by ilene - December 31st, 2010 7:24 pm
Courtesy of Michael Pettis of China Financial Markets
For the past two months there have been very strong rumors in the markets that next year’s new lending quota was going to be set somewhere between RMB 6.5 trillion and RMB 7.0 trillion. For comparison’s sake, total new lending last year amounted to RMB 9.6 trillion, and this year the quota was RMB 7.5 trillion.
But to me RMB 6.6-7.0 trillion seemed likely to be low (and ”low” is a relative word here – compared to the years before 2009 these are actually very large numbers). We have been telling clients for months, for example, that even ignoring the reportedly large amounts of loans shifted off bank balance sheets this year, it was very unlikely that 2010 would end with new lending below the RMB 7.5 trillion quota. In fact by the end of November we were already over RMB 7.4 trillion, so I suspect we are going to finish the year with total new lending at pretty close to RMB 8 trillion. Add in the loans taken off bank balance sheets and we have easily blown through the 2010 quota.
Tuesday’s South China Morning Post has an article suggesting that we may have been right:
China will probably target a limit of about 7.5 trillion yuan (US$1.1 trillion) in new loans next year, the same as this year’s target, a leading official newspaper reported on Tuesday, an indication that policy could be slightly looser than expected. Control of credit issuance is one of the most important monetary policy tools in China and many in the market had assumed that Beijing would lower the new lending objective next year as a way of tamping down on inflationary pressures.
But the report on the front page of the China Securities Journal, citing an unnamed source described as authoritative, suggested otherwise. “The Chinese economy is very big now and a target of 7.5 trillion yuan in new loans will not trigger all-round inflation,” the newspaper quoted the source as saying.
The quota hasn’t been set, and may even be set at RMB 8 trillion, but even this number is, I suspect, going to be lower than the reality. It is proving very difficult to keep growth up in China except with massive increases in bank-driven investment, even though this year China got a lot of help from the surge in…
by ilene - December 31st, 2010 7:14 pm
Courtesy of Mish
In response to European Sovereign Debt Crisis in Pictures; PIIGS Spreads to Germany at or Near Record Levels I received this chart from Chris Puplava at Financial Sense.
click on chart for sharper image
Chris writes "In addition to foreign credit risk (Greece, PIIGS), I’m seeing my CINN STATE (CA, IL, NY, NJ) Credit Default Swap (CDS) composite moving higher again."
by ilene - December 31st, 2010 6:35 pm
Courtesy of Mish
The sovereign debt crisis in Europe is still simmering. Country by country, spreads to German debt are at or near record levels.
Chart follow snips from German Bonds Climb in 2010 as Fiscal Crisis Roils Euro Area
German bunds climbed this year, the best performance since 2008, as the fiscal crisis that roiled the euro area’s most-indebted nations drove investors to the safest fixed-income assets in the region.
Top-rated euro-denominated securities from Austria, Germany, the Netherlands, Finland and France led gains in 2010, while the debt of Greece and Ireland, which sought bailouts this year, had the biggest losses among 26 markets tracked by Bloomberg and the European Federation of Financial Analysts Societies.
German bonds returned a profit of almost 6 percent this year, according to the Bloomberg/EFFAS data, compared with a 20 percent loss on Greek debt, a 14 percent slump in Irish securities and an 8 percent decline for Portuguese securities. Spanish and Italian bonds also made a loss as investors demanded increasing yields to own the debt of the euro area’s high-deficit nations.
As borrowing costs climbed again amid a wave of sovereign downgrades that saw Greek debt cut to non-investment grade at Moody’s Investors Service and Standard & Poor’s, Ireland opted on Nov. 28 to follow Greece, accepting an 85 billion-euro bailout. That, too, failed to prevent the spread of the debt crisis, fueling investor concern that Europe’s stronger nations may be unwilling or unable to foot the cost of future rescues.
The extra yield investors demand to hold Greek 10-year government bonds instead of German bunds, Europe’s benchmark government securities, surged to a euro-era record of 973 basis points on May 7, and was at 953 basis points today. It started the year at 239 basis points. The difference in yield, or spread, between German bonds and 10-year debt from Ireland, Portugal, Spain and Italy also reached euro-era records.
Germany, Ireland, Portugal, Greece Sovereign Debt Yields
click on chart for sharper image
France, Spain, Belgium, Italy Sovereign Debt Yields
click on chart for sharper image
|Sovereign Debt Spread to Germany|
|Country||Jan 01||May 07||Dec 30|
by Zero Hedge - December 31st, 2010 6:00 pm
Courtesy of Tyler Durden
As we wrap up 2010, the last thing left to do is to recall the stories that generated the most buzz on Zero Hedge. With stories touching on everything from the flash crash, to JPM’s silver market manipulation, to the scramble for physical metals, to capital controls, to the manipulated (and successful) push to get Americans out of Money Market accounts, here are the top to stories of the past year (and stunningly all click-bait, slideshow free).
- In tenth place, with 80,842 reads, “The Hindenburg Omen has Arrived” is the story that Zero Hedge brought to the surface as soon as the H.O. was confirmed on August 12, and ended up making waves for the balance of the summer. According to some, it was the concerns about the Hindenburg Omen’s self fulfilling prophecy that cemented the Chairman’s resolve to proceed with the Wood’s Hole speech two weeks later on August 27, which made QE2 a certainty.
