Archive for the 'General' Category

Dangerous blob approaching, or, musical chairs without the music

Thursday, March 23rd, 2017


A new specter is haunting China’s financial system: the negotiable certificate of deposit. An explosion in banks’ use of the bondlike loans, whose durations range from a month to a year, is testing Beijing’s resolve to cure the economy of its addiction to debt-fueled growth and investment booms.

As authorities push up key short-term interest rates in their campaign to deflate asset bubbles swelled by borrowed money, the interest rates charged on these NCDs is rising so fast that it is starting to expose banks to the risk of investment losses and abrupt funding squeezes.

This is causing worries about a potential repeat of the crippling cash crunch of 2013. “NCDs carry a lot of risk, and if not handled properly they could lead to a systemwide liquidity crisis,” said Liu Dongliang, senior analyst at China Merchants Bank.

Banks, mostly small or midsize ones, have been raising record sums via NCDs, selling 4.4 trillion yuan ($639 billion) worth this year, 65% more than in the same period of 2016. They use the proceeds to buy higher-yielding, longer-term assets like corporate bonds or investment products issued by fellow banks.

NCDs initially offered banks the attractions of low cost and no collateral requirements, but since October the average cost of issuing the AA-rated three-month NCDs has risen to 4.72% from 2.90%—in some cases exceeding yields on AA-rated one-year corporate bonds.

The market took off last year, when issuance hit 13 trillion yuan, up from 5.3 trillion yuan in 2015 and just 899 billion yuan in 2014.

This boom came just as Beijing scored an initial victory in cutting down banks’ use of another form of short-term loan—repurchase agreements, or repos—for similar speculative purposes. The total transaction value of repos, which use bonds as collateral, fell to 35.8 trillion yuan in February from a record 59.8 trillion yuan in August, when the People’s Bank of China began tightening. The PBOC cut the fund supply for the most popular overnight and seven-day repos, raised the borrowing costs and imposed restrictions on leveraged investment using the tool.

Financial institutions ranging from banks to brokerage firms to private-equity funds had borrowed enough via repos to leverage their bets as much as four to five times, seeking to maximize returns from dwindling bond yields.

“You could say that NCDs have replaced repos as the new toy for banks to add leverage,” said Wang Ming, a partner at Shanghai Yaozhi Asset Management Co., a bond fund that manages 2 billion yuan in assets.

As issuance costs rise, more Chinese banks are being forced to sell new NCDs just to repay old ones. “When your borrowing cost is getting close to 5% and your bond is yielding only a little over 4%, you must be borrowing money to prevent a liquidity crisis,” Mr. Wang said.

Even without the fresh pain of rising interest rates, the mismatch between the NCDs’ short lifespan and the bonds’ longer duration leaves banks with a liquidity hole needing constant plugging.

The pressure is imminent: According to research firm Rhodium Group, 1.53 trillion yuan in NCDs mature this month, while calculations by analysts at China International Capital Corp. indicated that around half of the NCDs outstanding would mature between February and May.

The worry is that if one bank has trouble rolling over its NCDs or defaults on them, it could cause chaos like that of 2013, when widespread panic pushed the cost of overnight loans to a record 25%.

NCDs, WMPs, etc: we can’t keep track. What is clear is that an inverted yield curve where very short term instruments can no longer fund slightly longer maturity instruments (and everything is highly leveraged) can easily lead to a liquidity crisis. As long as it can, China will take the easy way out and favor easy liquidity over market discipline. How long that is we have no idea.

Your ten cents worth

Wednesday, March 22nd, 2017


Whether China’s most valuable company can keep getting bigger depends on whether it can sell advertising as effectively as Facebook. So far it is progressing well, but expectations are also rising fast. Shares of Tencent have surged 41% over the past year, making it the country’s biggest company. Its $275 billion market value puts it ahead of e-commerce giant Alibaba and Industrial and Commercial Bank of China, the world’s biggest bank by assets. The company owns China’s largest social network WeChat, which has 889 million monthly active users.

889 plus one, since we joined yesterday for a conference call with China this evening. BTW, we expect a new Cuban missile crisis shortly, since the world is falling apart. Will it come from oil chaos, Putin invading someplace, Fat Boy’s provocations (just how gross is he in a country where people are starving), or some other place where the world order is shattered?

