Lather, rinse, repeat

April 30th, 2016


Hundreds of demonstrators filled the street outside the Orange County amphitheater where Donald Trump held a rally Thursday night, stomping on cars, hurling rocks at motorists and forcefully declaring their opposition to the Republican presidential candidate. Traffic came to a halt as a boisterous crowd walked in the roadway, some waving American and Mexican flags. Protesters smashed a window on at least one police cruiser, punctured the tires of a police sport utility vehicle, and at one point tried to flip a police car.


Hundreds of demonstrators descended on the California Republican Convention Friday to protest Donald Trump ahead of his speech. Protesters — some of whom wore bandanas over their faces and carried Mexican flags — blocked off the road in front of the Hyatt Regency here. Several physical altercations, including shoving, could be seen between protesters and police officers

This is all going to increase. Question: in an age where everyone walks around with a video recorder, what’s the impact of this?

Then and now

April 29th, 2016


Xi personally endorsed the nickname in September 2014, when he gave a school teacher visiting Beijing from the southwest province of Guizhou permission to address him by it. “Xi Dada” became a central feature of a social media campaign encouraged by state-controlled media, including smiling cartoons of Xi and photos of his impromptu visit to a Beijing dumpling shop. Before Xi’s visit to the U.S. last September, the People’s Daily posted the online video “Who Is Xi Dada?” featuring foreign students expressing admiration for the “cute” leader. A song with the lyric, “If you want to marry, marry someone like Xi Dada, a man full of heroism, with a strong backbone,” was circulated widely this year.


Bright cottage cheese with peaches ripe

April 28th, 2016

Almost 2500 words, both funny and disgraceful at the same time. Example:

The use of “master” as a title at Yale is a legacy of the college systems at Oxford and Cambridge. The term derives from the Latin magister, meaning “chief, head, director, teacher,” and it appears in the titles of university degrees (master of arts, master of science, and others) and in many aspects of the larger culture (master craftsman, master builder). Some members of our community argued that discarding the term “master” would interject into an ancient collegiate tradition a racial narrative that has never been associated with its use in the academy. Nothing about the term itself is intrinsically tied to Yale’s history prior to 1930, or to the relationships that students of each generation have formed or will form with the individuals who lead their colleges. Moreover, a decision to stop using the term “master” does not compromise the study of larger historical issues. In short, the reasons to change the title of “master” proved more compelling than the reasons to keep it

And get a load of this one:

The name of Calhoun College will remain. I feel compelled to take the proper path for an educational and research institution whose motto is “light and truth.” We are a university, and through teaching and learning about the most troubling aspects of our past, our community will be better prepared to rise to the challenges of the present and the future. After a careful review of student and alumni responses, scholarly views, and public commentary—which were exceptionally thoughtful, measured, and helpful on all aspects of the question—it became evident that renaming could have the opposite effect of the one intended. Removing Calhoun’s name obscures the legacy of slavery rather than addressing it. Ours is a nation that continues to refuse to face its own history of slavery and racism. Yale is part of this history, as exemplified by the decision to recognize an ardent defender of slavery by naming a college for him. Erasing Calhoun’s name from a much-beloved residential college risks masking this past, downplaying the lasting effects of slavery, and substituting a false and misleading narrative, albeit one that might allow us to feel complacent or, even, self-congratulatory. Retaining the name forces us to learn anew and confront one of the most disturbing aspects of Yale’s and our nation’s past. I believe this is our obligation as an educational institution.

Perhaps we’re just a tad cynical, but that last paragraph seems overwrought, and we can’t help wondering which change would have resulted in a loss of contributions to the school. HT: PL

Pour encourager les autres

April 27th, 2016


According to, which tracks online censorship in China, 21% of over 400,000 of domains, Web links, social-media searches and IP addresses that it monitors in China are blocked. The Chinese government’s control over the Internet could get even tighter, with regulators floating a proposal for the state to take 1% stakes in major Chinese Internet companies, according to people familiar with the matter.

