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Shanghai Stocks Drop Following Failed 3 Month Bill Auction
As the rest of the world celebrates Christmas, blissfully pretending all is good, and the Fed can manipulate markets to infinity without at least one of the numerous violated laws of physics being reasserted in the process, things in China are once again reminding those who care that just as liquidity giveth, so does liquidity taketh away. We pointed out a week ago that the 7 day Repo rate in China recently hit a post-Lehman high, as banks are increasingly concerned that following 3 RRR hikes, the PBOC has no choice but to resort to some tightening measure that actually works. As a result excess liquidity has suddenly become rares than hen's teeth. Today we get a first hand lesson of why this was material: Dow Jones reports that the Chinese MoF has failed to attract sufficient interest in its 3 Month 20 billion CNY auction. The result: SHCOMP is now down 1.2%. Bottom line: as the world is sleeping, China just had a failed bond auction. If news mattered, this would be a very disturbing event. Luckily for Ben, it doesn't. For the time being. It will soon. Then Montier's mean reversion meme may just strike with great deferred vengeance and furious accrued anger.
From Dow Jones:
China shares extend their falls following news the Ministry of Finance fails to attract enough bids to sell all of its planned CNY20 billion 3-month bills in an auction. The Shanghai Composite Index is now down 1.2% at 2819.72 and analysts peg support at 2800. The MOF's unsuccessful bill auction is fresh evidence of tight liquidity conditions in the market, due to China's three RRR hikes since November and rising cash demand near the year-end. "Institutions are inclined to expedite pocketing in some profit," says China Post Securities, adding "the situation will increase the likelihood of a bearish market in the short term." Banks continue to fall on various news reports that China is likely to use new measures, such as special RRR hikes, to rein in credit expansion next year.
Incidentally, the last time China had a failed bond auction was in mid April, just as the stock market hit its then 2010 highs, only to be followed by a drop to the year's lows.
h/t London Dude Trader
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Freakin' YouTube. I can't believe the Don Meredith version isn't on there, so this will have to suffice:
http://www.youtube.com/watch?v=tsTAUs_h_uY
I think it is appropriate.
Well since Fed already assured us rate dropping / flatening / rising are all sign of economy recovery, we really have nothing to worry about so keep partying. Greenshoots to infinity.
Right excellent point, up, down, or sideways, its all good and definite signs of recovery. $25 trillion debt by 2012? Nevermind all that, stocks are what americans need to be buying, on a credit card, and media says to sell your gold and silver because kids are somehow harmed in African mines which is somehow my problem and Im responsible for it since I bought PM's. But stocks are 'good and wholesome' of course. Max out those credit cards for Christmas, american sheeple. All youre good for is debt slavery anyway.
Just curiosity here. What good is a debt slave that cannot service their debt?
It's a make works program.
Give a bailouter a job
excellent question mali.
on that thread hangs much: are the debt slaves recapitalized by their own default or by hyperinflation or by a slow, earned debt paydown or by debt forgiveness? the last seems too revolutionary for the bankers and the politicians (except for themselves of course) so looks like more of the first three, which tend to turn the debt slaves more revolutionary.
isn't it ironic?
Debt slavery is even better than real slavery because the slaves don't even realize they are slaves. The whole point of slavery is not to own people for the sake of ownership. It's to force people to work for you at minimal cost to you. Slavery allows the slave owner to maximize what he receives from the slave's labors with minimal benefit to the slave. That's what happens with debt slavery. Once someone reaches a certain level of indebtedness their labor is mostly devoted to paying off debt with little benefit to himself. Now imagine that you are the Federal Reserve. Every dollar that they create is a unit of debt to them. They create money and lend it to banks at interest and lately they are creating money and buying government debt. The creation of dollars costs the Fed nothing, but every dollar they create means more debt slavery for them. We have now reached the point where individuals are maxed out on debt and state, local, and federal governments are maxed out on debt. We can never repay all the debts that have accrued, but to the Fed that is of no consequence. To a certain extent we are all debt slaves to the Fed because so much of whatever we produce will go to paying off interest and the beauty of it is that the Fed paid nothing to create the money but has a country full of slaves.
