Chinese Brokers’ Profits Plunge 98% As Traders Flee Rigged, Burst Bubble Markets

While both sellside analysts and buyside investors are panicking over the collapse in bank stock prices and the evaporation of market liquidity as virtually nobody trades any more, perhaps it is time someone looked further east, specifically in China where in January the results reported by local brokerages have confirmed what we have been warning about, namely the local investors – disgusted with China’s stock “market” which is not only a burst bubble now but also rigged beyond any measure – have pulled their money en masse, and left China’s brokerage to disintergated into a revenueless, profitless mess.

Red Pulse has more:

Twenty-three listed securities companies had reported January financial results through February 5, showing steep declines in earnings. The brokers collected a combined RMB6bn in revenue and RMB200m in net profits in January, decreasing 83% and 98% MoM, respectively. Overall the industry recorded a loss in January.

Brokers’ key securities trading business has been impacted by low trading inactivity as markets got off to a rocky start in 2016, falling 22% in January. Daily January trading volume was RMBS38.7bn, down 32% MoM. Margin lending balance at the 23 listed securities companies dropped to RMB915.4bn at the end of January, down 22% MoM and the lowest level in 14 months. Net assets of the 23 securities companies increased by RMB9.1bn at the end of January. However, net assets of these companies actually fell RM1311bn if the additional RMB20bn in share issuance from Industrial Securities, Pacific Securities and Soochow Securities were excluded.


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Yuan Tumbles Most In A Month; Stocks, Crude Maintain Gains

Having rallied all the way back to unchanged for the year thanks to yesterday's China re-opening "adjustment," the Yuan selling has resumed with onshore down by the most in a month and offshore fading also. 

 

With Crude and USDJPY holding gains (for now)…

US and Asian equities are in the green as hope springs eternal that tomorrow's oh-so-secret Russia-OPEC meeting solves the world's energy problems.


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Where Deflation Comes From

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

Financial bubbles blown on the back of massive amounts of debt, of necessity lead to debt deflation (it’s just entropy, really). Fighting this is futile, and grossly costly to boot. The only sensible thing to do is to guide the process as best you can and try to minimize the damage, especially at the bottom rungs of society, because that’s where the deflation first takes hold, and where it spreads out from.

Attempting to boost inflation, or boost demand, before letting the debt deflation run its course through restructuring and defaults (perhaps even a -partial- jubilee) leads only to -further- distortion, and -further- impoverishes society’s poorer (at some point to a large extent the former middle classes) whose lower spending, as nary a soul seems to comprehend, is the origin of the deflation to begin with.

All the attempts by central bankers to boost inflation that we’ve seen so far squarely ignore this, and operate on the false assumption that if only prices for financial assets and real estate can be raised even higher -artificially-, deflation can be warded off.

Thing is, deflation starts not at the top, it starts at the bottom. It’s not the banks or the bankers or the well-off who are maxed out and stop spending, but the people in the street.

They are responsible for most of the spending in an economy, and therefore for the velocity with which money moves in a society. And if the velocity of money falls below a critical point, no increase in the other side of the inflation/deflation equation -the money/credit supply- can make up for the difference. There is a point where all of the King’s horses and all of the King’s central bankers can’t put Humpty Dumpty together again.

The people in the street are not just maxed out in the sense that they have no money, they have less than no money, since they’re deep in debt. An increasing part of whatever they do still have, and what they make in their ever lower paying jobs, goes toward debt payments. Yeah, that’s the giant sucking sound.

QE and other ‘plans’ like it don’t address this even in the slightest, and are necessarily failures before they even start.

Central bank stimulus measures are all exclusively targeted at the upper rungs, and therefore miss their aim entirely. Or perhaps we should say ‘alleged’ aim, since it takes quite a leap of faith to presume that all the world’s central bankers fail to understand their own field so thoroughly that all they can all come up with is failures.

However, given that they all studied the same faulty economics textbooks, we can’t rule out this possibility. It is certainly strongly suggested -once again- by Steve Keen in Our Dysfunctional Monetary System.

Rather than effective remedies, we’ve had inane policies like QE, which purport to solve the crisis by inflating asset prices when inflated asset prices were one of the symptoms of the bubble that caused the crisis. We’ve seen Central Banks pump up private bank reserves in the belief that this will encourage more bank lending when (a) there’s too much bank debt already and (b) banks physically can’t lend out reserves.

What may also play a role is that the upper rungs tend to be blind to anything outside of their own circles, that because they 1) have their hands on a nation’s wallets and 2) they see themselves as the most important segment of any given society, they elect to try and solve the problem inside their own circles -and truly believe this is feasible-.

This can of course not possibly work. Because they’re hugely outnumbered. They don’t have nearly enough influence on money flows in their societies. If they can’t sell the bottom, let’s take a number, 80%, of society sufficient produce or gasoline or homes or trinkets, the entire society seizes up the way an engine does that runs out of oil.

