Archive for the 'China' Category

Numbers, numbers, who’s got the numbers?

Wednesday, January 29th, 2014

China Post:

In an article last Thursday titled “The enigma of China’s GDP statistics,” Xinhua said: “After the National Bureau of Statistics on Monday unveiled economic data for 2013, what grabbed the most attention was not only the 7.7-percent annual growth figure, but also a somewhat peculiar math problem.” While the country’s GDP amounted to 56.9 trillion yuan, or US $9.3 trillion dollars, Xinhua pointed out, the aggregate of the provincial GDP figures exceeded the national figures by 2 trillion yuan — with three of 31 provincial-level bodies not having reported their figures yet.

This phenomenon is not new. As Xinhua said, “the combined economic output of China’s provinces has long exceeded that of the national level compiled by the NBS.” The reasons are “overlapped calculation” and “price divergence” among different regions and “GDP obsession” of local officials.

“Due to local officials’ obsession with governing performance, the local figures will be more or less overblown,” Cong Liang, deputy head of the department of national economy of the National Development and Reform Commission, said at a press conference. “The NBS is working hard to correct this.” Hitherto, each year, local officials have been assessed on the basis of the increase in GDP in their localities. Thus, there is a huge incentive for officials to focus on increasing GDP regardless of any adverse effect and, in fact, to overstate GDP growth.

WSJ, quoting Lombard: “China’s economy grew just 6.1% in the fourth quarter of 2013…That compares with the 7.7% fourth-quarter increase reported by China’s statistics bureau.” When China’s was growing 10% a year give or take, the massive cooked books issue was less of a problem. In a 6% growth environment, it’s a different story. And remember, even this lower growth rate is part fantasy.

Bright lines, perilous times

Sunday, November 3rd, 2013

The NYT is still happy, though concerned that their man “misspoke” two dozen times or so. The AP is running news that was unthinkable five years ago, and ABC is mocking their erstwhile messiah. A line has been crossed, the line demarcating the limits of political BS.

So now we have a world where Saudi Arabia, Syria, Russia, Iran, Israel, Germany, England, and most of the rest of the world don’t believe a word the BS-er in chief says, along with at least the half of the USA that is paying attention — and that number seems likely to grow. Only the NYT and its followers, parts of the Washington press corps, and faculty lounges take the college professor seriously now. Everyone who wants to know now knows that a bright line has been crossed, and as a consequence we live in perilous times for the next three years or so.

Cultural sclerosis — things take 10x longer or don’t get done at all

Saturday, November 2nd, 2013

IBD:

Harry Reid claims there isn’t “a single shred of evidence” regulations cause big economic harm…”In the first six months of the 2011 fiscal year, 15 major regulations were issued, with annual costs exceeding $5.8 billion and one-time implementation costs approaching $6.5 billion…Overall, the Obama administration imposed 75 new major regulations from January 2009 to mid-FY 2011, with annual costs of $38 billion”…the Federal Register shows over 4,200 new regulations soon to hit an already battered economy — not including impending Environmental Protection Agency clean air rules, new derivative rules, the Federal Communications Commission’s net neutrality rule, fuel economy mandates, ObamaCare and Dodd-Frank financial restrictions. Yet Reid claims regs are harmless

Construction of the world’s tallest building, the Empire State Building took 14 months in 1930. The Pentagon, the world’s largest office building, took 16 months in 1941. 26 months from the beginning of construction, the World Trade Center became the tallest building in the world in 1970. It is 148 months since September 11, 2001 and its replacement is only now nearing completion. We need 10x the time to do things that were done a century ago.

Regulation certainly isn’t the whole story, but it’s a part of the story of America’s cultural decline. Look what happens when you incentivize performance and cut red tape — a project done in half the allotted time. So it can be done, but rarely these days. Daniel Greenfield comments that in today’s culture competence is denigrated and DC and its lawyers substitute the magic of government:

Competence is the real modernity and it has very little to do with the empty trappings of design that surround it. In some ways the America of a few generations ago was a far more modern place because it was a more competent place. For all our nice toys, we look like primitive savages compared to men who could build skyscrapers and fleets within a year… and build them well.

