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A gnat-sized insect, the Asian citrus psyllid, forced Dean Mixon to replace about 1,000 orange trees in the past two years on the 50-acre Florida farm his grandfather started in the 1930s. The bug spreads a disease called citrus greening, causing fruit to shrink and drop early.
“This is the worst we ever had to deal with,” said Mixon, 62. “Young trees can’t develop strong roots, and the quality of the fruit is also affected. We have been able to slow the spread of the disease, but not eradicate it.”
Florida, the world’s largest orange grower after Brazil, will harvest 121 million boxes of the fruit in the season that began Oct. 1, the fewest since 1990, the U.S. Department of Agriculture estimates. Orange-juice futures in New York will rally 18 percent to $1.6465 a pound by the end of June, up from $1.39 on Dec. 24, according to the average estimate of nine traders and analysts surveyed by Bloomberg News.
Futures entered a bull market this month as dry weather compounds the damage from citrus greening. Some types of oranges, including early and mid-season varieties, are projected to drop prematurely from trees at the highest level since 1961, the USDA said Dec. 10. The shrinking crop may boost costs for companies including Pepsico Inc. (PEP), the maker of Tropicana juices, and Coca Cola Co., which sells Minute Maid and Simply Orange brands. U.S. consumers spend about $1.45 billion on the juice annually.
“We’re in uncharted territory,” said John Ortelle, who has been following the industry for more than 30 years and is vice president for McKeany-Flavell, an Oakland-California based broker whose clients have included Dole Food Co. and Kraft Foods Group. “Whatever producers have tried to tackle the disease has had a minimal effect so far. Growers took out trees and added extra nutrients. You just don’t know when and if the effects will be positive.”
Orange juice rose 18 percent this year on ICE Futures U.S. in New York, trailing only natural gas and cocoa among the 19 raw materials tracked by the Thomson Reuters/Jefferies CRB Index, which declined 4.1 percent. The MSCI All-Country World Index of equities rose 19 percent, while the Bloomberg Treasury Bond Index fell 3.2 percent. The Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 3.8 percent.
Growing areas in Florida received as little as 2 inches (5.1 centimeters) of rain from Oct. 1 through Dec. 22, according to Kyle Tapley, a meteorologist with MDA Weather Services in Gaithersburg,Maryland. That compares with the 30-year average of as much as 8 inches. About 28 percent of the state is experiencing “abnormally dry” weather, according to the U.S. Drought Monitor.
Last season, the USDA cut its production outlook seven times over eight months as drought compounded damage from greening. Smaller fruit size may mean that the final count for this year’s crop will total 115 million boxes, or 5 percent less than the government estimates, said Jerry G. Neff, a branch manager for Bradenton, Florida-based Allendale Risk Management Inc. who was the most-accurate forecaster in a Bloomberg survey before the USDA’s Dec. 10 report. A box weighs 90 pounds (40.8 kilograms).
Greening has discouraged growers from increasing production as new trees must be sown in greenhouses rather than outdoors to avoid further contagion, doubling the cost of planting to about $8 a tree, according to Tom Spreen, a retired University of Florida professor and an industry consultant. The area planted with orange groves will total 459,311 acres this year, the lowest since at least 1978, when the government data begins. The USDA survey was conducted every two years until 2009, when it became annual.
Acreage declines have also been spurred by increases in housing development and urban sprawl, said Mixon, whose 50-acre farm in Bradenton, Florida, is down from 350 acres in 2006.
Slowing U.S. consumption may cap price gains for futures, according to Judy Ganes-Chase, the president of J. Ganes Consulting in Panama City, Panama. U.S. retail prices for frozen, concentrated orange juice reached $4.7026 a pound by the end of November, down 5.9 percent from a year earlier. The cost is up 28 percent from a decade ago, threatening consumer demand, Ganes said.
Since Oct. 1, retailers sold 82.39 million gallons as of Nov. 23, down 6.7 percent from a year earlier, the Florida Department of Citrus estimated on Dec. 9, citing data from Nielsen Co. U.S. inventories of frozen orange juice totaled 732.47 million pounds on Nov. 30, up 22 percent from a year earlier, government data show.
