Unsure what to make of the renewed disaster in Chinese trade figures, there has been renewed emphasis on China being China. Almost every media story about the 20% collapse in imports references an assumed attempt by China to transform out of exports and into a consumer-driven economy without reconciling how or why that has so obviously and spectacularly failed. Nor is there any mention as to why China might plot such a course in the first place, particularly since all expectations in 2009 were for an honest and symmetrical recovery – meaning China would resume its export position when the global economy shrugged off the Panic of 2008.
Much of China’s slowdown over the past five years was self-imposed as the ruling Communist Party tries to steer the economy to more self-sustaining growth based on domestic consumption instead of exports and investment. But the past year’s unexpectedly deep decline has raised fears of politically dangerous job losses.
China has been attempting to shift from an export-led economy to a consumer-led one, although the steep fall in imports suggests domestic demand is not as strong as the government would have hoped.
These are hedged and qualified statements where only resolute conclusions can be drawn. If China did indeed attempt such a transformation it is not “not as strong” but rather in total and absolute disarray. There is an oft-hidden suite of assumptions in the financial media (owing from economists) that suggests a correlation between the amount of control and the ability to drive the results. I think that is why China and the PBOC are given an unnatural deference, whereby the communist central bank is almost the perfect ideal of what orthodox economists wish to propose with their efforts – unparalleled power to simply implement their genius designs without (usually) all the mess of differing opinions and deeper understanding (which is what markets are).
It also converges with this year’s steady bout of confusion, “the past year’s unexpectedly deep decline” as if the “dollar” hadn’t warned of it in the first place. Nothing is working as was so assured late last year and early this year, so economists (Yellen and the FOMC in particular) are seeing shadows and working up over phantoms (transitory). All necessary perspective has been shed in favor of splitting the tiniest of hairs:
The moderation in the contraction of exports is likely due to mild improvement in external demand, [China economist at Nomura Yang] Zhao said. “Moreover, the better export data could be partially explained by a rather large appreciation of EUR against CNY in September from August, compared to a sharp depreciation of EUR against CNY in August-September 2014,” he noted.
“Mild improvement in external demand”? China’s exports fell 3.7% year-over-year in September (in US$ terms) after declining 5.5% in August. That isn’t much improvement even in absolute terms let alone anything that would suggest conditions in the global economy are turning around. From Q3 2002 through Q3 2008, quarterly export growth was never less than +20%. For China, anything less than that is a disaster, especially at this late stage of the “recovery”, and at this point the country might need to see +40% or +50% to avoid broad oversupply liquidations. Continue reading
“Somehow it seemed as though the farm had grown richer without making the animals themselves richer – except, of course, for the pigs and dogs.” – George Orwell, Animal Farm
Seven important stories emerged in the global media over the past week which further confirms the analysis presented here on POM. Though timeframes and specific data points may vary and fluctuate, such as interest rate movements, the overall trend is moving along the multilateral path which has been defined and discussed here through thousands of pages of research and laborious writing.
It was presented here back on March 25, 2015, in the post When Will China End the Dollar Peg that China would in fact be moving towards ending the peg which it manages against the US dollar. In that post I stated the following:
“One of the biggest questions which we need to consider as the world moves closer to the full implementation of the multilateral financial system is when will the RMB end its managed peg to the USD? Now that the official request has been made to the International Monetary Fund, for the yuan to be included into the SDR basket composition, it is only a matter of time before the ending of the peg occurs.”
The post also explained how the yuan would in fact be added to the Special Drawing Right composition. Since that time it has been confirmed by both China and the International Monetary Fund that the yuan will in fact be added to the SDR. It is only a matter of the effective start date as opposed to whether or not is will actually be included. Continue reading
Jack Delano Gallup, New Mexico. Train on the Atchison, Topeka & Santa Fe 1943Some things you CAN see coming, in life and certainly in finance. Quite a few things, actually. Once you understand we’re on a long term downward path, also both in life and in finance, and you’re not exclusively looking at short term gains, it all sort of falls into place. The only remaining issue then is that so many of you DO look at short term gains only. Thing is, there’s no way out of this thing but down, way down.
Yeah, stock markets went up quite a bit last week. Did that surprise you? If so, maybe you’re not in the right kind of game. You might be better off in Vegas. Better odds and all that. From where we’re sitting, amongst the entire crowd of its peers, this was a major flashing red alarm late last week, from Investment Research Dynamics:
Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest ever Treasury collateral injection into the repo market. Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate. However, as you can see from the graph below, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis – the obvious one being the de facto collapse of the financial system in 2008. You can also see from this graph that the size of the “spike” occurrences in reverse repo operations has significantly increased since 2014 relative to the spike up in 2008. In fact, the latest two-week spike is by far the largest reverse repo operation on record.
