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China’s Credit Crunch | Zero Hedge

China’s Credit Crunch | Zero Hedge.

We hear, read and listen day in and day out that it’s the Dollar that’s dead, that’s it’s the USA that will be knocked off the top of the roost and come hurtling to the ground with its neck being throttled by 1.364 billion Chinese hoards. We learn that it’s the USA that is the corrupt one and that the Federal Reserve can’t solve the financial woes of the country. The banks don’t have the money and no end of Quantitative Easing will solve the problem. But, it’s the Middle Kingdom that looks as if it’s in for a rough ride now as the credit crunch gets ready to punch the Chinese guys right in the eyeballs.

The People’s Bank of China has announced that it’s going to be delaying transfers of cash funds in both Dollars and also Yuan. Hey! I thought the Yuan was meant to be the up-and-coming world reserve currency that knew no problems and felt no crisis? It was only the Dollar that suffered, wasn’t it? The People’s Bank has invoked the need to update systems and do some maintenance. Apparently, it’s nothing to worry about and is just the ‘normal system maintenance’ that always takes place at this time of the Chinese Lunar-New Year celebrations. Transfers will be delayed right after January 30th until February 2nd for domestic transfers and it will continue until February 7th and the end of the holiday for foreign currency transfers.
Right, so there is no problem and the maintenance in the systems are going to take that long to deal with? Let’s hope they don’t get a glitch in there somehow and the entire Chinese banking system goes up in a cloud of mushrooms. There are always delays at the New Year period in China, but, the ones that have taken place in previous years haven’t had the backdrop of the previous problems with liquidity in China. That’s the whole difference in this story and that should be making the rest of us just slightly worried. The Chinese might be stealing the industrial rug from under our feet, but a world without the Chinese finances (at least what they tell us they have) would be a whole different spring roll ahead of us.

Admittedly, as many are willing to express, there is now the race that is on to be the first that predicts the fall of China. But, no need to race, that crystal-ball prediction was forecasted years ago before China even got out of its Communist pants after its long march.
But, today the financial sector in China is having liquidity problems that are getting worse. January 20th saw the interbank rates increase as much as 10%, when the PBOC stepped in. That was an increase from 3% the previous week. It is now at more stable (although still high) levels of 4.65%.

The POBC has urged banks in China to deal better with liquidity in particular at this time of year and to rely less on short-term funding.
But, the holiday-period is a frightening time for the banks as their liquidity drops and therefore trust between the banks gets worse as cash is depleted. The system maintenance comes at a wonderful time. The Chinese are taking a leaf out of the books of the best spin-doctors around and telling the world exactly what isn’t true, but what will be good to hear. Telling us all ‘hey, we’re up it without a paddle’ just isn’t going to instil confidence in the market is it? Welcome to the world of marketing in China.

Lies, lies and wool over your eyes. Until the penny drops, that is.

Originally posted: China’s Credit Crunch

You might also enjoy: Working for the Few | USA:The Land of the Not-So-Free  

Is The China Bank Run Beginning? Farmers Co-Op Unable To Pay Depositors | Zero Hedge

Is The China Bank Run Beginning? Farmers Co-Op Unable To Pay Depositors | Zero Hedge.

While most of the attention in the Chinese shadow banking system is focused on the Credit Equals Gold #1 Trust’s default, as we first brought to investors’ attention here, and the PBOC has thrown nearly CNY 400 billion at the market in the last few days, there appears to be a bigger problem brewing. As China’s CNR reports, depositors in some of Yancheng City’s largest farmers’ co-operative mutual fund societies (“banks”) have been unable to withdraw “hundreds of millions” in deposits in the last few weeks. “Everyone wants to borrow and no one wants to save,” warned one ‘salesperson’, “and loan repayments are difficult to recover.” There is “no money” and the doors are locked.

The locked doors of one farmers’ co-op…

Via China CNR,

Shadow Banking has grown remarkably…

…in recent years, opened dozens of Yancheng local “farmers mutual funds Society”, these cooperatives approved the establishment by the competent local agriculture, and received by the local Civil Affairs Bureau issued a “certificate of registration of private non-enterprise units.”

As savers are promised big returns…

Deposit-taking and lending by cooperatives operated operation, and to promise savers, depositors after maturity deposits not only can get the interest, you can also get bonuses.

