FINTS

2016-09-27

Baltic Breakout?

A sign the commodities rally is for real.

Official Panic on Housing Begins

On September 19, Hangzhou announced buying restrictions:
The city authorities said that, effective from Sept 19, homebuyers without household registration in the city-known in Chinese as hukou-are not allowed to buy a second home in the city's central districts, in a bid to curb rapidly rising house prices, curb speculative buying and prevent risks.
These restrictions were tightened again on September 26, with total ban on non-resident buying, touching off a housing frenzy in Hangzhou.

More buying restrictions were added today. FT: China cities move to halt housing market frenzy
Hangzhou, host of this months’s G20 summit, on Tuesday introduced rules requiring buyers at auction of high-priced land to pay the full amount within a month, a move aimed at reining in China’s infamous “land kings”, developers prepared to pay above the market rate during pricing booms.
According to iFeng, the city will also no longer issue residence permits to home buyers, as well as hike down payments to 50 percent for buyers who already own a home. 再出重拳!杭州宣布暂停购房入户政策

Caixin: Hangzhou Puts Lid on Bids for Land
Authorities in Hangzhou, the capital of Zhejiang province, said Monday that parcels of land in 10 out of the city's 12 districts cannot be sold for more than 150 percent over their initial bidding prices. Once the bids for a plot reach the maximum price, the plot will go to the developer who promises to build the most number of elderly-care facilities on the land, according to the new rule, which went into effect Tuesday.
The moves come in the wake of People's Daily editorial calling for sanity in the housing market: Commentary in China’s mouthpiece media seeks to calm property speculation, draws online derision instead
An opinion piece carried by the website of the communist party media flagship on Monday night said hard work is more meaningful than profiting from property deals.
That's an unfortunate line because it came around the same time as this article: 见证楼市疯狂:房价1年涨幅顶家庭10年收入. The headline says the past 1 year of home price increase is equivalent to 10 years of household income. It discussed people closing their factories to flip houses. It isn't a fictional story, it's a reality repeated all over China.

The source of the devaluation is not the home prices though, it is currency devaluation. Inflation has greatly reduced the value of the yuan and it is expressing itself in soaring property prices. Every credit fueled bubble is the same, with people abandoning real work in order to trade the speculative asset du jour.
“When hard work is deemed inferior to property speculation, it can lead to a wrong direction and values,” the author Li Zhen wrote. “If the public spend too much time on short-term benefits from speculating on properties, it will squeeze out the desire to fight for long-term goals.”
It's called malinvestment. The market is sending the wrong signals because central planners have completely destroyed market signals across the world. China is destroying its economy, consuming wealthy in order to produce an extra 1 to 2 percent of GDP in order to avoid the painful, but necessary, recession that will clean out the bad investments.
One popular comment that was liked by close to 1,000 readers said, “Didn’t People’s Daily get it the wrong way round? It is ridiculous that home prices make our hard work meaningless.” Another widely shared comment said, “These words sounds good to the ears, but those who say them are not good people. Most people spend their lives working hard but eventually lose their earnings to high taxes and rocketing home prices. Policymakers don’t try to reduce the tax. What’s the point of talking about all this trash? ”
The official panic has begun, as have the stringent buying restrictions and credit restrictions that will lead to the next crisis.




Market Says Hillary Won the Debate

If scoring as a traditional debate, Clinton clearly won the latter half of the debate. Trump was chasing topics of little interest to voters and failed to tee off on softball issues such as cyber security. The markets agreed, with heavier buying of Clinton pushing up her odds back above 70 percent.

Judging on the relative metrics of expectations, it appears Trump did better than many were expecting.

The final verdict will be here at the end of the week, when polling data includes the debate performance. Trump has been rising in the state polls and holding within 1 to 2 percent of Clinton in national polls. If the trend stops or reverses, Clinton clearly will have won the debate in the only way that matters. If Trump continues to climb, it signals a stronger trend is underway, one that a poor debate performance didn't affect.

Rising Home Prices Will Stall RMB Internationalization

RMB internationalization will stall due to high prices and the risk of a collapse/outflows. Chinese goods are really expensive and Chinese buy many products from overseas because the RMB is way overvalued. It isn't expressed in an excessively high exchange rate, rather bank accounts are swollen with a sea of credit money coursing through the economy. When this tidal wave of currency can freely flow overseas, the yuan will depreciate out of necessity. The fleeing yuan to this point is the front running of a much larger trade. Right now, most Chinese don't have options and so the money pours into real estate, after being chased out of real estate once before, stocks, bonds and various collectibles.
China and the world money stock, real estate, most of the water to absorb the money, the flow of new loans are also here. Since the Chinese currency is substantially closed operation, the People's Bank currency issued in circulation are circled, China's current total of broad money M2 is added together the United States and Japan.

