2017 Picks: A Mixed Bag

At the end of 2016 I made a few predictions for 2017.

I thought Turkey and Mexico (TUR and EWW) would decline. I missed the broader emerging market trend and the extent to which the U.S. dollar would correct, although in Turkey's case, the rally is almost entirely driven by equities, not currency.

I thought FCG was a good speculation at the end of 2016 considering it was very cheap relative to the energy sector. I thought it would at least perform no worse than energy, but it underperformed again. Still, it did not hit a new relative low versus SPDR Energy (XLE). FCG's relative low was achieved in early 2016. I still like it as a relative bet on energy for anyone who is bullish on energy. I make no call on the overall energy sector; I currently own November puts on SPDR Energy Exploration & Production (XOP).

I was right on the solar (TAN) call. And the Chinese yuan.
In the near term, the Chinese yuan looks a little oversold. I expect a bit of a rally after it cracks 7, even better if it rallies before since it will catch the bears. A 3 percent rally takes USDCNY to about 6.75, a 5 percent rally to 6.60. The PBoC has given bears nice entry points before, hopefully they provide another one. I don't think USDCNY will be the best currency play.
It ran all the way to USDCNY 6.48 on September 8. On September 10, I wrote: Time to Short the Yuan? USDCNY hit 6.62 today.

Kurds Vote on Independence

More bad news for Turkey.

CNN: Iraqi Kurds cast their votes in historic referendum
Iraqi Kurds have started casting their ballots in a controversial independence referendum Monday as tensions between Iraq's largest ethnic minority and the Iraqi government in Baghdad intensified.

Voting got underway at 8 a.m. local time (1 a.m. ET) and will end at 6 p.m. local time (10 a.m. ET). The first results should be known within 72 hours.

...Both Iran and Turkey have sizable Kurdish minorities and fear a vote for independence in Iraq might galvanize movements in their countries.
One of the more realpolitik solutions for Islamic terror was to blow up the entire Middle East via Kurdish independence, forcing jihadists to fight internally.

TUR broke out of the head-and-shoulders pattern, but it remains in a downtrend. I expect the rally in 2017 will prove to be a headfake.


Third-Tier Cities Tighten Real Estate Regulations

iFeng: 七地发楼市新政 多限新购房再上市
Another wave of market regulation policies, and shift focus from a second-tier cities to second and third tier cities. September 22 to 23 in the afternoon, there have been Nanchang, Xi'an, Chongqing, Nanning, Changsha, Guiyang, Shijiazhuang 7 cities introduce new market regulation policies, Chongqing, Nanchang, Nanning, Changsha, Guiyang, Shijiazhuang 6 cities are new then make a limited purchase of housing on the market, ranging from 2-5 years time.

Asia-Pacific Urban Development Branch President Chen will keep the real estate yesterday in an interview with Beijing News reporter, he said that second-tier cities housing prices rose significantly, intensive introduction of restrictions on sale and other control measures, mainly in order to curb price gains.
Xinhua interprets: 新华社:2天8城楼市调控加码,释放什么信号?
So why these eight cities to be overweight regulation? Industry insiders believe that this round of regulation with a precision, "where prices rose significantly, points to where the regulation."

Reporters noted that this regulation to raise the capital city does not belong to more than 15 first- and second-tier cities hot spots, but recently a new round of price and trading volume rose city. These cities are mostly net inflow of population, there is upward pressure on prices, regulation of further tightening reasonable.

..."To give the market a clear signal that the market regulation will not relax for a period of time, will help guide market expectations." President Yang Research Institute is now home chain collar said.

Keer Rui Research Center analyst Yang Kewei that the impact of policies on the demand side restricted the biggest change is that the previous "urgent urgent buy sell" short-term psychological hold, by reducing transaction frequency, eliminating the short-term profit mentality, in order to curb investment speculative demand, in line with the central "room to live not fried" spirit.

Yang Kewei is expected in the short term, it will result in restricted or down real estate turnover, with elongated period of regulation, the possibility of some local developers to cut prices to take the amount of the increase is expected to more projects will accelerate the market.

Good Political News Peaks In Europe

Germany's high water mark in social mood sees the two major parties losing support and the populists rising. Since CDU refuses to partner with AfD and SPD refuses to partner with CDU, the only possible coalition is between CDU, FDP and Green, the "Jamaica" coalition (named for the three party's colors matching the flag of Jamaica).

This also marks the peak of a string of positive election results since Brexit. The road ahead is much less favorable with Italy on tap and Spain heading towards major internal conflict. The Catalonian indepedence vote is in October. The next big national election is in Italy, where right-wing and populist parties dominate the polling.

Reuters: Italy's 5-Star names youthful new leader as election nears

Guardian: The view from Madrid: anger and sadness as Catalans prepare for vote

Germany held Europe together, but if Merkel is as weakened as she appears, she will have a difficult time forcing austerity on Europe because she will need to keep the Greens happy to stay in power.


AfD Could Become Largest Opposition Party in Germany; Catalonia Crackdown in Spain

Alternative for Germany (AfD) is currently polling in third place ahead of Sunday's election.

German election 2017: Polls and odds tracker as Merkel seeks fourth term as Chancellor

German social mood is among the strongest in Europe, yet the anti-immigration populists are moving into the pole position for opposition against what could be a "grand coalition" between the center-right and center-left parties. When social mood has its next leg down, the centrist parties will collapse and the leading opposition parties will take power.

Meanwhile in Spain, where social mood is already negative, the secessionist movement in Catalnia is spiraling towards Exit.

ZH: Unintended Consequences & Ugly Repercussions: It's Getting Worse In Catalonia
But, as WolfStreet.com's Don Quijones points out Madrid’s crackdown on Catalonia is already having one major consequence, presumably unintended: many Catalans who were until recently staunchly opposed to the idea of national independence are now reconsidering their options.

A case in point: At last night’s demonstration, spread across multiple locations in Barcelona, were two friends of mine, one who is fanatically apolitical and the other who is a strong Catalan nationalist but who believes that independence would be a political and financial disaster for the region. It was their first ever political demonstration. If there is a vote on Oct-1, they will probably vote to secede.

The middle ground they and hundreds of thousands of others once occupied was obliterated yesterday when a judge in Barcelona ordered Spain’s militarized police force, the Civil Guard, to round up over a dozen Catalan officials in dawn raids. Many of them now face crushing daily fines of up to €12,000.
Spain offered some concessions to Catalonia, similar to those given to the Basque region.
Catalans want a new constitution to replace the one adopted in 1978 following the death of longtime dictator Francisco Franco and a statute like the one in place in the northern Basque Country which collects its own taxes and contributes little to Spain's central coffers, Bartomeus said.

Juan Montades, a political scientist at the University of Granada, said that if the rules are changed, Andalusia, Spain's most populous region which benefits from the redistribution of wealth from Catalonia, has warned that it would "be in the front line to defend its interests."
The battle in Spain is strong because Catalonia is wealthy. It is more leftist than the rest of Spain. It also has a long and unique regional history, including local dialect. The last part is the most important for most secessionist movements.

Meanwhile in America, getting a raw deal (or seeing that the future is set) is enough to propel separatist movements such as the American Revolution and Confederacy in 1861. American secession seems laughable with social mood at a bear market peak, but #CalExit is getting off the ground. Many residents in California are foreigners, recent immigrants from all over the world, but mostly from South and Central America. This doesn't create ethnic unity, but it adds a layer of ethnic separation from the rest of the country on top of political and economic issues.

Furthermore, blue states such as California are the strongest opponents of secession and devolution of powers favored by red states. Both left and right will see themselves as winners if California leaves. Although negative social mood and hateful rhetoric will fuel a separation, it is more likely to be amicable given the political background. The risk is that other blue states such as New York threaten to leave as well because the country will move right, and then blue states such as Washington, Illinois, New York threaten to kick out the blue cities such as New York, Seattle and Chicago, turning the states as red as the Deep South.


