Taper This! 2014 Rhymes: Evergrande Goes Down, Real Estate Price Controls, Cash Moving into Stocks

Reuters: China Evergrande bonds suspended as prices slump

Bonds issued by heavily indebted developer China Evergrande Group plunged on Monday on growing investor worries over the company's ability to pay its debts, prompting China's stock exchanges to halt trading.

The Shanghai Stock Exchange said in a statement that it had temporarily suspended trading in China Evergrande Group's 6.98% July 2022 corporate bond following "abnormal fluctuations." The exchange had also suspended trading in the bond on Friday.

Sanya implements price controls on real estate: no price hikes for 1 year. iFeng: 楼市大降温！三亚出手了：商品房备案价格1年内不得上调 影响有多大？

It is reported that the "Notice" proposes that for projects that have been filed before September 1, 2021, the prices of unsigned properties must be re-filed, and the overall average filed price shall not exceed the recent online price of the project. For commercial housing projects that have been approved for price filing, in principle, the filing price cannot be raised within one year.

Experts interviewed by China Securities Journalists believe that "hands-on" sales price filing is an important means of controlling housing prices. The price increase channels of commercial housing are basically restricted through controlling price filing, which will help reduce false fires in the property market and return the market to stability.

East Money: A股罕见万亿成交背后：炒楼资金悄然“转场”股市

On September 1, the Securities Times reported that the client margin of a leading brokerage firm suddenly increased by nearly 5%. In the past four trading days, the increase was nearly 10%, which aroused widespread concern in the market. (For details, please poke: The margin of top brokerage clients has soared, and the super market is coming? 1.7 trillion funds are surging, and the popular track has plummeted. ) Behind the soaring margin is the sudden increase in hot money in the market. According to the analysis It is believed that there are three sources of hot money, namely the primary market and the bank.Financial management , and the most important source-the property market. 　　

Why do property market funds flow into the stock market? What is the scale? How sustainable...With these questions, we visited. 　　

"A lot of millions of dollars around me have entered the market" 　　

"The property market capital flows into the stock market situation does exist, around me a lot of one million of the funds are coming onto." Laolv is a veteran real estate investors, too many sets of real estate operations in Shenzhen for 20 years, currently quite good assets He told reporters that many of his friends who originally invested in real estate have entered the stock market this year.

Back in April 2014, with the taper underway for 4 months: Rumored Mass Death of Companies in Xiaoshan District of Hangzhou If Banks Collect on Debts; Government Tells Banks to Sit Tight or Leave. By October, Liaoning's economy was going down the tubes: Liaoning Sounds Warning on Chinese Economy. Coincidentally, the Chinese government was engineering a stock market bubble that would blow up in May 2015. In August 2015, the central bank gave up defending the yuan and let it depreciate.

History doesn't repeat, but it does rhyme. The wheels are wobbling on China's economy and the Federal Reserve hasn't even announced its taper yet, let alone started it. China has all but banned reporting bad news about the economy.

Embrace the fog of information war. Ursus Major rises.

China Tries Easing Capital Controls

No progress in more than 10 years.

Caixin: China Picks 10 Companies for Currency Conversion Trial

The pilot program is part of China’s push to internationalize the yuan. Currently, multinationals operating in China need to keep a separate local currency cash pool supervised by the PBOC and a foreign currency pool supervised by SAFE. They need to seek SAFE approval every time they want to buy foreign currency under the capital account, several regulators and bankers told Caixin. Such controls deny businesses the freedom to buy and sell foreign exchange at will to hedge against currency fluctuations.

State-owned conglomerates Sinochem Corp., COFCO Group, China General Technology Group, Aviation Industry Corp. of China and global oil giant Royal Dutch Shell PLC are the five participants selected in Beijing, according to the central bank.

Sinochem completed the first transaction under the program, borrowing $10 million for its subsidiaries to settle foreign currency accounts. COFCO, China General Technology and Aviation Industry have also conducted transactions, the central bank said.

Maybe this time they'll follow through or maybe this is yet another rope-a-dope for the entire inflation/weak dollar crowd, the sixth in 13 years...

CNYJPY at March 2020 Gap

"All one market." Reflation is being tested in multiple markets.

Stuck in Deflation

Barron's: China’s Lopsided Economic Recovery Continues. Expect Widening Global Trade Gaps.

That wasn’t an accident, but a necessary consequence of China’s political and economic model, which systematically transfers spending power from the vast majority of the Chinese people to Communist Party elites and politically connected businesses. Thus, despite the apparent commitment of top Chinese officials to rebalance the economy, their unwillingness to alter the fundamental characteristics of that model has prevented meaningful changes to the composition of economic activity.

