The last time global equity markets were falling at this pace (on a growth scare) was the fall of 2011. That time, after a big push lower, November saw a mass co-ordinated easing by central banks to save the world... stock jumped, the global economy spurted into action briefly, and all was well. This time, it's different. The Fed is tapering (and the hurdle to change course is high), the ECB balance sheet is shrinking (and there's nothing but promises), the PBOC tonight said "anyone anticipating additional stimulus would be disappointed," and then the BoJ failed to increase their already-ridiculous QE (ETF purchase) programs. The JPY is strengthening, Asian and US stocks are dropping, CNY is weakening, and gold rising.
Remember CDOs? Murky, illiquid investments, backed by bulge-bracket firms that offered lots of yield over similar-rated corporates - just don't ask questions. As SCMP's Shirley Yam reports, China's so-called "trust" products, promise high returns with big-name backing, but a scheme touted at Ping An Bank highlights just how murky the world of mainland investment offerings is. After reading this, we suspect, that last trace of faith that the PBOC has the Chinese shadow banking system under control (and a growth renaissance is due any moment) will be eviscerated.
"Whatever it takes," appears to have become the new mantra across global financial systems and with Chinese shadow banks under increasing pressure (as cash-for-commodity deal financing dries up and "hedge" losses mount on 'surprise' Yuan weakness), property developers are increasingly desperate for liquidity. The solution, as The FT reports, Chinese property companies are buying stakes in banks and raising fears that the country’s already stretched developers are trying to cosy up to their lenders. 10 Chinese developers, who have been active in recent bank IPOs, have invested an 'unprecedented' $3bn in their potential lifeline lenders.
Dr Faber discussed the importance of not owning gold stored in the U.S., the mystery of the Fed gold, why Singapore is safest for gold storage, the risks of bitcoin and how small countries should revert to national currencies. The must watch interview can be watched here ...
China is coming under close scrutiny these days, as the leadership scurries to find new sources of economic growth and control its debt. Some analysts have reassured China watchers that the Chinese government can simply write off its bad debt, at least within the major banks, and pass it on to the asset management companies that handle that resale of distressed debt (or have it later purchased by the Ministry of Finance). Others have warned that some of the debt is serious, such as that incurred by local government financing vehicles, and are dubious about the sustainability of these entities. To worry or unwind? How much debt can China really absorb?
China General Says "War With Japan Increasingly Likely" As Russia Conducts New Army Drill Near Latvia, EstoniaSubmitted by Tyler Durden on 04/03/2014 17:02 -0400
Just in case escalating tensions along Russia's western border - and one can be certain Estonia and Latvia will scream bloody murder any second - here is a retired Chinese general who just told SCMP that a "war with Japan over territorial disputes is becoming increasingly likely" and that China is more than capable of defending itself.
- Russia says expects answers on NATO troops in eastern Europe (Reuters)
- Dealers say GM customer anxiety rising, sales may take hit (Reuters)
- China Unveils Mini-Stimulus Measure (WSJ)
- Londoners Priced Out of Housing Blame Foreigners (BBG)
- New earthquake in Chile prompts tsunami alerts (Reuters)
- Ukrainian Billionaire Charged by U.S. With Bribe Scheme (BBG)
- Chinese Investments in U.S. Commercial Real Estate Surges (BBG)
- Old Math Casts Doubt on Accuracy of Oil Reserve Estimates (BBG)
- US secretly created 'Cuban Twitter' to stir unrest (AP)
For the 4th month in a row, China's composite PMI fell (with new orders tumbling) - this time to the lowest levels since Nov 2011 and firmly in contractionary territory. However, in the exact antithesis of the manufacturing PMI data, tonight's non-manufacturing data saw the official government data miss expectations and drop (manufacturing rose) while HSBC's services PMI rose (HSBC's manufacturing dropped). This was enough (along with an Aussie retail data miss) to send AUDJPY into conniptions jerking lower then higher then lower as the algos just could not comprehend the levels of absurdity that was flooding their valves. Japanese PMI strolled along in its neither here nor there zone and Aussie PMI tumbled back into contraction after one month of exuberance. In the famous words of Frank Valli, oh what a night.
