Niu Wenxin Wants More Money Printing

Niu Wenxin, who famously called Alibaba's Yu E Bao a vampire, has a new article out blaming high real estate prices on policy, rather than money printing. He criticizes the rising RMB policy, showing how it hasn't reduced China's trade gap with the United States, as this chart shows.

He says high interest rates are choking industry, which is why Chinese companies are now fleeing to America to help with its re-industrialization (see Ni Hao Y'all). While these industrialists flow out, hot money flows in to chase the high interest rates. The U.S. forces the renminbi higher, but it doesn't help close the trade gap, it only helps hijack wealth (presumably via the hot money flows). Debt levels are also at an extreme and the country cannot continue adding more debt at these rates to finance growth. So, isn't the right policy to have a counter-cyclical cut in the RRR and lower interest rates?

He then discusses a theory that the housing bubble in the U.S. was not caused by low interest rates, but by financial innovation. In China, he says land finance caused the system to push prices higher, not inflation. He closes by calling on the central bank to clearly state its monetary policy.

Niu Wenxin is the managing editor of CCTV's stock information channel and a popular commentator.

He makes some interesting points, but inflation of money and credit is the cause of the housing bubbles in China and the U.S. Inflation isn't spread evenly across the economy. Where it flows is based on the economic conditions at the time and the underlying system. If it wasn't housing, it would have been something else, but in the case of the U.S. and China, it ended up being housing.

钮文新：高房价因货币超发论忽悠百姓 绑架政府

This year, the central bank twice directed down accurate, current economic opinion is full of strange sounds, they are the "RRR" simply interpreted as a "rescue", even Jinglian Mr. Gangster level characters are so clear, the reasons for rising prices that money over. For a time, public opinion atmosphere like in 2010 four years before. At that time, the currency 4000000000000 formed government investment will lead to massive inflation over hair, negative interest rates on bank deposits, so a series of monetary tightening to curb price argument, see now, in the end what are the objectives? I believe that these allegations are nothing more than people to kidnap government by Fudge, in order to achieve monetary tightening, promote appreciation of the renminbi Bale.

We look at these economic phenomena is not true?

First, the high level of interest rates has made China the real economy asphyxia, resulting in a large number of recent industrial capital flight, as the United States, "re-industrialization" service. If the Chinese government does not allow drive down interest rates mean that China further flight of capital and wealth?

Second, high interest rates resulting in a large arbitrage "hot money" flowing into China, these arbitrage "hot money" is not supported by Chinese production, does not support the Chinese consumer, there is no contribution to wealth creation in China, but they are set to go, but the huge Chinese wealth. Because they can fully zoom lever outside, to China arbitrage.

Third, the U.S. forced appreciation of the renminbi, the implication is to Chinese monetary tightening, the purpose is to achieve the above wealth hijacking, but not for the U.S. trade balance. By 2006 and 2013 China Import and Export Trade and the RMB exchange rate movements can be seen, the RMB appreciation can not change the Sino-US trade imbalance.

Fourth, the Chinese economy is facing a "financial shock" dilemma. From the perspective of debt financing, whether it is business or local government, the scale of Chinese debt and debt ratio have reached the extreme, prices also have reached the extreme, continue to rely on debt to expand promote China's economic restructuring, upgrading, innovation is not only ineffective, but will the Chinese economy instantly into crisis; From the perspective of equity financing, high interest rates have devastated the Chinese equity capital pricing, stock market slump, seriously affecting corporate equity financing is an example. If the two paths of all the financial blockage, that the fate of the Chinese economy will be what?

Under the combined effect of the above factors, the Chinese economy is not constantly showing downward pressure? Is not the initiative, more endogenous economic growth momentum weak? If this is true, then the central bank through "RRR" and other means of macroeconomic implementation of the "counter-cyclical" adjustment right? I believe that of course is not only understandable, but also had some late, some passive.

Monetary tightening will lead to the loss of the Chinese people of wealth

Tight money, RMB appreciation, but prices rose ever stopped? Ever stopped rising prices? Not only crunch "in the name of the target," not achieved, and in turn to see the "big four economic phenomenon" is not described in this article are based on the opening of monetary tightening and the emergence of deadly economic problem? China has so many people can realize capital flight, arbitrage is actually flourishing wealth of the Chinese people lost? We must understand one truth: the current Chinese prices are rising, it is the loss of wealth in China, and people looted the specific representation.

There are two reasons: First, capital fled the bank is bound to leave behind bad debt, many private owners of reform and opening up 30 years of nurturing, when high interest rates make it unsustainable operations, the companies pledged to the bank, after the name of the variety of cash exports to foreign capital, while domestic banks lost control of its capital flows, which is not bad debts? If yes, who is going to bear the bad debt? Will ultimately bear to stay in the country by all citizens. How bear? Prices. Second, a lot of money in arbitrage between banks and enterprises, financial costs arising from higher interest rates eventually will become the loan production costs, the costs eventually will be transmitted to people's daily necessities, it is inevitable that economic laws .

Therefore, China's inflation should not be called inflation, but the phenomenon has been developed economies after the robbery. If it is a typical inflation, and that China's domestic economy should be very prosperous, people have plenty of money for investment and consumption, but the domestic economic scene is this it? Obviously not, but just the opposite.

High prices roots in the real estate policy, rather than monetary policy

Prices are the same. Recent led by China's central bank, Ba Mr. hosted translated a book - "financial nature." The book order is made ​​according to former Federal Reserve Chairman Ben Bernanke's first lecture recordings. The book, with plenty of proven Bernanke, U.S. housing estate bubble is not primarily the result of low interest rate monetary policy. He said that many people think that after the Internet bubble burst, the Fed's low interest rate policy adopted is the main cause of the housing bubble, but not in his view it. Mainly from the U.S. housing bubble and the financial supervision of financial self-serious vulnerabilities. After 2000, financial institutions, real estate credit based on excessive "innovation", while at the same time continue to relax financial regulation, with the U.S. government and want to solve the housing problem in the context of the Americans. During this period, a lot of people get far with loan conditions of the housing loans, and these bad assets has been "innovative" out of the insurance package colors, making lenders more regardless of the mortgage asset quality, while creating a vicious cycle. Eventually formed a huge bubble.

