Guest Post: Some Bubble Snapshots And Schizophrenic Five Year Plans

Tyler Durden's picture

Submitted by JM

Some Bubble Snapshots and Schizophrenic Five Year Plans

All data comes from central bank websites and the IMF Statistical Bulletin.  I assume money from China is intertwined in the Hong Kong and Singapore financial complexes…

Support for this interconnection is seen in deposits (from Mainland) far in excess of Hong Kong and Singapore loans…

Are Mainland gains booked in Hong Kong deposits, while the Yuan is borrowed (shorted)?  Have a look at financial system loan growth.  Now even in a semi-centrally planned economy, the test of a true bubble is in loan growth (leverage).  Hong Kong and Singapore are flat, but China lending growth is astonishing.  Note also India.

Despite governments dictating more loan-loss provisioning, China (and Korea and India) has little capital to assets.  Loan growth and poor provisioning in China and India are giving off warning signs.

Now consider customer deposit growth.  Hong Kong and Singapore deposit growth is flat.  If I am right about the interconnection between booking gains in non-Yuan and borrowing in Yuan, this is a signal of Mainland deleveraging and liquidity needs.

Asset quality is the crux of a bubble.  Deteriorating asset quality creates balance sheet mismatches.  Just as investors “reach for yield”, the first banks in on low quality loans show strong returns, so the whole banking sector joins in.  Thus an imperfect indicator of declining asset quality is a high loans/total assets ratio.   Vulnerability happens when loans season and NPLs creep up.  Then banks need cash.  When they don’t provision for losses you get a meltdown. 

China, Korea, and India have extremely low capital provisioning for this contingency. 

The Korean consumer sector looks shaky, although corporate balance sheets are much stronger and contribute to the high deposits to GDP in the first chart.  A lot of Korean valuations are sky high and ready for a long drop. 

While the balance of loan growth, customer deposit growth, and capital to assets in India doesn’t look good, India is not as “financialized” to the same extent as the other countries.   Because of this, it is less susceptible to deleveraging fire-sales and also rides a long term trend of financial system growth.  Frankly, Indian risk started rolling over a while ago anyway. 

China deserves some attention.  Flare-ups in Chinese social tension are a function of inflation.  There are steps to it:

1)   uptick in commodities, a sign of inflation and inflation expectations
2)   higher final retail prices, pressuring producer margins
3)   rising housing prices and other illiquid assets

The Chinese central government plans to ease 3) by building more socialized housing.  In fact, the Chinese government goal is to have 18% of the 218 million urban households by 2015 in public housing.  It has committed to breaking ground on 10 million housing units in 2011-2012 alone, skewed to the following projects:  1.6 million units of low-rent housing, 2.2 million units of public rental, 4 million units of slum-area reconstruction, and 2.2 million units of “economic housing”.

Notice how silly this is.  Easing 1) and 2) requires curbing loan growth.  Building millions of housing units requires financing.  It will be hard to cool this economy down without a crash, because one hand is trying to undo what the other hand is trying to do. 

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Yen Cross's picture

 The 20 boli's on usd /jpy are holding. I'm going to (ADD)

vast-dom's picture

i have this strange feeling that oil will go up again before june......function of?

CPL's picture

Through the semblance of intelligence.  97 - 110 will be the fun time club, sorry about the car otherwise.  WTI was an awesome buy today, I wouldn't buy it unless it hit 7 again in the last uncontrolled flash crash.  Watched the JPM and GS's of the universe attempt to force the price down, and watch one idiot stick with an unprotected webcam looked crushed when it was mentioned that the oil pumped is all that is coming and a retaliation that wheat is in short supply.

Doesn't matter though...once under 20% it means Americans aren't getting feed either so it was a bluff.  So, guess who is more willing to kill population to get the feeding ground in place?

Persia is making its move against the arabians right now and Israel is stumped why it's happening without looking at a newspaper on what happened.  Ever...just like the Brits.  Why oh why!?!?! Are we forsaken?  Again, run to the other side of the planet with what you can carry.  The "Neo" (fuck I hate latin) Caliphate.  It's okay, they'll also wipe out stormfront in Europe...well...then turns it into something else worse (damn evolution of ideas!  Noticing this shit on the chans and it's annoying me...alot).  Iran is shipping friendly "caravans" for the moment.  But it's the old rule of the enemy of my enemy is my friend until is goes tribal again....or someone gets hungry.  Still waiting for the two legged long pig to get eaten and served on YouTube.


Good times otherwise.  WEeEEEeEEeeeee....Egypt is back online's not on the MSM, no body cares, but the Army is attempting to shut down cell phone towers again and I'm on unpaid overtime.  One more Syrian or Turk walks into IRC and asks how then I'm going for the TV stations fuckers.

chartcruzer's picture

Latin america just threw a long term short via the weekly PSAR and via a major trend line  break[s218732904]&disp=P

might wait for a bit of a bounce first.... for confirmation

daily chart looking short as well.[s218639633]&disp=P

related ETFs are at the bottom of the graph

Re-Discovery's picture

The great unanswerable question is 'what does a Chinese crash look like.'  We all expect it MUST happen, but how will we know. In many ways (CRE, infrastructure,etc.), it has already occurred.  As long as the large majority of the people do not consume, a crash is relative.