Spot what is missing in the just blasted headline from Bloomberg:
IRAN, RUSSIA SAID TO SEAL $20B OIL-FOR-GOODS DEAL: REUTERS
If you said the complete absence of US Dollars anywhere in the funds flow you are correct. Which is precisely what we have been warning would happen the more the West and/or JPMorgan pushed Russia into a USD-free corner.
Though the mainstream financial media and the blogosphere differ radically on their forecasts - the MFM sees near-zero systemic risk while the alternative media sees a critical confluence of it - they agree on one thing: the Federal Reserve and the “too big to fail” (TBTF) Wall Street banks have their hands on the political and financial tiller of the nation, and nothing will dislodge their dominance. In addition, the U.S. dollar’s status as a reserve currency is a key component of U.S. global dominance. Were the dollar to be devalued by Fed/Wall Street policies to the point that it lost its reserve status, the damage to American influence and wealth would be irreversible. What if there is another possibility to the consensus view that the Fed/Wall Street will continue to issue credit and currency with abandon until the inevitable consequence occurs, i.e. the dollar is devalued and loses its reserve status. What if Wall Street’s power has peaked and is about to be challenged by forces that it has never faced before. Put another way, the power of Wall Street has reached a systemic extreme where a decline or reversal is inevitable.
One way to understand why the global financial meltdown occurred in 2008 and not in 2012 is all the oxygen in the room had been consumed. In the U.S. housing market, there was nobody left to buy an overpriced house with a no-document liar loan because everyone who was qualified to buy a McMansion in the middle of nowhere had already bought three and everyone who wasn't qualified had purchased a McMansion to flip with a liar loan. Once the pool of credulous buyers evaporated, the dominoes fell, eventually circling the globe. Right now China is at the top of the S-Curve, and the problems of stagnation are still ahead.
It didn't take long for Russia to launch the first retaliatory salvo against the unexpected JPMorgan "act of aggression." Moments ago Bloomberg just reported that Sberbank, the largest bank in Russia and all of Eastern Europe, just halted the issuance of consumer loans in foreign currency. Bloomberg adds that "Sberbank, Russia’s biggest lender, holds 43.3% of nation’s consumer deposits, 32.7% of consumer loans and 32.1% of corporate loans."
While everyone was gushing over the spectacle on TV of a pro-HFT guy and anti-HFT guy go at it, yesterday afternoon we reported what was by far the most important news of the day, one which was lost on virtually everyone if only until this morning, when we reported that "Monetary Blockade Of Russia Begins: JPMorgan Blocks Russian Money Transfer "Under Pretext" Of Sanctions." This morning the story has finally blown up to front page status, which it deserves, where it currently graces the FT with "Russian threat to retaliate over JPMorgan block." And unlike previous responses to Russian sanctions by the West, which were largely taken as a joke by the Russian establishment, this time Russia is furious: according to Bloomberg, the Russian foreign ministry described the JPM decision as "illegal and absurd." And as Ukraine found out last month, you don't want Russia angry.
Monetary Blockade Of Russia Begins: JPMorgan Blocks Russian Money Transfer "Under Pretext" Of SanctionsSubmitted by Tyler Durden on 04/01/2014 14:56 -0400
JP Morgan blocked money transfer from #Russia diplomatic mission in Kazakhstan "under pretext" of sanctions, says Foreign Ministry
— Thomas Grove (@tggrove) April 1, 2014
In the middle of 2012, to much yield chasing fanfare, China launched a private-placement market for high-yield bonds focusing on China's small and medium companies, that in a liquidity glutted world promptly found a bevy of willing buyers, mostly using other people's money. Less than two years later, the first of many pipers has come demanding payment, when overnight Xuzhou Zhongsen Tonghao New Board Co., a privately held Chinese building materials company, failed to pay interest on high-yield bonds, according to the 21st Century Business Herald.