Those aren’t things we can do anymore. Not because the knowledge and skills don’t exist, but because the culture no longer allows it. We can’t do them for the same reason that Third World countries can’t do what we do. It’s not that the knowledge is inaccessible, but that the culture gets in the way.

It’s our very hollow modernity that gets in the way of our truly being modern. We can no longer build big things because the ability to implement vision on a large scale no longer exists. We can still do impressive things as individuals, but that’s also true of Kenya or Thailand. And in China, they can carry out grandiose projects, but those projects have no vision or competence.

We used to be able to combine the two by competently implementing grandiose visions, but our “modern” culture is the roadblock that prevents us from working together to make the great things that we can still envision individually.

Our modernity is style rather than substance. It’s Obama grinning. It’s the right font. It’s the right joke. It’s that sense that X knows what he’s doing because he presents it the right way. There’s nothing particularly modern about that. In most cultures, the illusion of competence trumps the real thing. It’s why so many countries are so badly broken because they go by appearances, rather than by results.

The idea that we should go by results, rather than by processes, by outcomes rather than by appearances, was revolutionary. For most of human history, we were trapped in a cargo cult mode. We did the “right things” not because they led to the right results, but because we had decided that they were the right things. There were many competent people, but they were hamstrung by rigid institutions that made it impossible to go from Point A to Point B in the shortest possible time.

And it’s not just the lawyers who are destructive kibitzers. The pundits and journalists, who also by and large couldn’t repair a toaster, are also believers in magic. Here they sit with the president, as Wretchard describes:

the great columnists of Washington. At these klatches, with the buzz of traffic and bustle of the grimy world held to a hum in the distance, the world lies spread before them malleable, fresh and new. And the great men can feel, even if lesser mortals cannot, that all that is is required to transform that dull universe into something extraordinary is the right phrase, the correct sales pitch, the perfect sound bite. Then the stars will vibrate to the idea and the multitudes will Get It. And so the search continues among the wordsmiths for the Spell, who believe in it with the conviction of zealots. Only try this. Try that. Try again. For they know the dictum: always be closing. Even if there is nothing to sell. The Founders, in rejecting the spell of aristocracy, were in their way rejecting magic. They seemed to say ‘trust in no king, no great leader’ — and that the highest and best thing we could aspire to was to simply be ourselves and make things work. In place of sorcery they trusted in the sanctity of the ordinary, in the immanence of truth; that a government “of the people, by the people, for the people”, while not on Obama’s imagined level would neveretheless never perish from the earth. But magic would; for even if Greenfield fears the sorcerers will return, their day is done. Their time is done because the wooden computer will not boot. Because the sums are in rebellion. Because reality, which is the real source of all true magic, was never consulted, let alone invoked.

In many ways, America was a better country back when there were shotgun weddings and almost everyone knew a farmer or a soldier. Now almost no one knows such earthy characters. However, a harsh future is coming to the US at some point, due to (1) QE infinity and (2) too much debt plus unfunded liabilities. Probably a bad day to have been one who preached that government was magic. We’ll see.

We will keep this promise, period………or something

Thursday, October 31st, 2013

WaPo:

It wasn’t sufficient to say people who like their plans will be able to keep it, which is narrowly untrue.

Narrowly? Watch this unequivocal assertion, seven times, no wait, make that 24 times, period!. Avik Roy at Forbes added up the numbers from the 2010 Federal Register:

the number of people facing cancellations, 51 percent of the employer-based market plus 53.5 percent of the non-group market (the middle of the administration’s range) amounts to 93 million Americans.

And so the rhetoric is now getting a little choppy:

if you had one of these substandard plans before the Affordable Care Act became law and you really liked that plan, you’re able to keep it. That’s what I said when I was running for office. That was part of the promise we made. But ever since the law was passed, if insurers decided to downgrade or cancel these substandard plans, what we said under the law is you’ve got to replace them with quality, comprehensive coverage — because that, too, was a central premise of the Affordable Care Act from the very beginning.

Compare the above with this nonsense that was retailed in 2008 to attract the gullible and innumerate. Credibility, RIP.

Eh and Eh…….and Eh

Thursday, October 17th, 2013

Eh and Eh, foreign and domestic dysfunction. And finally, a case can be made either way for shutdown. We happen to think it was good theater, the evidence for which is that is the rhetoric of the other side. But reasonable people can differ. This is not reasonable, however. Anyway, none of this matters because the country can’t be saved until it stops its practice of 40-70% of children in its various communities being born to unwed mothers.

