2017-05-31

Renminbi Will Decline Because China Is De-dollarizing Amid Dollar Deflation

Go read the whole thing.
Balding's World: Can China Address Bank Problems without Having Currency Problems?
I believe there is a much larger structural demand for foreign assets by Chinese citizens/firms in virtually any scenario than there is for Chinese assets by foreign firms/citizens. There are many reasons for this but it is simply very difficult to see where this structural demand tilts towards net inflows into China.
I can see one scenario based on history: Japan 1985, Plaza Accord. Canadian home prices look as though they've topped. Australia should be next. San Francisco may have peaked. U.S. stocks might be peaking, at least in relative terms. If (big, big if) RMB is rising, Chinese home prices are rising, A-shares are rising, foreign assets are topping or falling, then I could see China having a final crack-up boom. How likely is that? Not very. The other scenario is a top in the dollar. I don't expect it, but a new bear market in the dollar (signaling global credit expansion is resuming) would prop up the yuan against USD, though it would slide against nearly everything other currency.
Furthermore, and this is something that is poorly understood by many many people, is the virtually every debt is perceived as being backed by the government by Chinese investors. I want to emphasize this does not mean they have technical or even implicit state backing but from sophisticated institutional investors to small scale retail punters, there is a wide spread belief (which Beijing while officially denying in practice has not given people reason to behave differently) that virtually every debt product has a state guarantee. The simple reality is that in the event of a financial event that requires public action, large sections of “private” Chinese debt will simply be absorbed by the state. Now with total depository corporation asset of 316% of GDP at the end of 2016, it wouldn’t take a large bailout as a percentage of total asset to take Chinese central government debt soaring into Grecian territory. An explosion in government debt financed via some of the various channels here is possible but it is important to note there are greater constraints there than generally realized and the impact it would have on the RMB.
Everyone in China believes this. They have to bailout the whole system, or risk total panic. Related to that from ZeroHedge: Fitch Warns Baidu Faces "Default Risk" Due To Growing Shadow Banking Business
Baidu, China’s dominant search engine, has not been immune to the scramble for funding optionality provided by shadow banking alternatives, and has been getting into the WMP game by rapidly expanding its Financial Services Group, which Fitch says is increasing Baidu’s overall business risk.

While Baidu is not under obligation to pay the returned target on these products, a failure could be potentially damaging to Baidu's reputation, Fitch warned.

“As with Chinese banks, Baidu does not need to set aside large capital against potential defaults on its WMPs … WMPs have become an alternative form of financing for projects or investments that would not qualify for bank loans,” Fitch said.
Chinese believe all of this paper is ultimately backed by the PBoC and CCP. Also, Chinese tell me: "The government will never let home prices fall."

The other part of this is China has begun De-dollarizing. As I've argued before, and I believe it is playing out as expected, the U.S. dollar system dies by deflation, not inflation. The dollar system is broken because the U.S. economy cannot finance global economic activity that includes China and India. Many analysts got it wrong predicting hyperinflation because they thought the U.S. dollar would inflate away during an expansionary phase. Except this is exactly what the world demands: cheap credit financed with a weak U.S. dollar. Instead, they are struggling to with tight liquidity because the global financial system isn't creating enough dollar (eurodollar) credit.

The breakpoint for the dollar system is when countries such as China throw in the towel because they can't get enough credit from the dollar/eurodollar system. They start financing a credit expansion/bailout solely in yuan terms. When will this happen? It has already begun.

Alhambra: Stuck Between Dollar And De-Dollar
When crisis first struck China in the middle of 2008, there were two RMB of foreign reserves for every one RMB in bank reserves. That was not by accident, as even under the more flexible currency regime following the partial float in July 2005 the PBOC endeavored to maintain such a cushion for legitimacy and therefore stability. The global eurodollar markets, however, stopped cooperating so that in the years of “recovery” since then the Chinese central bank has been essentially diluting RMB.
They would have to balance their “dollar” problem against RMB growth of however much. Bank reserves were put back on an upward trajectory last February, but it wasn’t the same as in the prior period. Constrained by again overall dilution potential, China’s internal monetary policy has clearly sought to balance the two conditions, the result of which has been a large injection of RMB but not so large as to totally de-dollarize.
If they have to bailout the financial system it would require far larger injections, orders of magnitude larger.

Kaboom: Existing Home Prices Collapse 20pc in Tongzhou

Caijing: 北京二手房价大面积下跌 部分区域跌幅超20%
It is noteworthy that, according to 我爱我家 (5i5j) market research institute statistics, in May 2017, Beijing existing home transaction prices fell 2.4% mtm. Of the 12 districts with deals, the average transaction price for eight districts is falling, with only four districts rising. The largest decline is Tongzhou District, Yizhuang Development Zone, the decline is more than 20%.
One reason for the dip is likely the policies against converted apartments, which were popular in Tongzhou. Another is the collapse in credit:
It is noteworthy that the existing housing market leverage is also changing, due to the policy of high - pressure restrictions, the proportion of full purchase is increasing.
According to 5i5j, the proportion of all cash purchases rose from 29.15 percent in March to 43.23 percent in May. Commercial loans fell from 51.38 to 34.42 percent over the same period.

Thanks Again, PBoC


ZH: Chinese Currency Bears Crucified After Yuan Overnight Deposit Rate Hits 65%
As Bloomberg reports, the offshore yuan soared the most in four months as funding costs surged "amid speculation policy makers were supporting the currency" following Moody's surprise rating downgrade last week. The offshore Yuan jumped as much as 0.8% to 6.7677 per dollar, the highest level since Nov. 4, before easing to 6.7731. The currency has rallied 1.6 percent, the most in Asia, since Moody’s Investors Service cut its rating on China’s debt a week ago.

As shown below, and as reported in our morning wrap, a short squeeze launched by China's central bank has slammed yuan bears, after Hibor, the overnight yuan interbank rate in Hong Kong, surged 15.7% points on Wednesday to 21.08% , the highest since Jan. 6...

... while the offshore yuan’s overnight deposit rate jumped to a whopping 65%, the highest so far this year.
USDCNH fell 1 percent on the day. Or from the other side, Chinese homes became 1 percent more overvalued relative to global assets. Fundamental yuan outflow pressure increased greatly today.

Sima Qian in Modern Mandarin

Sima Qian’s Records of the Grand Historian 史記 in the Mandarin Vernacular

2017-05-30

First-tier Home Price Decline Coming as Rents Fall, Sales Tumble

Leaving aside price appreciation of a home, renting is a terrible way to earn money in China. Even before costs, the yield is low single-digits in cities such as Beijing. A money market account pays 4 percent without the hassle. Now rents are coming down in Shanghai, the first time in 10 years.

One example is given of how much cheaper it is to rent:
Let us give an example to Shanghai Yangpu District, for example, the area nearly a month the average price of 77,118 yuan / square meter, while the local one room rent is now 3200 yuan / month or so. To a room 60 square meters as a standard, to buy a suite to spend 4.277 million yuan, and rent 70 years only need to spend 2.688 million yuan, almost 58% of the cost of purchase.

A set of 60 square meters of a room, the monthly rent is about 54 yuan per month, the rental ratio = per square meter monthly rent / house price = 1: 1428. This number is far more than a reasonable interval of 1: 200-1: 300.

iFeng: 北上广深的房租降了 租房还是买房你怎么选?
iFeng: 一线城市房租下跌可能是个甜蜜的陷阱 真相太可怕!

Sales volume is also collapsing, which along with the various rules such as holding periods, is pushing more properties onto the rental market. Detached homes are holding up, but not apartments:
According to the Beijing Golden Gulf billion information released data show that May 21 to May 27, Beijing villa a total of 112 transactions, compared with the previous week to reduce 6 sets. January to April 2017, Beijing villa market supply 1129 new homes, down 28% yoy; turnover of 2042 sets, up 17% yoy; turnover of 515,900 square meters, up 4% yoy. There are real estate analysts on the China Securities Journal reporter said villas and other high-end residential projects due to the higher positioning of the crowd, purchasing power, buying and selling is relatively stable, less affected by the policy control.

Compared to the villa project for the situation of less than demand, ordinary commercial housing, business to change the project, whether it is new or second - hand housing market, there has been a sharp decline in turnover of the situation. The above data show that the new housing market in Beijing, May 21 to May 27, 404 sets of ordinary residential goods turnover, compared with last week to reduce 49 sets.

