answerable to the government, Huawei’s apparent connections with the Chinese military and its cyber operations, and the tightening ties between private industry and the state, this seems a legitimate consideration.

But the ongoing fight with Huawei also goes to show how vital new technology is to the future of global competition, economic might, and even international security.

On trade, China can do no good.

NYTimes: China’s Online Censorship Stifles Trade, Too
China has long defended its censorship as a political matter, a legitimate attempt to protect citizens from what the government regards as “harmful information,” including material that “spreads unhealthy lifestyles and pop culture.” But you don’t need to be a trade theorist to realize that the censorship is also an extremely effective barrier to international trade. The global internet economy is worth at least $8 trillion and growing, yet the Trump administration has focused chiefly on manufacturing, technology transfers and agriculture, and does not seem to have pressed for concessions on this issue.

Sheltered from American, Japanese and European competition, Chinese internet businesses have grown enormously over the past decade. Nine of the world’s 20 largest internet firms, by market value, are now Chinese. Some of this growth reflects the skill and innovation of Chinese engineers, a vibrant start-up culture and the success of Chinese business in catering to local tastes. But it’s hard to believe that this has been unaided by censorship.
Even one of China's reform achievements, opening its stock market, is coming under scrutiny.

WSJ: How China Pressured MSCI to Add Its Market to Major Benchmark
The move by MSCI Inc. came after it came under heavy pressure from the Chinese government, which tried to curtail the company’s business in the country, according to people familiar with the matter.
If President Trump doesn't know it, he'll soon learn the American public is itching for a trade war with China.

It is still too early to say the die is cast, but if social mood continues on a negative trend, it's a guarantee that Silicon Valley companies will be targeted for political reprisals. The political right has a personal reason for hating Big Tech because it is the target of political censorship, but censorship is so widespread (and often hamhanded) that is has made enemies all over the political spectrum. Add in privacy violations and antitrust, and it may not be long before companies such as Google find their allies in DC are few and far between. They will be as untouchable as tobacco companies.

Reuters: Google, Facebook spend big on U.S. lobbying amid policy battles

The same can be said for China. We'll know in a few weeks if the die is cast on trade, but the shifting social mood has uncovered widespread dissatisfaction with China. All corners of American society are coming out with China-negative stories as would happen in the run-up to a real war. If I was betting solely on President Trump I'd lean towards a deal getting done, but negative social mood and the news flow indicates the public might outflank Trump on trade and eventually find a candidate who will launch a full-blown trade war.


Good Place for a Bear Rally to Die

Is it a bear market? If yes, this is right around where the rally failed in 2008.