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Knight Research' Stunning Call: "The Game Is Over"
From Knight Research. Presented without commentary.
The Game Is Over
The simple story is this: We believe the structural and cyclical terms of global trade have finally reached their tipping point. This will catalyze a wholesale change in sentiment and a historic repositioning of risk assets. The emerging market global growth story is over.
- In meetings with clients throughout October, we began emphasizing our growing concerns about the nearly ubiquitous confidence the financial markets—and for that matter, global leaders and their body politic—have in China; and by extension, the rest of the emerging market story, commodities, and the direction of foreign exchange cross-rates.
- Not surprisingly, our concerns were met with varying degrees of resistance; but the overall consensus clearly favored a very bullish, asymmetric outcome over both the near and intermediate terms. When pressed as to our own sense of timing and specific catalysts for broad-based trend reversal, candidly we were unclear. Our sense then, was that the higher and faster the commodity markets pushed, the sooner the reversal would occur. But we have now clarified our view.
- In just the past several weeks, we believe the data and government actions out of China, the back-up in US interest rates, the Fed’s emphatic commitment to QE2, intensifying pressures across the EU, broadly rising commodity prices, government efforts to control hot money flows, have finally pushed the global terms of trade to their tipping point.
- And now, as is evident by the flight to safety, and growing evidence that China will soon try and effect price controls in addition to raising interest rates and significantly changing the rules for their vast network of Local Government Funding Vehicles (LGFVs); the writing is on the wall. The game is over.
- The simple story is this: The structural and cyclical terms of global trade have reached their tipping point which will effect a wholesale change in sentiment and a historic repositioning of risk assets.
- So what do we consider the “terms of global trade”? Structurally, per our top chart, they are the intersection of Government Policy (viz., rule of law, market systems, trade law, etc.,) Resource and Industry (viz., natural resources, labor/demographic pools, industrial advantages, import dependencies, etc.,) and Economic Security (viz., the sovereign’s competitive standing, the relative power/needs of the citizenry, the mandate/control of the government, etc.) And cyclically, (as represented by the light blue, bold arrows) the terms of trade are defined by the intersection of foreign exchange rates, commodity prices, and the cost and availability of trade finance.
- And in our assessment given:
- The structural breakdown of the credit and labor markets in the developed world and the anemic outlook for nominal GDP growth
- The immaturity of the developing world and their vulnerability to credit shocks and uncontrollable inflation
- China’s dependence upon non-economic, and unsustainable credit expansion to maintain growth far beyond natural export and domestic demand, and
- Asia’s dependence upon imported energy and agriculture
the game is over. Presently, we believe that the broad-based resurgence of investor confidence in the emerging market and secular bull market in commodities will end badly; proving that the rally which commenced in Q2 2009, was in fact an “echo bubble” facilitated by massive—and unsustainable—stimuli from the Chinese Government
- And although such cataclysmic shocks rarely result in rhythmic, straight line fractures, the chain of price adjustments should be relatively clear. Accordingly, we expect a shockingly powerful rally in the dollar, broadbased weakness across the commodity sector, a dramatic widening of emerging market credit spreads, and what could prove to be a stampede of hot fund flows out of the emerging markets.
- We appreciate both the gravity and the brevity of this note; but then again, the story is simple.
We believe that the end of the Great Consumer Credit Cycle and the vast structural differences in the terms of trade between the United States, the EU, and China, have finally caught up with the secular bull thesis on Emerging Market and Commodities. Quite ironically, the Fed’s aggressive policies will likely prove to be the catalyst which breaks China’s unbridled expansion of credit and non-economic growth, ushering in a wholesale rebalancing of risk assets.
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I don't think most on ZH want to hear "buy dollars". In this case, the enemy of my enemy is not necessarily my friend.
How do you conclude any such thing? 'They missed the move'? What do you base that conclusion upon?
And 1 thing is certain, time will tell whether the fake run is over, or it continues to be strawberry fields and lolipops forever. Personally, I feel everything shifting to worse.
Its all fake Harry, bottom line.
What is unmentioned in the report is whether they consider gold and silver commodities or money. Seeing as they are a US market maker, I assume they consider them commodities. I guess they'll miss the next ramp too.
Jean,
My exact sentiments also.
Silver is both, gold is money.
Surely they are not stupid enough to drag it down back under a 1k.
If they do, you won't find an ounce anywhere for sale, especially with those who refuse to NOT GET it(as these folks do not get it), this time it is different.
They get that, but what they do not get is the dollar (I do not give a rats ass if it goes to 120), means ABSOLUTELY nothing.
That's a number on on an index, that does not get rid of ONE of our LONG term issues.
Even if we were at 100% employment............we're still screwed long term.
Any moron can see that.
at some point the scissors will cut the paper that smothers the rocks.
This isn't Knight the MM. Just sounds like it...
Jim Rickards: "In fact, we are experiencing massive deflation, exactly as seen in the history of depressions. And we are experiencing massive inflation exactly as monetary theory predicts. The conundrum of tame price indices is solved when we realize that we are experiencing inflation and deflation at the same time. This is not the same as price stability; it is something new and far more dangerous."
http://dailycaller.com/2010/02/01/the-new-depression-and-the-feds-illusion/#ixzz15Zv56lLJ
There is nothing new about it. Happened from 1935 to 1937 too. The big lie is that inflation and deflation are impossible to run concurrently. That leads investors to guess and fees to be made booking the bets.
staglation, nothing new b18ut...
Yes, there is nothing new about it. It occurred in the 1970s, but can only be seen if you compare the dollar denominated and gold denominated GDP. It has been happening since 2001 in the present crisis. An underlying depression with an overlay of monetary bubbles and busts.
This time, however, the debt machine crashed.
Look up "Biflation." Fits perfectly.
Any non-essential requiring credit, deflates, any consumer staple that's bought w/cash, inflates.
Screwflation. Inflation + Deflation + Stagflation
If you remember Jefferson's warning about bankers and how they deprive the people of their property ("first by inflation and then by deflation..."), it should surprise no one if a strong move toward dollar destruction is followed by policies that shoot the Mother Currency higher. Perhaps QE2 gets cancelled or radically modified...see the ZH article on Repubs letter to the Bernank.
