Tiny point

July 16th, 2019

The correct question for Final Jeopardy was about someone named Shirley Jackson and a 1949 short story that made her famous. If memory serves, two of the contestants got the correct response. In all of our 1740 or more years of life, we do recall when and where the Magna Carta was signed, but until that FJ question, we’d never heard of this person. Maybe our brain has been taken over by Mister Mxyzptlk.

The Odd Squad

July 15th, 2019

We were a little surprised that the Odd Squad was older than AOC and her Brain, 29 and 33, and products of our fine education system. Other members range from 37 to 45, and one can’t even drive a car. Apologies to Mod Squad.

Update: Dopinoe should join the Odd Squad.

Update 2: more youthful nonsense, if true.

They can leave

July 15th, 2019

Indeed, such a great long statement. Listen to the whole thing and you will see how crazy the opponents are. Winning D national strategy? Racist! Racist! Racist! What a bunch of nuts – but the RCP polls show him losing. Do you believe it?

Brief time out

July 14th, 2019

This is quite enjoyable. Certainly better than the cackling.

Some good reading

July 14th, 2019

(a) Spengler treks to Northern Ireland (1970) and the West Bank today and says demographics are working in favor of peace. (b) Wretchard leaves the earth entirely in discussing that the “elite appear no better and good deal less competent than the knuckle-draggers they denounce.” (c) Meanwhile, we recall a skit from Boy Scout days, performed exactly as described, but the more interesting thing is that the site links to all sorts of intergenerational family stories in the US, India and elsewhere. (d) A piece on Kipling that we’re not sure what we think of it, but the guy got two towns in Michigan named after him. (e) In an unexpected fun bonus, a Harvard professor seems to be saying nice things about the Evil One.

Quite a coincidence

July 13th, 2019

42 years to the day, another power outage in NYC. We watched it from our apartment in Joe Stalin Towers. It was a big deal, affecting 25,000,000 people, according to TIME, as opposed to something like 0.015% of that today. Best of all, CNN and its confrères did not exist to overhype it. (Air Florida, a few years later, was the thing that gave a new meaning to 24/7 news.)

Hint: it begins with an I or N

July 13th, 2019

Vice:

many people are suffering from what could be called “climate despair,” a sense that climate change is an unstoppable force that will render humanity extinct and renders life in the meantime futile. As David Wallace-Wells noted in his 2019 bestseller The Uninhabitable Earth, “For most who perceive an already unfolding climate crisis and intuit a more complete metamorphosis of the world to come, the vision is a bleak one, often pieced together from perennial eschatological imagery inherited from existing apocalyptic texts like the Book of Revelation, the inescapable sourcebook for Western anxiety about the end of the world.”

“Climate despair” has been a phrase used at least as far back as Eric Pooley’s 2010 book, The Climate War: True Believers, Power Brokers, and the Fight to Save the Earth, but it’s been in wide circulation for perhaps as little as two years. In more progressive Sweden, the term klimatångest has been popular since at least 2011 (the year a Wikipedia article with that name was created). In The Uninhabitable Earth, Wallace-Wells notes that the philosopher Wendy Lynne Lee calls this phenomenon “eco-nihilism,” the Canadian politician and activist Stuart Parker prefers “climate nihilism,” and others have tried out terms like “human futilitarianism.”

Whatever you call it, this is undeniably a real condition, if not one with a set of formal diagnostic criteria. (It may reach that status—it took decades for “burnout” to be declared an official “occupational phenomenon” by the World Health Organization.) It’s impossible to know how many people like Ruttan Walker have experienced climate despair as a mental health crisis, but despair is all around us: in our own momentary but intense reactions to the latest bit of climate news, in pitch-black memes and jokes about human extinction, even in works of philosophy and literature. There is now a fringe group of scientists and writers who not only take our imminent doom as an article of faith, but seem to welcome it.

This despair could be a consequence of climate change being on more people’s minds than ever before. According to social scientist and psychology scholar Renee Lertzman, author of 2015’s Environmental Melancholia, large numbers of people have recently come to the realization that climate change is real, scary, and not being addressed. “It’s a surreal experience because we’re still in the same system, so walking around, people are driving, and everyone’s eating a lot of meat, everyone’s acting like that’s normal,” she said. For some people, that feeling is incompatible with carrying on with the business of everyday life.