Search for Dandy Don...several of them
http://www.youtube.com/watch?v=saMUmG4HU1E
......strike with great deferred vengeance and furious accrued anger
+1
Ezekiel 25:17
http://www.youtube.com/watch?v=czb4jn5y94g
Payback is a bitch.
Funny this, Reserve Bank of India had a weak auction of medium term paper earlier thsi week also.
Chindia, going to take it on the chin, together it seems.
Real Estate is the bell-weather though. When the leak begins out of that bubble, watch out below.
All of this other stuff is distraction.
ORI
http://aadivaahan.wordpress.com
Bubbles don't leak, they pop!
Trew Landrew, but it seems that the master's of finance have managed to make many bubbles leak an awful long time without popping eh?
Maybe leaking bubbles is a part of the new normal?
ORI
ben's blowing as hard as he can into the inflator hole (his cheeks are turning purple) but the leaks show little sign of slowing. the betting in the casino on the remaining life of the balloon is furious. imo the bears may have most of the happy new year.
If a market falls (fails) in the forest...
Ben won't hear it.
The Ministry of Finance does not need money for itself as China is running a monumental trade surplus and has mountainous reserves.
So the auction is purely to drain CNY internally to fight inflation which is evident in ramping retail prices. There is enough CNY sloshing about - just that the interest rate offered by MoF on their bills is too low.
So we know for certain that the CNY is artifically low. China has to increase interest rates , and their exchange rate, or their economy gets a slow roast in the fires of inflation.
Ain't these 3 month bills marketable securities though? If so they would be 'money good'. Don't quite see how this drains any 'liquidity'. Unless it's all just a ruse, which is what I'm thinking.
Perfect timing on the Chinese part...this news will be swept underneath a rug and in the US, it will be swept underneath a mountain of presents containing useless unnecessary goods that were made in China.
Yea, well that rug everything is getting swept under now looks like a postage stamp on an elephants back.
+1
aud: yes the bills are marketable and money good (in yuan).
however, as i understand it, this is traditional monetary policy: offer something of longer maturity than checking account deposits to reduce available cash balances that could be spent on goods and services.
the bills could be sold and the money spent but the tendency is for it not to be, else why buy them? and, at the margin, it also raises short term rates (as we see here), also liquidity draining, as some, previously indifferent, now buy the more attractively priced bills, further reducing checking account balances.
this ignores external currency flows which tend to counter the contractionary effects of this monetary policy.
Peter Schiff said if China raises interest rates it makes Chinese deposits more attractive than dollar deposits, borrow in dollars and buy RNB and earn that spread, causing more hot money to flow into China. Then they would have to print even more RNB to keep the dollar afloat which means inflation goes up even higher. The only thing that will work is to let the RNB go up.
Depeg which means lights out over here.
and I thought if they depeg the dollar drops with a reflex spike higher in stocks. How does the "lights out" scenerio unfold if you don't mind?
If China depegs, the RMB goes up, our interest rates and consumer prices will be forced higher. He doesn't talk about the stock market in that clip but you can call during the show.
http://www.schiffradio.com
archive for 11/19/2010 about 10 minutes into show. What happens during a default at about 77 minutes.
---------------------------
edit previous post to
"Then they would have to print even more RNB to keep the dollar afloat which means their inflation goes up even higher."
If China de-pegs then this should make their exports more expensive for US consumers, encouraging US domestic production to make up the slack. This is good for the US economy in the medium/long-term. However, the blow-fly in this ointment is that other low-cost manufacturers (Bangladesh, Indonesia etc) will fill the cheap goods void and the boost for US domestic manufacturers will become a mirage.
There's gotta be something in it for Bangladesh and Indonesia to do that. May be that the only reason China had for supporting the US with its dollar peg was it didn't think the RMB would be taken seriously to trade without it, but why it didn't abandon it a long time ago is the question.