But recently things have turned around…

However, beginning in early 2013, Yancheng City Pavilion Lakes region continue to have a number of co-op money people to empty, many savers deposits can not be cashed, thus many people’s lives into a corner.

Dong-farmers in Salt Lake Pavilion mutual funds club, a duty officer’s office, told reporters, because many people take money, put out loans difficult to recover, leading to funding strand breaks.

Rough Google Translation:

Salesperson: …the money has been slowly falling and in the end is difficult to ask for money, right? And now there is no money coming in, now people don’t want to save money, and take all the money.

Reporter: But it’s their money, they should be able to…

Salesperson: I know I should [given them money]; however, when the turn started, their is no money, we get cut off and lenders and borrowers took off…

One depositor blames the government (for false promises):

The bank has a deposit-taking his staff, he would say that he is a government action that has the government’s official seal, to give you some interest, as well as the appropriate dividends, because we believe that the government, so we fully believe him , we put the money lost inside, who thought in November, Xi Chu who told us that something was wrong.

But don’t worry – this should all be settled by 2016…

Yu Long Zhang: we put all of his certificates of deposit are received out. You are only responsible for the loan out of the money back to the people against. The people’s money has been invested in other projects go, we have to be tracked to ensure no loss of capital assets, can dispose of his assets disposed of, can recover quickly come back.

Reporter: There is a specific timetable yet?

Yu Long Zhuang: 2014 cashing out the entire program.

Reporter: When did all of these things can be properly resolved?

Yu Long Zhuang: the latest is 2015, 2015, all settled.

So, for the Chinese, their bank deposits have suddenly become highly risky 2 year bonds…

China Liquidity Fears Ease As PBOC Injects 255 Billion CNY – Most Since Feb 2013 | Zero Hedge

China Liquidity Fears Ease As PBOC Injects 255 Billion CNY – Most Since Feb 2013 | Zero Hedge.

Despite all the reform policy imperatives to constrict credit and normalize and liberalize policy and rates, the PBOC just provided the largest liquidity injection to its banking system in a year – 255bn CNY. While this is not entirely unusual for a year-end, when Chinese banks have to confess their illiquidity sins and cover mismatches (and are always helped by the PBOC); this year, short-term money-market rates are triple that of last year and there is a very real chance of a very real default within the shadow banking system. Of course, the sell-side are desperately writing cover that this is all priced in and even if the PBOC “lets some Trusts go” then they will come to the rescue and any crisis will be “contained.” However, no one knows who will be saved and therein lies the safety-first rub – now where have we heard “contained” before?

  • *PBOC TO CONDUCT 75B YUAN OF 7-DAY REVERSE REPOS: TRADER
  • *PBOC TO CONDUCT 180B YUAN OF 21-DAY REVERSE REPOS: TRADER
  • *PBOC OFFERS 7-DAY REVERSE REPO AT 4.1% YIELD: TRADER
  • *PBOC OFFERS 21-DAY REVERSE REPO AT 4.7% YIELD: TRADER

China Repo (lower) and Reverse Repo liquidity provision…(biggest liquidity provision in a year)

Crucially, the PBOC will have to withdraw this liquidty (obviously as the repo matures) if it is merely year-end window-dressing (as is obvious in the chart above with the large downward red bars in each Feb).

For now short-term repo rates are lower

1d: -85bps at 3.48%
7d: -135bps at 5.25%
14d: -34bps at 5.57%

But of course, the big banks always bid first and scoop up the supply – just as we saw yesterday – its the smaller banks that are the most in distress and 7-day repo went through a 8, 9, and 10% rates – these are triple those of the peak rates during last year’s new-year liquidty crunch.

And as much as banks will contend – just as the China itself admitted tonight:

Credit default risks with Chinese companies are emerging because of rising borrowing costs and tight liquidity conditions, said the official China Securities Journal in a front page editorial. The government needs policy flexibility to prevent any systematic financial risks.

This problem – described as “contained” by one sell-side shop reminds us of the “it could never happen here” mentality in the 2008 US shadown banking system. Critically, when the PBOC suggests it may let some banks go (to prove its mettle and resolve to fight out of control credut creation); investors will sell first and think later about which are safe and which are not. A ‘default’ – which looks increasingly likely – may just be the test of just how ‘planned’ and ‘controlled’ the Chinese banking system can really be…

We have on little question… for now the only Wealth Management Trust product that is publicly on the verge of default is CEQ#1 and that is only a 3 billion CNY position – so why did the PBOC feel the need to provide more than 80 times that amount of liquidity to the banking system unless it was epically worried about contagion and the total size of the Trust market.