Bernanke believes that the level of interest rates, the central bank should mainly consider two factors: economic stability and financial stability. After the Internet bubble burst, the Fed's low interest rate policy is mainly based on economic stability considerations, and certainly not for the real estate. So, to solve the problem of the real estate bubble also from the direction of the real estate market and financial regulation to start, but by no means the monetary policy. Because the total amount of monetary policy as it is for the whole economy, but real estate is only part of the economy. If the interest rate with the means to solve the real estate problem, is bound to make the entire economy was depressed, this is not the right choice of monetary policy.

Bernanke's words should not provoke us to rethink the real estate question? In fact, the key to China's real estate problem lie? Land finance local governments. The answer can basically get a national consensus. We have repeatedly stressed that the Chinese prices are too high, the local government land auction for "both cis and expensive" and tolerate or deliberately by the inevitable result. So the root of the real estate policy rather than monetary policy. At least not primarily caused by super-currency.

Back to these strange economic opinion. Now, shouting "water", is "inflation", prices people want to continue to tie the hands of China's monetary policy? Do you want to prevent the central bank "counter-cyclical" and let the Chinese economy to adjust hopeless? Its intentions are "good" or "evil"? Please judge for themselves. At least I believe that the current Chinese economy, the market is far from normal speech - the right policy can not get the correct interpretation.

The author hopes that the agency unequivocally, came forward to speak, in order to set the record straight. Bernanke told us that whenever the introduction of monetary policy decisions, he told his colleagues, "I have to explain the Fed's policy," the purpose is to communicate and market effectively to avoid misunderstanding. Bernanke can, why can not we? We need positive solutions while suppressing noise, but the central bank to the market needs to correct expectations.

Your last chance to sell Chinese real estate; China's three strategic errors

Liu Jun Luo writes that the April 2011 bounce to 3607 level for the Shanghai Composite was your last chance to escape Chinese stocks (the Shanghai Composite peaked in August 2009 and is currently at 2051). The current bounce in real estate is your last chance to escape from housing.
3067点是最后的逃命机会和房地产的最后逃命

目前，他们被美国骗了，干了3个战略性错误的事情，（一）4万亿财政扩张；（二）大量购买了欧洲债券；（三）2010年6月，让人民币继续升值。为了，弥补这些战略性错误，中国央行未来会选择牺牲股市和房地产。

Presently, they've (Chinese central bankers) been deceived by America, adopting three strategic errors, (1) the 4 trillion yuan stimulus, (2) massive buying of European debt, (3) allowing the renminbi to continue appreciating in June 2010. In order to make up for these strategic blunders, the central bank with choose to sacrifice the stock and real estate markets.

The response to China's debt problem will be large scale debt purchases and renminbi devaluation.

To wit: Is the PBoC starting to liberalise its rate regime?

Since July 2012, this has clearly changed, likely in recognition of the shift in liquidity impact of the PBC’s fx operations. The PBC is now comfortable conducting frequent reverse repo operations (grey bars on Chart 1) to quickly offset any imminent liquidity squeeze.

To which FT Alphaville replies:

In short, it’s acting increasingly like western central banks.

Although there's another idea:

Another theory for why the reverse repos have been used so far, rather than an RRR cut, is that the Party is waiting until after its congress, which is happening either in October or November, before making a major easing move.

New Chinese stimulus is a "Great Leap Forward"

Even the Chinese financial press is skeptical of the latest infrastructure projects, such as Hubei's plan to build 1185 km of highway over the next eight years as part of a ￥4 trillion plan for a 9 province expressway, dubbing the new stimulus an infrastructure investment "Great Leap Forward."

These projects need financing and the financial system is already strained from top to bottom: Chinese are draining money supply through dollar hoarding and the banks are seeing rising NPLs. it was the 2008 stimulus that sucked capital out of the private economy and sent "black market" interest rates to over 100% per annum in Wenzhou. That same stimulus left many non-performing loans on the books of banks, some already qualify as NPL, with others becoming non-performing as the economy weakens. Another round of the same type of stimulus will be even less effective than the 2008 stimulus, with fewer profitable projects left on the shelf, thus even more NPLs down the line.

This is central planning at its worst and the net result will be inflation. Exports to Europe and America weak and market sentiment on the yuan has turned. The seeds for a serious renminbi devaluation are being planted.

基建投资“大跃进” 湘鄂赣皖共建“祖国立交桥”

Here's English coverage:
China's local governments go their own way

Beijing’s announcement came after the bold $130 billion investment plan revealed by Changsha last week, a large industrial city in central China. There are doubts about whether the city had enough financial firepower to implement the ambitious plan.

“Financing is a problem,” said Zhang Zhiwei, Nomura’s Chief China economist. “To what extent this plan can be realistically implemented largely depends on access to bank loans,” he told the Financial Times.

Answering the question of financing is the WSJ: Chinese Banks Step Up Lending to Local Governments Amid Stimulus

The shift reflects a change in priorities for China as growth has slowed. To support the economy, Beijing has turned to boosting investment such as infrastructure projects which are often overseen by local governments and funded through lending by state-owned banks.

Much of the lending is channeled through local-government financing vehicles--platforms set up by those governments to get around legal limits on their direct borrowing from banks.

"Last year we selected one out of 10 platforms to lend to, but we can choose three to five out of 10 now," a banker at a major state-owned bank told Dow Jones Newswires.

Note the changing priorities:

Last year, Chinese banks abruptly cut back on lending to local governments, as concerns mushroomed that they had borrowed too much and couldn't keep up with payments. But now, responding to new policy guidance from above, Chinese banks have begun to loosen up.

