2018-02-18

Lending Crackdown Expected After January Loan Surge

iFeng: 多地严控违规资金流入楼市 短贷虚增现象有望缓解
Subsequently, many local CBRC offices, including Beijing and Shanghai, made statements in the near future to prevent all funds from entering the real estate market illegally.

Kerry Real Estate Research Center Director Yang Kewei told the "Securities Daily" reporter, from the position of the China Banking Regulatory Commission and the banking regulatory agencies around the point of view, is expected to 2018 credit policy continues to become tighter will become a high probability event. For buyers, on the one hand speculative demand will be further suppressed, speculators arbitrage possibilities almost disappeared; the other hand, all kinds of illegal loans will be effectively controlled.

It is noteworthy that the People's Bank of China recently released in January 2018 financial statistics show that in January new RMB loans 2.9 trillion yuan, an increase of more than 867 billion yuan, an increase of 2.3156 trillion ring; which short-term loans 6856 An increase of 129.6 billion yuan over the same period of last year and an increase of 765.9 billion yuan more than the previous month.

"Residents of short-term loans increased significantly, does not rule out that there are still some residents to purchase loans in the name of consumer loans." Yang Kewei said that in fact, for some residents to consumer credit purchase behavior, all types of banks have stepped up the credit card and consumer loans Issued audit, is expected to post "inflated" short-term loans will be squeezed out, real estate "deleveraging" effect is expected to further show.

New Normal: The Wealth Gap Only Gets Bigger

Aside from a financial crash or populist revolution (temporary phenomena), the wealth gap only goes in one direction now as talent dwindles thanks to low fertility rates across the developed world.

The fight for young talent between Chinese cities is dubbed the story of 2018 in real estate.

iFeng: 2018年楼市关键词:抢人才
According to CCTV Financial Economic Information Network reported that the opening of the market this year, the key words that must be "grab talent." Recently, many second tier cities including Wuhan in Hubei, Zhengzhou in Henan, Hefei in Anhui and Nanjing in Jiangsu have frequently released policies to settle down in the New Deal, lower their housing threshold and throw an olive branch to all kinds of people. Since last October, there have been nearly 20 cities or regions that have released or upgraded the New Deal with "Talent Settled in."

ECB Governor Detained in Corruption Probe

Bloomberg: ECB's Rimsevics Detained by Latvian Anti-Graft Bureau
Latvian central bank Governor Ilmars Rimsevics, a member of the European Central Bank’s governing council, was detained by the country’s anti-graft bureau, prompting calls for him to step aside to prevent harming the country’s financial sector.

The detention followed a search by authorities of the governor’s office and private property, state-owned LTV reported, without saying how it got the information. Rimsevics’s lawyer, Saulvedis Varpins, said Latvia’s top monetary official considered his detention "clearly illegal," according to the Leta news service. Finance Minister Dana Reizniece-Ozola said Rimsevics’s detention would be explained on Monday and that the situation may hurt Latvia’s credit position.

"Each day that Mr. Rimsevics remains in the central bank’s leadership significantly worsens" the situation, Reizniece-Ozola said at a news conference in Riga on Sunday. "I think that at this moment, it would be wise if Mr. Rimsevics would at least during the course of the investigation step down."

Bitcoin Price Vs Search Volume

The Google search forecast is a bearish indicator.

Banks Have No Money, Chinese Mortgage Rates Rising

An article in iFeng discussed rising interest rates at Chinese banks to as much as 30 percent over benchmark. Banks were willing to take losses on mortgages a year ago, hoping to earn more from follow on services and products to customers. This year, the banks have tightened up because, according to this piece, they're out of lending capacity.

iFeng: 各地银行陆续上调房贷利率 2018年买房成本增加
People concerned about the property market know that from 2018 onwards, many banks across the country began to announce the floating mortgage rates. For example, the four major state banks in Guangzhou recently announced that the first-home mortgage interest rate will go up to 10% over benchmark, while two other banks in Shenzhen will go up by 20%. Even more exaggerated, there are also two banks that are up to 30%.

...It has also been calculated that a 1 million loans, 30-year period, from a 15% discount a year ago and now the floating 10% above benchmark the interest cost is 270,000 higher, this is not a small number, a thorough validation of the truth that time is money.

So you will find, no matter if the price falls, it will take more and more money to buy a house.

...So the question came, at the beginning of 2018, why banks suddenly tighten mortgages all over the country?

Because the bank is really no money!

There are many reasons for this. The most important thing is that the money management business is under scrutiny.

If we compare the Chinese economy to a towering tree, then the current situation is that the tree trunk is full of holes. If the economic growth is also pursued to develop the branches and leaves, the tree will one day fall to the ground.
The main reason for rising costs and tight credit is the crackdown on shadow lending. Instead of shifting credit risk on to unsophisticated buyers of WMPs (who think the bank and government are implicitly guaranteeing these products) the banks are on the hook for on-balance sheet losses. Additionally, they have to follow strict regulations governing mortgage lending:
Make holes, the first is the local debt, in fact, is the bank. For banks, the loans belong to the table, and wealth management belongs to the off-balance sheet. On the table, the loan examination was strict, plainly, the loans that went out were not good, the leaders should bear the responsibility, the large sum of bad loans, and the resignations from the top to the bottom would not work. They all went in by accident.

However, financial management is not the same, when you buy money management is signed a risk notice, made it clear in extreme cases, the principal and interest will be all losses. Therefore, many companies that are not qualified for loans tap off balance sheet lending. And beyond the imagination, capital flows, brokers, trusts, intermediaries, everyone earns a share of the capital flow.
The article closes by telling buyers the market is rational thanks to tighter credit. Do not to follow the crowd, but make an independent decision.

