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Chinese Currency Tumbles To 19-Month Lows As Bad Debts Hit 5 Year Highs
As we discussed previously, delinquent loans in China are a problem... and a growing one. It seems that news is finally starting to filter to a mainstream audience as Bloomberg reports that China’s biggest banks are poised to report the highest proportion of bad debts since 2009 after late payments on loans surged to a five-year high, indicating borrowers are struggling amid an economic slowdown.As S&P warns,"overdue loans are a leading indicator of asset-quality deterioration and show the rising liquidity constraints among borrowers... and the disturbing thing is the end is nowhere in sight." CNY has pluned almost 150 pips to new 19-month lows on the news.
China bad debt at multi-year highs...
CNY is plunging in the news - back to its lowest against the USD in 19 months...
How much bad debt can China withstand? We discussed previously...
These numbers tell us that it does not appear that China can bear a very large increase in debt, and that the idea that the government can simply “bail out the financial sector” is erroneous, or at least, a stretch.
China does not have the luxury of the United States, which can spend excessively because foreign countries continue to buy U.S. government debt (as the dollar is the world reserve currency). If the leadership attempts to spend down its large cache of dollar reserves, it will lose control of its currency, as a larger supply of U.S. dollars relative to the Chinese RMB would depreciate the currency unless sterilized.
The only remaining option is the least savory: the Chinese government must control its debt, and this includes reducing overindulgence within the real economy. It seems that the punch bowl is empty already and the party is winding down. Now the question is, who will clean up the mess?
But as S&P warns:
"Overdue loans are a leading indicator of asset-quality deterioration and show the rising liquidity constraints among borrowers,” said Liao Qiang, a Beijing-based director at Standard & Poor’s. “While we believe Chinese banks’ credit woes will unfold gradually, the disturbing thing is that the end is nowhere in sight.”
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Very good China, ink a big gas deal with the Russkies and pay them off in devalued yuan. You've learned well.
Don't be silly. The deal with Russia was benchmarked to Gold. Yuan down, Gold down.
I guess all the Congessional assholes that were bitching about the US not being able to devalue the USD against the Yuan will be going PMS over this.
bwhahahahahahahahahahahahahaha. good one!
Yuan down? That's all good, makes some of our bearings cheaper...
I makes the FED's bearings off course
China's debt is miniscule compared to US debt.
http://www.ingoldwetrust.ch/shanghai-gold-exchange-international-board-a...
That's probably why this is happening
Will the squid or the blowfish win the fight?
Or the Bear or the Dragon
Probably not the Eagle
or the Lion.
one of their billion slaves will figure something out.
if amschel rothschild was one in a million, there are 100,000 just like him over there.
So I'm guessing this is, like everything else on earth, bullish for US stocks?
Depreciating currency = diminished buying power= bullish. See how easy that was? Now close your eyes and BTFD.
i think i'll sell the all time high instead. (STATH. Your a Doc...Doc...why do those Hospitals say "stat" when they call for a doctor again?)
That would be in equities.
I remain bullish on treasuries as that is where the real mo mo monkey's are...and that market has one hundred times the liquidity of the equity space.
Here is the move in utilities: http://seekingalpha.com/symbol/ETR?s=etr
17 percent YTD. needless to say treasuries blew away gold and silver ytd today as well.
http://seekingalpha.com/symbol/EXC?s=exc this is the President's company...over 30 percent. i imagine folks think this is great thing....and i do admit the profits are quite extraordinary.
http://www.youtube.com/watch?v=OCUT932WytY
or switch to Bitcoin, where you have an appreciating currency and increasing buying power.
Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured massive amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need. Like a plane on autopilot China continued in the direction it had been on.
Now China finds itself in a credit trap. For years the people of China have had the habit of saving much of what they earn but the low interest rates paid at banks has not rewarded savers. With few investment options much of this money has drifted towards housing and driven housing prices sky high. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be very painful. More in the article below.
http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html
I don't understand why people buy bonds when the system uses fiat money. If the bank can create money from nothing for the sake of creating loans, why the hell would anyone need to borrow my hard earned money? The banks who create money out of thin air still think it's too risky to lend to someone? Yeah, I should totally lend to that person. Durrrrr.
