Big Outflow Trouble In Not So Little China?

Tyler Durden's picture

China has two problems... well more than two we are sure, but these seem critical.

 

First, there is a significantly slowing economy that 'desperately' needs the hand-of-god Central-Banker to stimulate it with free-money - but is hand-cuffed by the huge disconnect between 'apparently' low CPI and extreme highs in food and energy prices which will only exaggerate spending retrenchment should any money-printing be enabled.

 

and with Corn stocks at a stunningly low level (lowest since 1995 and nearing 1975 levels) things are only going to get worse...

 

Which leaves the PBOC somewhat powerless to do the kind of massive stimulus hole-digging-and-re-filling that is required to plug the economic demand slack.

 

Second, it seems for many investors the writing is on the wall as money is flowing out of the world's growth engine faster than oil from a wok. While at the surface USDCNY appears to be doing its 'stable' thing - the PBOC is soaking up unprecedented amounts of CNY as the market 'sells' out.

This chart (that we previously discussed in detail here) shows the difference between market-driven movements in USDCNY (red) and PBOC-driven (blue) - clearly the market is selling its CNY and running away and while we are sure China would like a lower Yuan (to help exports etc.) it is nevertheless band-ridden and needs to maintain some stability or trade-wars or worse will escalate - so the PBOC is soaking up massive amounts of Yuan (and selling out its USD?) to maintain that illusion of control...

These 'adjustments' which are now on an unprecedented scale started right after LTRO2 ended and are accelerating...

which is leading to forward-Yuan trading at post-crisis high discounts...

 

This combination of slowing (and seemingly unstoppable) economic trajectory with significant negative money-flows is a vicious circle - evidenced by the efforts of the PBOC with stealth reverse repos and the 'easing' of their Yuan trading bands (chart below - as per Bloomberg's Chart of the Day) as perhaps they revert back to a weaker Yuan policy (and implicit strong USD mercantilist vendor-financing model).

 

Charts: Bloomberg and Diapason Commodities

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
duncecap rack's picture

people are cashing in their CNY and the PBOC is somewhat forced to buy them if they want to maintain their currency peg. They might let  the currecy slide a bit in the future though. Hope that was helpful.

Ahmeexnal's picture

racism in germ-any flares up again:

http://www.thelocal.de/national/20120825-44569.html

At least nine people were taken to hospital after a fire swept through at a home for asylum seekers in Stuttgart early on Saturday morning. 

The images of asylum seekers jumping out of windows to save themselves from flames immediately raised memories of racist rioting near Rostock, when the accommodation of asylum seekers was set alight. The 20th anniversary of those riots are being marked this weekend.

Although the cause of the Stuttgart fire will be investigated over the coming days, initial assessments make no suggestion of foul play.

One person was in a critical condition, while the rest were suffering from smoke inhalation and burns, a police spokesman said.

Initial estimates suggest about 50 people were in the two-storey building in the Heumaden district when the fire broke out. Emergency teams were looking after the remaining residents while steps were being taken to find them somwhere else to stay.

The police spokesman said two men had jumped out of the window - one had used a sheet to abseil his way to safety.

 

Fascist police force in France is cleared of any wrongdoing:

http://www.thelocal.fr/page/view/amiens-police-cleared-of-provoking-riots

 

Police in riot-hit Amiens have been cleared of provoking two nights of unrest that devastated part of the northern French city earlier this month.

Residents of Amiens' northern quarter have claimed rioting that caused six million euros ($7.5 million) worth of damage and left 17 police officers

injured was triggered by heavy-handed policing of a funeral and wake in the neighbourhood on Sunday August 12.

Police chiefs ordered an internal investigation which has now concluded that the officers involved had acted appropriately and within guidelines.

In particular, the arrest of a man who was driving on the wrong side of the road was "legitimate and necessary," a preliminary report said.The arrest of the man triggered a confrontation between police and dozens of youths who had been at the wake for a 20-year-old who died in a motorcycle accident the previous week.

Police used tear gas to disperse the group of youths that night and more serious clashes followed 24 hours later in which several cars, a local school and a sports centre were badly damaged by fire.

A total of seven people, four of them minors, have been arrested since the rioting, which involved more than 100 youths.

 

While Sweden plunges into full blown depression, the elite purchases fighter jets to be used agains it's own civilian population when TSHTF:

http://www.thelocal.se/42822/20120825/

 

The Swedish government has promised that Sweden is to buy 40-60 units of the next generation of fighter jet Jas Gripen, and is therefore increasing the Swedish Armed Forces’ budget.

