Wednesday, 11 September 2013

China’s Bubble.

Baltic Dry Index. 1541 +63

LIR Gold Target by 2019: $30,000.  Revised due to QE programs.

“It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity. If there must be madness something may be said for having it on a heroic scale."

J. K. Galbraith. The Great Crash: 1929.

With all mainstream media attention focused on President Obama’s now paused war on Syria, to stop Syrians from killing Syrians with chemicals and get them to go back to killing Syrians with bombs, rockets, tanks, etc., we focus today on some other recent news of some importance.

Here we go again! Same movie, different ending? Don’t bet on it. Stay long fully paid up physical precious metals. If the Fedster’s actually dare to taper at their coming meeting, or even just issue a timetable for tapering, the higher global interest rates they set off will generate havoc in China’s shadow banking system. Add China to the list of countries about to be sunk under the Fedster’s new policy of “Fed to the ROW: Drop Dead.”

There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

J. K. Galbraith

China Shadow Banking Returns as Growth Rebound Adds Risks

By Bloomberg News - Sep 11, 2013 3:19 AM GMT
China’s broadest measure of new credit almost doubled in August from the previous month in a sign leaders are committed to meeting economic goals even at the cost of adding financial risks.

Aggregate financing was 1.57 trillion yuan ($257 billion), the People’s Bank of China said in Beijing yesterday, topping the 950 billion yuan median estimate of 10 analysts surveyed by Bloomberg News. New yuan loans from banks accounted for about 45 percent of the total, down from July’s 87 percent, as non-traditional credit played a bigger role.

The first pickup in credit growth after an unprecedented four straight declines, the fastest gain in industrial output in 17 months and above-forecast exports signal better odds that Premier Li Keqiang will achieve his 7.5 percent expansion target this year. The data also mark a resurgence in shadow banking that poses risks for the financial system after a record credit boom in the first quarter.

“If credit growth picks up persistently from here, China’s current growth recovery may well last a bit longer and go a bit further,” said Yao Wei, China economist at Societe Generale in Hong Kong. “However, that only adds to the downside risk afterwards, as the leverage of Chinese corporates and local governments keeps rising from the already alarmingly high level.”

----China’s lending spree in recent years has evoked comparisons to debt surges that tipped Asian nations into crisis in the late 1990s and preceded Japan’s lost decades. China’s ratio of credit to gross domestic product rose to 187 percent in 2012 from 105 percent in 2000, compared with Japan’s increase to 176 percent in 1990 from 127 percent in 1980, JPMorgan Chase & Co. said in a July report.

Shadow lending, which allows banks to bypass controls and capital requirements, is flourishing in China because an estimated 97 percent of the nation’s 42 million small businesses can’t get bank loans, according to Citic Securities Co. The industry may be valued at 36 trillion yuan, or 69 percent of gross domestic product, JPMorgan estimated in May.

Property regains top spot as driver of wealth for China's richest

SHANGHAI | Wed Sep 11, 2013 5:38am BST
(Reuters) - China's property industry reclaimed its spot as the number one source of income in the past year for the mainland's wealthy, according to the China Rich List published annually by Hurun Report Inc.

One in four members on the rich list made their money in China's real estate industry, overtaking manufacturing as the most common source of wealth. Six out of the top 10 made their money in the construction sector.

Land prices in China have hit record highs in recent weeks, reflecting strong demand for property and presenting a quandary to China's leaders who are trying to prevent a housing bubble while supporting the sector, which is a key driver of economic growth.

Real estate tycoon Wang Jianlin, chairman of Dalian Wanda Group, rose to the number one spot as his fortune doubled to $22 billion (14 billion pounds), overtaking beverage magnate Zong Qinghou.

Wang, the head of China's largest commercial real estate developer, bought UK luxury yacht maker Sunseeker for $1.6 billion and is planning billion-dollar luxury hotel developments in London and New York.
Zong, chairman of privately-held Wahaha Group, China's leading beverage maker, saw his personal fortune climb 48 percent, but still fell to second place with $18.7 billion.

The 1,000 wealthiest people in China saw their combined worth rebound 27 percent after last year's decline and nearly six in 10 saw their personal fortunes climb, the report added.

In other ignored China news, China has issued a direct warning to Japan on the Diaoyu Islands. Rather like President Obama and Syria, Japanese Prime Minister Abe has backed himself into an unenviable corner over the Diaoyu Islands claimed as the Senkaku’s by Japan. An embarrassing climb down by Japan now looks likely, with no Japanese workers, or any other workers, headed for the disputed islands.

If all else fails, immortality can always be assured by spectacular error.