Beijing Banks Raise Mortgage Interest to 20pc Premium

iFeng: 央行北京营管部:支持北京房贷利率调整
According to Securities Daily informed that since September 14, a number of banks in Beijing the first suite of lending rates continue to rise, after the adjustment, the first suite of mortgage interest rates go up 5% to 10% into the mainstream, while individual banks adjusted to the lowest performing reference interest rates go up 20% of the interest rate policy, there are more outlets of individual banks first suite collective "pause orders."

"Securities Daily" quoted the news that the number of real estate agent, has been notified of two state-owned big firms, September 14 started the first suite of 5% of the lowest floating interest rate policy; at the same time, the implementation of individual banks adjusted to the lowest benchmark interest rates go up 20% of the interest rate policy; as well as the first suite of individual banks to suspend orders.

New Home Prices Rise 0.2pc in August

Although prices rose in 46 cities last month, the number of cities seeing price declines jumped to 18 as the average increased fell to 0.2 percent. Existing home prices increased 0.3 percent, with 54 cities seeing rising prices.

Recent months still saw large single month prices increases, but that wasn't the case in August. Guilin and Harbin saw the largest increase in new and existing home prices respectively, both rising 1.1 percent.


Everything is Destroyed, Even the Dreams: Huobi, OKCoin Executives Told to Stay in Beijing

iFeng: 火币网、OKCoin负责人、高管被要求不得离京
A number of informed sources, the current Bitcoin trading platform each person in charge, and so not to leave Beijing executives to cooperate with the investigation. In accordance with regulatory requirements, the trading platform for shareholders, actual controllers, executives, such as chief financial officer during the cleanup exit to fully cooperate with relevant work in Beijing.

The industry believes that, with the two virtual currency trading platform shut down all operations, is expected to Bitcoin prices will fall. However, now with the basic out to do bad, investor sentiment being stable, Bitcoin stabilize prices for the time being. As of press time yesterday, reporters, Bitcoin prices declined slightly, quoted near 19,000 yuan.


Why Did Real Estate Stocks Skyrocket in the Past 6 Months?

An article in iFeng asks why real estate stocks skyrocketed: 地产股为何半年内普遍疯涨三到五倍?答案令人震惊
So the question is: In the past six months is the period of the country continue to tighten regulation of the property market, the property market is gradually cooling. Now, the regulation has been extended to the northeast and western regions, in which case, why real estate stocks also so cattle?

A few examples from the article:
Two days ago, our team of "Financial Powerhouse (ID: tttmoney8)" by National Bureau of Statistics has just released analysis of the current dangerous situation facing the housing market. In a nutshell - due to the inventory moving very quickly, the current average digestion cycle of new housing is only three months or so; overall, the average real estate digestion period (including office buildings, commercial property) is only over five months a. But the "office" and "commercial space business" is still very long period of digestion, were 10.6 months and 18.4 months.

In other words, residential developers to continue re-stocking phase (of course, there is still excess partial).

But this is far from the real estate reason leading shares rose.

The core reason is the rapid rise in land prices, so that value of the large land banks rose significantly.

...A large international investment bank for this housing prices made an estimate, this time scored above the land of housing prices is to spend 458 billion yuan, but now the value has risen to 9,000 billion yuan. In other words, this intrinsic value of housing prices rose by 450 billion yuan, but its total current market value of only 300 billion yuan (RMB) or so.

Do not think the developers have significant "cover" behavior, in my observation, this is a fast development, rapid sales characterized by housing prices, the products are mostly for just need to improve the type of demand, rarely engage in particularly high real estate. However, the past couple of years land prices rising too fast, so reserve value of the land it has quickly doubled!

And that is an important reason for the stock price soaring ward rate.


TSF Credit Growth Up 21.5pc YoY

Too soon to say if growth peaked in July at 24.3 percent, but it may have given the crackdown on shadow lending. If both TSF and M2 decelerate together, credit growth contraction in China will finally begin in earnest.

China's Reserve Coverage of M2 Slips to 12.4pc

The yuan is rising, but there's no fundamental pressure pushing the yuan up. It is solely dollar weakness. Chinese FX reserves are down to 12.4 percent of M2. This number does not matter to the markets and it may never matter if the fundamentals reverse, but we're getting within striking distance of 10 percent.

The Chinese government cracked down on overseas acquisitions, requires paperwork for foreign currency transactions over $147 and told multinationals not to take their money home for a reason, and it isn't because the yuan is fundamentally strong. The yuan was more useful three years ago.

M2 Slows to New Low in August

M2 growth slowed to 8.9 percent over the past 12 months, but 3-month annualized growth ticked up to 11.3 percent. The latter number is 2.8 percentage points below the August 2016 pace.

M2 historically slows sharply in September and October.


What A Steel: Chinese Production at New High in August

China Daily: China, US recognize that steel overcapacity requires global solution
Meanwhile, the Chinese delegation told the US side that China had actively taken measures to cut steel overcapacity, Zhu said, citing China's plans to reduce steel capacity by 100 million to 150 million metric tons from 2016 to 2020.

Bloomberg: China’s Steel Mills Run at Full Tilt as Output Hits New Peak
Crude steel output climbed to 74.59 million metric tons last month, surpassing the previous peak of 74.02 million in July, and up from 68.57 million in August 2016, according to the statistics bureau Thursday. While that’s an all-time high for the month, daily output was less than the record in June. Production surged 5.6 percent to 566.4 million tons in the first eight months, also a record.
Extrapolate the August 2017 increase from August 2016, and you get 72 million tons of increased production. Year to date, production is up 30 million tons.

By the time China cuts 100 million tons of production, it will be back to late 2016 levels.

Tariffs are coming.

Real Estate Investment Steady in August

Real estate investment growth rose 7.9 percent YTD, 7.8 percent in August.

NBS: 2017年1-8月份全国房地产开发投资和销售情况

Fixed Asset Investment Tumbles in August, Primary Industry Investment Collapses

Fixed asset investment rose 7.8 percent YTD and 3.8 percent in August.
Private FAI increased 6.4 percent YTD and 3.0 percent in August.

Private investment in primary industries has been double digits for months on end, but fell to 1.5 percent in August. Although it is only 4 percent of total private investment, it is the beginning of the economic cycle. It may be China is finally cracking down on overproduction.

NBS: 2017年1-8月份民间固定资产投资增长6.4%
NBS: 2017年1-8月份全国固定资产投资(不含农户)增长7.8%


Apartment REITs Coming to China

iFeng: 住房租赁REITs酝酿启动 证监会相关政策在制定中
In essence, REITs (Real Estate Investment Trust) is a way of asset securitization. Some real estate companies have tried to launch "category REITs" products. However, these "category REITs" products mainly for institutional investors, the real public offering REITs products have not yet launched.

China Real Estate Development Group Chairman Meng Xiaosu previously disclosed in public, recently the China Securities Regulatory Commission to China Securities Industry Foundation of the Association of the name of the organization organized a special committee to promote real estate securitization. The reporter also learned that the current domestic long-term rental apartment management enterprises in the active contact with the SFC issued housing leasing asset securitization projects, especially the REITs project.

...Driven by the relevant policies, the industry is expected, housing rental market space will be very broad. Studies have predicted that in 2020 the size of the domestic housing rental market up to 1.6 trillion yuan, 2030 can reach 4 trillion yuan. First-tier cities in the net population inflow, especially in the north of the three major cities of the housing rental market to an average annual rate of 15% growth.
For those interested, there's also a poll on fertility and real estate under the article, asking readers if they plan on having 2 children, reasons for and against, if they would move with two children, how large an apartment they would want with two children. Note the link goes to iFeng Wuhan. There are probably multiple surveys for different cities.

