Plenty of excuses out there for this evening's collosal miss in Chinese exports (-18.1% YoY vs an expectation of a 7.5% rise) mainly based on timing issues over the Lunar New Year (but didn't the 45 economists who forecast this data know the dates before they forecast?) This is a 6-sigma miss and plunges China's trade balance to its biggest miss on record and 2nd largest deficit on record. Combining Jan and Feb data (i.e. smoothing over the holiday), exports are still down 1.6% YoY - not good for the much-heralded global recovery. Exports to the rest of the BRICs were all down over 20% but no there is no contagion from an emerging market crisis.
Even when the trade deficit was last this large, economists were more accurate - this is the biggest miss on record...
Seasonally-adjusted the data is stunningly bad...
- *CHINA FEB. SEASONALLY ADJUSTED EXPORTS FALL 34% MOM
- *CHINA FEB. SEASONALLY ADJUSTED IMPORTS FALL 0.4% MOM
- *CHINA'S FEB. EXPORTS FALL 18.1% FROM YEAR EARLIER (vs +7.5% expectations)
"The Spring Festival factor caused sharp fluctuations in the monthly growth rate as well as the monthly deficit," Customs said in a statement accompanying the data.
Chinese traders followed their "business habit" of bringing forward exports ahead of the holiday, and focusing on imports immediately afterwards, it added.
But, our simple question is - didn't they already know this when applying their forecasts? If so - then why a 6-standard-deviation miss?
At least they didn't blame the weather?!!
It seems the massive imports of copper - to act as collateral for all the shadow banking loans - also did not help as imports surged...
*CHINA JAN.-FEB. COPPER, PRODUCT IMPORTS 915,000 TONS
All that apparent demand and yet the price is collapsing - not good for the credit unwind
And what does it say about the US that our trade balance with China collapsed MoM...
Via Martin Armstrong of Armstrong Economics blog,
For Obama to claim that a public vote in Crimea would violate the Constitution of Ukraine and International Law is really just as absurd that the same argument put forth by Putin that nothing in Kiev was legal because it was not signed by Yanukovych. There should be a vote, but it should be monitored independently to ensure it is real. To argue that no state may move to secede from a federal government is ridiculous. Obama said:
“Any discussion about the future of Ukraine must include the legitimate government of Ukraine. In 2014, we are well beyond the days when borders can be redrawn over the heads of democratic leaders.”
Texas has the ABSOLUTE right to secede from the United States if it so desired and the Washington has no right to invade Texas to prevent that – although they too would in the blink-of-an-eye. There are no “democratic” leaders in Kiev as of yet because this is a grass-roots uprising that distrusts anyone who has EVER been in government before.
Meanwhile, you cannot say the people have no right to decide their own fate because this violates the will of “democratic” leaders. No elected official has the right to trump the wishes of the people and let us call a spade a spade – the EU suppresses the right to vote because they are afraid the people in Europe would vote against the euro. The EU interfered with Italian elections and it threatened Georgios Papandreou of Greece that it was NOT ALLOWED to allow the people to vote on staying in the Euro. Greece back-down and did not allow that to take place – so much for democratic ideals.
Let the people decide and YES we can redraw the borders if the PEOPLE so desire. If splitting Ukraine PREVENTS war – then so be it. The word for “slave” in Latin is “servus” and that is the root of public servant. Politicians should remember they are NOT the dictators of the people, but the servants of the people. There can never be any justification to deny the people the right to be heard. That is the oldest right...
Via JPMorgan CIO Michael Cembalest,
After digesting all the hyperbole and the pessimism, my biggest concern is not that Bitcoin will fail, but that it or one of its many virtual currency competitors will one day succeed.
In the extreme, Bitcoin may lead to economic activity moving from the regulated economy to the underground “shadow” economy (after all, one of its primary selling points lay in its inability to be traced), even if some Bitcoin recipients faithfully declare it as income.
If this were to happen, the tax burden would fall disproportionately on the regulated economy that remains, creating a lot of unwelcome distortions.
Perhaps this is why there is a clear inverse relationship between the size of a country’s shadow economy and its wealth per capita. In other words, no one likes paying taxes, but when no one actually does pay them, everyone suffers.
Libertarianism has its limits.
Submitted by Michael Snyder of The Economic Collapse blog,
The U.S. government and the Russian government have both been forced into positions where neither one of them can afford to back down. If Barack Obama backs down, he will be greatly criticized for being "weak" and for having been beaten by Vladimir Putin once again. If Putin backs down, he will be greatly criticized for being "weak" and for abandoning the Russians that live in Crimea. In essence, Obama and Putin find themselves trapped in a macho game of "chicken" and critics on both sides stand ready to pounce on the one who backs down. But this is not just an innocent game of "chicken" from a fifties movie. This is the real deal, and if nobody backs down the entire world will pay the price.
Leaving aside who is to blame for a moment, it is really frightening to think that we may be approaching the tensest moment in U.S.-Russian relations since the Cuban missile crisis.
There has been much talk about Obama's "red lines", but the truth is that Crimea (and in particular the naval base at Sevastopol) is a "red line" for Russia.
There is nothing that Obama could ever do that could force the Russians out of Sevastopol. They will never, ever willingly give up that naval base.
So what in the world does Obama expect to accomplish by imposing sanctions on Russia? By treaty, Russia is allowed to have 25,000 troops in Crimea and Russia has not sent troops into the rest of Ukraine.
Economic sanctions are not going to cause Putin to back down. Instead, they will just cause the Russians to retaliate.
In a letter that he sent to Congress this week, Obama claimed that the Ukrainian crisis is an "unusual and extraordinary threat to the national security and foreign policy of the United States."
Language like that is going to make it even more difficult for Obama to back down.
On Thursday, Obama announced "visa restrictions" on "those Russians and Ukrainians responsible for the Russian move into Ukraine's Crimean Peninsula", and a House panel passed a "symbolic resolution" that condemned Russia for its "occupation" of Crimea.
But those moves are fairly meaningless. Leaders from both political parties are now pushing for very strong economic sanctions against Russia, and there does not appear to be many members of Congress that intend to stand in the way.
If the U.S. does hit Russia with harsh economic sanctions, what is going to happen?
Is Russia going to back down?
