"How long the bubble can continue to inflate is the key question – but necessarily unanswerable. Inherently irrational, bubbles usually last longer than expected, [but they] ultimately burst... they expand continuously, then pop."
Anxiety over financial stability and shadow banking risks appear to have force Christine Lagarde and her fellow extrapolators to hit the panic button:
IMF CUTS U.S. 2015 GROWTH FORECAST TO 2.5% FROM 3.1%, URGES FED TO DELAY FIRST RATE INCREASE UNTIL 1H 2016
Adding that they viewed the Dollar as "moderately overvalued" and any more appreciation would be "harmful," it seems global disinflationary pressures have left the IMF no choice but to say publicly what everyone has uttered under their breath. Now Yellen is really cornered.. and just exactly how are the talking heads going to spin this as positive?
Over the past several months we’ve seen at least three examples of Chinese defaults including Baoding Tianwei Group, a subsidiary of state-owned parent China South Industries. This suggests Beijing will begin to take a more hands-off approach when it comes to propping up borrowers. The latest example is a profitable duck processing company, which FT says has defaulted on its debts after banks refused to roll over its loans.
This month could be quite a spectacular one.......
China may raise the quota on a critical debt swap plan by as much as CNY1 trillion, underscoring how important its success is both in terms of kicking the can for the country's heavily-indebted local governments and in terms of jumpstarting the credit creation machine. Meanwhile, an effort to encourage ABS issuance is sputtering amid rising NPLs.
A non-bombastic look at the week ahead and a number of key events in June. These could set the tone for Q3 and beyond.
For those who still cling on to margin debt as indicative of anything, the latest NYSE report should provide some comfort: finally the long-awaited breakout in participation has arrived, and after stagnating for over a year, investors - mostly retail - are once again scrambling to buy stocks on margin, i.e., using debt, and as of April 30, the amount of margin debt just hit a new all time high of $507 billion, $30 billion more than the month before, and nearly 50% higher than the last bubble peak reached in October 2007.
Coca-Cola supplier Zhuhai Zhongfu Enterprise Co.will reportedly miss a principal payment on Thursday marking the third onshore default in China and underscoring the growing risks the country faces on a corporate debt pile that now totals some $14 trillion.
The Shanghai Composite is on the verge of 5,000 and has more than doubled in the past year but this may just be the beginning. The reason: if the Chinese stock bubble bursts, that will be the beginning of the end of the greatest con game in history.
The present Chinese leadership appears to be trying to gain (regain?) more - if not full - control over the country’s economic system, while at the same time (re-)boosting the growth it has lost in recent years. President Xi Jinping, prime minister Li Keqiang and all of their subservient leaders – there are 1000?s of those in a 1.4 million citizens country- apparently think this can be done. We truly doubt it. We don’t think that they ever understood what would happen if they opened up the country to a more free-market, capitalist structure. That doing so would automatically reduce their political power, since a free market, in whatever shape and form, does not rhyme with the kind of control which the Communist Party has been used to for decades, and which the current leaders have grown up taking for granted.
China Officially Launches Critical Local Government Debt Swap — But Is The PBoC Really Just Issuing Treasury Bonds?Submitted by Tyler Durden on 05/19/2015 22:30 -0400
China has pitched its local government debt swap program as a way for heavily-indebted provinces to deleverage. Now that the program is officially off the ground, what are the implications for banks and for the PBoC?
- China’s Record Capital Outflows Spark Financial Stability Fears (FT)
- U.K. Inflation Falls Below Zero for First Time Since 1960 (BBG)
- Islamic State Solidifies Foothold in Libya to Expand Reach (WSJ)
- Judge sentences 11 Afghan police over lynching of woman in Kabul (Reuters)
- The $18 Trillion Global Economic Boost If Everything Went Right (BBG)
- Eurozone Prices Confirmed Flat Year-on-Year in April, Core Inflation Inches Higher (Reuters)
- Greek Finances to Stagger On Longer Than You Think (BBG)
- Athens sees EU deal soon, Greeks' approval of government stance dwindles (Reuters)
In a stunningly honest turn of events - though likely self-preserving - a number of senior financial services executives are reportedly urged authorities around the world to bolster their crisis-busting arsenals amid fears that ultra-low interest rates have increased the risks of financial instability. As The FT reports, the heads of companies including HSBC, UBS and BlackRock will on Monday release a joint statement demanding policy-makers "address emerging market inefficiencies in the financial system, such as over-exuberance within asset classes." Policy-makers must “lean against something that is making people feel good but is actually going to give them a hangover they will find difficult to cope with."
"China is reversing course on a major effort to tackle its hefty local government debt problem, marking a setback for a priority reform aimed at getting its financial house in order," WSJ reports. The abrupt about-face by Beijing, which will now allow local governments to once again tap shadow banking conduits for high interest loans, comes as the PBoC gets set to ramp up an LTRO-like program designed to essentially monetize trillions in local government debt. The interplay between the debt swap program, Chinese-style LTROs, and the decision to drop the ban on LGFV financing could set the stage for a dramatic increase in the country's already massive debt pile.
According to Fitch, nearly 40% of credit in China is outside bank loans, meaning that between forced roll-overs, the practice of carrying channel loans as "investments" and "receivables", inconsistent application of loan classification norms, and the dramatic increase in off balance sheet financing, the 'real' ratio of non-performing loans to total loans is likey far higher than the headline number.