2017-11-16

Dual Citizenship Crisis in Australia

Coming soon to an Anglosphere nation near you.

Sunday Times: Eighth Australian lawmaker resigns over dual citizenship
A constitutional crisis roiling Australian politics claimed a new victim Tuesday with the resignation of the eighth lawmaker to be felled by a once-obscure rule barring dual citizens from federal office.

The departure of Jacqui Lambie, a colourful independent senator from the island state of Tasmania, comes after Prime Minister Malcolm Turnbull's centre-right government lost its grip on parliament as MPs were toppled by the citizenship issue.

Lambie announced her resignation in a tearful speech, telling MPs she had just learned she held British nationality from her Scottish grandfather and father.
The Australian situation was a result of existing law. The lawmakers in question are also citizens of New Zealand, Canada, Britain, Scotland and Canada.

If the law in other Anglosphere countries doesn't already proscribe dual citizenship, there will likely be laws passed in the coming decade or two, or at the very least, those with dual loyalties will be hounded from public office, lose security clearance and high ranking positions in government. Once the ball gets rolling on this issue, it creates its own incentives since political allies can benefit from having those above them kicked out of office. The United States won't be spared, if anything it is likely to have the most intense scrutiny because its status as empire provides real opportunities for foreigners to manipulate government policy.

2017-11-15

If China's Economy Goes, Australia's Goes With It

A very long and in-depth article on Australia's economy. If roughly one-third of Australian exports go to China and roughly 19 percent of the economy is exports, that's roughly 6 percent of GDP that is highly sensitive to Chinese economic conditions. Layer on the housing investment from China and overseas students, the housing bubble built on growth in those exports to China, there is a lot at stake if China slows meaningfully.

Steve Keen's Debtwatch: Australia’s Econ­omy is a House of Cards

NBS Shocker: Mortgage Growth Contracts 19pc in October, Goes Negative YTD

Caijing: 楼市数据继续下挫:个人按揭贷款增速首现负增长
National Bureau of Statistics released November 14 data show that the first 10 months of this year, the growth rate of the national real estate development and investment, sales, and other indicators of the funds in place to continue to decline. Among them, in September and October in a single month, real estate sales volume fell for two consecutive months. Affected by this, housing prices in the source of funds in place, the accumulated growth rate of individual mortgage loans for the first time negative growth.

The NBS report on real estate investment shows a YTD decline of 1 percent in individual mortgages.

For comparison, last year at this time the cumulative YTD growth was 51.5 percent.

I haven't tracked this data out of NBS, preferring the PBoC data, but I calculated the one-month October growth figure for this past month: negative 18.8 percent.

Put on the Pain Trades: China FAI Begins Slowdown Near Prior Cycle Lows

Here's the quick summary of the data:

1. Real estate investment is strongest relative to prior cycles
2. Fixed asset investment over the past three months is slower than it has ever been, and the downturn hasn't officially begun
3. Private fixed asset investment is near the prior cycle lows (set in spring 2016)

Implication: if the credit cycle isn't aborted earlier than before, it looks like nearly all measures of FAI could fall into full blown recession (at least mid-single digit declines in some categories) before growth bottoms out. That's assuming another bailout later next year.

As for the data:

China real estate investment growth was 5.6 percent in October, second slowest month in 2017 (after July's 4.8 percent). YTD growth fell from 8.1 to 7.8 percent.

Fixed asset investment (FAI) slowed to 3.2 percent, YTD slowed from 7.5 to 7.3 percent. Unlike real estate investment growth (not pictured), you can see FAI is potentially breaking down to an unprecedented pace.

Private FAI slowed to 1.2 percent growth in October; slowed from 6.0 to 5.8 percent growth YTD. The last time growth was this slow, there was a panic over private money pulling out of FAI. One post of the subject was Depression: State Council Investigates Drop in Private Investment

Private investment growth in the industrial sectors was negative for the second consecutive month.

All data from NBS.

Impulse Rally in Commodities Running on Fumes

At the start of 2016 it was deflation all over again. Then suddenly commodities take off and the global economy heats up. Three possible explanations are:

1. The depression is finally ending
2. The smart money knew Trump would win
3. China flooded its economy with cheap money

With respect to 1, Jeffrey Snider keeps pointing out nothing has changed. As for 2, that's just coincidence. The evidence for 3 is strong. The history of the post-2008 economy is slow credit creation, slow economic growth. Dollars are in high demand. China can break out for a time, but then devaluation pressure and inflation become a problem. It tightens. The global economy sinks back towards a deflationary crisis. China pumps.

Here's Chinese PPI through December 2016. Notice the PPI didn't start rising consistently until July 2016, many months after the initial credit surge and several months after commodity prices started soaring.
I thought this impulse would lose steam in the middle of 2017, but it moved into what looks like a blow-off top this autumn. Chinese PPI growth will cool substantially into 2018 and should turn negative again month-to-month assuming the current credit trends persist.

I'm not sure the rally is totally over in the sense of top ticking the price, but today's action in China suggests the smart money knows the party is over. Credit growth indicates the end of the party.

ZH: China Commodities, Stocks Are Tumbling
ZH: China's Credit Growth Is Freezing Up At The Worst Possible Time

Why does it matter?

Because much of the boost in GDP growth over the past 18 months can be sourced to China's credit boom.

ZH: UBS Makes A Striking Discovery: Ex-Energy, US GDP Growth Is The Slowest Since 2010
Message 1: The 2017 global growth acceleration was largely (70%) a commodity bounce. This applies even to the US which was 20% of the global growth improvement but, as the 1st chart below shows, it was entirely energy investment. Once you strip that out 'underlying' growth is only 1% or so (ex inventories) - the slowest since 2010 - and a significant amount of rotation now needs to take place from energy to non-energy investment just to sustain the current growth pace.

The slowdown cometh.

2017-11-10

7 Hot Words for China's Real Estate Market

Hot word 1: Volume down
Hot word 2: Tighter controls
Hot word 3: Rental era
Hot word 4: Moderating land prices
Hot word 5: Financial de-leveraging
Hot word 6: Developers break siege
Hot word 7: Property market inflection point

iFeng: 七大热点词汇 解读2017年房地产市场

2017-11-07

Xi Jinping Has the Power to Reform

Back in 2014: Michael Pettis Said China Has 2 Years to Adjust; Xi Must Consolidate Power.
What is most important for China in the near future?
What really matters is whether President Xi can consolidate power quickly enough. If he can consolidate power, he can force the adjustments in spite of the opposition of the elites. That is the most important question. The Soviet Union had similar problems and they had to make their adjustments in the Seventies. But the Soviet Union’s power was much more dispersed and the adjustments failed. This is something China absolutely does not want. Their interpretation, which I think is correct, is that they have to consolidate power much more so they can force through the adjustments.
Xi needed 3 years, until the 2017 National Congress.

Reuters: China's president consolidates power with 'Xi Jinping Thought'
Xi's Thoughts are expected to further consolidate his power and putting him on a par with the founder of the Communist party, Mao Zedong.
Brookings: The rise and rise of Xi Jinping: At 19th Party Congress, he consolidates power to a degree unseen since Mao and Deng.Zhou Xiaochuan's warning of a "Minsky moment" and Xi Jinping's consolidation of political power is a interesting combination. China avoided deleveraging before the National Congress because it would have harmed Xi's efforts if it was a failure. Now he has the power to force through reforms and he's more insulated if it turns into an economic crisis.

The last 18 months was relatively low volatility as China headed into its National Congress. We are at or have passed the low in volatility.

Reserves Flat in October

Chinese forex reserves increased in October, but it was a rounding error of $700 million. The turn is at hand.

Reuters: China's Oct FX reserves rise slightly in ninth month of gains

2017-11-01

China Real Estate Pain Begins as Credit Growth Slows

Financing is tightening for the real estate sector.

iFeng: 楼市资金面趋紧 全国房价涨幅或继续下行
"Real estate as a capital-intensive industry, with a strong dependence on capital, changes in the financial side will directly affect the real estate market." Yesterday, Lai Yi Ju researcher Qin said in an interview with reporters this year , with the deepening of the pace of adjustment of the property market, the property market funds face is clearly showing a tight situation.