How times change

Tuesday, March 21st, 2017


Amid growing calls for greater gender inclusivity on campus, Yale College administrators are moving to replace the term “freshman” with the gender-neutral term “first-year.”

Dean of Student Affairs Camille Lizarríbar, who is leading the conversation about the potential change, told the News that while administrators are committed to the shift, there is no fixed timeline or specific plan for its implementation. However, Lizarríbar said she hopes that the language change will be implemented “before the next academic year.”

“I think there comes a time when you want to make sure that the way you’re calling things reflects the values that you have,” Lizarríbar said. “If we really are serious about inclusivity and diversity, we need to look at everything. It’s not written in stone that it has to be ‘freshman.’ … We do have some agency in what we call things.”
Lizarríbar said replacing the term “freshman” is something administrators have been thinking about for some time, adding that several peer institutions, such as Dartmouth, Cornell and Amherst have already made the move.

Yale College Dean Jonathan Holloway said concerns over the term “freshman” are not new. For as long as he can remember, Holloway said, parents and students have occasionally expressed frustrations about the term being gender-specific.

Amend, a staff columnist for the News, added that the change is particularly important under the current federal administration, which he called toxic to transgender students in an earlier interview. Earlier this month, President Donald Trump rescinded Obama-era federal guidelines specifying that transgender students have the right to use public school restrooms that match their gender identity.

HT: CR. We recall that once upon a time you had to be pretty bright to go to Yale. How times change.


Monday, March 20th, 2017

Wretchard: “North Korea is an example of what happens when a can has been kicked down the road for more than 60 years and finally has nowhere left to go.” Indeed. BTW, Michael Jordan, call your office, you might be good for a few more years of some sort of competition. Finally, aircraft engine list; so much has changed in a generation. Final feel-good observation: Scott Johnson has a nice piece on Ella F, whom we saw about 40 years ago in Boston. We loved the Cole Porter song book, but there’s no arguing about Spring.

The fierce urgency of not

Sunday, March 19th, 2017

Now that the NYT is the same as Pacifica radio, what more is there to say? But it’s not just that; after all, the radio had professors from Amherst and Columbia Law, so add tip-top academia to the mix.

Which raises the further issue: will enough of the two most recent American generations return to reality and common sense to prevent the country from going belly up? They’re supposed to be adults now. No, it’s even worse, the portable internet renders adult parental control of their kids difficult, and worse than that, much of twitter doesn’t speak well of these adults and what their control means.

But hey, there’s good news too: at least there will be a nice fun war soon with fat boy (or is that fat man and little boy?). And more fun news: that SPLC guy is a scam artist. Who would’ve thought?

Back to the numbers and the WMPs

Saturday, March 18th, 2017

NYT on ICBC’s critique of WMP’s:

Credit has been expanding swiftly in the Chinese economy, as the government has resorted to heavy stimulus to prevent the economy from slowing further. The Chinese economy expanded 6.7% last year. But to achieve that, Chinese financial regulators allowed total outstanding credit to expand by the equivalent of about 15%

much of the lending appears to represent a speculative frenzy, often involving residential real estate, that has become of increasing concern to some Chinese officials, bankers and economists. Real estate prices in large and medium-size cities climbed 12% in the 12 months that ended in February

Some kinds of shadow banking have seen spectacular growth, like entrusted loans. Entrusted loans are loans from one company to another, usually done through a bank to get around a ban on Chinese companies lending directly to each other. These loans — which are also kept off the books of banks — jumped 20% in the 12 months through the end of January, and now account for 9% of overall credit in China

many smaller banks rely more heavily on the sale of wealth management products. Because banks usually keep those obligations off their books, they have greater flexibility to lend to more speculative projects and use the proceeds to pay higher interest to investors — provided that the more speculative borrowers repay their loans.

It’s been about a year since we last noted the WMP’s and their asset bubbles. The Day of Doom always seems right around the corner. Fortunately, the corner keeps moving. At least so far.

No circuses either

Friday, March 17th, 2017


Venezuela this week arrested four bakers making illegal brownies and other pastries as President Nicolás Maduro’s socialist government threatens to take over bakeries in Caracas as part of a new “bread war”. Maduro has sent inspectors and soldiers into more than 700 bakeries around the capital this week to enforce a rule that 90% of wheat must be destined to loaves rather than more expensive pastries and cakes.