Securitization, QE, and the sovereign credit asset bubble

Saturday, September 28th, 2013

Asia Times:

Credit fundamentally changed in the nineties, with the proliferation of market-based credit (securitizations, the government-sponsored enterprises, derivatives, “repos”, hedge funds and “Wall Street finance”). Unbeknownst at the time – perhaps to this day – marketable securities-based credit created additional layers of instability compared to traditional (bank loan-centric) credit. These new instabilities and attendant fragilities should have been recognized with the bursting of a speculative Bubble in bonds/mortgage-backed securities/derivatives (along with the Mexican collapse) back in 1994/5. Fatefully, policy measures moved in the direction of bailouts, market interventions and backstops. Credit and speculative excesses were accommodated, ensuring a protracted period of serial booms, busts and policy reflations. Monetary policy fundamentally changed to meet the demands of this New Age marketable securities-based, highly-leveraged and speculation-rife credit apparatus…

zero rates were insufficient to incite private credit expansion after the collapse of the mortgage finance bubble. With this New Age (experimental) marketable credit infrastructure crumbling, the Bernanke Fed resorted to a massive inflation of the Fed’s balance sheet – an unprecedented monetization of government debt and mortgage-backed securities. What unfolded was a historic reflation of global securities prices, along with further massive issuance of marketable debt securities…the $160 billion (Fed and Bank of Japan) experiment in ongoing monthly QE (along with Draghi’s backstop)…

Stock prices have surged to all-time record highs. The S&P500 has gained 7.7% in three months, with Nasdaq up 12.4%. The small cap Russell 2000 has surged 11.3% in three months. The Nasdaq Biotech index has jumped 24.8%, increasing its 2013 gain to 53.3% (two-year gain of 116%). Internet stocks enjoy a three-month gain of 12.6%. The average stock (value line arithmetic) is up 11.2% in three months. Stock prices indicate the opposite of tightening.

This month saw an all-time weekly record for corporate debt issuance. The year is on track for record junk bond issuance and on near-record pace for overall corporate debt issuance. At 350 basis points (bps), junk bond spreads are near five-year lows (5-yr avg 655bps). At about 70 bps, investment grade credit spreads closed on Thursday at the lowest level since 2007 (5-yr avg 114bps). It’s a huge year for mergers and acquisitions. And with the return of “cov-lite” and abundant cheap finance for leveraged lending generally, US corporate debt markets are screaming the opposite of tightening…

The initial QE chiefly involved accommodating speculative de-leveraging (a shifting of positions from the speculators to the Fed’s balance sheet). As such, it actually had a much more muted impact on market liquidity than most appreciated at the time. Non-crisis QE, on the other hand, has had a profound impact. It has directly injected liquidity into the marketplace, while at the same time inciting additional risk-taking and speculative leveraging. Moreover, this added liquidity and heightened speculation hit already highly speculative/overheated global markets. In short, recent QE had a major inflationary impact on global speculative bubbles. From this perspective, it’s not too difficult to appreciate why global markets convulsed on the mere talk of even timid Fed tapering. On the margin, today’s QE has unprecedented impact – and this market addiction will not be easily conquered…

the greatest bubble in history is going on five years now. This thesis is based upon the global nature of current credit and speculative excess, along with attendant financial imbalances and economic maladjustment. My thesis is premised upon bubble excess having, after decades, made it to the heart of government finance and contemporary “money.” This implies acute – and intransigent – fragilities, which ensure policymakers won’t have the grit to pull back… loose money and monetary inflations just don’t bring out the best in people, policymakers or markets.

It’s been six years since the Bear Stearns conference call that noted the beginnings of the meltdown in sub-prime mortgages, and five years since the collapse of Lehman Brothers. Now we’re in the sovereign credit asset bubble. It is notable that Bill Gross does not see this ending well, but there doesn’t seem to be any clarity as to how this will exactly play out.