Under the proposal, for which China’s Internet and media regulators have been soliciting companies’ opinions, the government also would take a board seat at companies where it buys such “special management shares,” the people say, giving it more direct influence over company policies on content and censorship. Companies that could be affected fall under the oversight of Cyberspace Administration of China and State Administration of Press, Publication, Radio, Film and Television. They include Tencent Holdings Ltd. , Baidu Inc., NetEase Inc. and almost all big online media companies.

The proposal is vague and may not materialize, the people familiar with the matter say. Any such move would face a host of complexities, not least that many Chinese companies are listed on stock exchanges elsewhere, so could face resistance from exchange operators, regulators or other investors. The source and vehicle for funds to purchase such stakes also isn’t decided yet, according to one person familiar with the matter. One possibility is for state-owned media companies to invest in Internet companies. Even if it fizzles, the existence of such a proposal suggests even greater ambition for control


Bad debts and bank capital

April 26th, 2016

IMF via WSJ:

Corporate debt is some 160 percent of GDP and continuing to rise quickly. An increasing share of corporates show signs of being at risk, for example, the latest Global Financial Stability Report (GFSR) suggests that corporate loans potentially at risk (ie owed by firms with an interest coverage ratio less than one) amount to 15.5 percent of total commercial banks’ loans to corporates, or $1.3 trillion (12 percent of GDP). This compares with about $1.7 trillion in bank Tier 1 capital

Bad loans, of course under-reported, equal bank capital. Hmmmm. In other news, justice-involved youth. Also, a golden oldie from 10 years ago.


April 25th, 2016

Steyn on competing primitivisms. Related piece on Ayaan Hirsi Ali with common sense from Bill Maher at the end. Speaking of primitivisms, VDH discovers some in his backyard. More nonsense from the cognoscenti. Flute thing. Weird. Kashmir. BOC Aviation doing an IPO in Hong Kong. That’s it for now.

More unusual numbers in China

April 24th, 2016

Excitable lad:

payables now average an incredible 192 days in China’s business system. And that’s why its whole house of cards is likely to collapse with a bang, not a Beijing managed whimper. At some point, this daisy chain of billions of unpaid claims will far exceed even the capacity of China’s state-deputized bankers and its growing fleet of paddy wagons to keep in line.

the red suzerains of Beijing are already proving in spades that when the music of credit expansion finally must stop, they will have no clue about what to do or capacity to execute if they did. In that respect, it now appears that in the first quarter China’s banking system generated new credit at a $4 trillion annual rate or nearly 40% of GDP.

In turn, China’s so-called “iron rooster” was given a new lease on life as a result of even more artificial demand for capital investment and infrastructure that is already massively overbuilt. Accordingly, during March, China’s steel production hit an all-time high, causing prices to temporarily rise, and closed mills to re-open.

So much for the credit restraint promised by China’s central bank and for the 150 million tons of capacity closures announced by the apparatchiks in Beijing a few months back. In lashing itself to Mr. Deng’s printing presses, the Chinese communist party made a pact with the financial devil. But now it is far too late to stop the Ponzi, meaning that another central bank driven debt implosion is fully scheduled and waiting to happen.

HT: Mercury. Meanwhile, via Bloomberg: “International concern about the health of China’s economy has been fading from view as data showed an improving picture and volatility in its stock and currency markets waned. Wednesday’s equity tumble in Shanghai caused barely a ripple among global shares as international traders focused on surging commodity prices.”

China speculators moving into commodities, Soros commentary

April 23rd, 2016


Chinese speculators have a new obsession: the commodities market. Trading in futures on everything from steel reinforcement bars and hot-rolled coils to cotton and polyvinyl chloride has soared this week, prompting exchanges in Shanghai, Dalian and Zhengzhou to boost fees or issue warnings to investors. While the underlying products may be anything but glamorous, the numbers are eye-popping: contracts on more than 223 million metric tons of rebar changed hands on Thursday, more than China’s full-year production of the material used to strengthen concrete.