Err, Jefferson never said that. The terms inflation/deflation were not even used back then.
+1
http://www.snopes.com/quotes/jefferson/banks.asp
Snopes claims false attribution on the Jefferson quote. Says no such words exist in any extant correspondence between Jefferson and Gallatin. Also claims "deflation" as relates to currency was not used until 1920. The bankers/standing armies line is purloined from a letter to John Taylor which is linked from the Library of Congress. So he did have it in for bankers and he was against deficit spending. But we don't need Jefferson to validate what basic math reveals.
http://memory.loc.gov/cgi-bin/query/r?ammem/mtj:@field(DOCID+@lit(tj110172))
Fair enough. I wish when a search is done the first item is the one debunking it.
Great link you posted.
here's a real jefferson quote from the letter:
"The system of banking we have both equally and ever reprobated. I contemplate it as a blot left in all our constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens. Funding I consider as limited, rightfully, to a redemption of the debt within the lives of a majority of the generation contracting it; every generation coming equally, by the laws of the Creator of the world, to the free possession of the earth he made for their subsistence, unincumbered by their predecessors, who, like them, were but tenants for life. "
[Err, Jefferson never said that. The terms inflation/deflation were not even used back then.]--arkady
You don't deserve all the blame for being misinformed about our founders. Yes, Jefferson said that. The greater blame lies with the Progressive/Marxists. They've been methodically eliminating pre-civil war history from American history books/curriculum since the 1920s.
I don't mean to pile on you. I'm late to the party too. These past two years, I've had to undo all the non-sense academia drilled into me. I have since discovered all the information they withheld from me. Astonishing! An outrage. Today, though, I'm just grateful the truth is still available. And, I offer what I find to others who are interested.
Simple or simplistic?
Dollarization, bitchez...
Tyler - what is the date of release of this wonderfully prescient report?
Seems CNBC were there first
http://www.cnbc.com/id/40234711
Bob Prechter, Gary Shilling and myself thank you.
Nope... going to Vegas. The game is rigged, but you know the odds. It's this uncertainty that has me bummed. Besides, they have better restaurants and shows.
and honest whores!
Play European roulette with one green and your odds increase over the traditional US version. Just a tip.
Harry - how are you positioned in the market now?
What GAME.... monopoly ?
You know, it's funny, but the last time I was there, there were Monopoly games using real money! It was awesome!
Then came the sub-prime crisis.
Knight as in market maker Knight. Fuck those people if so facto
Who else here has a "spite" portfolio?
I mean, just short everything, the Chinese, the US, commodities etc......:)
Yep I have a few things short which I hate, like Apple, ust for the hell of it.
BIDU and SIRI, Thank You.
Was all over SKF, now only do otm calls on inverses...none at present.
GM? 33 to 25 by Dec. Then to 20.
AAPL Android fears will stop that bubble.
But I agree with Steve Jobs, Ringo was Underrated.
31 31 31 31 31 31 31 do I hear 33 ?
Going Once.....Twice.....Thrice
Sold $33
LOL dont despair maria is touting "confidence" and growth and some lady with cool glasses is beaming from ear to ear at the $33 price.
The rulers already know the wheels are going to fall off the cart, real soon now... They have prepared for it.
Google the Jesse Ventura piece on "Bunkers und the Denver International Airport" That should wake a few of you up.
I referenced this video on the previous article and ZH pulled it. TDZH
I checked it out. Very impressive.
Get to Denver IA. It will be the highest ground. Look for chalk writing on the wall. It will say "Marla/Tyler" with an arrow under it. Follow the arrows. "Only the perceptive will survive". Follow the arrows. The keymaker will be with us.
http://www.youtube.com/watch?v=B9EpqBf0oCY
The Nephilim are coming. They need their own airport & customs facility.
They will pretend to be extra-terrestrial aliens.
Demons, bitchez!
Green,
Nephilim are coming, done been here, and the last one got a Rock between the eyes and dropped like stone. Lil fella named Dave.
The new ones are playing in the NBA.
That *is* funny...
However, the book of Joel's prohpecies are beginning to unfold as we speak. They'll bring reinforcements--soon.
Check out Joel chapter 1.
Joel 1...destruction of nature & food supplies by an incredibly powerful army...while people going about their business...drinking...having sex...the priests on their mechanical routines...chemtrails, bitchez!
"The fields are ruined, the ground is dried up; the grain is destroyed, the new wine is dried up, the oil fails."
- Joel
http://www.associatedcontent.com/article/2588979/conspiracy_theory_with_...
that DIA stuff is creepy shit. we need to send kathy out there on an ZH investigative reports and start asking questions.
no comment
Hey, what happened to that Retard guy? He was funny. He had a plurality issue but that added to his charm.
How ironic.
Bernanke is like the kid who blew a baloon so much it blew up in his face. The kid (Bernanke) then ran down the street, red faced, with tears streaming down his cheeks.
Simple physics, outside forces can only keep things from finding their natural balance for so long until equilibrium is reached.
So, all you mooks dissing this report must expect the opposite, right? i.e. endless emerging growth, commodities to the sky, etc.
What is it? Because you can't have it both ways (even though you'd like to...)
You are suggesting that there are only two paths ahead of us when in reality there are many.
But regardless, predicting an imminent "shockingly powerful rally in the dollar" is awfully tough to swallow as long as Ben & Timmy are hell bent on destroying it.
In a world where both China and Europe are collapsing and the US experiences "austerity" from a newly republican house. It could happen.
Don't get me wrong, the dollar would still be the worst currency, except for all the others.
"You are suggesting that there are only two paths ahead of us when in reality there are many."
Paths are derivations to only one of three states: exansion, contraction, or stasis. Stasis is really only a pass-through point, which really only leaves us with expansion or contraction. So, which is it? I'm long that it's contraction (due to the loss of the ability to do work, through declining energy extraction and through aging populations).
