Hong Kong

Following on from our annual update on the wealth (re)distribution of nations, we thought it important to look at the other side of the household balance sheet - that of 'debt' to see just how much 'progress' has been made in the world. In the aftermath of the credit crisis (and the ongoing crisis in Europe), government debt levels continue to rise but combining trends in household debt highlights countries that have sustainable (and unsustainable) overall debt levels  - and thus the greatest sovereign debt problems. Whether the 'number' is from Reinhart & Rogoff or not, the reality is that moar debt is not better and the nations with the highest debt-per-capita may surprise many. Critically, despite the rise in 'wealth' from 2000-2008, the ratio of debt-to-net-worth rose on average by about 50% (and in many nations continues to rise). The bottom line - in almost all countries, government liabilities exceeded government financial assets in 2011, leaving the government a net debtor.

The store of wealth demand is not just from Chinese ‘aunties.’ There remains an under estimation of the demand coming from wealthy Chinese and high net worth and ultra high net worth individuals (HNWs and UHNWs). 

This has not been commented upon or analysed but we have direct experience of wealthy Chinese people looking to store gold in Hong Kong and Switzerland, as have other storage providers.

Following April's surprising drop in crude imports which led to a multi-year low in the March trade balance (revised to -$37.1 billion), the just released April data showed an 8.5% jump in the deficit to $40.3 billion, if modestly better than the expected $41.1 billion. This was driven by a $2.2 billion increase in exports to $185.2 billion offset by a more than double sequential jump in imports by $5.4 billion, to $222.3 billion. More than all of the change was driven by a $3.2 billion increase in the goods deficit, offset by a $0.1 billion surplus in services.The Census Bureau also revised the entire historical data series, the result of which was a drop in the March deficit from $38.8 billion to $37.1 billion. In April 233,215K barrels of oil were imported, well above the 215,734K in March, and the highest since January. Furthermore, since the Q1 cumulative trade deficit has been revised from $126.9 billion to $123.7 billion, expect higher Q1 GDP revisions, offset by even more tapering of Q2 GDP tracking forecasts. And since the data is hardly as horrible as yesterday's ISM, we don't think it will be enough on its own to guarantee the 21 out of 21 Tuesday track record, so we eagerly look forward to today's POMO as the catalyst that seals the deal.

Back in 2010 we started an annual series looking at the (re)distribution in the wealth of nations and social classes. What we found then (and what the media keeps rediscovering year after year to its great surprise) is that as a result of global central bank policy, the rich got richer, and the poor kept on getting poorer, even though as we predicted the global political powers would, at least superficially, seek to enforce policies that aimed to reverse this wealth redistribution from the poor to the rich (a doomed policy as the world's legislative powers are largely in the lobby pocket of the world's wealthiest who needless to say are less then willing to enact laws that reduce their wealth and leverage). Now that the topic of wealth distribution (or rather concentration) is once again in vogue, below we present the latest such update looking at a global portrait of household wealth. The bottom line: 29 million, or 0.6% of those with any actual assets under their name, own $87.4 trillion, or 39.3% of all global assets.

For all the talk China's economic problems are getting (and yes, its official PMI came just slightly ahead of expectations on Saturday printing at 50.8 with consensus looking for 50.0: after all the Politburo can't give the impression of an out of control stall), the real action continues to unfold in its primary derivative economy, that of Australia, and particularly its "China-feeder" resource space, which is a far more accurate indicator of the true demand picture in China than manipulated data out of Beijing.  What is going on there, for those who have not been paying attention, is in one word, a disaster.

As Barron's notes in this recent interview, Marc Faber view the world with a skeptical eye, and never hesitates to speak his mind when things don't look quite right. In other words, he would be the first in a crowd to tell you the emperor has no clothes, and has done so early, often, and aptly in the case of numerous investment bubbles. With even the world's bankers now concerned at 'unsustainable bubbles', it is therefore unsurprising that in the discussion below, Faber explains, among other things, the fallacy of the Fed's help "the problem is the money doesn't flow into the system evenly, how with money-printing "the majority loses, and the minority wins," and how, thanks to the further misallocation of capital, "people with assets are all doomed, because prices are grossly inflated globally for stocks and bonds." Faber says he buys gold every month, adding that "I want to have some assets that aren't in the banking system. When the asset bubble bursts, financial assets will be particularly vulnerable."

