The dragon tail of Marx's end-game of overcapacity and finance capital is about to shred China's fantasy that the state can micro-manage both capitalism and financialization with no contradictions or consequences. "Dragon Seeks path. Dragon whips his tail." The dragon of capitalism isn't as easy to control as bureaucrats expect.
The nebulous threat of NIRP in the US "some time in the future" became tangible after J.P. Morgan Chase, the largest US bank by assets (and second largest in the US by total derivative notional) is preparing to charge large institutional customers for some deposits. WSJ adds that JPM "is aiming to reduce the affected deposits by billions of dollars, with a focus on bringing the number down this year. "The moves have thrown into question a cornerstone of banking, in which deposits have been seen as one of the industry’s most attractive forms of funding."
Like spirits, debt and risk make for a great party but a terrible hangover...
While the world's attention is glued to events in Greece, the real action continues to evolve quietly thousands of kilometers east, in China, where the near record surge in new loans remains unable to offset the dramatic slowdown in shadow banking issuance. And while China's bubble-chasing, animal spirits have recently reoriented themselves from real estate to the stock market, it is the real estate that holds the bulk of China's wealth. The problem here is that as China reported overnight, new-home prices in the world's most populous country just recorded their biggest annual decline ever!
China's January credit data hints that in some ways China is becoming like the US, and as ever more newly created credit money ends up in the stock market, is China about to follow the US and Europe and suffer a collapse in monetary velocity. Because whereas previously the biggest asset bubble in China was that of housing, now it is the stock market, which means that suddenly its monetary system is for all intents and purposes haunted by the same issues that affect western markets. So how long until China, too, which is battling both deflation and economic contraction, proceeds with outright monetary devaluation?
- Methodology change sees Indian economy grow faster than China's (Reuters)
- Can Greek Businesses Even Survive? (WSJ)
- Putin to travel to Minsk talks raising hopes of a deal over Ukraine (Euronews)
- Ukraine contact group representatives deny ceasefire deal in Minsk (Reuters)
- Moar buybacks! Hedge Fund-Backed Investor Puts Himself Up for G.M. Board (NYT)
- Ukraine peace summit overshadowed by some of war's worst fighting (Reuters)
- Time for non-non-GAAP excluding China: Tesla CEO threatens firings after dismal China sales - sources (Reuters)
- Jon Stewart leaving Comedy Central's 'The Daily Show' (Reuters)
Greece’s problem can only be truly solved if large scale debt restructuring is accepted and executed. But that would initiate a chain of events that would bring down the bloated zombie that is Wall Street. And it just so happens that this zombie rules the planet. We are all addicted to the zombie. It allows us to fool ourselves into thinking we are doing well – well, sort of -, but the longer term implications of that behavior will be devastating. We’re all going to be Greece, that’s inevitable. It’s not some maybe thing. The only thing that keeps us from realizing that is that the big media outlets have become part of the same industry that Wall Street, and the governments it controls, have full control over. And that in turn says something about the importance of what Yanis Varoufakis and Syriza are trying to accomplish. They’re taking the battle to the finance empire. And it should not be a lonely fight. Because if the international Wall Street banks succeed in Greece, some theater eerily uncomfortably near you will be next. That is cast in stone.
Needless to say, Greece is only the poster child. The McKinsey numbers above suggest that “peak debt” is becoming a universal condition, and that today’s Keynesian central bankers and policy apparatchiks are only pushing on a giant and dangerous global string. So now we get to ground zero of the global Ponzi. That is the monumental pile of construction and debt that is otherwise known on Wall Street as the miracle of “red capitalism”. In truth, however, China is not an economic miracle at all; its just a case of the above abandoned Athens stadium writ large.
Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, as McKinsey explains in their latest report, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. They pinpoint three areas of emerging risk: the rise of government debt, which in some countries has reached such high levels that new ways will be needed to reduce it; the continued rise in household debt; and the quadrupling of China’s debt, fueled by real estate and shadow banking, in just seven years... that pose new risks to financial stability and may undermine global economic growth.
We won't go into the specific details of China's burst housing bubble, the shady underworld of its pyramid scheme wealth-management products, the fact that any hard asset in China is rehypothecated literally a countless number of times, the nuances of its deflating shadow banking system, or even the complexities of its alleged capital controls (alleged, because as a reminder, they only exist for the common folks - the really wealthy Chinese are naturally exempt from any capital flow constraints). We will point out something even more disturbing. The Offshore Yuan just hit a two-year low, reaching a level not seen since September 2012.
Today's Brazilian economic data follows up quite well to our article from a month ago "Brazil's Economy Just Imploded" and as the earlier article on the crashing Brazilian Real hinted, things for the Brazilian economy how gone from imploding to, well, worse because not only did the twin fiscal and current account deficits rise even more, hitting a whopping 11% of GDP - the worst since August 1999, but its government debt soared to 63.4% in 2014, up from 56.7% a year ago, and the highest since at least 2006. In short - the entire economy is now on the verge of total collapse.
While the rest of the developed world, flooded with re-exported deflation as a result of now ubiquitous money printing, scrambles to print even more money in hopes of stimulating the economy when all it is doing is accelerating a closed deflationary loop (at least until the infamous monetary helicopter drop), China - which still has the most centrally-planned economy in the world even if the US is rapidly catching up - has a more novel way of dealing with the threat of deflation: a massive wage hike across the board for all public workers. Two days ago, at a press conference, the Chinese vice minister of human resources and social security Hu Xiaoyi said that China’s 39 million civil servants and public workers will get a pay raise of at least 60% of their base salaries as part of pension plan overhaul.
Market Wrap: "It's Turmoil" - Overnight Gains Wiped Out, Futures Trade Below 2000 On SNB "Shock And Awe"Submitted by Tyler Durden on 01/15/2015 06:56 -0500
To paraphrase a trader who walked into the biggest FX clusterfuck in years, "it's total, unprecedented market turmoil." So while the world gets a grip on what today's historic move by the SNB means, which judging by the record 13% collapse in the Swiss Stock Market shows clearly that the SNB market put is dead and the SNB may be the first central-banking hedge fund which just folded (we can't wait to see what the SNB P&L losses on its EURCHF holdings will be), here is what has happened so far for anyone unlucky enough to be walking into the carnage some 2 hours late.
Today's prime time event hasn't even arrived, that would be the European Court of Justice (ECJ) delivering its final opinion on the legality of the ECB’s previously announced OMT program, in less than an hour, and already the fireworks have begun, most notably out of Asia where after yesterday's epic commodity drubbing many were caught with their pants down and margin calls up, and what followed was a classic liquidation puke, when Copper prices crashed over 8% on the LME, to fresh 5 year lows and below USD 5,500/T in London.
... things like a 50%+ drop in oil prices happen. Which at some point will lead more people to wonder what the real numbers are. For emerging nations, those numbers will not be pretty for 2015. They’re going to feel like they’re being thrown right back into the Stone Age. And they’re not going to like that one bit, and look for ways to express their frustration. Volatility is not just on the rise in the world of finance. It also is in the real world that finance fails to reflect. At some point, the two will meet again, and Wall Street will mirror Main Street. It will make neither any happier. But it’ll be honest.