However, banks and regulators are still being more cautious than during the stimulus-driven lending binge of 2009 and 2010, trying to differentiate between credit-worthy local-government projects and others.

That's like differentiating between subprime borrowers. The credit worth borrowers are the private businesses starved of capital. Instead, China will once again begin a massive wave of capital destruction. At some point, even financial repression cannot hide the mounting losses.

Lang Xianping warns: China repeating Hong Kong's mistakes; affordable housing bubble will destroy real estate and trigger Hong Kong-style recession

Governments are slow to act and almost always close the barn door well after the horses are gone. There's unrest from the public over high home prices, but the government let the bubble rip after 2008 to keep the economy humming. Now, slowly developing plans for affordable housing are hitting the market just as it turns over. Lang Xianping sees disaster and its hard to disagree, although he does neglect to mention the Asian Crisis. That said, governments do often end up acting pro-cyclically (boosting the economy when it is already booming, slowing it when it is already in recession), thus affordable housing policy may simply be a good sell signal. Below is my rough translation of his article:

Real estate market is a half step from collapse; government housing is the biggest bubble

We are a only a half-step away from a Hong Kong style recession, because of the three mistakes made by Hong Kong, we have already made two-and-a-half.

First, the government monopoly on land development rights, intentional creation of a property market volcano, public finances critically reliant on land, makes real estate into an economic pillar.

Property rights were always government owned and leases were the main source of government income. The higher the property prices, the bigger the government revenue. People today realize, the pre-handover British run Hong Kong government stoked the property bubble for short-sighted gains, just as these past few years local governments have been falling all over themselves to pillage land profits.

For a long time, real estate was the champion of the economy, the financial services sector also relied on real estate. Relied to what degree? I break it into three levels:

The first level: economic dependence. In 1997, real estate and related value added industries accounted for 40% of GDP, the whole economy revolved around the sector. Long-term real estate investment accounted for two-thirds of fixed asset investment.

The second level: public finance dependence. Government revenues depended on long-term leases and other real estate taxes.

The third level: financial dependence. Real estate shares were always the biggest stocks, accounting for one-third of market capitalization. Real estate shares and property prices pulled each other and shared fortune or disaster. Real estate and banking were also mutually dependent, developers and residential mortgages always accounted for at least 30% of total bank loans.

Now let's contrast that with China's economic data:

The first level: economic dependence: In 2010, real estate investment accounted for 46.6% of fixed asset investment.

The second level: public finance dependence: In 2010, property transfers hit a new high; the growth rate hit a new high, increasing 70.4%. Land transfer payments accounted for 76.6% of local government revenue, a new high, and this unprecedented scale reflects the local government finances' extreme dependence on real estate.

The third level: financial dependence. Real estate loans account for 20% of total loans, reaching 9 trillion yuan total; add in related real estate loans, mortgages and other credit, and it reaches nearly half of loans, about 20 trillion yuan. If we add in credit outside of the system, such as trust loans, real estate may account for as much as 60% of total credit.

Second, ignore negative interest rates, encourage capital into the false property, stock and manufacturing boom.

At the beginning of the 1990s, Hong Kong had negative real interest rates. Bank deposits were below 10% inflation rates, forcing people to look for investment opportunities to avoid seeing their savings consumed by inflation. However, the British run Hong Kong government adopted a laissez-faire attitude. From 1992-1994, "mansion" prices ferociously rose 600%, top rate office buildings rose 250%, Sha Tin and other non-downtown, mid-range properties gained 300%. The government issued many restrictions on property speculation, but all it did was cause a slight pullback.

However, the British Hong Kong government's "last governor" Chris Patten was consumed by politics and ignored the negative interest rate problem. This caused the boom in the high-end properties to spread to middle and low income housing. In the first part of 1997, the property market threw off two years of losses and rallied to new highs in the autumn. From the day of the handover on July 1, 1997, property prices rose another 80%, and a 40 square meter apartment cost two to three million Hong Kong dollars.

Where are we today? Also ignoring negative interest rates and the plight of ordinary people. Property taxes are good, buying restrictions are fine, but this doesn't do anything to resolve the problem of ordinary people looking for an inflation hedge. The most serious inflation issue is the difference between deposit and loan rates. One year deposits pay 3.5%, loan rates are 6.56%, the official inflation rate is 7.9% (all data is as of the time of writing). What does this mean? It means your deposits lose money, your loans lose money, but no bank loses money. Of course, the inflation rate is nowhere near that low, and don't think you can earn money by borrowing, because if you're borrowing for anything other than a home, the floating rate is 40%, which is to say, you may not even be able to borrow at 70-80% interest. Everybody know current Wenzhou interest rates? According to national news, monthly rates exceed 10%, which means annual rates exceed 120%. Only mortgages are relatively low, lower than the real interest rate, so this policy is in fact forcing you to buy a home to hedge against inflation.

Third, the recession is before your eyes, but for political gain, the housing market is suppressed.

On October 8, 1997, Hong Kong Chief Executive Tung Chee-hwa released a policy report called "Building Hong Kong for a New Era," later called the 85,000 homes policy. It had three goals: every year construct at least 85,000 public and private homes; within 10 years 70% of Hong Kong residents would own their home; reduce the wait for public housing to three years. At the time Tung Chee-hwa announced the policy, annual new private home supply was only 20,000, supposing the policy was implemented, public and private housing would be four times supply, it'd be a wonder if the market didn't crash.

What's worrying is that we are very close to Hong Kong's absurd "85,000"!

In 2011, through new construction, renovation, purchases, long-term leases and other methods, Beijing plans to create 200,000 units of affordable housing, provide 20,000 homes with rental support and complete 100,000 units of affordable housing. At the same time, Beijing started applications for public rental housing, audits, etc., and more than 10,000 homes were approved before the end of 2011. But is everyone aware of the 200,000 units idea? In each of the past five years, Beijing has increased housing supply by about 100,000 units. So Hong Kong used a 4:1 double punch to kill the property market, if Beijing implements the plan, it will use a 2:1 double punch!