Of course, the knne-jerk reaction is positive (well it is 255 Billion CNY of magic money) but between the BoJ starting its two-day meeting and John Hilsenrath confirming that Taper is here to stay – JPY weakness (and USD strength) are dragging stocks higher with S&P futures +7.5 from Friday’s close.

 

Fun-DURR-mentals?

 

Charts: Bloomberg

“China Expected To Announce It Has More Than Doubled Its Gold Reserves”, Shanghai Daily | Zero Hedge

“China Expected To Announce It Has More Than Doubled Its Gold Reserves”, Shanghai Daily | Zero Hedge.

The topic of China’s below the radar accumulation of gold is nothing new: first revealed here in September 2011 as part of a Wikileaks intercept, watchers of Chinese gold imports have been stunned by the ravenous pace with which Chinese customers have been gobbling up both domestic and foreign gold production month after month. One needs merely to glance at the net imports of gold just through Hong Kong to get a sense of just how much gold has flowed into the country which has now surpassed India as the largest buyer of gold.

But the biggest question mark since 2009, when China gave its last official gold holdings update, has been how much gold has the People’s Bank of China accumulated. One thing is certain: it is well more than the official number of just ovef 1000 tons.

Recall the confidential memo revealed through Wikileaks:

According to China’s National Foreign Exchanges Administration China ‘s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.

In other words, between 2009 and 2011, China’s gold reserves had increased according to internal data. One can assume they have increased substantially since then, however the PBOC, judiciously, has refused to provide an updated amount of its gold holdings for five years in a row: after all why buy at higher prices (if the world knows that the PBOC is buying at any price), when it can buy cheaply?

However, the period of stealth – and cheap – accumulation may be ending. At least according to the largest English-language portal in East China: Shanghai Daily.

The website, which cites an analysis by Jeffrey Nichols of American Precious Metals Advisors, reports that the Chinese central bank is about to announce its gold holdings have nearly tripled from 1054 tons to 2710 tons.

From Shanghai Daily:

China may soon announce an increase in its official gold reserve from 1,054 tons to 2,710 tons, Jeffrey Nichols, managing director of American Precious Metals Advisors, said.

 

The People’s Bank of China has not reported any increase in official gold holdings since 2009, when the central bank said the official reserve was at 1,054 tons, which accounted for only about 1 percent of its multi-trillion foreign exchange reserves.

 

The PBOC has been “surreptitiously” adding to its official gold reserves. It has bought a total of 654 tons in 2009 through 2011, another 388 tons in 2012, and more than 622 tons last year, mostly from domestic mine production and secondary supplies, Nichols said in a commentary posted on NicholsOnGold.com yesterday.

 

Central bank purchases comprise the smallest fraction of global gold demand — less than 10 percent.

 

“If China announces an increase in gold reserves, there would be an immediate drag-up force in the gold market,” Albert Cheng, managing director of the industrial association World Gold Council for the Far East, told Shanghai Daily.

 

China is the biggest gold consumer and producer in the world.

 

Combined demand in China in the first three quarters amounted to 821 tons and the demand for the whole last year is expected to exceed 1,000 tons, according to the council’s earlier statements.

Oh well: the period of quiet accumulation was fun while it lasted.

That said, we for one would be happy if Nichols is wrong, and if the PBOC were not to announce any time soon it has become the fourth (or third, or second) largest official holder of gold in the world. Because unlike clueless, momentum-chasing traders everywhere, it is always better to buy lower than higher: a concept which the entire Western “developed” markets and the HFT algos and sophisticated “hedge fund” investors that trade them, have either forgotten or never grasped to begin with.

China “Fixes” Liquidity Crisis By Banning Media Use Of Words “Cash Crunch” | Zero Hedge

China “Fixes” Liquidity Crisis By Banning Media Use Of Words “Cash Crunch” | Zero Hedge.