According to the chain data center show, in April 2017, Shanghai hand housing turnover of about 670,000 square meters, decreased by 9.4% mtm, down 30.8% yoy; Shanghai city existing homes residential turnover of 15,500 units, fell 20.4% mtm, down 9.4% yoy, transactions in April were their lowest since 2010. The real estate analysts said that the current Beijing and Shanghai first-tier cities in general commodity housing than the current round of property market regulation, weekly trading volume data 30% to 50% decline, the control effect is extremely obvious.
iFeng: 北京上海楼市成交量下跌明显 房价将迎来更明显回落

The articles have an anti-rent tone, that renters will be second-class citizens. That argument made sense 5 years ago given the subsequent run-up in home prices, but how much farther can prices go if rental yields are 0.9 percent and falling? The cash flow won't even cover the mortgage. Reasonable by Chinese standards is 4 to 6 percent yield. After expenses, the money market is a better option for cash flow. The only reason to own a property is for price appreciation and the protection it offers from inflation. This makes sense in the long-term, but people don't always think about the long-term, especially when there's a cash crunch or negative economic and financial conditions squeezing short-term cash flow.

Who's Lying: Mood or Markets?

"Since such tensions are normally correlated with overall economic conditions, it is unusual for social and political tensions to be so bad when overall economic and market conditions are so good," he said.
CNBC: Manager of the world's biggest hedge fund says the long-term economic picture 'looks scary'

2017-05-26

Trading Bolivars Based on Socialist Party Logo = 100pc Success

It's took bad the market for bolivars is difficult to trade because the socialist party of Venezuela put out an excellent trading guide with their logo. Just trace out their logo to know the future USDVEF exchange rate.

Here's the first chart I posted on May 22, 2015. Winner!
Here's the second chart I posted on July 17, 2015. Another winner!

Here's the third chart I posted on March 15, 2016. Yet another winner!
Could they do it again? They did!

Why Don't You Just Tell Me the Price of the Yuan?

Keep raising those long-term USDCNY targets.

ZH: China Unexpectedly Changes Yuan Fixing Mechanism Sparking Confusion, Concern
Today, it was finally unveiled that the sharp moves in the Yuan were in preparation for today's announcement of a new CNY fixing mechanism. Under the new reference rate formula unveiled by the PBOC, institutions that provide quotes for the fixing will now add an intangible counter-cyclical factor to their existing models, which take into account the previous day’s official closing price at 4:30 p.m. local time and changes in baskets of currencies. Banks are currently tweaking and testing their models and will start providing quotes using the new system soon, Bloomberg reported.

In an amusing aside, one which may have been taken straight from the worry-list of the Korean central bank, Bloomberg added that "China’s foreign-exchange market can be driven by irrational expectations, resulting in "unreal" supply and demand that increases the risk of overshooting, according to an official statement on Chinamoney.com, which is run by China Foreign Exchange Trade System. The counter-cyclical factor may ease "herd actions" and help guide investors to pay more attention to economic fundamentals, according to the statement."

In any case, explaining the recent sharp moves, on Friday CFETS said that the recent observed changes in CNY fixings have already reflected the new fixing mechanism, and said that more changes in the fixing and intraday trading patterns are possible in the days ahead.

According to Goldman, in the near term, the authorities might continue to keep CNY relatively strong (as they did in the last two days) to mitigate potential market worries that the mechanism change could be a precursor to the late 2015/early 2016 experience of discretionary currency weakening.

Which of course does not preclude the new regime from becoming the precursor to another deleveraging. Bloomberg points out that for China’s government, the existing market-based fixing system’s downside is that it makes the exchange rate more difficult to control.

...“If the yuan endgame is a free float like the other major currencies, refining the PBOC fixing mechanism is a retrograde step,” Condon said.

Bulls Looking for Yuan Rally

iFeng: 中国警戒做空者 昨天人民币离奇暴涨只是个开始
China warns shorts

Analysts agreed on the possibility of central bank intervention again.

The Chinese Ministry of Commerce on Thursday issued a document of up to 73 pages, the RMB does not exist long-term devaluation basis, I believe that after a shock period will gradually tend to a new equilibrium; China will not engage in currency competitive devaluation, the RMB exchange rate against the US dollar two-way floating Flexibility will be enhanced. In addition, the Chinese central bank's foreign exchange market operation does not belong to the scope of exchange rate manipulation.

Mizuho Bank strategist Zhang Jiantai wrote to clients in the daily commentary, Moody's downgraded China rating, Thursday appeared suspected market intervention behavior, China or to guard the yuan short.

The yuan is probably just a start, the dollar index weakened, G7 currency trend is also very much, the RMB has a stage of appreciation of the foundation, the two main focus on the central bank action, whether there is continued to guide the appreciation of the intention. Especially today (Friday) the central parity, to find policy makers whether the hope that the strong continuation of the yuan signal.

The ANZ report argues that the central bank appears to be bridging the gap between the central parity and the spot by taking the initiative to intervene at the spot rate.

Hefei Home Prices Jump in 2016, Developer Loses Money in 2017

Deleveraging's collateral damage.

Caijing: 去年合肥房价涨幅全球第一 开发商如今却开始亏本
In January this year, by the Hurun Institute and the United States jointly issued by the global housing price index shows that Hefei housing prices rose more than 40%, ranking the first 2016 global house prices rose.

But since the second half of last year, Hefei property market began to strictly control, policies continue to overweight, the city's real estate market and therefore into silence.

Which was involved in this hot torrent of those spending big bucks to win the high prices of housing enterprises, such as Anhui, the only listed housing prices Hefei City Construction, is currently facing a more severe high price dilemma. Not long ago, the company issued a quarterly release in addition to disclosure of the current performance decline, a difficult to be aware of the outside world is even more surprising:

The company expects first half net profit fell 50% to 100%!

...Reporters noted that the Hefei City Construction due to an increase in financial costs in the first quarter of this year, financial costs increased by 52.109 million yuan, an increase of 897.4% year on year, while net profit of 42.858 million yuan, down nearly 40%.

In the face of the upcoming semi-annual report, Hefei City Construction said that its net profit is expected to last year's 70,104,000 yuan down 50% to 100%, which means that the housing business if the worst case of profitability, then may hit the profit and loss critical point.

Hefei City Construction explained that compared with the same period last year, the scale of operating income changed little, but due to increased bank borrowings, financial costs increased, resulting in 2017 first half profit decline more.

Social Mood in China: Maotai Edition

SCMP: Targeted in crackdown, Moutai liquor is once again the toast of the town
The company’s flagship product, Feitian, with 53 per cent alcohol, is in short supply across the country as retailers, wholesalers and even consumers start to hoard bottled Baijiu as an inflation-proof investment - along with gold bars, property and stocks, according to a few dealers.

“Basically there are only buyers and no sellers [of Feitian],” said one dealer in Guangzhou, who had been trading liquor for a few years. In recent months, people have started hoarding the product with the expectation that demand for Moutai will expand again in coming years - when Xi has consolidated his power and the movement to tame public spending on lavish dinners has eased, said the dealer, who declined to be named.

2017-05-25

China's Little Pink Nationalists

SCMP: The rise of the Little Pink: China’s young angry digital warriors
A group of the website users, some of them overseas students, strongly criticised people who published posts on negative news about China or comments deemed to glorify Western countries. They were called the Jinjiang Girl Group Concerned for the Country, or the Little Pink, a reference to the main colour on the front page of the website. The use of the term spread as social media expanded in China.

How did the Little Pink rise to prominence?

The name became widely attached to young nationalists in China through a series of mass campaigns on overseas social media such as Facebook, Instagram and Twitter, which are all officially blocked on the mainland. A key event came in January last year when Chou Tzu-yu, a 17-year-old Taiwanese pop singer, waved the island’s national flag on a television show.

Mainland internet users flooded Chou’s Instagram account and accused her of supporting Taiwan independence. Days later, they flooded the Facebook page of the newly-elected Taiwanese President Tsai Ing-wen, who heads the independence-leaning Democratic Progressive Party. Some Taiwanese media outlets were also targeted.
The larger origin is two-fold. One, China's nationalist education since the 1990s. Second, rising nationalism around the world.

In 20 years, the nationalists will be in charge all over the world.

Amazon's Last Chance to Hit $1000

The tech rally could be ending soon, or at least about to pullback after Gartman turned bullish.

ZH: Gartman Turns Bullish On Tech: "Every Time We Think The Market Is Overbought, It Moves Higher"
We stand in awe of the sheer relentless nature of the global bull market. Unlike the parabolic rise by Bitcoin, for example, the trend from the lower left to the upper right in global equity prices is measured… is reasonable… is relentless and is, in the end, majestic in nature. It will stop when it stops and not a moment before. Every time we think that the market is overbought, it consolidates and moves higher.

It is interesting then to note that the CNN Fear & Greed Index has been “locked” in recent days a few points either side of 50, where 50 is evenly balanced between the bullish and bearish forces at work. When the Index is below 20 and has turned higher, the market is oversold and due for a rally. When it is above 75 or so and turns down, the market’s over-bought and due for weakness. But at 50 it is neutral… utterly and completely… allowing the trend at hand to obtain a while longer and the trend at hand is clearly a bullish trend.

