July 16, 2018

China GDP Growth Slows After Record Contraction In Shadow Banking Credit

Following the largest contraction in 'shadow banking system' credit, and a record low for M2 growth, fears were building that China's economic growth prospects may lag expectations.

By way of background for tonight's economic data deluge, here are the lowlights.

The drop in shadow bank was particularly sharp for the second month in a row: this has been the area where Beijing has been most focused in their deleveraging efforts as it’s the most opaque and riskiest segment of credit. And, as the chart below show, the aggregate off balance-sheet financing posted its biggest monthly drop on record in June the lass granular M2 reading also posted a growth slowdown, rising only 8.0% in June, down from May's 8.3%, below consensus of 8.4%, and the lowest on record.

Both of which do nothing to help China's credit impulse. Investors see China's liquidity tightening...

Commenting on the ongoing slowdown in China's credit creation, Goldman said that the latest money and credit data highlighted the challenges the government is facing in loosening monetary policy.

But before we shift to the market's perceptions, don't forget, China's trade surplus with the US just hit a Trump-tantrum-creating record high...

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July 13, 2018

European Powers Prepare To Ditch Dollar In Trade With Iran

While the White House’s frenzied anti-Iran campaign has entailed unprecedented attempts to twist the arms of the United States’ traditional European allies, the pressure may be backfiring – a reality made all the more clear by Russian Foreign Minister Sergei Lavrov’s claims that Europe’s three major powers plan to continue trade ties with Iran without the use of the U.S. dollar.

The move would be a clear sign that the foremost European hegemons – France, Germany, and the United Kingdom – plan to protect the interests of companies hoping to do business with Iran, a significant regional power with a market of around 80 million people.

Lavrov’s statement came as Trump insisted that European companies would “absolutely” face sanctions in the aftermath of Washington’s widely-derided sabotage of the six-party Joint Comprehensive Plan of Action (JCPOA).  On May 8, the former host of NBC’s “The Apprentice” blasted the agreement and said that the U.S. would reinstate nuclear sanctions on Iran and “the highest level” of economic bans on the Islamic Republic.

Speaking in Vienna at the ministerial meeting of the JCPOA, Lavrov blasted the U.S. move as “a major violation of the agreed-upon terms which actually made it possible to significantly alleviate tensions from the point of view of the military and political situation in the region and upholding the non-proliferation regime.”  He added that “Iran was meticulously fulfilling its obligations” at the time that Trump destroyed the U.S.’ end of the agreement.

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July 12, 2018

U.S. Consumers On An Unprecedented Debt Binge As Credit Card Debt Soars To An All-Time Record High

Americans are on an absolutely spectacular debt binge.  Does this mean that the economy is getting better, or does this mean that U.S. consumers are totally tapped out and are relying on borrowed money to make it from month to month?  On Monday, the Federal Reserve announced that total consumer credit in the United States increased by a whopping 24.6 billion dollars in May, which was far greater than the 12.4 billion dollar gain that economists were anticipating.  Total U.S. consumer credit has now hit a grand total of 3.9 trillion dollars, but it is the “revolving credit” numbers that are getting the most attention.  Revolving credit alone shot up by 9.8 billion dollars in May, and that was one of the largest monthly increases ever recorded.  At this point, total “revolving credit” has reached a brand new all-time record high of 1.39 trillion dollars, and credit card debt accounts for nearly all of that figure.

The optimists will tell us that this is yet another sign that the U.S. economy is booming, and hopefully they are correct.

But does it really make sense for U.S. consumers to go on a historic debt binge when much of the country is already drowning in debt and just barely scraping by from month to month?

In a previous article, I pointed out that U.S. consumers have been spending more money than they make for 28 months in a row.

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July 11, 2018

"We're In Uncharted Waters" - Stocks, Yuan, Commodities Slump As US-China Trade Wars Re-Escalate

Just when you thought it was safe to BTF Trade War Dip, a headline hits to remind you that President Trump is anything but done with China.

The new list marks the latest escalation of the trade war between the world’s two biggest economies.

And judging by the reaction in stocks and the yuan, it appears that the market's brilliant extrapolation of "no more trade wars" as a result of a 3 days silence (of which 2 was during the weekend) may have been wrong.

As Asia markets open, Dow Futs are down around 300 from the closing highs.

The US has released the list of $200 billion in Chinese products that could be subject to an additional 10% tariff, fulfilling President Trump's promises for further escalation of the burgeoning trade war between the US and China. Meanwhile, a senior US official reportedly told CNBC that China isn't seriously negotiating on trade, suggesting that the hoped-for negotiated settlement might not materialize - at least not anytime soon.