Besides using repos to manage term banking reserves in order to target the Fed funds rate, reverse repos put Treasury collateral on to bank balance sheets. We know that in 2008 there was a derivatives counter-party default melt-down. This required the Fed to “inject” Treasury collateral into the banking system which could be used as margin collateral by banks or hedge funds/financial firms holding losing derivatives positions OR to “patch up” counter-party defaults (see AIG/Goldman).
What’s eerie about the pattern in the graph above is that since 2014, the “spike” occurrences have occurred more frequently and are much larger in size than the one in 2008. This would suggest that whatever is imploding behind the scenes is far worse than what occurred in 2008. What’s even more interesting is that the spike-up in reverse repos occurred at the same time – September 16 – that the stock market embarked on an 8-day cliff dive, with the S&P 500 falling 6% in that time period. You’ll note that this is around the same time that a crash in Glencore stock and bonds began. It has been suggested by analysts that a default on Glencore credit derivatives either by Glencore or by financial entities using derivatives to bet against that event would be analogous to the “Lehman moment” that triggered the 2008 collapse.
The blame on the general stock market plunge was cast on the Fed’s inability to raise interest rates. However that seems to be nothing more than a clever cover story for something much more catastrophic which began to develop out of sight in the general liquidity functions of the global banking system. Without a doubt, the graphs above are telling us that something “broke” in the banking system which necessitated the biggest injection of Treasury collateral in history into the global banking system by the Fed.
Marc Faber has again encouraged individuals to own physical gold, be wary of possible government confiscation and said that the big question is where to store your gold.
“ … But I would say an individual should definitely own some physical gold…The bigger question is where should he store it?”
“Because I think if we think it through, the failure of monetary policies will not be admitted by the professors that are at central banks.
They will then go and blame someone else for it and then an easy target would be to blame it on people that own physical gold because they can argue, well these are the ones that do take money out of circulation and then the velocity of money goes down … we have to take it away from them.”
That has happened in 1933 in the US…
With our brilliant governments in Europe that follow US policies and with the ECB talking every day to the Federal Reserve, they would do the same in Europe, take the gold away from people.”
Marc Faber is an eloquent advocate of owning physical gold which he describes as being a way to become “your own central bank.” He believes an allocation to physical gold will serve as vital financial insurance and that Singapore is the safest place to own gold in the world today.
Watch the complete interview with Marc Faber on Marcopolis.net.
Marc Faber Webinar on Storing Gold in Singapore
Essential Guide To Storing Gold In Singapore Continue reading
Tyler Durden of Zero Hedge and others are misinterpreting Steve Kroft’s “60 Minutes” interview with President Obama. They see weakness and confusion in Obama’s responses and conclude that Kroft shredded Obama.
What I see is entirely different. Steve Kroft is either a neoconservative or he is inculcated into the neocon mind-set that the US must prevail everywhere. Kroft’s view is that weakness and indecision on Obama’s part is the reason the US is not prevailing in Syria. Kroft’s purpose is to embarrass Obama and push him into escalating the situation.
However, Obama is too strong for him. I read the interview as Obama saying that the neocon program has turned out not to be in America’s national interest. At the end of the Syria section of the interview, Obama says: “If in fact the only measure [of US strength] is for us to send another 100,000 or 200,000 troops into Syria or back into Iraq or perhaps into Libya, or perhaps into Yemen, and our goal somehow is that we are now going to be, not just the police, but the governors of this region, that would be a bad strategy. If we make that mistake again, then shame on us.”
The interview shows me Obama’s strength in recognizing and stating the failure of the neocon program to which his administration was hitched by policymakers in the government. There is hope in this demonstration of strength that in his final year as President he will pull back from the crazed, insane neoconservative agenda of US world hegemony.
Those who dislike Obama, and those inculcated by years of propaganda into the neocon view that America must always and everywhere prevail, will see what they want to see. They will not see the hope.
To prevent the neocon policymakers and the neocon press from squashing this hope, we must do what we can to support Obama. It is the neocon policy that has failed. In recognizing this failure, Obama is trying to take America off the neocon road to failure and more war. This is a very lonely and dangerous position for Obama to take in Washington.
