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SHIBOR: We Have A BIG Liquidity Problem
When two weeks ago we first pointed out the surging Chinese weekly SHIBOR (following up on comparable observations from last summer) it prompted a variety of bemused responses, the bulk of which were of the now traditional "this is irrelevant" variety. Too bad. Today, the 7 day SHIBOR (and repo rate) has just surged to new multi-year highs and has literally exploded from 2.5% to 7.3% in a few short days. Two weeks ago we said: "In a nutshell: there is no marginal liquidity left in the world's
fastest growing economy. Eventually this will dawn on the world. Until
then, BTFD." Looking at the SHCOMP's performance over the past two weeks, this has in fact dawned on the world. And when the headline scanning algos running our own stock markets realize that the world's biggest marginal economy has absolutely no short-term liquidity left, the aftermath will be very ugly.
7 Day SHIBOR:
7 Day Repo:
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with all of the money flow into china, how is this claim possible?
Benny printed dollars on paper... that's not liquid...
HE SHOULD HAVE PRINTED IT ON GELLY!!
NOW THAT'S LIQUID!
China can't let all the money coming onboard stoke inflation. So they are jacking up rates and pulling cash out of the system to prevent food riots from getting out of control. The result is that liquidity dries up. This is exactly what China wants.
Somehow I doubt this is what China wants, more like how it's reacting.
I just thought it was because they were spending all their money on cheap gold and silver.
Is this Chinese New Year related? Similar to a year-end or quarter-end spike in LIBOR?
I can't think of a reason why, but seeing the year-end SHIBOR spike followed by a decline, I can't help but think of Chinese New Year celebration start late next week.
Bone, are you related to Donny Darko?
Zippidy do dah!
Zippidy day!
My oh my
shibor's rising to-day!
big, bitchez...
the euro has been on a stampede as well, and euro POG blowtorched...despite printing by Ireland.
The reality here is that china has tried to put on the brakes as far as printing/ponzilending/liquidity - just a little dab on the pedal. And, suddenly without that crack, the whole thing threatens to seize up
Just goes to show how fragile the markets really are. The collapse of the USSR occurred within hours.
Within hours of their oil production peak.
And so very few see that relationship.
Can't fucking come onto any one of these discussions and not get some "peak oil, OMGWTFBBQ" type comment. It's infuriating.
Russia's oil production peaked in 1989.
You idiots seriously confuse cause and effect. Their oil production peaked because everyone went home while the country collapsed. The production figures were probably fraudulent to boot.
So you're mad at yourself for being dumb enough to come back time and time again? Self hatred isn't productive.
No, he's mad at himself for being an idiot who believes in "abiotic" carbon chains.
Oil digesting microbes have been found a kilometer underneath the Atlantic plate, thousands of miles from any known subduction zone (http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0015399). Whence cometh their food? Further, when those bugs die, they leave behind oil from their membranes. Not exactly rocket science.
The only question is the rate, which is clearly pretty slow. To say it doesn't exist is magical thinking.
well, you kinda got this problem that the US peaked in 1970 and within a couple of years, everything was falling apart for us; we were in straight-up hyperinflation, abandoning gold peg, nearly having to go to war in the ME, our industries collapsing, etc.
And the USSR peaked in 1989 and then within a year or 2, the nation completely ceased to exist.
But then they got over it. Or maybe the mafia took over. Sorta hard to tell from the outside, actually.
I sure hope its big.
I am getting sick of waiting for this thing to blow up.
I think Antal Fekete finally figured out the bond market. His latest piece is definitly worth a read. http://www.24hgold.com/english/news-gold-silver-there-is-no-business-lik...
I sold 75% of all positions today. And I am not done. New buys, short positions only.
Thanks Spitzer, a really good article.
Spitzer,
Thanks for the link!
Fekete's analysis explains a lot.
Working out of the current situation will be painful.
LOL you think it can be "worked out"? No offense, but it's more like push the 'reset' button!
Good article, which helps broaden the discussion on "hyperinflation" versus deflation. Thanks.
Hi.
I am new to the mechanics of finance so there is something I don't understand about the linked article. Could you please explain buying long term bonds and selling short term tbills and pocketing the difference in yeilds? I have long wondered who was buying long term US paper at ~4.5% when the stated goal of B.B. is to stoke inflation. This seems to hold the key to why anyone would buy such a dubious asset. If you could explain it I would appreciate it very much. Thanks.
When you 'buy' bonds you are in fact making a loan, when you 'sell' you are borrowing.
Thus you borrow short term at a lower rate, lend at a higher rate & "pocket the difference".