Breadmakers blame the government for a national shortage of wheat, saying 80% of establishments have none left in stock.

During this week’s inspections, two men were arrested as their bakery was using too much wheat in sweet bread, ham-filled croissants and other products, the state superintendency of fair prices said in a statement sent to media on Thursday. “Those behind the ‘bread war’ are going to pay, and don’t let them say later it is political persecution,” Maduro had warned

For some reason, we thought of this charming piece.

Consider the implications

Thursday, March 16th, 2017

The global aircraft leasing industry is almost totally focused on new equipment, since that’s a fairly simple banking business. The average age of big lessors’ fleets is about 7 years. As the equipment ages, technical skills, engineering, maintenance optimization, etc., require high degrees of skill. In the past, the payoff was marginal for those focusing on mature aircraft, but consider the technology changes of late. Engines sometimes stay on wing for nearly forever, and Rosie has been replaced by advanced lasers and robots in constructing airframes. A quantum leap in reliability. Quietly this industry niche has been growing and it now numbers $10 billion in over 500 mature aircraft on lease. Jack Ma’s and Jeff Bezos’s forays into freighter airlines where they convert older pax aircraft to freighters show what two tech visionaries think of this. Finally, experienced management teams and $190 billion companies are executing this strategy. If you have $100 million to invest in such a company, drop us a line.

Remarkable changes in recent years

Wednesday, March 15th, 2017


Spirit AeroSystems is the world’s largest aerostructures supplier, with main facilities in Wichita (KS). I visited Wichita early March and was given a guided tour of the factories. It was a tour of contrasts. In production hall two, the Boeing 737 fuselages are riveted together in much the same way as the Boeing B-29 Stratofortress was produced there during World War II. “Rosie the riveter” is replaced with a robot.

The 737 production line is equipped with robots and advanced laser aligning equipment. The line is totally flexible regarding the produced variant. A 737-700 fuselage can precede a MAX 9 fuselage followed by a 737-800. Output is presently 1.3 fuselages per day with an increase planned to 1.9 per day.

In another hall, the production is silent. The winding of the Boeing Dreamliner’s forward fuselage from rolls of tape is made with a swooshing sound. There are few people around; the machines rule. Everything is mega large; tape-layers, tools, autoclaves, the lot.

It’s the same story on the engine side, where a CFM56-7B, which powers the B737-800, went 50,000 hours or 20 million miles without a removal. Take a look at what Rolls is doing to produce single crystal turbine blades for the Trent.

A Prius and a Pinto are from different planets.


Tuesday, March 14th, 2017


“I would not agree that [CO2] is a primary contributor to the global warming that we see,” Scott Pruitt said Thursday in an interview with CNBC’s Joe Kernen. “I believe that measuring with precision human activity on the climate is something very challenging to do, and there’s tremendous disagreement about the degree of impact,” Pruitt said. Those statements are at odds with an overwhelming body of scientific evidence showing that humans are causing the climate to warm by releasing CO2 into the atmosphere. The view that CO2 is a major heat-trapping gas is supported by reams of data, included data collected by government agencies such as NASA and the National Oceanic and Atmospheric Administration. Pruitt’s latest statements on climate change come after the second-warmest February in the past 123 years, according to NOAA.

HT: RT. Now let’s hear from some random guy:

For far too long, one body of men, establishment climate scientists, has been permitted to be judges and parties on what the “risks to the Earth system associated with increasing levels of carbon dioxide” really are.

Let me explain in somewhat greater detail why we call for withdrawal from the UNFCCC [United Nations Framework Convention on Climate Change]. The UNFCCC was established twenty-five years ago, to find scientific support for dangers from increasing carbon dioxide. While this has led to generous and rapidly increased support for the field, the purported dangers remain hypothetical, model-based projections. By contrast, the benefits of increasing CO2 and modest warming are clearer than ever, and they are supported by dramatic satellite images of a greening Earth.