In retrospect we allowed our prosaic, old-guard beliefs in simple things to color our view of the markets; that is, we have tended to err, even when bullish of stocks, to own metals, trains, boats, bearings et al. As always, we’ve wanted to own “The when instead we should have understood the disruptive nature of modern technology and should have been buying the things that are either replacing these simple things or are making these simple things better.

We shall never be able to step into the pharmaceutical equities for we are not able, nor willing, to make implied bets upon whether a drug in place shall meet FDA approvals or not. We’ve not that expertise, nor shall we ever have it. However, we should be able to ascertain what companies will make mining better; what companies will help run railroads run more efficiently; what high-tech companies will replace crews on ships with autonomy et al. That we have to do; that we shall do. The game has changed and so must we.

Another Burst of Optimism Following Burst of Monetary Emissions

After yesterday's news that CBRC would crackdown on trust lending to developers, today the headline is the investigation will be less than expected.

Caijing: 房企融资监管力度或低于预期:银监会目前仅现场检查

USHCNH fell overnight

ZH: RBC Explains What The Hell Is Going On: "Prudent" Fed & Chinese Intervention
A "prudent" Fed (and China's "National Team") have spurred a risk-on rally, as RBC's head of cross-asset strategy Charlie McElligott notes the market's 'Pavolovian' response to Fed's 'dovish hints' contained within the Minutes - despite simultaneously staying ‘on message’ with hiking / tapering commentary - prompts a "QE of old" response: stocks and Treasuries bid, while the USD faded.

China further perpetuates the ‘risk rally’ via apparent market interventions:

1. Intervention in FX markets to strengthen the Yuan overnight, with speculation of a number of Chinese banks selling Dollars in the onshore market overnight which drove the Yuan higher.

2. Chinese “National Team” stock market inventions as well, with sharp-turns higher off of an initially weaker equities opening and again-weaker industrial metals. Major reversals off lows saw nearly all domestic markets close at highs (Shanghai Prop +2.8%), while Hong Kong’s Hang Seng closed at highs since July 2015, with Chinese real estate developers leading.
Initial (and expected) ‘sell the news’ on the snoozer OPEC outcome, as they extend the output cut 9 months per expectations—which disappointed the ‘bullish surprise’ camp which anticipated more OPEC-‘gaming’ of the market, thinking it was possible for a deeper-cut in conjunction with the consensus extension.

This move lower in crude is notable if it were to escalate the current rollover in ‘inflation expectations’ (10Y BE’s below 200dma) which continue to show as the largest price drivers of risk-assets and major rates markets currently per the QI factor PCA model—although should be noted that both SPX and HYG (US HY proxy) are both deeply OUT OF REGIME with low r-squareds / low explanatory power.
Due to my much-discussed “Chinese deleveraging / Fed tightening / ECB pivoting ‘less dovish’” trifecta, we are seeing good buying in cash USTs and receiving in swaps (strong 5Y auction as well) keeping rates pinned despite the ongoing risk-asset rally.

2017-05-24

Merchant's Bank Sees Deleveraging Slowing, Liquidity Improving

iFeng: 央行货币政策偏紧节奏放缓:市场流动性好转有企稳迹象
China Merchants Securities Received the latest report that the recent voucher or futures market, there are signs of stabilization, it seems that "deleveraging" the marginal impact of the decline. Bond market out of the "trough", once again rose significantly need to go through such a few stages, one of which is the liquidity has improved.

No Growth at Home: German Grocers Invade America

U.S. Grocer Kroger Has Gone Berzerk Because It's About to Be Invaded by a Ruthless German Rival
As grocer Lidl plans its U.S. launch, American incumbents like grocer Kroger (KR) are bracing themselves for heightened competition from the low-cost German rival.

Lidl plans to open its first U.S. stores on June 15, with 20 stores opening this summer in Virginia, North Carolina and South Carolina and a total of 100 East Coast locations by next summer. The privately held German chain operates over 10,000 stores in Europe and is known for its price competitiveness.

According to an analysis by Oppenheimer analyst Rupesh Parikh, there will be four Lidl stores within one mile of a Kroger location and nine within one mile of a Walmart (WMT) . Expanding the radius to ten miles, all 20 Lidl locations overlap with a Walmart, while 13 of them overlap with a Kroger.

Parikh also noted that in some southern stores, Kroger is cutting prices primarily in private label products and advertising its price cuts on giant billboards. The cuts are "mainly in center of store categories and in some private label perishables" and average 20%.

Catalonia Threatens Immediate Secession

The European Union is a catalyst for independence movements. Small regions and even cities might struggle as an independent entity. National governments are more powerful and would refuse to allow a region or city to leave. Under the EU, however, the national governments are subordinate. A city-state could function within the EU. The flourishing of independence movements is a direct result of the EU. This complicates the nationalist and identity movements because governments such as Spain are powerless given their large debt. If the EU survives, Catalonia goes free whether Spain is in the EU or out of it. From the perspective of the EU, breaking national governments into small pieces will make it the unchallenged ruler of Europe. Spain and Italy are threats, but 50 city states and regional governments in the former Spain and former Italy aren't. Thinking further down the road, the most unified countries at the moment are in Eastern Europe, Hungary and Poland. Nationalist nation-states that remain united will grow in power as Europe fractures.

El Pais: Catalonia to immediately declare independence if no referendum held
Spain’s Attorney General José Manuel Maza is set to examine the legality of a plan outlined by the regional government of Catalonia to activate immediate secession from Spain if the central government in Madrid stops it from holding a vote on independence – something it is planning on doing in September or October of this year.

The independence mechanism is detailed in a secret draft version of legislation being prepared by the Generalitat, the Catalan regional government, and to which EL PAÍS has had access.

The Noose Tightens: CBRC Investigates Trust Loans to Real Estate

Back in 2014: China Tightens Oversight of Trusts as Default Risk Rises
China’s banking regulator ordered owners of the nation’s 68 trust companies to be prepared to provide funding or sell their stakes as the risk of defaults rises in the $1.9 trillion industry for high-yield investment.

The China Banking Regulatory Commission told trust companies to either restrict their businesses and reduce net assets or have shareholders replenish capital when the firms suffer losses, according to an April 8 notice that was seen by Bloomberg News. The regulator will also impose a “strict” approval process on trust firms’ entry into new businesses and products starting this year, according to the document.
After a brief crackdown, the trust business was up and running again.

Bloomberg, April 2017: China Said to Crack Down on Property Financing Through Trusts
The China Banking Regulatory Commission’s guidance covered real estate and other industries facing overcapacity, according to people familiar with the matter. The CBRC will take action against disguised property financing by the 20 trillion yuan ($2.9 trillion) trust industry, including lending through partnerships, asset management plans or related businesses such as suppliers, the people said.
This crackdown is now underway after it revived in the first quarter.

iFeng: 房地产又一通道被收紧 银监会检查信托违规拿地
China Securities Journal reporter was informed that the recent CBRC to the banking regulatory authorities issued "2017 trust company on-site inspection points."

01

Whether through the combination of equity and debt, partnership business investment, the proceeds of receivables and other modes of disguise to the real estate development enterprise financing to circumvent regulatory requirements, or to assist other institutions to carry out real estate trust business.

02

Whether there is a real equity or creditor's rights in the project of "stock + debt", whether there is a situation where the real estate enterprise acts as a beneficiary of the shareholders' borrowing, whether or not it is disqualified in the name of the shareholder's loan.

...Industry sources said that as other financing channels are limited, the trust company to become an important channel for real estate developers to finance. But this document issued after the trust company to carry out the current financing business is facing tightening. This means that real estate financing and an important channel is being tightened.
Caijing: 房企融资四面楚歌 信托渠道突然收紧房企命脉告急
This means that after overseas bonds were halted, developers through the trust company financing this important channel also suffered tightening.

Wall Street on Monday mentioned that trust financing is the main financing of housing loans in addition to bank loans, with the main financing channels have been limited real estate, real estate trust business quietly warming.

"Economic Reference" quoted data pointed out that this year, 68 trust companies issued a total of 326 real estate trust products, the cumulative financing for housing enterprises 100.55 billion yuan; May real estate trust issue is still "increasing." Up to now, May housing prices through the issuance of collective trust fundraising project has reached 11.37 billion yuan. May 13 to May 19 of the week, a total of 24 trust companies issued 39 sets of trust products, the number of shares increased by 11, an increase of 39.29%. Among them, 10 for the real estate projects.

...Wall Street.cn mentioned at the beginning of the month, since the beginning of the year, Vanke and R & F and other housing prices have canceled the debt, involving the amount of at least 50 billion yuan. The two companies in the cancellation of the announcement said that in view of the recent changes in the market, decided to cancel the issuance of medium-term notes, Vanke more twice to cancel the issue of medium-term notes.