The Armed Forces (Försvarsmakten) will be receiving 300 million kronor ($45.5 million) extra in 2013 and 2014, and 200 million kronor extra annually after that, wrote the leaders of Sweden’s four centre-right governing parties in an opinion piece in the Svenska Dagbladet newspaper (SvD).

The party leaders wrote that Sweden and Switzerland, in need of 22 aircraft, have teamed up to buy the Jas Gripen E/F, or Super-Jas.

According to the government, the new system will be up and running in Sweden from 2023 and at least 20 years after that.

The party leaders wrote that this partnership with Switzerland makes the system more cost efficient. The alternative, buying foreign aircraft, has been analyzed, but the new generation of Jas Gripen has been deemed more efficient for several reasons, they claimed.

But not everyone looks happily upon this deal.

“We have a defense which is walking on crutches, and if we force it to carry a great deal of the cost of new Jas Gripens, it’ll crash,” said the Green Party MP Peter Rådberg to news agency TT.

The total cost is still kept secret, something Rådberg is highly critical of.

When TSHTF....."Party leaders".....will send the surviving sheeple to the gulag for mass "re-education".

q99x2's picture

Drones are pretty easy to make if the people need to fight back. I think Tesla was making them somewhere around the beginning of the 20th century. The other day I saw some kids practicing dropping a small bag of dog shit from the sky over a field nearby.

CTG_Sweden's picture

 

Ahmeexnal:

"While Sweden plunges into full blown depression, the elite purchases fighter jets to be used agains it's own civilian population when TSHTF:

http://www.thelocal.se/42822/20120825/

The Swedish government has promised that Sweden is to buy 40-60 units of the next generation of fighter jet Jas Gripen, and is therefore increasing the Swedish Armed Forces’ budget.

The Armed Forces (Försvarsmakten) will be receiving 300 million kronor ($45.5 million) extra in 2013 and 2014, and 200 million kronor extra annually after that, wrote the leaders of Sweden’s four centre-right governing parties in an opinion piece in the Svenska Dagbladet newspaper (SvD).

 

The party leaders wrote that Sweden and Switzerland, in need of 22 aircraft, have teamed up to buy the Jas Gripen E/F, or Super-Jas.

According to the government, the new system will be up and running in Sweden from 2023 and at least 20 years after that.

The party leaders wrote that this partnership with Switzerland makes the system more cost efficient. The alternative, buying foreign aircraft, has been analyzed, but the new generation of Jas Gripen has been deemed more efficient for several reasons, they claimed.

But not everyone looks happily upon this deal.

“We have a defense which is walking on crutches, and if we force it to carry a great deal of the cost of new Jas Gripens, it’ll crash,” said the Green Party MP Peter Rådberg to news agency TT.

The total cost is still kept secret, something Rådberg is highly critical of."

 

My comments:

 

Over the past 30 years, Sweden has drastically shrunk its defence budget in terms of share of GDP. The Swedish defence industry, now to a large extent foreign owned, has also shrunk. My assessment is that the order for new JAS Gripen aircraft is a concession to big business in Sweden and people that still hold Saab stock [Saab AB (publ) shouldn´t be mixed up with the auto company Saab]. The current center-right government has so far not favoured domestic high tech industries and domestic big business. Instead, they have imposed tax breaks for cleaning peoples homes and fast food restaurants. New tax regulations will also in practice raise taxes for some venture capitalists and parts of big business since it will be harder to elude Swedish tax regulations. At the same time taxes will be lower for small and mid-size cleaning firms without offshore parent companies and owner operated fast food restaurants.

 

Furthermore, I think that there is a very small risk that Swedish armed forces will be used against the people. The Swedes generally think they have acceptable governments. Even when they make terrible mistakes like when they pegged the krona to the former EU currency Ecu and defended the exchange rate with a 500 % interest rate people thought they had politicians they could accept. The politicians blamed “the market” and the electorate bought that. On the other hand I prefer the former conscript army to the current system with regular soldiers from a democracy point of view (although I tried to get an exemption warrant and later applied for not having to participate in compulsory military refresher courses and also got the poorest grades on my platoon, 10-6-6). I think that the best solution from a democracy point of view would have been a very short but compulsory military service. My impression is that the reason why they scrapped the conscript army is that a very significant share of the young men in Sweden nowadays are Muslims and in some cases sympathize with radical Islam. They don´t want to give such people military training and let them know where they can steal, let´s say, a Robot 70 surface-to-air missile. But I don´t think that people in the Establishment are willing to admit that.

 

I am not sure that the Swedish economy is in a true recession yet. Unemployment has risen somewhat, but that´s rather because of excessive supply of labour than reduced aggregate demand in the economy. But it might get worse if the Swedish krona continues to appreciate.