Occam’s razor

Friday, August 30th, 2013

Surely there are subtleties in Iran’s and Russia’s backing of Syria’s chemical attacks on the precise date of the anniversary of the US government declaring its policy that such an attack would constitute a red line. This media-aware behavior suggests a dare, but why? Occam’s razor suggests an answer. How fantastic is it for Putin that he can make the US administration look like fools while simultaneously spiking the price of his country’s most valuable export? (And the advance planning makes it possible to take advantage of the futures market as well.)

Shale gas and the middle east

Sunday, August 25th, 2013

Bloomberg:

China’s coal consumption has more than doubled. It now burns almost as much coal as the rest of the world combined. In the first three months of the year, levels of PM-10 (particulates with a diameter of 10 micrometers or less) in Beijing were almost 30 percent greater than during the same period a year earlier. By contrast, in the U.S. CO2 emissions hit an 18-year low in 2012. The reason? An explosion in shale gas production raised the share of electricity produced by natural gas from 20 percent to 30 percent, while bringing down the proportion produced by coal from 50 percent to 37 percent. China’s recoverable shale gas reserves are estimated to be 25 trillion cubic meters, 50 percent larger than those of the U.S.

China faces greater hurdles in getting to its gas than does the US. But even in the US, there are issues. The largest market for CNG would be for cars, but right now they are more expensive, and there are only 600 gas stations open to the public. But it’s not difficult to imagine that, given an appropriate long-term price point for CNG, gas cars might become ubiquitous.

We’re led to think about this by looking at the middle east and the US’s deeply dysfunctional (and bi-partisan) approach. Spengler has some thoughts. Egypt, China, Russia and Saudi Arabia are all on the same page, and the US is on the outs. Over time, we can imagine the US Navy withdrawing from the region, particularly if shale gas turns out to be the big deal that some think it will be. Will China’s rapidly expanding navy take its place? Time and technology will tell.

Oh, BTW, Google is designing a self-driving car. Open the pod bay doors, HAL.

More than a trifecta

Friday, August 23rd, 2013

The WaPo quotes a former VP:

I remember a time when one of my friends made a racist joke and another said, hey man, we don’t go for that anymore. The same thing happened on apartheid. The same thing happened on the nuclear arms race with the freeze movement. The same thing happened in an earlier era with abolition. A few months ago, I saw an article about two gay men standing in line for pizza and some homophobe made an ugly comment about them holding hands and everyone else in line told them to shut up. We’re winning that conversation. The conversation on global warming has been stalled because a shrinking group of denialists fly into a rage when it’s mentioned…We have already crossed the 400 parts per million mark…We are seeing dramatic progress towards new policies in China, Korea, Ireland. We’ve seen a coal tax in India…The extreme events are more extreme. The hurricane scale used to be 1-5 and now they’re adding a 6.

Of course there’s global warming. Global cooling too. No doubt some portion of both is caused by humans. Our problem is with the hysteria and the mad desire to spend scarce and massive resources on something less serious than so many of the problems of the world. As for India, it’s increasing coal imports, and China is today going from 3 to 5 billion tpy of coal use in utilities. Sigh. (BOTW has some amusing commentary on the speech.)

We believe there will come a time when future generations will look back on this and wonder what the fuss was about. Exhibit A for them might be the famed hockey stick graph, which framed the distortion of reality succinctly when it eliminated the medieval warm period.

Inside baseball

Saturday, August 17th, 2013

Conrad Black has an excellent piece at NRO regarding a recent book on FDR and Soviet spying. Ron Radosh has a similar piece. John Earl Haynes and Harvey Klehr have a very detailed review of the Agent 19 scholarship at FrontPage. The authors remind us of the kids who memorized the HR’s, RBI’s, batting averages and all the other statistics of their favorite players back in our youth. Makes our head spin. However, the extensive espionage of the thirties and forties raises the interesting question of who their contemporary counterparts are and whom they’re working for. (Normally you might ask the NSA the question, but they’re tied up at the moment.)

36 to 24 at the moment

Thursday, August 15th, 2013

Organization Studies:

The largest group of APEGA respondents (36%) draws on a frame that we label ‘comply with Kyoto’. In their diagnostic framing, they express the strong belief that climate change is happening, that it is not a normal cycle of nature, and humans are the main or central cause. Supporters of the Kyoto Protocol consider climate change to be a significant public risk and see an impact on their personal life…The second largest group (24%) express a ‘nature is overwhelming’ frame. In their diagnostic framing, they believe that changes to the climate are natural, normal cycles of the Earth. Their focus is on the past: ‘If you think about it, global warming is what brought us out of the Ice Age.’ Humans are too insignificant to have an impact on nature: ‘It is a mistake to think that human activity can change this… It would be like an ant in a bowling ball who thinks it can have a significant influence the roll of the ball.’ More than others, they strongly disagree that climate change poses any significant public risk and see no impact on their personal lives.

