Get ready for another major worldwide credit crunch. Today, the entire global financial system resembles a colossal spiral of debt. Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system. When the system started to fail back in 2008, global authorities responded by pumping this debt spiral back up and getting it to spin even faster than ever. If you can believe it, the total amount of global debt has risen by $35 trillionsince the last crisis. Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again.
For example, just a few days ago the IMF warned regulators to prepare for a global “liquidity shock“. And on Friday, Chinese authorities announced a ban on certain types of financing for margin trades on over-the-counter stocks, and we learned that preparations are being made behind the scenes in Europe for a Greek debt default and a Greek exit from the eurozone. On top of everything else, we just witnessed the biggest spike in credit application rejections ever recorded in the United States. All of these are signs that credit conditions are tightening, and once a “liquidity squeeze” begins, it can create a lot of fear.
Over the past six months, the Chinese stock market has exploded upward even as the overall Chinese economy has started to slow down. Investors have been using something called “umbrella trusts” to finance a lot of these stock purchases, and these umbrella trusts have given them the ability to have much more leverage than normal brokerage financing would allow. This works great as long as stocks go up. Once they start going down, the losses can be absolutely staggering.
That is why Chinese authorities are stepping in before this bubble gets even worse. Here is more about what has been going on in China from Bloomberg… >> Read More
Meanwhile, in China, things are “a lot worse than you think,” says Bloomberg metals analyst Kenneth Hoffman who recently visited the country to assess the outlook for metals demand. This doesn’t exactly come as a surprise. Falling demand from China has been a major factor in the collapse of iron ore prices which just today caused Australia’s fourth largest miner to suspend production altogether and which last month prompted Fortescue Chairman “Twiggy” Forrest to break out the old “let’s start a cartel” suggestion when discussing how to firm up prices. To let Bloomberg tell it, demand from China for the steelmaking ingredient won’t be picking up anytime soon:
China’s steel and metals markets, a barometer of the world’s second-biggest economy, are “a lot worse than you think,” according to a Bloomberg Intelligence analyst who just completed a tour of the country.
What he saw: idle cranes, empty construction sites and half-finished, abandoned buildings in several cities. Conversations with executives reinforced the “gloomy” outlook.
“China’s metals demand is plummeting,” wrote Kenneth Hoffman, the metals analyst who spent a week traveling across the country, meeting with executives, traders, industry groups and analysts. “Demand is rapidly deteriorating as the government slows its infrastructure building and transforms into a consumer economy.”
Prices for commodities from iron ore to coal are sinking as China’s leadership tries to steer the economy away from debt-fueled property investment and smokestack industries, embracing services and domestic-led consumption. At the same time,
President Xi Jinping is stepping up efforts to combat pollution, further squeezing industry.
“There is a big fear this is going to get worse before it gets better,” Hoffman said in an interview. “It’s as bad as the data looks, if not worse.”
>> Read More
Last week, a group of initially unidentified foreign troops disembarked in the Yemeni port city of Aden which is currently under siege by Iran-backed Rebels seeking to capture one of the last remaining major holdouts still controlled by fighters loyal to President Hadi. When the mystery soldiers arrived, the media made the somewhat logical assumption that a Saudi-led ground incursion had indeed begun. Surprisingly, the soldiers turned out to be Chinese and were in Yemen to ensure the safety of more than 200 civilians evacuating the city in an “unprecedented” move that at least according to one Chinese professor, makes China “look really good.” Here’s Reuters:
A Chinese naval frigate evacuated 225 foreign citizens from strife-torn Yemen, its foreign ministry said, marking the first time that China’s military has helped other countries evacuate their people during an international crisis.
Ten different nationalities were among the evacuees picked up on Thursday afternoon from Aden, Yemen’s second city, and transported to Djibouti, the Ministry of Foreign Affairs said in a statement on its website late Thursday.
A diplomatic source familiar with the operation said it was “very risky” and that fighting had come close to the Chinese warship.
>> Read More
US diplomacy is no longer the way it once used to be, neither politically, militarily nor even economically, political columnist Paulo Barradas wrote in the latest issue of Expresso magazine.
Ironically, the AIIB owes its very emergence to Washington’s political and diplomatic shortsightedness and inability to identify and support the changing trends, especially when it comes to developing markets whose contribution to global economic growth increases every year, Barradas emphasized.