UPDATE: 7-day repo is now up 220bps at 980bps – as the “liquidity crisis” is worse than any other seasonal effect on record…

and to think the media was proclaiming the crisis over just an hour ago as the rate (in green) was sent around the world…

How do you “fix” a nations’ banking system’s increasingly desperate need (and dependence upon) for government-provided liquidity without giving in and just providing all the inflation-stoking liquidity the banks demand? Simple – in China – you ban the media from discussing it. As The FT reportsChinese propaganda officials have ordered financial journalists and some media outlets to tone down their coverage of a liquidity crunch in the interbank market, in a sign of how worried Beijing is that the turmoil will continue. The censors have warned reporters not to “hype” the multiple-sigma spikes in overnight-funding rates and have forbidden the press from using the Chinese words for “cash crunch.”

Of course – early prints in today’s repo market are seeing levels normalize back to around 4-5% (just as Goldman Sachs ‘suggested’ they would because this liquidity spike is nothing but ‘seasonals’ – hhhmm)

Via The FT,

Chinese propaganda officials have ordered financial journalists and some media outlets to tone down their coverage of a liquidity crunch in the interbank market, in a sign of how worried Beijing is that the turmoil will continue when markets reopen on Monday.

Short-term interest rates for loans in the interbank market shot up last week in an apparent repeat of the cash crunch in June

Money market rates surged again on Friday, even after China’s central bank announced on Thursday evening that it had carried out “short-term liquidity operations” to alleviate the problem.

In response Chinese censors have warned financial reporters not to “hype” the story of problems in the interbank market, and in some cases have forbidden them from using the Chinese words for “cash crunch” in their stories, according to two people with direct knowledge of the matter who asked not to be named.

The Communist party’s powerful propaganda department and various other party and government bureaux frequently issue bans and detailed instructions to Chinese media on “sensitive” issues that could undermine party legitimacy.

That directive also ordered media to “strengthen their positive reporting” and “fully report the positive aspect of our current economic situation, bolstering the market’s confidence”, according to a copy obtained by the FT.

 

China Bails Out Money Markets For Second Day In A Row, Following Repo Rate Blow Out | Zero Hedge

China Bails Out Money Markets For Second Day In A Row, Following Repo Rate Blow Out | Zero Hedge.

As reported yesterday, following a surge in various short-term and money market rates in the aftermath of the Fed’s taper announcement, the PBOC admitted after the close that it used Short-term Liquidity Obligations (SLO) to add funding to the market, and in doing so, bailing out money markets – the same product that nearly collapsed the financial system in the aftermath of Lehman.

The bank didn’t specify when it added the funds but, in another direct echo of the June panic, the PBOC said it is prepared to add more. However, it seems the market was less the convinced, and despite an early plunge in the seven day repo rate by over 2%, it suddenly and rapidly reversed direction and instead blew out hitting a whopping 9%, the highest since the June near-crash of the Chinese banking sector.

The outcome: China said it injected another $50 billion to bailout and stabilize its money markets in what is increasingly looking like a replay of this summer’s liquidity lock up. Perhaps the PBOC hinting at tapering at a time when the Fed is actually doing so is not the smart choice…

From the WSJ:

China’s central bank said it had injected over 300 billion yuan ($49.2 billion) into the nation’s money markets over a three-day period as interbank interest rates surged to their highest levels since June.

The People’s Bank of China said on its official Twitter-like weibo account that the banking system had current excess reserves of over CNY1.5 trillion and it called that level “relatively high.”

The central bank said that it had injected the funds through its “short-term liquidity operations” and this was in response to the year-end market factors.

The interest rates banks charge each other for short-term loans jumped to 8.2%, the highest level since the June cash squeeze. 

The stress in the banking system is starting to spread elsewhere, with stocks in Shanghai falling for a ninth straight day to the weakest level in four months while government bonds dropped, pushing the 10-yield up to near the highest in eight years.

The turmoil has been sparked by a scramble for funds by banks as they near the end of the year when they typically need extra cash to meet regulatory requirements as well as the demand for funds from companies.

The central bank also said reminded banks that they need to manage liquidity better.

As to what drove the rapid mood reversal, the Chinese market was hit early on with talk of a missed payment at a local Chinese bank. For now it has not been confirmed, and even if it was the PBOC is expected to never allow any government-backstopped bank to fail. Still, a few more days like the last two and the world may just find out how prepared for a bank failure a credit-stretched China really is.

 

Speculation & Investor Behaviour ~ The Idiot Tax

Speculation & Investor Behaviour ~ The Idiot Tax.