Global Times: Time is right for China to embrace REIT benefits
The Chinese government has recently called for ramped-up development of the home rental market in bigger cities. A total of 12 cities including Guangzhou, Zhengzhou and Hangzhou have been designated for a trial program that aims to give renters the same rights as homeowners so as to jumpstart China's rental market. This could provide impetus to set up the country's REIT market as well, as it will encourage the professional leasing business, which can ensure yields from securitized property assets. It's noteworthy that the shift from reaping rapid gains by buying land for development toward earning long-term rewards through leasing businesses will fuel demand for REITs over time and ultimately result in a breakthrough in the country's efforts to set up its REIT market.

Progress with REITs could begin with a pilot program on a city-by-city basis, as it will be easier to manage. And various participants such as banks and lawyers can consider a workable framework for a nationwide launch.

Unrestricted Warfare Author New Book: China One of Three Powers

Wang Xiangsui wrote Unrestricted Warfare at the turn of the century. The book is essentially the case for asymmetric warfare.

Now Wang has a new book out.
Beijing Youth Daily: 《三居其一》建言中国复兴战略
In the "Sanju one: the world's future positioning of China," a book, WANG Xiang Sui boldly made a "world order reconstruction, third world" prophecy. On the one hand the United States may abandon its single-handedly created the global system, and focus on the United States itself, back to become "America America"; Europe will endeavor to prevent re-fragmentation of the European trend off, continue to follow the path of the European Communities; and with the China "along the way" initiative to promote win-win cooperation in the Pan-Asian community has been created. "Once we dominate the world of modern capitalist system a serious rift third of the world is becoming a new trend of history."

Accordingly, the book creatively put forward the position of China should "Sanju one", that "there is one-third of the world, various models have one." China does not attempt to dominate the world rule, does not seek global hegemony, neither do not want to undertake the United States as another empire. China asked for "a" spatially limited area, in the model is to provide an alternative development path and way of life. "Sanju First" is the Chinese path and model will become a model for the modernization of the road with the West on behalf of the United States, Europe coexist, which is conducive to developing countries to get rid of dependent development patterns and marginalized in the development and way of life on just one of many modes.
A half-hour discussion with Wang about his new book is here: 王湘穗:未来世界三分 中国必居其一

No Easing of RE Restrictions, May Even Intensify as Beijing Investigates Consumer Loans

Beijing investigators are looking into consumer loan proceeds misappropriated for real estate investment.

iFeng: 楼市调控无松动迹象:反弹激烈地区不排除进一步升级
In early September, Beijing Banking Regulatory Bureau, the People's Bank Business Management Department jointly issued a circular calling for banking financial institutions to carry out checking work for personal business loans and consumer loans, focus on examination of the "room repay loans" and other illegal funds flowing into the real estate market Happening. Beijing Municipal Construction Committee issued a document at the same time, requiring brokers to carry out self-examination irregularities, including the content of "more than a single loan amount of $ 200,000 loans for personal consumption." Subsequently, Shenzhen, Jiangsu, also came news thorough investigation of consumer loans into the real estate market, and ultimately confirmed.

Beijing, Shenzhen and Jiangsu Province, Nanjing, Suzhou, Wuxi and other cities, market regulation are "hot cities": tighter regulation after this year's market trading volume also showed a visible decline. At this point, consumer loans remained "contrarian" to enter the property market, the logic behind the concern. Consumer credit flows thorough investigation of the significance of the signal, the same can not be ignored.

Wind data show that from January to July 2017, residents of the new short-term consumer loans reached 1.06 trillion, up by 713.7 billion and 830.5 billion has been far more than the level of last year. But some consumer loans how many entered the real estate, is hard to estimate.


Signs of a Credit Bubble: A-Shares Firms Loading Up on WMPs

iFeng: A股公司理财规模近万亿 五年暴增近300倍
986.3 billion yuan, which is this year, A-share listed companies to buy financial products in the total amount equivalent to half of the balance of Yu E Bao.

China Securities Journal (ID: xhszzb) Choice reporter access to data discovery, this year a total of 974 A-share companies to buy financial products, accounting for more than 29%. Purchases equivalent to 127.5% of last year. 413 companies to disclose financial products yield to maturity in the statistics, 38 companies financial products yield to maturity is higher than the semi-annual reported net profit.

...From 2.75 to 773.3 billion in five years

Choice according to statistics, as of September 10, this year has 974 A-share companies involved in the purchase of financial products, the cumulative size of 986.3 billion yuan; while last year a total of 774 listed companies involved in the purchase of financial products, the cumulative number of financial management to 10076 times, total purchases of about 773.3 billion yuan. In other words, this year more than 29% of A-share companies to buy financial products, and purchases are equivalent to 127.5% of last year.
The chart below shows year, number of firms buying WMPs, number of purchases of WMPs, and total value. The bottom row is the cumulative total over the past 5 years.
These are the top ten firms buying WMPs this year. I've made a paper portfolio of them, 10 percent equal shares.
China Shenhua Energy Company Limited 601088
Xinhu Zhongbao Co Ltd 600208
Guangdong Wens Foodstuff Group Co Ltd 300498
China Shipbuilding Indusr Grp Pwr Co Ltd 600482
Minmetals Capital Co Ltd 600390
JiangSu Bicon Pharmaceutical Listed Co 002411
Changsheng Bio-technology Co Ltd 002680
Sany Heavy Industry Co., LTD 600031
Oriental Pearl Media Co Ltd 600637

Seven companies are profitable thanks to WMP earnings, while 31 others earned more from WMPs than from their operations:
Choice statistics show that 413 companies to disclose the yield to maturity of statistics in the first half of 2017, a total of 38 financial products yield to maturity is higher than the company's net profit, which ST Minco, Yin Fung Holdings, * ST good power , etc. 7 companies rely on income investment products obtained resulting in net profit is positive. For example, ST Minco show net profit of 14.8103 million yuan in the first half, while its financial income of up to 31.1575 million yuan, equivalent to 2 times more than the net profit.

...An investment banker, told reporters, bank financing yields continued to rise this year to some extent stimulate the investment enthusiasm of listed companies, in many cases, banks are disguising WMPs sales as loans.

"Banks currently weak growth in deposits, banks Lanchu fierce competition, at the introduction of high-yield financial products to attract customers, the cost of liability-side end uplift lead to asset yields continued upward. This will lead to the end of financial products on the one hand debt yields continues to rise, on the other hand assets end interest rates have been increased public borrowing, "the investment bank explained," for the banks, listed companies are relatively high-quality customer base, in order to retain customers, banks issued to listed companies when liquidity loans tend to match sales of financial products, in order to yield financial products to cover the cost of increased interest rates rise. "

"Operationally, such as the essence of the company only needs two hundred million funds, which banks on the basis of the amount of the extra point, but requires listed companies to go beyond this part of the borrowed funds used to purchase financial products for banks, able to retain customers, completion of lending and financial management tasks, while companies can take to cover the rising cost of borrowing, both sides are willing to accept such an operation. So you can see, the listed companies to buy financial products, banks are often its counterpart of bank credit. "the investment bank It pointed out.

Time to Short the Yuan?

The decline of the dollar through my redline has led me to lighten my positioning in the dollar. I still think a bottoming process may be underway though, so I am not yet flipping to a dollar bearish position.

The yuan is a more interesting case since the PBoC announced it would remove reserve requirements on future contracts. The PBoC upped reserve requirements to 20 percent in order to slow yuan depreciation.

