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China's Credit Pipeline Slams Shut: Companies Scramble For The Last Drops Of Liquidity

Tyler Durden's picture


One of our favorite charts summarizing perfectly the Chinese credit bubble, better than any other, is the following which compares bank asset (i.e., loan) creation in China vs the US.


It goes without saying that while the blue line has troubles of its own (namely finding the proper rate of liquidity lubrication to keep over $600 trillion in derivatives from collapsing into an epic gross=net garbage heap), it is the red one, that of China, where $1 trillion in credit was created in the fourth quarter alone, that is clearly unsustainable for the simple reasons that i) China will quickly run out of encumbrable assets and ii) the bad, non-performing loan accumulation has hit an exponential phase, which incidentally is why Beijing is scrambling to slow down the "flow" from the current unprecedented pace of $3.5 trillion per year.

It is also because of this wanton and mindblowing capital misallocation (the de novo created debt goes not into profitable, cash flow generating ventures, but into fixed asset investments which create zero and potentially negative cash flow, due to China's already epic overinvestment resulting in ghost cities, and building that fall down weeks after their erection) that China has finally decided to provide lenders with the other much needed component of the return equation: risk. This, in the form of debt defaults, something unheard of in China for two decades.

Which brings us to today, when we find that China's credit formation, until now proceeding at a breakneck speed, has suddenly ground to a halt. Reuters explains:

Some of China's struggling firms are finally getting the reception that regulators have been hoping for - a cold shoulder from banks in the form of smaller and costlier loans.


Reuters has contacted over 80 companies with elevated debt ratios or problems with overcapacity. Interviews with 15 that agreed to discuss their funding showed that more discriminate lending, long a missing ingredient of China's economic transformation, has become a reality.


Up against a cooling Chinese economy and signs that authorities will not step in every time a loan goes bad, banks are becoming more hard-nosed and selective about whom they lend to.




For household goods maker Elec-Tech International Co Ltd (002005.SZ), less credit is the new reality. Its bank cut its borrowing limit by 500 million yuan ($80.79 million) to no more than 2.5 billion yuan this year, said Zhang, an official at Elec-Tech's securities department.


"Last year, the bank gave us a discount on our interest rates. This year, we probably won't get any discount," Zhang who declined to give his full name said. "It feels like banks are not lending and their checks are becoming more rigorous."




There are signs that even state-owned firms, in the past fawned over by lenders for their government connections, have to contend with higher rates, lower lending limits and more onerous checks by banks.


"Interest rates are going up 10 percent for the entire industry," said Wang Lei, a finance department manager at PKU HealthCare Corp. "Obtaining loans is getting difficult and expensive."

Here's why PKU Healthcare will likely be among the first to experience what happens when the liquidity runs out:

PKU HealthCare, which is controlled by Peking University and makes bulk pharmaceuticals, has struggled to remain profitable. Its debt-to-EBITDA (earnings before interest, tax, depreciation and amortization) ratio exceeded 60 at the end of September, four times the average for listed Chinese companies from the sector.

That's the kind of leverage that not even Jefferies would sign a "highly confident letter" it can raise a B2/B- debt deal at 10% or less. It is also a huge problem for Chinese corporates which suddenly realize they have just a tad too much debt on their books.

Some gauges of China's corporate debt are already flashing red. Non-financial firms' debt jumped to 134 percent of China's GDP in 2012 from 103 percent in 2007, according to Standard & Poor's. 


It predicted China's corporate debt will reach "stratospheric levels" and become the world's largest, overtaking the United States this year or next.


Fearing a wave of defaults as China's economy cools after decades of rapid growth, regulators in the past two years told banks to cut off financing to sectors plagued by excess capacity such as steel and cement. 


Experts say banks were at first slow to respond, but in the past few months, banks have started turning down credit taps.


"We have become more prudent in issuing loans," said a spokesman for Bank of Ningbo. He added that the bank has intensified communication with companies in troubled sectors or borrowers deep in debt.


"Under normal circumstances, we would review company loans every quarter or every six months, but for the sensitive cases, we will step up channel checks and work closely with the companies."


Another manager at a regional Chinese bank said it was overhauling its lending in cities identified as high-risk, such as Urdos and Wenzhou. Located in Inner Mongolia, Urdos is infamous for its clusters of empty apartment blocks that pessimists say is an emblem of China's housing bubble. Wenzhou, is China's entrepreneurial hotbed that recently lost its shine after local property boom went bust.

So with increasingly more uber-levered companies suddenly blacklisted by the banks, what do they do? Why go to the shadow banking system for last ditch liquidity of course, where it will cost them orders of magnitude more to stay viable for a few more weeks or months.

Ss companies bend the rules, risks shift outside the banking system into the universe of networks of seemingly unrelated firms connected by murky financial deals. For example, trade loans subsidized by the government to help selected sectors are quietly re-directed by companies to other unrelated businesses, firms say. New financing methods also emerge as easy credit dries up. 


The latest plan hatched by a cash-strapped aluminum end-user involves having banks buy the metal and re-selling it to firms who pay out monthly loan plus interest.

How do you spell re-re-rehypothecation again... while selling the collateral.... again? Remember this: it really does explain all one needs to know about China.

"The local government has intervened, fearing social unrest. A local buyer of a unit in the office building committed suicide as he/she could not obtain the title to the property due to the title dispute between the trust and the developer."

Anyway, continuing:

Others such as Xiamen C&D Inc, an import and export firm, are directly cashing in on firms' thirst for funds. Xiamen C&D, which borrows at less than 6 percent per year is offering loans of several hundred thousand yuan to smaller firms at 7-8 percent, said Lin Mao, the secretary of Xiamen's board of directors.


For larger companies, typical loans amount to 20-30 million yuan, and are 90 percent insured by Chinese insurers, he said.


Banks grow more aware of the risks. But rather than pull the plug on teetering firms, some bankers say they prefer a slow exit to keep them afloat for as long as possible to claw back their loans.

Unfortunately, for most the can kicking is now over. Which brings us to the second part of this story - China's housing bubble, and specifically how its foundations - China's own property developer firms - just imploded as a result of all the above. Also from Reuters:

China's property developers are turning to commercial mortgage-backed securities and looking at other alternative financing as creditors grow more discriminating in the face of rising concerns about the country's real estate and debt markets. 