The idea to set up the AIIB came in 2013 after Washington refused to approve IMF quota reforms to allow China and other Asian powers greater say in the Fund’s corporate management, the author noted.
Washington’s longtime allies Britain, Germany, France, Italy, Switzerland and now Australia have all applied for membership in the China-proposed AIIB. >> Read More
France, Germany and Italy have all agreed to follow Britain’s lead and join a China-led international development bank, according to European officials, delivering a blow to US efforts to keep leading western countries out of the new institution.
The decision by the three European governments comes after Britain announced last week that it would join the $50bn Asian Infrastructure Investment Bank, a potential rival to the Washington-based World Bank.
Australia, a key US ally in the Asia-Pacific region which had come under pressure from Washington to stay out of the new bank, has also said that it will now rethink that position.
The European decisions represent a significant setback for the Obama administration, which has argued that western countries could have more influence over the workings of the new bank if they stayed together on the outside and pushed for higher lending standards. >> Read More
Here we go: data just out from China show the country’s economy slowed in the first two months of the year across several closely-watched measures.
China has just released a trio of data readings covering January and February, the first two months of the year being coupled together to avoid Chinese New Year distortions obscuring how the economy is really performing. And the numbers aren’t great:
- Retail sales rose 10.7 per cent year-on-year, versus expectations of an 11.6 per cent rise, according to the National Bureau of Statistics.
- Industrial output rose 6.8 per cent year-on-year, versus expectations of a 7.7 per cent rise. It had risen a cumulative 8.3 per cent in December.
- Urban fixed asset investment rose 13.9 per cent year-on-year, versus expectations of a 15 per cent rise.
Last week Chinese policymakers officially downgraded China’s growth target to “around 7 per cent”, from 7.5 per cent. GDP in the world’s second largest economy decelerated to 7.4 per cent last year — its lowest level since 1990.
26 February 2015 - 5:46 am
US and European stocks took a breather after their recent strong run but a gauge of global equity prices hovered near its highest ever level, as bulls focused on the prospect of continued policy accommodation from central banks.
Signs of a pick-up in China’s manufacturing sector supported the broadly optimistic mood in the markets.
The FTSE All-World equity index was up 0.2 per cent at 285.82 in late New York trade, surpassing its record closing high of 285.76, reached in July last year. The index earlier matched its all-time intraday peak of 286.09.
The S&P 500 slipped 0.1 per cent from Tuesday’s record close, although it did touch a fresh intraday high of 2,119.59. Across the Atlantic, the FTSE Eurofirst 300 edged back 0.1 per cent from a seven-year peak.
The broadly positive tone came as market participants continued to dissect comments from Janet Yellen, chairwoman of the Federal Reserve, on the outlook for US interest rates.
Her testimony to the Senate banking committee on Tuesday — repeated to a House of Representatives’ committee on Wednesday — suggested the US central bank was in no hurry to begin raising borrowing costs. >> Read More
10 February 2015 - 18:33 pm
Russia is set to ratify an agreement on the creation of a bank for the BRICS bloc of large emerging economies this month or in March, the country’s finance minister said.
The establishment of the development bank, aimed at providing funds for infrastructure projects, has been slow in coming with prolonged disagreement over funding and management of the institution.
Finance Minister Anton Siluanov said Russia was running ahead of the other BRICS nations.
“We are ahead of everyone. Our ratification is possible for the end of February or at the latest March,” Siluanov told reporters on the sidelines of a meeting of G20 finance chiefs on Tuesday. >> Read More
02 February 2015 - 11:14 am
Casino revenues in Macau declined for an eighth consecutive month in January. Gaming revenues last month fell 17.4 per cent from a year ago to 23.748bn patacas ($3.48bn), according to the Gaming Inspection and Coordination Bureau.
The 17.4 per cent decline is, however, an improvement from December, when the year-to-year decline was 30.4 per cent. Gross revenue in December was 23.285bn patacas.
In 2014, full-year revenue in Macau – the gambling haven and former Portuguese colony near Hong Kong – declined for the first time since records began in 2002, amid a corruption crackdown engineered by Chinese president Xi Jinping.
Shares in the six big casino operators lost an average 39.6 per cent of their value last year – the first decline since 2008 – according to an index compiled by Bloomberg. So far this year shares are down another 4.3 per cent.