Rats caught in trap

I’d been watching the stock for at least a month. A small time oil & gas company in Africa. It managed to secure a huge land position for a company of its size. Looked very promising, well funded for some time. Management previously had success putting together a similar land position with another company before it was swallowed early. But, still highly speculative.This one wouldn’t be dropping a drill on dirt until late 2014. Maybe 2015.

Being a stingy bugger and without a catalyst in the market, I kept sniffing around for a while before I finally slid my buy order in at 18.5 cents – this dude wasn’t going to pay the current market price of 20 cents! Maybe even 18.5 was too much. When it dropped to 19.5, I began to believe my order would get filled, but then when it hit 19 cents my mind started to desert me.

“I could get this for 18 cents.”

Volume. There wasn’t a great deal of it. In fact it was being pushed down on mild trades. Someone needed a new flatscreen or wanted to get their kid Optimus Prime for Christmas. There was no prospect that enough shares would be dumped and I’d get my fill at 18 cents. The holding was tight and the sell side was thin. Regardless, I hit the amend button and my order dropped down the queue to 18 cents.

I assume you know where this story is going. You’re probably wondering why I’m telling it when it inevitably makes me look like an idiot. So why tell? I’ve read countless explanations of investor psychology in a general sense, but rarely does anyone put their name to a calamity, or at least their nom de plume.

Everyone can recognise these paragraphs by Heidi Lefer and Ildiko Mohacsy, in  Journal of the American Academy of Psychoanalysis and Dynamic Psychiatry, but there’s little personality to it and no experience.

Economic bubbles and crashes have occurred regularly through history-from Holland’s 17th century tulip mania, to America’s 19th century railway mania, to the 1990s high-tech obsession. Though most investors regard themselves as investing rationally, few do. Instead they react collectively, buying high and selling low in crowds. Being subject to the illusion of control, they follow regressive behavior patterns and irrational, wishful thinking. They are victimized by their own emotions of hope, fear, and uncertainty.  

When people feel doubt and panic, they regress to an earlier stage either individually or en masse. Under stress, they revert to affect (Mohacsy & Silver, 1980). Such mobbing has an obvious psychological counterpart in the market. Here, crowds are governed by wishful thinking. “Investors are coached to believe that a stock is a better buy when the price rises, that it’s ‘safer’ to join the crowd in betting the price up and ‘riskier’ to buy a stock declining in price” (Vick, 1999, p. 7). Investors also join a crowd to minimize regret. If something goes wrong, they know others behaved the same way. 

We recognise it when exuberance makes charts go vertically up or when stone cold fear pushes them ruthlessly down, but our ego inevitably makes us shy away admitting that we take part in any function of it – “that’s those other sheep”. We’re merely unemotional observers, until we aren’t. Is anyone going to admit they were buying in the final moments before the last bitcoin crash?

It was inevitable that a few short days after Wall Street lovingly embraced Bitcoin as their own, with analysts from Bank of America, Citigroup and others, not to mention the clueless momentum-chasing, peanut gallery vocally flip-flopping on the “currency” after hating it at $200 only to love it at $1200 that Bitcoin… would promptly crash. And crash it did: overnight, following previously reported news that China’s Baidu would follow the PBOC in halting acceptance of Bitcoin payment, Bitcoin tumbled from a recent high of $1155 to an almost electronically destined “half-off” touching $576 hours ago, exactly 50% lower, on very heave volume, before a dead cat bounce levitated the currency back to the $800 range, where it may or may not stay much longer, especially if all those who jumped on the bandwagon at over $1000 on “get rich quick” hopes and dreams, only to see massive losses in their P&Ls decide they have had enough.

There will be a strange irony, in that anyone you talk to with a bitcoin experience will have left the building at $1100 – “it was looking bubbly, so I took a profit.” Hmmm. The drip that bought at $1155 will be cloaked in anonymity, unless $2200 is later smoked.

Back to me, and the price my mind had agreed pay – 18.5 cents was hit. But where was I? Yeah, I’d cooly (or so I told myself ) shifted another gear down and was expecting to get my happy ending at 17.5 cents. As the share price firmed again, juddering between 19.5 and 20 cents I meekly snuck back to 18.5. At 20 I snuck up to 19, as I wondered whether it might go to 20.5. Of course it did, before coming back to 19.5, at which point I had enough steel to leave my order at 19.