But you can still have contraction while your currency loses value, it's why the term stagflation was invented. And that's not even addressing a political loss-of-faith event in which the dollar loses reserve status internationally (likely) and is seen as unreliable and undesirable domestically (not as likely). All of these I see as more likely than a "shocking strong rally in the dollar" regardless of what occurs in emerging markets.
Also it's not necessarily appropriate to lump China in with every other emerging market, many have far more sound fiscal practices and more sustainable economies.
Fine, do you hypothesize that our present "bi-flation" will exist in perpetuity? What is the result of an increase in the costs necessary for survival, but a decrease in price in most every other asset (bought with credit)? In other words, stagflation is the "stasis"... what we're interested in and where the real debate comes in is whether we're going to expand or contract after our "neutral" period.
In the end, we're all hyperinflationists... some just choose the deflation precursor.
The problem with having desperate central bankers trying to manipulate the economy is the consequences of their increasingly frantic policies become highly unpredictable the farther along the timeline you go. I believe they will attempt to maintain the status quo as long as they absolutely can, and they would love that to be perpetual. But just like Wile E Coyote running over a cliff, at some point we will look down and fall back to earth. Whether that's a controlled fall paired with moderate deflation or a dramatic drop paired with a loss-of-currency event is something that is difficult to predict. If I knew what was going to happen, I'd have every iota of savings in the best vehicle for the circumstances. But since the possibilities are broad, with dramatically different impacts on investments, I'm hedged all over the place.
We all know what will happen, it's just that some of us haven't gotten the memo on when ... I think hedging everywhere is about all you can do in this environment... the problem is, only a couple will pan out and may net in a dead ass loss... a bird in the hand I guess. Although, bi-flation is a helluva lot easier to deal with when you don't have any debt... (presently deleveraging the "traditional" way).
The present plan is a controlled demolition and attempted austerity. When everyone figures out that means no more ipads, things might get ugly. I think we'll repudiate our international debt before we default on it... but between now and then, we'll have significant fighting on domestic entitlements (and mathematically necessary default thereon).
It might rally a bit, but bottom line the dollar is printed to trash so its just relative to worse things.
Why does it feel like CNBC is a cheerleader for the government and GM. I don't know who's worse Phil Lebeau or Maria Bartiroma. I think they should both be fired for incompetence. This GM IPO pricing feels the same as when GM made the commercial a few months ago when in pep rally form they claimed they paid the tax payer back in full what was required of them. What a load. When did LeBeau quit being an objective reporter and just become a shill for the auto industry and unions.
Back in late 2008 when GM was begging for Govt money. Phil LeBlewit was on the air every day saying GM would never go bankrupt. It was like his entire 401K was tied up in GM. I've never thought of him as a credible reporter since.
The rulers already know the wheels are going to fall off the cart, real soon now... They have prepared for it.
Google the Jesse Ventura piece on "Bunkers under the Denver International Airport" That should wake a few of you up.
I referenced this video on the previous article and ZH pulled it. TDZH
I know all about it I worked on DIA.
?
Well then if you worked on DIA, why not share the info with us ??? Nice to tell us you were up with these guys, so explain....
WTH? I get some crazy stuff when I search that...
That subject is not touched in Catholic schools.
Well, I went to government school and it wasn't touched there either.
A rigged game is expected if you study politics with a critical eye. The real question is where is the money from the big dogs going next?
Underground bunkers.
Is anyone up for a game of bunker watch?
In case of nuclear war, the advantage is to the bunker. If war, but not nuclear the advantage is to remote above ground food growers that network with their communities. You'd want to be big enough to feed yourself and a few others (to help you fight off raiders) but small enough to be overlooked by the bombers.
It's a giant game of attrition where survival is not assured.
I don't think that nuclear war is what they are preparing.
Rust NEVER sleeps!
in october, "candidly we were unclear" but, "we have now clarified our view"
until next week
I like these guys! Deflation is the most likely scenario.
http://www.rightcondition.com/2010/11/deflation-vs-hyperinflation-after-qe2.html
Clever, post multiple copies of my original post so I will be marginalized... This site is manipulated.
Some posts get pulled because some people post shit that links up to sites that have viruses and trojans.
http://www.google.com/#sclient=psy&hl=en&safe=off&q=thinkpoint&aq=1&aqi=g4g-o1&aql=f&oq=Think&gs_rfai=&pbx=1&fp=cf60397482fda474
There were no links in my post... Only a text search referral.
Here is the link that I was referring to: http://www.youtube.com/watch?v=B9EpqBf0oCY
If this site is manipulated then...
Is it a highly sophisticated version of Infowars?
If this site is manipulated then...
T. Mosley must be a government troll.
He has a very similar post response style like the govt. trolls over @ Infowars.
Yes, I did go to college!
Is anyone buying this?
I'm buying "beans and taters".
these kind of DECISIVE calls just gets me going ...whether they r right or wrong ...most probably this is right.........the nonsense will finally e up...stop the suffering...bsck to simplicity........back to farming...the 1930s....i liked the line though...."The emerging market global growth story is over.".....so true... i have been working just 2 years of my life now....u know ...the work that can be done by 1 person is being done by 6 .....after all the company has to bill the clients........its a software company ....the job is no better than a call center one....it doesnt at all need 4 years degree course....waste of time , money , effort....so much for the INDIAN education system.....the whole system needs to explode ...people are living in a bubble .....they need to wake up
YEA good post! People to need to wake the hell up from living in some damn bubble for far too long.
I am getting ready to head out to the hills: work the soil, sharpen tools & saw wood.
Mahatma Ghandi on industrialization:
"I do not believe that industrialization is necessary in any case for any country. It is much less so for India. Indeed, I believe that Independent India can only discharge her duty towards a groaning world by adopting a simple but ennobled life by developing her thousands of cottages and living at peace with the world. High thinking is inconsistent with complicated material life based on high speed imposed on us by Mammon worship. All the graces of life are possible only when we learn the art of living nobly."
http://www.tinytechindia.com/gandhiji1.html
They may be right about a lot of things, but a strong dollar? That is a big ask. Sure, over the short or medium term the dollar will strengthen vs the Euro. But vs Gold, over any time frame over 24 months? Very very unlikely at this stage of the game.