The past 20 years of Chinese mortgage rates:

2018-02-16

Russia Collusion Narrative Dead, Long Live Chinese Collusion!

ZH: Mueller Indicts 13 Russians, 3 Companies For Interfering In US Election
ZH: DOJ Complaint: The Russians Organized A Rally Called "Trump Is NOT My President"
ZH: Russia Responds To "Absurd" Election Meddling Allegations
The indictment of 13 Russian nationals and three entities over allegations by the DOJ that Russians interfered in US elections - but "did not alter the outcome of the 2016 election" nor that any American was a knowing participant in this activity - are absurd, Russian Foreign Ministry spokeswoman Maria Zakharova said on Friday.

"13 people interfered in the US elections?! 13 against an intelligence services budget of billions? Against intelligence and counterintelligence, against the latest developments and technologies? Absurd? Yes," Zakharova wrote in a post on Facebook.

Then again, what else could she say.

Furthermore, as noted in the DOJ complaint, the funding for the Russian operation came from catering and management companies controlled by defendant Yevgeniy Viktorovich Prigozhin, a Russian businessman often referred to as "Putin's chef" in the media because his organizations had hosted dinners for Russian President Vladimir Putin and foreign leaders, the AP reported.
The Russians sowed discord mainly by being present, allowing the creation of a false Trump-Russia collusion narrative. Basically, they got America to shoot itself in the face. The return on investment is incredible, particularly if FBI and DOJ officials eventually get indicted for turning government agencies against a political opponent and sitting president.

Now with Russia collusion out of the way, make way for Chinese collusion and trade war. Instead of an intrapolitical battle, Chinese collusion will be a bipartisan effort.

A Look Back at 2015

Back in late 2014, early 2015 everyone was optimistic on the U.S. economy.

I wrote in June 2015, two months before China pulled the rug out: What Are the Odds The U.S. Economy Pulls A Crazy Ivan?
What are the odds that an interest rate hike by the Federal Reserve causes confidence to increase such that higher interest rates cause higher inflation? In this scenario, rate hikes signal greater confidence and increase inflation expectations. An inflationary spiral ensues, with the Fed unable to hike fast enough.

I don't think the odds are good because it requires credit growth at a pace closer to pre-2007 levels and we're not there yet. However, zero percent interest rates causes great psychological damage to many savers and investors who are responsible for the bulk of economic activity. The people who really set inflation expectations are worried because rates are zero (they might worry about inflation, deflation, or just feel that zero percent interest signals something deep and fundamentally wrong with the economy) and they are worried rising rates will be bad for the economy. If they're wrong, those millions of people controlling trillions in wealth are going to switch from fear to greed, from risk aversion to risk taking. Credit growth will be the first sign. Inflation will quickly follow.
I think to some extent this scenario played out in the equity markets, but not in credit growth. Trump winning increased business optimism, passing tax cuts and increasing deficit spending lifted optimism further in early 2018, but all we got was a blow-off rally in stocks and interest rates, not (yet) a rise in credit growht.

I also linked to this story from Yahoo Finance: IT'S OFFICIAL: America is back! Sound familiar?

There are differences today: the dollar is falling, interest rates are higher (although is the 10-year at 2.9 instead of 2.5 percent that big a difference?), oil is a little cheaper, taxes fell and deficits will rise. I posted yesterday that a good reason for expecting inflation is the federal debt. I don't see a lot of projections based on what ifs though, rather the market strikes me as overly optimistic and assumes inflation increases that haven't materialized.

I finished the 2015 post with:
We have seen false dawns several times since 2008, but never with a Federal Reserve hiking rates. President Obama is leaving office in 18 months. No serious candidate from either party will be worse than Obama on the economy, so even if people complain about "uncertainty" with the election, it will make sense to bet on saner economic policies.
It was a false dawn in 2015. We got better economic policies and where they're worse ($1 trillion deficits for a decade), they're at least pointed in an inflationary direction. But how much is already priced into interest rates and equity prices? What happens if Chinese growth slows again?

Finally, is this news below inflationary for the U.S. more than it is deflationary for the rest of the world?

ZH: Global Trade Wars Begin: Ross Recommends Major Tariffs On Steel, Aluminum Focusing On China, Russia
Secretary Ross has recommended to the President that he consider the following alternative remedies to address the problem of steel imports:

1. A global tariff of at least 24% on all steel imports from all countries, or
2. A tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the United States, or
3. A quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States.

Saipan's #1 Export: Capital Control Evasion

From an in-depth Bloomberg article on Saipan's casino: A Chinese Casino Has Conquered a Piece of America
Per capita, there’s almost certainly more Chinese money moving through Saipan than anywhere else in the world. The unprecedented flow of capital has allowed Imperial Pacific to operate in ways that would be unthinkable within the 50 states. When laws have become inconvenient to the company, they’ve been flouted; when the requirements of its contract with the government have become onerous, they’ve been removed; when legislators have tried to interfere, they’ve been ignored. Imperial Pacific has made millions of dollars in payments to family members of the territory’s governor, Ralph Deleon Guerrero Torres. Remarkably, the company has also enjoyed the support of a gold-plated roster of American politicos. Its advisers and board of directors have included former directors of the CIA and FBI and former governors of Mississippi, New York, and Pennsylvania.
Theranos had lots of elites on its board and it was a scam. It's possible all of these clowns are collecting checks and covering for corruption. It's also possible the U.S. is keeping an eye on the money flows.