From the point of view of buyers lever residents, according to 2017 third quarter financial institutions to invest in the central bank recently released statistics report shows that, as of the end of September, individual housing loans 21.1 trillion yuan, an increase of 26.2%, respectively, from the previous quarter and the same period last year down 4.6 and 7.20 percentage points. In fact, since this year, year on year growth rate of individual housing loans have been introduced to the downstream channel.
Credit bubbles are unsustainable because they require an ever rising rate of credit growth. In order to grow a credit bubble, you need to grow the amount of credit. As the credit bubble inflates, credit is an increasing share of growth. It's like pushing up a ball with a stream of water. The end is always a collapse in asset values or hyperinflation.

Say the economy is 100 and outstanding credit is 200. The economy grows 10 percent, credit 30 percent.
At the end of year 1, the economy is 110 and credit is 260. Total demand is 110 + 60 (new credit) = 170
At the end of year 2, the economy is 121 and credit is 338. Total demand is 121 + 78 = 199, up 17.1 percent.
At the end of year 3, the economy is 133 and credit is 439. Total demand is 133 + 101 = 234, up 17.5 percent.
At the end of year 4, the economy is 146 and credit is 571. Total demand is 146 + 132 = 278, up 18.8 percent.

Credit growth slows to 15 percent in year 5.
At the end of year 5, the economy is 161 and credit is 657. Total demand is 161 + 86 = 247, down 11.3 percent.

Even without assuming any negative effects from credit growth, a slowdown in credit growth will trigger a significant slowdown in economic growth or asset values in the target market. It's math. If you assume rising credit levels requires rising debt service costs, rising credit growth is needed to finance interest payments (Ponzi finance).

Rising interest rates don't help.

Bloomberg: China Corporate Bond Investors' Luck May Be About to Run Out
“It’s very likely we will see a significant increase in corporate yields in the coming year,” said David Qu, a market economist at Australia & New Zealand Banking Group Ltd. in Shanghai. “The trigger could be tougher regulations or a default. A majority of non-bank financial institutions’ debt holdings are corporate bonds, so their selloff can lead to severe consequences. Banks are underestimating authorities’ intentions to tighten regulations.”

Signs of a turnaround are already beginning to show, with the yield on three-year AAA notes -- the most common grading for Chinese corporate debt -- rising 8 basis points, the most since May, to 4.90 percent on Monday. That extends the cost’s increase this month to 29 basis points to the highest level in five months. The spread between those notes and government debt has climbed in October and was last at 117 basis points, though it’s still a long way from this year’s peak of 150 basis points in April.
FT: China bond yields down from 3-year high after PBoC cash injection
Contributing to expectations of tighter policy are signs of inflationary pressure and resilient economic growth in China as well as rising global rates on the Fed’s more hawkish outlook. In China, both consumer and producer prices rose faster than expectations in October, underpinned by rising coal and steel prices.

“We expect the reflation trend to continue. Along with a moderately higher global rate environment, this means that domestic interest rates will also trend higher,” wrote Li Cui, head of macro research at CCB International in Hong Kong.
Reflation is going to crater the housing market.

iFeng: 调控之下楼市降温明显 房子1.8万跌到1.2万无人买
Under the regulation, the most severe real estate Central Beijing property market has finally dropped! Institute research found that the chain of home in Central Beijing area: Compared with the March 2017 high of September Yanjiao chain of second-hand housing turnover fell 90%, the average price fell 26.9%. Homelink has revealed the above information, the display area Central Beijing property market slump.

Yanjiao down a little deal, Xianghe from the end of May to the chain of home on a deal now 5 sets, there is no market price! A netizen said that there is room in Central Beijing, before a lot of friends in Central Beijing basically a suite, house prices rose last year results were in a turmoil, plus a variety of levers, all kinds of various loans to buy! In April this year after the results, all the quilt, Xianghe has dropped to 12,000 from 18,000, not sell!
In a speculative market, the supply and demand curve slopes upward. The higher the price, the higher the demand. The lower the price, the lower the demand. Back to the credit example above, a slowdown in credit growth leads to a drop in home prices, thus reducing demand. Every slowdown in credit becomes a crisis. Each time the can is kicked, more credit is needed to restart growth. The system must scale up. The next crisis will be larger. On and on, until the music stops. Or the system is "bailed out" by a massive debasement in the currency.

Beijing New Home Sales Hit 10 Year Low

Only 20,550 new homes were sold in Beijing last month, down 50.6 percent from October 2016.

Caijing: 北京新房成交创10年历史新低 10个月仅成交2万套

2017-10-30

NATO Unhappy With Russo-Turk Arms Deal

ZH: NATO General Threatens "Consequences" For Turkey Buying Russian Air Defense System
In looking to upgrade their air defense system, Turkey had a choice: buying the advanced Russian S-400 systems, or more expensive, US-made alternatives. Turkey chose to buy Russian, and NATO isn’t happy.
Is it a done deal or a negotiating tactic?
The missile deal with Russia “is a clear sign that Turkey is disappointed in the U.S. and Europe,” said Konstantin Makienko, an analyst at the Center for Analysis of Strategies and Technologies, a Moscow think-tank.

“But until the advance is paid and the assembly begins, we can’t be sure of anything.”

Housing Boom Over, CCTV Congratulates Those Who Didn't Buy

Chinese media is calling the top in the housing market. Prices in Shanghai and Shenzhen have retreated to levels seen 12 months earlier. Shanghai had 13,000 realtors at the start of the year. Today there are about 10,000 as losses mount.
Caijing: 上海深圳房价涨幅跌回一年前 中介部分门店受煎熬关张

Third- and fourth-tier markets are cooling rapidly too. Although developers are still buying land like crazy:
iFeng: 三四线熄火整体成交乏力 房企拿地乐观
In October, the real estate market in the Golden Week fael into the "freezing point", pre-transaction-hot four-tier cities also "put out the fire," the entire month or turnover continued to fall. Under the stringent control policies, a number of housing prices have begun shipping the red end of the promotion the performance, part of the regional market in the price. However, developer land buying mood hasn't fallen all year, a number of developers spent a record high amount.

CCTV says the market has completely changed, congratulates people who didn't buy a home as cities begin rental housing push.
iFeng: 央视:楼市彻底变天 没买房的恭喜了
Hire purchase is the future direction of both the real estate market, rural collective land into the market is also further accelerate the pace. Like Beijing, Shanghai and other 13 cities have been identified as pilot rental housing use collective construction land.

iFeng: 因城施策成效显著 业内:楼市“金九银十”惨淡
Although the end of October has not yet ended, but overall, the high-profile property market in recent years, "gold nine silver ten", this year, serious lack of fineness. From the national perspective, E-House Real Estate Research Institute released the "October transaction forecast" shows that the first half of October, first-line, second-line, three lines of 50 typical cities of new commercial housing transaction area fell by 13%, 11% 3%, respectively, year on year decline of 63%, 37% and 33%. Yi Ju Real Estate Research Institute that, although only the first half of the transaction data, but is expected in the current severe regulation of the property market under the high pressure, the market transactions in October will not be significantly improved.

2017-10-27

CASS Sees Home Prices Stable Next Year

ECNS: Home prices to remain stable with slight decline in coming year: report
A research report by the Chinese Academy of Social Sciences (CASS) said home prices are turning stable in most Chinese cities and will fall slightly in the real estate sector this coming year.

Socionomics Alert: The Domino Falls, Catalonia Declares Independence

After chickening out following the referendum, Catalonia's president turned the issue over to parliament. They have just declared independence.

Catalonian independence may be crushed by Spain, but we are one step closer to the collapse of nation states and A World of 1,000 Nations
Brazil is not in any danger of breaking up anytime soon – while the referendums in the three “separatist” provinces register overwhelming support for independence, turnout is very low, indicating that a majority are either opposed or at the very least don’t care all that much.