I have been keeping tabs on the Chinese economy, but not posting much about it because it's the same cycle. Economy slows, pump up real estate and commodity production, boost trade surplus, capital controls. Repeat after it results in a new downturn, global commodities crash and new multi-year high for USDCNY. I see no evidence that the global economy is escaping from this trap. The only shift is a possible monetary debasement via fiscal stimulus, led by a policy shift in the USA, but the markets have put the cart before the horse.

Forget the Election, Near Future May Come Down to Stimulus

Most traders are focused on the election and potential volatility around it, but there could be massive volatility in the next year. A secular shift into value/commodities could be underway or a shock downturn in the markets if credit don't improve or government deficits don't offset the lack of private borrowing.

A few of the funds, stocks, and currnecies that could be impacted by the election are below. Long-term, the election will be a footnote for most assets. The U.S. dollar is headed in the same direction either way. USG's fiscal deficit is headed in the same direction. However, the risk of another dollar "bull" rally is higher with Trump because of his trade and economic policies. If Republicans hold the Senate, Biden's spending plans will be limited. If Democrats take the Congress, they will eliminate the filibuster, lowering the risk of defection on spending and other bills. That's the most bearish scenario for the dollar.

The dollar looks bearish. As covered in recent posts, it broke its very long-term trendline. The past two breaks met sustained selling for 18 to 24 months. A rebound to 96 would invalidate the analog. A rebound would not invalidate a bear market, but as long as it could sustain a rally, the terminus of such a move could have a wide range of possibilities. A break of 88 on the downside would be the point at which I'd through caution to the wind when it comes to weak dollar trades. For short-term trades, the most volaitle outcome would probably be Trump win expressin in KRW and CNY.

Solar, marijuana and guns are all at interesting junctures because while they have rallied strongly (perhaps the Biden bet), they could be in techncial breakdowns if a Trump win reversed even a little of the recent gains. I added a new marijuana ETF, symbol MSOS, that covers the U.S. market. That is the best bet for those bullish on cannabis legalization at the state or federal level. Also added natural gas and fracking ETFs. There are much bigger issues at play with these sectors including high debt levels, but natural gas looks like it might have bottomed. Perhaps a Trump win would be the spark that ignites the sector.

Commodities and infrastructure also look bullish here. I'm using a bunch of ag ETFs inatead of futures because they are confirming or look set to confirm bullish developments on the futures charts. Copper and copper miners have both taken bullish turns. I threw in Nigeria because I think it is the best example of a resource-exporting frontier market. It looks similar to some of those ag charts.

Cryptocurrencies are showing bullish patters. Bitcoin needs to crack $13,800, call it $14,000, to hit that red box at $17,000 by year end.

I remain long-term bullish in gold miners. I have sold my TLT puts and bought some SIL puts to hedge. Long commodities, crypto, value and inflation looks much more attractive than long technology and major indexes. The Dow, S&P 500 and Nasadaq peaked in September. Only the Russell 2000 has moved higher and it still has bearish potential. The seeds for a post-election correction led by technology are there, particularly with a Trump win. Longer-term, the weight of evidence is moving in favor of a secular shift in markets and inflation.

That said, take a look at Nigeria around 2016, a similar pattern followed by a breakout that failed at the calendar turned to 2018. Every central bank intervention before has produced brief spikes in commodities, emerging markets and inflation expectations. Every spike was followed by new lows as structural deflation in the eurodollar market reemerged. Putting it together, commodities and value look good in the next 6 to 18 months with risk of a post-election correction. Reassess moving forward based on major fundamentals such as DXY, copper price, etc.

Far more important than the election is the real economy. Total Loans and Leases at commercial banks (TOTLL) have reversed most of their covid gains. Year on year growth is back to 2018 levels, consistent with the stagnating post-2008 economy. Government stimlus must remain high if private borrowing doesn't pick up. If borrowing doesn't pick up or stimulus doesn't offset weak private borrowing, all these bullish charts are going to sour fast in 2021.

The 30-year mortgage keeps falling despite a rebound in long-term government bond yields. This should bottom and turn higher if there's a general bullish resolution after the election or major stimulus.

The clearest asset to me remains gold and maybe Bitcion because the central bank and government will act if the economy sinks. Gold can climb even if monetary intervention fails. At some point in that scenario, gold and even gold mining shares will stop falling with other assets because investors will realize the government's interventions are failing. They will start pricing in more and larger interventions into the gold price. This will be expressed in the gold/copper ratio making a bullish breakout. Right now it looks like it wants to trend back into the pattern...

