2012-05-31

Authoritarian NY goes after big drinks

NY has proactive policing, the war on terror and the nanny state edicts against salt, smoking and now sugary drinks. Any policy by itself doesn't reflect an authoritarian shift, but NY has them all, making it ground zero for the new authoritarianism in America.

New York Plans to Ban Sale of Big Sizes of Sugary Drinks
Here He Goes Again: Bloomberg Set To Ban All Sugary Drinks Over 16 Ounces

China's gold bubble bursts, but yuan may help

This is some follow up data to the news that Chinese speculators exited the gold market. (See previous post: China's gold bubble)

Hong Kong Gold Trading In Yuan Drops 78% From January Record
“Members aren’t willing to supply gold for physical delivery when gold prices are low,” Cheung said. “Goldsmiths are getting less renminbi because sales have slowed down. They might opt to deposit the yuan at banks instead of buying gold.”

...The society is in talks with refiners in the Middle East, Switzerland and the U.S. to boost the supply of gold available for trading in yuan, Cheung said. The yuan-denominated gold contract is part of Hong Kong’s efforts to cement its status as China’s major offshore yuan trading hub as London gears up to compete. Hong Kong Exchanges and Clearing Ltd. (388) plans during the next quarter to introduce yuan futures contracts that will be settled in the currency.

Yuan deposits in the former British colony fell for a fourth consecutive month in March to the lowest level since June as predictions for appreciation were reined in. Analysts forecast a 2012 gain of 1.8 percent now, a percentage point less than at the start of the year, based on the median estimates in Bloomberg surveys.
This flies in the face of common "wisdom" that says Chinese investors always buy at the bottom. Instead, they succumb to the same herd mentality as everyone else.

Although Chinese speculators have pulled back, their chances of getting back in have increased thanks to yuan contracts and a weaker yuan. If the yuan/dollar depreciation exceeds gold/dollar depreciation, the renminbi price will rise and buyers may start coming back, putting a bid on gold, which is why it will pay to watch the renminbi price of gold from here on out.

Renminbi continues to slide

The market continues to push the renminbi lower and the central bank is chasing it.

Here's the WSJ take: Yuan Falls On Growth Concerns
"It seems that the PBOC is still only partly reflecting the dollar's strength in global markets, allowing only slow depreciation of the yuan against the dollar, perhaps due to recent U.S. calls for more yuan appreciation... However, the central bank may become bolder in weakening the yuan against the dollar if the domestic economy slows further," said Credit Agricole in a research note Wednesday.

A Shanghai-based trader with a foreign bank said he saw strong dollar demand in the onshore market as investors worried about global and domestic economic growth sought safety in less-risky assets.
Republican presidential candidate Romney has complained about the yuan:
US political leaders, including Republican presidential candidate Mitt Romney, have accused China of manipulating its currency, a move they say makes American exports less competitive. Romney had said that if he is elected he would identify China as a currency manipulator on his first day in office.
At some point, politics gives way to economics.

Baoshan steel index long-term chart

I put together this long-term chart of the Baoshan steel index, which gives a better view of where the index could be headed.

Grecian financial crisis in Illinois leads to outburst in state house

Mike Bost is not happy about working on a bill to solve Illinois' pension crisis, only to see it replaced by a new, completely different 200 page bill, with only 20 minutes to read and vote on it. Additionally, the original bill was bipartisan, but the new bill shifted the cost of reform away from Chicago, a Democrat area, and towards Republican leaning localities.

2012-05-30

Chinese overcapacity at bankrupt state owned companies

Many people looking for a deep recession in China may be correct in their reading of the economy, but may not see the results if China manages to bury the cost of it. Costs will be paid, but the government may be able to paper over the differences the way it did in the last recession, when it lowered deposit rates and increased loan rates to recapitalize banks. Consumers paid for the last recession via financial repression and low interest rates caused Chinese to save more of their income, so as to afford school tuition or a down payment on a home.

China pays high price to spare state firm from bankruptcy
The Chinese official was adamant the city of Weifang would keep its rayon factory open, noting that local authorities had just stepped in to help the plant's owner repay $60 million in commercial paper.

The bailout averted what would have been China's first ever bond default and was good news for domestic bond investors, who were reassured that in China even mid-sized state-owned firms can count on "too-big-to-fail" treatment.

But for the long term, the opaque, politically driven rescue of Shandong Helon Co (000677.SZ) bodes ill for a country that must rely heavily on small, private-sector firms for future growth, as investments in infrastructure and basic industry yield diminishing returns.
Economic reform aims to grow the private sector, but state-owned company bankruptcies probably won't happen unless the economy starts growing.

If the economy doesn't grow, and Chinese governments refuse to allow state firm bankruptcies, then what of China's true debt level? If there is a serious recession, the rising costs could eventually overwhelm the central government's ability to control them.
It would have been difficult for Helon or the Weifang authorities to negotiate any arrangements with Helon's bondholders, who unlike the locally based bank creditors were a diffuse group of investors from around China whom city officials would find difficult to persuade to accept a delay in payment on the commercial paper.

A better solution, from the government's perspective, was to take care of the bondholders immediately, while pressuring local banks to be patient, analysts say.

But a long-term solution to Helon's troubles - a takeover by a stronger state-owned firm - has eluded Weifang officials.

They have been using short-term management agreements with would-be rescuers and ad hoc cash injections in the meantime to maintain production and keep workers employed.

Another timely moment for Hugh Hendry's "Confucian" aphorism:

Chinese searches for gold tracks with gold price

The Google Trends for gold are steady, with about a 50% increase during 2011. On Baidu, there was a 400% spike, and interestingly, Chinese hadn't been very interested in searching for gold until QE2 hit in late 2010.

Bank run search volume in Baidu

A recent article on ZeroHedge looked at searches for "bank run" on Google: Google Trends Shows Why The Status Quo "Powers That Be" Should Be Scared. Very Scared

Here is what the story shows for bank run searches on Baidu:

Escape from Japan!

The Japanese collapse is proceeding.
In escape from Japan doomsday, capital takes flight
Hiroshi Kosaka has an unorthodox pitch for his realty business: instead of pictures of swanky condominiums his website features Japanese debt statistics and budget meltdown scenarios usually left to credit rating agencies.
...Increasingly, the middle class and younger people are opening bank accounts in Malaysia, New Zealand and Singapore to buy condominiums and homes that they plan to rent out for a few years before they eventually move in themselves.

"Since November, I've helped around 25 people buy condominiums at a development in Malaysia. I would classify only three of these people as rich," Kosaka says, pointing to a spreadsheet on his notebook PC.

China will not inflate in 2012

China Has No Plan For Large Stimulus To Counter Slowdown
Pumping in government money to achieve growth targets is “not sustainable” and China will instead focus on encouraging private investments in railways, infrastructure, energy, telecommunications, health care and education, the story said.

Wen repeated his call for stabilizing growth and reiterated that the economy faces increasing downward pressure, according to remarks published today by the Hunan Daily, citing a speech the premier gave on May 25 in the southern province.

The National Development and Reform Commission may be accelerating construction approvals as part of China’s response, with the planning agency last week saying that Baosteel Group Corp. and Wuhan Iron & Steel Group won permission to build 134 billion yuan ($21 billion) of new factories. The NDRC had delayed approving the two steel projects in 2009, citing industry overcapacity.
This must be understood within the political context. A major stimulus plan would funnel money to the state owned companies and delay China's economic transition. Simply put, the stimulus plan was "Bo Xilai" style, and Bo isn't around anymore. The area where you will see stimulus is tax reform and tax cuts. Reagan-style massive tax cuts will come next year (maybe announced late this year), but between now and then there's the leadership transition, which is why things will remain turbulent for the bulk of 2012.