Bond buyers are shying away from second-tier developers because property sales have cooled as the economy slows. The expected bankruptcy of a local developer and the country's first domestic bond default this month have heightened scrutiny of borrowers.


The property companies have a renewed sense of urgency to raise capital after U.S. Federal Reserve Chairman Janet Yellen indicated the central bank, which sets the tone globally for borrowing costs, may raise interest rates as early as the spring of 2015, sooner than many investors had anticipated. Higher rates mean higher borrowing costs, both for the companies and for their home-buying customers. 


Highlighting the search for alternative funding avenues, property fund MWREF Ltd earlier this month issued the first cross-border offering of commercial mortgage-backed securities (CMBS) since 2006. The offer was priced at a yield lower than two dollar bonds issued last week, IFR, a Thomson Reuters publication, said.


"The market will see more of these products," said Kim Eng Securities analyst Philip Tse in Hong Kong. "It's getting harder to borrow with liquidity so tight in the bond market. It's getting harder for smaller companies to issue high-yield bonds."


The notes, issued through a MWREF subsidiary, Dynasty Property Investment, were ultimately backed by rental income from nine MWREF shopping malls in China and were structured to give offshore investors higher creditor status than is normally the case with foreign investors. MWREF is managed by Australian investment bank Macquarie Group Ltd, which declined to comment.


Beijing Capital was the first Hong Kong-listed developer to issue dollar senior perpetual capital securities last year, an equity-like security that does not dilute existing shareholders.


"As market liquidity is changing constantly, we have to keep adapting and exploring different funding channels," said Bryan Feng, the head of investor relations.


Chinese regulators last week allowed developers Tianjin Tianbao Infrastructure Co. and Join.In Holding Co. to offer a private placement of shares, opening up a fund raising avenue that had been closed for nearly four years.


New rules were also unveiled last week allowing certain companies to issue preferred shares, including companies that use proceeds to acquire rivals.


"As liquidity tightens and developers see more pressure...they may consider M&A via preferred shares," said Macquarie analyst David Ng.

CMBS, senior perpetuals, preferreds: what is the common theme? This is last ditch capital, far more dilutive of equity, and one which always appears just before the final can kick. As such, it means that the credit game in China is over. And now the only question is how long before the market realizes the jig is up.

Some already have. As we reported last week, "Cash-strapped Chinese are scrambling to sell their luxury homes in Hong Kong, and some are knocking up to a fifth off the price for a quick sale, as a liquidity crunch looms on the mainland."

In other words, those who sense which way the wind is blowing have already entered liquidation mode. Because they know that those who sell first, sell best. Soon everyone else will follow in their shoes, unfortunately they will be selling into a bidless market.

Until then, we will greatly enjoy as finally, after many years of delays, the dominoes start falling.

As of March 15, Chinese developers had issued 15 U.S. dollar bonds raising $7.1 billion so far this year, compared with 23 issues that raised $8.1 billion in the year-earlier period. "That said, quite a number of developers have demonstrated the ability to access alternative markets, such as the offshore syndicated loan markets as another means of raising capital," said Swee Ching Lim, Singapore-based credit analyst with Western Asset Management.


Offshore syndicated loans for Chinese developers have reached $1.17 billion so far in 2014, compared with $9.8 billion for all of last year, Thomson Reuters LPC data shows. Demonstrating the change in investor sentiment, bonds issued by Kaisa Group in January with a yield of 8.58 percent are now yielding 9.5 percent. The company did not immediately respond to a request for comment.


Times Property issued a 5-year bond this month, not callable for 3 years, to yield 12.825 percent. A similar instrument from China Aoyuan Property in January was priced at 11.45 percent. Both Kaisa and Times are in the B-rating "junk" category, which is four notches above a default rating.


Property prices on the whole are still rising, but there are signs of stress in second and third tier cities. Early indications of property sales in March, traditionally a high season, were not promising, although final figures for the month would not be available until April, said Agnes Wong, property analyst with Nomura in Hong Kong. That may mean developers have to cut prices and investor sentiment may worsen.


"This is hurting the cash flows of the smaller players," she said.


The market stresses ultimately could lead to the reshaping of the property development sector, said Kenneth Hoi, chief executive of Powerlong Real Estate Holdings Ltd (1238.HK), a mid-sized commercial developer.


"In the future, only the top 50 will be able to survive," he said during a briefing on the company's earnings on March 13. "Many small ones will exit from the market."

The fun is about to start.


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Wed, 03/26/2014 - 21:27 | 4596804 New_Meat
New_Meat's picture

don't cha' know ;-)

- Ned

Wed, 03/26/2014 - 21:34 | 4596836 nmewn
nmewn's picture

Communists never lie!

Wed, 03/26/2014 - 21:35 | 4596840 Mark Carney
Mark Carney's picture

Everything is fine

Wed, 03/26/2014 - 21:37 | 4596844 bania
bania's picture

hey, mine falls down minutes after erection, give 'em a break!

Wed, 03/26/2014 - 21:42 | 4596865 kliguy38
kliguy38's picture

watch for this weekend.......should be a real scramble for a chair....lotta muppets are gonna be cryin' monday morning

Wed, 03/26/2014 - 21:43 | 4596872 Caviar Emptor
Caviar Emptor's picture

Number One Domino falling down go boom

Wed, 03/26/2014 - 21:54 | 4596913 fockuyu
fockuyu's picture

Horry fock!
Fockuyu Johnny Yellin!
Save China!!!

Wed, 03/26/2014 - 21:59 | 4596933 TheFourthStooge-ing
TheFourthStooge-ing's picture


Horry fock!
Fockuyu Johnny Yellin!
Save China!!!

That is indeed the song sung by Chinese citizenism citizens.

The extorter sacrifices himself for the good of the extorted.

Wed, 03/26/2014 - 22:08 | 4596967 THX 1178
THX 1178's picture

finally! got dang!

Wed, 03/26/2014 - 23:50 | 4597290 linniepar
linniepar's picture

Bubblez, bitchez!