The UN’s Intergovernmental Panel on Climate Change (IPCC) no longer claims a greater likelihood of significant as opposed to negligible future warming, Current carbon dioxide levels, around 400 parts per million are still very small compared to the averages over geological history, when thousands of parts per million prevailed, and when life flourished on land and in the oceans, Calls to limit carbon dioxide emissions are even less persuasive today than 25 years ago. Future research should focus on dispassionate, high-quality climate science, not on efforts to prop up an increasingly frayed narrative of “carbon pollution.” Until scientific research is unfettered from the constraints of the policy-driven UNFCCC, the research community will fail

It will be such fun when this nonsense blows up. Here’s another horse’s patoot. BTW, Pacifica radio is laugh-out-loud funny in a way that the MSM aren’t since it is out of the asylum and doesn’t mind bragging about it. (Oops! The MSM have stopped pretending.)

Weakening yuan ahead

Monday, March 13th, 2017


Pricing in the forwards market indicates the offshore yuan will decline 3.2% in the next year, to 7.12 to the dollar, according to Thomson Reuters. Depreciation expectations have picked up recently, though they remain less frenzied than at the start of this year when the forwards market pointed to one dollar buying 7.33 yuan in a year’s time.

The evidence from the past two years suggests that the PBOC can very easily squeeze investors out of their bearish bets in Hong Kong, market participants say.

One option would be to direct state-owned banks to buy up yuan offshore, driving up the borrowing costs for the currency and so making it much more costly to short the yuan. The pool of yuan floating around Hong Kong is shrinking—yuan deposits tumbled nearly 40% in the year through January, according to the Hong Kong Monetary Authority—making it less costly for the central bank to push up borrowing costs in this way.

The central bank wants to prevent the offshore yuan from falling significantly more than the onshore yuan because a divergence tends to increase pressure on capital outflows. If Individuals and companies believe the yuan will depreciate, they are more likely to swap it for foreign currencies like the dollar—weakening the yuan further.

Chinese authorities have clamped down on many of the channels through which money can leave its borders, which has lessened the pressure for now. But most investors still expect a decline in the yuan against the dollar this year, pointing to the divergence of interest rates and economic growth between the two countries. Bank of America Merrill Lynch analysts recommend betting on dollar strength against the offshore yuan through the options market.

A weakening yuan will generate all sorts of contortions. We’ll be watching what happens.

Fun in the sun

Sunday, March 12th, 2017

We often listen to Pacifica radio while on our hour plus jog. KPFK, which always seems to be on the brink of going out of business. The presenters are entertaining and the content is pretty funny stuff. Professor Horne, Mr. Masters, Dr. McKinney. Why bother with AP and NYT when you can get super real truth from sources such as these?

Bonus unfun: DST bad, DST bad. Also: Vinny good. Have a nice day!

Chaos gets really boring

Saturday, March 11th, 2017


In March 1993, Janet Reno began her tenure as President Bill Clinton’s attorney general by summarily firing United States attorneys for 93 of the 94 federal districts (one, Michael Chertoff, was retained in New Jersey, at the request of Democratic Senator Bill Bradley).

Chaos at DOJ! Chaos! Chaos! Chaos at State! Chaos everywhere! BTW, MSM and others, JFK was a liberal whom we mostly agree with; these leftists are something else. Boring. Boring. Boring.

Yeah, right — and other matters

Friday, March 10th, 2017


China’s central banker signaled a tighter hold on credit to avoid further fueling asset bubbles, though the bank stands ready to loosen its grip should the economy falter. Speaking at an annual news conference on Friday, central bank Gov. Zhou Xiaochuan suggested a slight shift away from the largely expansionary monetary policy the People’s Bank of China has followed the past few years to prop up growth. With the economy in a healthier state, he said, the bank is moving to support government efforts to rein in financial risks. “Too much credit in the economy,” Mr. Zhou said, “could trigger inflation and asset-price bubbles,” By comparison, “a more neutral monetary stance” can help prod companies to cut back on debts, he said.

To prevent the yuan from depreciating too fast, the central bank in the past year has burned through foreign-exchange reserves and tightened restrictions on money heading offshore. Late last year, authorities put in place rules restricting Chinese companies’ investment overseas. In 2016, China’s outbound direct investment jumped 44.1% from a year earlier to a record of $170.11 billion, leading to concerns that many of those deals were conducted for the sole purpose of moving money out. “There are questions about some companies’ enthusiasm in making acquisitions overseas and whether they are being cautious enough,” Mr. Zhou said.