So let's just play out the coming moves like a game of chess for a moment...
-The U.S. slaps economic sanctions on Russia.
-Russia seizes the assets of U.S. companies that are doing business in Russia.
-The U.S. seizes Russian assets.
-The Russians refuse to pay their debts to U.S. banks.
-The U.S. government hits Russia with even stronger sanctions.
-Russia starts dumping U.S. debt and encourages other nations to start doing the same.
-The U.S. gets Europe to also hit Russia with economic sanctions.
-Russia cuts off the natural gas to Europe. As I noted the other day, Russia supplies more than half the natural gas to a bunch of countries in Europe.
-The United States moves troops into western Ukraine.
-Russia starts selling oil for gold or for Russian rubles and encourages other nations to start abandoning the U.S. dollar in international trade.
Of course the order of many of these moves could ultimately turn out to be different, but I think that you can see the nightmare that this game of "chicken" could turn out to be.
And what would be the final result?
Nothing would be resolved, but the global economy would greatly suffer.
What makes all of this even more complicated is that about 60 percent of the people living in Crimea are actually ethnic Russians, and a majority of the population appears to want to leave Ukraine and be reunited with Russia. The following comes from a Reuters article...
Crimea's parliament voted to join Russia on Thursday and its Moscow-backed government set a referendum on the decision in 10 days' time in a dramatic escalation of the crisis over the Ukrainian Black Sea peninsula.
The sudden acceleration of moves to bring Crimea, which has an ethnic Russian majority and has effectively been seized by Russian forces, formally under Moscow's rule came as European Union leaders held an emergency summit groping for ways to pressure Russia to back down and accept mediation.
The Obama administration is calling the upcoming referendum "illegal" and says that it will not respect the will of the Crimean people no matter how the vote turns out.
But the people of Crimea are very serious about this, and of course they never would be pushing for reunification with Russia if they had not gotten approval from Putin...
The decision, which diplomats said could not have been made without Putin's approval, raised the stakes in the most serious east-west confrontation since the end of the Cold War.
The vice premier of Crimea, home to Russia's Black Sea Fleet in Sevastopol, said a referendum on the status would take place on March 16. All state property would be "nationalized", the Russian ruble adopted and Ukrainian troops treated as occupiers and forced to surrender or leave, he said.
There is no way that the U.S. government is going to accept Crimea becoming part of Russia, and there is no way in the world that Russia is going to back down at this point. Just consider what geopolitical expert Ian Bremmer of the Eurasia Group recently had to say...
"Russia is not going to back down from Crimea, irrespective of U.S. pressure. Which means if the U.S. wants to find any resolution here, they’re going to have to find a way to come to terms with that. Now that the Crimean parliament has voted — clearly with Russian assent — we’ll have a referendum … and then further militarization of the peninsula by the Russians."
What we need is someone with extraordinary diplomatic skills to defuse this situation before it spirals out of control.
Unfortunately, we have Barack Obama, Valerie Jarrett and John Kerry running things.
What a mess.
So why is Ukraine such a big deal anyway?
In a recent article, Peter Farmer explained succinctly why Ukraine is so incredibly important...
The Ukraine is strategically-important for a number of reasons. It sits astride enormous petroleum and natural gas deposits found in the Black Sea region. The nation is also home to an extensive network of liquid natural gas pipelines which crisscross it; control the Ukraine and you control its pipelines - and thus the flow of energy into the hugely-lucrative European market. Western energy firms such as Exxon-Mobil, BP-Amoco and Chevron are locked in competition with the Russian energy giant Gazprom - for control/exploitation of as-yet-undeveloped petroleum deposits not only in the Ukraine, but in neighboring Poland and Romania. Fracking technologies and other new extraction methods have only added urgency to the competition. Income from fossil fuels development is the lifeblood of the new Russian economy. Threats to the regional hegemony of Gazprom are likely to be treated by Putin and Russia with the utmost urgency and seriousness.
The Crimean Peninsula is also home to the Black Sea fleet of the Russian navy, which leases its base at Sevastopol from the Ukrainian government. Since the Black Sea - via the Dardanelles - provides the only warm-water base with access to the Mediterranean Sea - it is of enormous importance to Russia. Its loss would be a crippling blow to the Russian fleet.
Finally, the Ukraine - once known as the "bread basket of Europe" - is home to arguably the finest temperate agricultural region in the world. Its topsoil is widely-acknowledged by agronomists to be among the world's best. Control the Ukraine and you control the grainery of Europe - and can exert tremendous leverage upon worldwide grain agricultural commodities prices.
If the U.S. insists on playing a game of brinksmanship over Ukraine, the consequences could be disastrous.
For one thing, as I mentioned above, the status of the petrodollar could be greatly threatened. The following is how Jim Willie is analyzing the situation...
If the Kremlin demands Gold bullion (or even Russian Rubles) for oil payments, then the interventions to subvert the Ruble currency by the London and Wall Street houses will backfire and blow up in the bankster faces. Expect any surplus Rubles would be converted quickly to Gold bullion. If the Chinese demand that they are permitted to pay for oil shipments in Yuan currency, then the entire Petro-Dollar platform will be subjected to sledge hammers and wrecking balls. The new Petro-Yuan defacto standard will have been launched from the Shanghai outpost. If the Saudis curry favor to the Russians and Chinese by accepting non-USDollar payments for oil shipments, then the Petro-Dollar is dead and buried.
In addition, if Russia starts dumping U.S. debt and gets other nations (such as China) to start doing the same, that could create a nightmare scenario for the U.S. financial system very rapidly.
So let us hope and pray that cooler heads prevail....
But if the United States and Russia do declare "economic war" on each other, all hell could start breaking loose.
Unfortunately, there does not appear to be much hope of anyone backing down at this point. In an editorial for the Washington Post, Henry Kissinger stated that it "is incompatible with the rules of the existing world order for Russia to annex Crimea."
Very interesting word choice.
So this is the situation we are facing...
-The U.S. government seems absolutely determined to "punish" Russia until it leaves Crimea.
-Russia is never going to leave Crimea, and has promised to "respond" harshly to any sanctions.
Most Americans are not paying much attention to what is going on in Ukraine, but this is a very, very big deal.
In the end, it could potentially affect the lives of virtually every man, woman and child on the planet.