Thu, 03/27/2014 - 00:34 | 4597393 wee-weed up
wee-weed up's picture

Kiss it good-by, ChicCom bastards!

Thu, 03/27/2014 - 01:42 | 4597511 TruthInSunshine
TruthInSunshine's picture

I was remiss in not mentioning that a BIG reason that interest rates in China are rising fast & furious, and will rise faster and furiouser, is because the Chinese central authorities WANT TO DO WHAT THEY CAN TO STEM CAPITAL OUTFLOWS -

- this is the world as The Bernanke has left it; confused, shattered, schizophrenic.

Thu, 03/27/2014 - 05:38 | 4597664 Supernova Born
Supernova Born's picture

Nature and/or human history has yet to demonstrate a downside to parasitism.


Thu, 03/27/2014 - 06:57 | 4597746 new game
new game's picture

hey chi comm, call abe! print a city so 1.3 billion don't get restless-3 billion too many people, people...

3d print an ak, 3d print some food, print a printer= all good, all an illusion til it is not...

Thu, 03/27/2014 - 08:01 | 4597848 dontgoforit
dontgoforit's picture

The Implosion Heard 'Round the World.

Thu, 03/27/2014 - 09:46 | 4598145 SamAdams
SamAdams's picture

Raising rates?  Not printing?  That will contain the damage to China.  If they printed and put rates at Zero, it would crash the US stock market as the relative dollar would deflate.  So, can they adequately contain?  This might help offset Yellen's taper.  Hmmm, almost seems orchestrated...  Maybe that's why China's Economic Minister said with complete confidence that Yellen will taper in 6 mos?  Perhaps why Soros has taken such a large short position (he's on the inside and plays based on currency expectations).

Thu, 03/27/2014 - 09:04 | 4598030 general ambivalent
general ambivalent's picture

I 3D print the forest for hunting, oil to deep fry everything and then a surgeon for when I get sick. 3D printing is the handy economist's secret weapon.

Wed, 03/26/2014 - 22:06 | 4596958 NoDebt
NoDebt's picture

Eventually, these Chi-coms are going to wise up and realize that liquidity merely needs to be pointed in the proper direction, as trail-blazed by The Fed:  Into their stock market.

Wed, 03/26/2014 - 22:38 | 4597082 Wahooo
Wahooo's picture

Just pulled up the FXI chart. Doesn't look like their stock market has taken much of a hit over it. Pretty flat over the last 5 years. With all the doom and gloom, I was expecting that thing to be tanking, pennies on the dollar.

Thu, 03/27/2014 - 07:02 | 4597754 new game
new game's picture

futures up, gold down, makes total credit dies=market up=central planning til real physical assets like food and water are not to be had, then the real markets take hold=blood, baby blood....then you will see some red.

Thu, 03/27/2014 - 01:38 | 4597506 Kirk2NCC1701
Kirk2NCC1701's picture

Peking, duck!

Thu, 03/27/2014 - 01:51 | 4597515 explodinghead
explodinghead's picture

Hey that's my avatar!

Thu, 03/27/2014 - 10:09 | 4598253 Tall Tom
Tall Tom's picture

Imitation is just a form of flattery.

Wed, 03/26/2014 - 21:44 | 4596876 SheepleLOVEched...
SheepleLOVEcheddarbaybiscuits's picture

I feel bad for the people shorting China right now based off of the views of the ZH community. They will be hurt.

Wed, 03/26/2014 - 22:12 | 4596983 Carl Popper
Carl Popper's picture

Oh please tell us what investments we should go long on in china, basement dweller?


Give us names.   Come back in three months.  I will remember. 

Wed, 03/26/2014 - 22:42 | 4597092 fockuyu
fockuyu's picture

Buy Panda Expless!
Chikin tass so goooood it tass like dog!

Thu, 03/27/2014 - 02:59 | 4597579 EverythingEviL
EverythingEviL's picture

Ok I admit....I couldn't help but laugh :)

Thu, 03/27/2014 - 02:01 | 4597533 Ifigenia
Ifigenia's picture


Thu, 03/27/2014 - 06:15 | 4597700 swmnguy
swmnguy's picture

Chinese Solars.  (A little joke for the old-timers).

Thu, 03/27/2014 - 06:15 | 4597701 swmnguy
swmnguy's picture

Chinese Solars.  (A little joke for the old-timers).

Thu, 03/27/2014 - 08:43 | 4597965 SamuelMaverick
SamuelMaverick's picture

Poor Leo, he got crushed by ZHers for being an idiot. 


Wed, 03/26/2014 - 22:14 | 4596989 Toxicosis
Toxicosis's picture

Care to elaborate on your perception of the devolving situation.  Reality is indifferent whether you accept it or not.

Thu, 03/27/2014 - 06:14 | 4597699 mc225
mc225's picture

chinese have this handled. they know it's all only a construct. american citizenisms think it's all real.

Wed, 03/26/2014 - 23:39 | 4597260 putaipan
putaipan's picture

i don't remember if ben accounted for this, but this week was definitely worth checking out....

"the wookie held hostage"-

Thu, 03/27/2014 - 00:22 | 4597368 The Wisp
The Wisp's picture

hostage swaps, have been going on since the beginning of time.. please to visit while we visit you. everybody is safe till somebody isn't

Thu, 03/27/2014 - 00:06 | 4597334 Mark Urbo
Mark Urbo's picture

That red line don't look right said Wi Too Hi

Wed, 03/26/2014 - 21:48 | 4596888 Alpo for Granny
Alpo for Granny's picture

That was gold Bania. Gold.

Thu, 03/27/2014 - 08:44 | 4597968 mac768
mac768's picture

Who will now buy all the brand new Mercedes and BMW's?

Zee Germans should be concerned....

Wed, 03/26/2014 - 21:37 | 4596850 Mark Carney
Mark Carney's picture

Everything is fine

Wed, 03/26/2014 - 21:42 | 4596871 blindman
blindman's picture

Don't You Just Know It - Huey "Piano" Smith

Wed, 03/26/2014 - 21:56 | 4596921 Freddie
Freddie's picture

If you like your ghost city, you can keep your ghost city.