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July 10, 2018

The Root Of The Crisis: Every $1 Of Debt Generates Just 44c Of Economic Output

Exactly ten years ago, in the middle of the summer of 2008, the world was only two months away from the most severe financial crisis since the Great Depression.

At the time, the size of the US economy as measured by Gross Domestic product was around $14.8 trillion– by far the largest in the world.

And the US national debt back then was about 64% of GDP– roughly $9.5 trillion.

Fast forward a decade and take a snapshot of the same numbers:

US GDP has grown nearly 35% to $19.9 trillion.

But the national debt has soared 122% to over $21 trillion.

The debt-to-GDP ratio in the United States is now 106%, meaning that the national debt is larger than the size of the entire US economy. Yet the debt keeps growing. Rapidly.

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July 9, 2018

Chinese Refiner Halts US Oil Purchases, May Use Iran Oil Instead

With the US and China contemplating their next moves in what is now officially a trade war, a parallel narrative is developing in the world of energy where Asian oil refiners are racing to secure crude supplies in anticipation of an escalating trade war between the US and China, even as Trump demands all US allies cut Iran oil exports to zero by November 4 following sanctions aimed at shutting the country out of oil markets.

Concerned that the situation will deteriorate before it gets better, Asian refiners are moving swiftly to secure supplies with South Korea leading the way. Under pressure from Washington, Seoul has already halted all orders of Iranian oil, according to sources, even as it braces from spillover effects from the U.S.-China tit-for-tat on trade.

"As South Korea's economy heavily relies on trade, it won't be good for South Korea if the global economic slowdown happens because of a trade dispute between U.S and China," said Lee Dal-seok, senior researcher at the Korea Energy Economic Institute (KEEI).

Meanwhile, Chinese state media has unleashed a full-on propaganda blitzkrieg, slamming Trump's government as a "gang of hoodlums", with officials vowing retaliation, while the chairman of Sinochem just become China's official leader of the anti-Trump resistance, quoting Michelle Obama's famous slogan "when they go low, we go high." Standing in the line of fire are U.S. crude supplies to China, which have surged from virtually zero before 2017 to 400,000 barrels per day (bpd) in July.

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June 29, 2018

Brandon Smith: "Trade War Provides Perfect Cover For The Elitist Engineered Global Reset"

The political left doesn't seem to have an intelligent grasp of economic issues in the slightest.  I'm not seeing any critical discussion from leftist media outlets or pundits on fiscal uncertainties, and the only reaction that is common from them is that they hope that the trade war results in the financial downfall of the US so that Trump can be voted out in 2020.  They may very well get their wish, but they seem to imagine themselves celebrating at the end of the disaster, and I predict they'll be so concerned with their own financial survival that they won't have time to celebrate...

The initial reaction in conservative circles to the trade war was unfortunately overconfident denial, with many refusing to call the situation a “trade war” at all and some predicting an end to the conflict before it began. Obviously those assumptions are proving incorrect.

Now that acceptance of the trade war as a reality is setting in, the Trump bandwagon is doubling down and embracing blind enthusiasm for what they assume will be a victorious outcome, no matter how long it takes. Though the team-geopolitics mentality is enticing in some ways, I don’t find much in the facts and evidence department to support the notion of America winning a global trade war. As I outlined in my article America’s Debt Dependence Makes It An Easy Economic Target, as long as the U.S. retains historic levels of debt on a government, corporate and consumer level, and as long as we remain addicted to foreign investment in that debt, trade war opponents have all the ammunition they need.

The argument I now see regurgitated over and over is that this trade war has actually been "going on for decades", and only now do we “have a president with the guts to do something about it.” I’m not sure where this nonsense meme was started, but it’s everywhere.

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June 28, 2018

Lynn: "There Will Be A Financial Crash... And Trump Will Be Blamed"

I’m of the opinion that many today are throwing the “baby out with the bathwater” when they claim the conservative versus liberal (right vs. left) construct is phony, or bogus.

Conservatives have lost political ground because they have accepted the moral premises of the Political Left. However, liberals use deception to hide their real motives while, simultaneously, blackmailing conservatives by means of conservative values.

How typical was the mainstream media’s “poor immigrant children” narrative that played the emotional heartstrings of dummies everywhere, like violins.

In the immigration debate, as in the gun control polemic, liberals don’t actually care for the children; at least not in the ways they profess.  They instead callously use the “children” as a means to consolidate their political power.

This explains why liberals never rejoiced for the offspring of lawless invaders when Trump signed the executive order to keep illegal immigrant families together. Instead, they claimed Trump “caved” before the [manufactured] “humanitarian and political crisis”. It’s also why children still attend schools in gun-free zones, while anti-gun protester David Hogg is protected by armed guards; because he’s more important than the other children now.