The entire debt based money system is flawed, so why not start over and try something new??
http://imgur.com/kFIWDbz
So is this regular bullish, moderately bulish, or super bullish US equities?
I want to know if we will be up .25 .50 or 1%+ tomorrow.
S&P 500 futures up some 0.1%:
http://finviz.com/futures.ashx
yea im watching em basically tick for tick, they are going straight up. looks like they will probably gap open higher .25% and close up another 1%. At this pace we will be past 2000 by the end of Q3
if i understood letters bettor i coulda understood the article. but my guess is that it means that the 'here comes the mighty chinese money symbol as the next world currency' crowd are wrong.
:)
sometimes yuan, sometimes yulose
Friend from China told me they need more money to spend out here in the West (home reno for newly bought home). The controls prevent more funds from being converted, but they "have a friend" who somehow could help them circumvent the controls. Being a friend I had to say "hear no evil, see no evil." and that was that.
We will get a lot more currency confusion. This is just the beginning of the unwinding of the WW $ based piramid ponzi scheme. Got silver?
So, could they be letting this go, intentionally, so it can collapse; then show up with a replacement?
Ding ding ding, we have a winner.
A clean slate for the next GRC , not yuan but a totally new one.
underappreciating the willingness of the politiburo to accept a tumbling yuan to prop up banks. if anything, this would be good for the economy. chinese goods being 'cheap' again is exactly what a lot of the industrialists, who already moved their millions into CAD or USD at sub-6/1 FX, would gladly accept 7/1 or higher again if it meant they moved more exports again. especially now they the russian oil deal, most of the canadian and oil company acquisitions, vancouver real estate, stashing cash offshore is all done. basically, 2008-2011 round two, lots of folks would welcome that.
just wrote this about the misunderstanding of how their IS and BS actually work. actually when they cook the numbers it means the bad debt is also exagerated
problem is a lot of westerners don't really understand the formula they're using for bad debt. individual banks are not reporting bad debt. the CRBC is (which is like our FDIC and FRB combined). they use growth rate of defaulted debt and what the banks report internally to the regulator (not to shareholders).
but just as the banks 'cook' their earnings and bad debt, they also cook their good loans. so when the regs assume 5% bad debt on $100b good loans, the truth is the bank likely only has 60b or 80b good loans, so the 5% of bad debt is actually on 60 or 80 rather than 100, so the bad debt is in truth much lower than expected. but the 5% is also cooked, but when you even out the lower good loans but higher rate of bad loans, it means the real bad loans is actually a lot closer to this 'cooked' number that what you're suggesting.
further, most of these banks purposely under report liquidity because a lot of the cash has been moved to other shells for corruption purposes. but if the bank heads are going to liquidity concerns, they moved the cash back as OBS financial products onto the balance sheet as write-ups or write-downs, because the cash will do little good if their bank goes under and they lose their job. this is already common place in shenzen.
so, i know it's cool to jump on the western media wagon and all but most westerners have a very fundamental misunderstanding of how the system actually works in china.
You're assuming the problem is centered in the banking system. I'd wager a larger share of the trouble will come from the informal sector. Loans were made against piles of iron ore, for god's sake - multiple times, no doubt. The chinese cannot control commodity prices, which is where the trouble started. All that warehoused copper is worth less today than when it was contracted and the price will fall further as the global economy slows. That's collateral for a lot of private loans outside the banking system and just about anyone with any money will be affected because they've all piled into that in the form of "wealth management trusts" - that is to say, that part of their "wealth" that isn't in real estate.