Back in August 2015: China c.bank to clamp down on forwards trading to curb yuan depreciation
China’s central bank plans to tighten rules on trading of currency forwards from October, sources with direct knowledge of the matter told Reuters, in a move to curb speculation and volatility after a shock devaluation of the currency last month.
In the past year, the yuan has followed other currencies in moving higher against the U.S. dollar. There has been yuan depreciation against the euro.
Going back to before the yuan's surprise devaluation in August 2015 shows the yuan remains weaker than euro, the Dollar Index basket, and a basket of emerging market currencies.
China's credit bubble expanded over this period and reserves deteriorated into the end of 2016.

China bulls are optimistic about the bump in global growth, rising copper/commodity prices and/or see China as having the ability to defy Nature without consequence.

Instead, I see China reaching the limits of credit growth.

Important to my thinking, I see the commodities rally as nearing an end along with a reversal in the U.S. dollar still likely. Euro strength is starting to be a concern in Europe. FT: Mario Draghi faces easing dilemma as strong euro sparks concern

Canada hiked interest rates this week as the housing bubble starts to unwind. U.S. home prices peaked in 2006 and it took 12 to 18 months for the financial markets to figure it out. Financial Post: Toronto home prices fall into bear market as sales plunge almost 35%

Speculators are betting against a December rate hike. The market could turn even more bearish on the prospect for rate hikes, but that would require a deterioration in global economic growth, which would be dollar bullish. The market has to stay in a sweet spot where commodities are rising and the Fed holds off on rate hikes to keep the current dollar weakness going.

Copper is tied to China. Mining.com: Copper price rally comes to crashing halt after Chinese data disappoint. I am always open to the market proving me wrong, but I will be shocked if the spike in aluminum and steel production in China signals a new surge back to 10 percent GDP growth, rather than the last gasp of zombie production. Reuters: China's steel, aluminum output at record as U.S. mulls penalties

The latter story leads into my next thought, which I have held as part of my bearish yuan/China correction thesis, that China would run out of political room at the worst moment. On the one hand, China is flexing its muscles with North Korea, expanding into the South China Sea, had the yuan added to the SDR basket, has A-Shares added to the MSCI Emerging Market Index. On the other hand, President Trump wants tariffs on China. On steel exports, he doesn't need anything except Chinese production and export data. He can also use tensions with North Korea or an incident in the South China Sea. There are several ways for President Trump to quickly turn public support against China. Given social mood and economic conditions, it will likely prove to be wildly popular. Economics, security, nationalism and patriotism all coming together.

China is highly leveraged to itself. It created most of the world's credit over the past several years. The credit is mostly backed by Chinese real estate and hard assets, investments in commodities (or if you're uber-bearish, nothing at all). The Chinese government cracked down on the flight of capital overseas, it is now cracking down on alternative exits such as Bitcoin. According to statements from Chinese cryptocurrency exchanges, it sounds as if China will ban transactions involving CNY. Assuming that is the new policy, it appears to be aimed at capital flight.

SCMP from June 2: Chinese banks told to report overseas cash withdrawals plus transactions over US$147

Bitcoin exploded from $1900 from July 17 to a high of $5000 on some exchanges on September 2.
The yuan has risen sharply in the past month, staring on August 24. North Korea launched missiles on August 26. On August 28, there were reports that Trump wants tariffs on China. The same day U.S. time (morning in Asia), the DPRK fired an intermediate-range missile over Japan. The recent rapid rise in the yuan looks either like the yuan playing catch-up to the euro and other EM currencies or aimed at mollifying President Trump. It looks political, not economic.

I like the probabilities of being bearish here.

China's Major Religions Plan to Sinicize

Global Times: 5 main religions in China agree to sinicize
Leaders from five religious communities - Buddhism, Taoism, Islam, Catholicism and Christianity - reached a consensus at a forum that "the direction of religions is to integrate them with Chinese culture."

The forum themed "Chinese culture and religious sinicization" was held in Beijing on Wednesday, the Xinhua News Agency reported.

Although Christianity has already been sinicized in terms of sovereignty, the sinicization in theology and cultural denotation is yet to be achieved, Fu Xianwei, chairman of the China Three-Self Patriotic Movement of the Protestant Churches, said at the forum.

Chinese believers in Christianity can understand it in the context of Chinese culture, language and thought, Fu said.

According to Shen Guiping, a religious expert at the Central Institute of Socialism, sinicization means sinicizing Christianity in every aspect, including doctrines, cultural customs, morality and culture.

But, Shen told the Global Times that "Christianity currently follows the rule of indigenization but it doesn't necessarily implement sinicization. The ideas of 'evangelism, the Great Commission and cultural mandate' are used with the aim to reshape China, Chinese culture and ideologies."

Catholicism in China is preparing the five-year plan of the religion's sinicization to guide local churches, said Ma Yinglin, chairman of the Bishops' Conference of the Catholic Church in China, the China News Service reported.

Catholicism in China has been seeking to sinicize the religion in terms of priesthood, system, protocol and oratorio since the founding of China, Ma said.


Social Mood: Horror Flick "IT" On Pace for 100M Weekend

The Hollywood Reporter: Weekend Box Office: 'It' Scares Up Record $51M Friday for $100M-Plus Bow
The film adaptation of Stephen King's creepy novel is already shattering numerous records, including landing the biggest opening ever for a horror movie, or for the month of September.

There is nothing clownish about It, which grossed a massive $51 million on Friday from 4,103 theaters for a weekend debut north of $100 million.


Front Page of iFeng.com: Explaining Bitcoin and ICOs

This is more mainstream coverage than I've seen in the U.S., although the U.S. media market is admittedly more fractured.

iFeng: 财知道338期:关于比特币和ICO的一些基本概念

The article closes with:
Former US presidential candidate Ron Paul said "do not steal, the government hates competition", savoring, meaning profound.


Cent Committee Investigating Real Estate in Hot Cities, Developers Nervous

iFeng: 中央部委正督查热点城市楼市 开发商紧张低调求安全
September 5, Hubei Province, the SASAC issued "on prudent investment in real estate," which clearly requires provincial funding organizations and their respective sub-enterprises in the construction, real estate sale to speed up the progress of construction, sales progress, to ensure that funds withdrawn from circulation as soon as possible, reduce leverage. Insiders said the SASAC intervene real estate is very rare, which means that real estate regulation may continue to overweight.

..."Notification" is very Jian Jie, only two specific requirements: First, starting from September 5, the province invested enterprises and their subsidiary enterprises at all levels of the new real estate investment principle cautious, and strictly control risks; Second, the province invested enterprises and their All levels of sub-enterprises in the construction, real estate sale to speed up the progress of construction, sales progress, to ensure that funds withdrawn from circulation as soon as possible, to reduce leverage.

Insiders said that the notification came second market regulation signal is very Qiang Lie, state-owned enterprises no longer explicitly require new investment and real estate, but also to build a house to sell the house as soon as possible, accelerate capital returns, this also means that housing prices high leverage and get to buy a house people plus leveraged investment behavior is not allowed.

...Reporters also learned that the relevant central ministries Inspectorate are hot urban property market a new round of inspections focused on checking Housing prices common hoarding, cover plate and other acts to promote housing prices according to the contract started, completed, form effective supply of housing as soon as possible, ease the market supply and demand.

Developers currently selling in the market are very nervous, low-key, security, will not be concerned about the demands of mainstream developers.


Socionomics Alert: The New Age of Magic

PJ Media: The Coming Age of Magic
The classic characteristic of magic is wish fulfillment. Sigmund Freud argued that "the motives which impel one to exercise magic are easily recognized; they are the wishes of men ... At bottom everything which he accomplished by magic means must have been done solely because he wanted it." Psychologically it is a most unscientific world. Desires replace the laws of physics.