However, what is true today may no longer be true the case tomorrow, because the centrifugal forces that break nations apart are gathering strength at the global level.

Historical perspective: One of the strongest and most consistent geopolitical trends of the past 200 years has been an explosion in national entities.

We went from less than 50 polities in 1800 to around 200 today.

But it wasn’t always like this. I don’t know if anybody has quantified this precisely, but the number of states or state-like entities in the world must have constituted many thousands during the medieval and Early Modern periods.

Just the territories of the Holy Roman Empire at times accounted for more than a thousand!

...Consequently, under a liberal globalism that is true to its ideals, that is, one free of authoritarian coercion or Malthusian selection for big strong states, it appears that runaway national fragmentation is inevitable.

And these aren’t even the only trends militating against national consolidation.

1. Clever, high-functioning regions breaking away from stupid, corrupt regions. The classic example of this is, of course, Italy, where the 103 IQ, highly productive north has gotten increasingly fed up with the 93 IQ nepotistic, lackadaisical south.

2. The rediscovery of ancient local identities.

3. The globalist population replacement project.

4. The rise of alternate models of sovereignty.

5. It only takes one domino. New polities tend to emerge in waves – as Lenin pointed out, “There are decades where nothing happens, and weeks where decades happen.” This is unlikely to change in the future.
Buckle your seatbelts. The trend towards secession is driving downhill and Catalonia just stepped on the gas.

Financial markets aren't "buying" Catalonian independence yet, although European financial stocks are slipping. The rally in the U.S. dollar more a result of stronger 3Q GDP and the ECB's open-ended QE policy.

2017-10-26

U.S. Dollar Index Breakout, H&S Completed

Shares of PowerShares U.S. Dollar Index Bullish (UUP) have an upside target of $25.50 based on today's breakout.

Emerging market currencies represented by WisdomTree EM Currencies (CEW) will break their current uptrend if a similar H&S pattern completes.

China Issues Dollar Bond

Got dollars?

ZH: China Issues First Dollar Bond Since 2004, Bails Out Corporate Liquidity

Turkey In Trouble Again, Back Below Neckline

Bloomberg: Germany Tightens the Screws on International Funds to Turkey
Germany is actively working to cut funding to Turkey from the country’s state-owned KfW bank, the European Investment Bank and the European Bank for Reconstruction and Development, according to more than a dozen government and banking officials, who asked not to be identified discussing the behind-the-scenes efforts. Some German commercial banks are also reviewing their exposure to Turkey, the officials said.

While none of the institutions or banks have put in place a formal freeze on funding, they’ve all imposed tighter restrictions, the people said. The increased scrutiny especially affects financing for companies seen as being tied to or influenced by the Turkish government, they said.

The reduction in exposure to Turkey comes amid deteriorating relations between the two governments, with German Chancellor Angela Merkel announcing last week that she will seek to curtail the European Union’s pre-accession funding for Turkey.
Turkey not only won't join the EU, it is on course to leave NATO given the current trajectory in social mood and political developments in both Turkey and Europe. The stock chart of iShares MSCI Turkey (TUR) is also back below the H&S neckline, with a target in the single digits. The latest move is driven by currency markets; the dollar gained another 1.6 percent versus the lira today.

Click on the Turkey tag for prior coverage.

The Reflation Rally in Context Part II

Yesterday, I discussed Putting the Reflation Rally in Context. Jeffrey Snider of Alhambra adds some more color to the bearish case in Bond Kings and the Future(s). Despite all the optimism about rising rates, futures show the market less bullish on rates at the peak in late 2016 than they were back in 2014, and the analog continues this fading echo.

Socionomics Alert: Stock Market Peaks Amid Record Horror Haul

Socionomics predicts rising and peak social mood produce heroes and a clear separation between good and evil. Falling and negative mood produce anti-heroes and ambiguity. The 1970s saw heroes such as Dirty Harry and Paul Kersey (from Death Wish, notably being remade with Bruce Willis in 2017). Dirty Harry gunned down criminal to the cheers of audiences and Paul Kersey carried out vigilante killings. Rambo was a hero who ran afoul of the law. In the 1980s, the good-guys are within the law. Rambo works for the government. Many heroes are fighting communists. At the peak of social mood, the superhero was reborn with characters such as Spiderman. This quickly turned dark in the 2000s. Dexter was a serial killer anti-hero. FOX currently has a show called Lucifer with Satan as the main character.

Horror movies also rise and fall with these trends. Freddy and Jason, two of the more famous horror movie characters, were both created in the late 1970s and peaked in the early 1980s. Horror was a less popular genre in the mid-1980s through the peak in social mood at the end of the Millennium. Since then, horror has steadily grown its box office receipts. It also turned gruesome with movies such as Saw and Hostel, what some critics describe as "torture porn."

And now amid a new high in stocks, horror is at a new peak too.

NYTimes: 2017: The Biggest Year in Horror History

The NYTimes article provides a summary of the genre's rise and fall:
In the early 1970s, horror broke into the mainstream in a big way, primarily with the astronomical success of “The Exorcist” in 1973, which alone topped the collective total of any box office year in the decade. That movie aside, horror didn’t make much of an impression that year. And it was really films released later in the decade that would prove pivotal. The popularity of “Halloween” in 1978 ($47 million) showed that slasher films could be a force. And 1979 brought the blockbuster haunted house scares of “The Amityville Horror” ($86.4 million) and the influential space scares of “Alien” ($80.9 million). That film captured a mass audience with a return of sorts to the creature features of classic horror.
The 1980s characters earned into mid-decade:
The slasher genre came into its own in the ’80s, with the introduction of Jason in “Friday the 13th” (1980) and Freddy in “A Nightmare on Elm Street” (1984). Those franchises produced buckets of blood and cash ($380.6 million total for “Friday” and $370.5 million for “Elm Street”). 1987 was one of the decade’s most profitable. “Elm Street” was in its third installment ($44 million), “The Lost Boys” added young vampire thrills to the mix ($32 million) and the action horror of “Predator” (a movie that probably wouldn’t have existed without the success of “Alien”) brought in strong numbers ($59 million).
Notably the stock market crashed in 1987. Socionomics says, that is no coincidence.

Mood peaks in the 1990s and horror fades, but picks up heading into the mood turn:
The early part of the ’90s saw few major horror blockbusters. Daniel Loria, the editorial director of Boxoffice Media, cites the rise of home video in the late ’80s as the reason for the dip. In a phone interview, he said that many horror films bypassed theaters for home video. “A B-side horror film like ‘The Texas Chain Saw Massacre’ might not have played in theaters had it been made in the late ’80s or early ’90s,” he said. “It might have just gone straight to video for a quick buck.” Things looked up in the latter half of the decade, with the revival of the slasher genre through the “Scream” franchise ($331.7 million). And then, 1999 brought a new revolution via “The Blair Witch Project,” a lowest-of-budgets found-footage movie shot on video that scared up a phenomenal $140.5 million, along with many copycats.
Things pick up into the 2000s heading into the 2017 record year:
But the biggest story is the tremendous run of “It.” That Stephen King adaptation perked up the domestic box office after a dismal August, and not even box office experts predicted just how well the movie would perform. Mr. Loria of Boxoffice Media said his team forecast an $81 million opening weekend. The real number was $123 million.
Horror movies peaked in the late 1970s and early 1980s amid recession and a low in stocks. It comes back for a one-year blast in 1987, the year global stock markets plunged 20 percent or more in a single day. Horror doesn't return until the late 1990s and hits a short-term peak in the year 2000. After that, it grows into a larger and larger genre with a growing list of subcategories, before hitting a new record in 2017.

The implications for financial markets would be bullish if stocks were making new lows, since it would give a coincident indicator of a bottom in negative mood. Instead, this peak looks like it could be a larger version of the 2000s peak, a burst of horror at a peak as mood turns. If that's that case, the next downturn in mood, the next political shift, is going to a lot more like the 1920s or 1850s than the 1970s.