When the drug-selling website Silk Road was shut down in October 2013, the event made international news. What didn’t make the news was how much the site’s purchasing clients were paying for the substances they were buying. Substance abuse comes with many costs. Emotional, health and career costs are just a few that we can name.
However, Silk Road added yet another cost on top of its substance users’ problems: spending costs. For example, the buying price of heroin on Silk Road was nearly 2x greater than heroin’s average street price.
What’s more, drug users of nearly every single state would have saved more money buying drugs on the street as opposed to buying them on Silk Road. Drug users from roughly 1/5 of the country overpaid by more than $100 and North Dakota was the only state to see a decrease in drug costs for users who bought drugs on Silk Road. Silk Road offered everything from mushrooms, to marijuana, to DMT and even heroine. But at what costs?
Infographic by Clarity Way Rehab Center
Having expressed her perspective of Russia Today's "whitewashed" coverage of Putin's invasion of Russia, Liz Wahl resigned live on air yesterday. This came on the heels of her colleague Abby Martin's recent comments voicing here disagreements with Russian policies on the same state-funded network. Russia Today has responded... "When a journalist disagrees with the editorial position of his or her organization, the usual course of action is to address those grievances with the editor...But when someone makes a big public show of a personal decision, it is nothing more than a self-promotional stunt."
Russia Today full statement:
Ms. Wahl's resignation comes on the heels of her colleague Abby Martin's recent comments in which she voiced her disagreement with certain policies of the Russian government and asserted her editorial independence.
Abby Martin's comments...
The difference is, Ms. Martin spoke in the context of her own talk show, to the viewers who have been tuning in for years to hear her opinions on current events – the opinions that most media did not care about until two days ago. For years, Ms. Martin has been speaking out against US military intervention, only to be ignored by the mainstream news outlets – but with that one comment, branded as an act of defiance, she became an overnight sensation. It is a tempting example to follow.
When a journalist disagrees with the editorial position of his or her organization, the usual course of action is to address those grievances with the editor, and, if they cannot be resolved, to quit like a professional. But when someone makes a big public show of a personal decision, it is nothing more than a self-promotional stunt.
We wish Liz the best of luck on her chosen path.
Submitted by Pater Tenebrarum of Acting-Man blog,The 'Deflation Danger' Should Abate …
What is it with this perennial fear the chief money printers have of falling prices? Not that we are likely to see it happen, but if it does, what of it? Bloomberg reports on the recent ECB decision with the following headline: “Draghi Says Deflation Danger Should Abate as Economy Revives”
The headline alone is a hodge-podge of arrant nonsense. First of all, 'deflation' (this is to say, falling prices), is not a 'danger'. Speaking for ourselves and billions of earth's consumers: we love it when prices fall! It means our incomes go further and our savings will buy more as well. What's not to love?
The problem is of course that when prices decline, the 'wrong' sectors of society actually benefit, while those whose bread is buttered by the inflation tax would no longer benefit at the expense of everybody else. But they never say that, do they? Has Draghi ever explained why he believes deflation to be a danger? No, we are just supposed to know/accept that it is.
Secondly, the 'as economy revives' part makes no sense whatsoever. Why and how should a genuinely reviving economy produce inflation? Economic growth occurs when more goods and services are produced. Their prices should, ceteris paribus, fall (of course, we are not supposed to inquire too deeply into which ceteris likely won't remain paribus if Draghi gets his wish).
“ European Central Bank President Mario Draghi signaled that deflation risks in the euro region are easing for now after new forecasts showed that inflation will approach their target by the end of 2016.
The news that has come out since the last monetary policy meeting are by and large on the positive side,” he told reporters in Frankfurt today after the central bank kept itsmain interest rate at 0.25 percent. He also indicated that money markets are under control at the moment, lessening the need for emergency liquidity measures.
Draghi is facing down the threat of deflation in an economy still recovering from a debt crisis that threatened to rip it apart less than two years ago. New ECB forecasts today underscore his view that the 18-nation bloc will escape a Japan-style period of falling prices as momentum in the economy improves.”
We have highlighted the sentence above because we keep reading about the 'Japan-style deflation trap' for many, many years now. You would think that Japan was a third world country by now the way this keeps being portrayed as a kind of monetary evil incarnate that destroys the economy. Of course, nothing could be further from the truth.
Inflation is Not Equivalent to Economic Growth
'Inflation' is not the same as 'economic growth' – on the contrary, it both causes and frequently masks economic retrogression. How much inflation has there been in the euro area over time? Let's have a look.
The euro area's true money supply since 1980. One can only shudder at this depiction of 'deflation danger' in action – click to enlarge.
What about prices though? Let's have a look-see:
Since 1960, there was exactly one year during which prices according to the 'CPI' measure actually fell, namely in 2009, by a grand total of 0.5% – click to enlarge.
As Austrian economists have long explained, it is simply untrue that prices must rise for the economy to grow. Consumers obviously benefit from falling prices (only Keynesian like Paul Krugman don't realize that, as their thought processes are evidently unsullied by logic and/or common sense). All of us can easily ascertain how beneficial the decline in computer prices, cell- and smart phone prices, prices for TV screens, etc. is. Naturally, it would be even better if all prices fell, not only those on a select group of consumer goods.
What about producers? Won't they suffer? By simply looking at the share prices and earnings of the companies that make all the technological gadgets the prices of which have been continually declining for decades, everybody should realize immediately that the answer must be a resounding NO. This is by the way not only true of the firms that are in the final stages of the production process, i.e. the stages closest to the consumer. It is obviously also true for the firms in the higher stages of the capital structure. But why? It is quite simple actually: prices are imputed all along the chain of production. What is important for these companies to thrive are not the nominal prices of the products they sell, but the price spreads between their input and output.
In fact, the computer/electronics sector is the one that comes closest to showing us how things would likely look in a free, unhampered market economy.
Of course, in said free, unhampered market economy, Mr. Draghi and a host of other central planners would have to look for a new job.
The head of China’s sovereign wealth fund noted in 2009: “both China and America are addressing bubbles by creating more bubbles”.
He’s right …
Global credit excess is worse than before the 2008 crash.
