Baltic Dry Index. 1324 -08 Brent Crude 80.81
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
“There are some bored foreigners,
with full stomachs, who have nothing better to do than point fingers at us
[China]. First, China doesn’t export revolution; second, China doesn’t export
hunger and poverty; third, China doesn’t come and cause you headaches, what
more is there to be said?”
President Xi Jinping
Just how bad is the real picture in China? Downright awful judging by
Friday’s panic at the People’s Bank of China. The sages at the PBOC must think
that China’s economy has tipped from massive Wobble to Crash. If they’re right
in that assessment, a deluge of massive mal-investment is about to hit the
global economy.
PBOC Bounce Seen Short Lived as History Defies Bulls
Nov 24,
2014 4:26 AM GMT
China’s benchmark stock index rose to a three-year high after the central
bank’s surprise interest rate cut late last week. Recent history suggests the
gains won’t last long. While the Shanghai Composite Index (SHCOMP) climbed 2 percent today, six of the past seven cuts to interest rates and reserve requirements have been followed by declines in stock prices over the next two months. The last time the PBOC lowered lending and deposit rates, in July 2012, the benchmark index fell 7.4 percent, according to data compiled by Bloomberg.
The rate cut, announced after the close of regular trading in China on Nov. 21, underlines concern that a slowdown in the world’s second-largest economy is deepening. Factory production rose 7.7 percent in October from a year earlier, the second-weakest pace since 2009, while retail sales missed economists’ forecasts. China’s economy expanded 7.3 percent in the three months ended September and it’s projected to grow this year at the slowest pace since 1990 amid weakness in the property market and manufacturing.
More
China blinks as economic downturn deepens
"China is not safe until they put the credit genie back in the bottle but that is going to be very difficult to do,” warns UBS
China has abandoned its policy of
monetary tightening, cutting interest rates for the first time in over two
years to head off a corporate crunch and mounting dangers of deflation.
The move set off an instant spike
in the price of crude oil and other key commodities as traders bet on a
fundamental pivot by the Chinese authorities and a return to the bad old ways
of credit-driven growth.
The People’s Bank of China caught
markets off guard, cutting the benchmark lending rate by 40 basis points to
5.6pc and the deposit rate by 25 basis points to 2.75pc. It also liberalised
bank rates in a free market tilt.
“Every time the economy slows,
they blink,” said Patrick Chovanec from Silvercrest Asset Management.
“The
danger is that they will keeping trying to shore up a growth model that is past
its sell-by date.”
The central bank denied that it
is changing tack, insisting that the cuts target a specific problem of
high-financing costs for firms. “It does not signal that the direction of
policy has changed. There is no need for strong stimulus," it said in a
rare statement.
Tao Wang from UBS said falling
inflation has caused the real cost of borrowing for average companies to rise
from zero to 5.5pc since 2011, a drastic form of passive tightening. The
interest burden for non-financial companies has jumped from 7.5pc to 15pc of
GDP over the same period.
Yet the rate cuts are a clear
shift in policy from the piecemeal liquidity injections of recent weeks, a sign
that Beijing is alarmed by the depth of the economic slowdown.
----“They are acting
under duress,” said George Magnus from UBS. “There has been a hefty decline in
new housing starts. I don’t think these rate cuts are going to stop the secular
downswing in the economy, whatever the Pavlovian reaction of the markets. China
is not safe until they put the credit genie back in the bottle but that is
going to be very difficult to do.”
----Mr Chovanec
said China is so addicted to credit that it needs loan growth near 20pc to keep
the game going. “Credit growth has fallen to 13pc and that is so tight for
China it is strangling them. They are getting less GDP bump out of more and
more credit, and that tells you loss-making assets are being rolled over.
Nothing but creative accounting will stop non-performing loans from rising,” he
said.
More
http://www.telegraph.co.uk/finance/economics/11246733/China-blinks-as-economic-downturn-deepens.html
We close with more on our new
lawless bankster age.
“Call
it the Goldman Sachs test. If this is something Goldman would do to its
clients, don't do it."
Felix
Salmon.
Goldman Sachs told banker who raised Libya concerns: Don't get involved
Email exchange seen by Telegraph show how Goldman reprimanded junior banker, as stage set for latest round in legal battle
Bosses at Goldman Sachs
castigated a junior employee for questioning a trade the bank conducted on
behalf of Libya’s sovereign wealth fund, warning him that it was not his
business to get involved.
According to documents seen by
The Telegraph, Youssef Kabbaj, the senior Goldman banker who led the bank’s
relationship with the Libyan Investment Authority (LIA) during the Gaddafi
years, told the employee: “This is very serious… Do not ever call [the] LIA
without me… to discuss transactions”.
The banker, who had enjoyed a
relationship with the Libyans, was sharply reprimanded after relaying LIA
concerns about a foreign exchange trade, referring to it as “scary”. Mr Kabbaj,
the head of Goldman’s North Africa office at the time, told the individual: “Do
not speak with my clients without me on the line… Especially this one as you
don’t know all the background.”
The revelation comes ahead of the
latest episode in the legal battle between Goldman and the LIA over
claims the bank hoodwinked officials at the $60bn fund into agreeing to
transactions they did not understand.
Goldman denies that the LIA
officials were financially illiterate, and is countersuing.
A hearing will be held tomorrow
in London to determine terms for the upcoming trial, in which the LIA is
seeking damages for the $1bn it lost on equity derivative transactions in 2008.
When the stock market took a turn for the worse in the weeks after the trade,
almost the entire value of the trades was lost.
The LIA, attempting to rebuild
itself after Gaddafi’s fall in 2011, claims Goldman made more than $300m of
profits from the deal.