In fact, the plight of developers emerged in the fourth quarter of last year. Hai Tong Securities analyst Jiang Chao, Zhou Xia and Zhu Yixing in the report pointed out that the quarterly real estate bond issuance and net financing was only 30% of the third quarter, mainly due to the tightening of corporate bonds. From November last year to the end of February this year, real estate corporate bonds issued only 29.
Tightening of credit revived the trust sector loans to real estate, hence the crackdown.

DW: How dangerous are China's shadow banks?
"There are indications that regulatory measures to curb system-wide leverage show unintended consequences; specifically, in reviving 'core' shadow banking activities that had previously been constrained by regulation," said George Xu, Associate Analyst at Moody's Investors Service.

Moody's said borrowers in sectors such as property, local government financing vehicles and industries struggling with overcapacity faced reduced access to traditional bank loans and were being driven to trust loans.
We've seen this all play out before, in 2013 and 2014. Right after the Taper Tantrum in the U.S. came China' cash crunch. From June of 2013 through all of 2014, there was an attempted deleveraging. The result was falling home prices, panic, and the final massive monetary emission in early 2016. Now we're back to seeing a crackdown, complete with signs of periodic cash crunches such as in March. What's different from 2013 is the scale of the problem and the severity of the crackdown. The commodity, real estate and currency market declines from 2014-2016 will be dwarfed by what follows.

2017-05-23

Bankers Implement Strictest Liquidity Controls Ever, Tell Branches "Protect Yourself"

Bankers are reigning in lending and hoarding capital as banks' cost of capital exceeds loan rates. Bankers are even delaying loan disbursement unless customers accept punitive hikes in loan costs. Banks are hoarding capital, with tight credit expected in June (MPA assessment), July (WMPs coming due) and even as far out as September (quarter end).

The article below interviews bank president Mr. Zhang, who has approved 2 billion in loans but refuses to release the funds. He tells the customers wait a little longer, but the funds are never coming unless the customer takes his hint that the cost of funds will soar.
Zhang is a member of the assets of 200 billion yuan level of the city branch of a branch of the vice president, in charge of corporate finance. It is his duty to maintain a good group of companies with a high profile contribution, but now that the loan business has given way to the second quarter of the macro-prudential assessment system (MPA) Has been dubbed the "debt shortage" of the tight liquidity trend, so that the price of capital is steep rise in the spread, so that the head office "under the death order" liquidity control.

"Bringing in capital is the top priority." Zhang told the first financial reporter, the head office has just released what they call the "history's most stringent" liquidity control program. All business units, all branches should defend themselves.
Bankers are refusing to lend to big real estate borrowers even if loans are approved. They're also telling them they can rollover their debts, but after collecting payments, refuse to lend. Later in the article, Zhang says he's received a loan quota and cannot exceed it. Effectively he cannot loan, and if the number drops, he needs to find some way to raise capital or cut lending.
If there are still funding gaps, but have to give the loan, how to do? Zhang is not frustrated to tell the first financial journalists, in accordance with the spirit of the head office, the cost of this loan will be "punitive" to add 200 basis points.

"If the cost bank capital is 5%, and this goes up again by 200 basis points to 7%, now a one-year loan was 4.35%, even if rate is hiked 50% I'm still losing money."

SHIBOR rose higher on Tuesday, climbing above the prime rate, and it's now approaching the central bank's 1-year rate.

Money isn't very tight at the moment, but bankers are hoarding capital in preparation for the MPA in June, and expect tight conditions in July and again at the end of September.
Originally, Xiaopeng they are only in the row of assets and liabilities positions under the baton, ahead of hoarding money. In other words, the tight is not the moment, but for the future will be "lack of food" is expected - 6 at the end of the year to deal with the MPA assessment, in July Xiaopeng where the bank has a group of financial maturity, the end of September liquidity Gap is not small.

You can imagine, to each point in time assessment, overnight, 7 days the price of the species is certainly more cost-effective, or even grab not, of course, Xiao Peng they will now have the first medium-term funds locked up.

And all this foreshadowing, that is, the first two years, with a number of small and medium banks as the backbone of the expansion of the table.

Waterfall is coming out. A joint-stock bank strategy researcher told the first financial journalists, from a number of bank off-balance sheet assets and liabilities, due to the existence of time mismatch, when the lever from the capital side, and the asset side "continued leverage" and strong Of the inertia, so the industry "shrink table" two pressure, this period will be mismatched.

It is also worth noting that "some banks have a long period of long-term bond assets Fukui, because the report is still in the 'hold expired' item, the outside can not be observed." For such assets, banks also need funds Continued

"To talk about it, or just against the pressure, or asset quality problems." "Debt shortage", the funds from the tight, watching the financial management (mainly refers to the non-guaranteed financial management) is about to expire, South China an industry business developed a small bank head office management said that this is he will face the "chest broken stone."
iFeng: 银行行长面临大考不敢放贷:总不能让我“倒贴”

ZH: "This Is Probably Just The Beginning" - Chinese Banks Are In Big Trouble
With the crackdown on financial system leverage underway, Chinese banks (and securities firms) are in big trouble. As we noted previously, China's bond curve is inverted, yields are surging, and Chinese regulatory decisions shutting down various shadow-banking pipelines has crushed securities firms' stocks. However, as Bloomberg points out, as China’s deleveraging efforts cut into banks’ profit margins, rising base funding costs and interbank credit risk concerns have pushed banks' cost of borrowing beyond the rate they charge customers for loans for the first time in history.

So Much for the Rally: ChiNext Hits New 52-Week Low

Two weeks ago there was a glimmer of hope in the markets after the PBoC and regulators issued a joint statement that sounded dovish. Although they pledged to increase coordination, financial deleveraging continues. The hoped for bounce in the ChiNext is gone as the index hits new post-2015 lows. More losses could come given valuations and the analog of the Nasdaq 2000 bubble.

SCMP: ChiNext stocks rebound at double the rate of benchmark, but investors see short-lived rally
The ChiNext index is valued at about 63 times the median PE ratio, well above the 40 threshold considered as the safety margin, while the Shanghai Composite is close to the multiple of 30 times which is perceived as the dividing line between safe and risky, Xun said in a research note.

The ChiNext board has been falling out of favour among investors after the stocks led a crash in mainland equities in 2015 following the regulatory clampdown on margin trading funded by illegal non-brokerage institutions. Trading has been lacklustre since then, with daily turnover down almost 70 per cent from the all-time highs in 2015.

The recent rally appears to be driven more by technical factors than fundamentals, as it followed the index’s decline to a level lower than the nadir in 2015, prompting some buyers to believe the market was over-sold and would see a quick rebound.

Social Mood at the Movies

Social mood is relatively positive at the moment, so the only blockbuster delivering at the box office in 2017 is an action comedy.

Hollywood Reporter: Summer Box-Office Blues: Revenue Down 10 Percent So Far From 2016
Director James Gunn's Guardians of the Galaxy Vol. 2 — with its gaggle of quirky superheroes — is the only summer 2017 tentpole to live up to the hype so far. Over the weekend, the Disney and Marvel superhero sequel grossed $35.1 million in its third outing, not that far behind the disappointing debut of Ridley Scott's Alien: Covenant.

Launching to a lackluster $36 million domestically, Alien: Covenant is the second big-budget movie in a row to disappoint after King Arthur: The Legend of the Sword, helping to contribute to an early summer revenue box-office decline of 10 percent compared with 2016 and 20 percent compared with summer 2015, according to comScore.

There's still plenty of time to make up ground, but Hollywood is on high alert.

"The thing is, we already know August is pretty lean this year, so studios have to make it up elsewhere in June and July. That will put a lot of pressure on original films like Wonder Woman and Christopher Nolan's Dunkirk to succeed," says box-office analyst Jeff Bock of Exhibitor Relations.

"I think whether or not we turn things around is extremely dependent on Memorial Day weekend," he continues. "Last year was a pretty big disappointment with Alice Through the Looking Glass and X-Men: Apocalypse. Hopefully, Pirates of the Caribbean: Dead Men Tell No Tales and Baywatch will performer stronger this time around."
Both of those movies should do well given current social mood.

2017-05-22

SHIBOR Approaches Prime Rate


The Standard: Shanghai interbank rate at two-month high
The one-year Shanghai Interbank Offered Rate rose to 4.3024 percent yesterday, up 0.99 basis point from the previous day - the highest in two months.

It is also the first time one-year SHIBOR climbed above the one-year prime loan rate of 4.3 percent.