The U.S. and Japan have been easing like crazy, but – as Zero Hedge notes [if you missed it when Tyler Durden first posted this] – China has been much worse:
Here is just the change in the past five years:
You read that right: in the past five years the total assets on US bank books have risen by a paltry $2.1 trillion while over the same period, Chinese bank assets have exploded by an unprecedented $15.4 trillion hitting a gargantuan CNY147 trillion or an epic $24 trillion – some two and a half times the GDP of China!
Putting the rate of change in perspective, while the Fed was actively pumping $85 billion per month into US banks for a total of $1 trillion each year, in just the trailing 12 months ended September 30, Chinese bank assets grew by a mind-blowing $3.6 trillion!
Here is how Diapason’s Sean Corrigan observed this epic imbalance in liquidity creation:
Total Chinese banking assets currently stand at some CNY147 trillion, around 2 ½ times GDP. As such, they have doubled in the past four years of increasingly misplaced investment and frantic real estate speculation, adding the equivalent of 140% of average GDP – or, in dollars, $12.5 trillion – to the books. For comparison, over the same period, US banks have added just less than $700 billion, 4.4% of average GDP, 18 times less than their Chinese counterparts – and this in a period when the predominant trend has been for the latter to do whatever it takes to keep commitments off their balance sheets and lurking in the ‘shadows’!
Indeed, the increase in Chinese bank assets during that breakneck quadrennium is equal to no less than seven-eighths of the total outstanding assets of all FDIC-insured institutions! It also compares to 30% of Eurozone bank assets.
Truly epic flow numbers, and just as unsustainable in the longer-run.
So what’s the problem?
Well, the world’s most prestigious financial agency – the central banks’ central bank, called the Bank of International Settlements or “BIS” – has long criticized the Fed and other central banks for blowing bubbles. The World Bank and top economists agree. So do many others.
As such, it was easy for us to predict a crash in China when the bubble collapses.
We argued in 2009 that China’s period of easy credit was analogous to America’s monetary easing starting in 2001 … and Rome’s in 11 B.C.
In 2010, we asked “When Will China’s Bubble Burst?”China’s $23 Trillion Dollar Credit Bubble Is Bursting
International Business Times noted last year that China’s debt-laden steel industry was on the verge of bankruptcy.
Quartz reported in December that a huge coal company called Liansheng Resources Group declared bankruptcy with 30 billion yuan ($5 billion) in debt.
Chinese Business Wisdom argues (via China Gaze) that waves of bankruptcies are striking in 10 Chinese industries: (1) shipbuilding; (2) iron and steel: (3) LED lighting; (4) furniture; (5) real estate development; (6) cargo shipping; (7) trust and financial institutions; (8) financial management; (9) private equity; and (10) group buying.
AP notes today:
Chinese authorities have allowed the country’s first corporate bond default, inflicting losses on small investors in a painful step toward making its financial system more market-oriented.
A Shanghai manufacturer of solar panels paid only part of 90 million yuan ($15 million) in interest [it owed] …
Until now, Beijing has bailed out troubled companies to preserve confidence in its credit markets. But the ruling Communist Party has pledged to make the economy more productive by allowing market forces a bigger role.
Time asks whether China has reached its “Bear Stearns moment”:
A dangerous build-up of debt and an explosion of risky and poorly regulated shadow banking have raised serious concerns about the health of China’s economy. That’s why the Chaori default — the first ever in China’s domestic corporate bond market — has sparked fears that the country could be headed for a full-blown economic crisis like the one that slammed Wall Street in 2008. “We believe that the market will have reached the Bear Stearns stage,” warned strategist David Cui and his team at Bank of America-Merrill Lynch in a report to investors.
The concern of Cui and others is that the Chaori default will be the tip-off point for an unravelling of China’s financial system. The default could wake investors and bankers to the realization that companies they thought were safe bets are potentially not, and they could begin to reassess other loans and investments to other corporations. In other words, they might start redefining what is and is not risky. That could then lead to a credit crunch, when nervous bankers become wary of lending money, or lending at affordable interest rates. More bankruptcies could result. That eventually causes the financial markets to lock up — and we end up transitioning from a Bear Stearns moment to a Lehman Brothers moment, when the financial sector melts down. “We think the chain reaction will probably start,” Cui wrote. “In the U.S., it took about a year to reach the Lehman stage when the market panicked … We assess that it may take less time in China.”
The Financial Post reported in January:
The U.S. and Europe learned the hard way about the dangers of shadow banks in the financial crisis but, five years later, China appears set to get its own painful lesson about what can happen when large capital flows get diverted to unregulated corners of the financial system.
“We estimate that 88% of the revenues of Chinese trust companies is at risk in the long term,” said McKinsey and Ping An.
Billionaire investor George Soros recently wrote on a popular news website that the impending default and the growing fear reflected in Chinese markets has “eerie resemblances” to the global crisis of 2008.
The big picture: the $23 trillion dollar Chinese credit bubble is starting to collapse.
As Michael Snyder wrote in January:
It could be a “Lehman Brothers moment” for Asia. And since the global financial system is more interconnected today than ever before, that would be very bad news for the United States as well. Since Lehman Brothers collapsed in 2008, the level of private domestic credit in China has risen from $9 trillion to an astounding $23 trillion. That is an increase of $14 trillion in just a little bit more than 5 years. Much of that “hot money” has flowed into stocks, bonds and real estate in the United States. So what do you think is going to happen when that bubble collapses?
The bubble of private debt that we have seen inflate in China since the Lehman crisis is unlike anything that the world has ever seen. Never before has so much private debt been accumulated in such a short period of time. [Note: Private debt is much more dangerous than public debt.] All of this debt has helped fuel tremendous economic growth in China, but now a whole bunch of Chinese companies are realizing that they have gotten in way, way over their heads. In fact, it is being projected that Chinese companies will pay out the equivalent of approximately a trillion dollars in interest payments this year alone. That is more than twice the amount that the U.S. government will pay in interest in 2014.
As the Telegraph pointed out a while back, the Chinese have essentially “replicated the entire U.S. commercial banking system” in just five years…
Overall credit has jumped from $9 trillion to $23 trillion since the Lehman crisis. “They have replicated the entire U.S. commercial banking system in five years,” she said.
