Shadow Banking

BofA Notices Something Troubling: China's Debt Bubble Has Burst

We have noticed a sharp jump since mid-2015 in the total value of reported defaults of shadow banking products, defined here as non-bank-loan debt instruments that include bonds, trusts, and credit products offered by peer-to-peer (P2P) and various offline wealth management companies (WMCs).... The question is whether the government is closing the stable door after the horse has bolted. We suspect that the answer is yes.

Bizarro M&A: China's Most Innovative Capital Outflow Yet

The scale of China's outbound investment wave is so great that the value of deals announced in the third quarter of 2015 exceeded China's current-account surplus for the same period, according to data compiled by Bloomberg. That trick will be repeated in the current quarter, unless China puts in its best current-account performance since 2008. What is going on here? The answer is quite simple: following Beijing's ramp up in capital outflows, China has found a new and innovative way to export funds offshore.

P2P Property Lending Explodes In China; Officials Panic

“Funds used for down payments cannot be borrowed." You might think that what’s implied there is too bad to be true - even in the increasingly ludicrous world of P2P and marketplace lending. But in fact, P2P lenders in China have indeed been funding down payments on homes, embedding an enormous amount of excess leverage into the market while simultaneously driving up prices in Tier-1 cities.

Why Our Financial System Is Like The Titanic

The "unsinkable" global financial system is rushing headlong toward its encounter with the iceberg, while the passengers and crew remain supremely confident and unaware of the risks, risks that will only become "obvious" after the global financial system has broken in half and sunk to the bottom, destroying most of those who believed it unsinkable.

After January Scramble, Chinese Lending Collapses

After January's record-smashing CNY3.4 trillion (half a trillion dollars!) surge in aggregate credit expansion in China, the post-lunar-new-year hangover hit hard in February as credit growth tumbled 77% from Janaury's level to just CNY780 ($112bn). This is the weakest February loan growth since 2011. Drastically missing expectations, and following authorities comments on the need to "monitor" excess credit growth, all categories of total social finance registered a sharp drop... which as Goldman warns, means China's GDP growth target will be "challenging."

Do Any Of The Current Rallies Pass "The Sniff Test"? (Spoiler Alert: No!)

Everything from iron ore to copper to the Baltic Dry Index to stocks to bat guano is rallying. The problem is not a single rally passes "the sniff test:" is the rally the result of changing fundamentals, or is it merely short-covering and/or speculative hot money leaping from one rally to the next? Every one of these rallies is bogus, a travesty of a mockery of a sham of price discovery, supposedly the core function of markets. What shift in fundamentals drove this rally? Higher profits? No, profits are declining, especially once the phony adjustments are stripped away. Is the global economy strengthening? Don't make us laugh!

The "Terrifying Prospect" Of A Triumph Of Politics Over Economics

All of life’s odds aren’t 3:2, but that’s how you’re supposed to bet, or so they say. They are not saying that so much anymore, or saying that history rhymes, or that nothing’s new under the sun. More and more 'they's seem to be figuring out that past economic and market experiences can’t be extrapolated forward - a terrifying prospect for the social and political order.

China: A 5-Year Plan And 50 Million Jobs Lost

China never had an actual economic model or growth model. It simply printed an obscene amount of money, especially after 2008, and used it to build factories, 30-storey see-through apartment blocks and highways into nowhere cities, without giving much if any thought to where this would lead when their formerly rich western customers had less to spend on its ever increasing amount of ever more useless products. It was "to infinity and beyond" from the start, but that’s a line from a kids’ fantasy story, not a 5-year plan or an economic model.

Even "Flim-Flam Accounting" Can't Hide This Profitless Recession

If you think all this is a solid foundation for ever-higher profits, by all means go buy stocks with all four feet. But don't be surprised if the rest of the market disagrees at some point - for example, when even flim-flam accounting can't hide the fact that profits are in a free-fall back to "normal" levels 60% below current levels.

The Reason For Copper's Dramatic Surge: Chinese Copper Inventories Hit Record

In the aftermath of China's record credit creation spree, a question that emerged is what China is spending all this newly created money on. One answer emerged overnight when Bloomberg reported that after tumbling in the first half of 2015, copper inventories at the Shanghai Futures Exchange had been steadily rising, and in the most recent week soared by 11% to an all time high of 305,106 tons.

G-20 Needs To "Man Up" Or Risk Sparking Market Chaos, Citi Warns

“Keeping the previous language would be very disappointing and would be viewed as either complacent or reflecting policy paralysis. [They need to] man up and tell member countries that monetary policy should be accompanied by fiscal expansion.”