If China depegs, US interest rates and consumer prices go up crushing the phony economy and if the Fed stays on the same trajectory we will have hyperinflation.
"...the Fed will have to choose between holding bonds and letting inflation get worse or selling bonds and going bankrupt in the process."
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/11/5_Ji...
c-4 soaked in nitroglycerin bitchez.
Asia would rather buy gold.
Daily (rather nightly) flash crash in platinum almost complete.
There there now platinum, it's ok, soon the big bad will no longer manipulate you.
I just came back from China.
They are kicking our asses over there!
Why? Do tell. Love hearing China stories.
They're better at central planning, manipulated markets and widespread fraud than we are? Good for them.
The Chinese have been doing communism longer than the US, thats all.
don't you mean crony capitalism?
We need a good correction! A cold shower and a dose of reality are long overdue!
Eventually the shi* has to hit the fan. I wish they would just get it over already! You can't spend your way out of a depression. The world has completely gone insane!
I believe people are borrowing and spending without regard. A collective fuck you is what creditors will get when Americans havent the money to pay.
Yeah - I think there are a couple of major segments in the middle class here. Some are getting out of harm's way fast (very few though). Then, there are those who are doing what you suggest. And another segment who just can't do math... and simply do not accept (err..refuse to accept) reality. Most have lived entirely in a fiat fantasy land on the "fun" part of the parabolic curve. They do not see how future earnings are pulled forward, creating a massive hole. They are cutting back - but nearly enough to get out of trouble. They are underestimating the severity of the situation and how dramatically things have changed. They will continue to bleed off cash, literally until the moment it siezes up. Then, and only then, will they suddenly panic and do something. So many people are now simply one major capital expense (replacement car, new roof on house, etc.) away from that moment. And I am not even talking about stuff like major medical. I am talking about stuff that does in fact happen. The same goes for too many small businesses as well. All in the same boat.
Got a feeling we are seeing what is in effect a major consumer dead cat bounce - as savings, 401k's and investment accounts are stripped to keep the party going just a little while longer. Not to mention it's all good news about the economy! Right? Things will be right back on track come January! Right?
Anyhow, Xmas is likely the apex of that dead cat curve and the trajectory is soon to be terminal. Margin compression as a result of soaring input costs will just be fuel on the fire. Very deflationary... and into a muni clusterfuck. The only option will be QE3 or some acronym program of monitization to kick the can a little further.
Either way though, I think the collective "fuck you" is coming - not by choice, but by circumstance. With lots of pain to go around. Especially for those who drop early. For those of us with limited resources, I think the trick will be last long enough for a good portion of system to crumble first. Kind of like getting away from an angry bear... don't need to be fast enough to outrun it... just fast enough to outrun the next guy! LOL.
"The MOF's unsuccessful bill auction is fresh evidence of tight liquidity conditions in the market, due to China's three RRR hikes since November and rising cash demand near the year-end. "
Hey hey, DOw Jones have not heard the loan shark market has increased the shadow market rate lately? Anyway all this silly RRR and MoF auctions are the same as the Fed's money printing - unlike the indians, the chinese do not have the backbone to take away the punch bowl, or maybe they have learnt some can-kicking kungfu from the Chairman (no, not Mao, I mean Ben). They are digging their own graves, but they are probably 2 to 3 years away from their minsky moment. So yes Chanos and Hugh endry are correct to short china but they need to hold the trade for a while more.
TO: RobotTrader
on Fri, 12/24/2010 - 00:42
This looks just like the MSFT chart of early 2000.....a piece of swiss cheese full of hot money gaps...............
Dude. Those gaps aren't "hot money"... those gaps are lunch.
Us markets having the best december in 20 years. I wonder how much will be shaved off as the robots power down and the fund managers screw hookers over the holiday week.
China just put a serious limit to licenses it will issue to cars. This won't be pretty for ford and gm especially when their growth is china based and big gas guzzler trucks are top sellers here. Gas jumping will slap sales down.