The ratio of credit to GDP has jumped by 75 percentage points to 200pc of GDP, compared to roughly 40 points in the US over five years leading up to the subprime bubble, or in Japan before the Nikkei bubble burst in 1990. “This is beyond anything we have ever seen before in a large economy. We don’t know how this will play out. The next six months will be crucial,” she said.
As with all other things in the financial world, what goes up must eventually come down.
The big underlying problem is the fact that private debt and the money supply have both been growing far too rapidly in China.
According to Forbes, M2 in China increased by 13.6 percent last year…
And at the same time China’s money supply and credit are still expanding. Last year, the closely watched M2 increased by only 13.6%, down from 2012’s 13.8% growth. Optimists say China is getting its credit addiction under control, but that’s not correct. In fact, credit expanded by at least 20% last year as money poured into new channels not measured by traditional statistics.
Overall, M2 in China is up by about 1000 percent since 1999. That is absolutely insane.
But I am not the only one talking about it.
In fact, the World Economic Forum is warning about the exact same thing…
Fiscal crises triggered by ballooning debt levels in advanced economies pose the biggest threat to the global economy in 2014, a report by the World Economic Forum has warned.
What has been going on in the global financial system is completely and totally unsustainable, and it is inevitable that it is all going to come horribly crashing down at some point during the next few years.
It is just a matter of time.
Smith & Wesson’s earnings report gave renewed momentum to a rally in gun-making stocks, which began amid a debate about firearms that followed the Sandy Hook Elementary School shooting 15 months ago. As Bloomberg notes, many gun enthusiasts have stocked up on weapons to avoid potential restrictions in response to the Sandy Hook incident, the second-deadliest mass killing at a school in U.S. history, and that has driven stocks like Sturm Ruger to handily outperform even the highest of high-beta momo indices like the Russell 2000. SWHC was up 16% after earnings - its biggest gain since the shooting - as it beat expectations once again.
"The market should continue to be supported” as new gun owners purchase additional firearms, Ronald Bookbinder, a New Orleans-based analyst at Benchmark Co., wrote yesterday.
Submitted by Simon Black of Sovereign Man blog,
I needed a caffeine jolt late this morning after the long journey up from South America.
And while I’m generally averse to aspartame, high fructose corn syrup, and other government-sanctioned poisons, I did briefly consider a hit of Coca Cola as I walked past a vending machine on my way out of a grocery store.
Then I saw the price.
To give you some quick background, this was the same grocery store my mother used to shop at when I was a kid. And if I was really lucky, we’d stop for a can of coke on the way out– 25 cents back then.
Fast forward to today–. I’m a grown man of 35 now instead of a 9-year old kid. And while the store has changed hands a few times, there’s still vending machine near the entrance.
Same coke, same 12 ounces (though now in a plastic bottle instead of an aluminium can).
Price today? $1.50. [note, this is the vending machine price, not grocery store price.]
Put another way, $1 would have bought me 48 ounces of Coca Cola 26 years ago. Today that same dollar buys me just 8 ounces.
This means that the dollar has lost 83.3% of its value against Coca Cola over the past three decades, averaging roughly 6.6% inflation per year.
Some readers may remember the price of Coca Cola being just 5c back in the early 1950s (for a 6.5oz glass)… meaning the US dollar has lost 93.8% against Coca Cola over the past six decades.
Now, we are taught from the time we are children that ‘a little inflation is good…’
And when central bankers tell us they’re targeting an inflation rate of 2% to 3%, that certainly doesn’t seem so bad. 2% is practically just a rounding error. But bear in mind a few things–1) An inflation rate of 2% is not price stability.
As Jim Rickards frequently points out, even with just 2% inflation, a currency loses over 75% of its value during an average lifespan. This can hardly be considered monetary stablilty.
And this practice of gradually plundering people’s purchasing power over time is incredibly deceitful.2) Even if, they rarely meet their target.
As this case shows, 6.6% certainly ain’t 2%. The official statistics and research papers may say 2%. Reality is much different.3) Wages often don’t keep up.
According to the US Labor Department, the median weekly wage back in 1988 was $382… or roughly 18,336 ounces of Coca Cola.
Today the median weekly wage is $831.40… or just 6,651.20 ounces.
So as measured in Coca Cola, the average wage in the Land of the Free has declined by 11,684 ounces per week– a 63.7% decline over the last three decades.
You can make a similar calculation denominated in Snickers bars, gallons of gas, etc.
If you have a big picture, long-term view, it’s clear that standard of living is falling.
Some readers may remember decades ago– a single parent could go out and, even with a blue collar job, comfortably support a growing family.
Today, dual income households struggle to keep their heads above water. This is the long-term plunder of inflation.
And just to give you a reminder of what things used to cost, I’ve pulled a page from the March 7, 1988 edition of the Bryan Times of Bryan, OH: 26-years ago today.
You can scroll through the paper and note the prices:
25c for a dozen eggs. 69c for a loaf of bread. 49c for a pound of Chicken. A brand new Mustang LX for just $9203.
That’s the Federal Reserve for you. 100 years of monetary destruction and counting.
It was about a month ago when it was revealed that the infamous JPMorgan physical commodities group, plagued by both perpetual accusations of precious metal manipulation and legal charges most recently with FERC for $410 million that it had manipulated electricity markets, was in exclusive talks to be sold to Geneva-based Marcuria Group. It was also revealed that Blythe Masters, JPMorgan’s commodities chief, "probably won’t join Mercuria as part of the deal." Of course, we all learned the very next day that Ms. Masters - an affirmed commodities market manipulator - and soon to be out of a job, had shockingly intended to join the CFTC trading commission as an advisor, a decisions which was promptly reversed following an epic outcry on the internet. This is all great news, but one thing remained unclear: just who is this mysterious Swiss-based company that is about to leave Blythe without a job?
Today, courtesy of Bloomberg we have the answer: Mercuria is a massive independent trading behemoth, with revenue surpassing a stunning $100 billion last year, which was started less than ten years ago by Marco Dunand and Daniel Jaeggi, who each own 15% of the firm's equity. And it probably should come as no surprise that the company where the two traders honed their trading skill is, drumroll, Goldman Sachs.
Dunand and Jaeggi first met studying economics at the University of Geneva in the late 1970s. Their friendship was galvanized a few years later working for grain trader Cargill Inc. and sharing an apartment while on a training course in Minneapolis. Mercuria’s corporate strategy and culture have reflected the professional paths of its founders, who spent the bulk of their early careers at investment banks.