“The great ball of China money is moving away from bonds and stocks to commodities,” said Zhang Guoyu, a Shanghai-based analyst at Tebon Securities Co. “We’ve seen a lot of people opening accounts for commodities futures recently.” The frenzy echoes the activity that fueled China’s stock market last year before a rout erased $5 trillion, and follows earlier bubbles in property to garlic and even certain types of tea. China’s army of investors is honing in on raw materials amid signs of a pickup in demand.

Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong, says the improvement in fundamentals and the availability of leverage to bet on commodities is making them irresistible to traders. “These guys are going nuts,” Hong said. “Leverage exaggerates the move of the way up, but also on the way down – much like what margin financing did to stocks in 2015.”

The gain in steel prices isn’t just on the futures market, with spot prices for the physical product also rallying amid a sudden shortage as construction activity accelerates. Rebar prices have risen 57 percent this year on average across China, according to Beijing Antaike Information Development Co., a state-owned consultancy. Even after output of steel increased to the highest monthly volume on record in March, rebar inventory is still falling, signaling a supply deficit.


George Soros said China’s debt-fueled economy resembles the U.S. in 2007-08, before credit markets seized up and spurred a global recession. China’s March credit-growth figures should be viewed as a warning sign, Soros said at an Asia Society event in New York on Wednesday. The broadest measure of new credit in the world’s second-biggest economy was 2.34 trillion yuan ($362 billion) last month, far exceeding the median forecast of 1.4 trillion yuan in a Bloomberg survey and signaling the government is prioritizing growth over reining in debt.

What’s happening in China “eerily resembles what happened during the financial crisis in the U.S. in 2007-08, which was similarly fueled by credit growth,” Soros said. “Most of the money that banks are supplying is needed to keep bad debts and loss-making enterprises alive.”

Soros said at the World Economic Forum in Davos in January that he’s been betting against Asian currencies because a hard landing in China is “practically unavoidable.” China’s state-run Xinhua news agency rebutted his assertion in an editorial, saying that he has made the same prediction several times in the past.

Soros said China’s banking system has more loans than deposits and has “troubles on the assets side but also increasingly troubles on the liabilities side.” “Other banks have to lend to each other and that’s an additional source of uncertainty and instability,” he said. “The problem has been deferred and it can be deferred for another year or two but it’s growing, and growing at an exponential rate.”

China’s economy gathered pace in March as the surge in new credit helped the property sector rebound. Housing values in first-tier cities have soared, with new-home prices in Shenzhen rising 62 percent in a year. While China’s real estate is in a bubble, it may be able to “feed itself for some time,” similar to the U.S. in 2005 and 2006, Soros said. “It can reach a turning point later than everyone expects,” he said. “Most of the damage occurred in later years. It’s a parabolic cycle.”

We never saw 2008 coming. We didn’t understand the August 2007 Bear Stearns conference call. Driving to work in 2006 and 2007, we had no idea what the radio ads meant when they said “no income verification” for getting a mortgage — meanwhile the guys on the shop floor were flipping expensive condos on Collins Ave in Miami. Back then our classmate figured it all out, and now he has a school named for him at Harvard.

Soros is right, as are others, about the over 3x GDP and accelerating debt. He’s also right: “It can reach a turning point later than everyone expects. It’s a parabolic cycle.” Barton Biggs was right about Japan’s crash, just 3 years too early. In a way it’s funny that the latest Chinese investment craze is commodities, since the country is so overflowing with crazy debt-fueled infrastructure capacity that there is only one way things can go, eventually. (The country was building empty cities 6 years ago and there’s only so long that can go on.)

One difference between 2008 and now is that back then private shareholders took big hits when sub-prime exploded, but in this case China controls the banks that own the bad debt, and they lend to each other to put off recognizing the bad debts and zombie companies. This would appear to be very bearish both for commodities prices and the renminbi and other Asian currencies, as well as — eventually — for any publicly traded securities of those banks. It remains to be seen whether there are hidden risks like the CDS’s of 2008.