2012-05-29

Hong Kong's chief executive sees popularity plunge, even before taking office

The phenomena we've seen most clearly in Japan is at work in Hong Kong, only it's happening more rapidly.


Sharp drop in support for C.Y. Leung, poll finds
Chief executive-elect Leung Chun-ying's public support has suffered a sharp drop amid his recent skirmishes with lawmakers, a University of Hong Kong poll has found.

Leung's support slid to 46 per cent, down from 56 per cent early this month, according to the poll of 1,001 people conducted May 18-24. Those who opposed him as chief executive increased to 41 per cent from 34 per cent.
Another poll has better numbers, but these numbers are consistent with social mood.

Deflation continuing in financial market

Dollar Scarce As Top-Quality Assets Shrink 42%

International investors and financial institutions that are required to own only the highest quality assets to meet investment guidelines or new regulations are finding fewer options beyond dollar-denominated assets. The U.S. is one of only five major economies with credit-default swaps on their debt trading at less than 100 basis points, meaning they are viewed as almost risk free. A year ago, eight Group-of-10 nations fit that category, data compiled by Bloomberg show.

“The pool of high-rated assets has been shrinking, not just in the euro zone but elsewhere as well,” Ian Stannard, Morgan Stanley’s head of Europe currency strategy, said in a May 22 telephone interview. “With the core of Europe shrinking, and the available assets for reserve purposes shrinking, it makes the euro zone less attractive.”
This becomes a self-fulfilling trend as weakening foreign currencies exacerbate the financial position of indebted countries, because the U.S. dollar served as a funding currency during the 2000s. People borrowed (shorted) U.S. dollars and bought up European and emerging market debt. Now, the reverse is taking place, but many foreign assets are also losing their investment status. Those who believe the Treasury bubble is over have much longer to wait because the lack of quality assets will mean a continued strong bid for Treasuries. It also shows that for the time being, gold has plateaued and is not ready to breakout, at least against the dollar. I would still own gold here, because things can change in an instant, but odds favor continued deflation and weak gold until the U.S. becomes the focus of market attention—possibly in late summer or early autumn.

2012-05-28

Thilo is back: Europe Doesn't Need the Euro

Why does Thilo Sarrazin matter so much? It's not so much his message as where he comes from: the center-left. And center-left is relatively far-left by American standards. He made waves with his anti-immigration book in 2010, and now he's out with an anti-euro screed, arguing that the euro is based on German Holocaust guilt and that it's time to get over it. I covered his earlier work here and here.

German Author Says Berlin Is Hostage to Holocaust in Euro Crisis
In his latest work, the combative politician, a maverick member of the opposition center-left Social Democratic Party, controversially argues that Germany is being pressured to bail out the euro zone because it perpetrated the Holocaust.
Sarrazin writes that supporters of euro bonds in Germany "are driven by that very German reflex, that we can only finally atone for the Holocaust and World War II when we have put all our interests and money into European hands," according to excerpts published in German media ahead of the book launch.

Politicians lined up to dismiss the comment as an attempt to whip up publicity for his book launch with crude rhetoric laced with far-right undertones.

"It is pitiful that he invokes the Holocaust to secure the maximum possible attention for his theories on euro bonds," the parliamentary floor leader of the opposition Greens, Jürgen Trittin, told the newspaper Die Welt on Monday, adding that Sarrazin was engaging in "deutsche mark chauvinism."
The European left's response to a left-winger, Sarrazin, talking up "right-wing" ideas is to persecute him. This is a crystal clear example of why the right is ascendant and the ideological left is headed for major political losses in the future (not necessarily the next election). The left is reflexively and extremely anti-nationalist, nationalism being the sentiment that a people deserve self-determination. That idea was the cause of two world wars and countless other wars, as people declared independence and formed their own countries in the 20th Century. In the West, the idea became associated with racism and inverted itself, to the point where defending the native culture was considered racist. Now, the tide is turning against this extreme idea.
Carsten Schneider, a budget policy spokesman for the SPD, said: "Sarrazin is once again trying out the usual provocation. His criticism of the euro is nationalist and reactionary." Volker Kauder, the parliamentary group leader of Chancellor Angela Merkel's Christian Democrats, said: "Sarrazin is wrong again. The euro is a success story and will remain so."
Ha!
But whether intended or not, his phrasing chimes with the line of argument often cited by far-right politicians of the National Democratic Party -- that Germany is being cowed by its Holocaust guilt, and that it has done enough atoning.

It comes as no surprise that the NPD issued a statement this week praising Sarrazin and criticizing Germany's "psychopathological guilt complex that makes it fulfil almost every wish of self-interested foreign countries even 67 years after the end of the war."

Germany's agreement to bail out Greece reveals its "susceptibility to blackmail," Sarrazin wrote, alluding to crimes committed by the Nazis before and during World War II. "This policy is turning Germany into a hostage of all those in the euro zone who may in the future, for whatever reason, need help," he said.
Germany does have a Holocaust guilt complex, but it is fading among the youth. Which politicians stand to gain in the future? Those who use German guilt to push forward an unpopular political integration with Europe, or those who say enough is enough?
Nevertheless, many of Sarrazin's arguments are widely accepted. He says it was a mistake to launch the currency before Europe had a common fiscal policy, and that it was wrong to let countries like Greece join because their economies weren't ready.

He concludes that Europe can only get out of its mess if it rapidly moves towards political union, which he opposes, or that the union should be transformed into a looser formation that allows troubled member states to quit so that they can regain competitiveness through currency devaluation.
One cannot even use the term nationalism in the West without invoking the idea of the Holocaust because they have been inextricably linked. However, nationalism at base is the desire for self-determination for one's cultural/ethnic/racial group. Nationalism was the source of war and conflict during the 20th Centure because different groups were living together under the same government. The war in former Yugoslavia was a repeat of the European world wars , and as with those wars, ended with ethnic groups relocated to new ethnic states.

The new nationalism isn't as threatening because there isn't an Empire breaking apart that is filled with different ethnic groups. Germany will not invade Poland or the Czech Republic on the pretext of Germans living there, since the Germans are now in Germany. What will happen though, is native cultures will express themselves more robustly. Unassimilated immigrants may be asked to leave, and in the case of European political integration, it means nation states will say no. The latter is the more important case. The European elite is left-wing and pro-European integration. They view nationalism as an existential threat to the European project and their opposition is tactical, rather than strategic. They don't have an intellectual response to his arguments and they will grow more shrill as the ideological right gains ground, eventually sweeping the left from power. It could come with a victory for a right-wing party, but just as likely, and more so in Germany, the victory of a left-wing politician who creates a larger political majority by incorporating right-wing ideas.

Chinese industrial profits down, but private businesses prosper

Profits for Chinese major industrial companies fell 1.6 percent in the first four months from the same period last year, China's statistical authority said Sunday.

The statement said that in April alone, industrial profits dropped 2.2 percent to 407.6 billion yuan from the same period of last year.