They left Cargill in 1987 for Goldman Sachs’s J. Aron unit in London. They stayed until 1994, then joined Phibro for a five-year stint when it was controlled by Salomon Brothers.
That experience defined the trading strategies of Dunand and Jaeggi who moved from Phibro to start Sempra’s European and Asian trading business in 1999 before founding Mercuria in 2004.
Without a commanding position in any region or commodity, the firm has sought out bottlenecks and imbalances in niche markets and positioned itself to make money trading derivatives using insights gained from its physical trading. In its early days it profited by opening a trade route shipping Russian crude to China from Gdansk, Poland.
Mercuria also differs in tone. At its headquarters on Geneva’s poshest shopping street, traders and executives wear open-collared shirts, sweaters and jeans, a sharp contrast to the shirt-and-tie policies at more established firms.
Not surprisingly, some of the key hires in the past couple of years as the firm expanded at a breakneck pace and added some 570 people, bringing its total headcount to 1,200, were from Goldman: "The hires include Houston-based Shameek Konar, a former managing director with Goldman Sachs Group Inc. who is chief investment officer overseeing Mercuria’s corporate development, including the JPMorgan negotiations. Victoria Attwood Scott, Mercuria’s head of compliance, also joined from Goldman Sachs." We find it not at all surprising that the Goldman diaspora is once again showing JPMorgan just how it's done.
So just how big is Mercuria now? Well, it is almost one of the biggest independent commodities traders in the world:
Mercuria traded 182 million metric tons of oil or oil equivalent in 2012, according to its website. Vitol, the largest independent oil trader, handled 261 million and Trafigura traded 102.8 million tons of oil and petroleum products. Brent crude rose 3.5 percent that year in a fourth annual advance. It slipped 0.3 percent in 2013 and is down 2.6 percent this year at about $108 a barrel.
With more trading companies trying to gain an edge by owning businesses that produce, store or process commodities, Mercuria followed suit. It now has stakes in a coal mine in Indonesia, oil and gas fields in Argentina, oil storage in China and a biodiesel plant in Germany. In June, it invested $50 million in a Romanian gas producer.
The JPMorgan unit employs about 600 and represents a range of assets assembled over decades by firms including Bear Stearns Cos. and RBS Sempra, which the bank bought during an acquisition binge beginning in 2008.
They include gas and power trading on both sides of the Atlantic, physical assets spanning 40 locations in North America, an oil-trading book with a supply and offtake contract with the largest refinery on the U.S. East Coast, 6 million barrels of storage leases in the Canadian oil sands, and Henry Bath & Sons Ltd., a 220-year-old metal-warehouse operator based in Liverpool, England.
In other words, the old boys' club is about to get reassembled, only this time even further away from the supervision of the clueless, corrupt and incompetent US regulators. And with the physical commodity monopoly of the big banks finally being unwound, long overdue following its exposure here and elsewhere over two years ago, it only makes sense that former traders from JPM and Goldman reincarnate just the same monopoly in a jurisdiction as far away from the US and Fed "supervision" as possible. Which also means that anyone hoping that the great physical commodity warehousing scam is about to end, should not hold their breath.
As for the main question of what happens to everyone's favorite commodity manipulator, "It hasn’t been determined whether Blythe Masters, who has led the JPMorgan unit since 2006 and orchestrated the buying spree, would join Mercuria, a senior executive at Mercuria said." Which means the answer is a resounding no: after all who needs the excess baggage of having a manipulator on board who got caught (because in the commodity space everyone manipulates, the trick, however, is not to get caught).
Finally, with "trading" of physical commodities, which of course include gold and silver, set to be handed over from midtown Manhattan to sleep Geneva, what, if any, is the endgame?
The talks with JPMorgan forced Mercuria to put another deal on hold. Mercuria was nearing the sale of an equity stake of 10 percent to 20 percent to Chinese sovereign wealth fund State Development & Investment Co., according to two people familiar with the matter. The discussions with SDIC were halted once Mercuria neared the JPMorgan business, one of the people said.
But they will be promptly resumed once JPM's physical commodities unit has been sold, giving China a foothold into this most important of spaces. Because recall what other link there is between China and JPM?
One may almost see the connection here.
Submitted by Lance Roberts of STA Wealth Management,
There was so many good things to read this past week that it was hard to narrow it down to a topic group. After a brief respite early this year, the markets are hitting new highs confirming the current bullish trend. As a money manager, this requires me to increase equity exposure back to full target weightings. After such an extended run in the markets, this seems somewhat counter-intuitive. It is, but as Bill Clinton once famously stated; "What is....is."
However, while the current market "IS" within a bullish trend currently, it doesn't mean that this will always be the case. This is why, as investors, we must modify Clinton's line to: "What is...is...until it isn't." That thought is the foundation of this weekend's "Things To Ponder." In order to recognize when market dynamics have changed for the worse, we must be aware of the risks that are currently mounting.
1) Fisher Warns Fed's Bond Buying Could Be Distorting Markets via Reuters
While this article falls in the "no s***" category, Dallas Fed President Richard Fisher points out areas that we should be paying closer attention to for signs of change.
"There are increasing signs quantitative easing has overstayed its welcome: Market distortions and acting on bad incentives are becoming more pervasive," he said of the asset purchases, which are sometimes called QE.
"I fear that we are feeding imbalances similar to those that played a role in the run-up to the financial crisis."
Here are his main points:
1) QE was wasted over the last 5 years with the Government failing to use "easy money" to restructure debt, reform entitlements and regulations.
2) QE has driven investors to take risks that could destabilize financial markets.
3) Soaring margin debt is a problem.
4) Narrow spreads between corporate and Treasury debt are a concern.
5) Price-To-Projected Earnings, Price-To-Sales and Market Cap-To-GDP are all at "eye popping levels not seen since the dot-com boom."
"We must monitor these indicators very carefully so as to ensure that the ghost of 'irrational exuberance' does not haunt us again,"
In order to make it in professional sports, you have to be an elite athlete. What is amazing, is that among all of the elite athletes, there are always one or two that rise above all others. Players like Michael Jordon, Tiger Woods, Nolan Ryan and many others have elevated their game to inexplicable levels. In the investment game, there are a few individuals that have done the same. The follow three pieces are views from some of these men Howard Marks, Jeff Gundlach and Seth Klarman.