Some consumers are looking for lower-calorie options, said Ross Colbert, a global beverage-strategist at Rabobank International in New York who’s been studying the industry for more than 10 years. U.S. per-capita consumption fell to 3 gallons in 2012 from 4 gallons in 2008 and 5.5 gallons in 2000, Colbert said. An 8-ounce serving of orange juice has about 110 calories, according to the government. In the past 10 years, water consumption has increased the most among all beverages, he said.
Production of oranges in Brazil will climb 8.5 percent to 435 million boxes in the 12 months ending June 30, 2014, from a year earlier, and juice output will jump 18 percent, the USDA’s Foreign Agricultural Service said in report Dec. 16. Yields will rise 12 percent.
“Brazil could take care of any shortfall we may have in production,” said James Cordier, founder of Optionsellers.com in Tampa, Florida. “While the U.S. crop is the smallest we’ve seen in many years, sales at the retail level are still sluggish.”
Hedge funds and other large speculators are increasing bets on a price rally. As of Dec. 17, money managers raised their net-long position by 11 percent from a week earlier to 2,652 futures and options, Commodity Futures Trading Commission data show. That’s the highest in three months.
First found in Florida in 1998, the Asian psyllid thrived on the state’s temperate climate and sap collected from foliage as it spread the bacterial-disease to all 32 counties that produce oranges commercially. Greening has cost the state’s economy $4.5 billion in lost revenue and eliminated 8,200 jobs amid spending cuts since being discovered in 2005, according to the Citrus Research and Development Foundation.
The USDA said Dec. 12 it was providing $1 million for research projects aimed at combating the disease. An additional $9 million has been spent through a government research program for specialty crops. More funds may be allocated in a new farm bill currently being negotiated by lawmakers.
Rick Kress, the president of Clewiston, Florida-based Southern Gardens Citrus, has replaced about 500,000 trees since 2005 because of psyllid infestation and greening. The company has about 1.8 million trees planted on more than 16,500 acres, and can process as much as 20 million boxes of oranges per season, according to its website.
Mixon, the Florida grower, has tried fighting the insect with pesticide and increasing fertilizer use to strengthen trees. Groves have also been damaged by other crop diseases including citrus canker, which causes leaves and fruit to drop prematurely, he said.
“We use pesticide, but the problem is that if it rains, it can be washed off, or if you don’t catch the psyllid at the right time, it becomes ineffective,” Mixon said. “If you use too much pesticide, you can actually burn the fruit, which can then become useless for fresh fruit or juice.”
The risk of frost in coming months may further threaten Florida’s crop, while U.S. demand increases seasonally as consumers drink more to boost their vitamin C intake and guard against influenza, said Fain Shaffer, the president of Infinity Trading Corp. in Indianapolis.
While output is forecast to increase in Brazil, the country’s stockpiles are heading for a three-year low, the USDA’s Foreign Agricultural Service estimated on Dec. 16. At the end of June 2014, inventories will drop to 93,000 metric tons, down from 205,000 a year earlier and 474,000 tons in 2012, according to the report.
Total output of frozen concentrate in the 12 months that ended in June 2013 fell 23 percent in Brazil because of lower availability for fruit processing and low industrial yields, the USDA said. Crop diseases including greening are boosting production costs in the South American country, prompting some farmers to switch to crops including sugarcane and rubber, according to Conab, the government crop-forecasting agency.
Reduced imports from Brazil may shrink U.S. inventories that, while up from 2012, are 49 percent smaller on average this year than a decade ago, government data show.
“We’re in a serious supply problem,” said Shawn Hackett, the president of Hackett Advisors Inc. in Boynton Beach, Florida. “Citrus greening is a structural problem, and Brazil is having its own issues. There’s no way to turn this around. Prices are going to go higher.”