The top makes its fortune for a while getting the bottom ever deeper into debt, only to inevitably find that this kills off the entire economy. Then they do some more of the same, and find ever more of their own kind becoming part of the bottom.

The problem for the rich is simple: there’s not enough of them. Well, that and they don’t understand how societies function. Let alone economies. Scraps off the table won’t do the trick. Next stop pitchforks.

Any deflationary period would have been hard no matter what. Still, none would have had to lead to what we’re facing now.

But look out there at what’s happening in politics, at who’s popular in various places. It’s all geared towards more inequality, not less, like some tooth and claw Darwin version were the world’s economics teacher, wherever you look it’s all the well-off making ever surer they will remain well-off or better.

And even if you look for instance at Bernie Sanders in the US, he wants more for the bottom of society, but that seems more for sentimental or ideological reasons than a sign he actually understands why it would raise the odds of the States being a going concern going forward.

The actual Darwin could have taught us all a lesson or two three about the role of balances in ecosystems, and in human societies. But then he actually studied them. Economists, politicians and central bankers have not.


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“What Goes Up Can Also Come Down”

Submitted by Keith Dicker of IceCap Asset Management

What goes up can also come down

Whether unknowingly or not, the media and the investment industry has created an information gap wedging the 2008 debt crisis with today’s debt crisis. Chart 4 shows the difference in debt outstanding from 2008 compared to today. The Public Sector consists of government and tax payers, while the Private Sector is made up of individuals and companies.

Notice the enormous gap that has developed between the two groups over the last 6 years. This is the part that isn’t talked about by the big banks, fund companies and advisors with their clients. The debt crisis was never really resolved. Instead, governments decided to simply transfer the debt problem from the private sector to the public sector.

This is important as it is one of the key reasons for the current crisis.

As a result, capital markets were never allowed to reset. Instead, our governments and central banks have created a financial  environment where traditional savers receive little to no interest on their cash deposits, and an economic environment whereby sophisticated investors are slowly withdrawing investment.

This combination is creating deflationary trends around the world, and it is causing the Velocity of Money to plummet. Ironically, this central-bank induced economic combination, is causing central banks and governments to do even more of the same. Insanity at its best.

At some point very soon, this financial-spin-top will lose a few riders and the key one to watch is the government bond sector. Chart 5 illustrates the size and difference between the bubbles in our all too recent past.

And as they say in California – the next one will be a big one. As the bubble in government bonds blows higher and higher, the following investment groups will become considerably risky:

– Government bonds
– Bank & insurance stocks
– Pension funds
– Target Date Mutual Funds

Practically every investor in the world has exposure to the bond market, as well as bank and insurance stocks. Some investors have little exposure while others have a lot of their eggs in this seemingly low-risk basket.

We’ll next explain why we are nervous about these, 4 investment groups (page 9) and then go into greater detail about each one in future Global Market Outlooks.

First, note the following amount of global debt outstanding.

Next, note that over $58 TRILLION is owed by governments, and over $45 TRILLION is owed by banks and insurance companies.

Also, understand that banks and insurance companies are required by regulators to hold safe investments as their capital.

And finally, understand that regulators say government bonds are recognised as risk-free investments and therefore should make up the majority of a bank’s capital.

So, if you accept our view that government bonds are in a bubble phase and that eventually this bubble will burst, governments as well as anyone holding government bonds will be affected the most.

And because banks and insurance companies invest their required capital in government bonds, they are extremely vulnerable to a popping of the government bond market. To summarise, the groups who hold a whole bunch of government bonds include:

– Bank & insurance companies
– Pension funds
– Target Dated Mutual Funds

* * *

Continue reading below


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According To These 2 Charts, A Default Cycle In The US Is Now Inevitable

“What is going on?”, Deutsche Bank asks, in the bank’s latest European equity strategy snapshot.

Investors, Deutsche says, can’t seem to figure out why it is that European equities have plunged by some 20% since peaking in November. The usual suspects are trotted out (China, renewed concerns about NPLs, and the shocking realization that central bankers’ are more impotent than they are omnipotent) but the real problem, the bank says, is threefold: 1) there’s a very real risk that China finally throws in the towel on the whole “controlled,” “orderly” devaluation thing in the face of worsening capital flight and simply moves to a float to relieve the pressure, 2) global growth is stuck in the doldrums, and 3) the US is about to enter a default cycle thanks to the fact that the country’s uneconomic energy producers are all about to go bankrupt in the face of shrinking borrowing bases and a HY primary market that is suddenly slammed shut.

Remember, this is a collection of companies who are and pretty much always have been insolvent. The whole damn space is cash flow negative, which means if someone doesn’t step in to plug the funding gap, the music stops. No more drilling. No more pumping. No more coupon payments. Game over.

Until now, Wall Street has stepped up to the plate with cheap cash and by providing access to what until recently were wide open capital markets. Now, all that’s changed. There’s not enough yield in the world to entice investors to buy new issuance from US HY energy producers and the revolver raids that started in October will likely continue in April.