What about Shanghai? In the latest 5-year plan, Shanghai plans to build 130 million square meters of housing, 60% of it affordable housing. In other words, Shanghai is planning a 1.5:1 double punch.

Furthermore, I want everyone to pay attention to the above 1.5:1 and 2:1 numbers, I think they are wrong, because the central and local governments keep revising their plans, the current version calls for 36 million affordable homes, including 10 million that began construction in 2010. What's the idea? In 2010, the completed residential housing was 612 million square meters, non-residential real estate was 222 million square meters, for 834 million square meters total. If the 10 million affordable homes that started construction in 2010 have an average area of 75 square meters, that would mean 750 million square meters total. For 36 million total units, that's 2.7 billion square meters. In other words, it's really a 3.5:1 strength crack down on the real estate market. And you should know, the Hong Kong real estate market didn't collapse when the affordable housing was completed, rather it collapsed not even several years after construction began.

In the past, high home prices were the biggest bubble in the Chinese economy, now affordable housing is the biggest bubble. What I want to say is, this is the real estate market's life or death moment, move forward another half step and there's a bottomless abyss, I hope we don't repeat Hong Kong's fatal mistake!

Source: 郎咸平：楼市距崩盘只差半步 保障房是最大泡沫


Lang Xingping made news in late 2011 when a recording of a private lecture went public (and viral in China). Here's a news story with English subtitles from last year, when Lang made headlines with his "China is in a depression" speech.

1000 employee factory cannot earn 1/30 the profits of 1 wife speculating in real estate

温州企业主：开千人大厂利润不及老婆1人炒房所赚1/3

一位不愿具名的企业主向晨报记者介绍，自己的工厂有1000多名员工，然而一年辛苦下来利润不足百万，而老婆在上海投资了10套房产，8年间获利超过3000万。

One factory owner unwilling to be named told the Morning Post, after a hard year's labor, profits don't even reach 1 million yuan, but his wife bought 10 apartments in Shanghai and over 8 years she has earned more than 30 million.

Beijing villa sales drop, but average price up

北京别墅成交量大跌 “千万级”拉抬均价
Transaction volume fell 74% year-on-year, but average price climbed to 30,611 yuan/square meter. The article notes that there are four groups of houses in the market: 5 million yuan and lower, 5-10 million, 10-20 million, and more than 20 million. In terms of USD, that's about $750,000 at the bottom level and $3 million and up at the top end.

Transactions lead prices; if the market is slowing, prices will come down in the coming months.

No housing bubble in China?

Land transfer payments hit 76.6% of local government revenue.

Third Great Depression, Japan is sunk

我们离“全球第三次大萧条”还有多么近
The first was in the 1930s, the second just past, and the third is not far off. For Americans, this may actually sound more like a repeat of the first Great Depression. The first part of the Great Depression ended in 1932-33 with a massive dose of inflation following the nationalization of gold and the devaluation of the dollar. However, this inflation was nipped in the bud in 1937, and along with an insane amount of government intervention that put Hoover's tinkering to shame, causes the depression withing the Depression.

A similar scenario is unfolding today. The U.S. central bank floods the world with liquidity, setting off inflation and booms in developing markets. Central banks are already starting to counter the loose policy of 2008-2010, but this time they are pushing against their own policies plus the Federal Reserve and to some extent, the ECB, which is bailing out several countries. As Liu Junluo says in this latest blog, central banks are a flawed system. I would take it a step further and say that if central banks are making policy, they are making policy mistakes. Based on current conditions, the mistakes will be very large this time, at least as large as in 2006-2008.

Monetary policy takes time. Andy Xie is looking for 2012 crisis, maybe he is also early. In the near term, watch Japan. That is the most dangerous country right now due to a deterioration in the savings rate. Goldman Sachs predicts that the savings rate of Japan will turn negative this year. That's important because it means that foreigners will become the marginal buyers of Japanese government bonds. Now, if you are a foreigner, you're first going to look to the U.S. and Europe, where rates are higher and debt levels are lower. Adding to the mix, the emerging markets are hiking rates and tightening monetary policy, reducing the pool of funds available for Japanese government bonds (JGBs). All of which signals higher interest rates.
Higher interest rates are bad news for Japan.

Up until now, Japan’s government has been able to “cover the minimum payment” by borrowing from reserves in its Government Pension Investment Fund and selling its debt to Japan’s life insurance companies. But as seniors, which now number nearly one in four, start drawing down those assets, those avenues will be closed to further purchases of bonds issued by the state. In fact, they will soon become net sellers of their existing holdings in order to support the new pensioners, and then, “who will buy?”

Japan’s government revenues of $1.6 trillion annually fall short of its expenses of $2 trillion, creating an annual deficit of $400 billion. Kyle Bass, who runs Hayman Advisors, estimates that debt service eats up $244 billion every year. He calculates that if investors demand just an additional two percentage points in interest, that would double that debt service. Bass concludes that “the Japanese have created the circumstances for the greatest financial failure in world history.”

Japanese interest rates could easily rise 2%, it would bring their yields to roughly the level of U.S. bonds right now.

Credit markets in the U.S. actually seem to be picking up steam at the moment, which means this all may be a year or two, or more, away. I'm watching Japan for the possible spoiler though.