This is from a peer-reviewed survey of 1077 respondents. They’re from Alberta so they may have noticed more than most that it’s been getting colder in the last 15 years, or at least not getting any warmer. (Really, how long do you think you’ll be taken seriously if your proof of concept includes pretending the medieval warm period never happened?) BTW, this is perhaps a good example of the limits of media-induced hysteria. Anyway, we’ll take 36 to 24 as a little victory for skepticism, a sine qua non of the scientific method.

Another bubble bursts?

Saturday, August 10th, 2013

Stratfor:

Seven years ago, Shenmu consisted of little more than a set of sleepy, largely unheard-of farming villages in northern China’s poor and heavily rural Loess Plateau region. Small-scale coalmines dotted the land, but poor transport infrastructure meant sales were mostly limited to local markets. Between 2007 and 2012, this changed dramatically as Beijing’s multitrillion dollar stimulus program drove Chinese coal demand — and prices — through the roof. Shenmu, home to between 18 to 23 percent of China’s total proven reserves, was transformed overnight into a coal miners’ and speculators’ mecca — second in extravagance only to Ordos, its Inner Mongolian neighbor.

Between 2005 and 2011, the price of coal from Shenmu rose more than ten-fold, attracting investment from a wide variety of mining operations. Leading the upper end of the pack was the state-owned coal conglomerate Shenhua Group, which currently operates the massive Shenfu Dongsheng coalfield straddling the border between Shaanxi and Inner Mongolia. Meanwhile, at the other end of the spectrum was a huge array of small-scale operations engaged in various forms of speculation tied — directly and indirectly — to coal. Especially popular was the practice of coalmine flipping in which coal speculators, much like their counterparts in real estate, would buy and sell mines simply as stores of value, skimming profits off the sales without ever touching the coal itself.

As long as demand and prices continued to rise, flipping mines proved highly lucrative. According to Caixin, a Chinese newspaper, a mine worth 200,000 yuan ($32,645) in 2002 could be sold for nearly 4 billion yuan in 2011. But when the price of coal began to drop in late 2011 and then plummeted throughout 2012 and into the first half of this year, the speculative bubble cracked. Suddenly Shenmu’s coalmine flippers and the entire informal financial infrastructure set up to support them — including several highly leveraged shadow lenders, who have since gone into hiding — found themselves mired in debts they could not repay.

This is very curious. China’s coal consumption was 3 billion tpy in 2007 and now is over 4 billion, so under normal conditions the coal price wouldn’t “plummet.” Sounds a little like the end of the Florida land boom on the 1920′s. And yet reasonably authoritative sources say China’s growth trajectory has picked up. Go figure.

Guangdong’s power consumption and trade growth can’t both be true

Friday, August 2nd, 2013

Stratfor:

Guangdong’s electricity consumption — a key proxy measure of industrial activity — dropped 0.1 percent in the first five months of 2013 from the same period in 2012. This, the survey pointed out, was in marked contrast to reported provincial gross domestic product growth of 12.9 percent during that time. Representatives of the finance office, citing the discrepancy between their own findings and the provincial government’s figures, questioned whether the official statistics reflected real economic conditions…in this case, the gap between reported provincial GDP growth and the survey’s bleak assessment of power demand is unusually large.

If the survey is accurate and electricity consumption truly is contracting, then Guangdong’s export economy is suffering far more than provincial and national statistics would suggest, given that exports account for 62 percent of the province’s GDP and the majority of its electricity consumption. And considering that in 2012, Guangdong’s exports made up nearly 30 percent of the national total by value, the implications of an outright decline in the province’s electricity use, however small, could be enormous for the Chinese economy as a whole.