The reality here is that china has tried to put on the brakes as far as printing/ponzilending/liquidity
The new world indeed. China showing leadership while we show no backbone for pain (read: doing the right thing) in any form.
What leadership? They still execute anyone they don't like!
North Korea executed a Finance Minister last year.
http://www.guardian.co.uk/world/2010/mar/18/north-korean-executed-currency-reform
China also fired one some time ago.
Never underestimate a crazed Fed Chairman..
simple solution. Press the fucking button. Its all good.
Or change the accounting rules... you know, Enron style!
I don't know... let's ask Madoff...
Both! with a lil dis-information on the side for me please!
First of all, Ireland can't print, I don't care what they say. They would have done it BEFORE the bailout, and Germany would be screaming right now.
Another thing, I searched CNBS for "Vallejo", and nothing came up.
Everything's a lie, except Tyler's charts- The Charts Don't Lie.
You do know that when they have advanced knowledge of a disastor, they willnever make it public--- it's about keeping the clam, until whatever happens, happens.
Therefore, how many MSM news outlets reported on the sunrise 2 FULL days early in Greenland?
How many reported about the record food inflation across the globe?
Or that China stated the US is no longer number 1 in the world but they are?!
Or that there have been an additional 3 mass bird/fish kills in the last two days?!
OR that Japan declares they are in a state of crisis, short of total collapse?!
OR that Australia's food exports might be cut to 20% this year and next?!
Why you ask? Because the powers that be don't want the masses informed of the truth, but only distorted reality TV
this has to be dismissed - time for another cnbc obama campaign rally
sue h heralding all the jobs "created" by obama and immelt
wow, sat night live on early
How I learnt to stop worrying and love The Bank by Steve Keen.
http://www.debtdeflation.com/blogs/2011/01/21/how-i-learnt-to-stop-worrying-and-love-the-bank/#comments
I stopped reading after 'learnt'.
and why is that?
Sophophobia.
You just "stopped out" on some of the most insightful economic commentary available today. Good luck. Some of the best analysts are not American by the way...and they even have (gasp!) some different spelling conventions. A multi-coloured world you might say....
Hope the chinese didn't do home loans based on SHIBOR + 2%.
This is second time it has done this in the last 2 weeks only to go back to 2.50 from almost 7...why I have NO idea...why would this trade like TASR...crazy
Yeah seems like something is sucking up liquidity then suddenly disappears ????
QE bitzhez
Aaah, this is irrelevant o)
+1 China is irrelevant. American Idol bitchez!
The primary factor behind the rise in inflation during the current episode is a surge in the money supply. M1 growth accelerated from 9 per cent year-on-year in December 2008 to 32 per cent a year later and peaked at 39 per cent last January. In spite of a series of measures, including a 3½ percentage point increase in the required reserve ratio to a record 19 per cent alongside a half percentage point hike in benchmark interest rates, M1 growth is still running close to 20 per cent year-on-year. This is several percentage points above the rate consistent with high single-digit growth in real output.
China’s quasi-fixed exchange rate vis-à-vis the US dollar compromises monetary policy independence and the central bank’s ability to slow the economy through conventional means. Interest rates cannot be raised significantly because the resulting capital inflows would place further upward pressure on the currency, which would then require acceleration in the rate of reserve accumulation and substantial sterilisation operations to prevent a sharp increase in the money supply and growing inflationary pressures thereof.
Speculative capital inflows are already thwarting the People’s Bank of China’s efforts to control the money supply and quantitative easing in the US has added fuel to the fire. The rate of foreign exchange reserve accumulation remained relatively constant at $65-$66 billion per month during last year’s third and fourth quarters, but it is of some concern speculative inflows jumped from less than $16 billion per month in the autumn to more than $60 billion per month during the final three months of the year.
http://www.irishtimes.com/newspaper/finance/2011/0121/1224288007234.html
Close on the heels of a China central bank adviser hinting at an imminent rate hike, a state-controlled newspaper has said more rate hike is on the cards, probably as early as in February, confirming the dominant view that Beijing will pull out all the stops to address what is becoming a serious political problem.
The China Securities Journal report did not specify when the hike will kick in, but the report adds more currency to the consensus view among analysts and economists that China will be forced to hike rates as a sharp rise in prices is expected in the coming months.
China has also repeatedly told banks to keep away larger deposits as reserves, a move that will cripple banks' capacity to lend. This measure jells with Beijing's broader objective of mopping up stimulus and tightening policy in the long term.
As a commodity boom, possible rise in labor costs as well as a highly liquid financial system threaten to drive inflation higher, the focus is on China's monetary tightening policies this year.
