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China Enters The Danger Zone, SocGen Presents The Four Critical Themes
As both anecdotal, local and hard evidence of China's slowing (and potential hard landing) arrive day after day, it is clear that China's two main pillars of strength (drivers of growth), construction and exports, are weakening. As Societe Generale's Cross Asset Research group points out, China is entering the danger zone and warns that given China's local government debt burden and large ongoing deficits, a large-scale stimulus plan similar to 2008 is very unlikely, especially given a belief that Beijing has lost some control of monetary policy to the shadow banking system. In a comprehensive presentation, the French bank identifies four critical themes which provide significant stress (and opportunity): China's economic rebalancing efforts, a rapidly aging population and healthcare costs, wage inflation and concomitant automation, and pollution and energy efficiency. Their trade preferences bias to the benefits and costs of these themes being short infrastructure/mining names and long automation/energy efficiency names.
They detail their concerns about the Chinese economic outlook (weakening exports, housing bubble about to burst, local government's debt burden, and large shadow banking system), and show that China has no choice but to transition to a more consumption-driven economy leading to waning growth for infrastructure-related capital goods and greater demand for consumer-related manufacturing. Overall they see a hard-landing becoming more likely.
Weakness in PMIs, Exports, and Foreign Investments Are Emerging
Weakness Has Emerged In The Property Market
And The Chinese Financing System And Construction Industry Links Have Become Increasingly Complex
But Do Not Expect Another Large Infrastructure Stimulus Plan
Conclusion – The situation in China is worrying to say the least. Short-term indicators are weakening as past monetary tightening starts to bite and the export model is threatened once again by the risk of recession in Europe and the US. Data from the real estate industry show a significant deterioration, with a clear break in the confidence that real estate prices always go up. The debt burden of local governments and large ongoing deficits should prevent a large stimulus plan similar to that of 2008. Monetary easing could bring some relief, although we believe that Beijing lost some control of the financing system through the shadow banking.
So (Theme #1) Rebalancing Is Key - The Only Way Forward
And China Is Slowly Heading Towards Mass Consumption (Which Changes Commodity Demands)
Mining - The Hardest Hit
But There Are Three Other Long-Term Themes Driving/Stalling China's Growth
Theme #2: Aging Population and Healthcare Needs
Theme #3: Wage Inflation and Automation
Theme #4: Pollution and Energy Efficiency
And In Summary, The Global Industries Most At Risk (and likely to Benefit) From These Competitive Changes
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China likey inflation!
Who flung dung at Mr Chung!
Tim Geithner told them to not to buy oil from Iran anymore.
China told Tim to go take a hike.
"Red China" -v2012
The basic concept behind Critical geopolitics is that intellectuals of statecraft construct ideas about places, these ideas have influence and reinforce their political behaviors and policy choices, and these ideas affect how we, the people, process our own notions of places and politics. Thanks.
Regards,
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The business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business. Thanks.
Regards,
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Me Chinee
Me play joke
Me go peepee
in your Coke
OT Alert.
Dylan Ratigan will be speaking on the evening of the 18th at The Commonwealth Club in SF. He’s going to be pimping his book, but I respect the guy for making a consistent effort to awaken the masses. Ron Paul is a stronger catalyst than Ratigan, but I can’t think of any others; maybe Tabbi. These events typically have a Q&A period and the venue holds a couple hundred people. Tickets are $20 for non-members.
http://www.commonwealthclub.org/events/2012-01-18/dylan-ratigan
In contemporary literary studies, a theme is the central topic, subject, or concept the author is trying to point out, not to be confused with whatever message, moral, or commentary it may send or be interpreted as sending regarding said concept. Thanks.
Regards,
Scottsdale real estate Arizona
tHE " yUAN " Peg was set 5 days ago. 6. 1735- 6.34257!
I'm tired! C/U in Europe I have a cross
to ( BURN)!!!!
I love Wednesday night chart porn, China division.
when is the post going to learn that any story about china is an instant page turner...
Good stuff TD enjoyed this
http://www.youtube.com/watch?v=04QoA44c23A
Regards,
Cooter
How is nuclear most at risk when uranium prices and the nuclear industry in general is still suffering post-Fukushima?