The story of the US is a story of budget deficits and unfunded liabilities. In other words, the perfect storm for printing a lot of money.
The story of China is unclear, but from research I have done Chinese have also taken out home equity loans, got appraisals at above FMV, and then spent that money. BUT, I have heard that some people have invested their home equity loans in ponzi schemes promising upwards of 20% interest.
They lend their money to LOAN SHARKS, who in turn use the money to buy properties and speculate on real estate in general. The returns promised to people are the capital gains on the increased real estate value, but as we saw in the US once the values stop increasing things end badly. So this has been a sort of stealth credit expansion that has taken place in China.
http://psychonews.site90.net
Exposing the Oligarchy, one Psycho at a time.
China is as fake as we are. This shit is going local. They will die harder.
+3. 1 for accuracy, 1 for saying it well, and 1 for a high information content with few words.
China has PUBLIC BANKS, like North Dakota. Their expansion is not "non-economic". Believe me, with my own eyes.
In 1997, all China's banks were bankrupt. They were able to solve this problem easily and move forward. How!? How? One reason...
Their banks are public utilities that serve private industry (and public industry, certainly).
China created a SPV (mimic the FED's role of last resort) that took all the bad debt off the banks books (just like us) and bonded it. They did it exactly like we did.
So, why didn't they fall into the abyss, like us, where billionaires became quad-billionaires, banks had record profits and the nation cratered?
One simple reason.
Their banks are PUBLIC ENTITIES, like utilities.
Their bank's singular job is to SERVE INDUSTRY and PRODUCTION.
Our bank connive a million ways to leach and defraud PRODUCTION for their upstream, private currency, cartel profits. Screwing people out of money is part of the game. A utility doesn't have that model.
China doesn't have a banking cartel. Therefore, they have a massive economic engine that public banks serve. When the screw up, like 1997, both the costs and benefits of banks are SPREAD through INDUSTRY. That's not "communism". That's smart business. They were able to sidestep insolvent public banks that over-loaned in 1997 as if nothing happened.
In the private banking cartel that hijacked the United States, the opposite happens. All the benefits of currency MONOPOLY trickle to the very top, they ramp it up with fraud and deceit against productive industry to GET MORE BENEFITS, it crashes, everything grinds to a halt while the costs of the bank's fraud and over-lending are spread to productive industry. Then, they swallow up the nation's private collateral pledged for loans made with fiat currency, loans upon which (we learn AFTER THE FACT) the banks didn't even have the assets to back.
That's huge money for the cartel on the way UP the bubble and free property for the cartel on the way down.
Public utility banking avoids BOTH scenarios.
This is the only option left. Oligarchs never regulate their own greed.
Your point about public vs private banks is well taken. However that is not the problem, fractional reserve banking is the problem. Any FR banking system is responsible for creating the majority of the society's money (credit). Getting them to stop when they've created too much is nearly impossible. China is run by a bunch of engineers (or so I'm told), they won't understand what's happened until its too late to avert a serious recession.
Your point is also well taken.
But - I happen to believe, realistically, the only power big enough to wrest this monopoly away from the bank cartel is the People/government. There will be inefficiencies there too, granted. But - nothing like this. We have evidence to support that too, as I wrote above. This bank cartel destruction is beyond a recession or depression. We're in the realm of economic twilight zone. This is not a "recession". They flipped the lid on the system.
Wrest away the control with what you've got. Then, we'll be alive, have a few dollars and be able to have an open discussion about fractional reserve, gold, greenbacks, whatever...
We can't wait. They're swallowing private assets on loans they didn't have LEGAL collateral to make. This is an illegal seizure being sold as some "accident" or some "banking error". If the PUBLIC don't stop them with legal force now, we're toast. The ABA will say I'm a socialist. Not a bit. We need to save INDUSTRY and BUSINESS from parasite banking. The people will rise with INDUSTRY'S tide, not the bank's tide.
+10
In the US, wealth is getting excessively concentrated into private hands at the expense of the public sector. In China, though imperfectly, the opposite is the prevalent trend.
We haven't built a modern airport, a new super highway, a high-speed train line, a needed tunnel, a new University, a new research center at all over the last decade, and only anemically since the 1970s. We build jails well.
China has the competitive advantage in this configuration and the smart money knows it. That's why capital is running rather than walking in an Easterly direction.
"They're swallowing private assets on loans they didn't have LEGAL collateral to make. This is an illegal seizure being sold as some "accident" or some "banking error"."
this is the front line no doubt about it imo.
you really are making a lot of sense sir fraud.
Well said Fraud-Esq. Well said. We need more voices like yours here aon Zerohedge...
"fractional reserve banking is the problem." Yes, but unless there's a system that operates on (negative and then) zero growth the same thing will happen- bubble... KABOOM!
The system has worked up until now because there's been ample physical resources to exploit, to absorb the growth. This is finished, and I believe that this is basically what Knight is saying (or, if they aren't, should be).
Exactly. My view is: interconnected banks are monopoly so free market advantages are not there. There is no sens to tolerate private monopolies hurting people and economy. It has much more sens to have only state controlled monopolies, or in best case none at all.
So Chinese model makes more sense.
Reforming China’s Banking System:
Gradualism, its Impact, and Implications
This paper argues that China’s attempts at banking system restructuring may best be compared to
the experiences of the Eastern European economies, due to both the scale of the NPL(non performing loans problem)
and the path that China has taken during its financial transition. A comparison with the internal and
external alternatives for bank restructuring in the presence of constrained capital, and based on
the recontracting of non-performing debt arrangements, suggests that China has given preference
to those methods that allow it to defer—that is, allow a more gradualist recognition of—the costs
associated with banking system recapitalisation. That this choice may entail a higher level of cost
than would a more rapid recognition of losses and recapitalisation of the banking system, may
suggest that such a preference has been based on pragmatic consideration of the greater ability
to fund such losses in the future, or upon the perceived macroeconomic benefits of a more
gradualist approach. However, such an approach is more likely based on recognition that China
currently lacks either the budgetary or debt accumulation capacity to enable a more rapid
resolution of the NPL problem within its state-owned banking system.
