The news this week of China's largest corporate bankruptcy - Haixin Iron & Steel Group - amid crashing iron ore and steel prices was followed by analysts noting it "will be followed by others," as the major flaw of producers of iron ore, the most traded commodity after oil, is they tend to be "over-bullish." Distressed debt funds are starting to circle in preparation for what they expect to be a bloodbath as Bloomberg reports, bad debts in China are well underestimated because authorities persist in propping up weak companies and bailing out local investors, according to DAC Management, "we've yet to see it because if you look at corporate defaults, they keep getting covered by the government. At some point, they can’t cover every single one." Most worryingly though, as KPMG points out, "when you see restructuring advisers getting hired by SOEs... you know it's coming."
"this sentence is a big surprise to me as I did nothing wrong..."
The topic of ‘currency war’ has been bantered about in financial circles since at least the term was first used by Brazilian Finance Minister Guido Mantega in September 2010. Recently, the currency war has escalated, and a ‘sanctions war’ against Russia has broken out. History suggests that financial assets are highly unlikely to preserve investors’ real purchasing power in this inhospitable international environment, due in part to the associated currency crises, which will catalyse at least a partial international remonetisation of gold. Vladimir Putin, under pressure from economic sanctions, may calculate that now is the time to play his ‘gold card’.
Tt has become quite clear that the Fed neither has the intention, nor the market mechanism to do any of that, and certainly not in a 3-6 month timeframe. Which may explain the Fed's hawkish words on any potential surge in market vol. After all, if the nearly $3 trillion in excess reserves remain on bank balance sheets for another year, then the only reason why vol could surge is if the Fed lose the faith of the markets terminally. At that point the last worry anyone will have is whether and how the Fed will tighten monetary policy.
With growth rates for steel products at or near record lows and prices for end-product having plunged to record lows, it is little surprise that the Steel industry would provide the largest Chinese bankruptcy yet in this cycle. As Bloomberg reports, unlisted Haixin Iron & Steel - which halted production and defaulted on CNY3 bn in March - has started bankruptcy proceedings. Having spent 8 months hoping for the government bailout that every Western onlooker believes is every firm's god-given right, a reorganization application for the Wenxi, Shanxi province-based company (with $1.7 billion of total debt) was accepted by the Yuncheng City Intermediate People’s Court. This is just the start as "Haixin Group’s bankruptcy will be followed by others," warns one analyst, adding that the major flaw of producers of iron ore, the most traded commodity after oil, is they tend to be “over-bullish.”
Can beggars be choosers again? Judging by the drop in Greek bond prices, the answer is no. As Bloomberg reports, Greek PM Samaras is pushing back against Troika demands for up to $3 billion more savings (i.e. cuts to spending) in 2015. "It's crucial that Greek authorities work with the troika to complete the current review,” but with the government in Athens refusing to concede there is a funding hole, the standoff means Greece may miss a Dec. 8 deadline for agreement on the steps required to unlock the 'aid' tranche.
After weeks of relentless flashing red headline barrage whose only purpose was to force snap algo buying of the USDJPY pair time after time after time, Japan is once again out of FX algo danging carrots after moments ago Abe confirmed what everyone had known already: he called a snap election to seek a mandate for his decision to delay by 18 months a further sales-tax increase that had been planned for next year; he also said he would dissolve the lower house of parliament on Nov. 21 in preparation for an election in December, without specifying a date. Cited by the WSJ, Abe said "To ensure the success of Abenomics, I’ve concluded that it shouldn’t be carried out next October and instead be postponed by 18 months,” the prime minister told a nationally televised news conference, stressing that the additional tax burden would risk putting the economy back into deflation. “I will seek the people’s judgment over our economic policy."
Our world, our life, has been built on debt and propaganda for many years. They have kept us from noticing how poorly we are doing. But now a third element has entered the foundation of our societies, and it’s set to eat away at everything that has – barely – kept the entire edifice from crumbling apart. Deflation.
No matter the amount and severity of lawsuits, settlements, and bad publicity, it appears, at least in this case, that the act of signing without proper authority or knowledge as to that which one is signing, continues.
On Sunday in Brisbane the G20 will announce that bank deposits are just part of commercial banks’ capital structure, and also that they are far from the most senior portion of that structure. With deposits then subjected to a decline in nominal value following a bank failure, it is self-evident that a bank deposit is no longer money in the way a banknote is. If a banknote cannot be subjected to a decline in nominal value, we need to ask whether banknotes can act as a superior store of value than bank deposits? If that is the case, will some investors prefer banknotes to bank deposits as a form of savings? Such a change in preference is known as a "bank run."
While some companies, those lucky few which have no debt on their balance sheet, have the option to mothball projects and wait for the lack of supply to catch up with demand and also price (at least in a world in which physical supply and demand still have some bearing on trading of paper gold) others, those who have creditors breathing down their neck, whose extraction cash costs are above the spot price and who aren't hedged, are essentially out of options. One such company is Russian gold producer Petropavlovsk, which is now worth just $60 million and is in a perilous financial situation, with speculation it may even default on $310 million in convertible bonds in February.
When we commented on Mel Watt's Einsteinianly-insane plans to reform FHFA, allowing bad creditors to buy houses (again) with only 3% down-payments (again), we expected nothing but echoes as the "it's everyone's 'right' to own a home"-meme gets played out for all to see in this goldfish-like societal memory that has entirely lobotomized the actions (and impact) of when this idiocy was trued before. However, a funny thing happened this week... called an 'election'. And The Republicans have been quick to take note of Obama-appointee Mel Watt's (replacing acting director Ed Demarco - who had some less-politik plans for real reform) plans with House Financial Services Committee Chairman Jeb Hensarling exclaiming he was "extremely concerned," about Watt's "efforts to force taxpayers to back high-risk mortgages with ultra-low down payments," concluding this plan "must be rejected."
It there is a better anecdote for everything the IMF stands for than the hedge fund of its former head, disgraced Dominique Strauss-Khan, going broke days after his partner, Thierry Leyne, 49, commits suicide in Tel Aviv under mysterious circumstances as reported previously, and subsequent revelations exposing at least one instance of fraud at the financial firm, we have yet to hear it.
- LOL@Fundamentals: European Stocks Fall as Investors Seek Stimulus Clarity (BBG)
- Obama, Republicans sound conciliatory note but battles loom (Reuters)
- Firms drop Pimco funds from managed accounts (Reuters)
- Not All QE Is Created Equal as U.S. Outpunches ECB-BOJ (BBG)
- Ukraine Accuses Russia of Sending Troops as Truce Wobbles (BBG)
- Lenovo Slumps After Projecting China ‘Hypergrowth’ to End (BBG)
- Palo Alto Networks discovers new malware targeted at Apple devices (Reuters)
- IPO That Brought In $1 Billion in March Implodes in Denmark (BBG)
When Chinese property developer Agile Property Holdings Ltd. said this month that its chairman was taken into custody by authorities, the disclosure was a shock to Western banks that lent the company money, according to China Spectator as the fog of ever-rising asset values suddenly evaporates into the reality of an opaque real estate credit market slap them in the face. The simple fact is "it is very difficult to get a handle on the financials of a Chinese company," as a local investigative consulting firm warns "in China, nothing is what it appears to be."