In the midst of this circus, late on a Friday, the buy side appeared to firm considerably and immediately it looked a better buy again – “buy now and I’m with the crowd.” After a fortnight of courting and several times being left with my frank in my hand, maybe it was time to make the move and just get my fill at 19.5. But, but, but, this was Friday afternoon and anything could happen over the weekend. Rating agency downgrades, terrorist attack, tsunami, nuclear disaster, alien invasion, apocalypse. And I’d still have to settle on Wednesday!

And something did happen. First it was a market announcement after the close on Friday that their seismic program had shown positive results. Damn, I assumed this was going to cost me another half cent! Then on Monday  – TRADING HALT.

11 minutes before open on Monday morning. I spent most of Monday cursing my stupidity while muttering F-U under my breath. On Wednesday morning the announcement came out – an unsolicited equity placement at an 18% premium to the previous close. A significantly rare and positive event. And on open, the share begins trading at 23.5 cents.

Where’s my order? Oh I’d moved it to 22 cents now. Sigh. Yeah it was happening all over again. Though a few price bumps up to 24 and 24.5 cents during the day had me edgy. Now the urge is to get ahead of the game because this is surely going higher.

What didn’t help throughout this brain mincing was my constant contact with a share trading forum. Those great analogies that describe a share price ready for take off (see, I just used one then!) were flying into my eyes like poison darts. Common sense is blinded and it further makes me think I gotta get in!

Toot! Toot! Buckle up your seatbelts! The floor is in! A couple of cents will be meaningless soon!  

Then there’s also talk of the big boys buying, holidays (not just theme parks, your own private island), early retirement and Ferraris. Sitting on the sidelines and kicking yourself while reading this is a little unnerving, but a slap to the face and you quickly regain perspective. The real issue becomes the now moving share price. Even if you block out the chat room noise, with every half cent it’s somehow a better investment – or speculation as it were. Yet last week every half cent movement downward made it waft like sun-baking salmon. Someone’s selling, something must be wrong. Drag that order down so you won’t overpay!

After again playing tag and miss with the price for most of the day, a gap opened up at 22.5 towards closing time. That was the entry point. No more mental gymnastics trying to second guess the next movement – if I got hit, I got hit. I placed my order. It sat near the top of the queue and with one foul swoop at 3:51pm I became a shareholder. A few minutes later the price went back to 23 cents and that’s where it closed for the day. After two weeks of games, and being led around by my nose, it was a very painless exercise. Yet I had little control until I pinched my brain in those final moments. There was some satisfaction that I paid less than the premium placement that instigated the jump in price, but I still paid 21% more than if I’d just left my initial order 18.5 cents.

Again, from Heidi Lefer and Ildiko Mohacsy, in  Journal of the American Academy of Psychoanalysis and Dynamic Psychiatry – I’m guilty as charged.

Our brains are hard-wired to get us into investing trouble; humans are pattern-seeking animals . . . .Our brains are designed to perceive trends even where they might not exist. After an event occurs just two or three times in a row . . . the anterior cingulate and nucleus accumbens automatically anticipate that it will happen again. If it does repeat . . . dopamine is released . . . .Thus, if a stock goes up a few times in a row, you can reflexively expect it to keep going up . . . .Brain chemistry changes as the stock rises, giving . . . a “natural high.” You effectively become addicted to your own predictions.

At last close the share price sat at 31.5 cents. I’m in, I’m ahead and I’m finally calm. But I still can’t believe how ridiculous my mental gymnastics became. I’ve got no clue how many trades I’ve completed over the years, but any time I’m buying a new company this farce reappears.

The share forums have gone wild over the company. Just by reading them the brain could start firing with thoughts of short changing your future family tree by not taking a position. I felt similar insanity that day I realised I’d be paying 21% more than I’d initially intended.

It went up remarkably quickly after I bought, then came a sharp pullback. The sentiment around the company has snapped from “gotta get in” to “maybe I can get it cheaper”. A sharp change in the direction of the share price invokes that mental game for any potential new entrant. Now, as a shareholder, I’m less concerned if it goes up or not. I just don’t have to worry about being left behind if it does.

My terror now? The prospect of fighting that uncontrollable and irrational part of my mind when it comes time to sell. Sometime down the line will I play chicken for two weeks in the attempt to get an extra three cents? Or will I chase the price down two cents if it turns on me?