The Chinese Communist Party's politburo announced early last month the country will shift to prudent monetary policy in 2011. It was a marked defection from the professed “moderately loose” monetary policy followed by the government since late 2008.
http://www.ibtimes.com/articles/103457/20110121/china-inflation-rate-hik...
One of the world's biggest banks fears the overheating Asian powerhouse economy is headed for a hard landing.
French bank Societe Generale fears China has lost control over its red-hot economy and risks lurching from boom to bust over the next year, with major ramifications for the rest of the world.
The bank has told clients to hedge against the danger of a blow-off spike in Chinese growth over coming months that will push commodity prices much higher, followed by a sudden reversal as China slams on the brakes.
( In a report, The Dragon which Played with Fire, the bank's global team said China had carried out its own version of "quantitative easing", cranking up credit by 20 trillion renminbi ($3 trillion) or 50 per cent of GDP over the past two years. It had waited too long to drain excess stimulus.)
Advertisement: Story continues below"Policymakers are already behind the curve. According to our Taylor Rule analysis, the tightening needed is about 250 basis points," said the report, by Alain Bokobza, Glenn Maguire, and Wei Yao.
The Politiburo may be tempted to put off hard decisions until the leadership transition in 2012 was safe. "The skew of risks is very much for an extended period of overheating, and therefore uncontained inflation," it said.
Under the bank's "risk scenario" - a 30 per cent probability - inflation would hit 10 per cent by the summer. "This would cause tremendous pain and fuel widespread social discontent," and risked a "pernicious wage-price spiral".
The bank said overheating may reach "peak frenzy" in mid-2011. Markets will then start to anticipate a hard landing, which would see non-performing loans rise to 20 per cent (as in the early 1990s) and a fall in bank shares of 50 per cent to 75 per cent over the following 12 months.
"We think growth could slow to 5 per cent by early 2012, which would be a drama for China. It would be the first hard landing since 1994 and would destabilise the global economy. It is not our central scenario, but if it happens: commodities won't like it; Asian equities won't like it; and emerging markets won't like it," said Mr Bokobza, head of global asset allocation.
http://www.watoday.com.au/business/china-the-dragon-that-played-with-fir...
Sounds like Spalding ...
You talk to yourself a lot, but I gotta admit, your conversations are pretty interesting.
The next 12 months will be a critical period for the ruling Chinese Communist Party (CCP) as the top leadership prepares to step down and hand over the reins next year.
It will be no less critical for Vice-President Xi Jinping, named last year to head a new generation of CCP leaders who will take center stage at the 18th national party congress.
No political succession takes place without intense power jockeying, and the CCP will have its fair share.
When Xi was named a vice-chairman of the party’s powerful Central Military Commission (CMC) last year, the appointment virtually sealed his status as China’s top leader-in-waiting.
But there are a couple of people who could make his ascendancy a rocky one.
Foremost is the man he will be succeeding: Hu Jintao. Their relationship did not quite get off on the right foot.
Xi, who was not Hu’s choice as successor, did not hide his political allegiance to Jiang Zemin, who was Hu’s predecessor. When he made his maiden visit to Germany last October, he conveyed Jiang’s regards to Chancellor Angela Merkel when they met.
In a speech at the start of the academic year at the elite Central Party School last September, he declared that “power comes from the people,” or quan wei min shuo fu.
Neither incident went down well with Hu, who propounded the “Three People’s Principles” ? namely, exercise power for the people, show concern for the people, and work for the people’s interests.
Former Communist Party propaganda chief Zhu Houze had in 2003 suggested adding “power comes from the people” as a fourth principle, which infuriated Hu. The 72-year-old Zhu was subsequently placed under house arrest for almost a year. He died in May last year.
It remains unclear whether Hu will relinquish all three top posts: party secretary, state president and CMC chairman.
http://www.koreaherald.com/opinion/Detail.jsp?newsMLId=20110116000327
It is not at all surprising, then, that over the past decade growth in China’s gross domestic product, powered by very cheap lending rates, has substantially exceeded the growth in household income, which was held back by this large hidden tax. It is also not at all surprising that household consumption has declined over the decade as a share of gross national product from a very low 45 percent at the beginning of the decade to an astonishingly low 36 percent last year. This is how China’s last banking crisis was resolved. It did not result in a collapse in the banking system, but it nonetheless came with a heavy cost.The banking crisis in China resulted in a collapse (and there is no other word for it) in household consumption as a share of the economy. This is why the People’s Bank of China is so worried about another surge in non-performing loans. If the household sector is forced once again to clean up a banking mess, this will make China even more reliant for growth on the trade surplus and on investment, and that is something many in Beijing, including the PBoC, do not want to see. http://mpettis.com/2011/01/the-real-cost-of-chinese-npls/
2 page thread shit. Start reading again from below this post.