What would we do without Zero Hedge? Does anyone else notice the rapid deterioration of financial news media, especially in the US? OK, we are not naive, there are biases in the media, traders from big ibanks talking up their positions, and trading is all about information arbitrage. But financial news used to be really serious. Traders could turn on a TV to see what the markets were doing. Bloomberg being the last financial channel broadcast on TV to avoid the “CNBC Phenomenon” or more specifically the “Cramer Phenomenon.” But now, even Bloomberg TV has become a financial version of The View, with the occasional serious guest, and the occasional well researched article.
This is not meant to be a praise-all for ZH, but seriously, what other site has a continual flow of objective analysis, and breaking news that’s not visible elsewhere on the net? Ok, traders don’t really need news they just need data, so in today’s electronic market financial journalism may be less valuable for traders. But that doesn’t mean the quality of financial journalism should be allowed to deteriorate to an entertainment level. Trading is often compared to gambling, Wall St. being the ‘big casino’ – but most involved take it very seriously, and the markets can make or break families, companies, and countries. In most Vegas casinos, you will find all sorts of cheap tricks to overwhelm your visual cortex such as scantily clad ladies, loud bells and whistles, lots of flashing lights, free drinks and food spiked with salt and sugar, and well dressed managers waiting to be so polite and charming should they see you drop a load. See any similarities?
There is another interesting parallel with ZH, it was founded in 2009, before Wikileaks became popular, and before the NSA scandal. Starting with Wikileaks exposing Swiss banking activities, and other significant financial infos, traders and investors have started changing the way they obtain and process information on the internets. This was more solidified with the NSA scandal, although much infos released by Snowden are not of a financial nature. Many of the policies now being implemented by a global community of concerned internet users were running on ZH before all of this happened. Again, not an all-praise for ZH, but what value do many mainstream financial networks have, with all their biases, agreements with partners, and guests from large houses talking up their positions. It was a shocking for many to learn that all it takes to get on CNBC is $2,500 (probably policy changed now, but it used to be like this). Stock traders from the late 90’s remember the ‘Power Lunch Bump’ where it was almost guaranteed that the guest, whoever he was or whatever he said, was good for at least a few points of their stock to jump while talking. A new group of retail traders flush with cash from the 90’s boom were anxious to get in on the action but didn’t know anything other than to turn on the TV and watch CNBC. Professional traders took it with a grain of salt, but it sure was a great way to pay for lunch. What a different world we live in.
So what’s the new financial media all about? It’s outlined well in the ZH Manifesto:
- to widen the scope of financial, economic and political information available to the professional investing public.
- to skeptically examine and, where necessary, attack the flaccid institution that financial journalism has become.
- to liberate oppressed knowledge.
- to provide analysis uninhibited by political constraint.
- to facilitate information’s unending quest for freedom.
our method: pseudonymous speech…
anonymity is a shield from the tyranny of the majority. it thus exemplifies the purpose behind the bill of rights, and of the first amendment in particular: to protect unpopular individuals from retaliation– and their ideas from suppression– at the hand of an intolerant society.
the right to remain anonymous may be abused when it shields fraudulent conduct. but political speech by its nature will sometimes have unpalatable consequences, and, in general, our society accords greater weight to the value of free speech than to the dangers of its misuse.
– mcintyre v. ohio elections commission 514 u.s. 334 (1995) justice stevens writing for the majority
What ZH represents most importantly, an anonymous network of financial professionals which is extremely diverse, some are from the mainstream, some from the fringes. It’s a bastion of internet freedom, representing free speech as it was intended. Of course that’s just the platform, it doesn’t guarantee high quality of information, but somehow, it is the only source where information is almost all quality.
Aside from retail investors, what’s to keep traditional financial media alive at all? In the case of something like Bloomberg, their public media is almost irrelevant. The BB team is supporting their clients for the terminal, and so having their own network of analysts, journalists, and other types of agents makes sense to support data provided through the terminal. But what about others?
There are other exceptions such as Reuters, not a unique financial media, but they are backed by the trading element of their business. But unless you are a customer of Reuters, such as the new product giving their clients a nanosecond edge “Ultra Low Latency Data” their reporting on general news and especially financial events is suspect.