Automotive seems promising as a global sector short term... lots of people need to drive. Until the oil runs out I suppose. Then we just need hamsters or humans to pedal to charge the batteries.
How is nuclear most at risk when uranium prices and the nuclear industry in general is still suffering post-Fukushima?
**********
My thoughts as well-
When something is hated so much and the sectors/uranium miners that furnish the industry are in the doldrums-what is there to fear-because it sounds like a bottom to me-
Emitting 25% of world co2 and having highest energy intensity why wouldn't China turn more to nuclear with both low co2 emissions and relatively low cost?
I like reading post by people like SocGen. If it were not for Bernanke, they would not be here.
What a biflationary world we live in when even Chevron can't benefit from higher oil prices:
Chevron warns 4Q earnings below 3Q resultshttp://www.businessweek.com/ap/financialnews/D9S727AO0.htm
All the old paradigms no longer work
Caviar I am listening to your thoughts on biflation. If they do more QE like Kito says they will (joke) how does a weak dollar impact a situation like Chevron"s earnings? Worse or better? Sorry for the ignorance.
No, not ignorant at all. It's not what we've all been conditioned to understand and expect.
In every past time period, the large integrated oil majors (CVX, XOM etc) would gain large windfalls from a spike in crude prices: they produced more, sold more, refined more and simply passed the extra costs down the line to end consumers. They made so much money during the oil spike of the 1970s that Congress voted the Windfall Profits Tax on the oil majors in response to accusations they were price-gauging the public.
Times have indeed changed.
They can't pass the extra cost of crude, or the higher cost of crude production on to consumers or businesses constrained by biflation: decreasing incomes and net worth and poor employment prospects for consumers and narrowing margins for business (affected Chevron too). Demand for refined product has actually declined, a sure sign of deflation and a very alarming trend for the economy. Keep in mind it wasn't because of fuel efficiency: DOT and AAA reported that vehicle miles driven have actually dropped (!). Not only that, as the quality of crude is slowly deteriorating, the cost of refining is up.
Caught between inflating costs and deflating demand. The classic picture of biflation. If the dollar declines, the cost of crude imports will rise further adding "fuel to the fire". Higher prices will only depress demand further. And QE is the ultimate Biflation-maker
Okay thanks for explaining. Would the retailers be feeling this inability to pass through the increased costs as well? I feel like I am just not seeing it or the market just is ignoring it.
Generally neutral refiners, long producers/exploration. Refinery biz is tough on the margins.
Margins have been declining since the start of QE. Companies from all industries are feeling it now. Retailers have been hit hard. Now even raw material producers. Watch for it in earnings this quarter
They are playing games with the earnings. A comnpany reports earnings. A week later they revise guidance down. The bar gets lowered. Everyone forgets this happened. Two months later they report earnings and hit the lowered bar. All the market cares about is they hit the number. I guess my point is you are right but the market seems to shrug it off. Or it has so far anyway.
The "Market" is no longer a reflection of economic growth. It's a barometer of anticipated monetary expansion
If that is the case. Would it be better to try to maintain purchasing power in the market or in cash. Right now you can say gold and it will be checkmate. I understand this.
With your money in the market you're entrusting your dollars to a combine who's interests you hope line up with yours. If that situation changes, your capital is at risk. 2008, 2010, and 2000-1 are not that long ago but memories can be short. There could be giant disapointment without QE. With gold you're hedging agianst monetary dilution and other risks we've discussed. Your buying power is protected. But your time frame has to be long term.
Retail has some flexibility with margins as they can move it around from one product to another (discounting, 2 for 1, etc) while they increase elsewhere and keep the average margin level-ish. Apart from when something particular has happened that influences a business model (acquisition, commodity spike...) margin pressure has been steadily downwards since 2008 for sure. Traditional buyer power still features although appears to be weaker relatively.
Q1 retail will have to absorb a wave of returns from the christmas season's purchasing frenzy which benefitted from benign weather but was shadowed by austerity.
Difficult to say what the market is following as 40% of it is computerised HFT now - its more aligned to what Caveat mentioned.
Service and support companies are unable to pass through as well. It is a vicious cycle that has hit us since 08'. The pinch hit the service and support companies for production companies hard in 09'.