Thu, 03/27/2014 - 06:21 | 4597706 olenumbersix
olenumbersix's picture

thanks for the link

Thu, 03/27/2014 - 07:24 | 4597773 new game
new game's picture

a total disconnect between end prices and total costs to manufacture, hmmmm, could it be central planning gone awry?

think about this mess>china shit pegged to yuan/ ramped never ending supply with infinete credit expansion to provide ever moar cheap shit undermining true costs world wide. quite clear pic evolves....

see this fucking ponzi manipulated/pegged fucking pig floating shit hole called china grind to a halt...

Wed, 03/26/2014 - 23:25 | 4597212 gadflew
gadflew's picture

Sum Ting Wong, Ho Lee Fuk

Wed, 03/26/2014 - 23:35 | 4597242 willwork4food
willwork4food's picture

tatusd toube oald, batnao izrialeold

Thu, 03/27/2014 - 00:38 | 4597397 ebear
ebear's picture


Thu, 03/27/2014 - 07:27 | 4597780 j0nx
j0nx's picture

China is exactly where we were 7 years ago to the day. Months away from everything coming crashing down. Remember: Subprime is contained!

Wed, 03/26/2014 - 21:29 | 4596808 TruthInSunshine
TruthInSunshine's picture


Everyone was warned about this & given a long, long lead time. China is going down liquidity contraction road.

Wed, 03/26/2014 - 21:30 | 4596815 Soul Glow
Soul Glow's picture

Who isn't.

Wed, 03/26/2014 - 21:39 | 4596856 TruthInSunshine
TruthInSunshine's picture

The 3 days of meetings I had with Chinese clients in NYC last week had EXACTLY this issue front & center; they were scrambling to sell everything (including their milk cows & crown jewels) out of a dire requirement to raise cash (couldn't get a dime via conventional methods even posting grade A collateral as security).

Wed, 03/26/2014 - 21:53 | 4596905 Soul Glow
Soul Glow's picture

The finance game is ridiculous.  Post this for that.  Sell this for that.  And all the collateral is bullshit hypothecated instruments that hold no intrinsic value.  There is blood in the water and finance is swimming in circles as the sharks close in.

Wed, 03/26/2014 - 22:08 | 4596966 unplugged
unplugged's picture

wait until the scramble for gold starts with paper claims around 80 to every ounce - hahahahaha!!!!!

Wed, 03/26/2014 - 22:17 | 4597001 Carl Popper
Carl Popper's picture

I am afraid the opposite will happen.  


Physical gold sales will drop the paper market price. 


China has no more collateral and is starting to contract. 

Wed, 03/26/2014 - 22:31 | 4597047 HungryPorkChop
HungryPorkChop's picture

@Carl: Gold sales could drop by about 100x and it would even out to the actual physical production.  But statistics indicate gold sales continue to climb despite the prevailing economic conditions.  This doesn't seem to fit your post.  Maybe you should edit it before you get more Thumbs Down?

Wed, 03/26/2014 - 22:37 | 4597071 Paveway IV
Paveway IV's picture

Wow - someone instantaneously downvoted you for pointing out the obvious, Carl Popper? Gold fanboys should actually be delighted. I'm all in the first hint of HK gold (or any other market's gold) tanking on panicking Chinese fire-sales. This happens once in a lifetime. It will only go one direction after it bottoms.

Wed, 03/26/2014 - 23:20 | 4597201 jerry_theking_lawler
jerry_theking_lawler's picture

I think the pullbacks from the highs were exactly because this scenario is going to play out. China will pop, start selling its real assets (phyz gold) and the price will drop.

Think they know this will happen and will quickly adopt a new currency backed by gold to stop it all from happening. Prices will rise again.

The end game is we get there and how much actual wealth we have is by our own doing.

Wed, 03/26/2014 - 23:34 | 4597241 sandiegoman
sandiegoman's picture

In the end, everyone here is speculating. I think gold gets taken down but I am hoping it doesn't.

Thu, 03/27/2014 - 02:09 | 4597540 Ifigenia
Ifigenia's picture

and i vote up or down?

Thu, 03/27/2014 - 03:12 | 4597590 Squid-puppets a...
Squid-puppets a-go-go's picture

right, popper

when the economy does well people sell gold in pursuit of yeilding assets.

when the economy crashes people sell gold to get to a safe haven.

so where exactly is it in the economic cycle that gold is ever purchased?

back to school, fool

Thu, 03/27/2014 - 07:00 | 4597749 Jafo
Jafo's picture

Carl Popper has it right.  Some folk will find themselves in trouble and the best or only asset they have that they can sell for quick cash will be gold.  The margin clerks will force the sale and take the prevailing price.  These people are the "weak hands" that are always talked about.  The same thing happened in 2008 but gold bottomed far earlier than the equity markets and came back big time once the distress selling finished.  If you are in the US it is going to put gold "on sale" for anyone who has "cash".

If you live outside the US the "gold sale" may not materialise as domestic currencies of some countries (most countries?) fall against the US Dollar faster than gold.  Non-US citizens may find some protection by investing some of their portfolio in gold for this reason.  Just have to estimate how far your currency could fall agaiinst the US Dollar in the panic.  Why would their currencies fall against the US Dollar?  Some will have terms of trade move against them and others will be trying to pay back US Dollar loans they have taken out at current low levels while others will have both issues to deal with.  Richard Russell's synthetic short on the US Dollar will walk again and this time it will be on steroids.

Thu, 03/27/2014 - 10:11 | 4597856 dontgoforit
dontgoforit's picture

When the contractions are two minutes apart, call Dr. Doom.

We're gonna' need him.

Thu, 03/27/2014 - 01:01 | 4597450 The wheels on t...
The wheels on the bus are going to fall off's picture

The first thing they will get rid of, will be the dollar reserves and UST Bonds to save there own currency? the last thing they will sell will be gold.....(if they do indeed sell it)

You have to take a look at the whole eatstern side of the world and realise that quite a few countries are buying up gold and silver, this is more strategic long term not a short term hedge.

Thu, 03/27/2014 - 06:25 | 4597709 Cacete de Ouro
Cacete de Ouro's picture

Greetings,I am MR RAHMAN ALI, a Manager at The HSBC Investment Bank Plc LONDON City.