One-year SHIBOR has been on the uptrend for a month, and has risen about 10 basis points so far. Meanwhile, five- month SHIBOR adjusted downward slightly, but rates for mid-to-long term are still on the rise. The three-month and six-month SHIBOR maintained their inverted status with one-year SHIBOR since the beginning of this year.
Merchant's Bank asks, "Is this the start or the end?"

iFeng: SHIBOR和贷款利率倒挂说明什么 开始还是结束?
On May 22, the Shanghai Interbank Offered Rate SHIBOR offered a one-year offer of 4.3024%, the highest one-year, more than 4.30% of the Shanghai interbank market's one-year loan base rate (LPR) The central bank's one-year loan rate of 4.35% is only one step away.

It is noteworthy that interbank deposits offer and interbankal one-year pledged repo rates have been on top of LPR, and the internal capital cost of banks has been generally higher than the benchmark interest rate.

SHIBOR and loans upside down, means that the bank will gradually push the pressure to the real economy, the real economy financing costs continue to rise, the economic downward pressure to increase.

...Merchant Securities: Shibor over LPR, start or end?

The LPR interest rate on behalf of the real economic financing needs and the upside down on behalf of the financial market financing costs indicate that "deleveraging" is only present in the financial system, especially the "contraction", which has not yet been delivered to the real economy.

With the "scale" to continue, the interest rate system once again "abnormal". 1-year Shibor (interbank lending) for the first time over 1 year LPR (loan benchmark), taking into account the offer line is a large bank, the departure between the two seems to reflect the debt and assets between the "spread" upside down , But can not just look at the surface, after in-depth analysis we believe that the following conclusions:

1) The change in interest rates reflects the "marginal" cost difference between commercial bank liabilities and assets. The same period of time Shibor and LPR appear upside down, which means that liabilities (mainly interbank liabilities) are tightened at the margins, while asset ends (credit assets) remain marginal and loose, the former associated with the industry "contract", the latter with the real economy Weak demand, which is in line with the current situation: supervision "to leverage" and the cycle of "illusion" burst.

2) the margin of assets and liabilities "negative" negative, does not mean that banks will shrink the table. First, the spread between the two is not large enough, the marginal "spread" negative value does not necessarily mean the average "spread" is negative, the bank still has the power to expand the assets; second, the same industry liabilities accounted for the overall liabilities Is not high (about 5% of deposits), so the marginal increase in the cost of interbank liabilities is not necessarily higher than the average cost of overall debt; Third, non-standard asset interest rates are still low, because the debt-side interest rate is not the end of the asset The pull of the yield, asset-liability mismatch brought about by the rigid debt gap is likely to be the main reason for the debt-rate rise.


3) Shibor over LPR, probably just started. As long as the average interest rate of the asset exceeds the average cost of the debt and there is no exit mechanism (the bank will not collapse), the commercial bank will rely on the "scale" to hedge the "spread" narrowing until the asset average interest rate is lower than the average cost of the debt. As commercial banks continue to increase the "relative supply" of credit, the interest rate of credit will be further upside down with the interest rate level of financial markets (non-standard transitions will also lead to the "real" risk of credit), and Shibor and LPR The spread will be further expanded.

The LPR interest rate on behalf of the real economic financing needs and the upside down on behalf of the financing costs of the financial market indicate that "deleveraging" is only present in the financial system, especially the "contraction", which has not yet been delivered to the real economy. Two possibilities:

The first is the real economy "to leverage" large-scale emergence, resulting in substantial increase in the cost of real economic financing, economic growth once again bottom, then the financial market "deleveraging" is likely to end, capital costs and bond rates may fall ;

The second is the real economy is still "stable lever", the credit average financing costs remain stable, the financial market "deleveraging" will continue to the debt gap so that the financial market triggered a liquidity crisis, local clear will lead to "leverage "A one-time decline, thereby easing the financial market liquidity pressure.

Combined with real estate, commodities and the stock market trend, we believe that the probability of the first case is higher than the second case.

32 Cities Have Selling Restrictions

iFeng: 全国32个城市楼市“限售” 调控效果比房地产税厉害?
According to the Centaline Property Research Center statistics show that the 32 "restricted sales" cities are: Chengdu, Xiamen, Fuzhou, Qingdao, Hangzhou, Guangzhou, Zhuhai, Huizhou, Yangzhou, Changzhou, Changle, Minhou, Xushui, Qidong, Baigou, Sanya, Qionghai, Jiaxing, Chengde, Baoding, Beijing (Baoding, Beijing, etc. are part of the restrictions), Haikou, Dongguan, Xi'an, Jinan, Zhengzhou, Gaobeidian, Wuhu, Kaifeng, Nanjing, Wuxi, Changsha.

ChiNext Analog

2017-05-21

Third and Fourth-Tier Urbanization a Vision, Not Reality

Urbanization follows Zipf's law, such that large cities do not grow slower than smaller cities.
iFeng: 姜超:三四线城市化或仅是一个美好的愿景
Can the population gather? From the experience of urbanization in the United States and Japan, the population continues to gather in large urban areas. The United States since the 1950s, 50,000 - 25 million people in the metropolitan area population is basically stable; and more than 1 million population of the metropolitan area population proportion from 26% to 56%. The proportion of the population in Japan's population concentrated increased from 43% in 1960 to 67% in 2010, and the population continued to gather in the three metropolitan areas. After 1973, the population shifted from "three poles" to "one pole" to Tokyo. The population of the city is subject to Zipf's law, that is, the population of the Nth-largest city in the country is the first urban population of 1 / N, which means that the scale effect completely compensates for the marginal cost increase, and the growth rate of the big cities is not much faster than that of small cities SLOW.

i09: A mysterious law that predicts the size of the world's biggest cities

iFeng: 樊纲:中国目前应主要发展大城市 而非小城镇
China (Shenzhen) Comprehensive Development Research Institute, said Fan Gang 20, urbanization is the migration of people, we have to study the laws of human behavior, China in the current stage the main development should be large cities, and not small towns.

...Fan Gang said that in our current stage of development, should be the main development of large cities, but not a small town-based. The land gave a small town, big city man-made limit, the last is today's results. Big cities, small cities polarized, big city prices, prices soared, small cities (houses) can not sell, because people do not go to small cities.

...For some small cities in Western countries, the existence of a large number of facts, Fan Gang said that small cities and towns in Western countries are often small cities around the city, belonging to the metropolitan surrounding large urban agglomeration, urban small cities , with rail transport, an hour, a Half-hour to work within the region, belonging to the urban agglomeration, urban areas of the part; these small towns did not die, because the European countries, the process of industrialization is very slow, 100 years, 150 years of several generations of talent to complete the industrialization. The young man has not gone, the retired man is back. Retirement is the first person to go back with high income, the second is to go back with social security, the third is with a lifetime of modern city life experience back, he went to transform the old house, some modern things back That small town, that small town has developed, they retired without having to go to the city crowded bus, so the development of small towns.

Different from the Western countries, China and Japan, South Korea and other late countries in just a few decades time for rapid industrialization, in one or two generations of time is the main population concentration, and less population flow. At this stage the rate of urbanization and greater urbanization tends to be higher. This is not what we do wrong, but the development stage is different, the development of different characteristics. The experience of the development of small towns in Western countries shows that small towns are not without opportunities for development, but not in the early stages of urbanization .

Fan Gang said that in this context, we think about the fast industrialized countries, in the present circumstances, no one back to the case, probably a lot of small cities now work is to protect the environment, protect the environment, protect the culture, protect the good Old house, the future can develop, but need a process.

Baoding: Can't Sell Land for 10 Years

Developers will be unable to sell land won at auction for a decade under new rules in Baoding. The maximum price for land is 11 million yuan / mu. Maximum home price 13,000 yuan/ sqm.

iFeng: 全国最严!保定买房拿到房产证后10年内不得买卖


ECNS: Restrictions to curb housing speculation in more cities
A 10-year ban on housing transactions in Baoding City, North China's Hebei Province, made the national headlines on Monday, following a series of moves nationwide to cool the property market.

Regarded by insiders as the toughest restriction on house purchases in China, the regulation requires buyers to hold properties for at least 10 years, the longest restricted period on property trade so far, after they receive a real estate certificate.

2017-05-20

Beijing Converted Apts: Transactions Down 99pc, 6 Trillion Yuan Frozen

It seems like there are no transactions in Beijing's housing market, and developers keep quiet out of fear reads the headline.

Developers are used to playing on the edge of government restrictions, but the restrictions on converted apartments and credit tightening have
iFeng: 冰封的北京商住:新政后几乎零成交 开发商噤若寒蝉
With the residential function to digest the commercial inventory, which is the developers over the years are very familiar with the "edge of the ball-style" play. However, the sudden commercial and retail restrictions on loans to let everyone caught off guard.

