The trigger for the broad selloff Tuesday was the country’s securities clearing house saying late Monday it had raised the threshold for corporate bonds qualifying as collateral for repurchase agreements, or repos, which are short-term loans with maturity spanning from overnight to 182 days. These are used as a key channel of short-term funding for bond investors.
According to estimates by Shenyin Wanguo Securities, the total value of corporate bonds disqualified as repo collateral under the new rule exceeds 1.25 trillion yuan, or 60% of all outstanding corporate bonds listed on the two stock exchanges....
Late last month the central bank cut interest rates for the first time in over two years, accelerating the rally in the stock market on bets Beijing was keen to bolster slowing growth. But the reports in the official media Tuesday could be a sign that the government will tolerate slower growth. ...
Almost 40% of the 17.9 trillion yuan in local government debt and guarantees will mature by the end of this year, placing huge pressure on local governments to make repayments, according to a report released by the state auditor late last year.
2--Chinese stocks strode higher again on Monday, pushing the main index to a fresh 40-month high, as retail investors shrugged off data pointing to a deepening slump in the real economy.
The Shanghai 50, which tracks the biggest mainland shares, rose 4.5 per cent and has now gained 40 per cent in the past month. FT
3--Declaration of war, sputnik
...the US House of Representatives voted overwhelmingly in favor of an anti-Russia resolution “strongly condemning the actions of the Russian Federation, under President Vladimir Putin, which has carried out a policy of aggression against neighboring countries aimed at political and economic domination.” A number of western analysts described the document as a US declaration of war on Russia...
in the US the vote of the House of Representatives is not binding on the President, but it is an informal declaration of a war on Russia. It frees the President’s hands to do whatever he thinks is necessary, to deal with what is termed as the Russian aggression and the Russian threat to the post-Cold War order in Europe.
That is one important straw in the wind, but it is not the only one. The past week or two have seen other developments where Washington, not the legislature but the executive arm, was moving more aggressively against Russia. And I think of the attempts to isolate and to punish Orban in Hungary. I think of the spontaneous demonstrations against the Czech President, which, no doubt, have the backing of the National Endowment for Freedom, which is Washington financed.
4---Senate Report: Scale of Wall Street Holdings Are “Unprecedented in U.S. History” , WSOP
t Thursday, the U.S. Senate’s Permanent Subcommittee on Investigations, chaired by Senator Carl Levin, released an alarming 396-page report that details how Wall Street’s too-big-to-fail banks have quietly, and often stealthily through shell companies, gained ownership of a stunning amount of the nation’s critical industrial commodities like oil, aluminum, copper, natural gas, and even uranium. The report said the scale of these bank holdings “appears to be unprecedented in U.S. history.”
5---Cheap oil’s economic benefits may be a big myth , marketwatch
6---Treasury Warns Congress (and Investors): This Financial Creature Could Sink the System , wolf street
Financial engineering has taken over.
Early on in the credit cycle, corporations borrowed money long-term to replace short-term debt and to fund capital expenditures. Now they use the borrowed money to “increase leverage such as through stock buybacks, dividend increases, mergers and acquisitions, and leveraged buyouts, rather than to support business growth.” And ultra-low interest rates and loosey-goosey lending standards have encouraged corporations to take “on more debt than they can service.”
7--Chinese crash from the WSJ:
China’s stocks, currency and corporate bonds suffered their largest tumbles in years Tuesday after Beijing took fresh steps to rein in growing risks in the country’s debt-laden financial system.
The selloff started in the bond market, as traders rushed to sell and raise cash after a regulator banned investors from using low-grade corporate debt as collateral to borrow cash. The turmoil then spread to the yuan, which recorded its biggest two-day tumble ever. Later, the benchmark Shanghai index slumped 5.4% to record its biggest fall since 2009.