Maine Secedes from Eastern Time

Negative social mood increases the desire for separation and conflict. In Catalonia and Scotland there are independence votes. In California there is talk of Calexit. In New England, there's a push for local control. Over the time.

Quartz: A new American revolution is starting in New England—against Daylight Saving Time
Earlier this year, Bailey sponsored a bill that would move Maine to the Atlantic Time Zone, an hour ahead of its current position in the Eastern Time Zone, and no longer observe Daylight Saving Time. The bill passed both chambers of the Maine state legislature. But the Senate added a provision that Maine voters must approve the change in a referendum, and the referendum could only be triggered by neighboring Massachusetts and New Hampshire changing their time, too. Since neither of those states had immediate plans to change their time zones, the move seemed doomed.

But now there is hope. Massachusetts is considering a permanent change in its time zone.
The article headline is misleading since what's effectively being done is permanent Daylight Savings. Maine will leave its clocks ahead one hour and shift to the Atlantic time zone.

In the context of negative social mood, this move does create separation since Maine, New Hampshire and Massachusetts would be one-hour ahead of the rest of the Atlantic seaboard. Vermont might shift as well. Connecticut would probably stick with Eastern time because it has strong ties to the financial markets centered in New York City.

New England considered secession back in the early 1800s. The Civil War was a replay of this split between New England mills (importers, traders) and Southern farmers (exporters). Regionalism, dormant for many decades, is on the rise again.

2017-10-25

Putting the Reflation Rally in Context

How big was the rally over the past year? Copper is up more than 50 percent.
How big was the rally over the past ~2 years? Look at the BofA Merrill Lynch US High Yield Option-Adjusted Spread.
Here's a longer look for context:
Using this as a proxy for social mood, we can see the market is about as optimistic now as it was in June 2014. The trend is different though. Back in 2014, economic forecasts were being cut in the U.S. This year their down slightly, but global forecasts are being raised.

CNN: U.S. economy: Not looking so good
At the start of the year, economists were optimistic. Perhaps the economy would grow 3% this year, they said, instead of the measly 2% pace it's been stuck at for the prior three years.
So much for that hopeful thinking. Half-way through the year, forecasts are being slashed.
USA Today: IMF raises its forecast for global growth for 2017, 2018
The International Monetary Fund raised its estimate for global economic growth in 2017 and next year, citing stronger expansion in the first half of the year in the eurozone, Japan and some emerging markets.

...In July, the IMF lowered its forecast for U.S. growth to 2.1% for 2017 and 2018 from earlier projections of 2.3% and 2.5%.
The magnitude of the moves are larger during this phase of hope and its fair to say optimism has increased to a new post-2008 high. Not high enough to call it a bullish breakout though. For the moment, hope looks toppy.

2017-10-23

China Long-Term Chart

In light of China Topping earlier today, a long-term look at iShares China (FXI). The trendline is around $48.70, 6.8 percent above today's close.
Here's the ChiNext analog.

The Amish and the AI

Marc Andreesen said "software is eating the world." An expanded version of this says intelligence (working up to AI) turns every good into commodities. Software will turn the car into the PC. Band names and design have some value, but fuel efficiency standards destroyed design. Deere (DE) is battling farmers who want to hack into the operating system of its tractor software. Deere knows once the software can be hacked and replaced, the tractor becomes a commodity. Cars will face the same dilemma. The path forward is to write the software for self-driving cars or become the Dell of autos, going back to (as much as possible) a 1950s world of diverse design all able to run any software. The business model will resemble that of mobile phones.

The value in assets increasingly comes from intelligence. Owning the intelligent companies is the key to making money. But many companies do not have intelligent hiring policies or intelligent corporate culture. Google looks smart on the product side, buy dumb on the human side. Their current employees are smart, but there's reason to think they've already started not hiring the best and brightest. The most ruthlessly efficient companies will win. Those who give in to social pressure will be weakened by competitors.

Software is easily copied. We think of socialism in terms of money, but in a world dominated by software, the more likely path of "socialism" is to reduce penalties against piracy. Copying software doesn't cause a loss of value for the owner (except in cases where it might lose value such as trading software that exploits flaws in other systems/humans.)

The best companies are those who can combine intelligence in both hardware and software. Apple (AAPL) is a good example today, but Apple's advantage mainly lies in its marketing. It's a consumer brand though, and consumers are fickle. Branding itself is important, but picking the right brands is key. The Lindy Effect is a good starting point. Coca-Cola will probably survive.

I think we are nearing the top of the mania phase. We can see the future, but it will take time to get there. Buying Internet stocks in 1999 was dumb, but the thesis was correct.

Reformed Broker: Just own the damn robots.
In Kurt Vonnegut’s 1952 novel, Player Piano, we are introduced to a future in which only engineers and managers have gainful employment and meaningful lives. If you’re not one of the engineers and managers, then you’re in the army of nameless people fixing roads and bridges. You live in Homestead, far from the machines that do everything, and are treated throughout your life like a helpless baby. The world no longer has a use for you. Anything you can do a machine can do better, and you are reminded of this all day, every day by society and the single omnipotent industrial corporation that oversees it all.

He wrote this 65 years ago. It couldn’t have been more apropos to what we’re witnessing now than if had he written it this morning, right down to the nostalgia-selling demagogue who seizes the opportunity to foment rebellion amongst the displaced and disgruntled. When millions of people start seeing their purpose begin to erode and their dignity being stolen from them, the idea that there’s nothing left to lose starts to creep in.

In the book, the result is a violent rebellion against the machines. In the real world, we’ve resigned ourselves to investing in them instead.

We could be in the midst of the first fear-based investment bubble in American history, with the masses buying in not out of avarice, but from a mentality of abject terror. Robots, software and automation, owned by Capital, are notching new victories over Labor at an ever accelerating rate. It’s gone parabolic in recent years – every industry, every region of the country, and all over the world. It’s thrilling to be a part of if you’re an owner of the robots, the software and the automation. If you’re a part of the capital side of that equation.

If you’re on the other side, however – the losing side – it’s a horror movie in slow motion.

The only way out? Invest in your own destruction. In this context, the FANG stocks are not a gimmick or a fad, they’re a f***ing life raft. Market commentators rhetorically ask aloud what multiple should investors pay to own the technology giants. That’s the wrong question when people feel like they’re drowning.

What multiple would you pay to survive? Grab a raft.
At some point, the tipping point will be hit and the gap between capital owners and non-owners will explode. I usually think of this in terms of technology: a handful of people will invent powerful AI and they will become Kings in the new world order. But another way is through politics. Why do owners of capital want to share it with surplus population? Why does wealthy Catalonia want out of Spain, Venice and Lombardy out of Italy? Why does Silicon Valley want out of California, if not America? Now the stupidity of the West's immigration policy becomes more clear. Layer ethnic and racial divisions on top of capital creation and you have a recipe for political fracturing.

The value of human interaction rises in the interim. Intelligence isn't limited by weather cycles and commodity cycles. Human events will increasingly be government by social mood. Instead of interacting with economic cycles, the world will increasingly revolve around mood cycles.

Farther into the future: one second after universal basic income (UBI) is created, everyone who receives it becomes surplus population. Abortion has already eliminated Down's Syndrome in many countries. Fertility drugs will come with UBI. It won't be hard to push fertility rates close to zero. Eventually the "Amish" (religious fundamentalist groups) will own the world, and maybe 100 million capital owners will run little kingdoms. If you assume the singularity, eventually it is just the Amish and the AI.

Along with owning the intelligent forces of creative destruction, handling the surplus population will be a growth industry. The private prison industry already boomed. Next won't be iron bars, but gilded cages. The government (in whatever form) dispenses UBI through highly immersive VR games. Game addicts become the wealthiest and do best in the VR-world. Since it's VR, people don't have to live in the same VR-world though. Everyone can be served their addiction. The gap between reality and the virtual widens such that few want to leave. People have already voluntarily chosen this lifestyle with gaming, social media and government welfare. No one will be forced into the system, few will complain about it. Many people who own capital will be consumed by the system eventually. Most people who turn to fundamentalist religion won't be.

