- The second coming of Obamacare website - will it work? (Reuters)
- Winter Storm Moves North as Macy’s Waits to Make Parade Call (BBG)
- Eyeing holiday sales, more U.S. retailers to open on Thanksgiving (Reuters)
- It's all Verizon's fault: H-P Will Replace Verizon in Hosting HealthCare.gov Website (WSJ)
- Bitcoin Service Targets Kenya Remittances With Cut-Rate Fees (BBG)
- Embattled Thai PM easily survives no-confidence vote, protests persist (Reuters)
- For U.S. stores it is ugly out there: in more ways than one (Reuters)
- Japan and S Korea military flout China air zone rules (FT)
- UBS Restructuring Forex Unit (WSJ)
- Trader Messages Scrutinized as UBS Bans Chats Among Firms (BBG)
- ECB warns on external risks to eurozone financial system (FT)
As we showed very vividly yesterday, while the world is comfortably distracted with mundane questions of whether the Fed will taper this, the BOJ will untaper that, or if the ECB will finally rebel against an "oppressive" German regime - with $3.5 trillion in asset (and debt) creation per year, is China. China, however, is increasingly aware that in the grand scheme of things, its credit spigot is the marginal driver of global liquidity, which is great of the rest of the world, but with an epic accumulation of bad debt and NPLs, all the downside is left for China while the upside is shared with the world. Which is why it was not surprising to learn that China has drafted rules banning banks from evading lending limits by structuring loans to other financial institutions so that they can be recorded as asset sales. And while we are confident Chinese financial geniuses will find ways to bypass this attempt to curb breakneck credit expansion in due course, in the meantime, Chinese liquidity conditions are certain to get far tighter. This is precisely the WSJ reported overnight, when it observed that yields on Chinese government debt have soared to their highest levels in nearly nine years amid Beijing's relentless drive to tighten the monetary spigots in the world's second-largest economy.
...An unidentified local bank reported a 33 percent nonperforming-loan ratio for the solar-panel industry, compared with 2 percent at the beginning of the year, with the increase due to Wuxi Suntech, China Business News reported in September.... China’s lending spree has created a debt burden similar in magnitude to the one that pushed Asian nations into crisis in the late 1990s, according to Fitch Ratings.... As companies take on more debt, the efficiency of credit use has deteriorated. Since 2009, for every yuan of credit issued, China’s GDP grew by an average 0.4 yuan, while the pre-2009 average was 0.8 yuan, according to Mike Werner, a Hong Kong-based analyst at Sanford C. Bernstein & Co.... “The real situation is much worse than the data showed” after talking to chief financial officers at industrial manufacturers, said Wendy Tang, a Shanghai-based analyst at Northeast Securities Co., who estimates the actual nonperforming-loan ratio to be as high as 3 percent. “It will take at least one year or longer for these NPLs to appear on banks’ books, and I haven’t seen the bottom of deterioration in Jiangsu and Zhejiang yet.”
It is time for the centrally-planned markets to "try" for the round number trifecta of 16000, 1800 and 4000 again, although it may be a tad more difficult on a day in which there is no double POMO and just $2.75-$3.50 billion will be injected by the NY Fed into the S&P - perhaps it is Bitcoin that will hit the nice round number of $1000 first? Overnight, the Chinese Plenum news rerun finally was priced in and the SHComp closed red, as did the Nikkei 225 as the Asian euphoria based on communist promises about what may happen by 2020 fades. What's worse, the Chinese 7-day repo rate is up 140bp this morning to 6.63% amid talk of tightening domestic liquidity conditions, and back to levels seen during the June liquidity squeeze. All this is happening as China continues leaking more details and hope of what reform the mercantilist country can achieve, and how much internal consumption the export-driven country can attain: overnight there were also additional reports of interest rate liberalization and that the PBOC are to set up a floating CNY rate. Good luck with that.
One of the mysteries surrounding the insolvent, and already once bailed out Spanish banking sector, has been the question why reported bad loans - sharply rising as they may be - are still as relatively low as they are currently, considering the nation's near highest in the Eurozone unemployment rate, and in comparison to such even more insolvent European nations as Greece, Cyprus and Slovenia. Courtesy of the just completed bank earnings season, and a WSJ report, we now know why: it turns out that for the past several years, instead of accurately designating non-performing loans, banks would constantly "refinance" bad loans making them appear viable even though banks have known full well there would be zero recoveries on those loans. In fact, as the story below describes, banks would even go so far as making additional loans whose proceeds would be just to pay interest on the existing NPLs - a morbid debt pyramid scheme, which when it collapses, no amount of EFSF, ESM or any other acronym-based bailout, will be able to make the country's irreparably damaged banks appear even remotely viable.
Back in January, we highlighted the main problem plaguing the Greek financial system, and why a bailout (at least third, but likely fourth and fifth, and so on) is inevitable because "the amount of non-performing loans has exploded by a laughable amount, rising some 50% from December 2011, when it was "only" 16% and stood at a gargantuan 24% last month (indicatively, in the US this would mean that some $1.7 trillion in loans was nonperforming). And therein lies the rub, because as Kathimerini prudently notes, the "bad loans come to a considerable 55 billion euros. This means that the sum of NPLs already exceeds the total funds set aside for the recapitalization of the local credit system, which amounts to €50 billion." Yesterday, Kathimerini provided a much needed update on the amount of NPLs in Greece: according to the latest PwC report, NPLs have risen by another €10 billion in under one year, and now amount to €65 billion, which is now larger than the recapitalization funding and amounts to more than double the €30 billion capital base of local banks!