However, I get your contact through the International web directory.
Recently we discovered a Dormant Account with a huge amount of Gold Valued USD14,000,000,000.00 (Fourteen Billion Dollars only)that belongs to one of our lateCustomer who is presumed dead in a most mysterious plane crash over the Maldives.

During our investigation and auditing in this bank, my department came across the name of Tyler DURDEN only next of kin of our customer. I on behalf of my trusted colleagues now seek your permission to have you stand in as next of kin to Our late Customer so that the gold will be released and paid into your account as the beneficiary?

I have in my possession, all the necessary Documents to successfully accomplish the operation. Please make contact at your earliest convenience, providing details of bank account, routing number, shell companies and beneficiary name.

Best Regards.

Thu, 03/27/2014 - 07:29 | 4597784 j0nx
j0nx's picture

Gold is taxable. The precedent is set.

Thu, 03/27/2014 - 15:25 | 4599857 MrSteve
MrSteve's picture

only taxable when you SELL! What if you drove it over the border and swapped it for real estate "over there" and then lived on the ranch / farm / orchard / sugar bush/ hacienda???  Tax me at what non-forwarded address?? Maybe a new Congress would want you to sell your gold for $100,000,000 per OZ to them??? Think outside the bun!

Wed, 03/26/2014 - 23:05 | 4597156 Jack Burton
Jack Burton's picture

Collateral posted as bond on all the credit is just that, fake hypothecated bullshit. Modern finance capital is an illusion that only exists as long as Central Banks print fiat in vast quanties and make sure the banker class gets it at ZIRP. The 99% are on the wrong side of the interest rate apartheid, as Max Keiser is so fond of reminding us.

One wonders what melts down first in 2014. 1. Ukraine NATO Russia war? 2. Meltdown of fiat finance capital starting in China? 3. The possible super El Nino event laying waste to vast agricultual lands this summer? However you cut it, something wicked this way comes!

Thu, 03/27/2014 - 06:40 | 4597731 ParkAveFlasher
ParkAveFlasher's picture


Thu, 03/27/2014 - 07:06 | 4597758 Jafo
Jafo's picture

Whoopee! We're all goin' to die.

Thu, 03/27/2014 - 08:08 | 4597857 dontgoforit
dontgoforit's picture

Holographic wealth.  How pretty.

Thu, 03/27/2014 - 08:43 | 4597966 thestarl
thestarl's picture

Whats with the new avatar Jack?

Thu, 03/27/2014 - 05:56 | 4597688 monkeyboy
monkeyboy's picture

So what should I buy & sell 'cause I wanna make a motza and be retired by years end. Thanks.

Wed, 03/26/2014 - 21:55 | 4596918 TheFourthStooge-ing
TheFourthStooge-ing's picture

Ah, ah, much wonton borrowing increase the risk fragrantry.

There is somehow a kind of dementia dimension in here. Reminds of Torr Brothers and Angiro Moziro excessive.

Wed, 03/26/2014 - 22:15 | 4596993 Carl Popper
Carl Popper's picture

Just watch gold dive to 900 now that china soon becomes a net seller.  


Will you be buying?  

Wed, 03/26/2014 - 22:52 | 4597128 fockuyu
fockuyu's picture

fockuyu don't selling gold.
mr. fockuyu sell wife first.
mrs. fockuyu lub ma gold too much.
too much.

Thu, 03/27/2014 - 06:03 | 4597692 Squid-puppets a...
Squid-puppets a-go-go's picture

dont you think a 30% discount to wholesale is a bargain?

Thu, 03/27/2014 - 07:09 | 4597759 Jafo
Jafo's picture

Watch China swap or sell some of their soon to be worthless US Treasuries for the discounted gold.  That is what you call "gettin' 'em with both barrels".

Thu, 03/27/2014 - 08:09 | 4597859 dontgoforit
dontgoforit's picture

Watch China for 'the breakout.'

Thu, 03/27/2014 - 10:11 | 4598275 Tall Tom
Tall Tom's picture

TruthInSunshine...Were they selling Gold???

Wed, 03/26/2014 - 21:29 | 4596809 RaiZH
RaiZH's picture

I loved watching bubbles pop as a kid... nothing has changed. 

Wed, 03/26/2014 - 22:01 | 4596937 Sweet Chicken
Sweet Chicken's picture

This may prove to be post of the year.

Wed, 03/26/2014 - 21:29 | 4596810 Soul Glow
Soul Glow's picture
We have front row seats for this Theater of Mass Destruction. The Demolitions Committee of Project Mayhem wrapped the foundation columns of ten buildings with blasting gelatin. In two minutes, primary charges will blow base charges, and those buildings will be reduced to smoldering rubble. I know this because Tyler knows this.
Wed, 03/26/2014 - 22:35 | 4597061 Ban KKiller
Ban KKiller's picture

Yeah, I have been tasting the gun oil for years and years....

Thu, 03/27/2014 - 07:42 | 4597813 laomei
laomei's picture

Actually, here's what will happen, and why companies have been shelling out crazy interest for loans.

Small companies do it for quick cash that is made up on margins and it's not an issue, it's not big money.

Large corporations are generally solid and their books are generally clean, they pay jack shit for interest and their only exposure is due to them becoming financial brokers to...

Mid-sized companies.  Who are gonna bear the brunt of this.  Those "naked officials", generally speaking, are not actually officials.  They are the owners of these mid-sized companies.  They might have leveraged some meaningless government post along the way, but their money's been coming from their companies and they also tend to be corrupt as all fuck.  Borrow a giant chunk, pocket some of it.  If the company goes bust, there are bankruptcy options.  No real bankruptcy options for individuals though.  See also "borrowing" from company accounts for personal use.  This is where most of the shitty books come from.  So, what happens when these go pop?  Books get examined, and irregularities get investigated.  Do you have any idea what an utter pain in the ass it is to close down a company here?  I can incorporate fully in about 2~3 months.  Closing down is a solid year assuming nothing wonky.  Guess what happens when someone is caught with their hand in the company cookie jar? Hint: There's a van for that at a certain point.  So, the HK property sales and selling off of properties overseas has nothing to do with personal finances.  It's all about settling those company books before it goes boom.