If you behave like a "Puritan", you have all your bases covered.

Two Italian Regions Vote for Independence

Turnout and the vote combine for an absolute majority of the voting population.

Daily Mail: Two of Italy's richest regions follow Catalonia's referendum example by voting overwhelmingly in favour of greater autonomy

The deeply indebted, sclerotic nation-state is in trouble.

New Home Prices Rise 0.2pc, Top Tiers Cool


New home prices rose 0.2 percent in September. The first-tier cities (and Xiamen) fell by an average of .01 percent. The 7 "hot" second-tier cities fell by an average of 0.08 percent. None of these 12 cities reported rising prices. Existing home prices rose 0.21 percent. Prices fell in the first-tier, but rose slightly in the "hot" second-tier cities.

NBS: 2017年9月份70个大中城市住宅销售价格变动情况

China Topping

For the past 18 months or so, I've said the rally in commodities is the best sign of an inflationary recovery. If prices keep moving higher, it doesn't matter if its real demand or global currency devaluation, it will signal an exit from the post-2008 low growth environment. However, I still believe this is a massive topping process. Xi Jinping's bold 30-year vision looks a lot like a social mood top. Only 5 years ago, one of the big goals was doubling incomes in 10 years. After 5 years of financial bubbles and a brush with a global recession, China's turned even bolder. The shift in vision only makes sense in the context of social mood, the fundamentals argue for a much more humble, circumspect China that needs to clean house before pressing on with a grand strategic vision.

Balding's World: Everything We Think We Know About Chinese Finances is Wrong
The absolute size and growth of assets imply there will be enormous (as in Biblical) costs to deleverage. Let me give you a simple example. Let’s assume a flat rate of economic financialization by which I mean that nominal GDP and systemic financial asset growth are equal. For our case here, I’m going to use similar but round stylized numbers. In our world, financial system assets are equal to eight times nominal GDP. Now, let’s assume that both financial system assets and nominal GDP grow at 10%. In this stylized but similar world, financial system assets will have grown by an amount equal to 80% of GDP. If this both nominal GDP and financial system assets grow at 10%, by 2025, China will have financial system assets equal to approximately 1,900% of nominal GDP. Because total banking system assets are so much larger than nominal GDP, simply growing both at the same pace will continue to lever up the economy.

This might actually explain one unique data point which no one has a good explanation for, including myself. For a number of year, fixed asset investment in China has been above 80% of GDP. Through the first three quarters of 2017, it is only 3%. It has been puzzling to many how FAI could top 80% of GDP even with the growth in debt that we saw. That was simply an amazing number. Well if there was unseen asset growth of equal to twice official banking system assets, this would explain how FAI could comprise that amount of GDP. However, this implies that China has been much much more dependent on credit and money growth to drive GDP than anyone, myself could have believed.
Back in March I showed how China cannot be deleveraging: China Can't Deleverage, At Least Not Yet
Assume China's nominal GDP is 80 trillion yuan, and debt is 160 trillion yuan (200 percent of GDP).

If GDP grows 8 percent, that's 86.4 trillion yuan.
If credit grows 12.6 percent, that is 20.2 trillion yuan.

Total nominal demand was 106.6 trillion and 19 percent was credit.

In Year 2 China lowers credit growth to match nominal GDP.

China's GDP was 86.4 trillion. It grows 8 percent to 93.3 trillion.
Credit was 180.2 trillion, it grows 8 percent or 14.4 trillion.

Total nominal demand is 107.7 trillion, growth of 1 percent. Credit drops to 13 percent of total nominal demand.
The numbers get much uglier at 800 percent of GDP.

FT: China’s warning of a ‘Minsky moment’ should not be ignored
Speaking on the sidelines of the Communist party congress in Beijing, Zhou Xiaochuan, who is soon to stand down as governor of the PBoC, said: “If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky moment’. That’s what we should particularly defend against.”

This might sound unexceptional. But it is about as close as someone in Mr Zhou’s position can come to yelling “fire” in a crowded theatre. To quote Robert Hockett, an expert on China at Cornell Law School: “It’s calculated to inspire panic. It’s almost an incantation to panic — especially in China.”
Assume the figures Balding cites are true, China's options are rather limited. It can try to shoot the Moon on growth (OBOR), it can devalue the yuan 25 percent (or more), or it can turn into a more crippled version of Japan. While the Japanese have seen their world-beating status wiped away over the past three decades, in real per capita terms, Japanese workers are arguably doing better than those in Europe and the United States. A demographic/debt/welfare state crisis looms everywhere, but the economic standard of living has held steady with the rest of the developed world without using the crutch of mass immigration. It is better if one adjusts for crime and societal decay in the West. This is most evident in the collapse in social trust and fractured politics. Few nations have clear ruling majorities outside of Eastern Europe. In contrast, the Japanese have given the ruling party a majority.

CNN: Japan's Shinzo Abe hails landslide victory in snap election
Abe's ruling coalition has won a clear majority with more than two-thirds of Parliament's 465 seats, with the Liberal Democratic Party holding a majority even without its coalition partner, the Komeito party, he told reporters Monday.

"We were able to earn the powerful support of the Japanese people, well surpassing our goal," Abe said at a press conference after Sunday's vote.
China can go the path of Japan. It will remain unified. If the average workers life is improving, the CCP will retain popular support. It might have to put a challenge to the United States on hold for a few decades though.

Japan Times: Xi lays out road map to make China leading global power by 2050
Xi also laid out an ambitious plan to make China a “great modern socialist country” in the following 30 years — part of what he has called the “Chinese dream.” By 2050, he said, the party would be near the goal of achieving a “beautiful China” with the rule of law, innovative companies, a clean environment, an expanding middle class, adequate public transportation and reduced disparities between urban and rural areas.

“Chinese people will enjoy greater happiness and well-being, and the Chinese nation will stand taller and firmer in the world,” Xi said of his vision for 2050.

...Xi said the Communist Party will strive to fully transform the People’s Liberation Army into one the world’s top militaries by 2050, and emphasized the need to modernize its combat capability.

“A military is built to fight,” he said.
All of this can be accomplished in a "turning Japanese" scenario, but China will turn inwards for 30 years to achieve it.

I still believe the most likely scenario is a controlled yuan devaluation of significant magnitude. A Japan scenario will happen if nothing is done about the present course. I don't think the OBOR is doable given global social mood. Unless the West turns inward and Islam quiets, China won't be able to achieve the multilateral cooperation needed for the OBOR. Finally, a crisis is always possible, but then I expect China would quickly determine the potential losses and weigh that again a surprise detonation of the yuan, and opt for the controlled collapse.

2017-10-22

Yuan Is Euro Since August 2015

Quantitative Housing: Chinese Govt Buying 25pc of New Homes

The Chinese government cut housing inventory in recent years by buying inventory.

ZH: Unprecedented Housing Bailout Revealed, As China Property Sales Drop For First Time In 30 Months

The punchline:
To paraphrase: Beijing is now the (covert) marginal buyer of a quarter of all Chinese real estate. That, in itself, is a mind-blowing statistic. What is scarier, is that despite this implicit backstop, property sales are once again declining after 30 months of increases. One can only imagine the epic crash that would ensue if - for some reason - the government bid were to be pulled, and just how spectacular the ensuing global depression would be as the rug is pulled from under the most important asset of the middle class in the world's fastest growing economy.
The bullish take: since the government demolishes existing housing stock, prices can be supported moving forward. In that case, the government is still digging holes and filling them in, but paying for it on credit. Imagine the worst thing possible and then you have a good idea of the bearish scenario.

2017-10-20

China Has a Garbage Bubble as Paper Prices Soar

Recyclable paper prices are soaring in China. A wild price rise has created "junk kings" in China who move piles of refuse instead of low-rated credit.