Or maybe, the only thing keeping such mainstream institutions alive, are a secret group of corporate clients, that can use such outlets for their own information campaign purposes. In any event, as the markets evolve, and the internet evolves, the new paradigm in financial media is the “Bitcoin” model, not the USD model:
“The advantage for Chinese users to use Bitcoin is freedom, people can do something without any official authority,” said Patrick Lin, system administrator of Erights.net and owner of about 1,500 Bitcoins. Lin said he’s sticking to the currency itself, rather than IPOs, in part because of weak regulation. “The Bitcoin world is just like the Wild West — no law, but opportunity and risk,” he said.
ZH is a public site, but represents the gateway into the ‘dark’ internet, at least as it’s concerning financial media. Of course, there wasn’t technology 50 years ago to support such a network, so it was easy for certain powerful media companies to dominate the sphere. Now, anyone with a computer and internet access, can learn as much about the markets as you can at Wharton (if they learn anything there is questionable). With that knowledge, that person can open a blog, and become their own independent financial media agent. The standing argument that bloggers are unprofessional because they don’t have journalistic credentials, has been disproved in the last years, since it was sites like ZH that broke the flash trading scandal, and Wikileaks, that broke the story about Julius Baer.
The new paradigm of financial media is a decentralized, global network of well informed uber-agents, who proliferate their information privately through their own information portals, and through public networks, such as Zero Hedge (currently, ZH the only one).
87-year-old Lew Manchester has just returned from a 3-week trip touring Buddhist temples in Laos and cruising the Mekong Delta in Vietnam. His 61-year-old daughter Lee lives year-round in the basement of her friend’s Cape Cod cottage, venturing into the winter cold to get to the bathroom. As Bloomberg reports, Lew is making the most of his old age. Lee is paring back and lightening her load as she looks ahead to her later years. Both worked all their lives, both saved what they could. “Timing is everything and my dad’s timing with jobs, real estate and retirement benefits was better,” said Lee. A rising tide of graying baby boomers is less secure financially and has a lower standard of living than their aged parents.
The median net worth for U.S. households headed by boomers aged 55 to 64 was almost 8 percent lower, at $143,964, than those 75 and older in 2011, according to Census Bureau data. Boomers lost more than other groups in the stock market and housing bust of 2008, and many also lost their jobs in the aftermath at a critical point in their productive years.
“Baby boomers are the first generation without the safety net of pensions and other benefits their parents have,” said Alicia Munnell, director of the Center for Retirement Research at Boston College. “They’re facing a much more challenging old age.”
Lee said she harbors no resentment for her dad, who she credits with instilling her with a strong work ethic. “I was never allowed to dream,” she said. “My parents and then my husband expected me to work, and I couldn’t really think about what I most wanted to do.”
Lee is hardly the only baby boomer who didn’t save enough, worked for companies without 401(k) accounts or lost significant amounts in the financial crisis. Today, her retirement savings of $120,000 are right at the median 401(k) balance for households headed by baby boomers, according to 2011 data from the Center for Retirement Research at Boston College.
That will provide just $4,800 a year to boomers when they turn 65, assuming they take out 4 percent annually, the limit financial planners say should be withdrawn to assure retirees don’t run out of money in their lifetimes.
Had boomers like Lee been thriftier, they would have still been hurt by a shift to 401(k) accounts from pensions in the 1980s. Thirty-seven percent of the elderly in the U.S. collect pensions, which provide some guaranteed income until they die. Fewer than 10 percent of boomers collect pensions, and that number is quickly shrinking.
“She has never complained to me about not having enough money,” he said. “But if she needs it, I’ll advance it.”
Lee, who has repaid the money she borrowed, avoids dwelling on her difficulties during her weekly calls to her dad.
“I know he’ll help me if I fall off the ledge, but he taught me to be self-sufficient,” she said.
“It’s liberating finally getting to a point in my life where I don’t need a lot of stuff,” she said. “I felt like I was getting rid of the baggage of life that I’d kept dragging behind me and which was just weighing me down.”
Lee doesn’t regret downsizing her life. She has more time than ever to enjoy the outdoors, read and spend time with her friends.