The snivelling greedy boomers that comprise management have no intention of making money for anybody but themselves through outrageous compensation and stock option abuse. After that is paid out, who gives a fuck whats left for shareholders or the enviorment. Same goes for almost every corporation out there.
I was looking at images of unfinished developments in Arizona and Nevada, and reminded of the empty cities in China. It is interesting that the US housing boom built capacity for hypothetical second home owners and retirees who will never arrive because of the bust, where China built cities for a middle class that may never arrive, because of their own hard landing. Everyone keeps telling me China is different though...
Everyone keeps telling me that Australia is different too, because we have immigrants (both legal and illegal) coming here, and everyone wants to live in Sydney, so that's why house prices MUST go up.
Nevermind these facts:
- With China purchasing as many Australian farms it can get its hands on, we're losing out on money from farming
- We've lost the majority of our manufacturing, and now a private equity group (KKR) wants to purchase a once famous brand of Australian made (now Chinese made) clothing
- Average rent per week in Sydney is $400, meaning that if you were on minimum wage ($583 per week before tax), you'd be paying 68% of your gross income for rent. That's good, right?
- Average petrol price is $1.50/litre, a pack of cigarettes is $17, and a 6 pack of cheap beer is $12-$15. That would wipe out the rest of your minimum wage.
- The Australian Government implemented a tax last year (they said would only last 1 year) on the majority of Australians incomes that would pay for rebuilding of towns hit by floods, and we'll have a "carbon pricing scheme" starting July 1st this year.
With food costs still going up, I'm not sure how people will still be able to afford to keep living the "Australian" lifestyle.
Oh that's right, it's different here.
Whoa...with a strong AUD, that makes those prices (of beer, smokes) even more ridiculous.
Australia and Canada both have some corrections in their future. Housing never corrected in the major urban centers so price to income multiples are above long run averages in both countries. Exceptionally so in certain cities (e.g. Vancouver), suggesting a trigger event would start that decline. The prudence of the Canadian banking market (aka risk aversion, lack of GSEs, mostly balance sheet lending) makes it less risky there. Not so sure about Australia in terms of reliance on wholesale funding (and frankly the wholesale mortgage market there makes me think of US parallels, whereas less developed in Canada).
China may be the trigger for both countries.
Australian banks post increasing profits year on year (it was north of $24bn for the 4 largest banks servicing around 12 to 14 million customers customers during the last financial year), and continue to pass on, as they state, "the increased cost of borrowing from overseas lenders".
The way I read this is that they've already used up whatever funds are available on their balance sheets, and have been hitting up overseas lenders for the last few years. One of our largest banks, Westpac Banking Corporation, was on the list of banks borrowing funds from the Fed in 2007/2008.
Looking at the following link paints a bleak picture for our banking sector: http://barnabyisright.com/2011/12/24/westpac-nab-survive-on-us-fed-life-support/
As for housing prices, we've been seeing discounts on housing prices in major cities except Sydney, which is the golden child of all those in real estate as an example of prices "never going down" or "prices double every seven years". Purchasing a 1 bedroom apartment in Sydney will run you anywhere between $250K for a filthy shoebox, to upwards of $400K for something rather decent, but those are within 20km of the CBD. The further out you go, the worse it gets in most areas.
It's a case of the blind leading the mute here - the blind don't know where they're leading people to, and the mute can't say anything when they see problems, so we're all screwed.
DoChen has got to start selling bearings to China
has china lost its bearings?
I know there is a great deal of hype about insourcing but I suspect bearings are still being produced in some slave factory in Zhejiang, which is the Ball Bearing capital of the world
Launching Paper Gliders off a " Soviet Carrier" ? You tell me?
How can any financial information about a communist country be taken with an level of trust? China this China that. No one really knows...
not to mention enron; or the FED
at least if you question the chinese they will show you the abacus and say, "See?"
hard landing; take it or leave it
your guess is as good as theirs or anybody else's since we all have about the same info and almost none of it is right
Danger Zone - Kenny Loggins (Top Gun)
Somehow it will be twisyed as positive news by MSM tomorrow morning
Gartner reports worldwide PC shipments declined 1.4% in Q4 after 2 positive quarters. Weakness in Europe, US cited. "The big surprise was the US" "Worst performance since Q4 2008"
http://www.cnbc.com/id/45964913/
It's like it has already happened. We've seen the flash but the sound and shockwave still haven't made it to us yet. What a fucking bizarre situation.