8--Rental income which held steady between 2000 and 2007 at roughly $200 billion per year is now up 240 percent coming in at $640 billion, Dr Housing Bubble
. The excellent deals of 2008 to 2011 were happening at a time when the economy was in crisis mode. Some of the best deals to be had were done via auctions and you needed to have a cashier’s check to play so many regular people had no access to this. 7 million foreclosures and many of these are now in the hands of investors. The homeownership rate is a clear indication of this. It should also be no surprise that we’ve added 7 million renting households. How big of a change have we seen? Rental income which held steady between 2000 and 2007 at roughly $200 billion per year is now up 240 percent coming in at $640 billion. Since few people actually own rentals, this is money flowing into a concentrated group.
First let us look at the number of households with other real estate besides their own property:
Source: Fed Survey of Consumer Finances
This is interesting that the number has pulled back in recent years for families given the massive number of investor buying. What this tells us is big groups were the large beneficiaries of the recent rental buying boom.
What we then see in 2008 is big money and investors that live and eat spreadsheets coming in strictly for rental income. The below chart couldn’t be any clearer:
Source: NAR, BEA
Rental income is up a whopping 240 percent from 2007. And the vast bulk of spoils are going to Wall Street and large investment funds. Rents are now up across the United States while incomes are stagnant. Simply more income is going to housing in either rents or higher mortgage payments. This is also why the homeownership rate has gone this way since the bust happened:
Follow the money carefully. If you do, you will see that big money is pulling back from real estate. The nation is largely becoming one of renters and the big juicy gains are going to recent landlords.
9--Japanese recession worse than thought , guardian
when you spend trillions to prop up markets, the expectation is that the economy will somehow benefit. But that hasn't been the case.
10--Americans increase debt servitude and restart Ponzi schemes oc housing
11--Israeli bombing of Syria threatens wider war, wsws
There have been varying accounts of what the Israeli strikes were targeting. Pro-Israeli and Syrian “rebel” sources have claimed that it was Iranian missiles and other weaponry destined for Hezbollah. Lebanese television, however, said that one of the facilities struck was a Syrian intelligence facility that was being used by Iran.
Syrian state media said that the strikes were aimed at Russian anti-aircraft weaponry. Tel Aviv had previously warned that it would prevent Syria from deploying Russia’s advanced S-300 anti-aircraft missile system. While Moscow agreed to sell the systems to Syria in 2007, earlier this year it announced that it was canceling further delivery of the weapons.
The DEBKA web site, which has close ties to the Israeli military intelligence complex, cited “Middle East military and intelligence sources” as describing the raids as “Israel’s first overt military clash with Russia in the course of the more than three-year Syrian war.”
“Those sources assert that the strikes demolished components of Russian SA-25 or other types of top-line anti-air missile systems that Moscow had destined for Syria and” Hezbollah, the report stated. “Russian transport planes are said to have shipped these consignments in the last few days to the military section of Damascus international airport.”
The Russian government sharply condemned the attacks, denouncing Israel’s “aggressive action” in a letter to the United Nations and insisting that such attacks should not be reported.
“Moscow is deeply worried by this dangerous development, the circumstances of which demand an explanation,” Russian foreign ministry spokesman Alexander Lukashevich said.
Iran’s and Syria’s foreign ministers met in Tehran Monday and publicly denounced the attacks. “This move is [aimed at] boosting the morale of terrorist groups which are suffering very serious blows from the resistance of the Syrian and Iraqi people,” Iran’s Foreign Minister Mohammad Javad Zarif said....
The Syrian and Iranian charges that Israel is actively seeking to aid the ISIS and Al Nusra Front forces inside Syria have received substantiation from the United Nations, which made public reports issued by the UN Disengagement Observer Force (UNDOF), which patrols the cease-fire line in the Golan Heights, indicating continuous Israeli contact with and aid to the so-called rebels.
A report issued by UNDOF in June 2014, for example, cited 59 incidents at a Syrian-Israeli crossing point known as Position 85 in which the UN forces “observed armed members of the opposition transferring 89 wounded persons from the Bravo [Syrian] side across the ceasefire line to IDF and IDF on the Alpha [Israeli] side handing over 19 treated and 2 deceased individuals to the armed members of the opposition on the Bravo side.”...