Ironically that primitive attitude accurately describes the contemporary public attitude toward technology better than rationality. The idea that people ought to know better than to apply ointment sounds bigoted. Things should simply just work. The politically correct solution is to create sunscreen that YOU CAN apply to your eyeballs so you can watch the solar eclipse in safety. The morning after pill, the eat all you want but never get fat diet, the bottomless credit card, "affordable healthcare" despite accepts all preexisting conditions are applications of this principle. The preferred solution to today's problems is no longer to intelligently avoid injury but to abolish its consequences.

This idea we should be protected from our own choices may have taken deeper root than commonly realized. The right of everyone to be stupid AND avoid the consequences has become mainstreamed as the equality of outcomes.

...While some of this magical thinking can be blamed on the usual Marxist dogma part of it may be due to the growing gulf between the frontier of understanding and popular culture. The Age of Enlightenment enabled the common man to access knowledge formerly reserved to a few. It allowed people to understand for the first time why things worked. However the recent technological revolution has created the opposite effect. Fewer know how anything works. This has widened the divide between the ordinary person and the principles that power his world.

It may get worse as technology become ever more subtle, built in many cases on quantum and other effects that cannot be grasped by "common sense". The relative percentage of people who actually know how things work may gradually diminish. If Artificial Intelligence ever takes the lead in scientific inquiry, as many predict, the market may see appliances that no one -- no human being at least -- even understands. It may be no coincidence that two of the most popular entertainment franchises of the early 21st century, J. K. Rowling's Harry Potter and George R. R. Martin's Game of Thrones attract audiences of millions.

The age of magic isn't dead. Perhaps it has only just begun.


Hollywood Still Destroying the World

Yahoo: Schrader gives Venice glimpse of Apocalypse soon
"I don't see humanity outliving the century," Schrader told reporters after the drama, which stars Ethan Hawke, as an unexpectedly middle-aged troubled pastor, and Amanda Seyfried, was unveiled.

The dark tale is being tipped as an outside shot for the Golden Lion, the top prize at the world's oldest cinema festival.

Outlining the thinking that lay behind his script, Schrader added: "I have to be honest. I have lived in the magic cone of history, the baby boomer years."

"A life of affluence, a life of leisure, a life of little pestilence, little war. And for that my generation has pretty well screwed the planet for our kids."

Such themes are being increasingly reflected by filmmakers: planetary destruction driven by climate warming was a prominent theme in Venice's opening film "Downsizing".
Don't worry, it's nothing original:
This proves to be a catalyst for a spiritual rebirth of sorts, Toller rediscovering his faith in righteous anger over his discovery that the church is being bankrolled by a polluting industrialist.


Rust Belt in Recession, But Banks Grow Shadow Banking

SCMP: China rust belt banks ‘at centre’ of murky world of shadow banking
Regional banks in China’s rust belt provinces are driving the rapid expansion of shadow banking in the country, fuelling a web of informal lending that poses wider risks to the financial system, according to a study by the financial services company UBS Group.

Smaller rust belt banks like Bank of Tangshan and Baoshang Bank have been using products such as trust beneficiary rights and directional asset-management plans to hide the true state of their bad loans and circumvent lending restrictions, the study by analyst Jason Bedford said.

Others have been using the shadow loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a much wider spectrum of Chinese corporate risk in the event of a default, according to the report.
Nearly three years ago I posted: Liaoning Sounds Warning on Chinese Economy. In 2015, it was: China Northeast in Recession, Unadjusted Nominal GDP Declines; Global Economy on Knife's Edge.

China has propped up its economy and the global economy with a boom in credit issuance since 2016. If the banks in the northeast are an example, all China has done is financialized its economy. Economic activity is propped up by credit and financial sector profits. Similar to what the United States did with the housing bubble. Until home prices stopped rising in 2006, the financial sector stopped growing in 2007, everybody noticed in 2008.

The key factor is the U.S. dollar. Has the dollar peaked? If there is a new global growth cycle in credit,faster GDP growth and U.S. dollar weakness (higher inflation), then China can rely on the world to bail it out. I have to respect the charts and the drop in USD this week was significant. I have to lighten my positions. But I still believe it is a headfake. I don't see the rise in copper and industrial metals as a harbinger of a new growth wave, but the peak of a bear market rally. If I'm wrong, that is great news for China, the global economy and equities. The U.S. market is in the middle of a bull market that has 5 to 7 years to go if global growth accelerates.

If I'm right, the markets once again are ignoring the threat posed by China's credit bubble unwinding. That threat is bigger today than yesterday. The target price for USDCNY in the event of a Chinese credit crisis keeps moving higher with the passage of time, regardless of which way the yuan moves in the short-term.


Socionomics Alert: Witchcraft on the Rise

Negative mood is associated with a decline in science and a rise in superstition. Witchcraft. Astrology. In entertainment, fantasy (magic) over science-fiction (technology).

Westchester News 12: Speak No Evil: Witchcraft's popularity on the rise in Hudson Valley
Despite its fearsome legacy, witchcraft is rising in popularity in New York state and especially in the Hudson Valley.

News 12's Tara Rosenblum spent four months exploring and gaining access to a mysterious, secretive world that most people don't even know exist: a thriving underground community of witches.

Watch "Speak No Evil," only on News 12, starting Tuesday to learn about the modern-day magic and ancient rituals at the center of their faith. Tune in to meet some of the most powerful witches in New York and see what happens when they come together to perform a white magic ritual and summon sacred spirits.


On the Glide Path to Trade War

Trade war is more likely than not based on current social mood and geopolitical tensions. The U.S. is agitating for a conflict and it has the most to gain from one. Economists will tell you everyone loses in a trade war and they are correct from the view of dollars and cents. Global power is zero sum though, your gain is your enemy's loss. If the U.S. pushes China into a depression through a trade war, the benefit will be a multi-decade delay in China's rise to power. Perhaps even a "permanent" delay such as the one the United Kindgom gave to Germany in the 20th Century assuming the conflict ends in war.

China will lose a trade war with the United States for the same reason the U.S. suffered a longer Depression during the 1930s: it is the leading exporter. In a trade war, the import nation loses access to goods and services it doesn't produce. If another trade partner can't replace the goods and services, it has to make it at home. In contrast, the exporter who loses their customer has to slash prices to find another market. If it cannot find another market, it shuts down production.

The effect of a major trade war between China and the USA would be a redistribution of GDP growth away from China (and the China-bloc economies) and towards the United States (and its bloc).

China Daily: China has three trump cards to counter Trump administration's trade probe: experts
Statistics show that the annual growth in exports from the U.S. to China averaged 11% in the past decade, almost twice the figure of Chinese exports to the U.S. Sixty-two percent of soybean, 14% of cotton, 25% of Boeing aircraft, 17% of automobiles, and 15% of integrated circuits produced by the U.S. have been shipped to China.

In addition, China is the second-largest export market of American agricultural products, buying 15% of the total export volume, according to U.S. government data.

Against such a backdrop, restricting imports of agricultural products and high-end goods would be a trump card for China as a counter action.
While those sectors are important for the U.S. economy and politically powerful, it's unclear what voices might be on the other side. Steel makers and a host of other industrial firms, possibly firms hurt by IP theft, would line up on the other side. The U.S. could also easily subsidize farmers and Boeing because these subsidies already exist in the budget. The Congress can increase farm aid and give Boeing more military contracts.

The Logic of Strategy will also kick in: nations in East Asia and the South Pacific will have golden opportunity to slow China's GDP growth and deliver a major blow to its soft and hard power projection. If a war escalates through a rolling buildup of retaliatory tariffs, starting with industries such as steel, it's very likely the U.S. could be joined by many of the world's major economies.

