Author: admin

Curious what prompted US stocks to swoon lower around 2:45pm, having traded closely around the unchanged line? It may have been a reported by Reuters according to which the Office of the Comptroller of the Currency said that the U.S. banking system has “strong capital and liquidity” and is “well-positioned” to manage more adverse market conditions.

If this sounds suspiciously close to what Steven Mnuchin said the weekend ahead of the Christmas Eve market massacre when, inexplicably, the Treasury Secretary announced that US bank liquidity levels are sufficient and that he had spoken to bank CEOs and summoned the Plunge Protection team, is because it is. Readers will hardly need a reminder that the market’s response to Mnuchin’s statement was one of shock: after all, nobody had even suggested that there may be any concerns with US bank, so Mnuchin’s statement stunned everyone, and prompted question about what if anything may be wrong with US banks for Mnuchin to try to “calm” markets in such a bizarre way which was last deployed during the financial crisis.

Well, now it was the OCC’s turn.

In a statement to Reuters, OCC spokesman Bryan Hubbard said the banking regulator was monitoring the effects of falling stock markets on the nearly 1,300 institutions it oversees and would share any relevant systemic information with fellow supervisors through the appropriate interagency forums.

“The federal banking system … is strong with capital and liquidity near historical highs and improved earnings and risk management. From this strength, the federal banking system is well positioned to manage more adverse market conditions.”

He added that OCC expects supervised institutions to understand exposures within their portfolios and take appropriate action to mitigate any risks, although just like in the case of Mnuchin, it was not at all obvious why the OCC would address bank liquidity levels all of a sudden: after all not even the biggest market skeptics have warned about bank liquidity, or solvency for that matter.

Hubbard also explained that possible risks could include adverse effects on liquidity, pricing, or terms for corporate loans and bonds.

And with this odd warning hitting out of the blue, stocks promptly faded any gains for the day, and have been sliding ever since as traders once again wonder just why in the span of under 10 days we have gotten repeat assurance that “banks are fine” and “well positioned” for a crisis, when nobody was wondering the opposite in the first place,

In any case, a few more “assurances” such as this one and the investing world will observe first hand just how prepared for a crisis US banks truly are.

via RSS http://bit.ly/2Tm6utd Tyler Durden

Something is afoot with China’s housing sector.

On Christmas Day 2018 we reported that the chairman of a leading Chinese state bank warned Chinese investors not to buy property now because “there’s no money to be made” due to high prices and alarming vacancy rates (an ominous development we first discussed last month in “The “Nightmare Scenario” For Beijing: 50 Million Chinese Apartments Are Empty“).

Offering some surprisingly blunt advice which would appear counterproductive to his business model – after all Guoli is incentivized to make as many mortgages as possible – Tian said that “there’s no money to be made if you buy a flat nowadays. If you insist on buying a home, aren’t you trapped at the high price level?” The CCB Chairman was speaking at a forum organixed by Peking University’s Guanghua school of management.

As the SCMP reported, the warning by Tian, who is an alternate member of the Communist Party Central Committee, came at a time when the country is in heated debate about the role of the property market – whether it will lead to an bust or whether it can help shore up the economy.

Now, in the latest warning about China’s housing sector, the Communist Party’s People’s Daily warned on Wednesday that China’s regional economies need to reduce their reliance on the property market for growth and instead focus on sustainable longer-term development.

The story is familiar: in recent year, hundreds of cities across China have seen upswings in their local property markets under a long-term plan by Beijing to further urbanize the country. The process of building new homes and revamping old ones has only accelerated in the last few years, backed by local governments keen to boost land sales and meet red-hot property demand. Indeed, the total sales of China’s top 100 real estate developers soared 35% last year, according to private research firm CIRC.

But repeating a now familiar warning that the party is over, Beijing has once again expressed concern that some cities, looking for rapid expansion, have grown their property markets too quickly and at the expense of new industry development, adding potential froth to real estate prices.

“All areas should focus on their own urbanization processes, develop their own pillar industries according to population mobility and resources, and form new points of growth to avoid the old road of relying on real estate to drive the economy,” the commentary quoted a professor at the Capital University of Economics and Business as saying. The warning is almost verbatim a copy of what China Construction Bank chairman Tian Guoli said one week ago when he warned that “there’s no money to be made if you buy a flat nowadays.”

The commentary, which surprisingly appeared in the international edition of the People’s Daily, said a stable and healthy property market is crucial to the development of China’s changing economy, and cited an analyst who said that a thriving property market driven by reasonable prices boosts demand for both raw materials and downstream items such as appliances and home decoration. The flip side, obviously, is a runaway housing bubble and as events in 2006/2007 in the US demonstrated, has a very unpleasant ending.