Cement and steel

April 23rd, 2016

From an earlier post:

China’s construction infrastructure, for example, is grotesquely overbuilt – from cement kilns, to construction equipment manufacturers and distributors, to sand and gravel movers, to construction site vendors of every stripe. For crying out loud, in three recent years China used more cement than did the United States during the entire 20th century! That is not indicative of a just a giddy boom; it’s evidence of a system that has gone mad digging, hauling, staging and constructing because there was unlimited credit available to finance the outpouring of China’s runaway construction machine.

Consider the case of China’s mammoth steel industry. It grew from about 70 million tons of production in the early 1990s to 825 million tons in 2014. Beijing’s tsunami of cheap credit enabled China’s state-owned steel companies to build new capacity at an even more fevered pace than the breakneck growth of annual production. Consequently, annual crude steel capacity now stands at nearly 1.2 billion tons, and nearly all of that capacity — about 65% of the world total — was built in the last ten years. Needless to say, it’s a sheer impossibility to expand efficiently the heaviest of heavy industries by 17X in a quarter century.

When will the madness end?

April 22nd, 2016

What happens when you support a ballot initiative that passes in liberal California? You get fired. What happens when you say the XX’s should go to their toilets and the XY’s should go to their toilets? You get fired. (Check out the 4 stories below to see some of the drama behind the scenes.) Note that in each case each opinion that gets you fired was the conventional wisdom in the country within the last decade. When will the madness end? When a drastic discontinuity happens to interrupt the current narrative arc. With the shattering of the brief post Cold War international order, we fear that the harsh dose of reality will be war or something like it.

Don’t worry, be happy

April 21st, 2016

Via WSJ:

China incrementally annexes the South China Sea while embarked on a naval buildup inversely proportional to the smallest US fleet since 1916, and further aggravated by China’s ability, once its naval technology matures, to surge production in its 106 major shipyards as opposed to America’s six. More importantly, China is expanding its nuclear forces to what extent we do not know, because the Chinese program’s infrastructure is hidden within 3,000 miles of tunnels largely opaque to US intelligence.

We pay Iran for allowing us to stabilize its acquisition of nuclear armaments, and discount both the North Korean threat and missile defense, the only means of opposing it. As North Korea and Iran work up to minimal nuclear capacity, this administration works down to it, thus (in a mistaken conception of nuclear sufficiency) encouraging proliferation and eventual parity among a large number of nuclear states. Nothing could be more dangerous.

Should these trends continue unaddressed, the world will see three great powers—China, Russia, the U.S.—each with a complex and shifting system of alliances in unstable areas subject to proxy wars and opportunistic territorial expansion, the beginnings of which are now apparent in Ukraine, Syria and the South China Sea. As Wilhelmine Germany was either unwilling or unable to restrain Austria from invading Serbia despite the latter’s abject submission, thus precipitating World War I, no single power will be able effectively to discipline its allies.

With rapid shifts in the correlation of forces among near equals, nations seeking protection will migrate among the blocs and arm to protect themselves, provoking their neighbors to do the same. Such conditions, absent since World War II, will be remarkably unstable, especially given the emergence of semi-medieval crazy-states armed with nuclear warheads on ICBMs.

Back in the US, nobody apparently cares about the above, which pale in comparison to the contemporary meaning of XX and XY. Here, here, here and here are four stories about the current issue of the day.

What acceleration in growth?

April 20th, 2016


Until Wednesday’s tumble, the turmoil in Chinese stocks that roiled global markets at the start of the year and during last summer had faded from view. A gauge of 50-day price swings on the Shanghai Composite fell to its lowest level in 2016 on Tuesday as the benchmark equity gauge was little changed since the start of the month. Any return of the wild swings that marked the nation’s stocks during a $5 trillion rout would be unwelcome to global investors with world equities trading near a four-month high.

“We still haven’t heard any news or speculation yet,” said Jeff Lau, a Hong Kong-based trader at China Securities International Financial Holdings Co. “We’ve got some big orders from clients wanting to sell banks and financials. Some are taking profits but we are still checking what was the major trigger.”