The loser from a trade war in the United States would be consumers who don't earn wages:
According to data released by the US-China Business Council, trade with China has saved American families $850 in 2015 on average. Oxford Economics estimates that China's low-price goods have resulted in a 1-1.5% lower price level in the U.S.
What does the Fed want more than anything (aside from real GDP growth)? Inflation.
At a time when Americans are expecting Donald Trump's new trade policy to improve the current situation, the bilateral trade conflict would be damaging, said Lian Ping, chief economist of the Bank of Communications. Even small losses are unacceptable, he added.
This is a 180 degree incorrect interpretation of current social mood. If a trade war with China begins, Trump's popularity will rise. The Democrats probably won't attack him because to side with the enemy during a war is political suicide. If "Russia collusion" was bad for Trump, "Chinese collusion" will be many times worse amid tensions that are potentially heading towards war (unlike the Russia farce). Finally, those who favor American hegemony will be hard pressed to oppose a conflict with China. Many of Trump's opponents today will turn into cheerleaders for a China confrontation.

78pc Loss for Dongbei Special Steel Bondholders

Caixin: Steel Company’s Restructuring Draws Creditor Ire
The plan released August 3 and obtained by Caixin calls for the debt-ridden state-owned enterprise (SOE) to fully repay every unsecured creditor holding no more than 500,000 yuan (about $75,344) worth of debt at face value. Any creditor with more than that amount may be repaid in cash at 22.09% of value, or accept a debt-for-equity swap.
Chinese steel production hit an all-time high in July.

Reuters: China steel output hits record in July at 74 million tonnes: stats bureau

And the Chinese yuan continues rising against the U.S. dollar. USDCNY hit 6.62 today.


China Going Cashless: Deposits Fall 3 Trillion Yuan in 1H

The central bank recently released July Renminbi Credit Funds table shows: In the past six months, demand deposits and currency in circulation individual (cash) significantly reduced total of more than 3 trillion yuan.

...It is worth noting, also experienced a significant reduction in cash, in January 2017 cash balance of 8.66 trillion yuan, the end of July only 6.71 trillion yuan, a decrease of 1.95 trillion yuan.

Taken together the data, in January 2017, personal cash and demand deposits totaled 33.64 trillion yuan, to July 2017, both totaling only 30.52 trillion yuan, just six months decreased by about 3.12 trillion yuan.
Some went into time deposits, a lot went into non-bank financial institutions.
In summary, the personal regular and non-silver deposits in financial institutions in the past six months a total increase of 2.89 trillion yuan, these two types of deposits would be to reduce cash and demand deposits of individual main destination.
With the payment of the two giants to promote the popularity of treasure, micro-channel payment and payment mobile payment, the vast majority of Chinese retail sector already supports micro-channel payment and Alipay payment, cashless society trends are becoming evident.
Money markets are becoming popular as digital payment systems reduce demand for cash:
China Fund Industry Association released official data showed that in January 2017 the IMF scale of 3.61 trillion yuan in March and June, respectively, increased to 4.03 trillion yuan and 5.11 trillion yuan in July is further soared to 5.86 trillion.

iFeng: 央行重磅!中国人活期+现金半年没了3万亿 钱去哪了


Greater Beijing Housing Market Still Cooling

iFeng: 楼市降到冰点 房价暴跌20% 业主降价抛售房产
And this phenomenon is the property market, particularly in Beijing and Beijing city ring, the most prominent of which, Beijing property market cooling significantly, it is already evident to all, and today to mention is Yanjiao and Gu'an these two cities!

From atrial world network released statistics show that today's Yanjiao real estate website views, the worst drop is already down by about 80%. And since Beijing's most stringent regulation promulgated 3.17, in particular upgrade purchase of the policy, resulting in Yanjiao existing home prices plummeted over 20 percent to 25,000 yuan per square.

And Gu'an aspects, according to statistics data show that in two years, house prices quadrupled, from 6740 yuan per square meter to 27,000 yuan per square meter, or even serious already exceeded 30,000 yuan per square . However, the same since Beijing's most stringent regulation, prices are plummeting, 20,000 yuan per square houses, and nobody is interested!


Wait 100 Years to Turn a Profit on a Xiamen Rental

The first column after the city name is its tier, then rental yield and payback in years. Xiamen tops out at a 1 percent yield, or 100 year return of capital. You might think that's overstating things a bit, but it's also a gross yield and doesn't include maintenance, taxes and other costs. Most of the yields are also far below mortgage interest rates, as much as 50 percent below. Unless investors are paying cash, many properties won't have a positive cash flow (ignoring inflation and price rises) for far longer than forecast.

The table highlights how Chinese home valuations are based almost purely on expected price appreciation. If forced to hold and rent, if the market tops out like Japan or the United States and enters a multi-year or multi-decade decline, returns will fall through the floor. For comparison, here's a 2016 list of Top 20 Cities In U.S. For Investing In Real Estate Rentals from Forbes. Most of the cities have yields around 5 percent, including Austin, TX. It is not a list of the cheapest bargains, rather its cities with good yields and good fundamentals such as population growth and job growth.

This table compares foreign and Chinese city rental yields. On the left is the city's international grade. NY and London are A, Toronto and LA A, Orlando is C-, New Castle and New Orleans at the bottom. Comparable Chinese cities are on the right.

Caijing: 中国租金回报率地图:厦门回本要100年 一线城市都哭了


Chinese Cryptocurrency Exchanges Invests Customer Funds in WMPs

A major risk of holding cryptocurrency on an exchange is the exchange is hacked. In China, the risk is more MF Global: the exchange takes your idle yuan (not cryptocurrency) and invests it in WMPs.

"I lost $10,000 investing in Bitcoin!"
"Oh, did the price crash? Was your account hacked?"
"No, the exchange took my yuan and bought an WMP that failed. My Bitcoin is fine!"

Quartz: China’s two biggest bitcoin exchanges helped themselves to $150 million in idle client funds
For a long time up until recently, Chinese bitcoin exchanges didn’t charge users transaction fees—a major revenue source for other exchanges in the crypto market. How did they make a profit? At least part of the mystery has been solved.

China’s two biggest bitcoin exchanges, Huobi and OKCoin, collectively invested around 1 billion yuan ($150 million) of idle client funds into “wealth management products“—which are often high-yielding and risky—for their own gain, state newswire Xinhua reported on Aug. 17 (link in Chinese), citing an investigation by the People’s Bank of China. On the same day that the investigation was reported, bitcoin hit an all-time high of $4,500.

Yesterday (Aug. 21) Xinhua also published a rare commentary (link in Chinese) warning against bitcoin’s recent price surge. “New things are developing so fast that regulations must keep pace,” the article said, calling on the government to shut down dubious bitcoin exchanges and to “never be soft” on them.

H/T: Sinocism.

Banks in Nanjing Charging 30pc Above Benchmark Rate for Mortgages

Caijing: 多地银行上调首套房贷款利率 南京有银行上浮达30%
When recently, there are buyers to the "Securities Times" reporter revealed that he purchased from Nanjing in a joint-stock commercial banks for housing loans, the interest rate is approved is 30% higher on the basis of the benchmark interest rate and down payment of up to 50%. According to the buyers to reports, the first suite of real estate for its name. For this, the "Securities Daily" correspondent Consulting surveyed Nanjing banks and real estate agent.

Real Estate Developer Financing Plunges 74pc in First Half

iFeng: 楼市一数据暴跌74% 开发商降价跑量也卖不掉
In this regard, data from Centaline Property Research Center statistics show that in the first half of this year, housing prices continue to decline financing data, where the financing, private placement bonds, corporate bonds, medium-term notes was only 177.18 billion, compared to the same period last year words, then plunged 74% in the same period last year but up to 673.594 billion financing, this decline can only really be described as a shock!
Some analysts see the possibility of more real estate restrictions on the way:
Therefore, this round of the property market cooling, it is estimated will continue for a long period of time, because now the entire housing market, almost do not see any signs of a rebound! Moreover, along with tighter control policies continue to follow-up, you may also re-introduction of some new control policy, which is entirely possible! So, the next property market trend is still cool mainly falling house prices also will soon become the main trend!