The Israeli action could have other motives as well. Tel Aviv is strongly opposed to the negotiations to reach a nuclear settlement with Iran and can only be further agitated over the fact that US and Iranian warplanes are simultaneously attacking the Islamist forces inside Syria. The latest intervention may well be aimed at provoking a conflict that could disrupt any rapprochement between Washington and Tehran.
12--Washington’s Frozen War Against Russia, CP
The positions are frozen. When reason fails, force follows. Sooner or later., Diana Johnstone
On December 2, President Poroshenko swore in three foreigners as cabinet ministers: an American, a Lithuanian and a Georgian. He granted them Ukrainian citizenship a few minutes before the ceremony...
Nobody is mentioning this, but the controversial trade agreement between the E.U. and Ukraine, whose postponement set off the Maidan protests leading to the U.S.-steered February 22 coup d’état, removes trade barriers, allowing free entry into E.U. countries of agricultural exports produced in Ukraine by U.S. corporations. The Ukrainian government is deeply in debt, but that will not prevent American corporations from making huge profits in that low-wage, regulation-free and fertile country. European grain producers, such as France, may find themselves severely damaged by the cheap competition....
In a speech to leading CEOs on December 3, Obama said the sanctions were intended to change Putin’s “mindset”, but didn’t think this would succeed. He is waiting for “the politics inside Russia” to “catch up with what’s happening in the economy, which is why we are going to continue to maintain that pressure.” This was another way of saying that stealing Russia’s natural gas market, forcing Europe to enact sanctions, and getting Washington’s bigoted stooges in Saudi Arabia to bring down petroleum prices by flooding the market, are all intended to make the Russian people blame Putin enough to get rid of him. Regime change, in short....
On December 4, the U.S. House of Representatives officially exposed the U.S. motive behind this mess by adopting what must surely be the worst piece of legislation ever adopted: Resolution 758. The Resolution is a compendium of all the lies floated against Vladimir Putin and Russia over the past year. Never perhaps have so many lies been crammed into a single official document of that length. And yet, this war propaganda was endorsed by a vote of 411 to 10. If, despite this call for war between two nuclear powers, there are still historians in the future, they must judge this resolution as proof of the total failure of the intelligence, honesty and sense of responsibility of the political system that Washington is trying to force on the entire world....
13--Mexico’s Youth Under Siege, Laura Carlsen, cp
14--Oil as a Political Weapon---The Economic Consequences of Global Oil Deflation, Jack Rasmus, cp
new wild card has just been introduced into an already increasingly unstable global economy: a growing world glut of oil and consequent oil price deflation.
Since June 2014, the price of high grade (ICE Brent) crude oil has fallen more than 40 percent, declining from around USD$115 a barrel, in January 2014, to just USD$67 a barrel at the end of November. That’s the lowest since the bottom of the 2009 recession. The price decline has not only been deeper than expected in a normal cyclical correction, but also appears more than just a temporary event. Some predict global oil prices will fall below USD$60 a barrel in 2015, and could potentially fall as low as the USD$40 a barrel collapse that occurred during the 2008-09 recession.
What effect a deep and sustained oil price deflation will have on the global economy — which is already drifting toward stagnation and, simultaneously, rising financial instability — is hardly being discussed at all in the western business press. Instead, oil deflation is reported as a positive economic development, both for the advanced economies (AEs) and for emerging market economies (EMEs), as well as the global economy in general.
First, a more rapid appreciation of the US dollar, and the corresponding relative decline in the currencies of a number of emerging market economies (EMEs) — in particular those dependent on commodity exports and especially those for whom oil exports make up a significant percent of total exports. There is a long, historical and documented relationship between falling oil prices and a rising US dollar. So global oil deflation means a rising US dollar.