State-owned and state-controlled enterprises saw their profits fall 9.9 percent from one year earlier to 457.8 billion yuan in the first four months, while private companies' profits grew 20.9 percent during the same period.
Chinese often report data as a running total and sometimes Western news outlets report the number as if it was the one-month year-over-year number they are accustomed to seeing in the West. This data release gives both: a 2.2% drop in April increases the 2012 loss to 1.6%, from the 1.45% loss in March. In short: the decline is accelerating.

On the plus side, private companies saw profits surge. It wasn't the case for exporters though, they broke out profits for Hong Kong and Taiwan owned firms, and those were down.

I remember around 2004 or 2005 Chinese media started crowing about SOE profits, but most of the SOEs are in commodity and industrial sectors that boomed during the 2000s all over the globe. This was not a sign of good management, but an upturn in the sectors. China increasingly relied on these firms for growth and capital was shoveled their way as part of the post-2008 stimulus. Much of that capital was funneled into real estate investment and non-core businesses. Thus, these firms could experience a double whammy as their core business deteriorates along with their speculative ventures.

The path forward is clear: shift the economy in favor of private business, which is the plan of incoming premier Li Keqiang. In the interim, things will be rocky.

Major Chinese industrial companies' profits drop 1.6 pct

2012-05-27

Social mood in America: voters frustrated

Here's a one minute video. The answer to the last question is social mood.



A typical refrain from voters is that "the other side" won't compromise. Then there are the genuine moderates, who don't hold strong political opinions, who just want things to get done and don't really care about the content (as long as things improve). However, more and more of the public are taking opposite sides of the debate. The debate will not end with a change in social mood, more likely it will end when one side wins and totally dominates, but it will require much more negative social mood to reach that point.

Chinese M1 down to low single digit growth

Here's a chart comparing year-on-year growth of M1 and M2, along with the Shanghai Composite Index value.

Social mood and American politics

During negative social mood, some people will fight more with the "other side,", some will fight with their own side, and some will get fed up and quit. Here's a good article by Michael Fumento, an independent journalist who considers himself a conservative, but now breaks with the right over their attitudes. In his piece, he refers to the "extreme right," not in the sense of their policies, but in their rhetoric.

My break with the extreme right
The new right cannot advance a conservative agenda precisely because, other than a few small holdouts like the American Conservative magazine or that battleship that refuses to become a museum, George Will, it is not itself conservative. Pod people are running the show. It has no such capability; no such desire. I find that disturbing for obvious reasons. But, based on my own conversations with liberals, I think – nay, I know – that if more of these allegedly godless, treasonous people understood real conservatism a lot would embrace many conservative positions.

Pandemic watch

People are in the mood for pandemic news and here's an interesting one from The Independent.

African monkey meat that could be behind the next HIV
While the Baka no longer hunt primates for themselves, Mr Biango says that they still kill gorillas for the commercial trade and will eat the meat if they find the animals already dead.

Though Cameroonians have eaten primate meat for years, recent health scares have begun to raise fears about the safety of the meat. "In the village of Bakaklion our brothers found a dead gorilla in the forest," Mr Biango said. "They took it back to the village and ate the meat. Almost immediately, everyone died – 25 men, women and children – the only person who didn't was a woman who didn't eat the meat."

Three-quarters of all new human viruses are known to come from animals, and some scientists believe humans are particularly susceptible to those carried by apes. The human immunodeficiency virus (HIV) is now widely believed to have originated in chimps. Apes are known to host other potentially deadly viruses, such as ebola, anthrax, yellow fever and other potential viruses yet to be discovered.
This situation could easily spread worldwide though:
Now, it is international, extending the threat beyond the continent's boundaries. Scientists have warned that Britain is at risk from an outbreak caused by the lethal Ebola or Marburg viruses contained in illegal imports of bush meat from Africa.

The size of the imports is unknown, but one 2010 study estimated that five tons of the meat per week were being smuggled in personal baggage via Roissy-Charles de Gaulle airport in Paris, France. Gorilla and chimpanzee meat is said to be on offer to African communities in Hackney and Brixton at hundreds of pounds per kilogram.
10 years ago, I would not predict any domestic policy response. Today, it's a different story, due to negative social mood.

2012-05-25

Euro shorts go all in


Marc Faber sees potential for a euro bounce here and that large short position increases the odds of a counter-trend rally.

Chinese banks see drop in demand; why are FX deposits up in China?; the copper carry trade

One news story and one analysis today.

China Banks May Miss Loan Target For 2012, Officials Say
This month may be worse. The four biggest banks -- which account for about 40 percent of lending -- had advanced only 34 billion yuan as of May 20, Liu Yuhui, a director at the government-backed Chinese Academy of Social Sciences, said in an interview this week, without saying where he got the data. The lenders may rush to boost credit in the last few days, mainly through short-term notes, he said.

China hasn’t officially announced the quotas set for each bank or the total loan target for 2012.

Still, as recently as last month, policy makers were indicating the target was 7.5 trillion yuan to 8 trillion yuan. Lenders in China’s eastern province of Zhejiang, for instance, will aim to increase new loans to about 670 billion yuan, accounting for 8.4 to 8.9 percent of the nation’s total increase, the government-backed Securities Times newspaper reported on April 26, citing Liu Renwu, head of the PBOC’s Hangzhou branch.

Failing to meet the annual loan target would mark a turning point for Chinese banks, which have reached or exceeded the central bank’s goal every year that such quotas have been in place since at least 2006.
Inflationists of the world, wake up! Even the Chinese government has met the force of the market. If people do not want to borrow, monetary systems that rely on credit creation (almost all of them today) cannot increase money supply. The Chinese public still have inflation expectations though, so if the government wants to make a bold move and reignite the housing bubble, the public will likely borrow and load up on homes and gold bars. And toilet paper and garlic, and any other commodity that can be purchased in bulk.

The next article is from the graduate student econ and finance blog at Beida (Peking University):
Why FX deposits surge in China
China’s monetary statistics for April 2012 showed weakness in both loan and deposit growth. In particular, Renminbi deposits fell by 465.6bn yuan, compared to a 342.4bn increase in April 2011. However, bank deposits denominated in foreign currencies (FX deposits) in China have been surging since the beginning of this year. FX deposits increased by 32.5% in the first 4 months of 2012, compared with 6% growth in the first 4 months of 2011. Every month there is about 20bn USD added into the banks’ deposit accounts.
From the news above, we know that those loans are even weaker in May. One factor for the growth in dollar deposits is coming from a decline in dollar borrowing:
Also, dollar loan growth has been faster than dollar deposit growth since 2005 and the amount of dollar loans was twice as much as the amount of dollar deposits by the end of 2011. However, the trend started to reverse in the fourth quarter of 2011 and continued to accelerate this year, when the new dollar deposits were larger than new dollar loans and the FX loan-to-deposit ratio has declined from 200% to 154%.
Here's your commodity strength in a nutshell:
The strict lending quota (compared with 2009) made it very difficult for some companies to borrow from banks. To get around the quota, the demand for letter of credits increased rapidly as it is not counted in the lending quota, though it has the function of short-term financing. Some companies imported lots of coppers in order to get the letter of credits, despite their business having nothing to do with copper. What’s more, some banks even cut the interest rate for letter of credits to attract more clients.
The Chinese used the U.S. dollar for a carry trade to buy oil into 2008, but since 2009 they've been stockpiling copper.

This blog also broke the story of the renminbi rising during interday trading as the PBOC moved the midpoint higher, while it fell interday during trading. An earlier post this week, PBoC against the market on USDCNY, shows that the yuan continues to plunge intraday.