The iFeng link includes a video with some of the "junk kings" of Dalian. They talk about how some of the paper would be thrown out, but today they don't toss anything and sell it instead. Prices are moving multiple times in a single day as money rushes into the latest investment boom. The monthly income of one "junk king" has doubled from 5,000 yuan to more than 10,000 yuan.

The spark for this boom was a ban on the importation of foreign trash.

Reuters: China ban on waste imports leads to piles of paper abroad, surging prices in China
The city’s system for dealing with its paper waste has been failing since China in July imposed a ban on imports of 24 types of rubbish, as part of a campaign against “foreign garbage” and environmental pollution, including unsorted scrap paper.

As a result of the impasse, the manager of a major paper mill in southern China told Reuters the price of finished paper had doubled to 6,000 yuan ($902) per ton from 3,000 yuan as supplies of the raw material shrink.

That is hurting everyone from e-commerce sites to exporters.

Alibaba’s upcoming ”Singles’ Day online shopping festival on November 11, which posted more than 120 billion yuan ($18.1 billion) in sales last year, is heavily reliant on such packaging.
A drop in supply causes a rise in prices, but a boom is triggered by an increase in the supply of money and credit. The rally in junk is the downstream result of commodities market speculation that even government officials have blamed on excess credit.

iFeng: 废品价格大面积回升 从前的“破烂王”如今收入过万!
Li Youan Dalian scrap recycler: scrap prices are rising, including plastics, cardboard, all waste are rising. Mineral water bottle should be up over last year, rose about 30 percent. Is now selling about five to four four seven one kilogram of paper gains would be greater, under normal circumstances, paper, general paper in previous years, more than a thousand dollars a ton, this year is more than two thousand one ton of .

Scrap price hikes, so his business is extremely busy, reporters saw just a few minutes there are 56 individuals to sell scrap, but due to his busy again this year hired two people to help, but in order to increase the amount of recycling he is no longer just waiting for collection at home every afternoon, he took the initiative to the neighboring village to the acquisition of waste. In this way a month down the overall recovery of the amount, compared to the same period last year increased by about 20%, while in recent months, his monthly income has reached the million, compared to last year, an increase of nearly doubled.

It is understood that this year the overall recovery in scrap prices, domestic scrap prices in 1600 yuan / ton, up 14%, aluminum prices at around 10,500 yuan / ton, up 23%, paper prices rose the most, currently the Recycle Bin recovery of prices in the 2100 yuan / ton, up more than doubled. Prices rose sharply, driving the overall industry to pick up, "Polan Wang" re-active.
China's ban on "foreign garbage" is partly responsible, but the main culprit is the supply of money and credit racing around China's economy in search of a home as the iFeng article notes:
In fact, the fluctuation of recycling prices is inextricably linked to the entire commodity market, and its rise this year mainly due to upstream manufacturing, building materials industry increased demand, as well as major engineering and infrastructure investment to accelerate, in a rise in the price, gains in prices of waste paper can be described as ferocious.
There's only one piece of waste paper whose fundamental value is ferociously declining: the Chinese yuan.

2017-10-19

Fixed Asset Investment Breakdown

Rising state investment climbed above 10 percent in September, in line with June and July growth rates.
Within private FAI, industrial investment declined year-on-year in September.

Private FAI Rose 3.9 pc in September

Private FAI increased 6.0 percent YTD in September and 3.9 percent year-on-year for the month of September.

Fixed Asset Investment Rises 6.2pc in September

Fixed asset investment rose 7.5 percent YTD through September; 6.2 percent year-on-year in September.

Real Estate Investment Ticks Up in September

Real estate investment increased 8.1 percent YTD through September and 9.2 percent year-on-year for the month.
NBS: 2017年1-9月份全国房地产开发投资和销售情况

2017-10-18

Not the DeDollarization You Expected

Cryptocurrencies are in the middle of a classic bubble phase, but take a moment to digest this anecdote:
The South Korean government is preparing to tax Bitcoin use after the cryptocurrency’s trading volume largely increased past the country’s stock exchange Kosdaq. Han Seung-hee, the commissioner of the country’s National Tax Service, told lawmakers this weekend that the issue of how to best tax cryptocurrencies is being discussed, including the areas of capital gains tax, the VAT, and gift tax, Bitcoin.com reported.

South Korea’s lawmakers held a National Tax Service (NTS) hearing in Sejong last week on October 13th. The NTS Commissioner Han Seung-hee answered several questions about the taxation of cryptocurrencies.

Seung-hee was asked, “as the daily transaction value of virtual money grows beyond the Kosdaq, we must actively cope with the shift away from the conventional reservations. What is the taxation plan?” Business Post reported.
Korea Times: Bitcoin trades top tech-heavy on KOSDAQ

Chengdu Bans Unfinished Housing by End of 2022

Chengdu will no longer allow the sale of unfinished homes by 2020. Sale
Reporter learned from the Chengdu Municipal People's Government portal was informed that the General Office of the Chengdu Municipal People's Government on the 17th issued a "further accelerate the development of the city's finished housing development views" (hereinafter referred to as "the implementation of opinions"). "Implementation Opinions" pointed out that by the end of 2022, Chengdu, the newly started commercial housing and affordable housing finished residential area ratio will reach 100%, the full realization of Chengdu residential product structure from the water main to the finished house-based fundamental change. In addition, Chengdu will implement the finished house menu decoration, for the purchase of people to provide a variety of decoration style options.
iFeng: 这个城市5年后只卖成品房 毛坯房将成历史

2017-10-17

China Isn't Improving, It's Inflating

Global economic indicators, total social financing and rising producer price inflation all point to inflation coming out of China.
Bloomberg: Don't Panic: China's Debt Crackdown May Actually Be Good for Bonds
China’s deleveraging drive will benefit the nation’s bonds as it starts to weigh on the economy and prompts looser monetary policy, according to Fidelity International Ltd.

Bloomberg: What Debt Crackdown? China's Banks Are Bingeing on Bonds
China’s banks are still bingeing on short-term financing, defying analyst predictions that they would wean themselves off such debt as regulators intensify a crackdown on leverage.

Sales of negotiable certificates of deposit -- a key funding source for medium and smaller banks -- surged 49 percent from a year ago in the third quarter to a record 5.4 trillion yuan ($819 billion), according to data compiled by Bloomberg.

Bloomberg: Zhou's Leverage Warning Sends China Bond Yield to 2015 High
Yields on China’s 10-year sovereign notes spiked to the highest level since April 2015 on a closing basis, while a stock gauge of smaller companies slumped the most in three months, after the PBOC governor voiced his concern at the weekend that Chinese firms have taken on too much debt. The comments come amid a run of strong data, with better-than-expected producer price growth Monday underscoring the image of an economy still riding the wave of unsustainable leverage to achieve its growth targets.

“Investors, who have always been concerned with tighter financial regulations, are now especially sensitive to news that’s negative for bonds, such as improvement in the economy,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen.
China has to fund growth with credit. U.S. dollar credit has been tight since before 2008. The yuan saw devaluation pressure in 2008. It launched a massive stimulus that led to soaring home prices and a brief yuan devaluation in 2012, along with trillions of yuan in unprofitable investments. The attempt at a controlled slowdown led to the yuan devaluation in 2015 and global financial mini-panic in early 2016.

Without credit growth (or some major economic reforms), China's economy cannot grow at 6 percent. Since the developed world remains locked in slow growth with the global eurodollar system also growing slowly, a Chinese credit inflation necessitates "de-dollarization," inflating without concern for underlying foreign currency assets. If the growth is "good," value creation will outstrip credit creation. If the growth is "bad," China will be stuck with hundreds of billions, if not trillions of dollars more in debt with no dollar backing. The odds of a sudden and sharp yuan devaluation are rising.