Frankly, I don't see a media bandwagon here. If anything, this problem has been largely ignored or glossed over by the mainstream. But consider the timing of the South China Sea dispute, and the known propensity of governments to hoick up foreign enemies as a distraction from domestic woes. You don't normally get this sort of behavior from China, but you're sure seeing it now. That's telling you something.
yeah but i also think that's being misunderstood somewhat. actually, ironically, one of the best reasons why is actually typically a favorite measure of ZH to show how bad things are becoming in China, but recently hasn't seemed to be focused on as much because it's been evening out. i talked about this yesterday actually. we often like to look at electricity in China, but I haven't seen reference on it in a while
http://www.stats.gov.cn/tjsj/zxfb/201405/t20140513_552377.html
the 8th table down is electricity growth up until april and as seen in the bottom bars the average daily outputs have begun to stabilize and bottom out. most of you cannot read chinese so either you can trust me or you can try google an english article that's referenced it. that "bottom out" was reinforced yesterday by Credit Suisse when they issued a note also saying they think China may be bottoming out based on electricity, railway, etc data showing a 'bottom' (though they also said this last year too and it did go down a bit more). so, you can google that if you want confirmation. further, with electricity and railway volume bottoming out (at least over a few quarters), copper is also stabilizing (which isn't to say things couldn't get worse; but it's at least taken a breather). copper is back up about 10% from its YTD lows and china's stockpiles are down almost 13% YTD (and the two are correlated). which isn't to say these things are going to get good -- but it is to say the collateral value is at least stabilizing, if not improving slightly, and will likely continue to improve at least in the short run as demand increases from the relatively quick (compared to the huge stock up last year) depletion this year.
and "wealth management products" really affect a very very tiny percentage of consumers. it'll hurt banks for sure and any institutions involved, and sure consumers will face their own headwinds, but it certainly won't be from any investment products. there's a fundamental difference with how loans, investments, business, etc work in the mainland... buying investment products there is like buying a business here, maybe; and buying a business, land, or real estate there is like how we buy stocks. they buy and sell like trading cards; and loans OBS between friends and family is almost just as liquid. these are small factors that i mention not because they're particular relevant to the economy (again we're taking fractions of a percentage) but it's important to know to begin to understand some fundamental differences in liquidity and asset/liability eco-system there.
and i'm still learning this market, too, so if will happily happily be proven wrong. i type this not to profress but to debate and discusss so if you disagree i'd love to know why.
Thanks for clearing that up. I keep a close eye on China, but the last time I was there was in 1989 and a lot's changed since then. I live in Vancouver, so I have some contact with people from China, but apart from that I depend on what I can glean from the net and other news sources.
As I see it, the main issues facing China are the size of its population relative to their resource base, and the rapid, often lopsided delelopment in the last 20 years or so. It seems to me they are trying to copy an already obsolete model, ie. the rise of Japan following western industrial capitalist modalities with the accompanying consumerism (credit expansion) that followed. That hasn't worked too well for Japan, or the West in general, as witnessed by the current global situation. The question is, can they weather the kind of downturn we've seen across the West and Japan, or will it get out of control and lead to serious disorder and repression? Don't have the answer for that - just have to wait and see.
I will say though, that if building bridges and fostering economic cooperation with other asian nations is their aim, they're going about it in entirely the wrong way. Seems they've forgoten their Lao Tzu:
Tao Te Ching - chapter 79
After a bitter quarrel, some resentment must remain.
What can one do about it?
Therefore the sage keeps his half of the bargain
But does not exact his due.
A man of Virtue performs his part,
But a man without Virtue requires others to fulfil their obligations.
The Tao of heaven is impartial.
It stays with good men all the time.
Make mine BitCoin.
You know those old empire aristocracies probably have 190 times the wealth, as the world has, locked away. Look how long Japan has been running on fumes. The US and EU can last for decades unless the oil oligarchies screw things up and can't reach an agreement with Russia and China. I'm beginning to consider the oligarchs as my patrons at this point.
it's all greece's fault now the euro peons can't afford all the chinese stuff cause of austeridity what needs to happen is Draghi must find a way to print som euros. maybe the Ecb could just merge with the PBoC
it could be called the china bank that owns europe or something
Welcome to the new Chinese disinflation.
Soon to be the new Chinese deflation.
Then the new Chinese recession.
Then the new Chinese depression.
Think 2020.
Whistle through the graveyard
of dreams of wealth and greed
slapped down as a joker card
on the table you see me bleed
(somebody else finish it...I gotta go to work)
Chicom Central bankers make our bankers look good
Well, maybe the same 'foreign countries', such as Belgium, will buy up all their debt bills, like they do with ours? Since it's all pretend anyway, why not just pretend some 'foreign country' has and that this bad debt will simply disappear like ours?