You see, fleeing overseas was never really an option, not really.  It can work if it's a few people here and there, maybe even a few dozen or so scattered across various destinations.  However, for the thousands who thought they were really smart, I can absolutely 100% guarantee they would be extradited on pain of serious sanctions being levied.  As a growth market (one of the only ones left) for quite a few of the US blue chips, failure to comply would most likely result in, if not outright nationalization, definitely revocations of business licenses seizure of properties... especially for anything with any ties at all to US government.


The fireworks are gonna be amazing.... mainly because it's going to clean out all the garbage and rebalance society in a better way.  As long as a lid is kept on displaced workers and "average joe" investors, there's no real risk to the government.

Thu, 03/27/2014 - 08:11 | 4597863 dontgoforit
dontgoforit's picture

Nice evaluation; however, things rarely go so smoothly.  There is usually a revolution when bread (or rice) is short.

Wed, 03/26/2014 - 21:30 | 4596819 syntaxterror
syntaxterror's picture

Damn, Madoff would love those charts.

Wed, 03/26/2014 - 21:31 | 4596822 Cognitive Dissonance
Cognitive Dissonance's picture

It's on like Donkey Kong


It's On

Wed, 03/26/2014 - 21:57 | 4596927 unplugged
unplugged's picture

popcorn time !

Wed, 03/26/2014 - 22:01 | 4596940 FuzzyDunlop21
FuzzyDunlop21's picture

Minsky, its your moment now

Wed, 03/26/2014 - 23:48 | 4597285 Bollixed
Bollixed's picture


Thu, 03/27/2014 - 06:11 | 4597698 Squid-puppets a...
Squid-puppets a-go-go's picture

perhaps - but we've been drawn out on this event horizon for 5 years

Wed, 03/26/2014 - 21:32 | 4596825 starman
starman's picture

Fortune cookies anyone?! Last call!!

Wed, 03/26/2014 - 21:32 | 4596829 blindman
blindman's picture

All I Have To Do Is Dream - Everly Brothers

Wed, 03/26/2014 - 21:58 | 4596930 disabledvet
disabledvet's picture

I'm a Roy Orbison man meself ("All I can do is Dream")...hard to match "God's Country" tho.

this is all so woeful oh these many years...with no respite either. the feelings of "release" do indeed make scripture preferable.

ZH has been hitting "home runs" all day today...glad to be along for the ride. This is serious business..."Lehman on steroids"...more than enough to financially take out entire countries....let alone States and localities.

And of course "let's throw in the real deal just to make it interesting." well...I've had enough of interesting. I've devoted an entire lifetime to the proper "displacement theory" of reality...and yes, I have utterly failed in this regard. (where is the music and laughter again?)

is not the cry of a dove preferable? feelings are dangerous if point of view is not taken into account. woe unto the author pointing out the obvious of course...or dare I say patently absurd...but we're not talking theory anymore for all those "media driven" folks trying to "conjure up the data tapes." (they still used tape storage in the 24 century?) words and places are being thrown around that says to me "big deal" not "Lost."

Axe can't fall soon enough on the "Lost" meme as well. Unprofessional...indeed the extreme. As with Cyprus, as with the Arab Spring, as with Northern Japan and all those who don't just care but act on that "feeling"...the ZH heart goes out to those who have been lost (those that must live irregardless) and of course that defines the beauty of this "space"...It is taken up by people who i think do care, who really do have the capacity for empathy..and it's expression.

Indeed...why else sound an alarm in the first place?

Thu, 03/27/2014 - 00:31 | 4597385 The Wisp
The Wisp's picture

Dude that must be some Good Smoke..

Thu, 03/27/2014 - 08:05 | 4597854 de3de8
de3de8's picture

Irregardless is not a word, just regardless pls

Wed, 03/26/2014 - 21:33 | 4596831 runthenumbers
runthenumbers's picture

I will believe it when I see it.  Until then, can kicking will be successful.

Wed, 03/26/2014 - 21:36 | 4596845 jcaz
jcaz's picture

Yep, good plan-  jumped off the roof, just passed the 3rd floor, all is well so far....

Wed, 03/26/2014 - 21:49 | 4596891 LetThemEatRand
LetThemEatRand's picture

Hey, this is pretty cool.  Feels kind of like flying!  splat.

Thu, 03/27/2014 - 11:00 | 4598510 Tall Tom
Tall Tom's picture

But at least you are feeling really good until the end. And at the end you don't know hat hit you or what you hit. There is no pain.


But you chose the Red Pill and you are not falling blind but are falling while you can see the ground coming closer. The ones whom are blind just feel good.

Wed, 03/26/2014 - 22:31 | 4597050 Ban KKiller
Ban KKiller's picture

Nail gun working?

Wed, 03/26/2014 - 22:29 | 4597041 scuttlebutt
scuttlebutt's picture

What can? It's so far down the road I can't even see it.

Thu, 03/27/2014 - 08:12 | 4597866 dontgoforit
dontgoforit's picture

And toes are getting sore.

Wed, 03/26/2014 - 22:36 | 4597067 GeorgeHayduke
GeorgeHayduke's picture

I'm with you on this one.

We've all been waiting for the black hole to open up and suck in all things financial since 2008. The Boyzzz in charge of the black hole have found an incredible array of cans, bubble gum, spit and duct tape to keep the sucking hole contained (as they screw everyone else outside of their inner circle of course).

The "bubble" wolf has been spotted and warned of several times over the years but thus far has only kicked in the ass of small countries beholden to bigger countries. No big dogs have taken a major hit as of yet. Not that the global financial house of cards isn't going to collapse one day, but I've heard wolf too many times. I am as prepared as possible, but I'll only believe it when I see it.

Thu, 03/27/2014 - 00:56 | 4597442 LostPolarBear
LostPolarBear's picture

I fear this could all continue on for a very, very long time...

Thu, 03/27/2014 - 09:30 | 4598111 general ambivalent
general ambivalent's picture

The economy's fine. They'll merge Angry Birds with Kandy Krush and it'll spread via twitter in a couple hours. The trillions will flow like game theory.