Chinese Reserves Fall Below 10pc of M2

In the short-term, reserve coverage is meaningless. In the longer-term, there are nearly 69 yuan of M2 floating around for every dollar of reserves. Higher if you include all credit money. M2 is growing at more than 10 percent per year.

Does China need reserves? Not if people are willing to hold the yuan.

Are they willing? If not, and China cannot grow reserves by running trade surpluses, it requires ever stricter capital controls because as the amount of renminbi grows, the percent leakage that causes trouble goes down.

None of this matters as long as markets don't care. If markets start caring again, things can go sideways fast.

Jeff Snider covered China again this week: CNY + TIC = October 2020, or 2017?

A hollow jump in CNY, more evidence for eurodollar tightening than loosening, and a mainstream media wild for inflationary scenarios utterly convinced there can’t be any others. What is this, the fourth quarter of 2020 or the fourth quarter of 2017? For China – and everyone else – they’d better hope 2020 represents meaningfully different. Otherwise, what I wrote in October 2017, the first time, would also apply if it does turn out this way: “Unless this works, they [hidden dollar shenanigans] will be added to the bill coming due at the worst possible moment (in other words, just like all the previous attempts).” While the world proceeds cautiously (and then hysterically) toward designs of inflation and recovery, the seeds of its reverse already sown.

There was a reflation attempt from 2016 to 2018, but the Federal Reserve bailed out. The same trends are underway as everyone piles into the same reflationary trades. This time looks much stronger with far more government stimulus on top of central bank activity. U.S. housing is signaling a rip-roaring boom. Assets such as gold, copper, wheat, Bitcoin, corn, nickle and lots more are in bullish breakouts. Many charts have bullish patterns. Barring a major reversal, the shorter-term signals point to continued strength in the reflation trades. If China doesn't show stronger fundamentals though, the risk that this is yet another illusionary rebound will grow.

China Dollarized More Than Ever

The quickest path to de-dollarization is devaluation. China has accomplished very little in the way of dedollarization over the past decade. They've mainly dedollarized their FX reserves, effectively going short the dollar amid a bull rally. If the dollar keeps rising....

The position here is the same as it has been for years. Major yuan devaluation is coming, either before or after a major political conflict. Back in 2014 I though they'd devalue and the U.S. would retaliate with tariffs. Now tariffs are already coming back, there is a trade war, tensions in the South China Sea are rising, the U.S. blames China for the coronavirus outbreak, Hong Kong national security law, plus issues such as Uighur internment, cyber espionage, banning TikTok, blocking Huawei, arresting spies in U.S. universities, the list goes on. At some point the relationship can bend no more and China stops worrying about the political fallout from the necessary plunge in the yuan's value.

All fiat currencies must fall given debt levels, but the choice is the dollar takes everyone down together, or the other currencies devalue versus the dollar.


ZH: The Dollar "Has Us By The Throat": Chinese Official Urges Gradual Decoupling Of Yuan Ahead Of "Full-Blown Escalation"

In a brief outline presented separately by Nikkei, Zhou's position is that the Chinese must prepare:

1. For the deterioration of Sino-U.S. relations and the full escalation of the struggle.

2. To cope with shrinking external demand and a disruption of supply chains.

3. For a new normal of coexisting with the novel coronavirus pandemic over the long term.

4. To leave the dollar hegemony and gradually realize the decoupling of the yuan from the dollar.

5. For the outbreak of a global food crisis.

6. For a resurgence of international terrorism.

Again, such a grim position forecasting isolation is nowhere near the official Chinese Communist Party line, but represents a predicted necessary future reaction to full-blown long lasting conflict with the US.

China Forex Reserves Heading for 10pc of M2

It doesn't matter until it does. China's forex reserves covered 10.3 percent of M2 as of June 30. The rally in the yuan since then has reduced coverage to 10.2 percent.

M2 grew at 11.1 percent yoy in June, the same as the prior month. Month-on-month growth in M2 was 1.65 percent, which was similar to the 1.60 percent in June 2019. If the PBoC wants to hold M2 near 11.0 percent yoy growth, the next three months combined will see about as much credit creation as June alone.

Chinese Reseves Rise in April, M2 Grows 11.1pc

M2 climbed 11.1 percent in the past 12 months, well above the prior target range of 8 to 9 percent. The 3-month rolling growth rate declined from 20.1 percent to 14.5 percent.

FX reserves climbed $30 billion. Reuters: China FX reserves unexpectedly rise to $3.091 trln in April

Why did reserves rise? The country exported much more than it imported. Reuters: China's April exports rebound but outlook remains grim

Overseas shipments in April rose 3.5% from a year earlier, marking the first positive growth since December last year, customs data showed on Thursday. That compared with a 15.7% drop forecast in a Reuters poll and a 6.6% plunge in March.