Meanwhile, as we reported last month, while average new home prices in China’s 70 major cities rose for a 43rd straight month in November, the rate of increase slowed amid weaker growth in the country’s smaller cities, and soft home sales and land purchases suggest a dim outlook for the sector.

The article also comes as a number of Chinese city authorities seek to ease existing curbs on their property markets, despite broader directives from Beijing to keep prices in check.

And yet, in a bizarre flip-flop, last week the city of Hengyang rescinded an order to lift restrictions on property prices, having just introduced the easing measure a day earlier; this example shows the catch 22 that China finds itself in – with much of Chinese economic growth reliant on continued expansion of the housing sector, any attempts to curb said expansion would lead to a more immediate, if less painful economic hit. By delaying the day of reckoning China is only assuring that when the bubble bursts, it will take down not only China’s, but the global economy down with it.

Following the People’s Daily report, the Hong Kong-listed shares of top Chinese real-estate developers China Vanke, Sunac China, China Evergrande, China Overseas Land & Investment and Country Garden all fell, some by as much as 6-7%, while an index tracking major property firms eased 0.7%.

CRIC predicted that the property sector will enter a period of stable growth this year, with the top 100 companies’ annual sales growth rate slowing to 20-30%.

Meanwhile, amid reports of massive housing vacancies as Chinese builders overextended in recent years to prop up GDP resulting in over 50 million empty apartments, there has also been increasing concern that a downturn in the housing market would hit households, banks and developers hard – and this in turn would be a serious threat to China’s state banks and local governments, whose revenues are tied to the property market. Meanwhile, even the smallest turbulence in the market could unleash a furious firesale as builders seek to dump vacant properties: in China, some 22% of the total housing stock is unoccupied, roughly double that of other developed economies.

The net result is that the debt keeping China’s housing bubble afloat has keeps rising, with the value of outstanding real estate loans – including mortgage and development lending – reaching 38 trillion yuan (US$5.5 trillion) by the end of September 2018, or 28% of total lending, according to government data, while just personal home mortgages in China have exploded sevenfold from 3 trillion yuan ($430 billion) in 2008 to 22.9 trillion yuan in 2017, according to PBOC data.

By the end of September, the value of outstanding home mortgages had surged another 18% Y/Y to a record 24.9 trillion yuan, resulting in a trend that as Caixin notes, has turned many people into what are called “mortgage slaves.”

What is most troubling, however, and what may have spurred the official government warning, is that despite relatively stable home prices, the foundations behind the housing market are cracking. As the WSJ recently reported, one year ago, a group of homeowners stormed the sales office of their Shanghai complex, “Central Washington”, whose developer, Shanghai Zhaoping Real Estate Development, was advertising new apartments at a fraction of the prices of the ones sold earlier in the year. One apartment owner said the new prices suggested the value of the apartment she bought from the developer in March had dropped by about 17.5%.

“There are people who bought multiple homes who are now trying to sell one to pay off the mortgage on another,” said Ran Yunjie, a property agent. One of his clients bought an apartment last year for about $230,000. To find a buyer now, the client would have to drop the price by 60%, according to Ran.

Of course, if that is the true clearing price to bring China’s massive housing market into balance, a global economic crisis and global deflationary shockwave – launched by China’s housing sector – is now inevitable, it is just a question of when Beijing will finally pull the pin.

via RSS http://bit.ly/2GQM4ad Tyler Durden

The FBI is investigating the theft of 18,000 documents related to the September 11 attacks on the World Trade Center by a hacking collective known as The Dark Overlord, according to FT, citing two people familiar with the matter. 

Posting under the name “The Dark Overlord”, the hacker or hackers claimed on New Year’s Eve that they had taken emails and non-disclosure agreements relating to the 9/11 attacks that were sent and received by groups including insurers Hiscox and Lloyd’s of London and the law firm Blackwell Sanders Peper Martin, now called Husch Blackwell.

The Dark Overlord said it would sell the documents for bitcoin, inviting Isis, al-Qaeda and nation states to bid for them online. –FT

“Pay the fuck up, or we’re going to bury you with this. If you continue to fail us, we’ll escalate these releases by releasing the keys, each time a Layer is opened, a new wave of liability will fall upon you,” reads the hacking group’s demand letter. 

“If you’re one of the dozens of solicitor firms who was involved in the litigation, a politician who was involved in the case, a law enforcement agency who was involved in the investigations, a property management firm, an investment bank, a client of a client, a reference of a reference, a global insurer, or whoever else, you’re welcome to contact our e-mail below and make a request to formally have your documents and materials withdrawn from any eventual public release of the materials. However, you’ll be paying us,” the note continues. 