But climate despair goes far beyond a reasonable concern that a warming planet will make life more difficult and force humanity to make hard choices. Instead of rallying us, climate despair asks us to give up. In a 2009 study in the UK by researchers Saffron O’Neill and Sophie Nicholson-Cole, climate-related data visualizations were presented to test subjects who were urged, in fear-based terms, to take action or else. Most of the time these appeals produced “denial, apathy, avoidance, and negative associations.” Ultimately, the researchers concluded, “climate change images can evoke powerful feelings of issue salience but these do not necessarily make participants feel able to do anything about it; in fact, it may do the reverse.” In other words, if you tell people something must be done or we’re all gonna die, they tend to take door number two, however irrational that impulse may seem.

Experts say now is precisely the wrong time to greet doom with open arms. According to Andrew Dessler, professor of atmospheric sciences at Texas A&M University, certainty about human extinction is not accurate, nor is it “a particularly helpful point of view.” Dessler explained to me in an email that “we are still in control of our fate.”

“This is painful,” Lertzman said. “It’s super painful to be a human being right now at this point in history.” Nonetheless, she added, “We need to translate our concern — our despair, our anger our feelings — into action.”

climate despair may seem like ordinary anxiety and depression in patients who happen to be fixating on climate, but it’s hard to deny the unique effect climate change is having on mental health. On May 5, a group of psychologists and psychotherapists in Sweden published an open letter to their government that noted the perverse status quo of climate change—the concern wasn’t so much that the environment is breaking down, but that nothing was being done about it.

Specifically, the letter noted that children are aware that the grown-ups are leaving them a shitty world, and that’s a really messed-up thing to be aware of when you’re a kid. “A continued ecological crisis without an active solution focus from the adult world and decision makers poses a great risk that an increasing number of young people are affected by anxiety and depression,” reads the letter, in Swedish.

Greta Thunberg, the 16-year-old Swedish climate activist who led the recent worldwide school strikes, said in her 2018 TED Talk that knowing about climate change was hell on her young psyche. “When I was 11 I became ill. I fell into depression. I stopped talking and I stopped eating. In two months, I lost about 10 kilos of weight.” She would later be told she had Aspergers, OCD, and was selectively mute. Then she came out of her despair, and found a voice when she decided to strike — refusing to go to school until the world demonstrated that it’s getting its shit together.

Simply reading facts about climate change can produce reactions not too dissimilar to Thunberg’s. The Uninhabitable Earth calls climate change “the end of normal,” explaining, “We have already exited the state of environmental conditions that allowed the human animal to evolve in the first place, in an unsure and unplanned bet on just what that animal can endure.” Last year’s UN report on humanity’s probable failure to stop warming short of the 1.5 degree Celsius threshold had a similar message, as did the one from May about how 1 million species are on track to go extinct due to human-caused environmental degradation, assuming we don’t change our course and stop generating greenhouse gases (alongside other forms of environmental havoc). Also in May, an Australian think tank called climate change “a near- to mid-term existential threat to human civilization.”

Maisy Rohrer, a 22-year-old developmental researcher at New York University, has been struggling to cope with climate change for years. “I guess the despair started when I was 18, and I began learning about how much the earth was changing, and I’d have full-blown panic attacks about the arctic sea ice melting, and the polar bears starving, and I’d call my mom telling her life was pointless,” she said. She believed at the time that the human race “should be wiped out.”

“I became very suicidal, and a large part of my justification for feeling like I’d be better off dead was that humans are hurting the Earth so much, and I as one person [couldn’t] make enough of a positive impact so it would be better if I were not around to cause any more damage,” Rohrer said.

Even those who don’t have thoughts of suicide can be affected in profound ways by climate despair. Brooke Morrison is a 26-year-old radio host in North Carolina who chatters about pop music enthusiastically when she’s on air. Off-air, her world isn’t so bright. “I feel like I’m already grieving my life and my future,” she said. Even her life plans—she wants to move to Los Angeles—are colored by her pessimism. “I 100 percent believe that the West Coast will be underwater soon, and I’d like to experience it while there’s still time left,” she said.

There are various “levels,” as she calls them, on which she struggles with the coming ecological horrors: “Feeling as if I’ve already lost. Feeling out of control. Feeling like I can’t start a family, so I talk myself out of wanting one or to even get married. Just giving up. Then still trying to maintain a will to keep moving forward. Trying to hold on to some form of hope.”

