Tuesday, September 1, 2015

Quite a few people seem desperate for this to be the financial armageddon they've been predicting for, it seems like, forever. Well, there's a vested interest I'm sure but should their longed-for meltdown actually occur, I wonder how many of those Jeremiahs would remain unaffected....Wei Yao at Soc Gen has been crunching the numbers and calculates that today's reserve ratio easing will inject around $107bn into the economy. However, this may not be enough to fully offset the hundreds of billions Beijing has been using to prop up the value of the renminbi since August 11.
The PBOC now faces a difficult balancing act where it seeks to counter-act tighter policy as dictated by its foreign exchange regime with the need to keep the economy motoring along.
More from Wei:  "The battle to stabilize the currency has had a significant tightening effect on domestic liquidity conditions. It is the PBoC's decision whether or not to keep at it. If the PBoC wants to stabilize currency expectations for good, there are only two ways to achieve this: complete FX flexibility or zero FX flexibility. At present, the latter is also increasingly unviable, since the capital account is much more open. Therefore, the PBoC has merely to keep selling FX reserves until it lets go.  "In a nutshell, the PBoC’s war chest is sizeable no doubt, but not unlimited. It is not a good idea to keep at this battle of currency stabilization for too long." ...The ECB's Vitor Constancio has been speaking in Germany today and has dampened anxiety over a major economic slowdown in China.
Despite downside risks to inflation coming from falling oil prices, Mr Constancio said the ECB stood ready "to use all the instruments available within its mandate to respond to any material change to the outlook for price stability”. ... China won't intervene to support stocks again?  Do you seriously expect anyone to believe this?  They've just authorized the party apparatchiks of the Chinese National  Pension Fund to spend up to 30% of their assets on shares. Are we expected to have forgotten that?  That's $100 billion of possible buying orders coming down the road.
When these apparatchiks are told to buy, they'll buy, and buy again - as if their jobs depend on it, as they do.

Monday, August 31, 2015

German MPs voted to back a third bail-out for Greece on Wednesday as Dutch prime minister Mark Rutte faced the threat of a no confidence vote over his decision to support the €86bn rescue plan. After a three-hour debate, the Bundestag approved a new rescue package for Greece with a majority of 454 votes to 13. Eighteen MPs abstained.  Within Angela Merkel's ruling Christian CDU-CSU coalition, 228 MPs voted in favour of the deal, with 63 voting against and three abstentions. In an earlier vote in July, 60 coalition MPs voted "no" to new aid for Greece. Wolfgang Schaeuble, Germany’s finance minister, told policymakers … there was “no guarantee of success” … “If Greece stands by its obligations and the programme is completely and resolutely implemented” … An immediate payment of around €13bn is expected to be handed to Greece shortly so the country can make a €3.2bn loan repayment to the European Central Bank on Thursday.’ Right, let me hand you a bucket of money so you can pay me back a bit of what you already owe me that you can’t pay back. Please. As Einstein (or Mark Twain or Ben Franklin, depending on where you look) is reputed to have said, the definition of insanity is doing the same thing over and over again and expecting a different result. Surely a collective insanity is at work here, convincing otherwise sentient adults that giving a bankrupt money to discharge his debts, which he will then pay back, is insane...The total that is actually going to Greece itself will be around €3bn per year, peanuts in a €12.2trill annual GDP economy.

Sunday, August 30, 2015

The U.S. banking sector may have very little revenue exposure to China — but they still have reason to be scared.  The fear building on Wall Street is that a worsening economy in China will delay the Federal Reserve from raising U.S. interest rates indefinitely. That would be bad for the banks because the sector has been waiting for a rate hike to turbocharge earnings on mortgages and other loans...China's woes — highlighted by its currency manipulation moves — threatens to dampen the sector's earnings expectations going into 2016, analysts warned.  "A significant slowdown in China could push the Fed to delay liftoff, leading to negative consensus revisions of 2016 earnings estimates," Bank of America research analysts Erika Najarian and Ebrahim Poonawala said in a recent research report.  Najarian and Poonawala see bank earnings per share hurt by 10% to 15% if the Fed delays raising rates until the end of 2016. A rate hike "is by far the single biggest positive catalyst remaining for bank stocks," the BofA analysts said.  A delay "would change our bullish outlook for the sector," they said in the report.   "Every single U.S. bank is affected by this," agreed Erik Oja, banking analyst with S&P Capital IQ. Citigroup also has indirect exposure to China in that it does business with countries, like Brazil, that sell raw materials to China, Oja warned.  In terms of direct revenue exposure, the danger is minuscule, analysts said. Citigroup has the greatest direct exposure at 1.2%, followed by JPMorgan Chase with just 0.7%.  This week, China weakened its currency in a bid to boost exports by making them cheaper. The central's banks' move to manipulate the currency has sparked fears that China's economic slowdown is worse than expected. That could push the Fed to move more cautiously when it comes to raising U.S. interest rates, which would signal a stronger U.S. economy.