Jim Rogers was recently interviewed by GoldMoney and had plenty to say (as usual):

On Bernanke: "He doesn’t want to be around for the consequences of what he’s doing."

 

On Fiat: "Paper money doesn’t have a very glorious history, but again, nothing imposed by the government has a very long and glorious history."

 

On Europe's Crisis: "You can postpone it all you want, but the problems just mount."

 

On Capitalism: "You are not supposed to take money away from the competent people and give it to the incompetent so that the incompetent can compete with the competent people with their own money. That’s not the way capitalism is supposed to work."

One look at the 5%+ plunge in the Nikkei overnight and one would be allowed to wonder if this was it for Abenomics: with a 15% drop from recent highs, and the TOPIX Real Estate index down by more than 20%+ since mid-April, entering a bear market, what's worse is that even the "wealth effect" Mrs Watanabe fanatics would be excused from having much hope going forward. The problem, however, is that in a world in which only the USDJPY matters as a risk signal, and only the stock market remains as a last bastion of "hope", the overnight weakness pushing the dollar yen to just 50 pips above 100 threatened to crush the manipulated rally and force everyone to doubt the sustainability of central planning. So, sure enough, literally seconds we got the much needed stick save without which everything could have come tumbling down, namely based on an unsourced article out of Reuters that Japan's Public Pension Fund is considering a change to its portfolio strategy that could allow domestic equity share of investments to rise in rallying market. The immediate result was an instantaneous surge in the USDJPY which in turn dragged global risk higher across the board, simply due to what algos deemed as yet another procyclical last minute rescue. More importantly this was nothing but a squeeze catalyst coming at just the right time before market open to prevent a rout in global equities. Ironically, that we are back to the Reuters "sticksave" unsourced article, indicates just how weak the reality behind the scenes must be.

Gold edged higher today supported by strong physical demand internationally and especially in Asia.

Demand in the physical market continued to hold prices near $1,400/oz as the recent drops in the spot market encourage buyers internationally to accumulate bullion.

This morning market participants turn on their trading terminals to see an unfamiliar shade of green: red.

Following yesterday's blow out in US bond yields, which have continued to leak wider and are now at 2.20% after touching 2.23%,  the overnight Japanese trading session was relatively tame, with the 10Y JGB closing just modestly wider at 0.93%, following the market stabilization due to a substantial JPY1 trillion JOMO operation which also meant barely any change to the NKY225, while the USDJPY slipped in overnight trading below the 102 support line and was trading in the mid 101s as of this moment, pulling all risk classes lower with it. There was no immediate catalyst for the sharp slide around 3am Eastern, although there was the usual plethora of weak economic data.

A week ago, when the brand new Hong Kong Mercantile Exchange suddenly shuttered after being in operation for only two years, urgently settling what little contracts were outstanding, many questions were left unanswered. Such as: how it was possible that the exchange, expected by many to become the new preferred trading venue for Asian precious metals and to steal the CME's crown, could close on such short notice. This mystery deepened further after reports that the exchange barely had seen any volume, with allegedly only a tiny 200 open contracts remaining to be settled upon shuttering. Now, the confusion surrounding the HKMex closure has taken another big step for bizarrokind following news that not only have at least four HKMex senior executive have been arrested having been found to be in possession of false bank docs for nearly half a billion in dollars, but that government itself was forced to "shore up confidence" in CY Leung, Hong Kong's 3rd Chief Executive, whose former top aide was none other Barry Cheung Chun-yuen, founder of the HKMex.

As if China was not suffering enough from a slumping economy, the South China Morning Post now reports that the H7N9 'bird flu' virus that has infected 131 people (and killed 36) so far can be transmitted not only by close contact but by airborne exposure. Domestic reports suggest the virus appears to be brought under control largely through restrictions at bird markets but the team at the University of Hong Kong has also found that pigs can be infected (cue 'when pigs can fly' pun). The findings suggest that there may be many more cases that have been detected or reported since "people may be transmitting the virus before they know they've even got it."

The Nikkei dropped by 7.3% at the end of the day and Hong Kong’s Hang Seng dipped by 2.5%. Shanghai maintained a moderate fall at just 1.2% (if you believe that data now!). The Asian markets are down.

Today’s AM fix was USD 1,386.00, EUR 1,074.92 and GBP 919.16 per ounce.  
Yesterday’s AM fix was USD 1,385.25, EUR 1,071.43 and GBP 917.75 per ounce.