Edward Snowden has recently revealed that he has a secret cache of ‘doomsday’ material that will blow the world apart and the US in particular.
As stocks hit new records and small investors—finally—return to the market, some analysts are getting worried. Risk assets have rallied to previous bubble conditions. Powered by unprecedented refinancing and recap activity, 2013 is now the most productive year ever for new-issue leveraged loans, for example. This has been great for corporations as financing and refinancing has put them on a stronger footing. Where M&A activity still lags the highs of the last boom, issuers have jumped into the opportunistic pool with both feet. And why not? Secondary prices are high and new-issue clearing yields remain low. Yet very inadequate movement has been evidenced on the hiring front. And after all the improvement in ebitda, where do we go from here? Forward guidance will clearly be harder. One might argue that we are back in a Goldilocks fantasy world, where the economy is not so strong (as to cause inflation and trigger serious monetary tightening) or so weak (as to cause recession and a collapse in profits) but "just right". Yet, it seems unlikely that issuers with weaker credit quality could find it so easy to sell debt without the excess liquidity created by the Fed and other central banks.
The first thing to understand about China is there is always a front door and a back door to everything. The front door is what's presented to the outside world; the back door is for everything that doesn't fit the PR image created by the front door. The front door presents positive "face," the back door is for everything that would "lose face," so it's hidden and never discussed, except in private, and only with trusted family or friends. The front door is covered with official pronouncements of "the China Dream" and blustery demands of hegemony, but the back door is choked with members of the financial/political Elite fleeing China and taking their wealth with them.
In order to offset the lack of loan creation by commercial banks, the "Big 4" central banks - Fed, ECB, BOJ and BOE - have had no choice but the open the liquidity spigots to the max. This has resulted in a total developed world "Big 4" central bank balance of just under $10 trillion, of which the bulk of asset additions has taken place since the Lehman collapse. How does this compare to what China has done? As can be seen on the chart below, in just the past 5 years alone, Chinese bank assets (and by implication liabilities) have grown by an astounding $15 trillion, bringing the total to over $24 trillion. In other words, China has expaneded its financial balance sheet by 50% more than the assets of all global central banks combined!
While the US continues to engage in a delusional energy “debate” about whether we will continue to burn coal and whether natural gas is a panacea, China is struggling to acquire and deploy of energy resources to support its economic growth targets.
A week after spiking above $900, before dropping 50% in the following 48 hours amid last week's Senate hearings, Bitcoin has recovered the losses (i.e. doubled) and is now trading at record high levels against the USD - $930on Mt.Gox. Notably, in China, Bitcoin remains well off its record highs (5200 vs 6989 highs).
Summer optimism on euro area recovery has faded to grey winter skies. Looking ahead we see continue weak growth in the region with a very gradual recovery only. For the 2007 to 2018, we expect GDP per capita to be essentially flat, marking a lost decade of growth for the region. We blame much of this weak performance on a slow policy response in tackling both the sovereign and banking crisis, and the still too slow pace of structural reform. The fear is now that the euro area is on the verge of deflation.
One of the notable developments in the neverending China-Japan territorial sovereignty dispute over various rock formations (and potential massive natural resources located beneath them) in the East China Sea, has been China's launch of an "air defense zone" over said disputed islands. As AP reported previously, Beijing on Saturday issued a map of the zone — which includes a cluster of islands controlled by Japan but also claimed by China — and a set of rules that say all aircraft entering the area must notify Chinese authorities and are subject to emergency military measures if they do not identify themselves or obey Beijing's orders. Various Japanese airlines responded in a confused manner overnight, with neither JAL nor ANA sure whether or not to comply with China's new demand which is merely the latest territorial escalation.
As we showed very vividly yesterday, while the world is comfortably distracted with mundane questions of whether the Fed will taper this, the BOJ will untaper that, or if the ECB will finally rebel against an "oppressive" German regime - with $3.5 trillion in asset (and debt) creation per year, is China. China, however, is increasingly aware that in the grand scheme of things, its credit spigot is the marginal driver of global liquidity, which is great of the rest of the world, but with an epic accumulation of bad debt and NPLs, all the downside is left for China while the upside is shared with the world. Which is why it was not surprising to learn that China has drafted rules banning banks from evading lending limits by structuring loans to other financial institutions so that they can be recorded as asset sales. And while we are confident Chinese financial geniuses will find ways to bypass this attempt to curb breakneck credit expansion in due course, in the meantime, Chinese liquidity conditions are certain to get far tighter. This is precisely the WSJ reported overnight, when it observed that yields on Chinese government debt have soared to their highest levels in nearly nine years amid Beijing's relentless drive to tighten the monetary spigots in the world's second-largest economy.
IN CHINA, THE GOLD RUSH CONTINUES as Chinese people buy jewellery, coins and bars as a store of wealth protection from inflation. The worlds largest jewellery group, Chow Tai Fook Jewellery Group Ltd., established in 1929, saw sales jump 49% during the first half of 2013.
- M&A Mystery: Why Are Takeover Prices Plummeting? (WSJ)
- Hedge-Fund Fight Club Traded Illegal Tips Not Punches (BBG)
- Speed Traders Meet Nightmare on Elm Street With Nanex (BBG)
- A new wave of U.S. mortgage trouble threatens (Reuters)
- Penny Lane: Gitmo's other secret CIA facility (AP)
- US hardens threat to leave Afghanistan with no troops (WSJ)
- Russian Prison Stuns Captain of Greenpeace’s Bombed Ship (BBG)
- ECB's Weidmann Warns Central Banks Might Be Too Dominated by Fiscal Concerns (WSJ)
- China Air Move Splits Japan as Carriers Obey New Rules (BBG)
- Inside the Breakup of the Pritzker Empire (WSJ)
In fitting with the pre-holiday theme, and the moribund liquidity theme of the past few months and years, there was little of note in the overnight session with few event catalysts to guide futures beside the topping out EURJPY. Chinese stocks closed a shade of red following news local banks might be coming under further scrutiny on their lending/accounting practices - the Chinese banking regulator has drafted rules restricting banks from using resale or repurchase agreements to move assets off their balance sheets as a way to sidestep loan-to-deposit ratios that constrain loan growth. The return of the nightly Japanese jawboning of the Yen did little to boost sentiment, as the Nikkei closed down 104 points to 15515. Japan has gotten to the point where merely talking a weaker Yen will no longer work, and the BOJ will actually have to do something - something which the ECB, whose currency is at a 4 year high against Japan, may not like.
It might have been the Republican shutdown (according to one person at the White House, at least). It might have been the fault of the Syrian leader Bachar Al-Assad gassing his people with chemical weapons.
Chart Of The Day: How China's Stunning $15 Trillion In New Liquidity Blew Bernanke's QE Out Of The WaterSubmitted by Tyler Durden on 11/25/2013 21:25 -0400
Even we were shocked when we ran the numbers on this one...
Just as many expect that the #1 buyer of Treasuries (the Fed) will soon begin paring back its purchases, the top foreign holder (China) may cease buying, thereby opening a second front in the taper campaign. Little thought seems to be given to how the economy would react to 5% yields on 10 year Treasuries (a modest number in historical standards). The herd assumes that our stronger economy could handle such levels. That is why when it comes to tapering, the Fed is all bark and no bite. But the market understands none of this. This is not unusual in market history. When the spell is finally broken and markets wake up to reality, we will scratch our heads and wonder how we could ever have been so misguided.