Excuse me while I go get high.
http://www.youtube.com/watch?v=LAXROVvsKxY
Thank you. That is exactly what I am saying but did not articulate.
When things don't add up there's always a reason.
Put more simply, things are actually worse than any of the prevailing estimates indicates, although Goodman is very close to the mark. Current loss experience suggests that this figure is staggering, easily in the $1 trillion range.
Why aren’t those losses more visible yet? Well, evidence suggests that servicers are stalling the foreclosure process, not taking title to and selling these houses. For the lenders, such delay likely allows them avoid the write-offs of both the negative equity as well as the worthless second liens. More generally, it keeps the trillion dollar losses hidden. Lenders aren’t acknowledging their stall tactics, however. When people notice how slowly foreclosures are progressing from initial steps to resale, lenders point at their foreclosure fraud related dysfunction. Lenders conveniently don’t mention that such dysfunction was self-induced, instead blaming borrowers and courts.
http://www.nakedcapitalism.com/2012/01/michael-olenick-10-million-shadow...
Tyler,
You got to read this:
http://www.dailymail.co.uk/news/article-2085163/Children-dumped-streets-Greek-parents-afford-them.html
This is just disheartening and what's coming in a few other countries near you soon.
Man that is so fked up.
Yes, the "children of the streets" syndrome is beginning. Well known in Latin America, India, and other poorer nations. A sure sign that the SHTF. You can expect Greece to see a great increase in violent crimes in 20 years or so. When You see these children in American cities, You know we hit bottom.
Tent cities are alive and well.
http://www.google.com/#q=tent+city&hl=en&prmd=imvns&source=univ&tbm=vid&tbo=u&sa=X&ei=5osOT4ucKeX10gGB0tm5Aw&sqi=2&ved=0CJcBEKsE&bav=on.2,or.r_gc.r_pw.,cf.osb&fp=220b4fcb9e3f3dda&biw=1366&bih=677
Excellent analysis. And finance 101 that was drummed into our brains is when Brazil went nuts buying USDs when inflation hit them in the 90's. China and pretty much most of Asia is doing the same at this present time.
Oh and short Australia
Surely not Australia Cobber?
They are about to have a $112 Billion intrastructure boom so their mines can keep supplying China's never ending double digit growth.
http://www.smh.com.au/business/boom-draws-in-foreign-fortune-hunters-201...
Next you will say something completely wacky like that Australian House prices will fall.
/sarc off
Frightening.
They may be able to start exporting some gold. Hmmm...
Why many people think China can grow 10%/year without encountering
pitfalls along the way amuses me. At least China has engineers and
economists running their country and not career politicians and buffoons
like we have here in the U.S.A.
weakening exports? Didn't they just hit it out of the park yesterday?
Obama's charge for "Made in America" suddenly has a new ring to it.
Breaking China CPI 4.1% vs 4.0% expected...15 month low, sl below 4.2% November. Food prices up 9.1% yoy
ot
Owning a car, Television increases heart attack risk by 27%http://timesofindia.indiatimes.com/life-style/health-fitness/health/Owni...
Yuan Inflation / is a Joke! Any HOT Air Blimps for sale?
If they repeal the one baby per household rule they will have buyers for all the overbuilt housing inventory in about 23 - 24 years from now. I understand that chinese take a long term view of things.
9% food inflation and rising. More babies would not be good haha
With ( ALL), due Respect! More field plowing " MALES" , would be appreciated!
re: one baby per household rule
Illustrates you know little to nothing about China and beleive the stero type main stream BS.
Post some links showing I am wrong asshole or shut the fuck up.
Is Brookings institute mainstream media?
http://www.brookings.edu/opinions/2010/0924_china_one_child_policy_wang....
Here a fun one about a anti one-child activist being send to a labor camp:
http://www.amnesty.org/en/library/asset/ASA17/008/2011/en/03f3eb04-4182-...
Easy) Limp Dik Dong! I'll go long on the house hold ( RED) Rule!