Key words: China, non performing loans (NPLs), state-owned commercial banks (SOCBs),
bank restructuring, budget constraint, optimal policy
This paper examines China’s choices in restructuring its state-owned commercial banks (SOCBs)
as part of the process of resolving the non-performing loan (NPL) problems associated with
decades of policy-based lending. The paper begins with discussion of the level of NPLs relative to
GDP or total loans for a range of Asian and Eastern European countries and China’s experiences
with managing its NPLs.
2.0 China’s financial transition: Asian or Eastern European in character?
2.1 The need for restructuring and recapitalisation of China’s state-owned banking system
The absence or presence of a systemic banking sector crisis in China is open to debate, largely
due to extensive explicit and implicit government support of the system (McIver, 2005). Those that
suggest that China has had, or will have, a banking sector crisis point to the continued presence of
an unsupportable level of NPLs on the balance sheets of the SOCBs, and the likelihood for further
NPLs to accumulate due to non commercial lending practices at these institutions
Reforming China's Banking System: Gradualism, its Impact, and ...
Mainland banks may struggle to recoup about 23 per cent of the 7.7 trillion yuan (HK$8.81 trillion) they have loaned to finance local government infrastructure projects, according to a person with knowledge of data collected by the nation’s regulator.
About half of all loans need to be serviced by secondary sources including guarantors because the ventures cannot generate sufficient revenue, said the person, who declined to be identified as the information is confidential. The China Banking Regulatory Commission has told banks to write off non-performing project loans by the end of this year, the person said.
Commission chairman Liu Mingkang said last week that borrowing by the local government financing vehicles may threaten the banking industry. The mainland’s five largest banks, including Agricultural Bank of China, plan to raise as much as US$53.5 billion to replenish capital after the sector extended a record US$1.4 trillion in credit last year.
-Bloomberg
http://www.tradingmarkets.com/news/stock-alert/schpy_hong-kong-newspaper...
Victor Shih has done some serious analytical work to try to get a handle on the magnitude of China’s local debt. His post, which included extracts from his op-ed in the Asian Wall Street Journal, shows that some of the narratives about China are woefully incomplete. The whole post is very much worth reading, but here are his main conclusions (hat tip Michael Panzner via Jim Chanos):
Yves here. This is consistent with what I heard at a lunch with Josh Rosner and Chris Whalen yesterday, who went on at some length about how awful the Chinese banks were, as in stuffed to the gills with bad loans. They think the idea that China is so well off by virtue of its massive FX reserves is oversold, given the black hole in its banking system.
To keep the GDP printing at 9% they force the low level guys to build thus the cre/housing boom/bubble.
Victor Shih currently an assistant professor of political science at Northwestern University specializing in Chinese politics.
Given the information vacuum surrounding this issue, I spent half a year collecting data that would allow me to provide an estimate of total local debt (and also for each of China's provinces). Again, in the WSJ piece, I briefly outline my methodology and the results in the piece.
http://chinesepolitics.blogspot.com/2010/02/looming-problem-of-local-deb...
Yep. You see, I tend to agree.
I don't think any banking system of any scale isn't going to have these exact problems they describe. We have them. They have them. But, you're noticing ours more, aren't you?
The key question....
1) Who takes the profits and losses from administering a monopoly currency and banking system? We know the answer in the U.S.
That answer answers the second question...
2) How difficult is it for the nation to get out from under a monopoly currency banking problem?
Therefore, the above clips are not really relevant to my inquiry.
It's becomes all about a nation's competitive advantage conceding some problems with scaled banking systems.
If you're "in it together" just on the currency monopoly and banking, doesn't that change the incentives?
Absolutely. They're in it together on the monopoly. We HANDED OURS OVER to a few private bankers.
You SEE the result.
You kind of made it sound they had something special going on...
China banks = dog poop' Very bad NPLoans ... bubble loans also.
http://www.youtube.com/watch?v=0h7V3Twb-Qk
by Fraud-Esq
on Wed, 11/17/2010~
They DO have something SPECIAL going on.
China doesn't have a private bank cartel, incentives to privatize their gains from monopoly fraud and leeching off productivity.
In China, private bank cartels who were delegated the monopoly power of currency don't foreclose on private assets, liens which were created with fiat loans. Loans backed by assets that they LIED about possessing, using accounting FRAUD and "illegal" leverage (truly).
Therefore, China doesn't allow private cartels to TAKE property illegally from private individuals and productive business.
Because, China doesn't allow private bank cartels.
How's that for fucking special?
The banks are broke, their balance sheet blows just like ours. ....
Nothing special about that. And the communist controlled banks are what special?????, on " the up and up", care about the peoples rights, really ?
Water pollution grip's the nation, the one child policy, human rights, no sewers, ..... ? This love for the people by the Communist/Bankers is really sweet !!! Follow the money baby .... the bankers love no one even in china.
They have a cartel also its called red china/communist china ...
are either of you willing to entertain the possibility that both your arguments might be correct and not mutually exclusive of each other?
I agree our system may be shady/captured but to say china broke ground on some new banking theory that puts capital to work better than our captured system is untrue. The china banks are just as ruthless/captured/manipulated they have a central bank, no ? Same shit ....
If you read his first post it sonds like china's banks reinvented the wheel after collapse, they kicked the can just like our s&l crisis....
Public v. private monopoly.
They didn't kick the can, they absorbed it. They absorb the costs and benefits.
We, the People of the U.S. absorb the costs, but the benefits are privatized to the private cartel (on a publicly delegated monopoly...embarrassing). You still don't get it and I don't blame you. You're hung up on words like "communist".
You'll see the light in due time.
P.S. I agreed with a degree of mutual exclusivity and conceded some of your assumptions (reported as facts by third parties making assumptions). But, you still can't see the benefit of PUBLIC regulation or control of a monopoly? I could offer you a few books by capitalists (not communists) on this monopoly point.
PS2: Saying "our system MAY be shady" is not only the understatement of the year, it's FALSE. Our banking system IS shady. It commits fraud. It lies. It bribes and kicksback. But - because it's a private cartel without nationality, it seeks private profit at anyone's expense. A public system is wired differently. The public owns it. There's a built-in limit to the harm public shareholders can do.