More on China's Credit Crack High: 80pc of Lending Quota Gone

ZH: An Unexpected Problem Emerges: Chinese Banks Exhaust 80% Of Loan Quotas In First Half Of 2017
Reuters reports that following 7 months of blistering credit creation in terms of both new Loans and Total Social Financing, Chinese banks are set to see a slowdown in lending growth in the second half of the year, having exhausted most of their annual credit quota, in the process raising the spectre of corporate defaults as financing costs climb further in the world’s second-largest economy. The math is disturbing: only six months into 2017, banks have already used 80% of their yearly credit quota over January to June, versus the usual 60%, amid the abovementioned regulatory push to bring shadow financing activities to the main loan book, and Beijing’s crackdown on riskier lending.

While "loan demand is strong throughout the whole year”, as the second chart from the top shows, “the core conflict in the second half is loan quota – whether banks will be able to extend more loans than they originally planned" said Ma Kunpeng, chief financial industry analyst at China Merchants Securities, quoted by Reuters

China's Latest Crack High

ZH: "Something Strange Is Going On": Axiom Stumbles On The Reason Behind The Explosive Industrial Metals Surge

Here Comes the Top: American Establishment Launches Cultural Revolution

The rally in stocks has masked the underlying deterioration in social mood since the year 2000. Extreme positive social mood carried into 2017 though, with nations such as Germany implementing the most extreme immigration policies since the Romans allowed the Visigoths (being destroyed by an invading Hun army) across the border around the year 372. Less than 40 years later, they would sack Rome. Germany is like the vampire of Europe though (thanks to the EU and euro which do not allow Southern Europe to devalue the currency), the misery in the rest of Europe is good news for the Germany economy because exports become more competitive.

In the rest of Europe, the mood is souring on tourism.

In the United States, a cultural revolution has begun. Back in November, Chinese saw the election of Trump as a sign of popular revolt: Chinese citizens warn of China-style Cultural Revolution in US
Donald Trump's stunning victory over Hillary Clinton, a veteran politician, is a sign that many underestimated the amount of anger there was directed towards the elite in the United States, China's state media and citizens are saying.

Some warn of similarities between what is happening in the US and the conditions before China's Cultural Revolution, which started 50 years ago when Chairman Mao Zedong mobilized young people to stamp out "bourgeois" elements he claimed had infiltrated government and society.
The mistake Chinese make is thinking Trump is in charge. The public may dislike their government, but the permanent government or Deep State has vast powers that allow it to oppose the President. The threat of Cultural Revolution was never from Trump, but from the media, academy, and permanent government. Mao launched the Cultural Revolution to remove his enemies and cement his power. After the "Russia hacking" and then "Russia collusion" narratives failed, the elite decided to act as if Hillary won and move on to Cultural Revolution.

Breitbart: Chinese Communists Salute America’s ‘Cultural Revolution’: the Charlottesville Aftermath. Not all the Chinese are cheering on social media though. Some are disturbed by it, others are only happy about it because it will destroy America and allow China to become the world superpower without a fight.

Steemit: Chinese Style Cultural Revolution Declared in America
If we are bullied into accepting the destruction of traditions, common sense and history, insanity will intensify. It will not stop at Confederate statues. America is in a slow motion but still radical cultural revolution. I want to end with George Orwell's quote from 1984 (the book).

"Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right."
This isn't a sign of the peak though, rather it's a sign that mood is already moving into the negative phase. As for signs of the top:

Bloomberg: Your Credit Score Could Make or Break Your Love Life
Now comes a survey from Discover Financial Services and Match Media Group, parent of Tinder and other dating sites, that shows just how appealing a good credit score can be. Financial responsibility was ranked as a very or extremely important quality in a potential mate by 69 percent of the 2,000 online daters surveyed. That placed it ahead of sense of humor (67 percent), attractiveness (51 percent), ambition (50 percent), courage (42 percent), and modesty (39 percent). A good credit score was associated with being responsible, trustworthy, and smart.

That’s right. These amorous respondents effectively put credit score 18 points ahead of cute.
Valuation are stretched in the market.

ZeroHedge: Real Vision's "Killer Charts" For Q3 2017

We are in the "boy who cried wolf" phase of bearish calls. Anyone coming out with a bearish call or sticking with a long-term forecast (Hussman) is mocked.

The divergence between mood and markets in 2017 was a result of Trump's surprise election. The left would be as angry with Hillary as President. A witch hunt for Nazis, removal of statues and first amendment restrictions would be more intense because of official support from the White House. Trump's win cause a jump in mood on the right and among independents. Now it is clear the agenda will be downsized. The Republican Party opposes Trump along with the Democrats. Steve Bannon has left the White House to carry on the battle from the trenches.

I'm not selling all my stocks today, but I am now offsetting most of my bullish positions with bearish ones, and all my new speculative positions are on the bearish side except for long-USD.


More Logic of Strategy

American Prospect: Steve Bannon, Unrepentant
Far from dressing me down for comparing Trump to Kim, he began, “It’s a great honor to finally track you down. I’ve followed your writing for years and I think you and I are in the same boat when it comes to China. You absolutely nailed it.”

“We’re at economic war with China,” he added. “It’s in all their literature. They’re not shy about saying what they’re doing. One of us is going to be a hegemon in 25 or 30 years and it’s gonna be them if we go down this path. On Korea, they’re just tapping us along. It’s just a sideshow.”

Bannon said he might consider a deal in which China got North Korea to freeze its nuclear buildup with verifiable inspections and the United States removed its troops from the peninsula, but such a deal seemed remote. Given that China is not likely to do much more on North Korea, and that the logic of mutually assured destruction was its own source of restraint, Bannon saw no reason not to proceed with tough trade sanctions against China.

Contrary to Trump’s threat of fire and fury, Bannon said: “There’s no military solution [to North Korea’s nuclear threats], forget it. Until somebody solves the part of the equation that shows me that ten million people in Seoul don’t die in the first 30 minutes from conventional weapons, I don’t know what you’re talking about, there’s no military solution here, they got us.” Bannon went on to describe his battle inside the administration to take a harder line on China trade, and not to fall into a trap of wishful thinking in which complaints against China’s trade practices now had to take a backseat to the hope that China, as honest broker, would help restrain Kim.

“To me,” Bannon said, “the economic war with China is everything. And we have to be maniacally focused on that. If we continue to lose it, we're five years away, I think, ten years at the most, of hitting an inflection point from which we'll never be able to recover.”

Bannon’s plan of attack includes: a complaint under Section 301 of the 1974 Trade Act against Chinese coercion of technology transfers from American corporations doing business there, and follow-up complaints against steel and aluminum dumping. “We’re going to run the tables on these guys. We’ve come to the conclusion that they’re in an economic war and they’re crushing us.”

But what about his internal adversaries, at the departments of State and Defense, who think the United States can enlist Beijing’s aid on the North Korean standoff, and at Treasury and the National Economic Council who don’t want to mess with the trading system?

“Oh, they’re wetting themselves,” he said, explaining that the Section 301 complaint, which was put on hold when the war of threats with North Korea broke out, was shelved only temporarily, and will be revived in three weeks. As for other cabinet departments, Bannon has big plans to marginalize their influence.

“I’m changing out people at East Asian Defense; I’m getting hawks in. I’m getting Susan Thornton [acting head of East Asian and Pacific Affairs] out at State.”