But when she says “hope,” she doesn’t mean hope for the planet. She told me in no uncertain terms that she does not place any value whatsoever in humanity’s attempts to mitigate climate change: “I think it’s too late.”

These feelings can be powerful, but they aren’t grounded in hard science. Michael Mann, the Penn State climatologist often credited for helping bring the public’s attention to the historical trends that are central to our understanding of climate change, calls this perspective “doomism,” and he wanted to make it clear the evidence doesn’t support it. “Unfortunately there’s some bad science behind much of the ‘doomism,'” he said. “There is no need to exaggerate or misstate what the science has to say.”

Here’s what the science has to say: Models that use the status quo — a.k.a. “not changing anything” as a baseline — show that we’re headed off a cliff in terms of planetary habitability. But these models are probably overstating humanity’s inaction. Entire (small) countries have no-bullshit plans to decarbonize quickly, and larger ones are making no-bullshit progress, just not nearly fast enough. Following these trends, it’s possible to imagine humanity will achieve relative climate stability, even as the already-baked-in effects of our greenhouse gas emissions — some of them horrible — keep rolling out, perhaps for thousands of years.

AOC isn’t the only Idiot or Nut in town. It’s very troubling to see just how stupid and/or deranged at least a third of America has become. Calling Dr. Freud: help!!!

More numbers

July 12th, 2019

WS:

From 2005 through 2017, sales sextupled, from 4.0 million vehicles to 24.7 million vehicles. In China’s managed, pump-primed, growth-no-matter-what economy – at least that is what it was – there was not a single year of declines in the data going back to 1991. But that changed in 2018 with a 4.1% decline. And now there is this awful 2019. New-vehicle sales in China dropped 9.4% in June, compared to a year ago, to 2.06 million vehicles, according to the China Association of Automobile Manufacturers (CAAM). It was the 12th month in a row of year-over-year declines. For the first half of 2019, sales were down 12%. If sales continue to decline at this rate, they will drop to 21 million vehicles for the whole year, the lowest since 2014, representing a 15% drop from the peak in 2017

And one less thing to worry about.

A little fun, or maybe a lot

July 11th, 2019

Some of the D candidates are kids of 2 PhD’s, some of IBM execs, some have changed their names for fear of being identified as Übermenschen or leprechauns, a couple are Rhodes scholars, one’s a Commie making a million bucks a year, and the one who sounds like he ran Cuba can’t speak Spanish. VDH has more.

By comparison, these people seem more authentic: The ship set ground on the shore of this uncharted desert isle, With Gilligan, The Skipper too, the millionaire and his wife, The movie star, The Professor and Mary Ann, Here on Gilligan’s Isle. No phone, no lights, no motor car, Not a single luxury, Like Robinson Crusoe, It’s primitive as can be.

Little question

July 11th, 2019

What’s in a name? NYT:

Australian officials broke with diplomatic protocol and allowed the ambassador, Alexander Downer, to sit for an F.B.I. interview to describe his meeting with the campaign adviser, George Papadopoulos.

The agents summarized their highly unusual interview and sent word to Washington on Aug. 2, 2016, two days after the investigation was opened. Their report helped provide the foundation for a case that, a year ago Thursday, became the special counsel investigation. But at the time, a small group of F.B.I. officials knew it by its code name: Crossfire Hurricane.

The name, a reference to the Rolling Stones lyric “I was born in a crossfire hurricane,” was an apt prediction of a political storm that continues to tear shingles off the bureau.

If you’ve got the FBI and CIA and all their foreign equivalents and Clapper and Brennan and Comey, etc., doing the nastiness, we suppose the name makes sense, though we think there’s a better name for what those 3 clowns were doing.

More of the same

July 11th, 2019

MR:

China released several economic data points. China’s economic indicators have been in focus due to concerns about its growth slowing down. The data released today showed that China’s PPI (producer price index) for manufactured goods fell 0.3% month-over-month in June. The PPI was unchanged on a year-over-year basis. The data missed analysts’ expectations. China’s consumer price index rose 2.7% in June.

Julian Evans-Pritchard, a senior China economist at Capital Economics, said, “The bigger picture is inflation, apart from food inflation, is actually pretty weak and with the economy continuing to cool, I think the return to factory-gate deflation is very likely.”