Again, well said Fraud-Esq.
For the more inquisitive, may I suggest Ellen Brown's The Web of Debt. The title is a misnomer, it should be entitled Money Creation and Why China will Kick Round-Eyes Butt.
Thanks MMM. I read 'Creature from...' but not that. I'll check it out. I just started B. Black's "The best way to rob a bank..."
so detailed. dovetails perfectly into this shit-bank storm. The republicans then are farther left then the democrats now...ON BANKING.
everything else political is close to the mean, except banking.
amazing. I wonder how this happened.
Their people are paying the same price.
I'm not hung up on the word communist its fact sorry.
Your putting words in my mouth "i get it" ... Our banks went poof' ... they made money joe six pack ate the loses.
The communist are the fat cats/bankers that take all the wealth from the slave labor and provide said slave with shit water,pay,social net, how fair has the communist school system been gee i wonder ...
Some day the light will come on for you ... keep reading its good for you.
China Human Rights = Banking Cartel/Non-Performing Loans = Same Shit Socializing Losses/Fucking them over, next.
Sorry, it's not like that. Banks create money without labor (accounting enteries), while the debtor must repay principle plus interest with honest labor.
Sorry,......
Round eye in trouble ? BWAAaaaaaHaHawheeeeew that was funny.
What the hell are their banks doing they have the RMB, same shit .... ???
This is the reason China hates inflation her books are getting blowtorched.
All this admiration for her banking system is insane ....
Whats that sound ? Next.
**** CRICKETS ****
Communist Bankers looking out for the locals ....
Take the most obvious example, the PBoC itself. The central bank officially has about $2.5 trillion in reserves. This by the way almost certainly understates its true position but let’s ignore that for a moment. The PBoC has funded this position with an equivalent amount of RMB liabilities, which makes it very vulnerable to changes in the value of the currency.
Rate addiction
In fact there were strong rumors last year that the PBoC was technically insolvent as a consequence of the 20% increase in the value of the RMB against the dollar during the 2005-08 period of currency appreciation. Weirdly enough, although the numbers are huge, it has proven difficult to convince anyone that the PBoC is not the richest institution in the world, and that it is actually very vulnerable to big losses (although I notice that Sovereign Trends’ Terrence Keeley, in an OpEd in the Financial Times Tuesday, seems also to have done the numbers).
The problem for the PBoC occurs not just because of the currency mismatch but also because it needs repressed funding costs to keep it profitable. How much do the PBoC foreign currency assets earn? I would guess probably between 3% and 4%, maybe less. The RMB funding cost, on the other hand, is roughly between 1.5% and 2.5%. This leaves the PBoC with a net positive carry of between 1% and 2%.
If the RMB appreciates by as little as 2% a year, in other words, the PBoC runs a negative carry on its assets. Every further 1% increase in interest rates, or additional 1% rise in the value of the RMB, then, erodes its capital by at least $25 billion (annually, if it happens through an increase in interest rates).
Let’s assume, for example, that over the next two years we see a combined appreciation and interest rate increase of 10% (let’s say a 2% increase in interest rates and a 4% annual appreciation), which is, in my opinion, the absolute minimum that China must do to slow down the worsening domestic imbalances. Assuming no change in the rate earned on reserve assets, which in fact may decline, this means that the PBoC’s net indebtedness would rise by over $250 billion, or roughly 5% of the country’s GDP.
These kinds of number quickly add up. And of course it is not just the PBoC that has this addiction to repressed interest rates. Many years of very low cost borrowing has created a huge dependency on low interest rates among SOEs, local governments, and other creditors of the bond markets and the banks (not to mention the banks themselves), all of whom are directly or indirectly funded by long-suffering households.
As I discussed in an entry several weeks ago, repressing the interest rate is the equivalent of granting hidden debt forgiveness. It is probably a safe assumption that an awful lot of borrowers depend heavily on this hidden debt forgiveness to remain solvent, and would be unable to repay if rates rose to anywhere near a reasonable level (at least 400-500 basis points, I would guess, if we wanted to eliminate the overinvestment and repressed consumption consequences of financial repression).
In that case any attempt to raise interest rates to levels high enough to reduce China’s investment misallocation and to allow households to raise their consumption levels would come, in the short term, with a massive rise in bankruptcies and in government debt levels. If nothing else the PBoC is probably under huge pressure from local governments not to raise rates.
The cocaine of cheap money
All this might sound like I am effectively recommending that the PBoC continue to repress interest rates, but of course repressed interest rates are what caused the problem in the first place. To continue to do so simply makes the underlying problem worse, by piling on even more non-viable debt. Rather than suggest that the PBoC must keep rates low, what I am really arguing, I guess, is that this is a very difficult trap from which to escape.
http://mpettis.com/2010/07/the-pboc-can%E2%80%99t-easily-raise-interest-...
Their people are paying the same price.
EXACTLY.
AND, AND, AND....their PEOPLE are ALSO getting the benefits.
BENEFITS! Their banks are friends with benefits. Our banks? Do I even need to complete that thought with a metaphor of the nation bending over?
I already agreed the costs are spread in both systems. Not agreeing that their costs are actually higher than THIS BLOWOUT, but not relevant. I'm conceding costs to you for the sake of argument so I can focus on the BENEFITS of monetary MONOPOLY being pooled OR spread.
Note: I am not arguing for spreading benefits of INDUSTRY ("After all, we are not communists" -Godfather, five families scene) just the benefits derived from monopoly control of currency that's intended (so they say) SOLELY to drive productive industry. 'So they say' means they're lying.
America is Microsoft, not Goldman Sachs.
america is taking a multinational and turning it into 3 guys in a garage and then back again.
What benefits are 90 % of the China population receiving ? They have been getting blowtorched by the same Masters.
Look at the entire USA as we sit here today, everything.
Now look at China from top to bottom.
Whos better off ? What system is better for the people ?
The masters/bankers/bond holders control both countries.