Below is a Chinese news story on the copper pileup in Shanghai; it's the first increase at the ports in several years.

Link if video doesn't play: 铜需求下滑 折射国内经济增速放缓 东方新闻 120524

Below is the chart of the intraday yuan trade:
Here is copper over the past three years:

2012-05-24

Maotai update: stock investors don't see a slowdown

In Maotai bubble bursts, I looked at Maotai demand coming from government officials and speculative buyers of Maotai bottles. I expected the stock price to tumble, but thus far the opposite has occured: Maotai has marched higher.

America, world's policeman:ready to retire

51% of voters want a total withdrawal of U.S. forces from Europe (which by extension ends the wars in the Middle East). The broader story is that the American public is looking for a foreign policy agenda that puts U.S. interests first. It means security commitments to Korea, Japan and the rest of Asia may also be open to debate. As social mood declines and the financial costs, only the most critical U.S. interests will receive attention.

51% Think U.S. Should Withdraw All Troops From Europe

Property transactions increase in China

China's economy is weakening, but money printing by the central bank could reignite the real estate bubble at a moment's notice.
Beijing's property sales, including new and pre-owned homes, saw a strong rebound in the first half of May, according to real estate brokerage Century 21. It said 7,132 apartments were sold in the first 15 days of May, up 103 percent year-on-year. Sales of pre-owned homes jumped 75 percent to 5,645 units.

"Property developers' strategy of cutting prices to stimulate sales did work. Also, potential buyers' sentiment improved," said Su Ri, senior analyst from Century 21.

According to China Index Academy, the research unit of the country's largest real estate website SouFun Holding Ltd, about 60 percent of the cities it monitors saw a rebound in property sales last week on a yearly basis.

Suzhou, Xiamen, Wenzhou, Lanzhou and Haikou had a rebound of more than 100 percent.

Some property developers have even increased prices.

China Resources Land Ltd plans to launch the second phase of its Spanish-style villa project in Beijing next month, and prices will probably be more than 20 percent above those on the first phase launched in November.
Housing price decline spreads to more cities

This chart of the renminbi shows what's been happening behind the scenes of the mild uptick in real estate. If the market does improve, expect this very modest depreciation in the renminbi to turn into a serious move:


2012-05-22

Chinese anti-foreigner sentiment played up as police crackdown on illegals

There are always stories of foreigners behaving badly in China, as well as behaving admirably. Just before the stories I'm about to list broke out, there were popular stories of a Brazilian in Dongguan fighting pick-pockets and an American sharing a meal with a beggar. However, in the past two weeks there have been a flurry of anti-foreign stories and what's different is that almost all of them have turned into major stories, including front page news.

First was "British Man Beat Up For Sexually Assaulting Chinese Girl," which appears
followed by Chinese Girls Beat Up by Suspected Korean Men in Chengdu KFC (turns out they are ethnic Korean, Chinese citizens)
followed by Beijing Symphony Axes Russian Cellist After Foot Video
Mr. Vedernikov was filmed by a passenger on May 14 on a train from Shenyang to Beijing annoying a female passenger sitting in front of him. The video showed him touching the head of the passenger with his bare feet, then insulting her in Chinese when she protested and threw water bottles at him.
and the latest CCTV Yang Rui’s Anti-Foreigner Rant, Chinese Netizen Reactions
The Ministry of Public Security must clean out foreign garbage, arresting foreign thugs and protect ignorant/innocent girls, with Wudaokou and Sanlitun being the disaster areas [worst places]. Behead the snake heads [human traffickers], the unemployed Americans and Europeans who come to China to make money, trafficking in people, misleading the public and encouraging them to emigrate. Identify the foreign spies, who find a Chinese woman to cohabitate with, while their job is to collect intelligence, drawing maps and perfecting GPS [coordinates] for Japan, Korea, Europe, and America under the guise of being tourists. Drive out the foreign shrew, shut down Al-Jazeera’s Beijing Office, let those who demonize China shut their mouths and fuck off!
As I said, individually these stories aren't very suprising, but the cluster and national media attention to them may be an orchestrated campaign to support a 3-month crackdown on illegals.

Beijing Pledges to ‘Clean Out’ Illegal Foreigners
Beijing has launched a 100-day campaign to “clean out” foreigners living or working illegally in the city amid a fervent online debate over the behavior, both good and bad, of outsiders inChina.
Also see: Disquieting Days for Foreigners in China

I don't think this is the Chinese government trying to funnel negative mood into anti-foreign sentiment, but it is allowing it to bubble to the surface as it conducts a crackdown. The simplest explanation is that anti-foreign sentiment will help with the 3-month illegal crackdown.

2012-05-21

"Dark" movies at Cannes

Cannes film festival abuzz as dark tales shine

Wang Lijun heads to court on charges of treason

Bo Xilai police chief in treason trial
The former Chongqing police chief whose flight to a US consulate in February triggered China's worst political crisis in more than 20 years will be tried for treason as early as next month, according to sources who have been briefed on the case.
The general opinion is that he faces a lengthy jail sentence, but no death penalty.

Chinese steel prices resume the plunge


The optimists think: China growth: bottoming out?
The pessimists look to: Chinese Iron Ore Buyers Defer Imports Cargoes, Mirae Says
“Moderately improving demand can’t keep up with the surge in steel capacity, leading to falling prices and forcing steelmakers to cut output,” analyst Henry Liu said by phone today from Hong Kong. “We started to hear of such deferrals in the past month.”

......"China is hand to mouth at the moment," the unnamed source is quoted as saying.
China buyers defer volumes of raw materials

GOP launches shadow party as civil war heats up

The state level fight between the GOP establishment and Ron Paul/Tea Party members has led to a full split in Nevada, where the establishment, having lost party leadership, is now operating as a separate party.



2012-05-20

Harvard Business School case study of Kyle Bass bearish position on Japan

Hayman Capital Management

New developer marketing strategy: live free for three years!

A Chinese developer in Shenzhen is offering buyers the 3-year right to sell the property back at full value and other developers are quickly copying this policy. The value of this policy depends on the firms financial position. They can survive a small decrease because the cost of moving will exceed the losses, but if prices fall 20% or more? Will the firm remain solvent?

房产也玩“保值回购” “免费”住3年“只赚不赔”

Where's the profit? Facebook and Sina searching for an answer

I remember when many people asked how Yahoo! and other early web companies could make money. Their content was free and their earnings in the late 1990s were very small. However, earnings did come in and for people who bought (very) early or after the crash, they even bought at a decent price. Today, some web companies are relatively cheap, such as in the social gaming sector, while others such as Facebook are expensive. I say this because some of the social gaming stocks that trade overseas have very low P/Es (and pay dividends!) and a stock such as Zynga (ZNGA) is trading at 20 times 2013 earnings. There's obviously a lot of risk involved, but I don't believe analysts are able to correctly value these companies, nor are stock market investors. These firms experience extremely rapid growth and I invest as if they were options—they will have a binary outcome, either they make it or they don't. If they make it, they will be earnings estimates for years on end, while if they fail, at best they will be sold for their assets.