According to the March 26 Beijing Municipal Construction Committee issued by the commercial project control policy requirements: commercial project minimum division unit shall not be less than 500 square meters, shall not be allowed to change the use of residence and so on. Development enterprises under construction (including in the sale) business projects, not sold to individuals. Where a second-hand commercial project has been sold for sale to an individual, the buyer is required to pay the full amount in addition to satisfying the residential purchase request.

Recently, the "China Business" reporter visited Beijing's largest "coverted" community in Zhonghong Xiangsu found that this once vibrant young community with nearly ten thousand sets of commercial and residential homes, has almost overnight turned into a depression. Today, the intermediary stores have closed, many restaurants, supermarkets, cafes, etc. also closed.

Centaline real estate chief analyst Zhang Dawei told reporters: "In the past few months, Beijing business class property monthly contract are more than 3000 sets, a little more than a month after "3.26" buying restrictions, the market turnover fell by 99% , almost close to zero turnover, more than 6 trillion yuan of funds in Beijing is completely frozen.
Dilemma

"420,000 yuan deposit I have received, waiting to register the property!" Ms. Wang said that the vigorous and resolute she never imagined in this metaphor on the face of her more vigorous and resolute commercial and commercial purchase policy.

"Would like to sell the house that set of business, just to the school district to save a down payment." In two years, Ms. Wang's son will go to primary school. Although Beijing to fully limit the commercial and commercial rumors have heard, Ms. Wang is still very confident of their speed of action.

This is located in Chaoyang District Beiyuan for sale of housing soon to attract a few buyers to come to the government - in 2013, Ms. Wang to 1.6 million price loan to purchase, in order not to be possible future limit Credit policy, she also "vision" to use their own mother's name.

The final price of the transaction was finalized at $ 2.6 million. A buyer soon signed a contract with her and paid a deposit of 420,000 yuan. It is unexpected, is the history of the most stringent business protection policy introduced, so that both Ms. Wang and buyers stupid. Buyers lost the purchase qualification with the Ministry of Housing and Urban ordered to stop the network signed, this set of hottest commercial housing and smashed back to Ms. Wang's own hands.

"What is the purchase, is simply banned ah!" Ruins returned after the deposit of Ms. Wang secretly analysis of their own house has become a hot potato, shot hope is slim. "Even if the release of the network again, it is estimated that the price should drop about three percent."

"3.26" limit the purchase of loans to the Beijing commercial and commercial market hit immediate. According to the chain of the Institute of the conservative estimates, such as Ms. Wang this dilemma "in the way" the number of groups up to 10,000 or so. May 9, chain home group, said the number of commercial stores closed has reached 44.

In Beijing pixels, have been the owner of the price of millions of houses unsuccessful news spread out. There are some plans to rent in Beijing, seeking friends, because there is no intermediary to help, coupled with the district now "illegal" housing in most formal channels have been unable to show, had to secretly in the subway and the district posted a small Advertising, or resort to social networking sites and other marginal channels to publish rental information.

Open Douban "Beijing rental" group, enter "Xiangsu" (像素) and other keywords can be seen, since March 26 more than a month since the time, the number of rentals and looking for rentals posts number in the hundreds. Which is not difficult to see some of the transfer of the battlefield of the intermediary figure.
Developers are also having trouble selling properties, and the article says there are about 600,000 properties built over the past 10 years which are affected by Beijing's various restrictions, among them 450,000 converted apartments.

Buyers are also becoming more cautious.

iFeng: 北京“3·17新政”两月考:“买房者已不敢出手”
"China Times: chinatimes" reporter visited the Chaoyang District, Beijing Shuangjing, Dawang Road, Baiziwan and other regions also found that since the "3.17 New Deal" since the Beijing housing transactions there has been an unprecedented 7 weeks continuous decline, in April some stores saw sales of almost zero.

"Now, the seller can talk about the price, down a 100,000, 80,000 is not a problem." An intermediary sales staff told reporters. "3.17 New Deal" disrupted the buyers, the intermediary of the established plan, making mediation reshuffle, buying and selling stalemate. Chain family official online display, from March 22 to May 15, is located in the Huilongguan a sale of housing prices after several down, the total price from 5.0 million to 4.6 million, but has not yet traded.

...Thunder fist down, Beijing's commercial housing into the frozen period. In the commercial and residential projects - Taihe Central Plaza sales hall, in addition to duty on the front desk and security, empty. "At present, this area did not live any people, very lonely." Responsible reception staff admitted that this situation lasted for two months. Reporters then visited the focus on the Beijing Wuhuan outside the shops, the scene is also deserted.

In addition, the financial regulation is to curb the real estate market life door.

Beijing Banking Regulatory Bureau, the latest data show that the size of mortgage loans and the number of mortgage approval both significantly reduced. Such as the second week of April to the fourth week, the jurisdiction of the commercial banks to issue personal housing loans totaled 15.328 billion yuan, the average weekly ring down 20%; individual housing loan approval number were 4456, 3944, 3188, Down nearly two percent. Since the "51" after the holiday, a number of banks in Beijing to cancel the first suite interest rate concessions, two suites are the benchmark interest rate floating 20%, more than 25 years of housing loans also ceased approval. "The Beijing real estate feast is no more." Gu Haibo sighs.

2017-05-19

Deflation: Interbank Market Lending Contracts

Caixin: Regulator Wins First Round in Clampdown on Interbank Fundraising
In the second week of May, the net amount of funds that banks raised from selling negotiable certificates of deposit (NCDs) was a negative 107.3 billion yuan ($15.6 billion), meaning they paid back more than they borrowed, according to Wind Information, a financial data provider.

That’s the biggest weekly shortfall in net issuance since China introduced interbank NCDs at the end of 2013, and the third straight week of redemptions exceeding new issues, the data show. The amount of outstanding NCDs fell to 7.7 trillion yuan as of May 18 from 7.9 trillion yuan at the end of last month, set for the first monthly drop since November, according to Wind.
Unless there's credit growth elsewhere in the economy offsetting this contraction, the economy will slow later this year.

Value of South China Sea Increases After Combustible Ice Extracted

Phys.org: China, Japan extract combustible ice from seafloor
Combustible ice is a frozen mixture of water and concentrated natural gas. Technically known as methane hydrate, it can be lit on fire in its frozen state and is believed to comprise one of the world's most abundant fossil fuels.

The official Chinese news agency Xinhua reported that the fuel was successfully mined by a drilling rig operating in the South China Sea on Thursday. Chinese Minister of Land and Resources Jiang Daming declared the event a breakthrough moment heralding a potential "global energy revolution."

MoH: Developers Must Begin Advance Sales Withing 10 Days of Approval

iFeng: 住建部:房企取得预售许可证后十日内应全部公开销售

2017-05-18

Deflation: Chinese Shadow Banking Contracted in April

Guotai Junan estimates non-standard bank lending contracted 800 billion yuan in April as deleveraging policies finally had an effect.

Although banks in China can be politically coerced into lending (and to take bailouts in America), it is still the case that banks are the front line of credit creation, and hence money supply. If shadow banking contracts, the money supply contracts. Asset prices and economic growth will soon be on a downward trajectory if there's no credit or money supply growth to offset it.
iFeng: 银行开始缩表了!市场影响比央行缩表更可怕
With the detailed financial data released in April, Guotai Junan Bank team found that the real start to shrink the table is the bank. Credit Suisse Managing Director Tao Dong believes that banks are more scary than the central bank.

The Politburo meeting on 25 April will guard against financial risks to an unprecedented level, and the political will behind it is beyond doubt. Followed by a line of three will continue to introduce policies to promote financial deleveraging, the effect began to appear.

According to Guotai Junan bank team estimates, in April self-non-standard or non-bank contraction of about 800 billion yuan, the signal shows that financial leverage to achieve a certain effect, the bank began to shrink non-bank, non-standard business.

...Credit Suisse Managing Director Tao Dong that commercial banks to substantially shrink their own balance sheet will bring two effects:

1. credit contraction. A banking-led credit table, especially in the off-balance sheet business. As the credit expansion of the Chinese economy in the past few years basically completed by the expansion of the table, the sudden off-balance sheet of the impact of the number can be seen even more ferocious. Credit out of the economy and the real estate industry poses the risk, may be more than the cost of capital increases.


2. the cost of credit debt soaring and fund-raising capacity decline. Over the past two years, the overall level of leverage in the Chinese economy is still rising, but the fund-raising platform from the financial products to credit debt makes the cost of capital dropped significantly, raising funds is more standardized. Credit market changes in the market, may make a serious reliance on borrowing new debt and some of the old debt default risk increased significantly. At the same time, savings growth slowed down, banks compete for deposit war imminent, normalization of the monetary environment is by the money market "fake interest rate", the real economy to the real economy to raise interest rates.