Looking at other economic indicators, China’s car sales fell 9.6% in June. China’s car sales have fallen on a yearly basis for 12 consecutive months. Ford (F) and General Motors (GM) have significant operations in China

The economic data that was released today showed a continued slowdown in the world’s second-largest economy. China’s industrial production rose 5% in May, far below analysts’ expectation of 5.5%. The metric stood at 5.4% in April. China’s industrial production growth rate in May was at its lowest point in 17 years.

China’s May fixed asset investment data was also lower than expected. The data showed fixed asset investment expanding at 5.6% in the first five months of the year compared to 6.1% in the first four months.

As we and others have pointed out many times, fixed asset investment, even though it can make up part of GDP calculations, can be really misleading re growth, if all you’re doing is creating empty cities and the like.

Our guess

July 10th, 2019

Based both on economics and apparent internal discord (accent on the first), we agree with RLS that Iran is perhaps the next to boil over. We’ll see, and no doubt hear the screams that it’s all the fault of Mr. X.

There is zero climate change — except for 110 degrees every year in NYC

July 10th, 2019

Why argue with utter nonsense? We don’t know.

Ahhh

July 10th, 2019

“Not gonna lie, it’s kinda fun watching a racist fool like this weeping about my presence in Congress. No lies will stamp out my love for this country or my resolve to make our union more perfect. They will just have to get used to calling me Congresswoman! Fox News is now giving a nightly platform to white supremacist rhetoric. It’s dangerous. Advertisers should not be underwriting hate speech.”

Nice to see a little opposition to lunacy.

Indeed, a little more here.

Hard to know where this goes, but at least a couple of things are positive.

Japan’s experience with overleverage and overpaying

July 10th, 2019

In the mid-1980’s Morgan Stanley chief investment strategist Barton Biggs saw that the Japanese market was overvalued. If we recall correctly, he advised underweighting in Japanese stocks, which became a quarterly source of consternation as those who were overwighted in them did better and better. On April 21, 1987 he said this, for example, in the NYT:

From both a sociological and analytical point of view, the Japanese market is in the climactic stage of one of the great speculative booms of all time. The market is focusing on themes rather than specifics, like values or earnings.

Some smart money laughed at Biggs and continued to throw dollars at Japan. After all, the grounds of the Imperial Palace in Tokyo were worth more than South America. And wasn’t Mitsubishi outsmarting and outspending the Americans — even buying Rockefeller Center from the Rockefellers. How rich is that? They laughed until 1990.

You never can tell just when a speculative bubble will burst, just that it will. From 44,000 in 1990, the Nikkei fell to less than 8000 early in this century, and it is less than half its peak today. Here’s what Biggs said in 2003(!!!!!) about China at an economic symposium (we have no idea whether he still agrees with the statements):

As for the massive investment boom (or should I say “bubble”) in China, a bust is bound to come. A country that does not have a free markets capital allocation mechanism is uniquely unqualified to mitigate the excesses of an investment boom. After all, if the West with its sophisticated public markets and information dissemination systems was totally incapable of coping with the technology bubble, what hope is there for China? The greater the bubble, the bigger the bust. In China’s case, the resulting unemployment of perhaps even several hundred million young men and women could destabilize the world. Of course the hope is that there is a central bank chairman hidden away in some musty office in Beijing who has the stature and knowledge of Greenspan and the guts that Greenspan lacked. I don’t see that there is much the G7 central bankers can do. Economists have created the legend that China is the new engine of world growth. I fear it is a myth about to become a nightmare.

Most economic leading indicators look forward about six months into the future. In the case of Japan, Barton Biggs was 4 years ahead of the market. He’s a decade or two further ahead re China, though we have seen Shanghai bounce all over the place in the last decade.

Time will tell.

More numbers

July 10th, 2019

Stratfor, from late last year:

China is again looking toward its state-owned enterprises (SOE) to help it navigate its economic course. In the decade since the 2008 global financial crisis, Beijing has increasingly relied on these businesses to drive its economy. As it faced sweeping unemployment and scrambled to prop up growth after that meltdown, it saw no better option than to pump up its state-owned giants with infrastructure, transportation and real estate projects. The stimulus ended in the early 2010s, but Beijing has continued to turn to SOEs to lead the country’s economic transition, raising fears of favoritism among its privately owned businesses.