Of course, while there are very interesting investments just below the radar screen, everyone is focused on Facebook and Twitter because they're huge and Facebook itself is the ecosystem for a large amount of social gaming. There are plenty of articles about Facebook, but I wanted to highlight a negative one and a positive one. The first one, Failbook’s Epic Fail: Does Zuckerberg Want Users To Pay?, comments on an article in the BBC, Facebook tests 'pay to promote post' tool. The author has a low-ball valuation for Facebook and sees this revenue attempt as negative. I think web companies often experiment and as long as it's not a major strategy for a company, they can survive many failures. However, I think it does signal that Facebook is looking for revenue, especially now that they're a public company. Will the shift in psychology harm the firm?

The second article takes a more positive view. Facebook's Value: What's the Price of a Billion People Watching Each Other? Facebook is a huge force on the Internet and has pursued what I would call a Google-like strategy: become the Internet. Facebook wants to remain the social networking platform. Whether that eventually translates into enough profit to justify its valuation is another story.

Twitter isn't public, but Sina's Weibo faces similar challenges to profitability. Sina Weibo's Fretful Hunt for Profit Platform
Despite an enormous user base of some 300 million microbloggers across China, Sina Weibo is losing money. And its executives are fretting.
Sina is important to watch because Chinese users less worried about privacy. If there's a way to profit, they have more room to maneuver without upsetting users.
Social network advertising around the world is designed to target consumers more accurately than portals and search engines. Targeted social advertising requires data mining and user-behavior analyses. The world's largest network Facebook reported more than US$ 3 billion in ad revenues last year and could rake in US$ 5 billion in 2012.

Sina Weibo's long-range plan calls for building a "social mapping plus interest mapping" platform. The idea is to offer users a two-way communications system like Facebook or a hybrid "Twitter-Facebook" platform.

It's unclear whether this goal can be reached – or make money.

The authors of a recent Sina financial report admitted, "We have no way of ensuring that the profit models employed by other microblogging services and social networking service providers are suitable to weibo."
......On the plus side, mobile microblogging already generates more traffic than the standard Internet, and weibos are the most active mobile applications in China, putting Sina Weibo in a good position for future growth in mobile markets.
As an investor, valuation is key. Facebook doesn't simply have to be profitable, it needs to earn enough to justify its $50 billion valuation. The real story of the Facebook IPO is that the IPO price is far closer to the company's value than the IPOs of the 1990s and at this point, investors would be wise to buy the small, profitable, and just as rapidly growing social network/social gaming firms.

2012-05-19

Chinese real estate consulting firm World Union sees red; Austrian business cycle theory at work

With real estate transactions plunging in China, real estate agencies and agent aren't earning commissions. One firm, World Union, saw profits turn negative in the first quarter, with sales at a multi-year low. The first chart below is sales, the second profits. The numbers don't use notation, so they appear as all zeros, but the trends are clear. The chairman of World Union wrote a popular microblog post recently titled, "7 tricks killing real estate agencies," in which he discussed how the industry developed business practices during the 2009 bubble. Those once positive practices have turned destructive for the industry.

The simple answer is that there are too many real estate agents. The sidewalks in Beijing and other bubble cities are littered with agents and their sandwich boards advertising properties. On a 10-20 minute stroll down the street during business hours, one could easily come across 20-30 agents manning their sandwich boards. There are often 3-5 agencies all in one spot, on every single block. If the block is large enough, sometimes this cluster of agencies will occur two or three times.

Unemployment to come, in keeping with the business cycle

Financial repression in China and the undeveloped financial sector means savers have few places to put their money, and investment choices are limited. China has negative real interest rates and these low rates send the signal to borrowers to invest in capital goods. Interest rates are negative for deposits and loans, banks make money thanks to financial repression whereby deposit rates are extremely low. Saving money results in losses of at least 2-4% annually on purchasing power (going by official CPI numbers, higher if you don't trust them), while if you are borrowing for a home, your interest rate is also negative! A rational actor will then borrow to buy a home as an inflation hedge (as Lang Xianping pointed out,), while at the higher stage of production, the developers are borrowing to build these homes. This next point is very important: average Chinese borrowers can only obtain cheap mortgage credit, if they want credit for other purchases, or even for a small or medium sized business, they cannot obtain it. Thus, a part of the demand for homes is being driven by demand for an inflation hedge because aside from gold and art, Chinese don't have many investment choices and they're not buying stocks.

Unemployment is a lagging indicator because the higher stages of production have higher capital to labor ratios. Real estate is one extreme example. When interest rates rise, capital feels the pinch first. The investments and planned investments at the higher stages of production become unprofitable and are liquidated or canceled, and these adjustments move down the line. The Chinese government had been tightening monetary policy until this year and private market rates soared to 10% per month in Wenzhou, a center for private business. We are seeing real estate developers dump projects and land in order to raise capital, and those tumbling prices are slowly filtering down to the consumer level. At the consumer level we see the highest level of employment at the agencies, and the lack of turnover has killed profits even faster than price declines. It won't be long before there are stories of mass job losses. In the article linked below, one solution already being bandied about is to replace physical stores with more online sales......



房产代理公司被拖佣金 传统营销模式面临转型
A primer on Austrian business cycle theory.

Europe stares into the abyss


2012-05-17

Loss of trust leads collapse in government; what predicts loss of trust?

Steve Lombardo penned this op/ed in Forbes: Collapse In Trust Is A Good Predictor Of Collapse In Governments
In January Edelman released its annual, global Trust Barometer study, which revealed a severe breakdown in government trust, globally and in particular in Europe. In 2008, in the aftermath of the economic crisis, trust in business plummeted, and the public took away the “keys to the car” and gave them to government. Four years later, as government failed to adequately react to the economic crisis in the eyes of the people, they’ve taken them away again. The majority of countries in our study now distrust government. This was particularly so in Europe, with government trust being well below the 50 percent mark in Ireland, Germany, U.K., Russia, Poland, Italy, France, and Spain. Over the past year, trust in government plummeted among informed publics in Spain, France and Italy, by 23 points, 18 points and 14 points respectively. In addition, nearly two-thirds of EU citizens believed their country was off on the wrong track, and six in ten did not trust government leaders to tell the truth at all. Each of these countries had un-sustainable “trust scores” and that turned out to be a good predictor of whether those governments would flip.
The loss of trust in business and government is not a changing trend, it's more like a correction in social mood's bear market. There was a brief rally in 2009, but in China and Europe, the rally ran out of stream and things started getting worse in 2010. The public didn't lose trust in government, it's just that business became the focal point of negative mood. Trust is down across the board and it's just a matter of where they turn their attention. Here's Lombardo's conclusion:
Trust is what people believe you will do in the future (and this is true for business as well as government). In that context, European governments and others need to begin work on securing trust of their citizenry or risk the same cycle in the next round of elections.
I would deliver similar advice, but more concrete. You cannot control public mood, but you can deflect it. Implement radical policies (not necessarily far-left or far-right, but radical in the sense of unexpected bold moves that shock Europe) and treat the EU Commission and IMF as your enemy. Create conflict with them to satisfy the peoples' desire for conflict, while benefiting your regime. This can either be done honestly (fixing the economies of Europe requires a bit of anti-EU and anti-IMF policy) or cynically; if done honestly it will have lasting results. Cynical governments may stay in power longer, but they will fall hard and face the scorn of historians. To put it simply, implement positive policies to move your nation forward while directing negative social mood towards tertiary, coincident and ultimately inconsequential (the more abstract the better) targets.