Here is the part of the interview that is about Syria:
The capital and now loss projections for Deutsche Bank are, as much as they can be, more straight forward. In terms of Credit Suisse, the dubiousness of the implications is proportional to the “story.” Whereas Deutsche last week shocked Wall Street (and Europe) with a huge potential loss in FICC activities (their CB&S segment), any actual surprise was far overdone because of two confluent and related trends – the global economy’s “unexpected” reduction this year and where Deutsche placed its resources to try to take advantage of almost all its peers undergoing sustained eurodollar withdrawal.
As noted last week, Deutsche raised “capital” in May 2014 in order to advance its activities in fixed income and fixed income trading (money dealing) surrounding leveraged loans, junk bonds and emerging market debt. Therefore, a reduction in global “dollar” liquidity alongside a related swoon in such risky fixed income isn’t going to add up to very good numbers for Deutsche – especially after the fireworks in August and September.
Deutsche, however, was not alone in its contra trend speculation. There were others looking to profit from the general disdain toward eurodollar activities post-2013 (and, of course, euroeuro activities; “euro” being simply the shorthand designation for offshoremoney dealing), most notably Credit Suisse. In sharp contrast to its bitter Swiss rival UBS (and that was the intent), Credit Suisse like Deutsche Bank promoted greater internal exposure to eurodollar activities in seeing that market different than the morass affected by all the rest. We don’t, however, know exactly if Credit Suisse embarked upon the same business lines and portfolio/resource allocations as Deutsche, but it wouldn’t be unreasonable to think that they did in at least broad outline and purpose if not fully equivalent. Continue reading
Whenever there is talk in the popular press or in the mainstream financial press about “heightened volatility” in the stock market, it is a euphemism for “the sucker is going down!”. Naturally, with most market participants positioned for rising prices, especially when said prices are in nosebleed territory (stocks are always at their most popular when their valuations are nothing short of crazy), nobody likes that to happen – or let us rather say, only a small minority would welcome it.
This minority consists essentially of the following people: those who believe the market is overvalued and are either shorting it in the hope of profiting from a reversion to the other extreme (“mean reversion” is relatively rare in financial markets), or those who cannot bring themselves to invest in an overvalued market and are patiently waiting for the same event in order to be able to justify buying.
A chart demonstrating how persistent and intense the positioning for more upside is among mutual fund managers nowadays. While this is only one of the groups active in the market, it is probably a useful microcosm of general sentiment – click to enlarge. Continue reading
|• US Debt Markets Shaken Amid More Corporate Downgrades And Defaults (WSJ)|
|• Why US Banks Soon Will Be Singing The Blues (CNBC)|
|• China Imports Slump 20% Amid Falling Commodity Prices, Weak Demand (Guardian)|
|• China Trade Data Unsettle Asian Bourses (FT)|
|• China’s Stock Rally-to-Rout Is About to Repeat (Bloomberg)|
|• KKR Warns About Renewed Commodity, Emerging-Market Rout on China (Bloomberg)|
|• Pimco’s Bear Case Only Gets Stronger as Emerging Currencies Jump (Bloomberg)|
|• Switzerland to Impose 5% Leverage Ratio on Biggest Banks (Bloomberg)|
|• Europeans Move To Undercut Global Bank Capital Rules (FT)|
|• The Failure to Learn From Boom-Bust Cycles (WSJ)|
|• Higher Interest Rates Would Throw Bank Profits a Lifeline (Bloomberg)|
|• China’s Great Game: A New Silk Road To A New Empire (FT)|
|• Angus Deaton Showed We’re Helping the Wrong People (Bloomberg)|
|• US Annual Oil Output to Drop for First Time Since 2008 (WSJ)|
|• Oil Sands Boom Dries Up in Alberta, Taking Thousands of Jobs With it (NY Times)|
|• German Brand Dealt ‘Hammer Blow’ By VW Scandal And Weakening Economy (Telegraph)|
|• Emissions Test Changes Could Make Diesels ‘Unaffordable’ (BBC)|
|• Home Flipping Frenzy in Sydney Sparks Warnings on Housing Risks (Bloomberg)|
|• TTIP Deal Would Remove People’s Rights To Access Basic Human Needs (Ind.)|
|• Merkel Seeks Turkey’s Aid on Borders to Stem Refugee Flow to EU|
|• Athens Rules Out Joint Sea Patrols With Turkey (Kath.)|
|• Marine Food Chains At Risk Of Collapse (Guardian)|
|• Antarctic Ice Melts So Fast Whole Continent May Be At Risk By 2100 (Guardian)|
Read more here: Debt Rattle October 11 2015 – TheAutomaticEarth.com
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