When we last wrote, some brave analyst at a Chinese brokerage was making headlines by talking of there being at least another CNY2–2.5 trillion in ‘shadow’ margin debt to add to the peak CNY2.3 trillion registered on the exchange ( that latter now already shrunken by over a third). Since then, the ante has been upped by one of our hero’s competitors, who added another CNY1-1.2 trillion to that already gargantuan guess. The man from Huatai Securities also suggested that half of the total was effectively being financed by the nation’s banks, whether they are strictly authorised to do so or not. Continue reading
In trying to describe the mania which is sweeping China, the mere use of superlatives falls far short of conveying a true picture of what is afoot, meaning we have to just let the numbers speak for themselves.
Amid all the debate about the US economy and the somewhat vague prospect of the Fed finally showing some cojones at some point in the future, the principle feature which allows the Doves to block any renormalization of the rate is the supposedly soft state of the labour market, particularly with reference to the sorry-looking participation rate.
The first hard data release of the month for China was hardly guaranteed to reassure. Two-way trade in USD terms dropped 6.3% in the first quarter from its level of a year ago, the second most severe setback since the Crash and only the third such instance in the whole era of ‘Opening Up’.
When even the eminent lawyer, Christine Lagarde, interrrupts her incessant calls for more ‘stimulus’ to confess that yes, peut-être, we ought to be on the look out for a bubble or two, you know things have reached a pretty pass.
In truth, the awful effects of monetary overkill on the part of the major central banks seems finally to have reached a critical juncture, with asset markets everywhere spiralling rapidly out of control. We can only shudder to think what will await us if the inflationary spark ever manages to jump the firebreak of bad banks, zombiefied overcapacity, and ruined balance sheets and sets light to the markets for goods and services, too.
As part of our analytical process, we frequently consult our proprietary estimate of global money supply, something we construct by combining the individual measures for 15 countries (strictly 33, since we include the euro as one of them) which together account for almost three-quarters of global output.
Between Li Keqiang, Mario Draghi, and the BLS, markets everywhere had a wild ride into the weekend.
Starting east and working west, the upshot of the Chinese ‘Twin Sessions’ was a perseverance with the so-called ‘New Normal’ theme – namely, with the idea that headline, GDP-style growth should be lower in future with the emphasis shifting from brute volume to the encouragement of a shift in the productive structure towards the provision of higher-value added, more technology-rich goods, towards service in place of smokestacks, aall the better to spread the benefits of industrialization to the domestic populace.
As the title of the blog suggests, we pay close attention to developments in money and credit since the twin precepts of our outlook are that ‘the credit cycle IS the business cycle’ and that ‘silver [i.e., money] is the true sinews of the circulation’.
It is all very well for both macro-economists and stock-pickers to look at flows, but unless a weather eye is kept on how they are being financed and what that implies for the future vulnerabilities of the contracting parties, a very important element is being overlooked.
Avoiding for now all comment on the ongoing Eurozone schism, we start by taking a look at the UK where, conveniently in the run-up to the May election, everything seem to be coming up roses for the incumbents. Retail sales are strong, CBI output intentions are comfortably back inside the upper decile of the last 20 years’ readings and – perhaps most politically heartening of all – real wages are at last rising while both numbers employed and hours worked are making new, all-time highs with the ratio between the two suggesting the proportion of those working full-time is back at pre-crisis highs.