19th National Congress: Deleveraging Will Have No Negative Effect on GDP

Set your watches!

iFeng: 十九大发言人:确保去杠杆不对经济增长产生负面影响
Bloomberg News reporter:

My question is related to China's economy. China for influence in the world economy growing, while China is facing domestic and international environment is quite complex. The Chinese government is currently working at the same time maintaining a high economic growth rate, pushing deleveraging. My question is, What is your vision for the future of the Chinese economy? Which do you think is more preferred between economic growth and deleveraging? Whether deleveraging higher priority?
19th National Congress spokesman Tuo Zhen:

I would like to point out that you can not put deleveraging and steady growth in opposition. In the long term, the initiative to leverage helping to eliminate the potential risks affecting the stable and healthy economic development, and enhance the economic development and long-term tenacity. We adhere to the general tone of the work while maintaining stability, continue to implement the proactive fiscal policy and prudent monetary policy, adhere to the supply-side structural reforms as the main line, a moderate expansion of aggregate demand, deleveraging and economic growth to create a good and stable macroeconomic environment . We insist on actively and steadily deleveraging, adhere to multi-pronged approach, a variety of measures of deleveraging, and properly handle the relationship between steady growth and deleveraging, to ensure that deleveraging does not adversely affect the economic growth. Currently, deleveraging has achieved initial results, no significant tightening effect on the economy.
There hasn't been much of an effect because China isn't deleveraging...

2017-10-16

Skipping the Dark, Marvel Superheroes Go Straight to Horror

How popular is horror amid a decline in social mood? Marvel is launching a trilogy of movies centered around younger mutants (in the vein of X-Men). Instead of typical superhero fare of heroes and comic quips, the movies will all fall in the horror genre.

Slash Film: ‘The New Mutants’ Will Be the First in a Trilogy of X-Men Horror Movies
Director Josh Boone says:
These are all going to be horror movies, and they’re all be their own distinct kind of horror movies. This is certainly the ‘rubber-reality’ supernatural horror movie. The next one will be a completely different kind of horror movie.

Our take was just go examine the horror genre through comic book movies and make each one its own distinct sort of horror film. Drawing from the big events that we love in the comics.
Discussing horror, the author of the article writes:
With horror undergoing a sort of popular renaissance, appealing to more types of audiences than ever (including yours truly), it’s smart for Boone to tap into the horror zeitgeist. It and Get Out are two of 2017’s biggest blockbusters and the success of the high concept slasher Happy Death Day over the weekend suggest that The New Mutants is on to something.
The marketing of the next Marvel superhero movie to hit theaters sticks with the tried and true formula:

Volatility in Chinese Data Will Spread

Coming on the heels of Friday's money and credit reports showing faster credit inflation, the PPI came in hot at 1.2 percent for September.
The supply side argument (China is closing zombie steel mills coal mines) doesn't explain the rise in prices because output is rising too. When marginal producers leave the market, output should decline and prices rise. The current boomlet has its origin in faster credit growth.

2017-10-15

China M2 Growth Ticks Up in September

Although M2 growth slowed over the past three-months, the September growth rate was 0.64 percent, higher that September 2016's 0.36 percent. New loans beat forecasts.
Reuters: China Sept new yuan loans rise to 1.27 trln yuan, above forecast

2017-10-12

Austria Moving Right Again

AP: Austria set for rightward political turn after Sunday vote
The Freedom Party is strongly euroskeptic. And while it has long distanced itself from its Nazi roots, and its leader, Hans-Christian Strache, has dismissed his own links with neo-Nazi organizations as youthful folly, its presence in a government could present a new challenge to moderate EU governments shortly after Germany's anti-migrant and EU-critical AfD gained seats in the federal parliament for the first time.

Few saw it coming two years ago. Back then, the Social Democratic-People's Party coalition fervently backed German Chancellor Angela Merkel's open border policy, as hundreds of thousands of mostly Muslim migrants flooded into Austria and beyond in their search for a better life in Europe's heartland. The two parties criticized the Freedom Party's call for closed borders and zero migration.
Anyone making predictions based on Socionomics saw it coming. At the time, I said Merkel's policy was almost perfectly wrong, indeed it may be impossible to make a policy more in contradiction with prevailing social mood. Allowing a migrant invasion of hostile foreigners at a time when the public is in a trend that could end with a total ban on immigration is insanity, unless your real goal is to ban immigration must faster than the social mood would otherwise allow.

Catalonia Chickens Out

Catalonia gets cold feet at the last moment because the European Union wasn't going to back them. Independence is only possible when it is true independence and the opinions of outsiders are ignored.

Bloomberg: Balance of Power: A Full-Blooded Separatist Retreat in Catalonia
After rowdy demonstrations, a covert referendum (which drew a violent response from Spanish police) and vows to set up a new republic, Catalan President Carles Puigdemont blinked.

Many lawmakers gathered for a special session of the regional legislature were hoping to hear a declaration of independence. Instead, he put the process on hold to make another appeal for talks with the Spanish government. No deadline. No leverage. And Prime Minister Mariano Rajoy’s response was powerful: he started the process that could see Puigdemont’s administration stripped of its powers.

Already last night cracks were opening up in the separatist coalition, suggesting a regional election may be necessary next year.
If Catalonians wan't independence, it won't be with cowards who want to maintain their subservience to the European Union. The first European nation to declare independence will probably be led by a right-wing movement such as in Northern Italy.

2017-10-10

GOP Civil War Could Near Completion in 2018

I thought the GOP civil war might finish in 2016 or by 2020. It looks like 2020 might mark the emergence of a "new" party depending on how the 2018 off-year election plays out.

The GOP civil was brewing with the Ron Paul campaign in 2008, but didn't show up at the ballot box until the 2010 Tea Party and the 2012 presidential primaries. During Obama's presidency, GOP energy that would have flowed into internal conflict was redirected into opposition. Establishment GOP politicians who didn't want an internal civil war could hide behind opposition to Obama. President Trump broke that stability in 2016. He ran on long-ignored issues in 2016. He exposed how far public had moved from the establishment. Time and again, Trump forced his internal opponents into the open. He also won too quickly. He moved much faster than the rest of the party, resulting in a large base of opposition from within his own party. Now the task of removing internal opposition is underway.

The point I made from the beginning is that during a period of negative social mood, the party that offers voters something new will have the strategic advantage. They may lose an election here or there, but they will control the political zeitgeist. Democrats are only now starting to remove their old leadership, with a plot to replace Nancy Pelosi. The Democrats are still relying too much on demographic change and immigration though. They don't think they need to change their policies because they expect them to be accepted by a new electorate. At this point, I don't see a battle within the Democrat party over policy arising, rather the most likely point of conflict will be identity as the old white leadership gives way to younger minorities who are organized on racial and ethnic lines. When they get around to having a policy battle, as the Republicans have been having for nearly a decade, then they will offer a countervailing force. Until then, and as long as mood remains in a negative trend, the Democrats will offer a temporary break from the nationalist agenda. All the pain the GOP has experienced and is experiencing, will clear the way for a unified party that will eventually be handed carte blanche power to remake the nation for generations (assuming it doesn't fracture before then).

Previous coverage

From 2011: Republican party headed for civil war; Democrats to follow?
From 2013: GOP Civil War About to Explode
This will not be won by the establishment. The party establishment is going to be destroyed in the 2014 election as the GOP tears itself apart and swings to the right. This is good news for Democrats in 2014 and 2016, but bad news for 2020 and beyond because it means the GOP is likely to turn increasingly radical. That makes them more likely to win at what will eventually turn into musical chairs. Voters will be fed up with all of the establishment, and the small radicalized GOP will be able to reshape politics.
From 2014: GOP Civil War Nearing Completion, But Democrat Civil War Just Beginning
One theme here has been the effect of negative social mood on the political system and how the GOP began tearing itself apart in 2008. It looks bad in the short-term, but if social mood stays in a negative long-term trend, the party that morphs into a reform party, no matter which way they move, will have a clear path to total power in Washington, D.C. on par with the New Deal revolution in the 1930s.