2) Howard Marks: In The End The Devil Usually Wins via Finanz Und Wirtschaft
"Our mantra at Oaktree Capital for the last few years has been: «move forward, but with caution». Although a lot has changed since then I think it’s still appropriate to keep the same mantra. Today, things are not cheap anymore. Rather I would describe the price of most assets as being on the high side of fair. We’re not in the low of the crisis like five years ago."
"Let’s think about a pendulum: It swings from too rich to too cheap, but it never swings halfway and stops. And it never swings halfway and goes back to where it came from. As stocks do better, more people jump on board. And every year that stocks do well wins a few more converts until eventually the last person jumps on board. And that’s the top of the upswing."
"But there actually are two risks in investing: One is to lose money and the other is to miss opportunity. You can eliminate either one, but you can’t eliminate both at the same time."
"There are two main things to watch: valuation and behavior."
3) Seth Klarman: Downplaying Risk Never Turns Out Well via Value Walk
"“In the face of mixed economic data and at a critical inflection point in Federal Reserve policy, the stock market, heading into 2014, resembles a Rorschach test,” he wrote. “What investors see in the inkblots says considerably more about them than it does about the market.”
"If you’re more focused on downside than upside, if you’re more interested in return of capital than return on capital, if you have any sense of market history, then there’s more than enough to be concerned about.”
“We can draw no legitimate conclusions about the Fed’s ability to end QE without severe consequences.”
“Fiscal stimulus, in the form of sizable deficits, has propped up the consumer, thereby inflating corporate revenues and earnings. But what is the right multiple to pay on juiced corporate earnings?”
“There is a growing gap between the financial markets and the real economy,”
“Our assessment is that the Fed’s continuing stimulus and suppression of volatility has triggered a resurgence of speculative froth.”
“In an ominous sign, a recent survey of U.S. investment newsletters by Investors Intelligence found the lowest proportion of bears since the ill-fated year of 1987,” he wrote. “A paucity of bears is one of the most reliable reverse indicators of market psychology. In the financial world, things are hunky dory; in the real world, not so much. Is the feel-good upward march of people’s 401(k)s, mutual fund balances, CNBC hype, and hedge fund bonuses eroding the objectivity of their assessments of the real world? We can say with some conviction that it almost always does. Frankly, wouldn’t it be easier if the Fed would just announce the proper level for the S&P, and spare us all the policy announcements and market gyrations?”
4) Jeff Gundlach & Howard Marks: Beware Of Junk Bonds via Pragmatic Capitalist
"There’s been some cautionary commentary in recent months from some bond market heavyweights. Most notably, Howards Marks and Jeff Gundlach. In a Bloomberg interview today, Marks said you need to be cautious about low quality issuers:
'When things are rollicking and the market is permitting low-quality issuers to issue debt, that’s when you need a lot of caution,'
And just a few weeks before that Jeff Gundlach referred to junk bonds as the most overvalued they’ve ever been relative to Treasury Bonds."
5) Bernanke Unleashed: What He Can Say Now That He Couldn't Say Before via Zero Hedge
Now that Ben Bernanke is no longer the head of the Fed, he can finally tell the truth about what caused the financial crash. At least that's what a packed auditorium of over 1000 people as part of the financial conference staged by National Bank of Abu Dhabi, the UAE's largest bank, was hoping for earlier today when they paid an exorbitant amount of money to hear the former chairman talk.
"The United States became 'overconfident', he said of the period before the September 2008 collapse of U.S. investment bank Lehman Brothers. That triggered a crash from which parts of the world, including the U.S. economy, have not fully recovered.
'This is going to sound very obvious but the first thing we learned is that the U.S. is not invulnerable to financial crises,' Bernanke said.
"He also said he found it hard to find the right way to communicate with investors when every word was closely scrutinised. 'That was actually very hard for me to get adjusted to that situation where your words have such effect. I came from the academic background and I was used to making hypothetical examples and ... I learned I can't do that because the markets do not understand hypotheticals.'
“The complexity though arises because in order to help the average person, you have to do things -- very distasteful things -- like try to prevent some large financial companies from collapsing. The result was there are still many people after the crisis who still feel that it was unfair that some companies got helped and small banks and small business and average families didn’t get direct help. It’s a hard perception to break.”
I guess the real question is now that the markets are once again over confident, over extended and excessively bullish - have we actually learned anything?
Have a great weekend.
There is a full slate of guests for the week's #PreMarket Prep broadcast, sponsored ...
The world and their pet rabbit was convinced yesterday that today's jobs number was both the most-important-number-in-the-world and didn't matter (because whether it beat or missed it was bullish for stocks). Seconds after the release that appeared to be true as JPY instantly dragged stocks to record highs (and the USD up and bonds and gold down). However, trumped by confirmation that the taper is continuing, Gazprom warnings, Lavrov threats, and finally reports of a Russian invasion, stocks leaked lower to Tuesday's ramp-day closing levels. Thanks to some last-minute JPY and VIX banging, S&P closed green for the 15th of last 16 NFPs. Despite intraday volatility, the USD ended the week unchanged, gold +1%, silver -1.5% and Treasuries +14bps or so (its worst week in 6 months!). Credit markets continue to be non-believers (with the high-yield bond ETF plunging this week). Critically, after last night's default in China, Iron Ore and Copper futures were crushed and we suspect Sunday night's Asia open could see more fireworks.
So some see today's jobs data as good news (NFP beat) which is bad news as it encourages moar taper... sell bonds, sell gold, buy USD and it took a little for stocks to catch up that in fact this is dismal job growth and hoping that we have reached escape velocity is a dream... and this print won't allow the Fed to save the day if we tumble on the back of some exogenous event...
Only one thing mattered today to keep the "common knowledge" meme alive - a green close on a payrolls Friday no matter waht was critical... JPY was tired having been abused all week... so VIX, the old-whipping-boy of market-manipulating muppets, was smashed lower into the close just perfectly to get the S&P 500 cash index to close green by the smallest margin...