Feel free to believe this fellow Zhou if you like. Ha! This is funny. This shows that life dealt our classmate a curveball, big time. Finally, if a couple of deals close, we’re thinking of renaming this place Plutocrat. Since we can’t deal with the current Civil War in the US, that would be pretty nice.

Now and then

Thursday, March 9th, 2017

WSJ now:

The S&P 500 didn’t rise much Thursday, but it is up 250% from its lowest close during the financial crisis eight years ago. The Dow Jones Industrial Average rose 2.46 points, or less than 0.1%, to 20858.19 on Thursday — a far cry from the 6547.05 at which it closed on March 9, 2009.

Back then.

Way back in the 1960s

Wednesday, March 8th, 2017

(BTW, it’s a song.) GE clock radio. Silvertone TV. Q: What do the TV and radio have in common? A: you can watch them, but they can’t watch you.

Te Fare (La maison) monkey business

Tuesday, March 7th, 2017

Here’s the painting. Maybe the art market is predicting that a top in asset values has passed. Watch out Snap! On the other hand, there’s also a lot of monkey business going on.

Bonus: we’ll leave it others to comment on the most vile corrupticrat events of our time. The GOP are not good guys, but these leftists (stop using with word liberal: JFK was a liberal) are a disgusting throwback to 1917ff.


Monday, March 6th, 2017

WSJ updates those numbers that make your head spin:

China’s annual economic blueprint unveiled this week touted the inroads China has made in paring back production in its bloated steel industry. A closer look suggests that much of the progress was on paper. China’s overproduction of steel remains a challenge to the country’s growth model and a global source of discontent. Steel and coal capacity cuts featured in development plans set out Sunday at China’s annual National People’s Congress; officials have sought since to highlight them as among the government’s top priorities. The reductions in steel production are an attempt to upgrade an aging industry that has contributed to years of heavy smog, soaring corporate debt, and global trade spats. Hundreds of facilities have been forced to shut down. Yet some officials said many targeted plants were already idle

Okay, now our mini commentary on the current craziness. We simply don’t understand the strategy of the media-politico aggressors in this whole affair, first quoting eavesdropping, and then denying there was any eavesdropping. Sounds pretty dumb: all tactics and no strategy. Andy McCarthy has a good piece. So does Roger Simon. We can’t summon the mental energy to comment at any length on such stupidity.

Bonus: here’s fake news that at least is funny.

Numbers that make your head spin

Sunday, March 5th, 2017


China’s economic planning agency pledged to continue its push to cut overcapacity in some industrial sectors, aiming at reducing steel production capacity by around 50 million metric tons and coal by at least 150 million tons this year. Last year, the government cut steel overcapacity by 45 million tons and coal by 250 million tons.

The government also aims to realize 9% growth in fixed-asset investment this year, the National Development and Reform Commission said in a report delivered at the National People’s Congress. Beijing had set a 10.5% growth target for fixed-asset investment in 2016, but the actual growth came in much slower at 8.1% amid a slowdown in the world’s second-largest economy.

The NDRC said it expected retail sales to increase by about 10% in 2017, compared with a target of 11% in 2016. Last year, China’s retail sales rose 10.4% from a year earlier.

We’re not going to get into the craziness of the day, but we note that this piece is very interesting (HT: CF). An acquaintance of ours who has written spy novels offered the theory that the Podesta etc emails were just warning shots, since the Ruskis had at least some of the 33,000 HRC emails and expected her to win. Then their blackmailing ability would have been monumental. Who knows? The only thing we know for sure is that it’s going to get even crazier than this.

Re Ruski

Saturday, March 4th, 2017

We thought that fellow Maloney did a fine job on Carlson’s program. He stuck to his script, and his believers will continue to believe. There is no point in arguing with him; things are way beyond that. We recommend singing as a response, as we have said. In addition, there’s froggy, as well as the Groucho Marx style. We’re way past arguing; comedy and ridicule are now the coin of the realm. Of course you’ll lose in the court of the MSM, but at least you’ll have had fun along the way — and much more importantly, you’ll have changed the category that the other side gets listed in, at least for some, not serious commentary, but coo-coo brain. Much better than a phony Socratic dialogue.