“There’s so much pressure to keep up, to keep buying things, to stay on the treadmill always hoping to have more,” she said. “Well, less can be better.”
Confused why the various US manufacturing indices have been on a tear in the past few months? Perhaps the fact that GM dealer lots are so full of cars they just couldn’t wait for even more deliveries has something to do with it. Which is also why in addition to reporting sales numbers for November that were largely in line with expectations, amounting to 212,060 (even if total Chevy Volts sold YTD of 20.7K were -0.6% less than in the same period in 2012), or 13.7% more than last year (estimated called for 13.% increase), of which a whopping 51,705 was in the form of “channel stuffed” units to be parked on dealer lots.
In fact, as the chart below shows, in the past three months, GM channel stuffing has exploded and soared by 150K units (the most ever for a 3 month period) from 628.6K to 779.5K. This represents the second highest amount of channel stuffing and is lower only compared to the 788.2K units “stuffed” exactly one year ago.
And while the topic of channel stuffing is not new here, as we have been covering it closely for the past three years, it is of note that even “serious” media such as Bloomberg pointed out yesterday that across the entire US car industry, and not just GM, channel stuffing is now the highest it has been since 2005. Surely all this pent up demand is there for a reason: after all, as in every centrally-planned economy, if you build it they will surely come…
While the abundance of commercials for cars across all media this time of year is nothing new, the manufacturers (and even more so the dealers) are likely getting more desperate. As Bloomberg reports,inventory climbed to almost 3.4 million cars and light trucks entering November – at 76 days of supply, that was the highest for the month since 2005. This should come as no surprise as we previously noted GM’s post-crisis highs in channel stuffing as hope remains high that the recent slowdown in sales does not continue. The question, of course, is, “will manufacturers be responsible and curb production to keep inventory in check, or are some going to resort to old, bad habits and churn it out and then throw incentives on them.” We suspect we know the margin-crushing answer.
the levels harken back to early in last decade when steep price discounting was used to prop volumes,…
Excluding 2008 when the industry was heading into recession, LV inventory totaled 3.397 million at the end of October, highest for the month since 3.803 million in 2004. October’s 76-day supply, was the highest for the month since 77 in 2005.
By comparison, sales in 2013 mostly have run at highs dating to 2007, suggesting inventory is getting ahead of the curve.
GM just saw the biggest two month jump in inventory in the restructured company’s history.
Carmakers have boosted production to meet demand that has left the industry on pace for the best sales year since 2007. Swelling supply raises the stakes for sales in November after deliveries missed estimates in October and slipped in September for the first time in 27 months. If buyers don’t absorb enough inventory, more automakers, including Toyota Motor Corp. (7203) and Honda Motor Co., may need to follow Ford Motor Co.’s lead by trimming production to avoid margin-slicing discounts.
“Inventory has been so tightly managed, and it has been because demand has been there and production hasn’t been able to keep up,” Jeff Schuster, an analyst with researcher LMC Automotive, said in a telephone interview. “If you change that scenario around, the question is, does the discipline that we’ve seen the industry operate with lately stick around?”
“As the market begins to slow down and begins to peak, it’s going to get tougher for everybody,” Joe Langley, the head of North American vehicle production analysis for IHS Automotive, said by telephone. “Are manufacturers going to be responsible and curb production and keep inventory in check, or are some going to resort to old, bad habits and churn it out and then throw incentives on them? That’s what’s going to be interesting, to see how that plays out.”
Wesley Lutz, a Chrysler dealer in Jackson, Michigan, said his store has about 120 days supply of vehicles in stock, roughly double what he usually likes to carry. Lutz cited his anticipation of strong winter and spring selling seasons and his ability to borrow at less than 2 percent to finance the inventory on his lot.
“I’m probably not managing my inventory as well as I do at 8 percent, but I’m willing to roll the dice and stock some inventory in December and January, because I think we’re going to have a great market in February,” Lutz said by telephone. “We’re borrowing money so cheaply.”
“If it’s an underwhelming month, we’ll need to look to see if there are any decisions to start to ratchet back” production this month or in January, LMC’s Schuster said. “It could end up being the first real test that the industry’s faced since the restructuring.”