Start reading ....
Didn't read it. Won't. I read a few of your posts hoping you had something to offer but you just kept serving up a big fat nothing.
Enjoy living in " moron city ".
What was it heraclitus said. If you burn the world the nose would be the seat of judgement.
Smoked ya and you're a bit of the old dogshit on the shoe now aren't ya.
I have it on good authority that SHIBOR is tied to the tail of a donkey. Someone over there walks around following the donkey and charting the position of the tail. SHIBOR "dumping" has a biological basis in reality. But it's rather obscene.
Why am I giving all this away? I should start my own blog.
Like watching a lit fuse.
Or a flywheel that is out of balance.
the GLOWRATE is around 8.5% I expect all sovereign to make it to that magic number at some point
Dont ask me what GLOWRATE is. Ill have to talk tough and make up shit like the other experts
Sounds amusingly ghey to me.
nobody's mad if that's how you see the world. I think everything is related to hookers so I totally understand your synesthesia, just with a different neuroconnector than you COUGAR RRROAR!
Hedge funds are setting up to Short China.. reminiscent of subprime of 2007. The sharks are on the move.
This reminds me of the film "Speed"
Well lets just summon Harry, Robo, and the rest of the sunshine and double rainbow enema crowd to tell us how its all good!
I've taken to calling them the Shoeshine Boy Brigade.
Dollar
Will this thing finally bounce?
http://99ercharts.blogspot.com/2011/01/dollar_21.html
Dead cats dont REALLY bounce.
Live cats don't bounce, either. I have no idea where this idea got started but let me tell you I threaten to kill someone daily for wanting to try it on me. Damned monkeys and your wacky theories on gravity.
Didn't the US 1 week LIBOR rate increase from 2.5% to near 5% from late Aug'08 into the crash?
LIBOR increased as the banks became spooked to lend to one another. Is that what is happening among China's banks right now?
New Sino-american slogan: Slope and change.
ccnbs just commented on this
What can occur as a result of tightening liquidity conditions in China. Pardon my stupidity folks but this ties into overnight lending, correct?
I still think there are massive strains on their banking system. However, some of this may be related to their upcoming New Year.
While the seven-day repo rate is likely to be at 3 percent to 3.5 percent in the short term, it will rise to around 4 percent as Chinese New Year approaches, said Frances Cheung, senior strategist at Credit Agricole CIB in Hong Kong.
“Banks aren’t being aggressive at hoarding cash at the moment, but with Chinese New Year approaching there will be a cash squeeze, pushing the rate back up,” she said.
http://www.bloomberg.com/news/2011-01-05/pboc-extends-biggest-cash-crunch-since-lehman-to-curb-prices-china-credit.html
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so they do expect rates to be higher into Chinese new year. if rates stay high after that, then it'll be a big red flag.
The Chinese military is waiting in the wings, ready to "save" the country from its incompetent political leadership. What do you suppose their economic policy will be?
Um ... invade south Asia perhaps?
Rip the balls off of JP Morgan and tattoo cheater cheater pumpkin eater on their ass.
Blame Taiwan. Blame your nearest enemy. Throughout human history that’s the way it has always been.
No no you are doing it wrong. Blame Canada.
Stick to the basics, folks.
BTFD, Bitchez!
The Bernank will inflate that Shibor away!
He has the tools, and the talent!
The Bernank may be diminutive but he has a top of the line printing press bitchez!
While the short end of the curve is at recent highs, this is not the first time in recent memory that the curve has inverted:
http://www.shibor.org/shibor/web/ShiborJPG_e.jsp
what does this mean for gold and silver
...And now China will start to dump treasuries.
Perhaps the showdown day in the bond market has arrived...
To answer my own question above - re-education camps for all Mercedes drivers, bankers, landlords, university graduates, passport holders, and English speakers. The list will be longer of course, but that's a start. The Chinese army in the lower ranks is largely the sons of the peasantry who will gladly, eagerly carry out roundup orders for an extra bowl of rice for the folks back home. This is still very much a Maoist country, and the bourgeoise are still very much parasites that are obviously guilty of crimes against the People. Trials will not be necessary. And the economic miracle will no longer be needed - China has everything it needs, for now.
Love these Shibor post.
Santelli referred to this very (zerohedge.com) blog this afternoon on CNBC.
Santelli is the only reason to take CNBC off 'mute'.
and goldies, what of them?
Anyone know how China's ABCP market is doing? Seems that would help differentiate a genuine poop-fan collision from the 2.5 -> 7 -> 2.5 rollercoaster the OR has been riding.