This would be important if it mattered.
I knew something was up. The line at Gucci HK just doubled.
I'll never forget one time I was in HK and went shopping in Kowloon. There was a knock-off T-Shirt of Calvin Klein that read Caivln Kieln. Seems their I's and L's were mixed up. They insisted I didn't want those but I insisted that indeed I did. They only had 7 and I bought every one of them...
Lots of funny (but usually innocent) translation errors at Engrish.com
http://www.engrish.com
I'm dreaming of a white Christmas.
I can only imagine how we have butchered the Chinese language.
so the eye doctor told the chinese gentleman that he had a cateract to which the gentleman replied," no no , i drive a rinken"
Their MoF and our MoFo (Ben) could each buy each other's toxic waste forever. Demand would stay high and prices would only go up, up, up.
I see a new yin yang east west logo, where each is in a forever cycle of sucking the other's... They eat each other alive and we can then go on with the business of building an economy.
from G20 to L7.
China state run media just ran a story on the EU debt crisis and how it will likely worsen, anyone got a good link?
They're just shitting all over the world tonight. Good thing wall St will be counting bags coming out of the malls tomorrow.
Wall Street has already gone home...Nobody is in the office, Christmas eve is a ghostland.
Bankers celebrate Christmas?
It's that special time of the year when their bonuses can be properly displayed to impress everyone within 8 degrees of separation of them when they buy their 2 year olds ipads and Louis Vuitton luggage sets.
Warms the cockles doesn't it?
TO: Temporalist
on Fri, 12/24/2010 - 03:43
don't forget the outrageous piles of nose candy and limo's full of trophy hookers...............
Ben doesn't hear anything! He only feels the hummmmmm of the printing press! Yeah bithches.... QE5 comin at ya! Bernanke Put in full effect!
Ben doesn't hear anything! He only feels the hummmmmm of the printing press! Yeah bithches.... QE5 comin at ya! Bernanke Put in full effect!
Core-ruption.
Core-rupture.
Core-rupt.
Resisting it, I wonder if we fuel it.
We should all, withdraw.
You are correct. Withdraw your consent. This is a proactive strategy that removes the fuel the Ponzi needs to burn.
This is entirely different from apathy which is simply going along to get along and is the ultimate in passivity.
Gandhi tactic?
Nope. Gandhi still opposed the powers, often directly and in a confrontational manner. While he insisted on non violence, he still was directly opposing the powers that be.
I'm talking about a withdrawal of consent that goes far beyond simply not voting. Remove your participation with the machine in all ways possible even if it means a greater expense or inconvenience to you. This is going to be painful and anyone who tries to tell you otherwise is full of shit. Change is painful. It always is. Accept the fact and begin the process.
By seeking the softer easier way, we are accepting their systems and methods. Thus we are consenting to their authority.
cut up your credit card, kill your tv and vote the incumbent out...................
No he is talking about Americans withdrawing from the banking system permanently. To learn how to do this visit http://infinitebanking.org
it's a start. good vs. perfect?
China to overtake the US:
http://www.theonion.com/articles/report-china-to-overtake-us-as-worlds-b...
Hu looked better on SNL.
Who's on SNL?
No. I think Who's on first.
I don't know who's on first, but Who's on SNL.
What?
What's on second.
Who = Hu (Jin Tao)
hu = you do sex to me.
core exit
Yes, We are screwed. For everything else theres POMO. Rally on. Merry Christmas from Benny B.
http://www.bloomberg.com/news/2010-12-24/treasury-10-year-yields-increas...
Ahh the hypocrisy...
What is this Bond thing that everyone keeps talking about? Im confused.
Bond.
James Bond.
shaken and stirred.
"Portugal’s debt rating was downgraded one level by Fitch Ratings, which said the economy faces a “deteriorating” outlook as the government struggles to curb the euro region’s fourth-largest budget deficit."
http://www.bloomberg.com/news/2010-12-23/portugal-s-long-term-issuer-def...
i had a failed auction when i tried to sell my used underwear on ebay! i now know how the chinese feel!