Sadly, there it is – due to intervention-driven low rates, mal-investment occurs from the bottom-up – and now we have the most inventory in 8 years… car makers and dealers (perhaps more so) will be hoping hard this season… the ‘field of dreams’ economy continues
China Bond Yields Soar To 9 Year Highs As It Launches Crackdown On “Off Balance Sheet” Credit | Zero Hedge
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 where math and logic still matter, the real story – 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, and especially the NY, London, and SF housing markets. 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,Bloomberg reports.
Specifically, China appears to be targeting that little-discussed elsewhere component of finance, shadow banking. Per Bloomberg, the regulations drawn up by the China Banking Regulatory Commission impose restrictions on lenders’ interbank business by banning borrowers from using resale or repurchase agreements to move assets off their balance sheets. Banks would also be required to take provisions on such assets while the transactions are in effect. Ironically, it may be that soon China will be more advanced in recognizing the various exposures of shadow banking than the US, which is still wallowing under FAS 140 which allows banks to book a repo as both an asset and a liability.
Recall from a Matt King footnote in his seminal “Are the Brokers Broken?”
Quite apart from the fact that FAS 140 contradicts itself (with paragraph 15 (d) making borrowed versus pledged transactions off balance sheet, and paragraph 94 making them on balance sheet, a topic complained about by many broker-dealers immediately after its issue), there seems to be little consensus as to who is the borrower and who is the lender. As far as we can tell, terms like ‘borrower’ and ‘lender’ are used in exactly the opposite sense in the accounting regulations relative to standard market practice. The description above follows common market practice. The accounting documents seem to refer to this the other way around, a source of confusion commented upon in some of the accounting literature
So while in the US one may be a borrower or a lender at the same time courtesy of lax regulatory shadow banking definition (depending on how much the FASB has been bribed by the highest bidder), in China things will very soon become far more distinct:
The rules would add to measures this year tightening oversight of lending, such as limits on investments by wealth management products and an audit of local government debt, on concerns that bad loans will mount. The deputy head of the Communist Party’s main finance and economic policy body warned last week that one or two small banks may fail next year because of their reliance on short-term interbank borrowing.
“China’s banks and regulators are playing this cat-and-mouse game in which the banks constantly come up with new gimmicks to bypass regulations,” Wendy Tang, a Shanghai-based analyst at Northeast Securities Co., said by phone. “The CBRC has no choice but to impose bans on their interbank business, which in recent years has become a high-leverage financing tool and may at some point threaten financial stability.”
Cutting all the fluff aside, what China is doing is effectively cracking down on the the wild and unchecked repo market, and specifically re-re-rehypothecation, which allows one bank to reuse the same ‘asset’ countless times, and allow it to appear in numerous balance sheets.
The proposed rules target a practice where one bank buys an asset from another and sells it back at a higher price after an agreed period.
The reason why China is suddenly concerned about shadow banking is that it has exploded as a source of funding in recent years:
Mid-sized Chinese banks got 23 percent of their funding and capital from the interbank market at the end of 2012, compared with 9 percent for the largest state-owned banks, Moody’s Investors Service said in June. The ratings company forecast a further increase in non-performing loans as weaker borrowers find it hard to refinance.
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. “The higher yields on government debt have pushed up borrowing costs broadly, creating obstacles for companies and government agencies looking to tap bond markets. Several Chinese development banks, which have mandates to encourage growth through targeted investments, have had to either scale back borrowing plans or postpone bond sales.”
This should not come as a surprise in the aftermath of the recent spotlight on China’s biggest tabboo topic of all: the soaring bad debt, which is the weakest link in the entire, $25 trillion Chinese financial system (by bank assets). So while the Fed endlessly dithers about whether to taper, or not to taper, China is very quietly moving to do just that. Only the market has finally noticed:
The slowing pace of bond sales from earlier in the year is reviving worries of reduced credit and soaring funding costs that were sparked in June, when China’s debt markets were rattled by a cash crunch.