What BENEFITS please list the BENEFITS the PEOPLE in COMMUNIST CHINA are so happy to be receiving.. ? Per capita around $6,000 per person per year.....
China banks support the manufactring complex to make money off slave/cheap labor.... They are not hoarding this money to shower on the people at a later date.... Its greed. They are pimp's.
BTW, you know this argument you're making of all this hidden bank debt means the RMB isn't really undervalued, but probably overvalued right? Yes. We made the same argument ten years ago claiming they were insolvent (and Lincoln Greenbacking like you suggest), hence oversupply of Yuan papering bad debt (monetizing), RMB price must drop. So, we said, drop it on command! http://news.bbc.co.uk/2/hi/business/262397.stm
Pay attention that NONE of the ABA politicians screaming for an appreciation in the RMB (now that the banks have taken their position) will ever make YOUR bad China bank claim. If they do, then they're contradicting themselves and economics. Every hear Timmay and the boys talk about all this bad debt? No, China is clean as a whistle and ready to liberate huge private positions!
They will not talk down their book.
Chuck Schumer is the front man. This is his book. Beads of sweat appear when he talks about China and trade because he's from the great manufacturing state of Manhattan. He's a front man for the banks on the big manufacturing issue of our time. huh? They're dying to screw Americans across the board with higher prices which will go directly into the bank vaults of US banks holding massive positions. Banks and capital-in will make a FORTUNE and Am. consumers will pay for it. All those "jobs" the say will rise out of the ashes of Detroit? In a BI-polar world, maybe. They forgot that India, Vietnam, and the others are ready to fill China's cheap product servicing. Paul Krugman won't remind them either. This is his book too, the willy oligarch liberal!
Banks are coming for you again.
Only ten years ago... screaming for DEvaluation.
The banks/corps were still taking their positions and BUYING up China then. Now, they're locked, loaded in China and sending a garrison of bankers to India, Vietnam, etc., as China enters phase two.
Two massive oppositional arbitrage plays in ten years! Not bad. Banks, Schumer and the ABA are wonderful... They didn't mention we'd lose jobs in 99, they were pumping the consumer with joy of cheap products. If you opposed it, you opposed America and free trade. All media reps and pimp economists told us that was best. Now, they say the opposite because the bank operation has transitioned. They're fronting hundreds of billions of full-in positions ready for their push-button, political, controlled capital gain. Oh, and now China has a trade deficit this year. That got Chuck nervous. That was his best argument before....
http://news.bbc.co.uk/2/hi/business/262397.stm
What consequences would follow failure by bunch of state owned banks in China? I'm not talking about major ones.
The money was created with an accounting entry and the debt goes away with an accounting entry. It's really that simple. Money was created by the people and debt was forgiven by the people. No harm, no foul...except for one condition...the fiat money must be used for "productive" economic activity. Even though many China businesses make little or no profit, this strategy keeps everyone busy contributing "something" to society and earning a wage.
Very good. However, please consider that the cost of capital has been artificially lowered leading to extreme over investment and extreme underconsumption. The cost of capital has come about as a transfer of wealth from the common man to the export economy, with its intendant offshoring of wealth in FX reserves. Deposits are paid a mere pittance and the deposit base is used to support loans to industry. The Greed function is still there, however it serves the State (and in reality, the CCP apparatchiks, the newly formed middle and upper middle classes, and China's own growing oligarchy.) -- rather than the "oligarchy" here. The subordination of the individual to the state in such a fashion serves up a nice example of fascism. The missing piece of the puzzle would be for the state to serve the people and the people to have well grounded individual rights. Then it would truly be the Asian century ... On the flip side, if banks were run as utilties here, as you seem to suggest ...
This is just a direct, and easy to understand consequence of deleveraging. We spent 30 years taking on way too much debt, so as it unwinds, there is simply less money to spend on luxurious or discretionary items. It's back to basics, which ultimately is bad news for exporters around the world. The fact that the EU the USA and Japan are alldeleveraging at the same time is a worst case scenario for emerging exporters.
That is stunning, that they dared to speak the truth. We truly have reached a tipping point, but this is not the tipping point we are looking for. The western economies are over, but the eastern ones will live on.
Confused!
Everyone knows that market is not about mirroring real economy. The market we are witnessing is a product of algo trading where Knight dominates.
By issuing this research, does Knight give up algo trading? Or this reasearch tell customer stop trading and let Knight does it all by itself?
All this noise is beging to sound the same to me. Nobody has a clue what is going down on a macro level...all I know with much certainty is that a massive short squeeze is developing in the Silver market...December should see fireworks!
Nobody has a clue... True, this is all "listen to what I say" but don't pay attention to what I do. The grand con continues...
"Nobody has a clue what is going down on a macro level"
Well, others can believe that, but not me... From my perspective/understanding, it's pretty clear that we're in a HUGE global contraction due to energy and resource shortages, which are insufficient to push growth in what is a grow-or-die system. Expansion would/will always lead to contraction. And, this ain't just some simple cyclical contraction, this is THE contraction of the global system (much as Knight is seemingly stating).
Dollar up everything priced in it down where is the confusion? Trade wars cause deflation not inflation, they can print all they want give to the banks to run up commodity prices while they hold the "normal cash" from consumer (as evidenced by the retracting of credit) which is what they always do before they start a depression. That way they are sitting on all the "hot money" when all the prices go down and the dollar goes up so they can consolidate more and buy on the cheap. The whole time everyone is looking the other way or more importantly chasing their money, then the drop starts, no one believes it, then it keeps going and going then before you know it, they are on the other side. The first into a trade (which is the key) is always the winner by controlling the "money" supply which can be gold silver or whatever you want they always win, period. Some others can win but that is normally not the joe public. And as long as the majority are kept poor by "unforeseen fluctuations" they are doing EXACTLY what they want all that call them fools are the fools themselves call multi-billionaires fools, and that is exactly in our own way what most of us aspire to be otherwise we would not be traders. So the "fool" who accomplished exactly what he wanted by whatever means (Fleecing the people, inflation /deflation war... whatever) and also got the public to believe in their lies is not a fool but a genius, and the fools are the public who allow these men to pull the strings. Make no mistake whether the article is true or is to be or not, be rest assured they will all be positioned accordingly no mater what and if they are "wrong" (or just stupid) as we may call them, they will take all the money from the "Smart" people (the taxpayer) they want to make them whole
Consistently winning on almost all trades legally/morally or not should never be called foolish. I have never been on the winning side of a trade and called myself a fool, nor would i call anyone else who has !!!