Shark Fins for sale?
That Wage/ Inflation chart Is sweet! Just like the 747 ( 800( Smart move Boeing! I'm LOOONG!
Soc Gen? What ? Who?
The over night borrowing ( CHAMPION)
Meanwhile:
Chinese Skyscraper built in 15 days
Quite impressive:
http://uk.news.yahoo.com/time- lapse-video--30-storey-hotel-built-in-just-15-days.html
Definately not build by Union phucks...
And if it becomes too bad, China will do like us and start a war... against Taiwan, Vietnam, India... whoever they want.
Bang Dai Ho: My cousin Ishnot Long Nao say China really screwed.
You all get a " Bean" in your New Years' Stocvking!
Yes the " V" was intended!
china's got at laest another 40 years plus of strong growth,... the trillionaires know where to invest - China, period!
jmo
A T-1 one of what? Black and Pecker? Harry Pot Metal?
That is funny the Chinese millionaires, are investing anywhere but China, and sending their wealthy kids overseas (Australia, Canada, USA.....).
What does that tell you? The Chinese know it is all bull shit.
China consumer( tied in with bubble / condo ect ) as part of GDP has been trending down for years not up. They backstop the cheap loans and manufacturing and with fixed asset investment way over 50% ( ghost cities ) so how can they rebalance ?
What jobs are left after the bubble burst in construction / manufacturing. ( Dragging down many commodities ) s.korea, taiwan proxy- have been slowing for months
How many times has the china consumer / hosing investor / experienced a downturn in the long, long history of home ownership. Never, its been going up for what ? 10-12 years.
Next reserve currency ? WTF....
Lol
Float me some "YUAN"! All the ponzi China money flowing through Canada is a JOKE!
From Plato's Republic:
And is the city which is under a tyrant rich or poor?
Poor.
And the tyrannical soul must be always poor and insatiable?
True.
And must not such a State and such a man be always full of fear?
Yes, indeed.
Is there any State in which you will find more of lamentation and sorrow and groaning and pain?
Certainly not.
And is there any man in whom you will find more of this sort of misery than in the tyrannical man, who is in a fury of passions and desires?
Impossible.
Reflecting upon these and similar evils, you held the tyrannical State to be the most miserable of States?
And I was right, he said.
Does any really believe what these investment bankers or rating agencies say? I do not anything they say ... China will slow down and instead of depending on exports to West, it will focus on exports to developing markets and domestic consumption. People in China have lot of money in terms of savings and they will survive this down turn. It is for the west to worry if China instead of subsidizing their demands focus on domestic needs.
Nah.
China is China and will implode internally at some point in the next 10 years. The small numbers of rich along the coast will meet the 100's of millions of poor in land. And then they will retreat for another 50 years. Can't fight history.
China and North Korea will unite for the biggest "GOULAG"show on earth! It might be a bit smoky though!
I think SocGen should consider focusing on its own balance sheet and France in general.
How can you take anyone's research seriously on any topic when the provider at large is already bankrupt.
Would you see a doctor repeatedly sued for malpractice? Would you use a subbookkeeper that spent time in prison for tax evasion? Would you invest time with a marriage counselor that has been divorced 5 times?
Banks like to talk about confidence, risk aversion and due diligence.
I sure the Chinese are hanging on every SocGen word.
I sure am.
Short China and Short SocGen that says to be short China :)
http://theimperatore.blogspot.com
That's about right. The Fed can't manage 300 million, let alone 1.3 billion...
I laugh @ this shit! A bucket of GOLF balls is on my menu!
I hope the Chinese aren't expecting a global bout of QE will help the situation as it will only increase the shadow banking impact.
Is China the "Carbon Fiber"Shadow? Point being. China can't find enough "Steam Shovels"" , too bury the soot it produces!
China is a giant "Cat Fish"! It just dissappeared? A full grown man that is!
only onion and plastic rice in kung pao
no chikn tu spensive. vari good ;)
5th critical theme
entire company threatens to jump off roof if wages are not increased
China medical costs set to soar? I don't think so 70 year olds are not going to get triple bypasses and titanium hips paid for by big Red Brother. They just get taken out back and put out of their pain with a 9mm.