Saturday, August 29, 2015

Greece’s European creditors have underlined the temporary nature of the country’s surprise return to growth by warning that they have “serious concerns” about the spiraling debts of the eurozone’s weakest member.  The economic news came as Greece’s parliament met in emergency session on Thursday to ratify a new bailout deal, although it was unclear whether the multibillion-euro agreement had the vital backing of Germany.
The three European institutions negotiating a third bailout package with the government in Athens said that the Greek economy had plunged into a deep recession from which it would not emerge until 2017...According to an analysis completed by the European commission, the European Central Bank and the eurozone bailout fund, Greece’s debts will peak at 201% of its national output (GDP) in 2016.  The study says that Greece’s debt burden can be made more bearable by waiving payments until the economy has recovered and then giving Athens longer to pay. However, it opposes the idea of a so-called “haircut” – or reducing the size of the debt. It is a course of action the International Monetary Fund, which joined the three European institutions in negotiating the latest bailout, thinks may be necessary for Greece’s debts to become sustainable.  “The high debt to GDP and the gross financing needs resulting from this analysis point to serious concerns regarding the sustainability of Greece’s public debt,” said the analysis, adding that far-reaching reforms were needed to address the worries. It forecasts that the Greek economy will contract by 2.3% this year and a further 1.3% in 2016 before returning to 2.7% growth in 2017.

 

Friday, August 28, 2015

The Chinese government’s heavy handed efforts to contain recent stock market volatility – the latest move prohibits short-selling and sales by major shareholders – have seriously damaged its credibility. But China’s policy failures should come as no surprise. Policymakers there are far from the first to mismanage financial markets, currencies, and trade. Many European governments, for example, suffered humiliating losses defending currencies that were misaligned in the early 1990s.
Still, China’s economy remains a source of significant uncertainty. Indeed, although the performance of China’s stock market and that of its real economy has not been closely correlated, a major slowdown is under way. That is a serious concern, occupying finance ministries, central banks, trading desks, and importers and exporters worldwide. China’s government believed it could engineer a soft landing in the transition from torrid double-digit economic growth, fuelled by exports and investments, to steady and balanced growth underpinned by domestic consumption, especially of services. And, in fact, it enacted some sensible policies and reforms. But rapid growth obscured many problems. For example, officials, seeking to secure promotions by achieving short-term economic targets, misallocated resources; basic industries such as steel and cement built up vast excess capacity; and bad loans accumulated on the balance sheets of banks and local governments.
Greece's creditors have voiced "serious concerns" about the sustainability of the country's debt ahead of a vote on a third bail-out deal in Athens that is likely to cement a split within the government. Analysis prepared by the country's European lenders projected that Greece's debt share would rise to 201pc of gross domestic product (GDP) next year.   Debt is only expected to fall to 175pc by the end of the decade, even if Greece implements all the terms of its €85bn (£61bn) rescue package and raises €13.9bn from a privatisation drive.   This means the country would not get its debt pile down to 120pc of GDP - which has long been viewed by the International Monetary Fund (IMF) as the target to get Athens back to a sustainable debt level - until 2030, two decades after the country's first bail-out. Just another example of post democratic EU.  The Greek people vote in a referendum against an austerity package,this after they had voted in an anti austerity government.  Result, the same government accept an EU bailout based on austerity measures the Greek population voted overwhelmingly against.To cap it all these stringent measures will be enforced by Brussels bureaucrats,all very undemocrat but typical of EU control.  The flaw in 'democracy' is that you can vote yourself more than you can pay for. When that happens you lose your right to self government. Democracy ends at your borders. You cannot vote yourself access to other peoples money.

Thursday, August 27, 2015

There has been no recovery in the west since 2007-8. Communism had to collapse and now its sister socialism will collapse too. Governments can not keep borrowing money with no intension of paying anything back. All western economies are collapsing because everyone has too much debt. We are about to go into a deflationary cycle which will see multiple sovereign defaults and wealth destruction like never before. We will all be looking for someone to blame. The laws of maths are universal and apply to everyone. You can not enjoy a life style you have not earned. The Fed has infected the world with all that cheap USD it has been printing and has inflated nearly every housing market in the world. When the flight to quality starts and the herd causes the dollar to rally, then those loans wont be looking so cheap. Emerging markets will get wiped out and the process has begun. Remember that Japanese real estate is still 60% down from its highs in the 90's. If you have not prepared by now its probably too late. If you have a medium to large mortgage get out now because when the panic starts the exit will get really busy. When the bond bubble bursts liquidity will dry up over night and interest rates will go sky which will really squeeze the housing market. These are only economic concerns but normally when an economic event so extreme happens there is usually lots of civil unrest or they take us to war.The French economy stagnated in the second quarter as household spending slowed and business investment contracted.