- In ninth place, with 80,942 reads, “MUST HEAR: Panic And Loathing From The S&P 500 Pits” is the definitive, and most visceral, recollection of the terror that had gripped each and every single momo trader as the Dow briefly dropped by 1,000 points on May 6. One thing is certain: as the SEC has taken absolutely no proactive steps to address the conditions that generated the record Dow drop, this is just the first of many “flash crashes” for US stocks.
- In eighth place, with 82,232 reads, posted on February 11, and long before it became apparent just how insolvent Europe was, “Just How Ugly Is The Sovereign Default Truth? How Self Delusions Prevent Recognition Of Reality” – our summary of Dylan Grice’s phenomenal analysis on the cognitive dissonance when it comes to that last bastion of backstops: sovereign insolvency. The analysis is even more relevant now than it was almost a year ago and we urge readers go through it one more time now that its argument has been fully borne out.
- In seventh place, read 82,297 times, and appearing almost a year ago, “This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied” discussed the government’s stealthy plans to force ordinary US citizens and corporations to force the move of as much money as possible out of money markets and into riskier
Bill Gross Telling Bloomberg To “Avoid Dollar Denominated Government Debt” Probably Means Bond Rout Is Over
by Zero Hedge - December 31st, 2010 4:57 pm
Courtesy of Tyler Durden
When Nassim Taleb and Marc Faber say that US government debt is a suicide investment, one can be allowed some skepticism. After all, they are likely just talking their book. On the other hand, when the manager of the world’s biggest bond fund, whose flagship fund Treasury holdings amount to almost $80 billion goes on Bloomberg and says to “avoid dollar-denominated government debt” better known as US Treasuries, and instead recommends viewers invest in “stable” currencies like the Peso, the BRL or the CAD, then you know the bottom in bonds is in. So in addition to dumping fixed rate bonds (which means Pimco will again be able to buy on the cheap ahead of QE3, which as Larry Meyer has by now likely advised Pimco is a sure thing), Gross also told Bloomberg that his other two strategies are to buy floating rate debt (over fixed), and lastly recommend credit spreads over interest rate duration risk. For those who find something troubling with a $1 trillion fixed income manager talking down his investments, and are still wondering whether or not QE3 is coming, we suggest putting one and one together. And while at it, they should also consider that Pimco now holds over $100 billion in MBS: a notional amount last held just as QE1 was announced.
full clip after the jump.
by Option Review - December 31st, 2010 4:16 pm
Today’s tickers: IMAX, HIG, VRGY, TOL & WM
IMAX - Imax Corp. – Earlier today you’d have needed more than just 3D-glasses to see the trail left behind by a near 20% surge in shares of the movie-theater corporation. Rumors have emerged that Japan’s Sony Corporation is set to make a $40-plus bid for the company enamored by its growing popularity amongst movie theater-goers. With more films built using 3D-technology shares in the company had already tripled this year in anticipation of growing revenues. Earlier in the week we witnessed what appeared to be a delta-neutral strategy that would have benefitted perfectly from the surging share price, which has subsequently halved its intraday gain. An investor sold stock at around $25.00 and bought call options at the $30 strike expiring in March. As the shares jump in value, the delta on the option swells to give the investor a far-greater long exposure to the stock hugely eclipsing losses from the short position. But is looks like this trader is sitting pretty today as developments unfold and there is no action at that strike price. Rather investors appear to be more concerned with an imminent Sony bid and have targeted the January expiration $35 strike, which has traded in a range spanning 40-cents to $1.10 per contract as the share price digests today’s news. Trading currently at 60-cents the contract would make money by expiration only if shares in Imax surged by more than 18.6% based upon a share price at $30.00.
HIG - Hartford Financial Services Group. – Earlier in the month it appears that an options trader took to a bullish call strategy on the multi-line insurer. December 8 was a high volume day for the stock but also saw around 7,500 calls expiring in January 2011 trade at a 55-cent premium. The strike price of $27.50 was above the closing share price that day by exactly 10%. Just nine days ago the share price hit home lifting the premium to 90-cents. Since then and…
Looking for Love in all the Wrong Places? Contrary Investor Examines Misguided Fed and Obama Admin. Efforts to Increase GDP Via Increased Consumption
by ilene - December 31st, 2010 3:42 pm
Courtesy of Mish
The latest Contrary Investor Subscriber Report contains an interesting set of charts and commentary that shows just how misguided Fed and Obama administration focus on supporting consumption as the means to improve GDP.
Their analysis is always well written, so inquiring minds may wish to take a closer look.
I have permission to do occasional clips so please consider this clip from Looking For Love In All The Wrong Places?
