World economy talk

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foreign demand for Asia stocks




performance of EM currencies

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SHCOMP falls below 2000

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US 10 yr yield 2.6%

[Monseratto]

Hmm...Many of China's banks are wallowing in non-performing loans...and their Central Bank won't lift a finger.

Don’t Look at Bernanke, China Is Driving This Meltdown

The People's Bank of China (PBOC) triggered the latest sell-off after it in effect told participants in the Chinese banking system that they would be left to their own devices in handling an apparent liquidity crisis.

"At present, the overall liquidity in China's banking system is at a reasonable level, but due to many changing factors in the financial markets and also because of the mid-year point the requirements for commercial banks in liquidity management have become higher," the PBOC said in a statement released on its website earlier today.

Overnight lending rates have exploded in response to the the PBOC's non-action. The Shanghai Composite Index (^SSEC) fell 5.3% with the Hang Seng (^HSI) dropping 2.2%.

As Breakout co-host Matt Nesto says in the attached video the concerns bedeviling the Chinese economy should be familiar to U.S. investors. "There are banks over there reporting a quadrupling in their non-performing loan ratios and that's why their hand-braking on the lending between each other."

Of course it was banks refusing to lend to one another due to worries over exposure to bad debt that caused a near siezure in the U.S. banking system in 2008 and more of the same over the last two years in Europe when exposure to Greece chilled overnight lending.

The reality of collapsing growth in China has crushed commodities. Copper is nearing 2 year lows, oil is sliding and the less said about the price of gold the better. Not coincidentally the rate on the U.S. 10-year Treasury spiked to over 2.6% in early trading.

In a world of uncertainty cash is king. About the only global asset seeing gains recently is the US dollar which is now at two-week highs. The perception is that the global central bankers may be losing their grip over the system; a prospect that makes sitting out the volatility increasingly appealing.

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^^^

China just experienced a massive credit boom now its central bank is trying to keep in under control

the problem with huge amounts of previously created debt is that you need more new debt to service the previously created debt

if less new debt is created there won't be enough money to pay back the previously created debt

and that's what's happening

credit growth is slowing so non-performing loans are rising

[Monseratto]

Di pa naman pero it may happen if China's economy goes into a spin...

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i mentioned in the other thread that we are currently seeing the repricing of all assets that were driven up by Fed monetary policy

the Fed said it will keep rates ultra low for years and they're printing money to buy bonds which depressed the value of the dollar which made the dollar attractive as a funding currency (carry trade)

so investors shorted the dollar and went long everything else (which includes EM equities and bonds)

what can go wrong?

there's no interest rate risk coz the Fed said it will keep rates ultra low till 2015 and QE-forever kept the dollar weak

it looked like the Fed is hellbent on creating inflation so investing in assets that will protect against inflation is the way to go

then recently....

the Fed said it will soon reduce bond purchases

WHAAAT?!

so the Fed is no longer committed to creating inflation?!

but investors are all-in on the inflation bet

billions and billions of dollars are parked in higher yielding assets

everyone is betting on future inflation

reducing QE will screw up those bets!

so here we are --- THE MASSIVE UNWINDING OF THE DOLLAR CARRY TRADE

everything is sold

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SHCOMP below 1900

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SHCOMP falls to 1850

fights back

now above 1900

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so the US economy is doing great...

durable goods orders beat expectations

Case-Shiller home price index beat expectations

consumer confidence beat expectations

Richmond Fed manufacturing index beat expectations

that will allow the Fed to reduce bond purchases soon



US 10Y yield