If I can ruthlessly control my saving and spending, surely the same control can be applied to investing (or speculating).

Sooner or later I’ll find out.

 

Chart Of The Day: How In Five Short Years, China Humiliated The World’s Central Banks | Zero Hedge

Chart Of The Day: How In Five Short Years, China Humiliated The World’s Central Banks | Zero Hedge.

The concept of the “liquidity trap” is well-known to most: it is that freak outlier in an otherwise spotless Keynesian plane, when due to the need for negative interest rates to boost the economy (usually resulting from that other inevitable Keynesian state: the bursting of an asset bubble) – a structural impossibility according to most economists although an increasingly more probable in Europe – central banks have no choice but to offset a deleveraging private banking sector and directly inject liquidity into the banking sector with the outcome being soaring asset prices, and even more bubbles which will eventually burst only to be replaced with even more failed attempts at reflation. Sadly, very little of this liquidity makes its way to the broad economy as the ongoing recession in the developed world has shown for the 5th year in a row, which in turn makes the liqudity trap even worse, and so on in a closed loop.

Since there is little else in the central bankers’ arsenal that is as effective in boosting the “wealth effect” – which is how they validate their actions to themselves and other economists and politicians – they continue to do ever more QE. And since banks are assured at generating far greater returns on allocated capital in the markets, where they can use the excess deposits they obtain courtesy of the Fed’s generous reserve-a-palooza as initial margin for risk-on trades, the liquidity pipelines remain stuck throughout the world, and loan creation – that traditional money creation pathway – is permanently blocked (as is the case empirically in both the US and Europe, where private-sector loan creation is declining at a record pace).

Everywhere except the one place that has yet to actually engage in conventional quantitative easing: China. At least explicitly, because loan creation by China’s state-controlled entities and otherwise government backstopped banks, is anything but conventional money creation. One can, therefore, claim that China’s loan creation is a form of Quasi-QE whereby banks, constrained from investing in a relatively shallow stock market, and unable to freely transfer the CNY-denominated liquidity abroad, are forced to lend it out knowing that if things turn soure at the end of the day, the PBOC will bail them out. Paradoxically, this “non-QE” is exactly how QE should work in the US and other developed markets.

That’s the long story.

The short story is far simpler.

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, as we showed yesterdayIn other words, China has expanded its financial balance sheet by 50% more than the assets of all global central banks combined!

And that is how – in a global centrally-planned regime which is where everyone now is, DM or EM – your flood your economy with liquidity. Perhaps the Fed, ECB or BOJ should hire some PBOC consultants to show them how it’s really done.

 

China Announces That It Is Going To Stop Stockpiling U.S. Dollars

China Announces That It Is Going To Stop Stockpiling U.S. Dollars.

Money - Photo by Pen Waggener

China just dropped an absolute bombshell, but it was almost entirely ignored by the mainstream media in the United States.  The central bank of China has decided that it is “no longer in China’s favor to accumulate foreign-exchange reserves”.  During the third quarter of 2013, China’s foreign-exchange reserves were valued at approximately $3.66 trillion.  And of course the biggest chunk of that was made up of U.S. dollars.  For years, China has been accumulating dollars and working hard to keep the value of the dollar up and the value of the yuan down.  One of the goals has been to make Chinese products less expensive in the international marketplace.  But now China has announced that the time has come for it to stop stockpiling U.S. dollars.  And if that does indeed turn out to be the case, than many U.S. analysts are suggesting that China could also soon stop buying any more U.S. debt.  Needless to say, all of this would be very bad for the United States.

For years, China has been systematically propping up the value of the U.S. dollar and keeping the value of the yuan artificially low.  This has resulted in a massive flood of super cheap products from across the Pacific that U.S. consumers have been eagerly gobbling up.

For example, have you ever gone into a dollar store and wondered how anyone could possibly make a profit by making those products and selling them for just one dollar?

Well, the truth is that when you flip those products over you will find that almost all of them have been made outside of the United States.  In fact, the words “made in China” are probably the most common words in your entire household if you are anything like the typical American.

Thanks to the massively unbalanced trade that we have had with China, tens of thousands of our businesses, millions of our jobs and trillions of our dollars have left this country and gone over to China.