You need to contact the Japanese...they buy used underwear from vending machines.
If this is our deflationary future, it's going to be worst than I previously thought.
are we confusing erotica with nogotica?
A. Since all markets are now completely rigged, my guess is that Treasury interest rates are now being allowed to rise so that private money will be attracted to treasuries and the Fed will not have to buy 100% of all auctions ... after paying massive commissions to its owner banks.
B. China does not really need treasury auctions. They just create money and debt at will anyway. Most debt in China is bad debt ... it just has not ripened sufficiently to have a really foul stench and when it does, it is simply buried in the back yard never to be seen again.
C. The fervor of the Chinese people (kind of like 1980s Japan ... except Japan was too militarily weak to do anything) is so high that there will be massive disillusionment if their economy ever stalls before they have conquered the entire world. IMO, that is a day to grab a bag of popcorn and turn on the tele and shortwave in your bomb shelter. Revolution or war ... only choices.
A correction for an over extended stock market may also take some of the pressure off rising UST yields.
Yup. Look at what UST yields did on the day of the Flash Crash, and for many months thereafter.
i'm thinking it might be used as a big stick for die hard deficit hawks in the house.
Ahh, the great miracle saviour of the world can't sell short-term debt? Hmmm. Happy holidays.
Pretty ironic huh...
The spike in China repo rates is indeed a BFD. I wonder to what extent it is related to the pause in foreign central bank buying of Treasuries between Nov. 17 and Dec 15. If FCBs as a whole aren't buying, that's a virtually certain indication China isn't buying, and if China pauses buying Treasuries, it probably reduces its intervention in the FX market, which means less yuan being created.
On the other hand, FCBs recently resumed buying Treasuries, taking up $13 billion between Dec. 15 and Dec 22.
Some interesting detail from Bloomberg:
The currency strengthened 0.24 percent [on the day] to 6.6270 per dollar as of the 4:30 p.m. close, the biggest advance since Nov. 9, according to the China Foreign Exchange Trade System. It’s risen 0.43 percent in the week, the biggest weekly gain since October.
“Some banks may be buying the local currency in the foreign-exchange market because it’s hard to borrow money in the fixed income,” said Li Tao, a foreign exchange trader at Shenzhen Development Bank Co. in Shenzhen. “There is also concern the appreciation may get quicker before President Hu’s visit.”
I think they will stand pat on policy for now. I can't tell if they need to loosen or tighten.
vwo looks like a head and shoulders formation, but the trading has been funny because of all the fed money, throwing futures higher when you'd expect a further drop. it has kind of been a slow motion fall. hard to trade
There will be riots here in the streets if the DOW doesn't keep going up!!!
Hang Seng has been red flagging for months
Looks like a lot of treasury auctions next week.. I wonder if the theory of the Fed is to let yields go up to attract more buyers, as well as further making the case that the bond buying is necessary.. logic, albeit in their convaluted minds.
The last failed Chinese auction was Nov 26. Before that, in June.
http://www.istockanalyst.com/article/viewiStockNews/articleid/4731610
By Bloomberg News
http://www.businessweek.com/news/2010-12-25/china-raises-interest-rates-...
Dec. 25 (Bloomberg) -- China raised interest rates for the second time in just over two months after consumer prices jumped the most in 28 months and the government forecast “relatively high” inflation in the first half of 2011.
The benchmark one-year lending rate will rise by 25 basis points to 5.81 percent and the one-year deposit rate will climb by the same amount to 2.75 percent, effective tomorrow, the People’s Bank of China said in a statement on its website today............
http://www.businessweek.com/news/2010-12-25/china-raises-interest-rates-...
Who purchases Chinese treasury bonds? Are foreigners allowed? The Fed should go ahead and buy their bonds too as long as they're printing money to buy ours. Some weird, ironic justice there I think.