The increase was driven in part by rising exports of medical equipment, traditional Chinese medicine and textiles including masks. China exported millions of tonnes of medical products worth 71.2 billion yuan ($10 billion) in the March-April period, according to the customs agency. The daily export value of medical supplies jumped by more than three times last month.

...Imports sank 14.2% from a year earlier, the biggest contraction since January 2016 and below market expectations of an 11.2% drop. They had fallen 0.9% the previous month.

The soft imports reading was due to weak domestic demand and declines in commodity prices. The shutdowns outside China also dealt a heavy supply shock to the country’s importers.

No nation needs the debt increase caused by coronavirus, including China.

CNYJPY 20

USDCNY 10 and USDJPY 200 equals CNYJPY 20. Been there before. But first a breakdown could be coming.

Update: It has broken down if CNY follows CNH above 7.15 and/or if JPY extends its gains versus the dollar (and CNY).

PBoC Deputy Governor Says Too Early to Call It Financial Crisis, RMB Will Be Stable

iFeng: 一行两会重磅发声！人民币汇率、物价、A股、房地产…这些问题都回应了

Chen Yulu, deputy governor of the People's Bank of China, said that the recent spread of the international epidemic has affected the turbulence in the international financial market. Indeed, we see that stock markets in Europe, America, and many emerging market economies have fallen by an average of about 30%. This situation has also attracted great attention from the international community.

It is too early to conclude that the world has entered a financial crisis.

The international financial crisis usually has three basic characteristics: First, whether there is a continuous panic decline in the international financial market across markets. The second is whether a large number of financial institutions have failed, especially systemically important financial institutions. The third is to see if the operation of the global real economy has been seriously damaged. At present, in response to the intensification of international financial market turbulence, many countries have successively introduced some countermeasures. The effects of these measures have yet to be observed.

The overall price situation will gradually ease

Chen Yulu said that the overall price situation will gradually ease, and it is expected to gradually decline in the second, third and fourth quarters.

The actual financing cost of Chinese enterprises has fallen

Recently, many international central banks have adopted interest rate cuts. Will China's central banks follow suit?

As far as China's situation is concerned, Chen Yulu pointed out that the previously issued 300 billion yuan special re-loan key guarantee enterprises have exceeded 5,000, and the loans obtained have exceeded 200 billion yuan, and the actual financing cost is only about 2.27%.

At the same time, the People's Bank of China is also actively guiding the market interest rate downward.

The corporate loan interest rate level has dropped significantly. At present, the general loan interest rate is 5.49%, which is 0.61 percentage point lower than before the LPR reform. For the next stage of monetary policy, Chen Yulu pointed out that monetary policy is mainly to grasp the strength, rhythm and focus in stages, and always maintain a reasonable and adequate liquidity; give full play to the unique role of structural monetary policy; give full play to the role of policy finance, Make good use of the 350 billion yuan of special policy bank credit lines; increase support for small and medium banks to supplement capital and issue financial bonds; continue to advance LPR reform.

It is expected that the exchange rate of RMB to USD will still fluctuate around 1: 7 in the future

Chen Yulu said that due to the recent international epidemic, there have been relatively large fluctuations in the international foreign exchange market. Although the RMB exchange rate has also fluctuated, on the whole, it has remained basically stable at a reasonable and balanced level.

The exchange rate of RMB against USD is expected to fluctuate around 1: 7 in the future, with depreciation and appreciation, and continue to float in both directions.

The foreign exchange market is running smoothly, and the exchange rate expectations are also stable. Xuan Changneng, deputy director of the State Administration of Foreign Exchange, also stated that there is no basis for a significant devaluation of the yuan.

Gold and King Dollar Rising With More In Store

USDMXN was the most bearish chart for the U.S. dollar the past few weeks. No more.

EURUSD bounced perfectly after filling its gap. If this topping pattern completes, we can switch to quoting it as USDEUR, since it could be going as high a 2.

USDBRL exploded after completing its base. Pullback likely given the run-up, but very bullish chart over the longer-term.

USDAUD same pattern, same breakout.

Last week I laid out the path to USDJPY 175. It has pulled back, but bounced off the former resistance.

The final currency that will complete a full blown dollar bull rally will be the yuan.

And the one to rule them all, gold. Gold has a massive basing pattern versus USD, which in turn has a massive basing pattern versus many major and minor currencies. Fiat is burning from the periphery to the core. Capital is flowing down the Exeter pryamid.