J. K. Galbraith.

China warns Japan against stationing workers on disputed isles

TOKYO/BEIJING | Tue Sep 10, 2013 11:29am BST
(Reuters) - China said it would not tolerate provocation after Japan's top government spokesman said on Tuesday Japan might station government workers on disputed islands in the East China Sea to defend its sovereignty.

Relations between the world's second- and third-biggest economies have been strained over the uninhabited isles which Japan controls but both countries claim. The isles are known as the Senkaku in Japan and the Diaoyu in China.

A year ago on Wednesday, the Japanese government bought three of the isles from a private owner, inflaming anger in China where there were big anti-Japan protests over the purchase.

Aircraft and ships from the two countries have played cat-and-mouse in the vicinity of the islands ever since, raising fears of conflict, perhaps sparked by an accident.

Japan's Chief Cabinet Secretary Yoshihide Suga, speaking on the eve of the anniversary, said it was "extremely regrettable" that Chinese government ships had repeatedly entered what he described as Japan's territorial waters.

The government was making "resolute but calm responses to defend our territory, territorial waters and airspace decisively", he said, adding: "Our country will never make a concession on the matter of sovereignty."

Asked if Japan might station government workers on the islands, Suga said: "That is one option".

Chinese Foreign Ministry spokesman Hong Lei expressed "serious concern" about those remarks.

"The Chinese government has an unshakeable resolve and determination to protect the country's territorial sovereignty and will not tolerate any provocative acts of escalation over China's sovereignty," he told a daily news briefing.

"If the Japanese side recklessly makes provocative moves it will have to accept the consequences."

Relations between the neighbours have been soured for years by what Beijing says has been Tokyo's refusal to properly atone for wartime atrocities committed by Japanese soldiers in China between 1931 and 1945.


In the latest incident off the islands, eight Chinese patrol ships entered what Japan considers its territorial waters near them on Tuesday, Japan's coastguard said. The ships later left.

Hong said it was a normal, routine mission.

Japanese Vice Foreign Minister Akitaka Saiki summoned China's ambassador in Tokyo and lodged a protest against the presence of the ships, a ministry official said.

On Monday, Japan scrambled fighter jets when it spotted what appeared to be an unmanned drone aircraft flying towards Japan over the East China Sea.

It was not clear what country the unidentified aircraft belonged to but Japan's Foreign Ministry had made an inquiry about it with the Chinese side, Suga said.

We end for today with President Obama’s off-again war on Syria. The “spy on everyone” President, is starting to make the Grand Old Duke of York look like an amateur. Stay long physical precious metals. The likelihood for misadventure by any one of the multitude of parties involved has never been higher. Many would like nothing less than dragging US forces into yet another Arab/moslem war.

Oh, The grand old Duke of York,
He had ten thousand men;
He marched them up to the top of the hill,
And he marched them down again.

And when they were up, they were up,
And when they were down, they were down,
And when they were only half-way up,
They were neither up nor down.

September 10, 2013, 3:32 PM

Making Sense of Syria

This is what I think we’re seeing:

The president has backed away from a military strike in Syria. But he can’t acknowledge this or act as if it is true. He is acting and talking as if he’s coolly, analytically, even warily contemplating the Russian proposal and the Syrian response. The proposal, he must know, is absurd. Bashar Assad isn’t going to give up all his hidden weapons in wartime, in the middle of a conflict so bitter and severe that his forces this morning reportedly bombed parts of Damascus, the city in which he lives. In such conditions his weapons could not be fully accounted for, packed up, transported or relinquished, even if he wanted to. But it will take time—weeks, months—for the absurdity to become obvious. And it is time the president wants. Because with time, with a series of statements, negotiations, ultimatums, promises and proposals, the Syria crisis can pass. It can dissipate into the air, like gas.

The president will keep the possibility of force on the table, but really he’s lunging for a lifeline he was lucky to be thrown.

Why is he backing off? Because he knows he doesn’t have the American people and isn’t going to get them. The polls, embarrassingly, show the more people hear the less they support it. The president’s problem with his own base was probably startling to him, and sobering. He knows he was going to lose Congress, not only the House but very possibly—likely, I’d say—the Senate. The momentum was all against him. And he never solved—it was not solvable—his own Goldilocks problem: A strike too small is an embarrassment, a strike too big could topple the Assad regime and leave Obama responsible for a complete and cutthroat civil war involving terrorists, foreign operatives, nihilists, jihadists, underemployed young men, and some really nice, smart people. Obama didn’t want to own that, or the fires that could engulf the region once Syria went up.