But can Bannon really win that fight internally?

“That’s a fight I fight every day here,” he said. “We’re still fighting. There’s Treasury and [National Economic Council chair] Gary Cohn and Goldman Sachs lobbying.”

“We gotta do this. The president’s default position is to do it, but the apparatus is going crazy. Don’t get me wrong. It’s like, every day.”
More than three years ago I wrote The Logic of Strategy: Yuan Devaluation and the Road to Trade War
The protectionists are ever so slowly gaining the upper hand thanks in part to negative social mood. 2008-2009 will probably mark the peak moment for Wall Street and the Treasury Department, even though there is as yet no sign of it in Washington. Changes can be seen in the form of issues such as immigration, which has turned the grassroots of the conservative movement against the Chamber of Commerce and large corporations (due to an attack initiated by the latter against the former). This has pushed the Overton window of acceptable debate among conservatives who can now take shots at big business. There is also the growing libertarian faction pulled together by Ron Paul that supports his son, Rand Paul, that consistently attacks the Federal Reserve and Wall Street. Put it together and it is not hard to envision an anti-Wall Street, pro-manufacturing political consensus emerging. This will cut across party lines, with manufacturing unions pulling in Democratic support if there are specific bills to vote on.
I also wrote:
Whichever path is chosen, the economic and geostrategic paths will line up. An economic crisis in China will add the economic component to the emerging geostrategic China policy. A geostrategic decision to confront China economically would set in motion an economic crisis that would propel the strategy forward since China would respond in kind.
Escalating tensions over North Korea is one way to increase support for Chinese sanctions.


M2 Falls in July

M2 fell 0.14 percent in July, reducing the 12-month growth rate to 9.2 percent.

The 3-month annualized rate of M2 growth rose to 8.4 percent. The downtrend is clear.

Reuters: China's July new loans fall to 8-month low as curbs bite
"This shows that banks are giving more support to the real economy as loans go back to the normal channel - in line with the direction of financial regulations", said Wen Bin, senior analyst at Minsheng Bank in Beijing.

July lending is traditionally weak but last month's level was still 49 billion yuan higher than the average of July figures between 2014 and 2016, according to Reuters calculations based on central bank data.

Broad M2 money supply (M2) in July grew 9.2 percent from a year earlier - the slowest since records began in 1996, central bank data showed, missing forecasts for an expansion of 9.4 percent and compared with June's 9.4 percent.

China's central bank has said that the slowing M2 growth could be a "new normal" due to the stepped-up crackdown on risky shadow lending activities.

Household loans, mostly mortgages, fell to 561.6 billion yuan in July from 738.4 billion yuan in June, according to Reuters calculations based on the central bank's data.

Household loans accounted for 68 percent of total new loans last month, up from 48 percent in June.
An improvement from last year's more than 100 percent.


Want a Mortgage? Prepare to Wait

iFeng: 房贷额度紧张排队放款蔓延至全国 利率未集中调整
21st century economic reporter Reporters also found that the recent tight line lending has been gradually spread from the purchase of the city to the country, and waiting time is also getting longer.

...In addition to interest rates go up, the number of banks loan account managers for the 21st century Business Herald reporter said that the loan queuing time the basic needs of more than three months. China Merchants Bank, a branch account manager, told reporters that the current situation to see if the formalities are now ready to start by the end do not necessarily get loans.
The loan process can take up to four months at some banks. It will go a little quicker if the borrower accepts a higher interest rate.
"I have paid a deposit of 1 million, can not get a loan if before the end, which one million will be spoiled. In order to be able to get loans on time, I intend to take the initiative to floating interest rates, as soon as possible to get a loan." A home buyers Wei Ms. told reporters in the 21st century Business Herald.

FAI Breakdown

SOEs still propping up fixed asset investment. Private investment growth in the industrial sector slowed sharply to 1.9 percent in July.

Private Fixed Asset Investment Slows to 5.2pc in July

Private FAI growth was 6.9 percent YTD in July, down from 7.2 percent in June. July growth was 5.2 percent.

Fixed Asset Investment Slows to 6.7pc in July

Fixed asset investment up 8.3 percent YTD down from 8.6 percent in June. FAI increased 6.7 percent in July.

Real Estate Investment Slows to 4.8pc Growth in July

Real estate investment growth 7.9 percent YTD in July, down from 8.5 percent in June. One month growth was 4.8 percent.


Mortgage Rates Rising as Sales Fall

iFeng: 热点城市房贷价升量跌料延续 刚需忧心被误伤
Experts believe that policies to curb housing prices still tight, especially on larger personal loans policy on the market. The central bank in the second quarter monetary policy report makes clear, strict implementation of differentiated credit policy, credit flows to limit speculative investment.

Chinese Speculators Trade 6 Months of Steel Production in 1 Day

iFeng: 螺纹钢疯了!一天成交量超过上半年全国产量
August 11, is a rebar futures crazy day, this day, turnover of 10.73 million hand, the transaction volume has reached 417.785 billion yuan. According to a hand 10 tons conversion, turnover of about 100 million tons, more than the first half of this year's national rebar production (99.59 million tons).

...It is understood that since June 14 to August 11, rebar main contract RB1801 cumulative up 30.82%, hot volume main contract HC1801 rose more than rebar, the same period rose 33.78%.

Rebar futures prices rose sharply, but also attracted the attention of regulators. Following the China Steel Association made a clear statement, the last time again on the rebar fees, margin to make adjustments, the intention is very clear to the current hot steel city cooling.

...Rebar futures prices rose rapidly, not only caused the concern of the market, but also caused the Development and Reform Commission, Ministry of Industry and China Steel Association of the high degree of concern.

Recently, China Steel Association said that the current sharp rise in steel futures prices is not driven by market demand or reduced supply of the market due to the recent steel prices is a speculation. Due to the excessive interpretation of the expected reduction in production, not the demand to promote the price rise.

...A number of steel price monitoring platform data show that the current steel prices since May 2012 the highest level, steel prices hit a five-year high. To the country's largest steel production base in Tangshan, for example, the August 8 rebar price of 4060 yuan per ton, compared with the beginning of the level of 3100 yuan per ton, up about 35%. Billet prices than the beginning of 2700 yuan per ton, up 36%.

With the iron and steel prices continued to rise rapidly, the industry said that the high risk of operation is gradually accumulating. Wang Guoqing said that in late August not callback, it is expected in September will callback.

In the current market conditions, not only the China Steel Association and industry experts repeatedly prompted the risk, steel listed companies have begun to prompt the risk.
Where do they get all the money for this rampant speculation?

Car Sharing Comes to China

This article talks about it in the context of shared parking spaces as well, recommending home buyers not pay a lot of money for a space.

iFeng: 别买停车位!又一场巨变已经来临
2016-2017, sharing rapid economic rise, the rapid expansion of coverage. Today, shared bicycles, sharing an umbrella, share charge treasure, sharing basketball and other shared economic settled, greatly convenient in our daily lives.

Car sharing refers to a person or persons using the car, while driving a vehicle only has the right to use and share the car can be booked directly through the telephone or mobile phone APP, very convenient.

Recently, there has been a large number of shared luxury car near the Beijing CBD.

This is a car-sharing company's new models, the company said: "This year there will be 2000-3000 Audi market use."

Focus: What are the charges?

Users need to pay 1,000 yuan deposit fee when the length of the vehicle, the first 30 minutes $ 15, after more than 30 minutes 0.5 yuan / minute.

For example: If you drive 50 minutes, the fees charged is 15 + 0.5x20 = 25 yuan, much lower than the cost of an ordinary taxi.

Car-sharing appears to change the way we travel, which for traditional car rental industry, and even drops a taxi company, will form a very, very big impact! Car sharing have come to share parking spaces still far away?