 

 

(As regards China, which the article above is about, I suspect that the outflow of money is partially due to fear among investors that China´s new leaders will impose a more socialist policy than their predecessors. They can´t know for sure before they have seen the result of the change of leadership due this autumn.)

 

 

Totentänzerlied's picture

"I think that there is a very small risk that Swedish armed forces will be used against the people. The Swedes generally think they have acceptable governments."

The second statement is totally irrelevant to the first.

ThirdWorldDude's picture

How do you say "Timmmberrrrr" in swedish...?

http://www.swedishtrade.se/PageFiles/134236/Export%20Managers%20Index%20... 

Edit: cue a pop of their housing bubble.

BRoquet100's picture

Didn't the Greeks buy a bunch of armamants during their financial collapse? is this for Martial Law?

This is insane if countries are doing this while whole familes starve or are deprived medications. INSANITY!

AmericanFUPAcabra's picture

if i recall correctly it was something like 40-50 M1A2 Abrahms tanks from none other than uncle sam

Arthur Borges's picture

The political reliability of Muslim conscripts seems plausible as an issue; the other issue is that a greater share of jobs require long training courses: it's wasteful to send a conscript on an 18-month training course if his term of service is up six months later.

trebuchet's picture

As in - let the Yuan apprieciate a little. 

 

Post fixed, agricultural price problem fixed. China fixed.  

oh wait.......  china prints yuan, buys dollars, fixes currency rate. there. china fixed. 

 

 

apberusdisvet's picture

 

 

The Yuan will be gold backed

 

The USD will be tungsten backed

Peter Pan's picture

Seriously now, do you honestly believe there is enough tungsten in this world to have a tungsten backed dollar?

I am not having a go at you. I am simply saying that is unlikely that there is enough of anything with which to back the US Dollar except BS.

fattail's picture

BS applied evenly and in the correct quantities is actually quite useful and valuable in agriculture.  Sadly there isn't enough of BS to back the enormous amount of dollars that will have to be printed.

DeadFred's picture

With the quantities being spread around of late we are seriously in danger of osmotic burn out. The system can only tolerate so much.

andrewp111's picture

Tungsten is used to make bullets and penetrating warheads. That is how Uncle Sam will back its dollar with tungsten.

Svendblaaskaeg's picture

"Tungsten is used to make bullets and penetrating warheads."

and sizing dies

Stuck on Zero's picture

Better Tungsten than nothing.

 

francis_sawyer's picture

full faith & credit of digital "1"'s & "0"'s...

Sure ~ I'll hand over my gold & oil for that... [rolls eyes]... I'd prefer 2 have some REAL jooelrey... Thank u just the same...

BRoquet100's picture

You can use tungsten for light bulbs. Gold is worthless.

LetThemEatRand's picture

So the race to the bottom -- where the Western oligarchs gradually convince the population that they just need to accept lower wages, more pollution, and greater wealth disparity in order to "compete" with countries like China  -- is taking another leg down. 

Ahmeexnal's picture

Yes, western oligarchs have gradually convinced the sheeple that they need to adopt socialism.

Individualism - bad.

Collectivism -good.

The message to the individualist who yearns for freedom and liberty is clear: YOU DO NOT EXIST.  ONLY THE PARTY (AND BANKSTERS) EXISTS.

LetThemEatRand's picture

Facsism is what the oligarchs have been selling.  Many sheep mistakenly call it socialism, and they develop a knee jerk reaction against anything that involves collective action by the people.  The oligarchs love that, because if the people are convinced that they must act individually or not at all, the oligarchs hold all of the cards.  

Totentänzerlied's picture

You're getting less funny. Socialism is a category and a type within that category, it is for all intents and purposes, outside the Marxist debate club, interchangeable with collectivism and communitarianism. As a category it includes fascism, Maoism, Leninism, Marxism, Stalinin, national socialism, Juche, and about 100 other "different" varieties.

"Anything that involves collective action by the people" is collectivism and uses the - to call a spade a spade - bullshit term "the people". The people is an abstract collective noun referring to a thing which is itself incapable of doing any-thing because it does meaningfully exist in the real world.

"if the people are convinced that they must act individually or not at all" is pure specious equivocation. By definition a market involves interaction between persons, they are acting individually together.

This is grade school material, you must have been absent that day. My knee-jerk reaction to your endless collectivist yearning/whining is: grow up, your arguments have more holes than the innocent bystanders at the Empire State Building.

akak's picture

And LTEM is hereby officially bitchslapped!

LetThemEatRand's picture

If you mean that some bitch just vomited a bunch of meaningless drivel in support of an insanely myopic ideology in response to my post that correctly distinguishes fascism from socialism, you are correct akak.