"The principal cause of the crisis was the dismantling of the system of regulation and supervision in the financial sector which had for much of the post-war period kept the most dangerous elements of that sector in check. In the absence of an appropriate system of effective supervision and regulation, what happens is that the actors in the system, who are intent upon taking the greatest degree of risk — including actors who are intent upon using fraudulent methods to increase their returns — come to dominate parts of the system. As they do that, the general methods of assessing performance in the market, specifically stock-market valuations, become counter-productive. That is to say, they invariably reward the worst actors, while they force more traditional actors, who are still respecting the old norms of conduct, into a competitively disadvantaged position. Thus the bad actors, the fraudulent actors, and the speculative extremists quickly take over.

J. K. Galbraith.

At the Comex silver depositories Tuesday final figures were: Registered 42.32 Moz, Eligible 118.96 Moz, Total 161.28 Moz.  

Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.

The European Union’s Financial Transaction Tax has been ruled illegal by the EU’s own lawyers. So that ought to be the end of the FTT, right? No. This is the wealth destroying, job destroying, Eureaucrat creating, European Union. Chancellor Merkel’s Germany says impose it anyway. Who cares if it drives financial transactions out of the EU and on to Switzerland, America, and Asia. Who cares if EU youth unemployment jumps to 66%?

"The illegal we do immediately. The unconstitutional takes a little longer."

The "three (Stooges) European presidents", Jerzy Buzek “Curly,” (Parliament), José Manuel Barroso  “Moe,” (Commission) and Herman Van Rompuy “Larry,” (European Council) with apologies to Henry Kissinger.

EU lawyers say financial transaction tax is illegal

European efforts to impose a financial transaction tax (FTT) have been plunged into further chaos after Brussels’ own lawyers concluded that the levy is unlawful.

A leaked opinion from the European Union’s legal service contains warnings that the flagship policy is “not compatible” with existing laws and is also “discriminatory”.

The 14-page document, dated September 6, said the levy “exceeds Member States’ jurisdiction for taxation” and “infringes upon the taxing competences” of states that have refused to adopt it.

Experts warned that the strongly-worded opinion, although not binding, could fatally undermine the FTT.

Open Europe said: “The FTT is dying a death of a thousand cuts, this one could be the final one.”

The London-based think tank added that it was a “big win for the UK”, which took the rare decision to threaten legal action against the policy.

The UK has found support in America and Asian markets, too.

In April, five global markets’ associations wrote to G20 finance ministers urging them to intervene on Europe’s plans, which they said threatened “harmful spillover effects on the global economy”.

A Treasury source said: “We have consistently opposed the European Commission’s FTT proposals and now the EU’s own legal advice shows that these proposals are likely to be both illegal and damaging to the EU’s economy.

“The opinion produced vindicates our decision to challenge the FTT in the European Court.”

However, Germany, which is one of 11 EU countries to have already agreed to impose an FTT, insisted that “nothing had changed” and its plans for the levy were on track.

In a statement issued from Berlin, it said: “The German government advocates a swift introduction of the FTT for good reasons.

----The FTT was designed to raise €35bn by imposing a charge on financial transactions. It was billed by politicians as a simple way of forcing financial firms to help contribute to national governments in the wake of the crisis.

But the UK and others argued that the FTT’s “counterparty principle”, whereby the levy would be imposed on a transaction even if only one of the trading partners was in the taxed zone, was beyond the legal scope of the participating states.

The leaked legal opinion agreed that the plans raised “issues of extra-territorial exercise of jurisdiction, disrespect of non-participating Member States rights and compatibility with the principles of free movement of capital and discrimination”.

Again, it may be said that we need not be alarmed at the magnitude of our credit system or at its refinement, for that we have learned by experience the way of controlling it, and always manage it with discretion. But we do not always manage it with discretion. There is the astounding instance of Overend, Gurney, and Co. to the contrary. Ten years ago that house stood next to the Bank of England in the City of London; it was better known abroad than any similar firm—known, perhaps, better than any purely English firm. The partners had great estates, which had mostly been made in the business. They still derived an immense income from it. Yet in six years they lost all their own wealth, sold the business to the company, and then lost a large part of the company's capital. And these losses were made in a manner so reckless and so foolish, that one would think a child who had lent money in the City of London would have lent it better.  After this example, we must not confide too surely in long-established credit, or in firmly-rooted traditions of business. We must examine the system on which these great masses of money are manipulated, and assure ourselves that it is safe and right.

Walter Bagehot. Lombard Street. 1873

The monthly Coppock Indicators finished August:
DJIA: +162 Down. NASDAQ: +189 Up. SP500: +194 Down. Two red flags. Only the “stock market for the next hundred years,” remains optimistic.

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