Notably, the survey comes just two months after the Chinese central government began to crack down on exporters’ widespread use of false invoices and shell companies to trade the same sets of products — from toys and electronics to unprocessed gold — back and forth across the Chinese-Hong Kong border. The illicit trade made Chinese exports to Hong Kong unusually high — 26.55 percent in March 2013 from an average level of 12-14 percent before 2009. This distorted trade number has affected Beijing’s ability to gauge policy direction…

it is important to track such discrepancies when they emerge. They are useful clues in untangling the great puzzle of the Chinese political economy. This is especially true today as China enters a transformational period that will profoundly alter the social and industrial structure of the entire country and the relationship between Beijing and regional and local governments. This transformation will be felt with particular intensity in coastal manufacturing hubs such as Guangdong, where rising costs are rapidly altering the economic livelihoods of whole cities.

More: “A cursory glance at cumulative provincial GDP numbers shows that in China, the whole is in fact much smaller than the sum of its parts — there was a discrepancy of $541 billion in 2012.” At CNBC, economists and traders are all over the place on China’s growth prospects. Meanwhile, Stratfor also has an interesting piece on the Post-China 16, the countries that will increase their own exports as costs in China continue to rise.

Imagine what the real numbers might be

Thursday, July 18th, 2013

Reuters:

With the latest GDP data, China’s growth has slowed down in nine of the last 10 quarters. The government’s official growth target for 2013 is 7.5 percent, impressive by world standards but it would be the slowest pace in 23 years for China. The latest data showed the economy grew 7.6 percent in the first half of the year from a year earlier, just ahead of the full-year target. Analysts have cut their forecasts for 2013 full-year growth in recent weeks following a run of weak data and government comments on slowing growth. Ahead of Monday’s economic figures, they were mostly forecasting 2013 growth between 7 and 7.5 percent. Last week, customs data showed China’s exports fell 3.1 percent in June

Not good. The economy is seriously overleveraged, there are too many empty cities, exports are falling, and it now takes $3 of credit to generate $1 of growth, when it was 1:1 only a few years ago. Frankly, we’re not quite sure what policy options remain to deal with this.

Three Days of the Gondorff

Sunday, July 7th, 2013

The NYT reports on 1800 requests, zero denials, and all in secret:

the FISA court hears from only one side in the case — the government — and its findings are almost never made public. A Court of Review is empaneled to hear appeals, but that is known to have happened only a handful of times in the court’s history, and no case has ever been taken to the Supreme Court. In fact, it is not clear in all circumstances whether Internet and phone companies that are turning over the reams of data even have the right to appear before the FISA court.

Created by Congress in 1978 as a check against wiretapping abuses by the government, the court meets in a secure, nondescript room in the federal courthouse in Washington. All of the current 11 judges, who serve seven-year terms, were appointed to the special court by Chief Justice John G. Roberts Jr., and 10 of them were nominated to the bench by Republican presidents. Most hail from districts outside the capital and come in rotating shifts to hear surveillance applications; a single judge signs most surveillance orders, which totaled nearly 1,800 last year. None of the requests from the intelligence agencies was denied…

The officials said one central concept connects a number of the court’s opinions. The judges have concluded that the mere collection of enormous volumes of “metadata” — facts like the time of phone calls and the numbers dialed, but not the content of conversations — does not violate the Fourth Amendment, as long as the government establishes a valid reason under national security regulations before taking the next step of actually examining the contents of an American’s communications.

This concept is rooted partly in the “special needs” provision the court has embraced. “The basic idea is that it’s O.K. to create this huge pond of data,” a third official said, “but you have to establish a reason to stick your pole in the water and start fishing.”

Under the new procedures passed by Congress in 2008 in the FISA Amendments Act, even the collection of metadata must be considered “relevant” to a terrorism investigation or other intelligence activities. The court has indicated that while individual pieces of data may not appear “relevant” to a terrorism investigation, the total picture that the bits of data create may in fact be relevant, according to the officials with knowledge of the decisions.

Let’s see. All your internet information, all your phone calls, credit card charges, and your locations at the time, and all the same information about your counterparties, including secret, shared email accounts that serve as dropboxes for private communications. That’s how they got the goods on Petraeus and his girlfriend. It’s the Chicago Way after all, and think of what they have on reporters and editors, congressman and senators, businessmen and union heads, and everyone on both sides thinking about running in 2016. You doubt this? Come on.