The rise in borrowing costs and shrinking access to credit could undercut the recent uptick in China’s economy that global investors in stock, commodity and currency markets have cheered. Wobbly growth in China could undermine economic recovery in the rest of the world.
“If borrowing costs don’t fall in time, whether the real economy could bear the burden is a big question,” said Wendy Chen, an economist at Nomura Securities.
Chinese bond yields are rising amid a lack of demand among the big banks, pension funds and other institutional money managers, analysts say. These investors, traditionally the heavyweights in China’s bond market, have seen their funding costs rise in tandem with interbank lending rates, which are controlled by China’s central bank. The country’s bond market is largely closed to foreign investors.
The yield on China’s benchmark 10-year government bond was at 4.65% Monday, down from 4.71% Friday. Last Wednesday’s 4.72% was the highest since January 2005, according to data providers WIND Info and Thomson Reuters. The record is 4.88% set in November 2004. Bond yields and prices move in opposite directions.
“The recent sharp rise in bond yields was mostly due to worsening funding conditions and growing expectations for a tighter monetary policy as Beijing seeks to deleverage the economy,” said Duan Jihua, deputy general manager at Guohai Securities.
As government-bond yields have risen, the average yield on debt issued by China’s highest-rated companies rose to 6.21% as of Friday—the highest since 2006, when WIND Info began compiling the data.
In conclusion, it goes without saying that should China suddenly be hit with the double whammy of regulatory tightening in both shadow and traditional funding liquidity conduits, that things for the world’s biggest and fastest creator of excess liquidity are going to turn much worse. We showed as much yesterday:
If the Chinese liquidity spigot – which makes the Fed’s and BOJ’s QE both pale by comparison – is indeed turned off, however briefly, then quietly look for the exit doors.
The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation.
“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, Governor Zhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Neither Yi nor Zhou gave a timeframe for any changes.
Yi Gang, deputy governor of People’s Bank of China and head of the State Administration of Foreign Exchange, said in the speech that the appreciation of the yuan benefits more people in China than it hurts. Photographer: Brent Lewin/Bloomberg
Nov. 20 (Bloomberg) — Robert Hormats, former U.S. undersecretary of state for economic growth, talks about the outlook for China’s planned economic reforms and outlook for talks in Geneva between world powers and Iran over a nuclear deal. Hormats speaks with Tom Keene on Bloomberg Television’s “Surveillance.” Judd Gregg, chief executive officer of the Securities Industry and Financial Markets Association, also speaks. (Source: Bloomberg)
Nov. 19 (Bloomberg) — Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, talks about China’s economy. He speaks with Rishaad Salamat on Bloomberg Television’s “On the Move.” (Source: Bloomberg)
Nov. 21 (Bloomberg) — Simon Derrick, the London-based chief currency strategist at Bank of New York Mellon Corp., talks about global currency market imbalances and China’s yuan policy. He speaks from Singapore with Angie Lau on Bloomberg Television’s “First Up.” (Source: Bloomberg)
China’s foreign-exchange reserves surged $166 billion in the third quarter to a record $3.66 trillion, more than triple those of any other country and bigger than the gross domestic product of Germany, Europe’s largest economy. The increase suggested money poured into the nation’s assets even as developing nations from Brazil to India saw an exit of capital because of concern the Federal Reserve will taper stimulus.
Yi, who is also head of the State Administration of Foreign Exchange, said in the speech that the yuan’s appreciation benefits more people in China than it hurts.
His comments are “consistent with the plans to increase therenminbi’s flexibility so they become less interventionist,”Sacha Tihanyi, senior currency strategist at Scotiabank in Hong Kong, said by phone today. The central bank may widen the yuan’s trading band in “the coming few months,” he added.
The yuan’s spot rate is allowed to diverge a maximum 1 percent on either side of a daily reference rate set by the People’s Bank of China. The trading range was doubled in April 2012, after being expanded from 0.3 percent in May 2007. The band could be widened to 2 percent, Hong Kong Apple Daily reported today, citing an interview with the Hong Kong Monetary Authority’s former chief executive Joseph Yam.