In terms of purchasing power parity, or other indicators, the RMB was significantly overvalued, overseas shopping has become routine. Once the internationalization of the RMB, the yuan can circulate freely, with the International Monetary confluence overvalued renminbi will depreciate. As the largest carrier yuan, real estate depreciation is a constant.
The end is already in sight because the State Council has planned for Shanghai to become an international financial center in 2020, which requires a convertible currency:
March 2009 decision of the State Council executive meeting, 2020 Shanghai will become an international financial center. For Shanghai to build an international financial center, the biggest problem is the internationalization of the RMB. At the latest by 2020, more than three years time, the internationalization of the RMB is bound to happen. Whether the price inflection point for housing is before the internationalization of the RMB, after, or simultaneously, is no longer important.
iFeng: 学者:人民币国际化 高房价拐点来了

Saudi Bleeding Dollars

Be it China or Saudi Arabia or Deutsche Bank. they are all running into problems that can trace back to the U.S. dollar.

Jeffrey Snider at Alhambra: The Dollar Perspective Matters
The Kingdom’s problem is withdrawal, as in dollars not riyals. The Interbank Offered Rate surged to its highest in seven years last week, as the government prepares to borrow under extraordinary circumstances. The placement of that debt offering is telling; it is to be a $10 billion or so Eurobond flotation. In the mainstream, Saudi Arabia’s problems are pitched as oil prices, and thus quite understandable as being their own.

When the TIC figures were updated for July, even the media began to notice that central banks including Saudi Arabia had been selling consistently for some time. In this Bloomberg article, the authors cite this trend as a risk to UST prices as perhaps another sign that “rates have nowhere to go but up”; a cliché that has been constantly deployed since 2011 and has yet to be done so appropriately.
Selling is happening in a buyers market as demand for low risk assets is high. Rates will have nowhere to go but up once the cycle bottoms and investors have better opportunities.
The same can be said of Saudi Arabia, China, and the primary dealers who are not holding bonds as their sacred American duty but hoarding collateral in a repo system that is increasingly unstable. The mainstream is going to great lengths to avoid putting the words “dollar” and “shortage” together because orthodox ideology means that cannot possibly be the case. Therefore, every financial problem around the world that can be otherwise easily distilled by just recognizing the “dollar shortage” is instead chopped up and isolated as if individual anomalies of idiosyncratic circumstances.

It’s Not Really About Deutsche Bank

As has been the typical mainstream reaction, Deutsche Bank is being written about right now in a vacuum as if the actions and behavior (and losses) of last year were left only to last year. When global illiquidity first popped up (again) in the second half of 2014, it was regarded in the same way – a series of purportedly random, unrelated events. They had to be strung together in a benign chain of distinct actions because convention still holds QE to be money printing. Ditching that convention has the effect of connecting all these dots as a logical and ongoing progression of a “rising dollar” that is really a euphemism for “dollar shortage.”

And it really doesn’t take too many dots to connect. This isn’t to say that Deutsche Bank is in danger of a wholesale liquidity run, only that the bank is perhaps far closer to it than anyone in the mainstream will ever admit. As I wrote last year, it really isn’t even about Deutsche Bank.

2016-09-26

Ping Pong Policy: Bubble to Crash to Bubble

Only four years ago China was worried about overheating housing markets. Then it was worried about a crash. Now it's back to overheating.

China Daily: Nanjing further tightens control on property market
Nanjing, capital of East China's Jiangsu province, adopted new rules restricting home purchases in a bid to cool the red-hot housing market on Sunday, according to a report by Shanghai Securities Daily.

The rules, effective on Monday, symbolize a restart of restrictive policies that were scrapped two years ago.

...Nanjing adopted the most stringent regulations on the property market in February 19, 2011, restraining local residents from buying more than two houses and allowing non-local residents with one full-year social security and tax payment to buy only one house.

Home sales and prices plummeted following the initial adoption of the regulations, but picked up later as people found ways, such as fake divorces or forging social security certificates, to bypass the restraints. In mid-2014, housing prices fell again as banks tightened mortgage loans. The local government then removed regulations on September 22, 2014. Since then, the property market has warmed up and the frenzy has continued.
Early 2014 credit slows and mortgages tightened. Months later buying restrictions lifted as the government panics amid housing slowdown. Two years later the bubble is is back and so are the buying restrictions...
Caijing: 时隔两年 南京楼市重启限购措施

Financial Markets in One Minute

Debate Night: State of the Race

The market shifted in favor of Clinton and Republican House/Democrat Senate ahead of tonight's debate.