Dow 4,000 here we come...
1. The Chinese growth story is not over. Per capita use of energy is still miles below the western world and Japan and S. Korea. The Chinese now have an appetite for it and they will get there eventually given their resources and positive account trade balance.
2. Resource rich emerging countries like Brazil and Canada are just fine and will continue to benefit and grow.
3. The worldwide race-to-the-bottom currency wars will underpin commodities.
Their assessment is way too simplistic. This release is written to get attention using a fear-based theme. We are over extended to the upside in the commodity complex and will correct in the near term. But we're not going to crash and the game will continue.
Bottom line, this analysis is shovel ready.
Please, don't use Canada as example, it's in exactly the same situation as US. Resources are roughly 5% of GDP when financial sector is 20 something, construction at 7.5%, even transportation and warehousing is equal to resources sector. Canada liquidated manufacturing sector following US model.
as somebody else said on ZH -
the summer of recovery leads to the fall of prosperity.
I mean, we must be... increasingly on the alert to prevent them from taking over other mineshaft space, in order to breed more prodigiously than we do, thus, knocking us out in superior numbers when we emerge! Mr. President, we must not allow... a mine shaft gap!"
- General Buck Turgidson
pure comic genius...much needed.
I'm shocked! Shocked, I tell you! Would the Fed and GM lie to the American people?!?!?
Major Jack D Ripper : .... But today, war is too important to be left to politicians. They have neither the time, the training, nor the inclination for strategic thought.
Youll never see a Russian drink water...you know why? Flouride.....they only drink vodka....
Whatever Peter Sellers 4th character in Dr Strangelove was, I cant remember.
SheepDog, Mr Sellers had only 3 characters didn't he?
Mandrake
Muffley
Strangelove
Which one was with the loonie general up in his office with the machine gun in the golf bag who shoots himself in the head? I think theres another!
That was Mandrake.
The crazy (or crazy like a fox?) general was "Jack Ripper".
General Jack D. Ripper: Mandrake, have you ever seen a Commie drink a glass of water?
Group Capt. Lionel Mandrake: Well, no, I can't say I have.
I actually thought he made a whole lot of sense... Scary I guess.
The economy is showing some moldy green shoots. But the eye wall is wearing thin.
The Great Currency Cartel Crash of 2008.
I'm at the point that I resent this being called a 'recession' or a 'depression'.
It's not either. It's not a business cycle. It's not natural, normal, or organic.
Its monopoly abuse, both public and private fraud.
We need new words and phrases. We need to repeat them over and over.
We're competing with the Networks here...
Nail on the head.
Yep.
I'll re-print a quote I posted earlier today on another thread here that's very, very telling because of the source (a former US Treasury Secretary):
"Throughout the last century the attachment of businessmen to free enterprise has weakened dramatically as they discovered they could demand--and receive--short-range advantages from the state. . . . I watched with incredulity as businessmen ran to the government in every crisis, whining for handouts or protection from the very competition that has made this system so productive. -William Simon, Secretary of the Treasury 1974-77.
The trend has run wild since 2008-9 where it has become crystal clear that the Banking Cartel and it's appendages like Warren Buffet have a strangle hold on the US government.
I'm with you. Chamber of C is a big con too.
We need to pry the entrepreneur away from these rent-seekers.
An argument needs to be made far and wide. If we can break the Chamber away from the small, we might be able to break some scale.
don't agree... this is "just" stagflation
maybe it's both? maybe the only difference this time is that it is the 1st time (thanks to instantaneous information sharing) that a massive amount of people across the globe are recognizing in real time what is occuring and how it's being manipulated to benefit the select few over the many?
one does not have to discount the existence of natural cycles in order to shine light on the manipulation & abuse. to do so, one may be making the same 'mistake' that the greenturds do in their hockey stick metaphor. which only ends up benefiting another master...different color uniform perhaps, but master nonetheless.
WHAT IF?
the simple reason that TPTB have been able to manipulate & abuse for so long is that they simply have been made privy to certain information as to the natural cycles that occur in the universe that has been held hidden from the general population in order to take advantage of said cycles before they occur?
if so, what happens when a critical mass of the general population begin to understand these same cycles? what happens when the esoteric becomes exoteric?
maybe we're about to find out. just a thought to try on for size. i welcome your response.
Well...I do think that "real time" can cause a flash-revolution or can inhibit one better too.
I tend not to believe TPTB know more about much. I think their group content is incidental. I also don't believe that anyone has the power to conceal natural cycles. Bankers do take advantage of both ends of the cycle, however. As we saw, a lot of salesmanship goes into both ends. GS and others not only made their move to exit, but helped design a new dark market to profit off the downside too. Greenspan gave them the shove of their lives. Politicians pulled the cops off the beat. It was all done in concert, but not planned in a room 10 years before. The oligarchy just knows when the game is on. The game is ALWAYS on, but they know when the weather is easy. Fed-banks-gov regulation.
IMHO, the "general population" will never have a lead on the oligarchs/market makers. Information was supposed to close the spreads. But - they just took the game off the grid. They will always change the game when everyone is in.
When everyone was in the stock market and everyone heard of E*Trade, we were headed for trouble SOMEHOW. You could turn a 100% capital gain while taking a nap! And, that was just the start. We didn't correct. We needed to be punished more, actually. We needed recessions.
and as far as new words are concerned, i choose to believe that the old words still hold a bit of weight:
'apocalypse' ---> the time of unveiling (in ancient Greek)
'revelations' ---> the time of revealing
however, i prefer to think that neither of the words have to necessarily have a negative connotation. in fact, i'm willing to argue that the reason why they do have negative connotations in our collective consciousness is actually the final veil to be removed (for now).