Capital inflows into China accelerated in October, official data suggest. Yuan positions at the nation’s financial institutions accumulated from foreign-exchange purchases, a gauge of capital flows, climbed 441.6 billion yuan ($72 billion), the most since January.
About half of October’s increase in the positions was attributable to surpluses in trade and foreign direct investment, with the rest accounted for by inflows of “hot money,” Goldman Sachs Group Inc. Hong Kong-based analysts MK Tang and Li Cui wrote in a Nov. 18 note.
The yuan has appreciated 2.3 percent against the greenback this year, the best-performance of 24 emerging-market currencies tracked by Bloomberg. Non-deliverable 12-month forwards rose 0.2 percent this week and reached 6.1430 per dollar on Nov. 20, matching an all-time high recorded on Oct. 16. The currency was little changed at 6.0932 as of 10:33 a.m. in Shanghai today.
“It appears that many in the People’s Bank think the time is about right to scale back currency interventions,” Mark Williams, London-based chief Asia economist at Capital Economics Ltd., wrote in an e-mail yesterday. “But China has got itself into a situation where stopping intervention will be very hard to do” and comments such as Yi’s will spur speculative inflows, he added.
Less intervention and smaller gains in foreign-exchange reserves may damp China’s appetite for U.S. government debt. The nation is the largest foreign creditor to the U.S. and its holdings of Treasuries increased by $25.7 billion, or 2 percent, to $1.294 trillion in September, the biggest gain since February. U.S. government securities lost 2.6 percent this year, according to the Bloomberg U.S. Treasury Bond Index. (BUSY)
Yi’s comments didn’t imply China will be cutting its holdings of U.S. government debt, said Scotiabank’s Tihanyi. “They are probably going to keep their allocations reasonably stable unless there’s a big policy shift, but it means they will possibly be buying less at the margin,” he said.
Tower of Babel Moment « The Burning Platform. (FULL ARTICLE)
This week over in China, the Chinese had to SHUT DOWN Beijing due to SMOG problems. This is pretty radical, since far as I know not even Los Angeles ever got shut down due to Smog, and it was pretty nasty there particularly before CA Greenies went big time into emissions restrictions on the plethora of Carz that started hitting the LA Freeways in the 60s and 70s.
Air quality index readings for half of Beijing’s 12 urban areas fell below 200, the level dividing medium and heavy pollution, as of 12 p.m. today, according to data on the website of the Beijing Municipal Environmental Monitoring Center.
“Beijing will see light rain tonight, which will make it easier for air pollutants to dissipate,” Beijing Meteorological Bureau said today in its official microblog. The bureau lifted a yellow alert on smog at 8:50 a.m., predicting that visibility will improve….
- ZeroHedge: No Planes, No Trains, And No Automobiles As Record Smog Shuts Beijing (silveristhenew.com)
- Beijing Smog Closes Highways as Travelers Return After Holiday (bloomberg.com)
- Beijing shuts down highways, airport in fight against smog (elementulhuliganic.wordpress.com)
China started re-opening roads and airports in Beijing and surrounding areas that have been shut by record high levels of smog. An estimated 430 million people were expected to travel during the holiday that ends today and with the air quality index “improving” from its highest possible level to below 200 (the line between heavy and medium pollution), some will be able to return home. The clips below are stunning (and no that is not ‘fog’); summed up best by one Shanghai-based accountant that Bloomberg reportsnoted, “I won’t go to heavily polluted places like China’s north region as it’s either hazardous to your health or causes trouble when traveling.”…
- Beijing Smog Closes Highways as Travelers Return After Holiday (bloomberg.com)
- Hazardous smog chokes Beijing’s big sporting weekend (edition.cnn.com)
- Third Day of Serious Smog in Beijing Forces Highway Closures (voanews.com)
- Billionaire Bloomberg urges teens to skip college and become plumbers (refreshingnews99.blogspot.in)
- NYC Mayor Bloomberg reportedly threatens to ‘fucking destroy’ the taxi industry (theverge.com)
- Mayor Bloomberg Reportedly Told NY Taxi Boss ‘I Am Going To Destroy Your F—ing Industry’ (businessinsider.com)