Wed, 03/26/2014 - 21:40 | 4596832 AssFire
AssFire's picture

Saturation. When everyone already has a survival knife complete with compass.

off topic:



Wed, 03/26/2014 - 21:34 | 4596837 Rakshas
Rakshas's picture

Well looks like I'll be eating fried asshole by morning........ mine....... again...

Wed, 03/26/2014 - 21:40 | 4596854 AssFire
AssFire's picture

Send pics.

Wed, 03/26/2014 - 22:38 | 4597080 ThroxxOfVron
ThroxxOfVron's picture

"Well looks like I'll be eating fried asshole by morning........ mine....... again..."

You kids don't know how lucky you are to have your very own fried asshole to eat every morning.

When I was a boy I had to get up at 4am seven mornings a week for years and walk 10 miles uphill underwater through snow up to my eyebrows in nothing but my sackcloth and ashes just to get to the back of the line of orphans who had to fight to the death for a teaspoon of cold congealed anal leakage.



Um... are you gonna finish that ?

Wed, 03/26/2014 - 22:54 | 4597136 effendi
effendi's picture

So what you are saying is that you had it pretty good as a kid.

Thu, 03/27/2014 - 02:13 | 4597546 maskone909
maskone909's picture

Lmfao to both of you fuckers lololol

Wed, 03/26/2014 - 21:36 | 4596842 mrpxsytin
mrpxsytin's picture

I fail to see how this is going to be a problem for China. It's essentially like flicking off the ice-cream maker once everyone has had enough ice-cream. The problems will occur for the Western 'investors' who banked on the ice-cream maker continuing to run.

Wed, 03/26/2014 - 21:41 | 4596867 Tyler Durden
Tyler Durden's picture

As we showed in November, the real provider of global monetary flow is not the Fed but China: "Chart Of The Day: How China's Stunning $15 Trillion In New Liquidity Blew Bernanke's QE Out Of The Water"

Wed, 03/26/2014 - 21:57 | 4596924 Tabarnaque
Tabarnaque's picture

People have a difficult time to understand the exponential function and how it affects a debt based monetary system. It is not linear, it is exponential. The whole thing is about to blow up.

Wed, 03/26/2014 - 22:40 | 4597086 Paveway IV
Paveway IV's picture

We outsourced our currency debasement, too? Those BASTARDS!

Wed, 03/26/2014 - 23:34 | 4597237 UselessEater
UselessEater's picture

US FEd will get the blame regardless and be used to justify the 'reset' sprouted by the IMF and co.

Thu, 03/27/2014 - 00:56 | 4597444 Tabarnaque
Tabarnaque's picture

Unless the IMF is deeply reformed, I doubt that the BRICS will accept the SDR. The IMF is too Anglo-American banking cartel biased. The other side of the planet wants a multi-polar world. Not the mono-chromatic world that the fascists western bankers want to impose. Current events in Ukraine with East/West polarization point to the emergence of a parallel monetary system.



Wed, 03/26/2014 - 23:45 | 4597277 willwork4food
willwork4food's picture

Lol. This is an excellent article, but how will this effect the good people here at ZH? Namely me?

Wed, 03/26/2014 - 22:02 | 4596943 Troll Magnet
Troll Magnet's picture

Oh man, I remember this post like it was last week.
Wait a minute. Wasn't this from last week? Shit, I'm gettin' old.

Wed, 03/26/2014 - 23:46 | 4597281 willwork4food
willwork4food's picture

Here, have a beer. It kills the pain.

Wed, 03/26/2014 - 22:06 | 4596957 Soul Glow
Soul Glow's picture

And Japan per capita.

Wed, 03/26/2014 - 22:09 | 4596970 NoDebt
NoDebt's picture

Imagine how much they could have accomplished if they had merely pushed that liquidity into their stock market instead of into worthless goods-producing industries and commodities.

Wed, 03/26/2014 - 22:30 | 4597043 Ban KKiller
Ban KKiller's picture

Yeah, not much counter party risk. Ha-ha. China competes with everyone and wants to do everything bigger like an out of control Texas. Enron much?

Thu, 03/27/2014 - 08:17 | 4597877 matrix2012
matrix2012's picture

"Imagine how much they could have accomplished if they had merely pushed that liquidity into their stock market instead of into worthless goods-producing industries and commodities."

ha ha ha the dumb Chinese, they should have learned from the Fed/Wall St!

Wed, 03/26/2014 - 22:41 | 4597091 Tsunami Wave
Tsunami Wave's picture

As Kyle Bass said at the AmeriCatalyst 2012 over investing in China (and having no positions in the country): "No, we're okay. we'll let your NPLs (Non-Performing Loans) spike up.  And you re-cap your own banks."


(He briefly talks about China's credit/QE program at the 50:00 mark:  )

Thu, 03/27/2014 - 14:41 | 4599595 UggSmash
UggSmash's picture

Holy shit, Tsunami - good call on Kyle Bass.

If he's right with what he quotes...just, wow.

He said something like "18-19% non-performing loans, average over the past 20 years, (25-30% in a crisis) with a banking sector that is 300% of GDP..."

= 0.18 * 3.00 = 54% of GDP in bank losses?!?!?! Is that even right? Holy shitballs...

Tyler(s') picture of the bubble popping is just fantastic. 

Thu, 03/27/2014 - 15:14 | 4599774 MrSteve
MrSteve's picture

History shows that inflations can pop for any reason: a treasure ship in Spain is lost and locals desperate for the needed New World loot crashed the local economy, news of a hit to the American Bank from defaults in the Kredit-Anstalt start the 1929 Crash on Wall Street; take your pick.  Confidence is the key dream-glue and when it is lost, the money illusion disappears. There was never this much real money put into real wealth and when the mark to reality is regained, the tide will be suddenly out. Same for Chinese loans and American promises to pay Social Security, etc etc.

Interesting that Rising Sun here scoffed at Chinese communists- the commie masters have Nippon in their sights as the #1 foreign devil on which to blame their problems.