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June 27, 2018

Yuan Tumbles To 6-Month Lows As SGH Warns China Will Seek To Reduce US Treasuries "Appropriately"

The 'weaponized' yuan continues its collapse - back above 6.6 per USD for the first time since December and down 6% from the March highs.

Chinese stocks are fading at the open after yesterday's bounce in Shenzhen and CHINEXT (tech-heavy) indices...

And this comes shortly after Bloomberg reports that, according to a macro-research firm SGH Macro Advisors, China is girding for a full-scale trade war, and U.S. Treasuries may not be immune to the skirmish.

President Xi Jinping presided over a meeting of China’s highest decision-making body for the first time to discuss China-US relations, according to Sassan Ghahramani, CEO of SGH Macro Advisors, in a note to clients.

At a subsequent two-day meeting, Xi reportedly spent over two hours talking about U.S.-China relations and called on all provinces and ministries to be prepared for a full-scale trade war, according to Ghahramani.

Chinese officials have concluded it appears inevitable the U.S. will impose tariffs on $34 billion worth of Chinese goods on July 6, and will respond accordingly with tariffs of their own.

Contrary to reports last week, SGH's understanding is there have been no talks between the Commerce Departments of the two sides.

In the short term, officials expect the currency will weaken due to trade concerns.

The PBOC also will refrain from increasing holdings of U.S. Treasuries and, in fact, will seek to reduce them "appropriately," Ghahramani writes.

Read the entire article

June 26, 2018

Things Just Went Nuclear In Our Trade War With China, And A Giant Shockwave Is About To Hit The U.S. Economy

It is difficult to find the words to describe just how serious America’s trade war with China is becoming.  As you will see below, the two largest economies on the entire planet are on a self-destructive course that almost seems irreversible at this point.  The only way that this trade war is going to come to a rapid conclusion is if one side is willing to totally submit and accept an extremely bitter and humiliating defeat on the global stage, and that is not likely to happen.  So in the short-term, and probably beyond that, we are going to experience a tremendous amount of economic pain.  In fact, if one wanted to create a recipe for economic disaster, it would be hard to beat having the Federal Reserve dramatically raise interest rates at the exact same time that the U.S. government is starting trade wars with all of the other major economic powers simultaneously.  Unless something drastically changes in the very near future, there is no way that the U.S. is going to be able to get through this without experiencing severe pain.

Many had hoped that President Trump would settle down after the initial salvos in this new trade war, but instead on Sunday evening we learned that he has decided to go nuclear.  The following comes from CNBC

President Donald Trump plans to bar many Chinese companies from investing in U.S. tech and to block additional technology exports to China, The Wall Street Journal reported on Sunday evening, citing people familiar with the matter.

The two measures are set to be announced by the end of the week, and are intended to counter Beijing’s Made in China 2025 — a Chinese initiative to be a global leader in technology.

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June 25, 2018

Fearful Of "Triggering" Trump, China Begins Downplaying "Made In China 2025"

Trump's unorthodox policies appears to be bearing fruit.

Amid a barrage of constant tit-for-tat escalations which are finally beginning to spillover into markets - a necessary condition for Trump's negotiating strategy to be taken seriously by America's trading partners as Goldman explained at the start of the month - Reuters reports that Beijing has begun "downplaying" Made in China 2025, the state-backed industrial policy that has provoked alarm in the West and is the core reason behind Washington’s complaints about the country’s technological ambitions.

Halting China's relentless technological advance, much of which is on the back of reverse-engineered, "merged & acquired", or simply stolen US technologies, is the reason for the latest developments out of Washington, which according to media reports will see the Trump administration enforce rules that bar companies with at least 25% Chinese ownership from buying U.S. firms with “industrially significant technology."

To be sure, Trump's attempt to reduce the Chinese trade surplus with the US is just one aspect of Trump's complaint over US-Chinese relations: with a full-blown trade war looming amid U.S. President Donald Trump’s threats to impose tariffs on up to $450 billion in Chinese imports, his administration has fixed on Beijing’s signature effort to deploy state support to close a technology gap in 10 key sectors.

And, in what is a sign that these threats and diplomatic bluster are working, Beijing is increasingly mindful that its rollout of the ambitious plan has triggered U.S. backlash.

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June 22, 2018

Germany Has Made Over 3 Billion Profit From Greece's Crisis Since 2010

Germany has earned around 2.9 billion euros in profit from interest since the first bailout for Greece in 2010.

As KeepTalkingGreece reports, this is the official response of the Federal Government to a request submitted by the Green party in Berlin.

The profit was transmitted to the central Bundesbank and from there to the federal budget.