我们离“全球第三次大萧条”还有多么近

China's war on inflation

战通胀

加息和上调存款准备金率针对的都是增量资金，而巨额存量资金的肆意流动，随时挑逗任何一个领域出现突发性价格暴涨。

即使到现在，菜农李福华仍很怀念去年那段短暂的幸福时光。因为游资涌入，去年辣椒价格最高时竟被炒到6元/斤。虽然大部分利润让批发商、游资炒作者赚走了，但菜农能把辣椒最高卖到2元多一斤已经很知足了。辣椒的成本达到0.6元/斤即可保本，李福华因辣椒被热炒而受益。

但李福华的高兴没有持续多久，他发现，辣椒的种植成本比原来大大提高。他给记者算了一笔账，化肥从2200元/吨涨至3200元/吨，农药支出增加了约20%-30%，薄膜价格也从去年1.5元/平方米涨到了2元/平方米，而雇佣劳力以前一天只要100元，现在是120元一天。

更让李福华感叹的是，没有只涨不跌的行市。2010年11月下旬，辣椒在短短十天内，就从1.2元/斤跌至0.6元/斤，足足降了一半。去年辣椒价格最低时甚至只有0.1元/斤，无论是菜农还是批发商都亏得血本无归。

除了辣椒，在那段时间，游资还把大蒜、玉石、绿豆、生姜、花椒、茄子、苦瓜、香菇、红酒……这些品种都轮番炒作一遍，之后资金匍匐下来，开始寻找新的方向。

每年，房地产都是重金囤积之地。

央行 《2010年金融机构贷款投向统计报告》披露，2010年金融机构房地产人民币贷款新增2.02万亿元，占全部人民币新增贷款7.95万亿元的25.4%，比例超过了2009年。

1月26日，继去年两次房地产调控政策之后，新一轮房地产调控开始实施，“新国八条”提出了限购、地方政府确定房价目标、二套房首付提至六成等措施。随后，重庆、上海两市同时宣布启动房地产税改革试点工作，为本轮房地产调控再加重磅。

“伴随着政策效果不断显现，预计年内全国房地产价格下降超过5%，上海重庆等主要城市房价下降超过10%。”瑞穗证券大中华区首席经济学家沈建光说，而王虎表示，一些大城市周边可能会下跌15%。

在对房地产悲观预期下，买房人开始犹豫，一名之前在万科工作7年、最近刚加入国泰君安的一名研究员本来打算买房子，最近他表示将购房计划推迟到下半年。

这不是个体行为，更多的短期资金在窠臼不出。根据央行第四季度货币政策报告，全年新增住户存款中活期占比为56%，四个季度的活期存款占比分别为42%、51%、55%和135%；非金融企业全年活期存款占比为55%，存款活期化趋势十分明显。

“流动性像一个怪胎，出现了结构性差异。”潘向东指出，“2011年四季度以来国内宽松的货币投放，若缺乏一个有效市场进行稀释，必然会在商品和一些资产领域发酵，去年资金在小品种市场炒过，今年可能就奔向钢铁、铜、锡这些大宗商品市场。”

他担心，由于物价上行的成因复杂，因此通过单一的强有力的货币收缩短期内很难达到抑制通胀的效果，相反却对经济的抑制作用较为明显，特别是对民营经济的抑制将更为显著。

The above passage details the hot money flowing around inside China. The best sentence is one that translates as: Besides chilis, during that time, the hot money also flowing into garlic, jade, green beans, ginger, pepper, eggplant, bitter gourd, mushrooms, red wine... one after the other they all had their turn, after awhile the capital crawls away and starts looking for a new destination.

Earlier in the article, it says a lot of prices are up 20-30% in the past year, with chemical fertilizers up about 50%.

KFC hikes prices in China

肯德基30个月来首次涨价 单项产品涨幅0.5-1元

Reports say the increase affects about half the items for sale and the increases are around 0.5 to 1 yuan. KFC items go from a few yuan up to more than 20 yuan for a meal, suggesting the hikes are probably in the 10-20% range, in line with what's happening in other fast food restaurants.

Chinese high school students trash cafeteria

Inflation in food prices is hitting China hard because the social mood is not as positive as in the middle part of the decade. Inflation isn't as high as it was just a few years ago, but the public is reacting much more negatively to the news. In this case, high school students rioted over higher prices.

贵州上千中学生不满饭菜涨价打砸食堂

Liu Junluo: We have already entered the economic depression

This is a short post from Liu Junluo, he's been busy writing a book. I'm not sure how much this squares with Prechter and the other deflationists, but this is close to my own view, that first we have deflation and then inflation. Marc Faber has been more inflationist in his arguments, but he has said he holds that position because if the market or economy have a severe decline, the response will be money printing.

世界已快进入了真正的大萧条期

本人今年3月14日在北京讲课时，是谈今年底美元指数会站在85，年内很可能上冲90，当时也指出这是非常非常保守的估算。现在，故事已进入秦国统一战争的最后时刻，这个时刻对秦国是万马平川、轻松自如。所以，美元是不是会走出让全世界人与全体中国人都一辈子也看不懂的宏大行情呢！请你设想一下，当秦国最后统一六国的那个时刻，是怎么样的暴风骤雨。黄金现在与美元同步上涨，是世界上有几个人用黄金创新高来鼓励全体中国人相信“通货膨胀”快来了，是掩盖美元即将爆发的真正的壮观行情。这个时代是伟大与贫富严重分化的时代。今天的保存，才会有明天的生长。相信“通货膨胀”的中国人都快要死了。本人再说一遍，中国是先“恶性通货紧缩”，再“恶性通货膨胀”，美国人现在要把中国市场防“通货膨胀”的人，先用“通货紧缩”吊死，而后再使中国爆发“通货膨胀”。

My synopsis: Liu Junluo says that at a March 14 lecture in Beijing, he said the U.S. Dollar Index would be at 85 by the end of the year, maybe 90, but this was his conservative estimate. He says the U.S. dollar is about to make its greatest move in our lifetimes. He compares the current situation to that of state of Qin, which conquered the other six states to unify China in the Warring States period, that this was a very violent period. He says that gold and the U.S. dollar rising together is seen as a sign of coming inflation by most people, but that in fact it conceals the U.S. dollar's spectacular move. He says that today's savings are tomorrow's growth and that those Chinese who believe in inflation will soon want to die. He reiterate that first their will be horrible deflation, and that will be followed by hyperinflation.