The junior banker has since been
identified as Jaber Jabbour, a Syrian who left Goldman several months after the
LIA and the bank fell out. “Decisions around individual departures are
predicated on a number of factors, which can include individual performance as
well as anticipated business needs,” a person briefed on his departure said.
The email that sparked the
criticism from Mr Kabbaj, and the FX trade it refers to, is not disputed in the
London court case, but has been reviewed by America’s Securities and Exchange
Commission as part of an investigation into Goldman’s ties with the LIA.
In the email, Mr Jabbour, seen as
a talented banker at Goldman’s London office, relayed comments from Mohammed
Layas, the head of the LIA at the time, saying he “didn’t open a casino”.
Morehttp://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11247025/Goldman-Sachs-told-banker-who-raised-Libya-concerns-Dont-get-involved.html
"Finance is the art of passing customer
segregated funds from hypothecation to hypothecation until it finally
disappears."
At the Comex silver
depositories Friday final figures were: Registered 64.90 Moz, Eligible 112.74
Moz, Total 177.64 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
The usual suspects today. The money printing madman
at the central banks. Stay long fully paid up gold and silver against the
inevitable day that paper money returns to intrinsic value. We have reached the
outer limits of the Great Nixonian Error of fiat money.
"When paper money systems begin to crack at the seams, the run to gold could be explosive."
Harry Brown
S&P 500 Climbs to Record as Europe, China Fuel Optimism
Nov 21, 2014 9:41 PM GMT
U.S. stock benchmarks climbed to
records, giving the Standard & Poor’s 500 Index a fifth weekly gain, as
optimism in the global economy grew after central banks in China and Europe
signaled additional stimulus measures.
Materials companies in the
S&P 500 rose the most this month to a two-month high, and industrial shares
increased to a record amid speculation the increased accommodation will spur
global economic growth.
MoreSell, Sell, Sell…….The Central Bank Madmen Are Raging
by David Stockman • November 21,
2014
The global financial system has
come unglued. Everywhere the real world evidence points to cooling growth,
faltering investment, slowing trade, vast excess industrial
capacity, peak private debt, public fiscal exhaustion, currency
wars, intensified politico-military conflict and an unprecedented disconnect
between debt-saturated real economies and irrationally exuberant financial
markets.
Yet overnight two central
banks promised what amounts to more monetary heroin and, presto, the
S&P 500 index jerked up to 2070. That is, the
robo-traders inflated the PE multiple for S&P’s basket of
US-based global companies to a nose bleed 20X their reported
LTM earnings.
And those earnings surely
embody a high water mark in a world where Japan is going down for the
count, China’s house of cards is truly collapsing, Europe is plunging into a
triple dip and Wall Street’s spurious claim that 3% “escape velocity” has
finally arrived in the US is soon to be discredited for the 5th year
running. So it goes without saying that if “price discovery”
actually existed in the Wall Street casino, the capitalization rate on these
blatantly engineered earnings (i.e. inflated EPS owing to massive
buybacks) would be decidedly less exuberant.
In truth, nothing has
changed about the precarious state of the world since yesterday.
Except….. except the Great Bloviator at the ECB made another fatuous
and undeliverable promise—- this time that he would do whatever he “must
to raise inflation and inflation expectations as fast as possible”; and, at
nearly the same hour, the desperate comrades in
Beijing administered another sharp poke in the eye to China’s savers by
lowering the deposit rate to by 25 bps to 2.75%.
Let’s see. Can it possibly be
true that European growth is faltering because it does not have enough
inflation? Or that China’s fantastic borrowing and building boom is
cooling rapidly because the People Bank of China (PBOC) has been too stingy?
The answer is not on your life,
of course.
----Likewise, last night”s signal from China was a warning to take cover, not to get all giddy in the casino. The People’s Printing Press of China has been on a rampage for this entire century, and has expanded its balance sheet by an incredible 9X since the year 2000.
Now, even the
hapless masters of red capitalism taking shelter
in Beijing recognize that this colossal money printing
spree has fueled fantastic levels of over-building, over-investment and
mind-boggling real estate speculation throughout the land.
The fact that—despite their
better judgment—-they have had to once again open the monetary spigot is
evidence that China’s addiction to the printing press is terminal, and that a
hard landing is only a matter of time. No one told the algos that, either.
The real downward trajectory
in China is tracked by the canary in the iron ore pit. Like almost everything
else, China’s iron and steel industry is massively overbuilt. It has 1.1
billion tons of capacity but in the order of 600 million tons of
sustainable “sell-through” demand. That is, need for steel for use
in consumer products and capital replacement, not the
current one-time construction binge.
Stated differently, China’s
excess steel capacity is greater than the combined output of the US, Japan and
the EC combined. Accordingly, when its real estate and construction bubble
finally collapses, the world market will be inundated with cheap steel and
every manner of goods made from it, including automobiles. During the current
year alone, China will export more steel than the US industry will produce, and
it is just getting started on the greatest “dumping” campaign the world has
ever seen.
In
short, there is a tidal wave of industrial deflation coming down the
pike—- owing to two decades of world-wide central bank financial
repression that has fueled vast malinvestments in mining, manufacturing,
transportation and trade. That, in turn, will trigger a monetary race to
the bottom by the central banks—a race that is already underway owing to
Japan’s Halloween Massacre of the yen. Soon the rest of East Asia—and
especially China— will have to join the exchange rate plunge or find
their export based economies hitting the shoals.
More
"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."
F. A. von Hayek
The monthly Coppock Indicators finished October.
DJIA: +137 Down. NASDAQ: +275 Down. SP500: +210 Down.
No comments:
Post a Comment