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Jim O'Neill's Weekend Just Got Really Bad, As China Prepares To Nullify Local Government Loan Guarantees
The horrible news hits just keep on coming for Goldman's Jim O'Neill. First the BRIC acronym creator (soon to be largely forgotten when confronted with much more awesome comparables as CRAP and STUPID, the latter of which has already been subsumed for general consumption by CNBC) is rumored to be getting the boot from Goldman due to his involvement in the Red Knights group which is seeking to acquire the Red Devils (aka Manchester United), and now China just announced it is about to pull the rug out of the entire lending concept when it announces it is nullifying loan guarantees by all local governments. Just to put this in perspective, the impact of this is akin to what Obama did to Chrysler's secured lenders, multiplied by about one Fed dollop of MBS holdings (i.e., trillion), with debtors not even getting the courtesy Steve Rattner K-Y reacharound. The total potential impact: $3.5 trillion smackers. And some large, recently bailed out bank, has been seen as claiming the CNY is about to get revalued. HA HA HA. Oh, and goodbye BRICs.
From Bloomberg.
China plans to nullify all
guarantees local governments have provided for loans taken
by their financing vehicles as concerns about credit risks
on such debt surges.
The Ministry of Finance will also ban all future
guarantees by local governments and legislatures in rules
that may be issued as soon as this month, Yan Qingmin, head
of the banking regulator’s Shanghai branch, said in an
interview. The ministry held meetings on the rules on Feb.
25 with regulators including the China Banking Regulatory
Commission and the People’s Bank of China, Yan said March 5.
China’s local governments are raising funds through
investment vehicles to circumvent regulations that prevent
them from borrowing directly. A crackdown on local-
government borrowing, estimated at about 24 trillion yuan
($3.5 trillion) by Northwestern University Professor Victor
Shih, could trigger a “gigantic wave” of bad loans as
projects are left without funding, Shih said this month.
Not really much commenting needed here:
A few cities and counties may face very large
repayment pressure in coming years because of debt ratios
already exceeding 400 percent, a person with knowledge of
the matter said in January. The ratio is of year-end
outstanding debt to annual disposable fiscal income.
The financing vehicles of large coastal cities are
well-funded as most have publicly traded subsidiaries that
can raise capital from the markets and rely less on bank
loans. Entities in northern and western China are of
particular concern, the banking regulator’s Yan said while
attending the parliamentary meetings.
The 1998 collapse of Guangdong International Trust &
Investment Corp., which borrowed domestically and overseas
on behalf of southern China’s Guangdong province, left
creditors including Dresdner Bank AG of Germany and Bank
One Corp. in the U.S. with $3 billion of unpaid bonds. It
marked the first time that Chinese authorities failed to
bail out one of the nation’s state-owned trusts.
And as if that wasn't enough, China's foreign minister was heard saying yesterday that China's US relations are now "seriously disrupted." The blame - squarely on president Obama.
"The responsibility does not lie with China,"
Beijing
The
It's all good though - the Fed will just keep. on. printing, even as the global prisoner's dilemma game is rapidly approaching its unwind phase.
said Yang, speaking at a news conference on the sidelines of the annual
session of China's parliament.
and Washington have recently gone through a rough patch, with quarrels
in January and February over Chinese Internet censorship, trade
disputes, U.S. arms sales to Taiwan, and President Barack Obama's
meeting with the Dalai Lama, the exiled Tibetan leader.
United States "must respect China's core interests" on Taiwan and
Tibet, Yang added. "I believe the United States understands very well
China's core interests and major concerns.
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I guess this means there isn't such thing as TBTF in China. Hmm must be some risky loans. Maybe our FDIC could insure them and then use the equity to bail out our banks, then cause a banking crisis in China.
Looks like another yawner. Markets are either ignoring this "news" or pricing it in as positive. Tokyo up 170, Singapore up 33, US futures more or less flat (Ben must be watching the Oscars), though since it is Monday, this will change. Even China is up out of the gate.
China reneged on derivative contracts of SOE's eight months ago. That had all the market impact of an ant's fart. This might make it up to cockroach level, but it doesn't appear it is going to be a trucker-at-a-Union 76-rest-stop-in-West Texas kind of flatulence.
Let's summarize. Property rights DO MATTER.
Short the CRAP out of the STUPID BRICS.
*note to lay investors: shorting is a very valid investment techinique but really, really dangerous because you need to survive the negative carry in the strategy. That means you need to get the timing right. If you do not understand what negative carry is, then you should automatically exclude yourself from shorting.