LetThemEatRand's picture

Right.  The oligarchs love it when you universally condemn any attempt by individuals to act together against their interests.  They thank you for your support.

Likstane's picture

It sure looked like you got bitchslapped!

papaswamp's picture

Shhh shhhh all is ok...just keep saying that...

BattlegroundEurope2011's picture

Age old question of where to store your wealth....GOLD!

jmcadg's picture

and silver ... and physical in your possession :)

Fractal Parasite's picture

... which is indeed where the Chinese gov't encourages the citizens to put their pension savings.

Kimo's picture

I am hearing lots of antedotal stories of Chinese taking holiday outside of their county... namely, Germany and Thailand.  Perhaps other locations as well.  Yes, there is lead time to holiday planning, but I am still left wondering how the breadwinners, when faced with such a drop in exports, can justify pleasure trips, especially considering the Chinese mindset.

As an aside, from my own observations last spring, Japanese tour groups in and around Germany have done a cliff drop.  That has not changed since last spring, from what I am hearing on that circuit.  But Koreans are still well represented.

American34's picture

Maybe they aren't returning to China. Maybe they are getting out while they can.

Ahmeexnal's picture

No.  They are buying up everyting in sight.

Most euro-peons have a slave mindset dating back to medieval times: paying rent, paying high taxes, bowing to kings and queens, being OBEDIENT AND NEVER QUESTIONING AUTHORITY.

Saw Bergman's "Das Schlangenei" recently.  The german commissar pretty much summarizes what happened to the sheeple during Weimar hyperinflation:  they just kept being good obedient citizens doing their everyday routines as much as possible while the world around them burned.  Those who saw the shitstorm coming and took measures to protect themselves (Jews, gypsies, free-thinkers) were later expelled/robbed/murdered.

You can tell all this to anyone who is willing to listen. No one will believe you despite the fact that anyone who makes the slightest effort can see what is waiting in the future.

It's like a serpent´s egg.
Through the thin membranes, you can clearly discern the already perfect reptile.

BigDuke6's picture

I had a feeling you'd like bergman.

Son of Loki's picture

Those traveling Chinese are the tiny minority who work for 1. foriegn companies; or 2. RE developers; or 3. who work for the Gubbermint there.

Don't forget, more then 50% of people there live on less the $1 per day according to BBC (and that is probably optimistic). That 2008 "stimulus" they injected into their markets seriously distorted their economy similar to here except their injection was 3x bigger when compared to their GDP. 

Their Housing Bubble is much greater then USA's relative to incomes. Market correction inevitable:

China Confronts Mounting Piles of Unsold Goods

 

http://www.nytimes.com/2012/08/24/business/global/chinas-economy-besiege...

 

..and this...

 

http://www.nytimes.com/2012/08/24/business/global/manufacturing-in-china...

 

 

Totentänzerlied's picture

I have Chinese relatives (by marriage) in the extended family. They somehow are able to take long vacations all over the world, including the US, but they are incredibly frugal - they waste nothing, eat cheaply, don't own a car, and seem to buy only the bare essentials. There's an old rumor that the government pays certain (party-affiliated) citizens to travel, who knows.

I'm more amazed that so many Americans are still traveling - with whose money???

phat ho's picture

ahhhh. I've got it. We'll keep digging our financial hole until we hit China..... shit; this stuff is easy...

phat ho's picture

<----- gave myself a mark down

_ConanTheLibertarian_'s picture

just change it to an up vote.

moskov's picture

It's meaningless for China to stock up dollar when the coming bond bubble will explode within 2 years, plus it's not that China has a problem in export. It's literally every top end market in the world is too broke to buy anything. So you either use that dollar to buy up overseas assets like crazy and gold, or you could sit there and waiting for the FED to unfold another QE which will flood a wave of hyperinflation to your country.

Dollar index is going to be useless soon and only Gold will be the king

ozziindaus's picture

I totally agree with you in regard to crashing aggregate demand. However I must disagree with you on USD devaluation and bond market collapse. The FED is totally out of bullets and knows it must preserve its only asset, dollars. More debt does not solve a debt crisis, only default does and that's good for the dollar. 

reader2010's picture

Don't worry the Party has ordered to build more roads and bridges to empty cities in the desert as the newly-built ones are collapsing one after another non-stop. China is indeed fucking DIFFERENT.

http://tinyurl.com/8ggddfo

q99x2's picture

Its not a housing bottom but a financial panic that is driving up US home sales.

akak's picture

Big outflows never a problem in not-so-little China.

Big roadside excretory outflows are part and package of Chinese Citizenism.

 

Son of Loki's picture

When house prices correct down to normal (that's about 14 medium sized corn cobs per sq foot), I may buy one for my son.