It’s a good plot for a movie. Sort of Three Days of the Condor, apparently without the murders. But there’s something missing. Most of the commentary on potential abuse of the NSA’s comprehensive database has focused on political corruption. It’s a big story and a good story, and no doubt it is going on. But there’s a bigger and better plotline as well. Money. Imagine every hedge fund senior staff getting the scrutiny that Stevie Cohen and his crew get. The senior Wall Street types, every Fortune 500 CEO and BOD, the Silicon Valley VC’s, the PE moguls, etc. And oh yes, here’s where the international reach of the NSA comes in.

The NSA’s surveillance captures international corporate communications, those of the global Forbes 400, and places like Russia, China, Saudi Arabia, Switzerland, etc where insider trading and market manipulation are perhaps more the rule rather than the exception. Imagine knowing in advance that an investor was going to break the pound. Imagine knowing in advance what OPEC or the oil manipulators of 2008 were going to do. Or knowing about the bear raids on banks in 2007-2009 just before they happened. Do you keep the information or sell it to your unsavory friends? Who knows? We haven’t written the script yet, but we have a working title: Three Days of the Gondorff.

China: what happens when more lending is not an answer?

Saturday, July 6th, 2013

Deutsche Bank:

the authorities in Beijing are trying to bring some discipline back into the system following the conclusion of the leadership transition. The method which appears to have been chosen, namely to engineer a squeeze in the interbank system, does however strike us as an extremely blunt instrument, which runs the risks of unintended consequences.

Given that the ultimate stated objective of the new leadership is to increase the role of the private sector in the economy using a more market-determined cost of capital, it seems strange to then put pressure on precisely those medium-sized banks which conduct a disproportionate amount of lending with the only significant component of the indigenous private sector in China, namely the SMEs. This episode reinforces our conviction that the authorities in China face an almost insurmountable task to restore historic rates of productivity growth, in terms of complexity and the vested interests involved.

The major structural problem is the very blurred boundaries which exist between the state and private sector which distort capital allocation at enterprises above the SME level. The only way to resolve this situation over the longer term is for a complete overhaul of the fiscal relationship between local and central government, which would also involve wholesale changes to the fundamentals of land ownership…

the authorities in Beijing have a major problem of conflicting priorities, given that on the one hand they warn against adding more industrial capacity but on the other talk of the need for the banks to serve the interests of industry and to protect ‘labour intensive’ sectors of the economy. In the meantime, overcapacity is visibly growing in most sectors covered by DB analysts, while companies were complaining about difficulties in accessing credit, well before the PBoC action. We would expect to see clearer indications of more cash flow problems across different industrial sectors in China in the near future…

we believe that the improvement in the Chinese economic and corporate data, which has become evident since the end of August, is not sustainable’ and that ‘the Chinese growth story is starting to unravel’.

Through 2007, a dollar of credit generated a dollar of economic growth in China. Since then, it has taken three dollars of debt to generate a dollar of growth. But growth was the objective, so banks lent amounts approaching 100% of China’s GDP in order to make growth happen, much of it in building empty buildings and empty cities.

We are given to understand that the PSC runs China, and that the PSC used to be run by so-called technocrats, who were apparently happy to abet the build-to-prosperity model that worked very well for China 1989-2007. Now we understand that the new PSC composition is weighted in favor of princelings, party officials born 1945-1960 who have done very well indeed in the amazing post-1989 growth of the economy. They face a very difficult situation, in that the build-to-prosperity model is now broken, because it has resulted in overcapacity and overleverage at the same time. There’s no easy way out. Countries often look at currency devaluation as a fix, but consider the historical track records of Italy and Argentina, for example.

In the Middle East, things are unraveling and at record speed. In China, things seem about to hit a wall. Meanwhile, America sits on its hands, and the government tries to distract the Julia’s with things like SSM and silly fantasies about scary monsters. A strange time indeed.