The real problem is that the European political class doesn't want to change. They are invested in the status quo and that is why they are the target of negative social mood. People want change and they are not getting it. This is why the right stands to gain: the public will play round robin with political parties until one of them changes the game. It can come from the far left where the far-left is anti-free trade, but it will most likely come from the far-right because in Europe, many far right parties marry left-wing economics with right-wing cultural issues. European leftists are international socialists, rightists are national socialists. Europeans want to keep their socialism, but they also want nationalism.

2012-05-16

Yuan collapse goes mainstream as Financial Times discovers the yuan can drop; exchange rate hyperinflation cometh?

Why China’s RMB exodus IS the story
Yet, with fewer dollars making their way into the system, and with some Chinese corporates even finding themselves short of dollars, the official PBoC yuan bid has not been enough to entice dollars into government coffers.

Without dollars to purchase, the yuan-liquidity tap is effectively turned off and the PBoC is forced to turn to alternative liquidity tools, such as the repo markets.

Instead of selling yuan-bills outright, the PBoC is forced to do the opposite, because there are now too many bills circulating through the market and not enough liquidity.

It’s one reason why Chinese repo rates have been so volatile of late (and also why they’ve been moving higher steadily since 2009, since the more bill supply there is out there, the higher the repo rate goes):
The weak yuan story has now gone mainstream, it is no longer the domain of Liu Junluo, Mish Shedlock and other contrarians. Think of the yuan's value 10 years ago, when everyone would agree it was undervalued. Since China has been expanding money and credit at a rapid pace, the yuan has been depreciating against the U.S. dollar all this time. It has moved higher because it's starting position was too low, but the real exchange rate has been racing to meet the market exchange rate.

Furthermore, as I've written here, it matters why China sells Treasuries. No doubt you've run across the "China sells Treasuries, U.S. dollar drops, U.S. interest rates soar" thesis. Now, China has a huge stockpile of Treasuries and is much larger than Thailand, but Thailand sold its dollars off and the result was currency collapse. The question is the relative strength of each currency market, do people want to hold dollars or yuan? If you've noticed the U.S. dollar and Treasury rates since 2008, you know that the dollar is catching a bid.

Taking it one step further, foreign central banks have been printing way faster than the Fed, especially China. Here is money printing since 2008, red line PBOC, green line Fed:

The FT Alphaville blog post talks about the internationalization strategy as one to draw in dollars, but:
What happens if instead of a dollar inflow you get a mass capital outflow from China, with as many Chinese as possible converting yuan-denominated assets into dollars, seeing the yuan fall in value versus the dollar due to what is now an over-valued position?
China has pent up dollar demand because it already allows anyone who wants to buy yuan to buy, but it restricts outflows. Only retail investors and some speculators lack exposure to the yuan, opening the yuan will lead to net yuan selling in the short-term.

In the late autumn there was a decline in the renminbi against the central bank mid-point fixings and we're seeing similar weakness again:


Chinese shares pummeled in Hong Kong

Investors are pricing in a much slower Chinese economy as disappointing economic numbers come in and today was the worst one-day decline in the past three months. The Hang Seng China Enterprises Index tracks H-shares in Hong Kong. Today, the HSCE was knocked for a 3.4% loss and was down as much as 3.7% late in the day. Beijing Capital International Airport (0694) was hit for a 7.1% loss. Jianxi Copper (0358) fell 6.0%; Sinofert (0297) lost 5.9%; China Minsheng Bank (1988) declined 6.2%; Sands China (1928) slid 4.9%; CITIC (6030) tumbled 5.7%; and Chow Tai Fook (1929) plunged 9.6%.

In the real estate sector, Sino-Ocean (3377) sank 7.5%; Guangzhou R&F (2777) fell 6.6%; China Resources Land (1109) declined 6.1%; SOHO China (0410) lost 4.1%. On the Mainland, Vanke (000002.SZ) fell 3.4%, well ahead of the 1.2% drop in the Shanghai Composite.

A Greek explains the financial "crisis" in Greece



By way of Brooklyn.

2012-05-15

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.

2012-05-14

China's gold bubble

I have maintained that gold is not a bubble, but investor behavior in China resembles a bubble. Now we have anecdotal evidence: China’s Gold Demand Growth Seen Stagnating as Price Drops
The expectation that gold prices will always rise and that gold’s value can only appreciate seems to have faded,” said Xin at Lao Feng Xiang, whose company name translates as Old Auspicious Phoenix. “Some consumers are now sitting on the sidelines with cash in their hands, pondering whether to buy.”

...“I’m not that optimistic about the whole market,” Xin said yesterday in Shanghai, where he’s attending a trade fair. “We’ve seen the signs since the last quarter in 2011, that Chinese consumers share a quite pronounced tendency in which they usually buy gold when prices are rising and refrain from purchasing when prices are conceived to be on a downtrend.”
This is performance chasing, momentum investing.

China enjoyed a stock market bubble that peaked in 2007, which sent investors into a housing bubble that peaked in 2011, which sent investors into a gold (mini-) bubble. Stocks and housing are mostly limited to citizens, but gold is a global market: Chinese behavior helped push gold prices beyond their trend, but not into a bubble.

Without investor demand, jewelry demand will drive gold purchases, and that demand depends on disposable income. There's reason to be optimistic, since the coming government reforms will aim at increasing consumer incomes. Also, the recent cut in the reserve requirement signals an easing cycle is beginning and with a wider trading band for the yuan, in addition to the belief that the yuan is fairly valued, an easing cycle will weaken the yuan. That works in gold's favor since Chinese demand depends on a rising yuan price.

Real estate investment collapses in China

The National Bureau of Statistics reported an 18.7% increase in real estate investment for the first four month of the year, down from a 23.5% percent growth rate in the first three months. China reports this data as a running year-on-year annual growth figure, but it's possible to calculate the April data: real estate investment increased only 8.4% in April, year-over-year. Extrapolating the data, things turn better later in the year thanks to favorable comparisons, but the growth rate will decelerate for the next two months. Importantly, this decline in investment is not a condition of lower prices: the total area of land sales has declined as have the number of projects.

The data comes as the PBOC has ended its tightening cycle and loosened reserve requirements by 0.5% to 20%. If, as a CSJ (China Securities Journal) editorial calls for, the PBOC continues cutting reserve requirements and then also interest rates, the outlook for the real estate market would improve greatly.

房产投资增速连降 明年需求或反弹
China May Cut Reserve Ratio Further To Boost Economy - Paper

2012-05-13

Wealthy Americans get the cold shoulder

A country is headed towards tyranny when it starts building walls to keep people in. Consider the implementation of the latest U.S. policy: Wealthy Americans get the cold shoulder
"Bank accounts, investment accounts, mortgages and insurance policies are being refused to American clients, and those with accounts are seeing them closed or have been threatened with closure," Marylouise Serrato, executive director of American Citizens Abroad, a Geneva-based organisation, said.

US citizens living in countries not served by US banks may find themselves unable to bank at all, and the law in its current form could damage US businesses abroad, she said.

"Americans either will not be allowed to enter into international partnerships or live and work overseas, and will be replaced by foreign nationals who do not have these limitations," Serrato said. "The extensive reporting requirements of Fatca will be destructive to those who wish to do business internationally as well as to those Americans who are legitimately living and working overseas."
America's technological advantage comes in part from immigrant entrepreneurs. If wealthy Americans start asking themselves which side of the wall they want to live on, most native Americans will pick the U.S., but many foreigners may prefer more favorable countries.