Tao Dong said that the recent Chinese economy is facing a sudden shortage of liquidity, mainly related to the bank's off-balance sheet business contraction, the intensity may be higher than the performance of the data, the bond market performance reflects the credit environment changes. In order to ease the pressure, the central bank to restart the open market operations, but believe that the normalization of the monetary environment will continue, financial strong supervision will continue.

Tao Dong said that the normalization of the monetary environment, to prevent financial risks, strengthen supervision, eliminate financial corruption, long-term look is a good thing, but to prevent systemic risk necessary. But the departments have introduced measures, but in the manufacture of a superposition of resonance effect, may lead to the credit environment overkill. To prevent risks but become the source of the creation of new risks, and backfire. This is a need for vigilance

SDRs Are Coming

SDRs might extend the global credit cycle for another generation, at least that is the plan.

ZH: World Money: Five Hidden Signals From The IMF

Credit Bubble: Chinese Companies Splurge on Buyouts

This is textbook credit bubble: too much money and not enough investments. Chinese companies with no experience in technology, such as chemical and poultry producers, are buying up online games, apps and media properties.

Read the whole thing.

Bloomberg: Why Did a Chinese Peroxide Company Pay $1 Billion for a Talking Cat?

What Is the One Belt, One Road Really About? Making China Great Again

China is selling 一带一路 to its own people with nationalism.

One Belt One Road
A lot of people can’t quite get what One Belt One Road means. In fact it’s quite easy if you make a simple metaphor: say infrastructure to a country is like a person who goes buy a house. For the vast majority of country, they needed it, but they don’t have the money on hand. Well, China here is like a developer, a construction company and a bank all put together. China has money it doesn’t know what to do with, it has empty houses, and the construction companies have no orders either. So we have both demand and supply sides here with nothing to do. What can we do?

Easy, we make a mortgage. China lends money to all these countries, and then these countries use this very money to ask Chinese companies to build them infrastructure, paying back the money to China in installments in the next decades.

By doing this China can use it’s foreign currency reserves in a smart way. We can avoid buying US treasury bonds like we’re stupid; those give almost no yield. By lending out the money for interest, the yield is much higher. With this plan China can also put to use its industrial overcapacity, we get orders which reactivate our manufacturing base. And all these countries which would use China’s money and rely on China to build infrastructure; their economies will grow eventually, they’ll use money to pay us back, and they will also buy Chinese products.

So everybody wins, that’s what One Belt One Road is all about. [This sentences rhymes in the original]

Also through this infrastructure we can achieve two roads to Europe, one by land and one by sea. If there is any war with the US, the US won’t be able to encircle us. At the same time this would accelerate the speed of transport from China to Europe, lowering transport costs and increasing China’s competitiveness.

All these countries would use Chinese products as the standard of their infrastructure. This means that in the future they would need to use Chinese products to service the infrastructure. This would exclude other countries’ products, giving our manufacturers an advantage when competing with foreign manufacturers.

Of course inside all this there will be some loans which go bad. It’s like a bank, there’s always someone who can’t pay back their mortgage or their car loan. But banks don’t care about that, why? Because they make enough profit to compensate for it. And with China’s One Belt One Road, China would profit twice. One through the interest on the given loans, way higher than the yield of US debt. And then again when these countries buy Chinese products, giving money to Chinese private businesses. In business terms this is a very lucrative process, if we can manage well the level of bad debt, we are sure to make a net profit.

Also if China gets to develop these countries’ infrastructure, naturally these countries will become more friendly towards China. All these countries will be our friends. And as everybody knows, it is always good to have many friends. This applies to people and to states.

During this process, you may notice that China outright gives aid to some countries, without expecting payback. Some people don’t understand this, how can we give stuff away for free? It’s very easy. When you get some business from someone, you gotta give them some advantage. When shopping in a store, many shops give regular discounts, they’d give you coupons if you buy a lot, or even free products. Countries do the same. You’re making money out of someone, if you don’t give them something in exchange, well the business won’t go anywhere. All these aid packages are in fact discount coupons of a sort. Because besides us there’s also Japan or Germany giving loans, helping others build infrastructure. We have competition.

This kind of plan was in fact invented by the Americans. When the US wanted to open up foreign markets, they didn’t do like other countries and use military force to conquer colonies and their markets. What the US did was use what they called “open-door policy”, they used loans, the Marshall plan, etc. They gave loans to other countries, and these countries then used the money to buy American products. By doing so the US occupied these countries’ markets without shedding blood, which helped America become wealthy, and the US dollar become the world’s reserve currency. Thus the US became the world’s factory and ultimately the boss of the world. China is actually learning from America’s path to greatness, growing through peace, and not force.

So, you see, One Belt One Road is a very farseeing policy, it is precisely the path for China’s rising. If you have any friends who still don’t get it, send this piece their way. Let everyone get it. The Great Renewal of the Chinese Nation is just around the corner!
It's back to 1945 for China and America, but they have swapped places.

Shanghai Targets Converted Commercial Properties

Caixin: Shanghai Orders Clean Sweep of Converted Commercial Properties

Chinese New Home Price Rose Again In April, But Restrictions Working

New home prices climbed 0.7 percent in April, matching March's increase. A smaller number of cities saw rising prices.
Restrictions are working though. I watch 12 cities, the four first-tier cities and eight "hot" cities. These 12 combined for an average price increase of 0.08 percent. I don't include Sanya in the list, and it saw the largest drop, 1.2 percent on the month. Many third-tier cities saw gains of 1 percent or more. The highest was 2.2 percent in Bengbu, Anhui.

Existing home prices also climbed 0.7 percent. In those 12 cities, the average increase was 0.4 percent. The highest increase was in Changsha, up 4.3 percent.

2017-05-17

Pop Goes the Ponzi: Rumors Foresea Life Insurance In Trouble

A leaked document circulating on the Chinese Internet shows one of China's most aggressive sellers of universal life insurance is in trouble. Foresea Life was selling policies like hotcakes in order to fund parent Baoneng's takeover attempt of Vanke. The chairman of Baoneng was banned from the insurance industry for 10 years, and now the insurance division might be facing a Ponzi-collapse if it cannot sell enough new policies to meet the cash demand from a ballooning amount of surrendered policies. Last year, policies surrendered totaled 9 billion, an increase of 5.2 times. This year, the 2017 estimated surrender value (estimated by Foresea) is 60 billion, an increase of 6.7 times.

Some background, from September 2016, Barron's: China Cracks Down On High-Yield Life Insurance Policies
Hong Kong-listed Chinese insurers soared after the China Insurance Regulatory Commission put the brakes on high-return life insurance policies, essentially short-term wealth management products.

Universal life insurance is one such policy, commonly offering 5-6% annual return. Players like Evergrande Life even offer 8%.

And such policies have been funding unlisted insurers to buy mainland China's A-shares. Qianhai Life Insurance of Baoneng Group has been issuing these "life insurance" policies to fund its purchase of China Vanke's (200002.China) shares.

September 2016, SCMP: Unlisted insurers to be hit hard by clampdown on flexible, but ‘risky’, universal life products
Anbang’s premiums from investment products reached 186.9 billion yuan, a 271 per cent year rise on the previous year. Evergrande Life Insurance’s investment premiums swelled 705 per cent to 23 billion yuan while that for Qianhai Life surged 228 per cent to 50.1 billion yuan, according to calculation by SWS Research.

If insurers use cash collected from universal life products to buy shares in listed companies, they have to issue the products continuously to maintain cash levels, because many buyers surrender them within three years, Li from CMS said.
February 2017, FT: China bans fourth-richest man from insurance sector for 10 years
China’s fourth-richest man has been banned from the country’s insurance industry for 10 years, in the most aggressive move yet by regulators to tame borrowing and hostile corporate takeovers by insurers.

Yao Zhenhua, chairman of financial conglomerate Baoneng Group, last year launched a high-profile raid on China Vanke, the country’s largest residential developer. He acquired a stake worth 25 per cent, prompting Vanke’s chairman to label Baoneng “barbarians”. 

Much of the funding for Baoneng’s Vanke stake and other investments came from policies sold by its life insurance unit, Foresea Life Insurance, which Mr Yao also chairs.
December 2016, Reuters: China suspends Foresea Life from selling "universal life" insurance

Today, Reuters: China insurer Foresea Life says operations normal, cashflow stable
Local Chinese media and Britain's Financial Times, citing a letter sent from Foresea Life to China's insurance regulator, said the insurer may be unable to meet payouts if it was unable to sell new products.

The letter from Foresea Life, dated April 28, requested the China Insurance Regulatory Commission (CIRC) to resume new product approvals to "avoid inciting mass incidents by clients and localise and systemic risks", the Financial Times said.