Images of some of the documents began circulating on Wednesday after the group released decryption keys, which appear to show communications related to the World Trade Center. 

The FBI is one of multiple law-enforcement agencies who are now investigating the breach, according to FT. The Dark Overlord, meanwhile, says that it has been under investigation for years, and that it had also gathered other information from Lloyd’s and Silverstein Properties – founded by former WTC owner Larry Silverstein. 

Hiscox insurance said it became aware of the hack last April. 

“The law firm’s systems are not connected to Hiscox’s IT infrastructure and Hiscox’s own systems were unaffected by this incident,” said a Hiscox spokesperson. “One of the cases the law firm handled for Hiscox and other insurers related to litigation arising from the events of 9/11, and we believe that information relating to this was stolen during that breach.”

“We will continue to work with law enforcement in both the UK and US on this matter,” added the spokesperson. 

The September 11 attacks cost the insurance industry the equivalent of $45bn in 2017 terms, according to the Insurance Information Institute, and led to years of litigation over who should bear the cost.

Both Hiscox and Lloyd’s have expanded heavily into cyber insurance in recent years, selling protection against the costs of dealing with cyber attacks.

Husch Blackwell said it had not been hacked: “Several documents bearing the letterhead of a predecessor law firm to Husch Blackwell were made public earlier this week by a cyber terrorist group,” the company said in a statement.

“After a thorough review Husch Blackwell can confirm that no documents were obtained from Husch Blackwell and that there was no unauthorised access to Husch Blackwell systems, client files, documents or data.”  –FT

A spokesperson for Lloyd’s said it had no evidence of a breach of their systems, and said in a statement “Lloyd’s will continue to monitor the situation closely, including working with managing agents targeted by the hacker group.”

Silverstein Properties says that the company is investigating the claims, and that “e are aware of claims of alleged security breaches at firms involved in the five-year insurance litigation following the attacks of 9/11,” adding “To date, we have found no evidence to support a security breach at our company. We have spent the last 17 years fulfilling our obligation to deliver a magnificent and fully rebuilt World Trade Center. We will not be distracted by 9/11 conspiracy theories.”
 

via RSS http://bit.ly/2F1MoAx Tyler Durden

US Treasury yields are tumbling (along with German bund yields) as 2019 opens up with a broad risk-off sentiment and global growth scare.

30Y Yields are back below 3.00% and 10Y hit 2.60 handle – its lowest since January 2018…

All of which – confused by shutdown fears, liquidity concerns, repo rate carnage, and The Fed’s QT – has left the yield curve of the supposedly most liquid bond market in the world in a total mess of inversions… from 1Y through 8Y is now inverted…

And as Bloomberg reports, this inversion reinforces the warnings from a market indicator watched by the Fed as one of the most accurate gauges of economic health is pricing in lower rates for the first time in more than a decade.

This little-known near-term forward spread, which reflects the difference between the forward rate implied by Treasury bills six quarters from now and the current three-month yield, fell to -0.0653 basis point on Wednesday.

It was the first time since March 2008 the gauge — seen as a proxy for traders’ outlook on Federal Reserve policy — fell below zero.

Crossing the threshold indicates the market sees easier policy and recession in “the next several quarters,” economists at the U.S. central bank wrote in a research paper dated July 2018.

“When negative, it indicates market participants expect monetary policy to ease, presumably because they expect monetary policymakers to respond to the threat or onset of a recession,” Eric C. Engstrom and Steven A. Sharpe wrote.

“When market participants expected — and priced in — a monetary policy easing over the next 18 months, their fears were validated more often than not.”

If equities are right – the massive underperformance of cyclicals relative to defensives – then Treasury yields have a long way to fall…

But in the short-term, we wonder how much of last week’s buying panic in stocks will hold?

via RSS http://bit.ly/2CKCphn Tyler Durden

Authored by John Rubino via DollarCollapse.com,

Much about 2019 is uncertain. But a few things are pretty much guaranteed, including the following:

1. Government debt will rise at an accelerating rate

Like a life-long dieter who finally gives up and decides to eat himself to death, the US is now committed to trillion-dollar deficits for as far as the eye can see. And that’s – get this – assuming no recession in the coming decade. During the next downturn that trillion will become two or more, but in 2019 another trillion-plus is guaranteed.

But the US debt binge is downright orderly compared to much of the rest of the world.

After Paris nearly burned to the ground last month, president Macron responded – surprise! – with massively higher spending:

Macron Bets Spending Binge Can Save His Plan to Transform France

(Bloomberg) – Emmanuel Macron is rolling the dice with France’s public finances to keep his grand plans for the economy alive after weeks of protests on the streets.