Beijing has sought to strengthen the SOEs with moves to consolidate industries, reduce output capacity and shrink the amount of debt in the economy. But in doing so, it has strengthened government control over many private businesses and created additional uncertainty and anxiety in both the private sector and in society at large. The increasing SOE dominance over several domestic industries and their rapid expansion overseas has put them in the crosshairs of the Western world, particularly the United States. Despite those issues, if China should be hit by another economic downturn, the government could once again turn to these giants to keep the economy rolling.

While China’s SOEs remain strong, decades of market reform have dramatically reduced their role in China’s economy. Their share of the gross domestic product fell from more than 50 percent to 25 percent in just 15 years; and they account for only 5 percent of industrial enterprises today, compared with 18 percent in 2003. Nonetheless, the significance of the state sector has strengthened.

Despite their receding role in almost every industry they once dominated — raw materials, transportation and construction — 80 to 90 percent of SOEs are now concentrated in vital or high-profit industries such as finance, power, energy, telecommunications and defense manufacturing. And these enterprises — particularly the roughly 100 centrally administered SOEs — have grown much bigger. By 2017, the assets of these enterprises alone had reached 72 trillion yuan ($10.4 trillion), up more than tenfold from 2003 and almost equivalent to China’s total GDP for that year.

Thanks to easy loans and unfettered access to government funding and assistance, these giants have been able to amass assets in areas where their private and foreign partners were either restricted or found it harder to compete. Since 2013, SOEs have received more than 60 percent of all new loans in China each year, peaking at 78 percent in 2016.

In many ways, the expansion and growing strength of the SOEs are what Beijing sought with its reform strategy. Despite its push to eliminate ineffective enterprises and to introduce market competition in most areas, its objective wasn’t to weaken the state sector. Instead, it sought to consolidate the businesses through painful and risky restructuring in order to keep them focused and strong. That objective has been particularly obvious over the past five years as the central government repeatedly stressed “stronger, better and bigger” SOEs in pushing its reform agenda. In part, it called for further reductions of centrally administered SOEs, forced thousands of local “zombie” companies into bankruptcy, and aggressively sought mergers among large SOEs to reinforce their domination. Its sweeping capacity cuts in the industries that process raw materials, such as the coal and steel sectors, helped stabilize prices and led to double-digit profits for those debt-laden giants over the past decade.

At the same time, the country’s private sector has been showing signs of increasing strain. Private enterprises often lack the capacity to weather the storms of reform, and they are also hit hardest by the dual threats of a slowing economy and an extended trade war. In comparison with the state-owned giants, many private companies — particularly those low-end manufacturers and service providers that operate on thin margins — lack the resources to withstand a slowdown. They also have less access to financing and don’t have the advantage of preferential policies that their state sector and foreign competitors enjoy.

Therefore, a large number of private companies rely on investments in property and fixed assets to support their businesses, or they seek shadow loans that have higher financing costs. After property values flattened and investment returns peaked during 2014-15, these companies have struggled with loan costs, and Beijing’s push to reduce debt in the economy worsened the problem. To make matters worse, more than 90 percent of the businesses hurt by Beijing’s push to cut industrial capacity and add pollution controls are private coal, steel and chemical companies. They are being forced to close or to submit to acquisition by the state giants. Indeed, as state-owned industries overall reported record profit growth of 30 to 40 percent in the past two years, profit growth in private industries slowed to roughly 10 percent — among the lowest levels in a decade.

This part of the sharp divergence between the state and private sectors has more to do with the unintended consequences of policy goals and the ongoing economic slowdown and transition than any intentional aims. Forcing the Chinese economy higher up the value chain of production — a key objective for Beijing — has led to suffering among smaller or weaker businesses, including some local SOEs. With the private sector contributing 60 percent of GDP, 70 percent of technological innovation and 80 percent of employment, the central authorities in Beijing can no longer afford to be perceived as favoring the state sector over the private. This apparent favoritism is reinforced by its policy priorities toward state-led initiatives such as the Made in China 2025 program and its overseas infrastructure development. In addition, the government has combined a financial crackdown with a push for political conformity to ensure that large private businesses toe the state and Communist Party line.

This state-private conflict has led to intense debates within China, prompting the central authorities to try to clarify the country’s economic course. In recent weeks, several top leaders have delivered messages trying to appease private business. This push culminated in President Xi Jinping’s speech on Nov. 1; he reiterated the Party’s continued support and called for better policy execution to help finance and protect private businesses as well as ease their burdens. Many of these speeches simply reflected Beijing’s long-standing policy positions. The actual improvements for private business continue to hinge on substantial reform of the financial system, the tax structure and more. And work on those policies has either slowed or stalled since last year. More importantly, the call to revitalize private business is pushing the central authorities to further loosen the regulations controlling SOEs, but that reform process has been stumbling.