谢国忠：低利率致每年向储户征税1.4万亿

低利率致每年向储户征税1.4万亿

经济学家谢国忠接受《华夏时报》记者采访时表示：“我不知道他们的数据是从哪来的，实际上恶性通货膨胀早已发生。”

　　谢国忠认为，抑制通胀最有效的手段是加息，至少要加5个百分点，但实际上央行远远不会加那么多，央行受制于各方利益博弈。谢国忠称，3月末金融机构住户存款余额为28.5万亿元，低利率等于向储户家庭征收了1.4万亿的税（28.5万亿乘以5％的应加利息计算得出）。

　　由于银行信贷大部分投向了房地产、国企以及地方政府，低利率只会对这些拿到贷款的部门有利，这些势力显然比央行强大。央行加息必然会触动其利益。央行在一季度货币政策执行报告中，提到货币数量控制时，只字未提货币价格调控——即加息。

　　谢国忠认为，以前对这些势力的补贴主要靠低工资和低资源价格，现在，资源价格高了，用工荒之后，工资也在上涨。

通货膨胀的时候，如果利率比通货膨胀少，通货膨胀会增长。我记得几年前我跟中国学生吵架。我说了如果中国继续了货币挂钩,最后是通货膨胀。 人民币升值预防通货膨胀，因为美国中央银行创造很多通货膨胀。货币挂钩是个从美国到中国的通货膨胀管道。

谢国忠：2012泡沫破裂 目前维持区间波动

Here's an Andy Xie interview in Chinese. It contains a great comment on the Chinese real estate market worth considering: the market is at a stage where "the flour costs more than the bread" and real estate companies are relying on the stock market, not the property market.

2012泡沫破裂 目前维持区间波动

近期央行的一系列动作，被市场解读为“紧缩”货币政策的信号。而独立经济学家、玫瑰石顾问公司董事谢国忠则认为，这主要是在打心理战，还没有动真格的。但目前即使拿起“真刀真枪”，幅度也不会很大。

　　谢国忠认为，中国近几年名义GDP为4.5%，而短线的利息水平为零，这在历史上从来没有出现过，所以不出现大泡沫是不太可能的。因为利息的增长应该与GDP的增长紧密相连，比如韩国经济增长达双位数的时候，利息的增长水平也是双位数。他预计泡沫会在2012年最终破裂，发生二次经济危机之后，可能才是真正的见底。

　　那么，如何看待当前的经济状况？这种状况又将如何影响股市？《每日经济新闻》日前对谢国忠进行了专访。

　　货币微调是“心理战”

　　《每日经济新闻》(以下简称NBD)：通胀预期已经成为共识，监管层也已在货币政策层面进行了微调，那为什么2012年通胀仍会成为大的隐患？

　　谢国忠：一般情况下货币投放和通胀到来两者之间有一个时间差，货币的大量投放会催生资产价格的上涨，价格的上涨到实际通胀的形成一般情况下会经历2年的时间。目前我国已经出现了通胀的迹象，且预期较高。

　　更值得注意的是，全世界通货膨胀会在同一时间内到来，美国从2008年开始增加货币供应量，2009年继续，近期在美国也看到了通胀。但是通胀由低到高需要一个过程，即使通胀水平到了政府不能忍受的阶段后，到破裂也还有一段路要走。

　　NDB：但政府已经意识到了通胀的问题，近期上调存款准备金率等措施就被市场解读为收缩流动性的信号。通货膨胀还会成为隐患吗？

　　谢国忠：这主要是心理作用，其效果可能有限。因为目前银行的贷存比是67%，说明银行业是不缺钱的。如果要真正控制信贷投放，一个途径是加息，另外一个途径是提高资本充足率。

　　NBD：调高存款准备金率等措施能不能说是货币政策转向呢？

　　谢国忠：目前来看，政策核心还是以吓唬一下为主，尚未拿起真刀真枪来。相比正常水平，尽管中国的利息水平低三个百分点，但是监管层不愿意加息，所以通过打心理战来进行管理。即使拿起了真刀真枪，加息的幅度也不会太大。

　　二次危机可能到来

　　NBD：2012年泡沫会破裂？

　　谢国忠：全球经济一体化，主要看美国加息，只有美国加息后，全球的经济环境才会改变。不少人认为美国不会出现通胀，但金融危机下全球都在增加放贷，进行炒作，目前主要的泡沫来自于新兴市场金融、大宗商品以及房地产市场。

　　特别房地产是一种非生产性的资产，房产价格的高低反映了经济走势的好坏，而现在是把因果关系进行了倒置，认为经济形势好百姓就有钱买房。

　　NBD：那也就是说泡沫破裂之后会陷入第二次危机？

　　谢国忠：这次金融危机是因为美国华尔街出现问题，政府反过来救他们，释放信贷，依靠泡沫来维持经济复苏，如此增长不能长久。但是当第二次危机来临时，政府已不能继续实施财政刺激计划，于是经济见底。

　　NBD：您为什么认为经济会出现二次探底？

　　谢国忠：现在经济的增速已经开始放缓了。原来得益于基数比较低和存货周期所带来的出口上升，得益于4万亿投资中不少项目提前进行，得益于信贷的大量放贷，房地产市场增幅巨大，资金在流到开发商口袋后又重新进入新的开发项目，在一系列的一次性因素作用下，我国经济出现了快速的恢复和增长。

　　但是今年，看不出经济高速增长的延续性了。从全球范围看，世界经济复苏的高点应该在去年四季度。

　　金融危机后，经济运行态势反映出的是通过泡沫来维持经济的增长，在经济结构上出现了歪曲，在结构没有进行调整之前，经济不太可能出现快速复苏。

　　3000点是心理关

　　NBD：在这种环境下，股市会如何运行呢？

　　谢国忠：过去市场形成了一个大泡沫，在此情况下不断释放的流动性则暗示着可以继续去炒作，这是投资者的一个梦。

　　中国的股市和信贷投放是水涨船高的关系。如果没有充足地放贷，股市便无法大涨。从去年开始银行已经在货币政策上进行微调，但是还没有真正开始收紧流动性。

　　从监管角度分析，政府有一个矛盾心态，即当股指涨起来时不希望继续大涨，但又不敢任其大幅下跌，造成负面后果。用一个比喻，管理层把投资者当作是小孩子，注重心理层面的影响。当股市下跌的时候，便掏出糖果“哄”，而当认为上涨过猛时，又拿出“大棒”来吓唬，所以目前处于胶着的状态，描绘出的是一副区间波动的走势图。