The Shanghai Composite closed at 2972.58, falling below the key 3,000 level for the first time since April 8, and taking its loss this year to 16 percent. The ChiNext index for small caps plunged 5.6 percent. The Hang Seng China Enterprises slid 1.2 percent, while the Hang Seng Index dropped 0.9 percent as China Shenhua Energy Co. led declines. China’s central bank is signaling less of an appetite for adding monetary stimulus following evidence of an acceleration in growth.

The last sentence is misleading, since growth was 1.1% over the prior quarter. Meanwhile, a fellow who correctly called Japan’s problems from excessive credit three decades ago has now made the same call on China. Stay tuned.

More numbers

April 19th, 2016


Amid a deluge of data that was released on Friday, one number stands out: aggregate financing, a broad measure of credit that spans commercial banks to the unofficial shadow lenders. It totaled 2.34 trillion yuan ($361 billion) in March, the People’s Bank of China said, far exceeding all 24 forecasts in a Bloomberg survey.

And all they got was 1.1% growth.

1.1% quarter over quarter growth

April 18th, 2016


Economists said the 1.1% quarter-over-quarter rate was weaker than expected and likely reflected stronger headwinds in January and February than initially thought. Quarter-over-quarter statistics tend to track an economy’s momentum while year-over-year figures give a picture of the overall growth rate. And while the 6.7% year-over-year pace is in line with Beijing’s target of 6.5% to 7% growth this year, the quarter-over-quarter rate raises doubts for some about whether that can be sustained. RHB Research economist Zhang Fan said the 1.1% figure is more credible than the 6.7% figure given the obvious slowdown in China’s economy early this year. “This shows that China’s growth momentum in the short run is not as optimistic as the headline GDP figure reflected,” he said.

Asked by reporters on Friday why the statistics bureau didn’t report quarter-over-quarter growth as usual along with the other figures, spokesman Sheng Laiyun said the agency was still working on the calculation. The delay coincided with senior Chinese officials taking part in meetings of the Group of 20 major economies, World Bank and International Monetary Fund, during which China’s economy was center stage. The discrepancy also feeds into long-standing concerns about the reliability of Chinese government statistics and the methods used to calculate them. “I pretty much stopped paying attention to GDP numbers altogether,” said Daiwa Securities Group Inc. economist Kevin Lai, who said actual growth in China is probably around half the official rate.

At least they’re not Venezuela.

When worlds stop colliding

April 17th, 2016

When Ian Masters and Clarice Feldman are on the same page, it’s likely something’s up. And Senators Cornyn and Schumer are also in sync. BTW, here’s an unpleasant photo. We thank fracking for helping make it possible to view clearly the nastiness that is Saudi Arabia.

2 + 2 = what?

April 16th, 2016


American Apparel, the biggest clothing maker in Los Angeles, said it might outsource the making of some garments to another manufacturer in the U.S., and wiped out about 500 local jobs. The company still employs about 4,000 workers in Southern California. In the last decade, local apparel manufacturing has already thinned significantly. Last year, Los Angeles County was home to 2,128 garment makers, down 33% from 2005, according to Bureau of Labor Statistics data. During that period, employment also plunged by a third, to 40,500 workers. Wages, meanwhile, jumped 17% adjusting for inflation, to $698 per week. “I used to pay $5 to get this sewn, and now it costs $6.50,” Seo said, holding up a patterned dress. “But my customer doesn’t want to pay that, so I can’t sell it anymore.” To survive, Seo, 59, said Joompy may have to start importing goods instead of producing them locally. “It will be impossible to make clothes in Los Angeles,” he said. After years of net losses, moving production out of Los Angeles is necessary for the survival of American Apparel, industry experts said. The company initially considered staying in California and moving to the city of Vernon, according to a person familiar with the discussions who was not authorized to speak publicly. After the state raised the minimum wage, executives began looking at manufacturers in the South, the person said. Sensing opportunity, garment makers from Las Vegas, El Paso, Texas, and Las Cruces, N.M., have already come to the Southland to tout the benefits of moving production to their regions

The state governor, when signing the bill: “Economically, minimum wages may not make sense.”