Shorts pile back into euro


The euro is still trading above its 2012 low, but conditions are ripe for a challenge of that level. ProShares UltraShort Euro (EUO) is one way to play a falling euro.

2012-05-11

Chinese female suicide bomber ends land dispute

A land dispute back in January ended in a similar fashion.

Suicide bomber kills 3 in land grab protest
A woman suicide bomber killed three other people and injured 15 when she blew herself up yesterday while protesting against the forced demolition of her home in Yunnan's Qiaojia county.

Violent protests and suicides are increasingly common as people fight back against the requisitioning of land by local governments. But this is believed to be the first time a female suicide bomber has taken the lives of others to protest at a land grab.

Guangzhou-based rights lawyer Tang Jingling said it was a landmark incident. People had now realised that "taking their own lives is no longer enough to stop bulldozers from destroying their homeland".

2012-05-09

Syriza's moment to lead Greece: destined to fail?

All eyes are on Syriza's effort to build a coalition that can govern Greece. I believe it may come down to one factor: will Golden Dawn be invited into the government? In the simplest of terms, anti-bailout parties have enough votes to form a majority government. I am no expert on Greek politics, but I believe Syriza would cement its status in Greece if it created a grand coalition with the only goal of renegotiating/rejecting the agreements with the EU. As soon as this was achieved, new elections would be held to deal with the aftermath. Syriza would probably permanently displace PASOK if they win this victory for the Greek people. Therefore, I'm watching to see if they invite the far right into the government, although the far left may even refuse to join if the far right is invited. It's an interesting dynamic because any party that refuses to join would probably be trounced in the next election.

Greek election: Syriza 'to tear up EU austerity deal'
Greek media said he had enlisted the support of a smaller left-wing party, Democratic Left, but had failed to persuade the communist KKE to back him. He is likely to talk to all the party leaders, except the ultra-nationalist Golden Dawn.
Will one of the (formerly) major parties sign on with Syriza? I doubt it. And if the communists steadfastly refuse to join his coalition and there are new elections, the communists will lose support.

China may delay National Party Congress

How big is this news? I cannot post this link on my Weibo account, it is considered "unsafe." I will try to locate a Chinese-language media source as soon as one is available.

China considers delay of key party congress: sources
The top party leaders are considering a proposal to move the 18th congress, originally scheduled for September or October, to between November and January, three sources said, in a step that has been taken twice before in the past five congresses.

The delay would primarily aim to shorten the transition for the new leaders, who will be announced at the congress but are not due to start in their new state roles until March 2013, said the sources, who all have knowledge of the party's deliberations.

One source said a delay would also give time for debate over the size of the standing committee, with current President Hu Jintao's allies wanting it cut to seven, of which they would likely hold a majority, and others wanting it expanded to 11 to accommodate rival factions.
The battle for China continues.

General Zhang Zhaozhong: 30% chance of war with Philippines

Don't place too much importance on his words though, he also said China will start World War III to protect Iran.


Link if video doesn't play: 视频:军事专家张召忠称中菲开战概率是30%

China hits Philippines for worsening standoff
"The Philippine side continued to send government vessels to the lagoon of the Huangyan (Panatag) Island, and repeatedly made erroneous remarks which mislead the public in the Philippines and the international community, played up the public feelings, thus severely damaging the atmosphere of the bilateral relations between China and the Philippines," Fu said.

...Both Manila and Beijing are claiming sovereignty over the shoal. Manila bases its claims under the United Nations Convention on the Law of the Sea, while Beijing says it owns the shoal on historical basis.

Xinhua: China fully prepared to respond to anything Philippines does
BBC: China warns Philippines on 'mistakes' in maritime spat
The Guardian: China stirs up trouble with Philippines

Republican voters toss senior Senator out of office; GOP still headed towards brokered convention

Republican rebels continue to collect scalps after a hiatus. Although Senator Hatch survived a challenge in Utah, Senator Luger of Indiana will finish out his sixth and final term in the Senate this year after his challenger, State Treasurer Mourdock, took 60% of the vote.

Six-term Senate veteran Lugar defeated in Indiana primary
Lugar, along with Utah’s Orrin Hatch, is the longest serving Republican in the Senate. But like GOP senators Lisa Murkowski in Alaska, Bob Bennett in Utah, and Arlen Specter in Pennsylvania in 2010, Lugar found himself challenged by those in his party who decided he was not conservative enough on federal spending.
Spending is the focal point, but negative social mood is driving these elections. All of the candidates mentioned above, save Murkowski, are long serving Republicans first elected decades ago. In previous posts on U.S. politics, I've talked about voter anger at both parties. Voters want to throw politicians out of office and there are two ways to do that: knock them off internally during the primary, or have them lose their seat in the general election. Since the Republicans continue to prune their ranks, they remain the favorites to control the House and retake the Senate; and their longer-term prospects remain brighter. I've said it before, but if Obama wins a second term, it may be a curse upon Democrats because they will likely avoid radically changing their membership. Political parties in the U.S. have two states: in power or trying to get back into power. The Democrats seen themselves in power, Republicans out of power, thus Democrats are risk-averse and Republicans are risk-taking. On that note, Republicans continue to head towards a convention battle and possible brokered convention.

Anyone interested in the story of the delegate count should follow Ben Swann of WXIX Cincinnati. He is covering this story in-depth and frankly, appears to be one of the only reporters in America still practicing journalism. Nothing but the facts, including a look at Republican convention rules that could mean Romney has a much lower delegate count than even the Ron Paul supporters believe.



Even if you don't think Ron Paul has a snowball's chance in Hell of even challenging for the nomination (Gingrich and Santorum will probably throw their delegates to Romney), it's important to keep in mind that delegates also shape the party platform and even a small group of supporters can have a large impact. Given the current state of social mood, which is more likely: Romney smooths over policy disagreements (imagine a bunch of Ron Paul delegates end up shaping the foreign policy plank!) or major policy disagreements turn into a bigger fight?

2012-05-08

The future plague?

If 2000 was a major top in social mood and we are only experiencing the first part of a major decline in mood, it's possible there will be at least one case of a serious disease outbreak. The most likely candidate appears to be drug-resistant bacteria. Diseases that were leading killers in the 19th Century and almost eradicated in the 20th, could once again become leading killers in the 21st.

Drug-Defying Germs From India Speed Post-Antibiotic Era
Kakkar and others worry about NDM-1 because unlike germs such as VRE, short for the vancomycin-resistant enterococci bug that can cause infection around a patient’s surgical incision, NDM-1 is spreading beyond hospitals.

Two travelers from the Netherlands picked up an NDM-1 bug in their bowels after visiting India in 2009 although they hadn’t received medical care there, says Maurine Leverstein-van Hall, a clinical microbiologist at the University Medical Center in the Dutch city of Utrecht.

“That’s what’s scary,” she says. “It’s not just surgery or being near a hospital. In some way, you get it through the food chain or through the water.”

...Even though she escaped physical harm, Skaret says, NDM-1 made her feel isolated. She says therapists, concerned about their own exposure, refused to help her with rehabilitation to recover from the car accident. Neighbors who delivered food were careful not to get too close.

“When they heard about it, they were very cautious,” she says.
I've covered this previously, but this story is very detailed and worth a read.