Pointless, self-inflicted waste and suffering

Thursday, June 27th, 2013

WSJ

Coal companies are expected to continue shutting higher-cost mines, bringing more economic pain to states like West Virginia and Kentucky. In the first quarter of this year there were 900 active coal mines, down 17% from a year earlier. The top 100 producing mines account for 80% of the U.S. coal supply…Last year, U.S. utilities burned 825 million tons of coal, down from 1.045 billion tons in 2007. Meanwhile, coal companies exported 126 million tons last year, up from 59 million tons in 2007. At the same time, China’s coal consumption soared to 4.33 billion tons last year, up from 2.97 billion tons in 2007. Global demand for coal is currently about eight billion tons a year. Officials in India, which uses coal to produce more than half its electricity, recently said they intend to boost coal imports

So let’s get this straight. US utilities burn 800 million tpy of coal. China was 3 billion and now is 4 billion tpy and soaring. So these new restrictions accomplish nothing except pointless, self-inflicted pain. Forget the flat earth society. Somebody is living in Fantasyland.

Dawn of the UCAV

Wednesday, June 26th, 2013

Defense News:

China has successfully produced and fielded a wide variety of tactical UAVs that operate at low to medium altitudes and in short to medium ranges. According to Hsu, tactical UAV systems constitute about 93 percent of Chinese UAV projects. The rest are devoted to strategic-level systems and UCAVs. However, this is expected to change. “In the long term, China’s continued interest and progression in strategic-level UAVs appear poised to position China as a leader in the high-end UAV market,” Hsu wrote.

The UCAV model on display at Paris follows the static display of an operational platform at the 2012 China Airshow in Zhuhai. Defense News attended the show and acquired AVIC brochures that indicated it had air-to-ground attack configurations, including “ground target designation” and “ground moving target indication” capabilities. Maximum payload was only 440 pounds. The Pterodactyl at Zhuhai was exhibited along with four weapons: BA-7 air-to-ground missile, YZ-212 laser-guided bomb, YZ-102A anti-personnel bomb and 50-kilogram LS-6 miniature guided bomb…

The multirole, medium-altitude, long-endurance BZK-005, now in service with the Chinese military, was developed by Beijing University of Aeronautics and Astronautics. The Northwest Polytechnical University, also known as Xi’an ASN Technology Group, is the “most prominent and prolific organization focusing on domestic UAV research and development” and holds about 90 percent of the domestic Chinese UAV market. “Thus far, it has delivered over 1,500 UAVs” to the Chinese military, Hsu’s report said.

A UCAV is an unmanned combat aerial vehicle. Unheard of 10 years ago, soon there will be tens of thousands of these creatures roaming the skies if current trends continue. Lethal drones may seem like a good thing if you’re the only one who has them; it’s quite a different story when they become commonplace.

Drone on, volume 2

Tuesday, June 25th, 2013

Popular Science:

The Switchblade is a one-use drone, powered by a quiet electric motor, that weighs about six pounds and flies up to 50 mph for 15 minutes. Switchblade carries a high-explosive warhead that can blow up everything within a 1-, 5-, or 7-meter range around the drone; it can take out an individual, or a truck. A high-resolution video camera in the nose allows a human operator to verify the target before detonating the drone. This is a far less destructive than the 20-pound warhead on the Hellfire missiles fired by Reaper drones, which can cause considerable collateral damage. Although they won’t give operational details, the Switchblade has received good reviews from users in Afghanistan, where the drone has been deployed since late 2012.

So we have tiny drones that can fly for 15 minutes and kill you, and big drones that can fly for 42 hours and kill you and a lot of other people. What happens when these things proliferate and everyone has them?

China: debt to GDP 221%, interest rates way up, efficiency of capital way down

Sunday, June 16th, 2013

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Telegraph:

total credit in Chinese financial system may have reached 221pc of GDP, jumping almost eightfold over the last decade. Companies will have to fork out $1 trillion in interest payments alone this year…“Liquidity conditions have tightened severely due to the crackdown on shadow banking activities,” said Zhiwei Zhang from Nomura. “We believe the series of policy tightening measures in the past three months have reached critical mass, such that deleveraging in the banking sector is happening. Liquidity tightening can be very damaging to a highly leveraged economy,” he said

Morgan Stanley: “Through 2007, creating a dollar of economic growth in China required just over a dollar of debt. Since then it has taken three dollars of debt to generate a dollar of growth. This is what you normally see in the late stages of a credit binge.” So is the spiking of interest rates in Shanghai.

See also this piece, which says that debt increased more than 3x the $1.7 trillion previously identified.