Thu, 03/27/2014 - 06:53 | 4597744 Grouchy Marx
Grouchy Marx's picture

So we have maybe $13T runway ahead of us! Where is Ben when you need him?

Wed, 03/26/2014 - 22:59 | 4597147 jwthomps
jwthomps's picture

I think China is sitting in a very bad place.

After WW1, Germany wanted to be the great producer/exporter.  They achieved that goal and suffered greatly.

After the Great Depression, the US, a big producer/exporter, suffered greatly.

In a serious slowdown, China stands to suffer the most. 


Wed, 03/26/2014 - 21:36 | 4596843 Rising Sun
Rising Sun's picture

Same happy ending for those fucking communists.


Stupid fucking Chinese.

Wed, 03/26/2014 - 21:52 | 4596899 TruthInSunshine
TruthInSunshine's picture

Well, look at it this way, - all the equipment, machinery & tooling that Chinese companies stripped out of U.S., European, etc. plants/factories for 20 cents on the dollar can now be stripped out of Chinese ones by Vietnamese, Thai, Malaysian, Indonesian, and other buyers, for 15 cents on the dollar.

Wed, 03/26/2014 - 22:06 | 4596953 Troll Magnet
Troll Magnet's picture

Yeah, I'm thinking there will be a HUGE opportunity here to acquire dirt cheap Chinese shit for, well, dirt cheaper.

And I hope this crashes the fuck out of California real estate market and denies tax revenues for its socialist parasites in Sacramento.

Wed, 03/26/2014 - 23:37 | 4597257 thamnosma
thamnosma's picture

That would be a true silver lining in the coming black cloud.

Thu, 03/27/2014 - 00:32 | 4597389 aphlaque_duck
aphlaque_duck's picture

Cupertino was paradise until they burned the orchards to make room.

Thu, 03/27/2014 - 06:37 | 4597729 Squid-puppets a...
Squid-puppets a-go-go's picture

yea man, you'll be able to buy one of those $2 store businesses for, like $2 !! Now there's truth in advertising

Wed, 03/26/2014 - 21:39 | 4596855 klwilly
klwilly's picture

will this make my gold shares go even lower?

Wed, 03/26/2014 - 22:14 | 4596990 NoDebt
NoDebt's picture

In all likelyhood, yes.

Wed, 03/26/2014 - 22:45 | 4597104 MontgomeryScott
MontgomeryScott's picture

If so, don't hesitate.



Thu, 03/27/2014 - 01:04 | 4597452 Kirk2NCC1701
Kirk2NCC1701's picture

Bipolar investing for bipolar Bear-Bull people: BTFD + BTFATH.

Now that is called ALLHEDGE.

Wed, 03/26/2014 - 21:41 | 4596864 Meat Hammer
Meat Hammer's picture

Preparing for gold-backed currency?

Wed, 03/26/2014 - 21:41 | 4596868 Meta_Consciousness
Meta_Consciousness's picture

The sound of a single domino falling definitely sounds different than one falling into another and another. 


But are we too close to the first domino to hear the difference?

Wed, 03/26/2014 - 22:49 | 4597117 Paveway IV
Paveway IV's picture

Would it matter? The dominos are arranged in a huge circle. Total transit time if we're lucky: maybe a week or two. Worst case: tin-foil hat pals reminded me that this Friday is the final crescent moon death day in a cycle of five. No idea what the hell that means (something about Sandy Hook and mass killings), but - yeah, I'll go with that. Financial Armegeddon this Friday. Israel nukes Iran (or the other way around). Russian tanks roll into Ukraine. Hillary announces candidacy. Happy hour specials start at four. 

Good luck, Weekend Tyler!

Wed, 03/26/2014 - 21:43 | 4596874 SunnyDD
SunnyDD's picture

Will, China won again.

this hug mil high Tsunami going be fun.

Thu, 03/27/2014 - 07:54 | 4597838 j0nx
j0nx's picture

umm huh?

Wed, 03/26/2014 - 21:44 | 4596877 Smuckers
Smuckers's picture


Wed, 03/26/2014 - 21:50 | 4596893 Freddie
Freddie's picture

Ho Lee Fuk

Sum Ting Wong

Wed, 03/26/2014 - 21:52 | 4596900 kurt
kurt's picture

How does one prove the other? Bah! Flimflammery.

Wed, 03/26/2014 - 21:53 | 4596901 MontgomeryScott
MontgomeryScott's picture


Really! Are you KIDDING me?

That little box with the handcrank that the clown pops out of has a song that explains the entire western banking system in one stanza. the Chinese never listened to it, I suppose, and I never knew the lyrics, myself, until I read this article and I thought of the last verse in the stanza, that everyone knows (pretty much). Back before the industrial 'revolution', people taught their children REALITY by singing nursery rhymes to them.


Up And Down The City Road (London, city of?)

In And Out The Eagle (which nation's bird?)

That's The Way

The Money Goes

Pop Goes The Weasel!

Seriously, I thought about this song while reading this article, and found a video that actually published the words to it. I'd never seen them before.

The Rothschild central Asian bankers are obviously leveraging. Inflate, call the notes, raise interest rates. Inflate, call the notes, raise interest rates. Repeat regularly. Call it 'the business cycle'. If it works in western nations, it'll work in China. Up and down, the City road and IN and OUT (of) the Eagle...THAT'S the way the MONEY goes... POP! Goes the WEASEL! The WEASEL, in this case, are the suckers who THOUGHT they were being all 'free-market', but forced to use Rothschild monies...

Wed, 03/26/2014 - 22:15 | 4596996 Meta_Consciousness
Meta_Consciousness's picture

Interesting. Ring around the Rosie - about bubonic plague symptoms. I wonder about the others. We were just children when we sang then, heard them over and over. Maybe the songs of death and exploitation, did they have real effects?

Thu, 03/27/2014 - 04:16 | 4597628 Paveway IV
Paveway IV's picture

The Eagle was a public house - a bar - on City Road. It's still there.

'Pop' was slang for pawning stuff. 

It's unclear if weasel was slang for something one pawned or if it was referring to the newly impoverished alcoholic scurrying into the pawn shop.

The music came years before the words to the children's song were associated with it. It was the latest dance craze in 1850. 


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