Now tell us this - some talking head claimed that everyone is hedged? and that's the ammo for a rmap higher... if everyone is hedged then who the fuck was selling the crap out of vol into the close today?
For 2014, Gold and Silver remain the winners, The USD and HY Credit the losers...
High-beta has had a tough couple of days...the S&P has closed higher on a jobs Friday 15 of the last 16 times... as we were saved in th elast few minutes...
And the MoMo names suffered the last 2 days...
But Trannies just were on fire on the week...
Healthcare (well Biotechs) continues to lead the year but Financials were th ebig winners this week (up over 3%)...
Treasuries were banged higher in yield all week...
and even as stocks fell on Friday to end the worst week in 6 months...
Credit markets are not as exuberant as stocks...
While the USDollar ended the week unchanged (ramping back on the NFP print) - it is clear from the chart below what currenies were in charge this week (AUD up, JPY down)...
And so AUDJPY ran the show in stocks...
Commodities were a mixed bag despite the UNCH of the dollar... copper crushed on China and gold bid as fear remains about Ukraine...
Interestingly, "Most shorted" stocks ended the week -0.6% as the massive squeze at the start of the week gave way as "most shorted" stocks sold off dramatically more than the broad market...
Bonus Chart: Iron Ore and Copper collapsing as credit fears unwind in China...
Bonus Bonus Chart: Seems like the NFIB "promises" to raise compensation were worthless...
Despite stocks being at record highs, sell-side strategists proclaiming today's jobs report as great, and the Fed comfortable tapering in the face of transitory weather-related macro weakness, the following chart suggests all is not well... Echoing Irving Fisher, it appears we have reached a permanently high plateau in the duration of unemployment in America...
While the volatility of Bitcoin has been considerable, perhaps merely reflective of the early days of a revolution, the fact that the "value experts" at the Fed have pronounced:
- *DUDLEY SAYS BITCOIN 'IS NOT VERY GOOD STORE OF VALUE'
- *DUDLEY SAYS 'U.S. DOLLAR WINS' OVER BITCOIN ACROSS MANY METRICS
..raised an eyebrow or two on our furrowed brows. We thought a look at the following two charts since the inception of Bitcoin and the inception of the Fed would help clarify "value" stability...
Bitcoin since inception...
And the USDollar since the Fed's inception...
Another month down, another month in which US consumers deleveraged by paying down their credit cards. Although that is not exactly correct: as we showed recently, the New Normal source of credit has nothing to do with revolving debt, or credit cards, or any other old normal notions, and everything to do with student debt, which is used for everything except paying for tuition. That, and car loans of course. Sure enough, in February, of the $13.7 billion in new loans created, $13.9 billion, or 102% of all, was there to fund student and car loans.
And looking further back at the data over the past year, of the $172 billion in new consumer debt, a stunning 96% has gone to new student and car loans.
So there it is in a nutshell: the deleveraging consumer continues to delever, except when it comes to purchasing Government Motors cars courtesy of government subprime NINJA loans, and of course, student loans, which as we profiled recently, are never getting repaid, and will be yet another taxpayer-funded bail out in a few short years.
Submitted by Daniel J. Graeber of OilPrice.com,
Geopolitical crises in Eastern Europe have been met with calls in the United States to use energy as a foreign policy tool. With U.S. Energy Secretary Ernest Moniz asking the industry to make a stronger case, however, it's domestic policies that may inhibit energy hegemony.
"The industry could do a lot better job talking about the drivers for, and what the implications would be, of exports," Moniz told an audience at the IHS CERAWeek energy conference in Houston.
The Energy Information Administration said in its weekly report that gross exports of petroleum products from the Unites States reached 4.3 million barrels per day in December, the first time such exports topped the 4 million bpd mark in a single month.
EIA said the United States is a net exporter of most petroleum products, but crude oil exports are restricted by legislation enacted in response to the Arab oil embargo in the 1970s.
In January, Kyle Isakower, vice president of economic policy at the American Petroleum Institute, said reversing the ban would help stimulate the U.S. economy and lead to an increase in domestic oil production by as much as 500,000 bpd. Current export polices, he said, are "obsolete."
This week in Houston, Sen. Lisa Murkowski, R-Alaska, ranking member of the Senate Energy Committee, said oil could help reposition the United States as the premier superpower.
"Lifting the oil export ban will send a powerful message that America has the resources and the resolve to be the preeminent power in the world," she said.
President Obama can show "true American grit" if he acts quickly and according to precedent. If the ban is reversed, it will be for the benefit of the international community, she said.
Moniz, who said in December the export ban deserves some "examination," said he wasn't yet convinced the case had been made to open the U.S. spigot, however.
For natural gas, House Energy and Commerce Committee Fred Upton, R-Mich., said expanding U.S. liquefied natural gas exports could be used to contain Russia, which dominates much of the Eastern European gas market.
Russia caused a stir with its military response to the Ukrainian situation and Upton said Monday foot-dragging at the Energy Department on LNG exports was putting U.S. allies in Eastern Europe "at the mercy of Vladimir Putin."
The U.S. federal government needs to determine that LNG exports to countries without a free-trade agreement are in the public's interest. The United States doesn't have a free trade agreement with any European country and the current transatlantic agreement up for debate has been stymied by EU concerns over the National Security Administration's cyberespionage campaign.
A January report from the Center for a New American Security said the economic connection that would come from oil exports could manifest itself as "coercive political influence" in foreign affairs. Domestic policy, however, needs to be honed first before the U.S. tries once again to tip the balance of power overseas.
Despite warnings from various members of the Fed that Student Loans are becoming troublesome, we suspect President Obama's address this afternoon on expanding opportunities to go to college will be nothing but more pumping free money into a hyper-inflating (and increasingly worthless) higher education system...
What's worse, while the 90+ day student debt delinquency rate did
post a tiny decline from 11.8% to 11.5% in Q4, on a total notional basis
due to the increase in outstanding balances, as of this moment
the amount of heavily delinquent student loans has just hit a fresh
record high of $124.3 billion, up from $121.5 billion in the prior
So: when does the Fed finally admit i) there is a student loan
problem and ii) the only way to solve said problem is to promptly
Finally, putting new "debt" creation in perspective, in 2013 just student and car loans alone represented 108% (that's right, more than all) of total household debt created.
That won't end well..