To make SOEs more competitive, the government has been pushing for public-private ownership in the power, energy and railway sectors. But that proposal met resistance from state interests that wanted to maintain controlling shares and reluctance from private and foreign investors. Reform has also been hindered by the government’s strong preference for SOEs as leaders of key development initiatives. It has repeatedly turned to the politically loyal and capital-rich state-owned giants over other choices for a host of massive industrial, technological and infrastructure initiatives at home and abroad. According to official estimates, centrally administered SOEs alone accounted for over 70 percent of the total value of infrastructure projects in the Belt and Road Initiative.

In the meantime, SOEs have continued to aggressively campaign for railway, road and port projects overseas, as well as to acquire high-tech and strategic assets. This drive has fed suspicions and led to accusations about their unfair competitive advantage from foreign businesses and governments, and it has reinforced criticism of the country’s restrictive market access. This advantage included subsidies and support for industries in the Made in China 2025 program and has taken center stage in the ongoing China-U.S. trade war and economic competition. Washington also sought to strengthen trade rules — from its initial draft of the Trans-Pacific Partnership (TPP) treaty (before it withdrew from the pact) to its current push for World Trade Organization reforms — in part to isolate China’s state-led system.

The combined internal and external pressure on China’s SOEs will likely push Beijing to extend reforms that offer greater market access and boost competitiveness. Indeed, policy debates in recent months have intensified, and officials are increasingly speaking of “competitive neutrality” when hinting at the next stage of reforms. The term is used by the Organization for Economic Cooperation and Development and was included in the TPP deal to broadly refer to a level playing field. Of course, it may be unrealistic to expect Western-style competitive neutrality within a Chinese social-capitalist system. The country lacks even basic neutrality in finance, subsidies, debt responsibility and supervision. But altering one of those areas comes at the expense of the others and of Beijing’s objective to keep the state sector strong.

While Beijing aims to assure both domestic and foreign private businesses of its commitment to reform, any changes will likely be used to defend the practices of its overseas SOEs from foreign governments. Still, Beijing may be compelled to gradually create more access for foreign and private capital in selected industries, such as finance, high-tech, telecom and energy, and to widen SOE ownership to lessen the influence of state capital. But it is unlikely to reduce state support in key sectors, such as semiconductors and aviation, where China is racing to gain greater independence. Furthermore, as the economy slows and the trade war continues, Beijing may again find its resolve tested, and it may once again be forced to turn to the SOEs to help salvage the economy — as it did during the financial crisis a decade ago.

More via SCMP: “Chinese banks do not have adequate capital to support the sort of large-scale lending that could bolster economic growth in the world’s second-largest economy, Fitch Ratings has said. China’s banks have accumulated a mountain of debt by lending to cash-strapped companies and loss-making projects. The economic slowdown has risen the stakes for both banks and businesses, especially the private enterprises that are traditionally shunned by state-owned lenders.”

Whatever the particulars, the arrows seem to pretty much all point in the same direction.

Something there is that doesn’t love a crowd

July 9th, 2019

Yes, we know it’s Robert Frost and Wall, but we like a wall. More to the point, in this PJ piece, Glenn Reynolds is quoted re social media and ancient cities. He’s got a point – the crazy crowds are very infecting and destructive.

Hide the decline

July 9th, 2019

A guy from the West Village of all places:

The scandal that I call “The Greatest Scientific Fraud Of All Time” is the alteration of official world temperature data by a small number of government employees in the US and the UK. Uniformly, the alterations have the effect of lowering temperatures early in the record, and raising recent temperatures, in order to create and enhance a warming trend that does not exist in the data as originally reported. The purpose of the fraudulent data alteration is to support the continuation of the “global warming” climate scare.

Hide the Decline, as the guy who wiped out the MWP did.

Infrastructure, trade deal, etc.

July 8th, 2019

Asian Review:

The Chinese government has set its 2019 growth target at 6% to 6.5%. Many economists believe it will implement additional stimulus measures if the economy continues to lose pace. Cheng Shi, chief economist at ICBIC, thinks regional governments will issue more bonds to finance infrastructure projects and introduce incentives to spur personal spending on automobiles and other items.