A second destabilizing impact from falling oil prices will be to contribute toward general deflation in Europe and Japan
Third, decline in financial assets tied to oil could increase the tendency toward global financial instability. Oil deflation may lead to widespread bankruptcies and defaults for various non-financial companies, which will in turn precipitate financial instability events in banks tied to those companies. The collapse of financial assets associated with oil could also have a further ‘chain effect’ on other forms of financial assets, thus spreading the financial instability to other credit markets.
The positive impacts of falling oil prices on economies, including the USA, are generally over-rated. Oil price declines may not have as much positive impact on consumer spending and business investment that many in the AEs now assume. The total net effect on the global economy will therefore likely prove more negative than positive.....
Since the collapse of global oil prices began in earnest last June, the Russian Ruble has fallen approximately 38 percent. The Venezuelan currency, the Bolivar, by around 45 percent. Nigeria’s currency, the Naira, has declined 12 percent just since mid-October....
In other words, it’s not sanctions on Russia by the west that are responsible for the lion’s share of the ruble’s recent decline. Nor is it Venezuelan domestic economic policies that are contributing most to the decline in the value of the Venezuelan Bolivar. It is the collapse of global oil prices that is the main culprit.
All commodities, not just oil, take a major hit when sustained oil deflation sets in. A sharp and sustained decline in oil is generally associated with declining sales and prices of other commodities. The entire global commodities sector may be impacted negatively. That has already begun to happen with commodities like copper, gold, and other industrial metals, that have begun to fall as well in the wake of the current oil price decline. The Bloomberg Index of 22 basic commodities, for example, has recently fallen to its lowest level since 2009.....
For example, sharp declines in currency values lead to capital flight from the EME. Both domestic and foreign investors dump those currencies, buy dollars, and send capital out of the country to buy US assets — typically US bonds and stocks and other assets that may be attractive as well, like real estate. The EME capital flight is then reflected in EME stock market declines and a rise in EME government bond interest rates. Former flows of foreign direct investment into the EME also slow. Money capital in general dries up. Credit becomes scarce. Falling currency values also lead to higher cost of imported goods for consumers and consequent decline in consumer real incomes and spending. Business exports also decline. All the above translate into slowing real economic growth in the EME, and even recession. And all because of rising dollar — the global trading and reserve currency — and the decline in the EME’s currency exchange rate that sets the process in motion...
Should oil deflation push their economies over the cliff into general deflation, it will no doubt be an excuse to inject even more trillions of dollars into their economies, in the false ideological notion that, in today’s economy, more money raises the general price level. History has shown this view to be nonsense, of course. Massive central bank liquidity injections result in financial asset inflation, but not in general inflation for goods and services in the real economy. In fact, liquidity injections lead to financial asset bubbles....
The same ‘financial asset chain effect’ could arise if oil prices continued to decline below USD$60 a barrel. That would represent a nearly 50 percent deflation in oil prices that could potentially set in motion a more generalized global financial instability event, possibly associated with a collapse of the corporate junk bond market in the USA that has fueled much of USA shale production.....
USA growth will also be negatively impacted by falling oil prices because that deflation will bring to a halt the strong investment and expansion of production of Shale drilling for gas and oil. At USD$60 a barrel for oil, Shale gas and oil production is not competitive with traditional oil production. Shale production therefore will be significantly reduced, in turn reducing the contribution of industrial production, which it is a major part, to USA economic growth. The shake out in Shale that is coming will not occur smoothly. It will mean widespread business defaults in the sector. And since much of the drilling has been financed with risky high yield corporate ‘junk’ bonds, the shale shake out could translate into a financial crash of the US corporate junk bond market, which is now very over-extended, leading to regional bank busts in turn. In other words, another financial instability event eventually traceable ultimately to global oil deflation....
15--OECD finds growing inequality lowers growth, DW
The Organization for Economic Cooperation and Development (OECD) has found that the divide between the richest 10 percent and poorest 10 percent in many of the world's wealthiest countries - including Germany - has been growing. In a report released Monday, OECD said that this, in turn, had caused growth to slow.