Foresea Life had been aggressively wresting market share from bigger, listed peers by offering investors guaranteed-return, higher yielding products.
Today, FT: Chinese insurer warns of defaults as ban on new products bites
One of China’s largest insurers has warned of mass defaults and social unrest unless the regulator lifts a ban on its issuance of new products, the latest sign of stress in the industry caused by a crackdown on financial risk.

In a letter to China’s insurance regulator seen by the Financial Times, Foresea Life Insurance warns that the company expects Rmb60bn ($8.7bn) in redemptions this year and might be unable to meet payouts unless it is able to sell new products.

In December, the China Insurance Regulatory Commission banned Foresea for three months from applying to sell new products. In February, the agency banned Foresea chairman Yao Zhenhua, China’s fourth-richest man, from the industry for 10 years.

In the letter dated April 28, Foresea asks the CIRC to resume new product approvals “in order to avoid inciting mass incidents by clients and localised and systemic risks, producing greater damage to the industry”. The term “mass incidents” is commonly used in China to describe demonstrations, protests and riots.

iFeng: 前海人寿被传陷“600亿退保”危情 回应称经营正常
Recently, screenshots of documents relating to Qianhai cash flow and surrender pressure spread on the Internet, including the "Shenzhen Insurance Regulatory Bureau recommended paying attention to Qianhai cash flow risk", "on the request to support the normal operation of Qianhai and related matters Of the report" and so on.

The above mentioned documents, Qianhai, said, "In 2017 our company is expected to have 60 billion yuan in surrendered policies," and asked the CIRC within a certain amount of sales within the scope of the resumption of universal business sales and new product declaration. In addition, the document also pointed out that the Qianhai risk of cash flow, the first quarter of this year, the company's cash inflows substantially reduced. However, the authenticity of the above documents, the reporter did not from the CIRC and Qianhai to be confirmed.
According to the iFeng article, 78 percent of Foresea's (Qianhai in pinyin) premiums came from sales of universal life policies back in 2015. It saw 60 billion in investment inflows thanks to those policies. Business has since slowed, although some don't see a big risk.
After the suspension of the Universal Insurance business, according to the recently released data, the former life insurance in the first quarter of 2017, the original insurance premium income of 13.48 billion yuan, compared with 11.89 billion yuan in 2016 increased, while the new investment To 46.78 million yuan, compared with 33.46 billion yuan last year.

According to the solvency report, at the end of the first quarter of 2017, the net cash flow of Qianhai Life was -12.4 billion yuan, the consolidated current ratio was 198% in one year and the liquidity coverage rate was 257%. At the end of the first quarter of 2016, the net cash flow was 8 billion yuan.

People close to Qianhai said that the 2016 annual report shows that as of the end of the year, Qianhai had cash and cash equivalents balance of 43.66 billion yuan, plus the first quarter of 2017 scale premium income of 13.5 billion yuan, Qianhai to achieve annual cash net inflow is not stressful.
Assuming the document is real, we now know why regulators and the central bank suddenly eased their stance on deleveraging last week. The problem is that, as Mises said so many years ago:
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
In the end, the yuan will pay the price.

Mickey Kaus Sees American Social Tension Rising

Kausfiles: The Most Important Chart
It’s not just that wages for many have been stagnant. It’s that their increase or decrease has taken on a vicious meritocratic bias. Well-educated Americans are still doing well. Uneducated Americans are actually doing worse — they’re dropping out of the bottom of the pack.

It’s hard to see how traditional American-style social equality — everyone’s equal, not only in the eyes of God or before the law but in the eyes of each other — can survive many more decades of this chart. It’s one thing if the rich get richer — I’d argue there isn’t a hard, Marxist connection between income tables and a sense of social superiority. (Would you let any of these guys but in front of you in line?) It’s another if a whole group of Americans — increasingly identifiable by dress, appearance and language — keeps getting tossed into the economic trashcan. *** I’ve had more than one conversation out here in West Los Angeles in which the topic of heartland working-class decline comes up and the explicit response from one of my friends is, “Fuck ’em.” (The only-sometimes-explicit rest of the response is “… if they’re too stupid to move or go to school.”)

...True, each educational class might develop its own associational life, the way ethnic groups traditionally developed their own groups (Knights of Columbus, etc.). But it might take a long time. It’s also the stuff of neo-feudal dystopias. (When will the Betas and Zetas revolt?)

Brewing Battle Over Greek Debt Relief

FT: Is Greece just about to default?
Further, to Tsipras’ (and others’) surprise, Greece now runs a big primary surplus — over 3 percent of GDP in 2016, up from balance in 2015, and still running strong into 2017, even if some of it reflects temporary factors. Sure enough, that scorching fiscal withdrawal is accompanied by output declines, yet again. But in that context, Tsipras doesn’t need new finance for the budget as is if deposit flight is contained or if ELA is uncapped. Only if deposits flee and ELA is capped will Greece spiral. But thereby the Euro pandora’s box of ECB legitimacy will bust wide open. If Tsipras is ever going to stand and fight on debt reduction — i.e., default — now is the time.

Merkel, likewise, faced with this prospect, also has good reason to pick a fight on Greek debt reduction now.

Glad as she may be that Mme Le Pen has been dispatched, at least for now, Merkel’s immediate task, faced with “Saint Emmanuel”, is to reassure her voters that she’s not going to go soft, not for him, nor the Brits, nor the Italians, and so certainly not for Tsipras. Given the resurgent SPD since Schultz, her key concern ahead of Fall elections is risk of loss of votes to her right. So a flat-out fight with the IMF and Tsipras over debt reduction, with an insistence on the German version of ECB “orthodoxy” on ELA, all under the rubric of “European rules”, has big political attractions.
Even the most pro-EU members have domestic political concerns that cause them to behave in their national interest. Overall social mood is negative in Greece, tensions are rising in Europe.

The last time Greec issued bonds into the private debt markets (2014) it marked a peak for the Greek stock market, and would soon be followed by a political battle over austerity.

A Map of Europe's Secessionist Movements

If social mood declines greatly over the coming decades, a major breakup of nation states is not out of the cards.

ZH: Mapping Europe's Secessionist Movements

Turkey Stirs Trouble With Greece and EU

ZH: EU Warns Turkey After 141 Greek Airspace Violations In Single Day
Turkish aircraft and helicopters illegally entered Greece’s airspace 141 times on May 15, the Hellenic National Defence General Staff reported.

...Will now Turkey stop Greece’s airspace violations? On the contrary. Greeks expect ‘intensive activity’ due to the Turkish naval exercise Seawolf.

On May 16, a pair of Turkish F-16 and of F-4E as well as one CN-235 violated the Greek airspace three times.

Back in August 2015 I wrote Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?

Social mood in Greece is high now and the country is about to sell bonds into the private market. Social mood was also high in April 2014, the first time it sold private bonds since the debt crisis started in 2010. Look at what happened next. The current offering is a contrarian indicator.

More broadly, Greek social mood is very negative. Nationalist sentiment is suppressed for now, but it could erupt at any moment. Military tensions with Turkey could be a spark. It would also give pretext to any nationalist governments in Europe who want to push Turkey out of Europe.

2017-05-16

Will President Trump Be Impeached? America Edges Towards Social Unrest

Back in 2013 I wrote: Will Obama Be Impeached? Watch The Stock Market

I posted four charts.

A bit from that piece:
Social mood will determine whether the public wants lawbreakers hunted down and punished, or whether they'd rather see Congress get back to business. Iran-Contra was serious, it caused Reagan's approval rating to fall, but ultimately people were in a positive mood. President Clinton lied under oath, but the social mood was even more ebullient in 1998. Republicans were completely out of step with the social mood and ended up harming themselves with impeachment. In contrast, Nixon's scandal broke during the 1970s bear market and social mood deteriorated as the scandal unfolded.
Watch the stock market. If there's a major bear market, all bets are off. Also watch who has the power.

Daily Mail: Ousted FBI chief James Comey claimed in write-up of dinner with Trump that President asked him to 'LET GO' investigation into National Security Adviser Mike Flynn because 'he's a good guy'
Comey's memo also described a Trump request to prosecute and jail reporters who report on classified information leaked to them

ZH: Murdered DNC Staffer Seth Rich Shared 44,053 Democrat Emails With WikiLeaks

The 1970s (riots, impeachment, soaring crime) are an optimistic scenario if social mood declines. The extremes in wealth disparity, foreign population and declining life expectancy tells me this is much closer to the early 1920s (wave of communist and anarchist terror) , if not the late 1850s. Peter Turchin lays out many of the social and economic factors that are consistent with prior periods of civil war and social unrest.

Socionomics tells us what is possible given the prevailing mood, but what actually takes place depends on the facts on the ground. America is much closer to major upheaval than is realized. It is a powder keg, and extremely negative social mood will be the spark.