I have been waiting for a big correction. Maybe not in the form of a crash but, some correction to the s&p around 950. I don't know if this news will do anything to the market, but, if there is a news worthy even that precedes a market crash, we will not be the first to know. Somehow the big bankers will know days/weeks before and act accordingly. I am through fooling myself into thinking the crash is right around the corner. We are at 66% off the low last march and nothing has stopped this rally. Frustration.
Pull my Yang!
Man I wish we would do this to Illinois, CA, et al.
Update Asian Morning:
Tokyo +1.75%
Hong Kong +2%
Shanghai +.5%
Most of the rest of Asia +1%
US futures now sporting the traditional Monday green.
Dollar down vs. Euro, cable
There's your impact of this "news".
I like it. Obama can piss on Goldman by kissing the Dalai Lama??? Who knew it could so fun, easy and Nobel Peace Prize-like.
Go on, invite him for Easter dinner. Another trillion in fat bankster bonds goes blam.
Go on.....
In all seriousness, the Chinese who run the economy were all trained at Harvard and Stanford anyway. They'll fuck it up just as bad as we have. If you think there is some mystical Chinese happy powder for pain-free credit bubbles, you have better opium connections than I do.
Forget China. Forget Greece. The US is BURNING RIGHT NOW.
http://rt.com/Top_News/2010-03-03/california-berkeley-tuition-riot.html?fullstory#
The IMPOTENCE of the US Media is breathtaking. On the other hand, this should set us up nicely for DOW 36000 as that is ALL the Americans seem to care about anymore.
This rally has its legs because the shorts got burned two Thursday's ago on the 4-1 AAPL split rumor and are now in hibernation. Melt higher indeed - 50% retracement from 2007 onominal highs in S&P we're breached Friday. Dow and S&P now need to confirm the new highs being seen in the Transports, etc. If news highs are failed to be reached, that bearish divergence will bring everything down with it. Looks all but certain after shrugging off this China news. Commodities all look like they shoudl correct, but are being held up by equities. Silver looks like a good short, gold wasn't even up Friday. Euro has another leg down, whatever causes that ends this rally.
"...the Fed will just keep. on. printing, even as the global prisoner's dilemma game is rapidly approaching its unwind phase. "
Anyone care to speculate on what happens during the unwind phase? It is not only the Fed that keeps. on. printing, but that all central banks are co-inflating. It appears they co-ordinate in large measure by keeping their FX cross in a certain range. Everything else seems to be secondary.
We now must reinterpret Mao's saying that power comes from the barrel of a gun. In the world of fiat money, power comes from a barrel of ink.
If the US central bank gets out of bounds with the amount of "liquidity" it creates, and triggers a crisis, will the world's liquidity flee to, what, the Euro, to commodities, where?
today's markets are pure farce. they have nothing to do with investor activity.
so none of these announcements will have any impact on markets
I would love to know trendfollower positions on various markets. I agree with them that it is so complex that one must just set rules to identify trends, when to enter, when to exit, and follow them strictly. The strongest trend I see is gold rising and that fits with my understanding of fundamentals and the big picture. The Chinese are clearly gold friendly and central banks are
net buyers now. Anybody know how any trendfollowers are positioned?
The trendfollowers got it right ... it's all too complex to understand ... just identify trends, set your rules to get in and out. Anyone know what positons some of them are taking? Gold, it seems to be, is clearly in a long term upward trend, is it not? Can anyone really predict tomorrows reaction to this news?
Its all about low interest rates, its what they all want, Greece wants lower rates, Speculators on margin want low rates, Home Speculators, it works until it doesn't.
credit is suspision asleep and right now their asleep. But may be waking up ! Soon.
The Gold/Silver ratio usually leads the credit markets lower and its tuned down.
A sign the easy money has been made.
or just watch the price of Silver its a LI.
Full of anti-China comments, after all americans cant accept blame for their own faults and have to pin point some one else for their incompetence.
China will never be the punching bag of the US much longer, wait and see, something is going to break.
Chanos and all these anti China doomsdayers have never even been in China and have no understanding of the realities in the country. As they say the real bubble is the one no one can see. Chanos failed to see the US real estate bubble, so enough said.
Strained US – China Relations: China’s Crucial Role as America's Creditor
http://www.globalresearch.ca/index.php?context=va&aid=17994
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