Macron’s government will set out a raft of measures to try to calm the so-called Yellow Vest protests on Thursday and they will almost certainly see France breach the European Union’s budget deficit ceiling next year.

The 40-year-old president is arguing the concessions are necessary to maintain public support for his efforts to make the economy more efficient.

“Macron is now facing an impossible trilemma,” said Bernhard Bartels, associate director at Frankfurt-based Scope Ratings. “You can’t have have popular support, ongoing structural reforms and fiscal consolidation all at the same time.”

Macron’s announcement Monday that he’ll raise the minimum wage, abolish taxes on overtime, and get rid of a controversial tax on pensions will send next year’s budget deficit to about 3.5 percent of output, up from a previous target of 2.9 percent, according to media reports. That’s well beyond the 3 percent limit imposed on members of the euro zone.

China’s growth has been slowing, in part because it eventually had to and in part because the US has finally lost patience with Beijing’s cheating and cybertheft. China’s response:

China Says More Tax Cuts, Easier Monetary Policy Coming in 2019

(Bloomberg) – China’s top policy makers confirmed that more monetary and fiscal support will be rolled out in 2019, as the world’s second-largest economy grapples with a slowdown that’s yet to show signs of ending.

Facing the most difficult economic environment in years amid the trade standoff with the U.S., the conference outcome suggests Beijing sees increasing urgency in tackling stalling growth.

“The focus for macro policy has shifted from lowering long-term risks to boosting short-term demand,” said Larry Hu, head of China economics at Macquarie Securities Ltd.

The stimulus pledge did little to convince investors, who have seen nearly $3 trillion wiped off the value of China’s stock market since the end of January. The Australian dollar, a proxy for betting on China due to the country’s trade exposure to the Asian economy, fell against the dollar along with most major currencies.

The economy slowed again in November as retail sales and industrial production weakened. Economists see growth of the world’s second-largest economy slowing to 6.2 percent next year from 6.6 percent in 2018, as uncertainty over the trade war couples with a decline in consumer confidence to dim the outlook.

2. Corporate share buybacks will slow to a trickle

Corporations are the ultimate dumb money. Note on the following chart how in the previous cycle their buying back of their own shares peaked just as stock prices hit record highs in 2007. Stocks then plunged and corporations – dumb to the end – became net sellers at the bottom.

The first part of this pattern repeated in 2018, as corporations took advantage of tax law changes to repatriate hundreds of billions of dollars and apparently used the whole load to buy back their shares – just before pretty much everything fell off a cliff starting in October.

Now CEOs across the corporate spectrum are heading into their annual shareholder meetings having squandered big parts of their investors’ capital on overpriced stock. Tense times for sure, and not likely to whet the appetite for more buybacks.

If the rest of the pattern holds, expect corporations to stop buying and maybe even start selling by year-end.

3. Politics will get even crazier

This is the easiest prediction in the history of predicting. The US just handed the House of Representatives to Democrats who have been itching to destroy the president for two interminable years. Given a chance to make those dreams a reality, the Dems will throw everything in the political dirty tricks handbook at the executive branch. The result: something much worse than gridlock. Let’s call it “chaos” until the media coins catchier term.

Across the pond, Brexit is looking decidedly “hard,” meaning the UK just leaves the EU and lets the lawyers sort out who owes what to whom and who gets to go where when.

The French government’s promise of deficits that blow through the EU’s limits, meanwhile, presents Continental bureaucrats with a dilemma: Let France get away with it, which also means letting Italy and every other dysfunctional European country do whatever they want. Or stop France and open a possibly irreparable rift between the EU’s major powers.

And this is all happening with German Chancellor Angela Merkel a lame duck and no clear replacement in sight — and with the far right ascendant.

As for Latin America, just Google Brazil, Argentina or Venezuela and see what their 2019 looks like.

A year of crosscurrents

Take soaring government debt, combine it with less corporate support for stocks and political turmoil wherever you look, and the impact on equity and bond prices is unclear. Rising government spending will boost stocks while falling corporate share buybacks will depress them. Political turmoil will spook the markets but also engender hope that panicked central banks will respond with bigger and better QE programs, which other things being equal would be good for bonds and maybe stocks.

Financial assets, as a result, might do pretty much anything; there’s no way to know.

Precious metals, however, will love a world of falling governments and soaring debt. So…one bonus prediction: Gold tests the $1,360 resistance that has repelled it four times in the past five years, and this time breaks through.

via RSS http://bit.ly/2F3TPb8 Tyler Durden