The good, the bad, and the ugly

April 16th, 2016

The good. The bad. The bad. Ah, such a long list. And the ugly, by today’s standards that is, though it was fine for an earlier generation of kids. Funny stuff. With all that, it is any wonder that this is happening big time.

The slings and arrows of outrageous fortune

April 14th, 2016

QE or not QE, that is the question. Here’s a difficult piece on the twilight of the Fed Funds rate and other central bank issues created in the post-2008 world. And here’s a more understandable piece on Alan Greenspan’s current view of worldwide QE. It’s hard to see how this can end well.


April 13th, 2016

China’s exports up. A pretty sad life. Pooty-poot is really messing with us. Expect more this year, and from China too. Interesting piece from TNR many years ago. The suicide of the West continues.

More fallout from 2008 and thereafter

April 12th, 2016

Ambrose Evans-Pritchard:

Japan is heading for a full-blown solvency crisis as the country runs out of local investors and may ultimately be forced to inflate away its debt in a desperate end-game, one of the world’s most influential economists has warned. Olivier Blanchard, former chief economist at the International Monetary Fund, said zero interest rates have disguised the underlying danger posed by Japan’s public debt, likely to reach 250pc of GDP this year and spiralling upwards on an unsustainable trajectory.

“To our surprise, Japanese retirees have been willing to hold government debt at zero rates, but the marginal investor will soon not be a Japanese retiree,” he said. Prof Blanchard said the Japanese treasury will have to tap foreign funds to plug the gap and this will prove far more costly, threatening to bring the long-feared funding crisis to a head.

“If and when US hedge funds become the marginal Japanese debt, they are going to ask for a substantial spread,” he told the Telegraph, speaking at the Ambrosetti forum of world policy-makers on Lake Como. Analysts say this would transform the country’s debt dynamics and kill the illusion of solvency, possibly in a sudden, non-linear fashion.

“One day the BoJ may well get a call from the finance ministry saying please think about us – it is a life or death question – and keep rates at zero for a bit longer,” he said. “The risk of fiscal dominance, leading eventually to high inflation, is definitely present. I would not be surprised if this were to happen sometime in the next five to ten years.”

Arguably, this is already starting to happen. The BoJ is soaking up the entire budget deficit under Governor Haruhiko Kuroda as he pursues quantitative easing a l’outrance. The central bank owned 34.5pc of the Japanese government bond market as of February, and this is expected to reach 50pc by 2017.

Japanese officials admit privately that a key purpose of ‘Abenomics’ is to soak up the debt and avert a funding crisis as the big pension funds and life insurers retreat from the market. The other unstated goal is to raise nominal GDP growth to 5pc in order to ‘bend down’ the trajectory of the debt ratio, a task easier said than done. Once markets begin to suspect that Tokyo is deliberately engineering an escape from its $10 trillion public debt trap by means of an inflationary ‘stealth default’, matters could spin out of control quickly. It might lead to an abrupt reappraisal of sovereign debt risk in other parts of the world, especially in Europe with its own Japanese pathologies of low-growth and bad demographics. Roughly $7 trillion of debt is trading at negative yields worldwide, an accident waiting to happen for the bond market.

Prof Blanchard refused to single out candidates. One of them is clearly Portugal, where a Socialist government backed by Communists and the Left Bloc has already been in a fiscal fight with Brussels. Last year’s deficit was 4.2% of GDP, far from the original target of 2.7%. Portugal’s public debt is 129pc of GDP, near the danger line for a country with no lender of last resort. Spreads on its 10-year bond yields have jumped to 325 basis points over German Bunds.

This is all worth pondering. AEP was sometimes over-excitable in 2008, but it is true that China and now Japan and the EU have some serious overleveraging problems that he was fairly early to the game in pointing out. Stay tuned.