A funny thing happened in China in July. Ever so quietly, and with little aplomb, the PBOC unleashed CNY 1 trillion of 'Pledged Supplementary Lending' (PSL) to China Development Bank - later dubbed "QE-Lite." Economic indicators temporarily blipped higher, a new recovery was proclaimed by the masses, and the world fell back into its stupor... despite the post-credit-impulse hangover which has seen Chinese data collapse in the last 2 months. But that did not stop speculators... tired of betting on Chinese real estate (which never goes down), the 'signal' of QE has sparked a stunning 41% surge in Chinese stocks since PSL. However, this exuberant resurgence (+4.3% last night alone) rests on shaky foundations as margin trading balances have more than doubled during this period...
While we have covered the aberration that is a negative gold GOFO rate previously and in extensive detail in this post, an abridged version of what negative GOFO means comes courtesy of Deutsche Bank's recent discussion on what a successful Swiss gold referendum. To wit: "It is interesting to note that benchmark gold-dollar swap rates have recently traded negative, meaning investors are paying to borrow gold. This is unusual as gold is traditionally used as a source of collateral for cash financing.... [A] number of factors may play a role, such as excess dollar liquidity or an increased demand for collateral on the back of the global regulatory developments." In short a gold shortage at the institutional, read commercial and central bank, level. And not just a shortage but the biggest shortage in history, judging by today's latest plunge in the 1 Month GOFO which just dropped to -0.5% and , worse, 1 Year GOFO that just hit its lowest print in the 21st century, and is also about to go negative: something that has never happened before further suggesting the gold shortage could go on for a long, long time!
Fear Of "Surge In Debt Defaults, Business Failures And Job Losses" Means Many More Chinese Rate CutsSubmitted by Tyler Durden on 11/23/2014 11:40 -0400
The PBOC, which cut rates for the first time in two years on Friday, will have its work cut out for it. And in the worst tradition of "developed world" banks, Beijing will now have no choice but to double down on the very same bad policies that got it into its current unstable equilibrium, and proceeds with a full-blown policy flip-flop, leading to a full easing cycle that reignites the bad-debt surge once more. And sure enough, today Reuters reports citing "unnamed sources involved in policy-making" (supposedly different sources than the unnamed sources Reuters uses to float trial balloons used by the ECB and the BOJ), that "China's leadership and central bank are ready to cut interest rates again and also loosen lending restrictions" due to concerns deflation "could trigger a surge in debt defaults, business failures and job losses, said sources involved in policy-making." In other words, China has once again looked into the abyss once... and decided to dig a little more.
The look at the drivers of next week, without using the word manipulation or conspiracy, or referring to how stupid or evil some people may or may not be.
"The situation has become so bad... that a middle-aged investor, fearing that a local developer wouldn’t be able to make his promised interest payments, threatened to commit suicide in dramatic fashion last summer. After hearing similar stories of desperation, city officials reminded residents that it is illegal to jump off the tops of buildings."
Contrary to the death of the dollar chatter, the US currency continues to appreciate. Here's why there is still punch left in the bowl.
Economists, Military Strategists and Others Warned Us … Long Ago
What is the main culprit for the contraction in China's all important credit formation? In two words: shadow banking. As Bank of America summarizes "shadow banking is being tamed" because "the changing structure of TSF suggests that Beijing’s efforts in controlling some types of shadow banking have made some achievements. Two major drivers for the steep decline of TSF from Sept to Oct were the falling of non-discounted bills (down RMB241bn) and falling trust loans (down RMB22bn). By contrast, new corporate bonds were at RMB242bn, a sharp rise from RMB151bn in Sept." In other words, China's shadow banking not only ground to a halt, it actually continued moving in reverse!
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.
It could soon trigger the burst of the world's largest bubble
The Slaughter Continues: Hedge Funds Tumble In October, Turn Negative For 2014 Despite Central Bank SticksaveSubmitted by Tyler Durden on 11/03/2014 14:19 -0400
Another month, and year, another confirmation that under a centrally-planned Central Banking put regime, there is simply no need for the 2 and 20 industry.
"Perhaps sooner rather than later, investors must recognize that modern day inflation, while a necessary condition for survival, is not a sufficient condition for increasing wealth at a rate necessary to satisfy future liabilities associated with education, health care, and a satisfactory retirement. The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side – from the dreaded government side – where deficits are anathema and balanced budgets are increasingly in vogue. Until then, deflation remains a growing possibility – not the kind that creates prosperity but the kind that’s the trouble for prosperity."
As faces are filled with chocolate on All Hallow's Eve, we thought this evening's reading list should maintain the focus of "scary" ponderances now that the Federal Reserve has ended their latest monetary iterations.
We are not exactly sure which is scarier: that total financial assets amount to about 500% of world GDP or that about $75 trillion in financial leverage is just sitting there, completely unregulated and designed with one purpose in mind: to make billionaires into trillionaires (with taxpayers footing the bill of their failure).
Whocouldanode? Chinese GDP managed (thanks to record-breaking credit creation and QE-lite) to beat expectations of +7.2% and come in at +7.3% (still its slowest growth since April 2009). Notably this was the biggest decoupling from Bloomberg's high-frequency economic data forecast (i.e. real data) since May 2010. Despite weakness in Cement and Steel output, Industrial Production also managed to beat and actually improve (another miracle). Retail Sales missed expectations, rose only 11.6% YoY - its weakest since Feb 2006. Initial kneejerk is a lift in USDJPY, AUDJPY, TSY yields, and S&P and NKY futures... but that has now faded...