　　NBD：股市岂不是波动会很剧烈？

　　谢国忠：就是通过上下波动让投资者留在股市中，3000点附近在监管层眼中应是一个较为敏感的关口，这是政府的一个心理价位。但当通胀来临需要收缩流动性，开始加息时，投资者的梦就会破灭。

　　NBD：那么我国实体经济能否支撑股市走好？

　　谢国忠：除去垄断行业公司盈利状况不错之外，其他企业尚无法看得清晰。比如房地产行业，目前处于“面粉价格高于面包价格”的阶段，其拿地成本居高不下，许多房地产公司并不是靠房产销售来赚钱，而是依赖配置股票。

Tracking the Chinese real estate bubble

A link to this site landed in my inbox: Beijing Anjuke. It has rents and apartment prices all over Beijing. Google Life is another good site which has many Chinese cities. You can check out rents or prices for new and existing apartments. Here are Google translate links for Anjuke and Google Life for you lazy illiterates out there.

One thing that pops out is that you can rent a place for very reasonable prices, but buying is very expensive—a situation that has lasted at least as long as decade.

幸运眷顾中国，但真实吗？谢国忠

Andy Xie's latest: Fortune is favouring China, but is it due for a reality check?

The United States had 1929, Japan 1989 and south-east Asia 1997. Will China face a similar moment of reckoning a few years from now?


The question is crucial, not just for those investing in Asia today but for the wider global market. For as investors around the world reel from the recent financial crisis, many have clung to the idea of a Chinese boom as the one bright spot of hope in an otherwise grim world. The trouble is that history suggests that much of this optimism may be misplaced.


Financial markets have a way of working themselves into a frenzy during rapid economic development, which ends up leading to disaster. It is the ultimate testimony to the gross inefficiency of markets. The problem is the unique mix of extreme optimism and rampant liquidity that occurs during periods of rapid economic development.


Economic development, especially in a large country such as China, generates exceptional optimism for many reasons. Nothing brings out the animal spirits in humans like watching the economic pie expanding. And it is natural to buy risk assets such as stocks to express one’s optimism over the future. The problem is that market competition tends to depress capital returns and give the fruits of economic development to workers and consumers rather than investors. High asset prices incentivize companies to over-invest, which depresses returns on capital. This is why investors tend to do poorly during periods of rapid economic growth.


A low income base and favourable demographics help promote successful economic development. Both tend to lead to excess liquidity due to a high savings rate on incremental income growth. When a population is urbanising, even though its productivity is shifting from the agricultural to the industrial level, consumption habits remain rural – that is, anything beyond necessities is viewed as luxury and is minimised. The widening gap between the labour productivity increase and the consumption preference leads to the excess liquidity that feeds bubbles.


China's one-child policy brings the ultimate demographic dividend but probably makes the country the most bubble-prone in modern times. The situation is made worse by the revenue dependency of local governments on the property market. Local government officials, who change every five years or so, have strong incentives to juice up the property market to maximise their revenues. This political incentive sows the seed for a great property bubble.


Similarly, China's stock market will remain overvalued, although it will deflate from time to time during panics and temporary liquidity shortages. The combination of low returns on capital and high share prices means businesses turn to the stock market rather than to their customers for profit.


But when businesses make profits from, rather than for, the stock market, it becomes a negative sum game. It needs continuing liquidity inflows to sustain it. This is why high growth and a high savings rate are vital.


On the other hand, such a market essentially subsidises capital formation. The capital subsidy leads to overcapacity and low returns on capital. This is why poor profitability, high asset prices and high economic growth rates can coexist. Indeed, they must exist together.


China's economic development is undoubtedly going to be the most important economic event for the next decade or two. But the semi-permanent bubble situation makes it extremely difficult for financial investors to participate in this story. “Buy and hold” simply won’t work. Value investing doesn’t work because value investors base their decisions on price/earnings ratios and price/book value ratios falling below certain levels.


Chinese stocks never get there. If you are Warren Buffett, you can create your own bubble. He recently bought a stake in BYD, an aspiring maker of electric cars. The stock has since risen eight times. If you are not Warren Buffett, I suggest “buy low, sell high”. The problem is working out what is high and what is low.


The day of reckoning will come when the high economic growth rate finally falters. This could happen either when the favourable demographic trend worsens or urbanisation ends. When either or both occurs, liquidity or savings do not grow any more. At that point, the stock market cannot be subsidised any more.


China’s final day of reckoning is probably 10 years away.


By that time, half of China’s babyboomers who were born between 1950 and 1978 will have retired. And the Chinese urbanisation rate will be OVER 70%. The good news is that China will be a developed country by then. The bad news is that there will be no cheap money for supporting overvalued asset prices any more.

The takeaway is that investors won't be able to buy and hold, but 10 years is plenty of time to make money.

Chinese credit, real estate in trouble

Credit card debt on which payments are delayed by six months or longer totalled 5.8 billion yuan at the end of June, up 131.3 percent year-on-year and up 16.2 percent from the end of March, the People's Bank of China said in a Sept. 16 statement. Credit card payments are closely watched during weak economies for signs of distress among consumers. At the end of June, about one Chinese out of eight owned a credit card, the statement said.

Elsewhere:

In Shanghai, sales in the second week of September fell 10 percent week-on-week, while supply rose 84 percent, according to property consultants Centaline China.
In Guangzhou, sales dropped 30 percent in the second week of September, while supply grew by 73 percent, Centaline said.

