Just last month we highlighted how the collapse in China's shadow-banking system, it's concomittant credit crunch, and vicious circle of commodity-financed credit creation could spread contagiously to the rest of the world - through refusal to pay. It seems we were prophetic as Reuters confirms that money owed to Chinese firms by their customers has reached a record high. As China's economy continues to cool, companies are waiting longer and finding it harder to get paid for goods and services they've already sold, leading to record amounts of receivables - and potential write-offs - on corporate balance sheets. As one Chinese business owner exclaimed: "If you don't pay me and I pay others, aren't I just a sucker? I'm not that stupid." Receivables on average (across 2300 firms) reached $160.49 million at the end of last year, more than double the $65.9 million average at the end of 2009 and median collection time for billings crawled up from 71.4 days to 90.42 days (the first time above 90 days). "It's a pretty loud warning bell," warns a Peking professor.
Russia Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is "ready to handle the increased number of ruble-denominated transactions". According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.
- Vietnam mobs set fire to foreign factories in anti-China riots (Reuters)
- Recession-Baby Millennials Scarred by U.S. Downturn Spurn Stocks (BBG)
- U.S. Agents Start Hunting for Sanctioned Russians’ ‘Shiny Toys’ (BBG)
- Russia moves to oust US from International Space Station (FT)
- China Central Bank Calls for Faster Home Lending in Slump (BBG)
- Geithner Must Give S&P Documents in U.S. Fraud Suit (BBG)
- Samsung's 'crown prince' in focus as father hospitalized (Reuters)
- Yahoo buys mobile 'self-destruct' messaging app Blink only to shut it down (Reuters)
- Goldman’s Twitter banker joins hedge fund (FT)
- Keyword being "unexpectedly": Sony Unexpectedly Forecasts Loss Amid PC Restructuring Costs (BBG)
East Ukraine may be independent in a result which the Kremlin said it "respects" and hopes for a "civilized implementation" of the referendum results, and which assures further military escalation in the proxy war of east versus west, but stocks are happy to ignore it all again. The reason: a positive close over in Asia (ex-Japan) after China’s State Council pledged to reform markets buoyed demand for risk, although it really is just a follow through to the furious VIX slam in the last hour of US Friday trading, which said otherwise, means buying of US equities was the reason to buy US equities. More importantly and adding to the early spoo euphoria were comments by ECB's Nowotny who said that interest rate cut alone would likely be too little to combat low inflation - suggesting a European QE is coming - also acted as a catalyst for the latest uptick in stocks: when trapped like the ECB and when "guiding" to future activity, if unable to actually execute it, may as well go all the way. End result, Spoos up nearly 0.5% because, well, others are buying spoos.
And what's in it for you...
- Omnicom, Publicis call off proposed $35 billion merger (Reuters)
- Apple in talks for $3.2bn Beats deal (FT)
- Alibaba IPO Grew Out of ’80s Chaos and Guy From Goldman (BBG)
- Nigeria's president at WEF pledges to free kidnapped girls (Reuters)
- JPMorgan Joins Wells Fargo in Rolling Out Jumbo Offerings (BBG)
- It's 1999 all over again: Young Bankers Fed Up With 90-Hour Weeks Move to Startups (BBG)
- ECB stimulus talk knocks euro, peripheral yields (Reuters)
- Deutsche Bank Currency Crown Lost to Citigroup on Volatility (BBG)
- London Taxis Plan 10,000-Car Protest Against Uber App Use (BBG)
- Pfizer Holders Could Face Tax Hit in a Deal for AstraZeneca (WSJ)
Despite popular belief, very few things in our world are exactly what they seem. That which is painted as righteous is often evil. That which is painted as kind is often malicious. That which is painted as simple is often complex. That which is painted as complex often ends up being disturbingly two dimensional. Regardless, if a person is willing to look only at the immediate surface of a thing, he will never understand the content of the thing. This fact is nowhere more evident than in the growing “tensions” between the elites of the West and the elites of the East over the crisis in Ukraine. The centralization of power is best achieved during moments of bewildering calamity. The conjuring of crises is one of the oldest methods of elitist dominance. Not only can they confuse and frighten the masses into malleability, but they can also ride to the public’s rescue as heroes and saviors later on. The Hegelian dialectic is the mainstay of tyrants.