This morning, as part of the US Treasury's report on global currencies, Secretary Lew made the following remark:
- *LEW SAYS JAPAN 'APPEARS TO BE TURNING AN ECONOMIC CORNER'
Which got us thinking... when have we heard the US Treasury say exactly the same thing... (for exactly the same "policy-based" reason)... The answer is 10 years ago!
In addition to the bevy of ugly European unemployment and inflation news just reported, the overnight session had a dollop of more ugly macro data for the algos to kneejerkingly react to and ramp stocks to fresh time highs on. First it was China, where the PBOC did another reverse repo, however this time at a fixed 4.3% rate, 0.2% higher than the Monday iteration and well above the 3%-handle from early October, indicating that China is truly intent on tightening its monetary conditions. Then Japan confirmed that despite the soaring imported food and energy inflation, wages just refuse to rise, and have declined now for nearly 1.5 years. Then, adding core insult to peripheral injury, Germany reported retail sales that missed expectations of a +0.4% print wildly, declining -0.4% from a prior downward revised 0.5% to -0.2%. And so on: more below. However, as usual what does matter is how the market digests the FOMC news, and for now the sense is that the risk of a December taper has risen based on the FOMC statement language, whether warranted or not, which as a result is pushing futures modestly lower following an epic move higher in the month of October on nothing but pure balance sheet and multiple expansion. The big data week in the US rolls on with the highlights being the Chicago PMI and initial jobless claims, which are expected to print their first accurate, non-impaired reading since August.
For those curious what Bernanke's market may do today, we flash back to yesterday's AM summary as follows: "Just as it is easy being a weatherman in San Diego ("the weather will be... nice. Back to you"), so the same inductive analysis can be applied to another week of stocks in Bernanke's centrally planned market: "stocks will be... up." Add to this yesterday's revelations in which "JPM Sees "Most Extreme Ever Excess Liquidity" Bubble After $3 Trillion "Created" In First 9 Months Of 2013" and the full picture is clear. So while yesterday's overnight meltup has yet to take place, there is lots of time before the 3:30 pm ramp (although today's modest POMO of $1.25-$1.75 billion may dent the frothiness). Especially once the market recalls that the NOctaper FOMC 2-day meeting starts today.
As frequent readers will recall, one of our favorite series of posts describing the "Walking Dead" monetary zombie-infested continent that is Europe is the one showing the abysmal state Europe's credit creation machinery, operated by none other than the Bank of Italy's, Goldman's ECB's Mario Draghi, finds itself in. As a reminder, it was as recently as September when we found that "Mario Draghi's Nightmare Gets Worse" because "European Loans Declined At Record Rate." To our complete lack of surprise, when a few hours ago the ECB released the latest monetary and credit creation update for the month of September, it showed... no change. Or rather, while loans to the private sector are at all time record lows, that other metric which Draghi at least has some direct control over (since he obviously can't control the amount of confidence in the system aside from threats of brute force), M3, just had its lowest pace of increase since January 2012.
There was some hilarious news overnight: such that supposedly Spain's GDP rose 0.1% in Q3 thus ending a 2+ year recession. There is no point to even comment on this "recovery" - we will merely remind that starving your economy of imports for the sake of generating a GDP-boosting trade surplus, while consumption declines, solves nothing and point readers to charts of Spanish non-performing loans, housing prices, and unemployment, oh and the massive Bad Bank of course, and leave it at that. In terms of real news, futures are lower following a drubbing in Asia over the previously discussed concerns over tighter Chinese monetary policy. Amusingly, as Reuters notes, this has hit global shares still high on hopes of extended U.S. stimulus on Wednesday, when the dollar tentatively steadied at an eight-month low after its latest slide. The immediate casualty is the USDJPY, which continues to slide and is approaching the 200SMA. In short: fears that China may have resumed tapering have offset yesterday's hope that "horrible" job numbers mean no Fed tapering until mid-2014.... New Normal fundamentals.
Quick: which BRIC nation has the highest consumer loan default rate?
If you said China, India or Russia, you are wrong. Actually, if you said China you are probably right, but since absolutely all economic "data" in China is worthless, manipulated propaganda, only a retrospective post-mortem after the Chinese credit, housing, commodity, consumption bubbles have all burst will we know the answer. So excluding China, which country's consumers after a multi-year shopping spree funded entirely on credit, are suddenly suffering the epic hangover of soaring non-performing loans as they suddenly find themselves unable to even pay the interest on the debt? Just ask former billionaire Eike Batista whose OGX oil corporation is days away from filing bankruptcy. The answer, with 5.6% of all loans in default, above Russia, South Africa, Mexico, Turkey and India, is Brazil.
Next "Subprime Crisis" Expands As Student Loan Defaults Hit $146 Billion, Highest Default Rate Level Since 1995Submitted by Tyler Durden on 10/01/2013 08:22 -0500
Almost exactly one year ago we wrote "The Next Subprime Crisis Is Here: Over $120 Billion In Federal Student Loans In Default" in which we took the latest (2009 three year cohort) loan default data on Federal Student Loans released by the Department of Education and applied it to the total amount of student loans outstanding, which back then was $914 billion. Yesterday, ED.gov provided its annual update - this time to the 2010 three year and 2011 two year cohorts - and to nobody's major surprise, learned that things just got even worse. To wit: "The national two-year cohort default rate rose from 9.1 percent for FY 2010 to 10 percent for FY 2011. The three-year cohort default rate rose from 13.4 percent for FY 2009 to 14.7 percent for FY 2010." Putting this in context, according to Bloomberg defaults have risen to the highest level since 1995. The irony that this is happening in the aftermath of Bernanke's disastrous ZIRP policy is not lost on anyone.
There's growing speculation that China will soon announce an overhaul of its financial system to address increasing risks from escalating debt.
When we actually start the Q3 earnings cycle for financials, watch for the word “surprise” in a lot of news reports and analyst opinions