Looking For Love In All The Wrong Places?…You are all very much aware of the change in market tone and sentiment over the last four months. Strategists and investors fretting over rapidly deteriorating macro leading economic indicators (remember the ECRI reaching levels always consistent with recession?) and contemplating the possibility of a double dip has given way to these same folks now trying to one up each other in putting forth ever higher domestic GDP growth estimates for the new year. Goldman (Jan Hatzius) has been a poster child example of this about face, but they have plenty of company. The transition is not hard to understand. With the heavy POMO started in September, followed up by QE2, and now the tax cut extension legislation that should add about $400 billion of "new" fiscal stimulus in 2011, we better have an improved outlook. Certainly THE issue as we move into 2011 is the potential for organic economic growth, or otherwise. Personally, we just can’t put a big "multiple" on marginal stimulus (read borrowed money) additions to macro near term economic expansion. But this issue will not become relevant until 2011 is well underway.
As we see it, one of the really big keys for economic and we believe ultimately financial market performance in the new year will be first, whether corporations spend their currently amassed "savings". It’s more than well known that through both operations and borrowing in a generationally low interest rate environment, corporations are sitting on top of a boatload of cash at the moment. We’re already seeing the M&A deals primarily in tech and health care sectors taking place. Secondly, again if QE2 is to be effective, corporations must spend their cash domestically, and not let that cash "leak" into foreign direct investment and/or capital markets. Preferably, corporations would spend their cash domestically on productive investment. Even we’ll admit, that would be bullish. And crazily enough, it would be in stark
by Zero Hedge - December 31st, 2010 3:38 pm
Courtesy of Tyler Durden
From the Contrary Investor
Just Where Is The Equity In All Of This?
Little Dent In The Story?...Recently demographer Harry Dent and Dave Rosenberg have been discussing the fact that as we look ahead over the next 12 years or so, the 45-55 year old population segment in the US is set to decline. It’s the population wave coming after the boomers and before the gen-xer’s. Of course, and as the graph below so eloquently displays, following the boomers in terms of a population bubble is one hard act as you can see what the boomers did to the 45-55 year old population segment in terms of growth from the early 1980′s until literally now.
For anyone who has been a demographics devotee, this should not be new news at all. As you know, Dent has made a very nice living as demographer and financial market commentator, basing his ongoing economic and financial market outlook on forward demographics. To be honest, there is a lot of validity in his approach and we suggest his comments be included as one tool in the greater toolbox of longer term decision making. As both Dent and Rosenberg have recently pointed out, and as the graph above unmistakably presents, the last time we saw a decline in the 45-55 year old US population segment was from the mid-1970′s to the early 1980′s. Specifically, this population group peaked in March of 1973 and then troughed in July of 1983 before literally exploding higher until just recently when we have again seen yet another peak for now. Dent expects a steady 45-55 year old population segment decline into the 2021-22 period. Both Dent and Rosenberg suggest investors focus in on this fact intently as it’s the 45-55 year old age bracket that is the largest consumer segment, the largest investor segment, etc. If indeed nominal body count decline lies ahead, then just what does that say for the US economy and financial asset prices that theoretically are a reflection of the real economy?
In the following table, we basically singled out the period described above of covering the peak and trough of this population segment in the 70′s and 80′s. And what we are looking at is the increase in real US GDP over the 3/74 to 7/83 period. For a bit of compare…
by Zero Hedge - December 31st, 2010 3:22 pm
Courtesy of Tyler Durden
And an appropriate story to end 2010 with: ScotiaMocatta, one the world’s biggest bullion banks, is now sold out of all silver bars.
by ilene - December 31st, 2010 3:18 pm
Courtesy of The Pragmatic Capitalist
Some excellent thoughts on the macro economy courtesy of Warren Mosler:
The relatively modest recovery remains on track.
Left alone, I see GDP in the 3.5%-5.5% range for next year, and possibly more.
Though they didn’t add much, the latest tax adjustments did take away the down side risk of taxes going up at year end.
I do, however, see several negatives with maybe up to 25% possibilities each, meaning collectively the odds of any one of them happening are a lot higher than that.
The new Congress is serious about deficit reduction. The risk is they will be successful, and it seems they even have the votes to get a balanced budget amendment passed.
China could get it wrong in their fight against inflation and cause a pretty severe slump. In fact, I can’t recall any nation that didn’t cause a widening of their output gap in their various fights against inflation.
The ECB’s imposed austerity in return for funding at some point reverses the current modest growth of that region. Not to mention the small but real risk the ECB decides to not buy any more member nation debt in the secondary markets.
While a less important economy for the world, the UK austerity looks ill timed as well.
The Saudis could continue to hike their posted prices which could reduce US demand for domestic output. The spike to the 150 level in 08 was a significant contributor to the severity of the financial collapse that followed.
There are also several lesser factors I’ve been listing the last few weeks that could cause aggregate demand to disappoint.
On the positive side is always the possibility of a private sector credit expansion taking hold.
Traditionally that would be borrowing to spend on housing and cars.
Federal deficit spending has done its job of restoring incomes and monetary savings, and will continue to do so.
Financial burdens ratios are down, car sales are showing some modest growth, and housing looks to have at least bottomed. And both are at low enough levels where there could be a lot of growth and they’d still be very low, especially housing.
I don’t see inflation as a risk (unless crude spikes a lot higher), nor deflation (unless one of the above shocks kicks in).
And I do see the ‘because we think we could be