Iris Pang, greater China economist at ING Bank, expects stimulus spending to double from the previous estimate of 2 trillion yuan to 4 trillion yuan ($295 billion to $590 billion), mainly in the environment and transportation sectors.

Kenny Wen, a wealth management strategist at Everbright Sun Hung Kai, calls the trade talks the biggest variable for the second half of 2019. He said there is a 55% likelihood that Beijing and Washington will reach some kind of consensus by the end of the year. If negotiations break down, he said, “financial markets would become volatile and the economic slowdown will pick up pace.”

“If there is no deal,” said Sean Taylor, chief investment officer for Asia Pacific at DWS, “we could expect: 1) Chinese exports to shrink further; 2) export oriented companies would lay off more employees. The growth rate will fall to around 5% and China will fall into a serious economic crisis.”

The WSJ piece we quoted extensively from leads us to a different conclusion from saying infrastructure spending and a trade deal will fix things. When you

– increase debt 4x to 3xGDP in a mere decade to $40 trillion,
– have company bankruptcies increasing 2x to 18,000 in a single year, 2018,
– bond defaults increasing 5x in four years and 2019 getting worse,
– the failure last month of a tiny bank causing “panic that spread into money markets”

and so forth, you have systemic problems – none of them caused by the so-called “trade war” BTW. Hang on; it could be a rough ride.

You heard it here first

July 8th, 2019

WSJ:

When she was a teenager in the 1970s, Zhou Xiaoguang peddled trinkets city to city and slept on trains, a formative chapter in her creation of the world’s largest costume jeweler, Neoglory Holdings Group Co.

Leveraging her empire of baubles, China’s “fashion-accessory queen” added hotels, offices and malls. The magnate took a seat in China’s national parliament, accepted business accolades, including Ernst & Young’s “Entrepreneur of the Year,” and erected the tallest skyscraper in Yiwu, a trading city south of Shanghai.

Now, China’s economic slowdown is making Ms. Zhou known for something else: her billions of dollars in debt. A bankruptcy court in April said Neoglory “is unable to repay a due debt, has insufficient assets for repaying all its debts and is apparently insolvent.” Ms. Zhou’s turn of fortune is part of a reckoning that is ensnaring many of the star entrepreneurs who produced China’s great economic boom.

For a generation, China’s explosive growth rewarded bold expansion and many borrowed heavily to seize the moment. Shanghai wealth tracking service Hurun Report said China minted four billionaires a week in 2018 and is No. 1 globally in self-made fortunes.

Full-steam growth also masked companies’ strategic mistakes—in addition to excessive debt, many overexpanded into unfamiliar and crowded business sectors. These problems are becoming increasingly apparent as China’s economy slows to its weakest growth in more than 25 years. The companies’ struggles foretell a further drag on the expansion.

In the past decade, China’s overall debt quadrupled, to around three times the value of last year’s national output. Corporate debt accounts for two-thirds of the total, or more than $26 trillion last year, according to the Bank for International Settlements.

Government-run companies owe most of that money, but signs of distress are appearing most dramatically at private companies, which have less pull with creditors and less support under President Xi Jinping, who sees the state sector as the economy’s mainstay.

China’s onetime soybean king and formerly the richest man in prosperous Shandong province, Shao Zhongyi, said his Chenxi Group was felled last year by lenders who suddenly called in loans in what he termed a “high-speed bleed.” Early in that year, industrial machine maker Zhejiang Jindun Group’s founder leapt to his death, leading the company to reveal in a stock exchange notice that it owed over 9.9 billion yuan, or about $1.4 billion, some to loan sharks.

This year, banker Dong Wenbiao’s jet-maintenance to elder-care conglomerate, China Minsheng Investment Group, has unsettled local markets after missing debt payments several times by days or weeks, before making good on its obligations.

Many Chinese entrepreneurs tend to “borrow as much as possible, even if the core business doesn’t need it,” said Joseph P.H. Fan, a professor of finance and accounting at Chinese University of Hong Kong. China’s top-down system showers successful entrepreneurs with new business opportunities and the political backing to get them done, he said. It is a winning strategy to capitalize on the boom times—but doesn’t offer much shelter in a slowdown.

Professor Fan got to know Mrs. Zhou while researching private wealth in China. Neoglory, he said, is a textbook example of China’s “misallocation of financial resources.”