- Alibaba files for what may be biggest tech IPO (Reuters)
- Early Tap of 401(k) Replaces Homes as American Piggy Bank (BBG)
- Developers Turn Former Office Buildings Into High-End Apartments (WSJ)
- Thai court orders Yingluck Shinawatra to step down as PM (Guardian)
- German industry orders fell 2.8% in March, the biggest drop in one and a half years (RTE)
- Ukraine Bulls Scatter as Death Toll Mounts (BBG)
- China Property Slump Adds Danger to Local Finances (BBG)
- Stein Says Fed May See Bouts of Volatility as It Approaches Exit (BBG)
It seems "market conditions" are right for the big one...
ALIBABA FILES IPO INITIAL REGISTRATION $1B; ALIBABA HOLDER YAHOO BENEFICIALLY OWNS 22.6%
2013 EBITDA: $2.7 billion, 2013 Free Cash Flow: $3.2 billion; Pro Forma cash $7.9 billion
Here are some of the key details, formerly non-public, from its IPO filing...
Is Detroit destined to become a Chinese city? Chinese homebuyers and Chinese businesses are starting to flood into the Motor City, and the governor of Michigan is greatly encouraging this. In fact, he has formally asked the Obama administration for 50,000 special federal immigration visas to encourage even more immigration from China and elsewhere. So will Detroit be the first major city in the United States to be dominated by China? It could happen. Once upon a time, Detroit was the greatest manufacturing city in the history of the world and it had the highest per capita income in the entire country. But now it is a rotting, decaying, bankrupt hellhole that is in desperate need of a savior, and Michigan Governor Rick Snyder appears to be fully convinced that China can be that savior.
- Fed’s Fisher Says Economy Strengthening as Payrolls Rise (BBG)
- Russia Knows Europe Sanctions Ineffective With Tax Havens (BBG)
- EU Cuts Euro-Area Growth Outlook as Inflation Seen Slower (BBG)
- U.S. Firms With Irish Addresses Get Tax Breaks Derided as ‘Blarney’ (BBG)
- Portugal exits bailout without safety net of credit line (Euronews)
- Puzzled Malaysian Air Searchers Ponder What to Try Now (BBG)
- Barclays, Credit Suisse Battle Banker Exodus, Legal Woes (BBG)
- Germany says euro level not an issue for politicians (Reuters)
- Alibaba-Sized Hole Blown in Nasdaq 100 Amid New Stock (BBG)
- Obamacare to save large corporations hundreds of billions (The Hill)
Simply put, there are three downside risks for markets - that appear to be off the 'meme of the day' beaten track of any average investor nowadays eyeing the record highs and gloating at any bear left standing:
1) China has shifted from a monetary policy of choice to a monetary policy of necessity.
2) The Narrative of Fed Omnipotence continues to reign supreme, but now in a tightening monetary policy environment.
3) The Hollow Market is cracked open by well-intentioned but destructive regulators.
Too long to read? Attention Deficit Disorder let you down...? Read!
Of the economic reports and events in the week ahead, we identify four potential drivers and emphasize one--the ECB meeting.
China is a case of bastardized socialism on credit steroids. At the turn of century it had $1 trillion of credit market debt outstanding—-a figure which has now soared to $25 trillion. The plain fact is that no economic system can remain stable and sustainable after undergoing a 25X debt expansion in a mere 14 years.
After widening its tolerance for real world volatility mid-March, the PBOC has faced a daily battering of USD buyers and CNY sellers which have driven the Chinese currency to its weakest level in over 18 months. However, things are starting to become problematic... while call buying and hedging is exploding - as carry traders and local specs rush to cover exposures, Bloomberg notes that Morgan Stanley fears as the yuan approaches the lower end of PBOC’s permissible daily trading range, anticipated intervention to defend band could put other currencies under selling pressure. The last time - Summer 2012 - that the PBOC defended its currency, EUR came under selling pressure but as Morgan Stanley notes, “In the very unlikely case” of PBOC not defending band, FX volatility would surge globally with implications going beyond RMB as markets would assume China’s economic problems might be significant... whocouldanode?