2012-05-07

Massachusetts goes full Puritan

Massachusetts passed a law banning junk food at public schools and the law covers everything from vending machines to bake sales and holiday parties.
The Departments of Public Health and Education contend clearing tables of even whole milk and white bread is necessary to combat an obesity epidemic affecting a third of the state’s 1.5 million students. But parents argue crudites won’t cut it when the bills come due on athletic equipment and band trips.
I love this line. The government pretty much admits the only way they can reduce obesity is to not give children food. Can social mood turn negative enough for Massachusetts to turn public schools into Death Camps of Tolerance? They're already halfway there.

2012-05-06

German Pirate party takes 8% in Schleswig-Holstein local election

Internet pirates win 6 seats in German provincial election
With six new seats in Schleswig-Holstein, the Pirates now are represented in state legislatures in Berlin, Saar state and Schleswig-Holstein. They also are expected to win seats in next week's election in North Rhine Westphalia, giving them good chances of winning seats in Germany's national parliament in the general election next year.

The pirates, who oppose copyright and favour free downloads, are attracting general disenchantment among young voters with Germany’s mainstream parties.

Germany ruling parties lose poll in Schleswig-Holstein
Chancellor Angela Merkel's Christian Democrats (CDU) scored 31%, their lowest tally in the state for 50 years.

The CDU's national coalition partners, the Free Democrats, slumped to 8%.

The opposition SPD finished just behind the CDU on around 30%, but are expected to be able form a coalition with the Greens and a party representing the state's Danish-speaking minority.
Discontent is growing at the ballot box and the winners are winning increasingly small majorities and previously small fringe parties heading towards 10% support. Europe is now at the stage where reactive politics will accelerate the transition to negative social mood politics. Until this election, Greece accepted the Troika recommendations and France agreed with the German sponsored financial treaty. Finland held some anti-bailout positions, but didn't really rock the boat. Now, France wants to renegotiate and Greece wants out. Europe is now at the point where one player will defect or at least threaten it, and this will weaken any plea for unity by ruling centrist parties.

Greek preliminary results: ruling parties finish with under 40%

If the preliminary results hold up, my bet on New Democracy and PASOK taking less than 38% of the vote looks solid. Here's a report fromFrance24:
Official projected results showed Evangelos Venizelos’ PASOK party plunging to third place with 13.6 percent and 42 seats in the 300-member parliament. The conservative New Democracy was projected in the lead with 19.18 percent and 109 seats, far below the 151 needed to form a government. The margin of error was 0.5 percentage point.
That would give two currently ruling parties about 33% of the vote, far below what is needed to form a government. Via AFP:
leftist Syriza, which scored 15.5-17.0 percent, more than triple its 4.6 percent of 2009.

...Golden Dawn was also set to enter parliament for the first time since the end of the military junta in 1974, with 6.5-7.5 percent, making it the sixth-biggest party in the 300-seat chamber with some 20 lawmakers.
The article tags Golden Dawn as Neo-Nazi, but as anyone paying attention to the debt crisis knows, Greeks hate Germans and still demand WWII reparations, thus while far right, Golden Dawn is most certainly not a Nazi party.
Independent Greeks, a new right-wing party set up by New Democracy dissident Panos Kammenos, polled around 11 percent to become the fourth-biggest party, followed by the communist KKE on 8.0-9.5 percent.
The Democratic Left, a Europhile new leftist party, notched up 5.5-6.5 percent. In total seven parties were set to enter parliament compared with just five after the last election.
I haven't seen election analysis yet, but since the majority of Greek voters rejected austerity and a ruling coalition will be difficult to form, a short-term anti-austerity coalition may be a possibility. From Bloomberg:
Before yesterday’s election result, Tsipras had proposed joining forces with the Communist Party of Greece, the oldest parliamentary party in the country, and the Democratic Left, which won 6 percent of the vote, to form a coalition.

Both parties have rejected the overture, with Communist Party chief Aleka Papariga repeating her refusal last night.
If there's going to be a coalition, it will be across ideological lines. Considering the negative social mood, the question is whether Greece can focus its negative social mood on fighting foreigners or fighting with each other. If they unite against the Troika, austerity is dead. If they cannot agree, there will be new elections very soon.

Greek legislative election, 2012
250 seats will be distributed on the basis of proportional representation, with a threshold of 3% for entry into parliament. The other 50 seats will be awarded to the leading party (see: Greek election law). Parliamentary majority is achieved by a party or coalition of parties that command at least one half plus one (151 out of 300) of total seats.
Here are the latest results continuously updated:
As it stands right now, ND and PASOK, the previous ruling coalition, have 150 seats between them and all other parties have 150.



Unofficial Greek exit polls

For those who can't wait:
The first predictions of the outcome

25%-27% NDΝΕΑ ΔΗΜΟΚΡΑΤΙΑ
16%-18% PASOK
12%-13% SYRIZA
10%-11% KKE
6%-9% ANEXARTITOI ELLINES
4%-5% DIMAR
4% GOLDEN DAWN
This has the two main parties in a range of 41% - 45%, which if it holds up, means I lose my bet on the under. No idea where this data is from though, whether it's a national projection or just local results.

2012-05-04

Speculators ease up on shorts again

but the euro finishes the week on a weak note.

The economic picture of social mood

Here's manufacturing indexes across Europe showing contraction in the eurozone, France, Italy and Spain:

Debt crisis: live

Sunday elections: France and Greece

No surprises in France:
Hollande on track to win French poll
Sarkozy's chances fade two days before French runoff

Implications for the euro, but these are somewhat priced in. Greece, on the other hand, could be volatile. Greece is set to elect a fragmented parliament where very minor parties are crucial to forming a majority government. Since social mood is negative, this ruling coalition will be as popular as almost every other ruling government in the world, which is to say not. Popularity will fall and the fringe party will bail on the coalition, new elections will be held.

Here is WSJ coverage:
Greek Elections Seen Leading to Instability
Angry Voters Are Set to Punish Main Parties, Leading to New Polls Within Months and Threatening Bailout Package
New Democracy and Pasok typically dominate Parliament, and take turns governing. But on Sunday they will be lucky to reach a majority of the 300 seats in Parliament between them, thanks to booming support for protest parties, ranging from Marxist-Leninists to neo-Nazis.

With 10 parties polling above the 3% threshold for winning seats, Greeks are likely to elect the most fragmented Parliament since the restoration of democracy and fall of Greece's military junta in 1974.

"We are probably going to wind up with a New Democracy-Pasok coalition if they get the seats, which they might not," says David Lea, an analyst at Control Risks, an independent risk-consulting firm. "Either way, another round of elections before year-end is entirely possible."
The prediction is that new elections are held within the year, which means this government would only last about 4 to 5 months at best.

Here is WaPo:
Ahead of Greek election, fringe parties find support
The two mainstream parties, which have traded power since the fall of Greece’s dictatorship nearly 40 years ago, now pull in about 40 percent of support combined, down from 77 percent in the last election in 2009. Taking their place are parties on the left and right that oppose the bailout and Greece’s use of the shared euro currency.

The likeliest outcome of the election is an alliance between the two main pro-bailout parties, the Socialists and the business-friendly New Democrats, analysts say. But that is roughly akin to the Democrats and Republicans pulling 40 percent of the vote and then expecting them to govern together in lockstep to guide the country out of the Great Depression. Few Greeks have high expectations.
Both articles have lots of negative words such as destruction.

Polls have the two pro-bailout parties at 38% to 40% combined. I would bet the under; the surprise will be in favor of fringe parties.