Following defeat in 2008 with a moderate candidate chosen to appeal to independents, the GOP base re-emerged in 2010 with the Tea Party, pulling the Congressional delegation to the right and electing candidates who disagreed with the establishment on major issues such as national defense. Then came 2012, when the party again chose a moderate designed to appeal to independents and angered the base with their tactics. Now the base is fuming over the leadership once more and the Speaker may even have a challenger in the primary, while the VP nominee from 2012, Paul Ryan, also has lost great stature among the base.

...Every single political analysis I've seen thinks the GOP will harm itself in 2016 with primary battles and that the Democrats will have smooth sailing with Hillary. That may end up being the case, depending on how things play out, the question is whether the GOP and the nation are ready for reform in 2016 or whether it will take until 2020. Should the GOP lose in 2016, by 2020 it would have changed greatly on the issues and will likely nominate (or the party that replaces it will nominate) an anti-interventionist, anti-free trade, anti-bank, anti-immigration candidate. Meanwhile, by then the Democrats may be having riots in the streets again.
That last paragraph is 90 percent accurate, with only the timing off.

Do or Die: 2 Hours to Catalonian Decision

The fulcrum of global politics now sits in Catalonia.

BBC: Spain Catalan crisis: Puigdemont to address region's future
Catalan leader Carles Puigdemont is due to announce his plans for the future of the province amid growing pressure to drop plans to break away from Spain.

There is speculation he may announce a unilateral declaration of independence following a disputed referendum.

His address to the regional parliament is scheduled to take place at 18:00 (16:00 GMT).

Catalan police have been posted outside the parliament in Barcelona, sealing off the grounds to the public.
NYTimes says independence: Catalan Leader Is Expected to Declare Independence

Hope Rises Again! OECD Raises GDP Growth Estimates

A bigger wave of hope has arrived.

World Finance: The OECD expects the global economy to maintain growth momentum in 2018
The latest figures for economic growth showed a 3.6 percent annual growth in the second quarter, marking the strongest pace in more than two years. The last time economies showed such robust performance was in the first quarter of 2015, The Wall Street Journal reported.

In the next six to nine months, the US, Japan, Canada and the majority of European countries are expected to maintain “stable growth momentum”, according to the OECD. Others, such as Italy, are forecast to grow faster.

With regards to China, whose performance is a matter of concern worldwide, the report highlighted that the economy’s output will be boosted in the months ahead by strong performance in its industrial sector.
iFeng: OECD:全球主要经济体首次同步增长 或将摆脱经济阴霾
Every blip in copper reflects a moment of hope for the economy. We are in the middle of a much larger rebound today, one that offers new hope for the global economy. Underlying problems remain unsolved, however. The main issue remains credit growth, and there's no sign of a return to normal in the United States.
As I've said for much of the past 18 months, the rise in commodity prices such as copper is the best argument for a recovery. But until I see a good signal that growth is picking up, I'm sticking to a bearish view. The U.S. economy has grown far below potential for a decade now. A recovery will not be a blip, it will be a rip-roaring rally that sees wage growth climb 5+ percent, inflation rise above 3 percent and the Federal Reserve in panic mode. Under current conditions, President Trump's growth-via-negative strategy of removing illegal aliens, vastly reducing immigration and renegotiating trade is the fastest and surest way to restarting U.S. growth. Wage growth will spur inflation. That will spur investment as debt depreciates. Rising wages and inflation will accelerate capital investment in labor-saving productivity growth. It will be messy, but short of a "white swan" there is no clean exit. There is no restarting a global system that requires a further reduction in developed living standards.

Japan Pacifist Constitution Losing Political Support

Shinzo Abe's challenger in the snap election also supports constitutional reform.

SCMP: Behind Japan’s election, a right-wing coup against democracy is being staged
Polls show 55 to 60 per cent of Japan do not want to change the pacifist constitution. But Abe makes constitutional change a central election plank, while Koike and her lieutenants demand that candidates support her hardline views on the constitution. Whoever wins on October 22, supporters of constitutional change are likely to have a two-thirds majority. “All” it would require is for Abe and Koike to get together to force the issue.

Beijing 33 Existing Home Sales in 7 Days, Agents Quit

Existing home sales in Beijing:
iFeng: 全北京8天只卖了33套房 中介门店上演“离职潮”
Statistical data from Centaline Property Research Center data show that eight days National Day holiday Beijing signed a total of 222 new residential units, second-hand housing 33 units. "Last year, seven days holiday and trading volume contrast, the decline is still very obvious." Said Zhang Dawei, chief analyst with Centaline Property, 7 Skynet before Beijing new residential signed 116 sets, 27 sets of second-hand housing net signed, are the lowest in history to 2009 value, year on year decline of 65%.
The 65 percent decline is a slight improvement from the 71 percent decline for all of September.
Zhang Ming of Maitian real estate said over the past year there was a "quit wave." "We have a maximum of nearly 50 brokers, only 30 something now."

2017-10-09

China FX Reserve Edge Higher in September

Reuters: China Sept FX reserves lifted by appreciation of investments - FX regulator

Goldman: PBoC Could Change Policy Again

The Business Times: Reading PBOC signals takes 'mosaic approach,' Goldman Sachs says
Mr Tang outlined five broad sets of signals for interpreting policy intent:

1) The PBOC's "official taxonomy," such as calling for a prudent and neutral policy stance, released quarterly and typically set at the year-end Central Economic Work Conference.

2) The tone of irregular official comments, with rare deviations from the party line indicating a strong signal.

3) Quantitative liquidity indicators, such open market operations or changes to the Medium-term Lending Facility targeted lending programme.

4) Interbank rate spreads, which reflect financial leverage and influence the policy bias.

5) The repo rate that covers only banks can reflect the policy stance more accurately than the general 7-day repo rate, and gravitates toward it over time, Mr Tang said. High-level actions like changes in the benchmark rate or required bank reserves.

"These various sets of signals each offer a different perspective, and are best pieced together to provide a more comprehensive read of policy intent," Mr Tang said. "Most recently, the RRR news in isolation is a dovish hint," but other indicators such as liquidity operations and signs of financial leverage "would be useful supplementary signals to watch."
iFeng: 高盛:中国央行未来几个月可能再次调整货币政策

Golden Week Home Sales Fall 60pc in First Tier

Caijing: 黄金周楼市遇冷 北上广新房成交量同比降超六成
And "the longest golden week" of the scenic sea of ​​people is different, in the "silver ten" the first seven days, a second-line hot city sales offices, real estate agents seem cold and clear. Centaline Property Research Center statistics show: October 1 to 7, Beijing net sign (including second - hand housing) fell 65%, Shanghai, Guangzhou hand housing turnover fell 78 percent year on year, Fuzhou, Nanjing and other places The decline is also 40 to 50 percent.

2017-10-08

Turkish Lira Tumbles After Diplomatic Spat with USA

ZH: Turkish Lira Crashes 4%, Biggest Drop Since "Failed Coup" Following Visa Suspension Drama
With tensions between Turkey and the US escalating dramatically and unexpectedly in the past few days, when first Turkish police on Wednesday arrested a local employee of the US embassy in Istanbul and charged him with espionage and an attempt to overthrow the government, which was following on Sunday afternoon by the US embassy in Turkey announcing that "effective immediately" it has
"suspended all non-immigrant visa services at all U.S. diplomatic facilities in Turkey"...
I have written about Turkey several times in the past couple of years.

Some posts include:

Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?
2016 Forecast: Turkey Collapses
Turkey Edges Closer to Chaos
Erdoganomics Will Run Turkey Now
2017 Will Be Worse for Turkey

I predicted conflict with the United States and Europe, and that is what has unfolded. Before this spat with the U.S., Germany pulled out of Turkey in June.

NYTimes: Germany to Withdraw Forces From Incirlik Base in Turkey

Back in March, it was a diplomatic spat over domestic European politics.

CNN: Tensions rising between Turkish, European leaders before elections

Turkey is on a path to leaving NATO and being shut out of Europe. The H&S pattern is about to breakdown.