“金九”落空 一线城市住房成交量继续下滑

另据中原住宅监测系统数据显示，9月第二周，全国一线城市成交量环比继续下滑，广州、上海两地分别下降了三成和一成。同时，上海、深圳、广州三个城市商品住房存量环比均微幅上涨。其中上海、广州新增商品住房供应面积分别比上周增加了73%和84%。

谢国忠: 美元向好 / 美元中兴

美元向好 / 美元中兴

除了利率，从2011年起，资金也将从新兴经济体流向美国。新兴经济体资产膨胀是靠一股势头得以维持的。一旦这个势头停止，投资者将会认识到， 即使考虑到其增长潜力较高，新兴经济体的资产价格仍要远远高于美国。然后，资本流动将发生逆转，和1996年至1997年发生的情况类似。美元长期疲软曾 将资本逐向新兴经济体，并使其资本市场在很长一段时期内都充满了泡沫。大多数投机者认为，泡沫将一直持续下去，然而，当美元步入牛市，灾难也就来了。很显 然，几乎每一个新兴经济体届时都将陷入危机。如果说另一轮新兴市场危机可能会在2012年出现，我对此毫不惊讶。

The cyclical bull market for the dollar may last for two to three years. It could bounce up by 20%. The dollar index may reach 100 during the period. It would be similar to the dollar’s situation in the early 1980s. The Fed raised interest rate massively to tame inflation. Even though the US economy wasn’t that strong and the fiscal deficit was large and increasing, the dollar rose substantially until the 1985 Plaza Accord. The coming dollar bull market may even be shorter.

货币的价值是相对于其他货币而言的。美国的情况并不是独一无二的。在欧洲和日本，老龄化都是影响经济的主要因素。由于这些国家较高的家庭储蓄足 以支付其巨额财政赤字，因此，其货币相对强劲。然而，未来可能并非如此。日本的财政赤字已经达到其国内生产总值的200％。欧洲国家约为100％。只要这 些赤字还能够用国内储蓄抵补，政府就可以继续增加财政赤字，并通过保持低利率来掩藏过重的财政负担。低利率必须辅之以强势货币。但是，从长期来看，强势货 币将造成经济疲软。因此，未来其收入及储蓄都将相对较低。在未来十年中，欧洲和日本可能需要通过发行货币来撑起赤字，这将导致其货币疲软。

　　老龄化是拖累币值的主要力量。恶性通货膨胀可能会散播到世界各地。由于美元长期前景不妙，这将同时不利于其他货币。在持有货币的时候，我们必须保持警惕。但是，目前不用急于将纸币变为其他形式的资产。在许多国家，股票和资产被严重高估，尤其是中国。对于被高估的资产来说，货币仍然相对便宜。但是，当泡沫破裂的时候，不要忘了将资金转成股票和房地产

标题 PK: 保增长、防通胀; 河北钢铁上半年实现利润4.72亿元

央行年中会议定调“保增长、防通胀”
河北钢铁集团上半年实现利润4.72亿元

Dueling Headlines:
China Central Bank Wary of Inflation

Though the indicators are still showing deflationary conditions in the wake of the economic collapse of 2008, inflation fears have been fueled by the liquidity the government has since pumped into the system. Much of that liquidity is believed to have been captured by the stock and property markets, raising the prospect of an asset bubble.

Analysts do not believe the central bank will adjust policy until 2010 or late 2009 at the earliest, when growth fueled by the stimulus becomes more firmly established. In the second quarter GDP growth rebounded sharply to 7.9 percent from 6.1 percent in the first three months. There is some way to go before the government achieves its full-year target of 8 percent growth but some fourth quarter projections for GDP are running as high as 10 percent.

Hebei Iron & Steel June Profit Surges 200%

Hebei Iron & Steel Group's June profit surged nearly 200 percent to 273.7 million yuan as an economic recovery spurred demand. China's steel products price index climbed to 101.98 points at the end of June, up about 20 percent from April's trough, as the government's huge infrastructure-focused stimulus package boosted demand.

China's 72 major steel companies booked aggregate profit of 1.3 billion yuan in May, breaking a seven-month string of losses, after a jump in demand and prices.

Deflation or Inflation?

Originally posted on 2009/05/25 9:46 PM...bumped to the top with an update
Two articles from the Telegraph: US bonds sale faces market resistance & China warns Federal Reserve over 'printing money'. From the former:

The Obama administration needs to raise $2 trillion this year to cover the fiscal stimulus plan and the bank bail-outs. It has to fund $900bn by September.

"The dynamic is just getting overwhelming," said RBC Capital Markets.

The US Treasury is selling $40bn of two-year notes on Tuesday, $35bn of five-year bonds on Wednesday, and $25bn of seven-year debt on Thursday. While the US has not yet suffered the indignity of a failed auction – unlike Britain and Germany – traders are watching closely to see what share is being purchased by US government itself in pure "monetisation" of the deficit.

This is really getting hyped after the decline in the U.S. dollar last week. There's the potential for fireworks this week, in either direction. A successful sale could reverse the dollar's slide.

From the latter article:

Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature."

"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.

Later in the article, Fisher discusses the massive "deficit" facing U.S. taxpayers if entitlement spending is not brought under control.

Government pumping of the money supply has the potential to spark inflation, but a failure in the Treasury market and rising interest rates would touch off another fierce round of deflation, one that may not spare precious metals.

UPDATE: Today's bond sale saw Treasury yields increase. iShares Barclays 20+ Year Treasury (TLT) fell 1.77 percent. ProShares Ultra Short Barclays 20+ Year Treasury (TBT) gained 3.76 percent. SPDR Gold Shares (GLD) fell 0.33 percent. PowerShares DB Crude Oil Double Short (DTO) lost 6 percent.

I've lost about 24 percent on DTO since adding it on May 15, and made about 14 percent on TBT since adding it on the same day. It's decision time on DTO. I usually cut holdings off around 10 percent, but I allow the leveraged funds a wider range because one day could reverse returns.