And now China has apparently decided that there is not much gutting of our economy left to do and that it is time to let the dollar collapse.  As I mentioned above, China has announced that it is going to stop stockpiling foreign-exchange reserves

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.

It isn’t going to happen overnight, but the value of the U.S. dollar is going to start to go down, and all of that cheap stuff that you are used to buying at Wal-Mart and the dollar store is going to become a lot more expensive.

But of even more importance is what this latest move by China could mean for U.S. government debt.  As most Americans have heard, we are heavily dependent on foreign nations such as China lending us money.  Right now, China owns nearly 1.3 trillion dollars of our debt.  Unfortunately, as CNBC is noting, if China is going to quit stockpiling our dollars than it is likely that they will stop stockpiling our debt as well…

Analysts see this as the PBoC hinting that it will let its currency fluctuate, without intervention, thus negating the need for holding large reserves of the dollar. And if the dollar is no longer needed, then it could look to curb its purchases of dollar-denominated assets like U.S. Treasurys.

“If they are looking to reduce these purchases going forward then, yes, you’d have to look at who the marginal buyer would be,” Richard McGuire, a senior rate strategist at Rabobank told CNBC in an interview.

“Together, with the Federal Reserve tapering its bond purchases, it has the potential to add to the bearish long-term outlook on U.S. Treasurys.”

So who is going to buy all of our debt?

That is a very good question.

If the Federal Reserve starts tapering bond purchases and China quits buying our debt, who is going to fill the void?

If there is significantly less demand for government bonds, that will cause interest rates to rise dramatically.  And if interest rates rise dramatically from where they are now, that will set off the kind of nightmare scenario that I keep talking about.

In a previous article entitled “How China Can Cause The Death Of The Dollar And The Entire U.S. Financial System“, I described how China could single-handedly cause immense devastation to the U.S. economy.

China accounts for more global trade that anyone else does, and they also own more of our debt than any other nation does.  If China starts dumping our dollars and our debt, much of the rest of the planet would likely follow suit and we would be in for a world of hurt.

And just this week there was another major announcement which indicates that China is getting ready to make a major move against the U.S. dollar.  According to Reuters, crude oil futures may soon be pricedin yuan on the Shanghai Futures Exchange…

The Shanghai Futures Exchange (SHFE) may price its crude oil futures contract in yuan and use medium sour crude as its benchmark, its chairman said on Thursday, adding that the bourse is speeding up preparatory work to secure regulatory approvals.

China, which overtook the United States as the world’s top oil importer in September, hopes the contract will become a benchmark in Asia and has said it would allow foreign investors to trade in the contract without setting up a local subsidiary.

If that actually happens, that will be absolutely huge.

China is the number one importer of oil in the world, and it was only a matter of time before they started to openly challenge the petrodollar.

But even I didn’t think that we would see anything like this so quickly.

The world is changing, and most Americans have absolutely no idea what this is going to mean for them.  As demand for the U.S. dollar and U.S. debt goes down, the things that we buy at the store will cost a lot more, our standard of living will go down and it will become a lot more expensive for everyone (including the U.S. government) to borrow money.

Unfortunately, there isn’t much that can be done about any of this at this point.  When it comes to economics, China has been playing chess while the United States has been playing checkers.  And now decades of very, very foolish decisions are starting to catch up with us.

The false prosperity that most Americans are enjoying today will soon start disappearing, and most of them will have no idea why it is happening.

The years ahead are going to be very challenging, and so I hope that you are getting ready for them.

 

PBOC Says No Longer in China’s Interest to Increase Reserves – Bloomberg

PBOC Says No Longer in China’s Interest to Increase Reserves – Bloomberg.

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

China Economic Reforms Will Broaden Growth: Hormats

5:00

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)

China Growth Momentum Already Peaked: Kowalczyk

6:27

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)

BNY's Derrick on Currency Wars, Market Imbalances

5:35

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)

Loong on China's Economic, Financial Reform Plan

7:07

Nov. 19 (Bloomberg) — Pauline Loong, managing director at Asia-Analytica, talks about China’s reform plan and the outlook for the nation’s economy and financial system. She speaks 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.

‘Less Interventionist’

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.

Stronger Yuan

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.

To contact Bloomberg News staff for this story: Xin Zhou in Beijing atxzhou68@bloomberg.net; Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net; Rosalind Mathieson at rmathieson3@bloomberg.net

 

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