Neoglory fueled its evolution into a conglomerate through expansive borrowings, which ballooned to $6.8 billion, even as financial filings show cash was tight and profits were weak. Behind the scenes, the company was taking on new risks to borrow, including ever-shorter payback schedules. The troubles burst into view in mid-September when Neoglory defaulted on a bond payment. Several more defaults followed.

Ms. Zhou has ranked among China’s richest people. “Though winter may be tough to live through, it’s a good time to do introspection,” the 56-year-old recently told a business group. She declined interview requests.

Neoglory said it embarked on a rollout of retail outlets when online selling was more promising, and it overbuilt real estate in undesirable locations. “We were too optimistic about the economic trends and didn’t prepare to evolve,” said Neoglory spokesman Xu Jun, adding that the company’s situation isn’t unique.

In 2017, Beijing began trying to dial back what it termed excessive lending by the financial sector, including banks and informal firms that manage money online, a deleveraging that caused cash shortages at many private companies.

The money crunch exposed Neoglory’s fundamental problems: The once niche jewelry sector had become overrun with competition, shrinking profit margins. Developers across China were unloading malls and apartments like the ones Ms. Zhou built.

China’s broader economy had been losing momentum. The expansion maxed out at 10.6% in 2010, and economists are increasingly pessimistic the government’s bottom-line target of 6% growth will be achieved this year. The slowdown leaves major unfinished business in China, such as lifting incomes in the country’s poor rural areas.

Sorely needed are companies that might lead China to a new stage of development that is less dependent on construction and exports. Big debts make it hard for business owners to invest in reinventing the economy, and are sapping confidence along with the country’s trade disputes with the U.S.

Investors last month again felt China’s debt jitters when a government takeover of a tiny lender in the country’s northwest, Baoshang Bank, sparked funding problems for other small banks and headaches for their corporate customers. The first bank takeover by regulators in China in decades caused near panic that spread into money markets and bonds.

The corporate bond market is a small part of the credit puzzle in China, but it is relatively transparent compared with bank lending, and sheds light on the accelerated pace of borrowing and defaults by private companies.

From negligible amounts a decade ago, Chinese companies last year had $1.72 trillion in debt securities outstanding, the second-highest amount after American companies, which carried $5.81 trillion, according to the Organization for Economic Cooperation and Development.

To help private businesses, Beijing is cutting business taxes and red tape, and recently reversed earlier credit controls by leaning on banks to lend more. It is also signaling some of yesterday’s stars aren’t worth saving. Construction billionaire Wang Wenliang developed political connections in Beijing and in the U.S. through donations to politicians. After his Dandong Port Group Co., which operates a port near North Korea, fell into what the company called a crisis and defaulted on bonds in late 2017, its hometown government issued statements declining to come to the rescue.

More than 18,000 companies successfully filed bankruptcy petitions with Chinese courts last year, nearly twice as many as the previous year and until now a rare step in China. Also hitting a record last year was the number of defaults on bonds, with 125, Neoglory’s included, five times the number in 2015. Defaults are running at an even faster pace so far in 2019.

The face value of Neoglory’s outstanding bonds, at $2.5 billion, is a huge chunk of the $3.2 billion pre-default estimate of the Zhou family’s net worth. In January, China’s Supreme Court ordered Ms. Zhou’s assets frozen. Creditors are also chasing Ms. Zhou’s husband, while their son has resigned from senior executive positions at group companies, public filings show.

For about six years, Neoglory’s inaugural bond traded uneventfully, close to its 8.1% promised interest payment. Last year, that bond suddenly fell so out of favor that buyers stood to earn above 125%. Neoglory defaulted on the issue.

The private company reports only selective financial information, such as through a listed subsidiary. Property unit Neoglory Prosperity Inc. reported a 215 million yuan loss for 2018 and said it was owed over 4.2 billion yuan from the parent company.

Almost all of Neoglory’s dozen or so bond issues—one billion yuan to two billion yuan a pop a few times annually—piled on more risk. It was borrowing on shorter payback timetables, with its initial seven-year bond followed by five-year issues, then three-year debt and, most recently, five in a row due for payback in 365 days.

We’ve been following this leverage situation for well over a decade now, and things finally seem to be coming to a head, what with the combination of massive leverage and, all of a sudden, very slow growth. We think this is going to get very bad, since most of the tricks have now been used up.