The government has perfected groupthink and suppression, and as long as their international balances remain sustainable, there is little chance that a domestic 'crash' will do anything but increase the miserry of its own people.  Anyone who thinks this will lead to revolt know little of Confucionism/Maoism culture that dominates the vast majority of the country. 

A crash may come, but it certainly won't change China's international economic ambitions.

Zing's picture

China as the world's largest economy (by PPP) will necessarily become the most powerful country, with ultimately, the most powerful military.  America is finished.

Zing's picture

Certainly you guys would be foolish to write off the country with the largest manufacturing base in the world.

Hephasteus's picture

Are they? Or are they hosting JPMorgan fraud and stock market fraud. Are they as big as accountants make them out to be?

I say we buy and hold gold and silver and wait to find out.

I can't get no inquiry satisfaction.

I can't get no tell me truth action. So I tried and I tried and I tried.

I can't get no massive consumer retraction. Oh wait we're going to get that.

Python in the HOUSE!!!! Big fucking scarey cliff dive....

Oh regional Indian's picture

Money has become like a jackrabbit to the shotgun of risk.

How can it stay anywhere in peace for long enough for something to take hold?

In India at least, there is a lot of talk of "hot" money in th epapers/news. Every day. If the dollar decides to park here for a day or three, everything floats up. If the dollar runs, everything floats down.

The only people making money are those that make make it on hot money flows and it's foreknowledge.

India, at any rate, can be brought to it's knees by an export failure due to any reason. Like dollar destruction.


TruthInSunshine's picture

Debt sucks, bitchez.

The intoxicating thing about debt (e.g. leverage) is that it can make you money real fast on a surface of a rising tide that lifts all boats.

The insidious thing about debt (e.g. leverage) that is far worse is that it destroys you 1,000 times over when the tide rushes back out to sea, and there is nothing that you will be able to do about it when that time comes, unless you're a powerful sovereign or a lender thereto (i.e. a fractional reserve cancerous central bank).

Debt, in the form of leverage or otherwise, is a most powerful seductress, and a true femme fatale.

Only the clueless think they'll wake up just in time to prevent their own demise playing under the covers with Miss Money Shot (once may be possible due to pure luck - take the money and run if you find yourself in such good graces; tempting fate will kill you deader, faster, most assuredly).

ebworthen's picture


Look at Korea and Brazil.

Who will bail out Chinese gambling using Korean and Brazilian banks?

Why, the IM fucking F of course!

Who is the primary backer of the IM fucking F!?!?

Why, the treble fucked U.S. Taxpayer of course!!!!

Lube up U.S. Taxpayers, and get ready for DP or TP a' la' Strauss-Kahn and kiss your IRA, Pension, 401K, and solvency of Medicare, SS, and anything else you've paid into to 30-40 years GOODBYE!!!!


jm's picture

Unfortuneately no. 

The probelm is that most of the countries in this article have serious inflation problems that limit their ability to monetize wihtout making things even worse. 

They also don't have the same high-quality Ponzi machinery to gloss over these problems.  This actually isn't such a bad thing, even without inflation problems, it makes monetization totally obvious and triggers capital flight, making things worse. 

Not syaing Europe is in great shape, but Europe is already well into deleveraging.  Asia hasn't really even started yet.

YHC-FTSE's picture

Thanks for your thoughts. I think the EU zone in comparison is in worse shape, but your views are appreciated.

jm's picture

You're right they are in worse shape.  In fact, the US and Europe fell in the gutter and never got out of it.  Asian economies climbed out and is due to fall back some.

Another problem is the intermingled nature of Chinese debt (is it state and corporate debt?) makes it had to assess credit quality.

disabledvet's picture

what i find odd is that the Hong Kong dollar is still convertible at the same rate with the US dollar.  so "how does that renminbi thingy work again?"  i mean are the Chinese really doing all their spending in yuan?  or are they simply sticking with what works which is an amazingly devalued HK dollar while "going hog wild in real estate with an amazingly overvalue yuan" since they get a guranteed bailout via the world's worst public housing plan on the planet vs. the best high rise housing on the planet via Hong Kong?  just some late evening thoughts of course.

jm's picture

In any bubble you are short cash and long assets.  In the case of China it looks like asset gains are booked in HK and Singapore dollars and the Yuan is shorted.  The fact that deposits in Hong Kong and Singapore weren't growing much is a signal that the bubble was near reversal mode in 2010.

All the rate hikes are going to bring it down.  Don't thnk there is a soft landing possible in China.

slewie the pi-rat's picture

those are the IMF banksters' graphs.  they were just in china talking about this plan.  here is lipsky's presentation, a short time before he became acting IMF chief:

China: Economic Transformation and Financial Reform; Speech by John Lipsky, First Deputy Managing Director, International Monetary Fund

AUD's picture

Asset quality is the crux of a bubble

That's hittting the nail on the head. Interestingly, the 1997 Asian Financial Crisis seems to have had its genesis in Korea. There were bankrupties, labour issues (strikes etc) in Korea well before 1997.

Maybe the Koreans are leading the way again. I don't think the credit of the USA is quite what it was at least perceived to be then. Where will the IMF get its money from this time, the moon?.