The revenues came mainly due to purchases of Greek government bonds under the so-called Securities Markets Program (SMP) of the European Central Bank (ECB).

Previous agreements between the government in Athens and the eurozone states foresaw that other states will pay out the profits from this program to Greece if  Athens would meet all the austerity and reform requirements. However, according to Berlin’s response, only in 2013 and 2014 such funds have been transferred to the Greek State and the ESM. The money to the euro bailout landed on a segregated account.

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June 21, 2018

Chinese Investments In The US Plunge By 92%

Coming amid the escalating trade war between the US and China, many were quick to blame the collapse in Chinese investments in the US on tensions surrounding protectionism. And indeed, according to research firm Rhodium Group, China’s direct investments in the U.S. plunged in the first half of 2018 as Chinese companies completed acquisitions and greenfield investments worth only $1.8 billion, a 92% drop over the past year, and the lowest level in seven years.

The reality, however, is that this has little to do with the Chinese trade spat, and everything to do with China's crackdown on outbound M&A and conglomerate "investments" which as we said back in 2015, were just a thinly veiled scheme to cover capital outflows.

Rhodium confirms as much:

The rapid decline in Chinese FDI in the U.S. was driven by a “double policy punch” -- Beijing cracking down on rapid outbound investment and the U.S. government increasing scrutiny on Chinese acquisitions through the Committee on Foreign Investment as well as taking a more confrontational stance toward economic engagement with China in general.

The investment tracker is based on collection and aggregation of data on individual transactions, including acquisitions, greenfield projects, and expansions.

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June 20, 2018

Deutsche Bank's Troubles Raise Worries About The Future Of The Euro Zone

The euro banking sector is huge: In April 2018, its total balance sheet amounted to 30.9 trillion euro, accounting for 268 per cent of gross domestic product (GDP) in the euro area. Unfortunately, however, many euro banks are in lousy shape. They suffer from low profitability and carry an estimated total bad loan exposure of around 759 billion euro, which accounts for roughly 30 per cent of their equity capital.

Share price developments suggest that investors have lost quite some confidence in the viability of euro banks’ businesses: While US bank stocks are up 24 per cent since the beginning of 2006, the index for euro-area bank stocks is still down by around 70 per cent. Perhaps most notably, ’Germany’s two largest banks, Deutsche Bank and Commerzbank, have lost 85 and 94 per cent, respectively, of their market capitalization.

With a balance sheet of close to 1.5 trillion euro in March 2018, Deutsche Bank accounted for around 45 per cent of German GDP. In international comparison, this an enormous, downright frightening dimension. It is mostly the result of the bank still having an extensive (though not profitable) footprint in the international investment banking business. The bank has already started reducing its balance sheet, though.

Beware of big banks — this is what we could learn from the latest financial and economic crises 2008/2009. Big banks have the potential to take an entire economy hostage: When they get into trouble, they can drag everything down with them, especially the innocent bystanders – taxpayers and, if and when the central banks decide to bail them out, those holding fiat money and fixed income securities denominated in fiat money.

Banking Risks

For this reason, it makes sense to remind ourselves of the fundamental risks of banking – namely liquidity riskand solvency risk –, for if and when these risks materialise, monetary policy-makers can be expected to resort to inflationary actions. In fact, to fend off these risks from materialising, central banks have committed themselves to pursuing chronically inflationary policies.

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June 19, 2018

Comcast, AT&T Set To Become World's Most Indebted Companies With Over $350BN In Debt

At a time when the IMF estimates that more than 20% of the world's companies would be unable to cover their interest payments if interest rates moved sharply higher, Comcast and AT&T are poised to become the most indebted companies in the world following media megadeals that leave the two companies with little room to maneuver if profits fail to materialize, according to the Wall Street Journal.

As WSJ points out, assuming both are finalized, the deals would leave the two companies with a combined $350 billion in bonds and loans, more than one-third of a trillion dollars in debt. The number is making some bond fund managers nervous, and some are saying they won't include Comcast or AT&T debt in their portfolios - unless they bear a suitably high yield.

"It’s a very big number," said Mike Collins, a bond fund manager at PGIM Fixed Income, which manages $329 billion of corporate debt investments. "It has fixed-income investors a little nervous and rightfully so."

But rather than looking at these deals as isolated examples, WSJ reminds us that companies only arrived at this level of corporate indebtedness following a decadelong surge in corporate borrowing, as companies - including these two telecoms giants - eagerly bought back their shares to appease investors, and financed these purchases with debt. Global corporate debt, excluding financial institutions, now stands at $11 trillion. Meanwhile, the median leverage for companies with an investment grade rating has increased by 30% since the financial crisis.

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