Barring some sort of dramatic turnaround in oil prices, the defaults are coming, and as Deutsche goes on to note, once the speculative default rate hits 4%, it’s almost guaranteed to shoot up to 10%. Although we’re only at 3% now, spreads are already at levels consistent with a speculative default rate of 5%.

Have a look at the following two charts which suggest that the US is indeed entering a default cycle and if history is any guide, it’s about to get very messy, very quickly.

*  *  *

From Deutsche Bank

Over the past 100 years, when defaults have risen above 4%, they have typically continued to rise close to 10% (i.e. a full default cycle). This is because of the tendency for credit stress to become self-fuelling: a rise in expected defaults pushes up financing costs, which tips some marginal borrowers over the edge, further increasing defaults and so on. With non-energy spreads rising in line with overall spreads and issuance down sharply, this process seems to be under way (and explains the sharp underperformance by banks).


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“A Dramatic Escalation Appears Imminent” In Syria

Originally posted at The Saker,

The situation in Syria has reached a watershed moment and a dramatic escalation of the war appears imminent. Let’s look again at how we reached this point.

During the first phase of the operation, the Syrian armed forces were unable to achieve an immediate strategic success. This is rather unsurprising. It is important to remember here that during the first weeks of the operation the Russian did not provide close air support to the Syrians. Instead, they chose to systematically degrade the entire Daesh (Note: I refer to *all* terrorist in Syria as “Daesh”) infrastructure including command posts, communication nodes, oil dumps, ammo dumps, supply routes, etc. This was important work, but it did not have an immediate impact upon the Syrian military. Then the Russians turned to two important tasks: to push back Daesh in the Latakia province and to hit the illegal oil trade between Daesh and Turkey. The first goal was needed for the protection of the Russian task force and the second one hit the Daesh finances. Then the Russians seriously turned to providing close air support. Not only that, but the Russians got directly involved with the ground operation.

 

The second phase was introduced gradually, without much fanfare, but it made a big difference on the ground: the Russians and Syrians began to closely work together and they soon honed their collaboration to a quantitatively new level which allowed the Syrian commanders to use Russian firepower with great effectiveness. Furthermore, the Russians began providing modern equipment to the Syrians, including T-90 tanks, modern artillery systems, counter-battery radars, night vision gear, etc. Finally, according to various Russian reports, Russian special operations teams (mostly Chechens) were also engage in key locations, including deep in the rear of Daesh. As a result, the Syrian military for the first time went from achieving tactical successes to operational victories: for the first time the Syrian began to liberate key towns of strategic importance.

 

Finally, the Russians unleashed a fantastically intense firepower on Daesh along crucial sectors of the front. In northern Homs, the Russians bombed a sector for 36 hours in a row. According to the latest briefing of the Russian Defense Ministry, just between February 4th and February 11th, the Russian aviation group in the Syrian Arab Republic performed 510 combat sorties and engaged 1’888 terrorists targets. That kind of ferocious pounding did produce the expected effect and the Syrian military began slowly moving along the Turkish-Syrian border while, at the same time, threatening the Daesh forces still deployed inside the northern part of Aleppo. In doing so, the Russians and Syrian threatened to cut off the vital resupply route linking Daesh to Turkey. According to Russian sources, Daesh forces were so demoralized that they forced the local people to flee towards the Turkish border and attempted to hide inside this movement of internally displaced civilians.

This strategic Russian and Syrian victory meant that all the nations supporting Daesh, including Turkey, Saudi Arabia and the USA were facing a complete collapse of their efforts to overthrow Assad and to break-up Syria and turn part of it into a “Jihadistan”. The Americans could not admit this, of course, as for the Saudis, their threats to invade Syria were rather laughable. Which left the main role to Erdogan who was more than happy to provide the West with yet another maniacal ally willing to act in a completely irresponsible way just to deny the “other side” anything looking like a victory.

Erdogan seems to be contemplating two options. The first one is a ground operation into Syria aimed at restoring the supply lines of Daesh and at preventing the Syrian military from controlling the border. Here is a good illustration (taken from a SouthFront video) of what this would look like:

According to various reports, Erdogan has 18’000  soldiers supported by aircraft, armor and artillery poised along the border to execute such an invasion.

The second plan is even simpler, at least in theory: to create a no-fly zone over all of Syria. Erdogan personally mentioned this option several times, the latest one on Thursday the 11th.

Needless to say, both plans are absolutely illegal under international law and would constitute an act of aggression, the “supreme international crime” according to the Nuremberg Tribunal, because “it contains within itself the accumulated evil of the whole.” Not that this would deter a megalomaniac like Erdogan.

Erdogan, and his backers in the West, will, of course, claim that a humanitarian disaster, or even a genocide, is taking place in Aleppo, that there is a “responsibility to protect” (R2P) and that no UNSC is needed to take such clearly “humanitarian” action. It would be “Sarajevo v2” or “Kosovo v2” all over again. The western media is now actively busy demonizing Putin, and just recently has offered the following topics to ponder to those poor souls who still listen to it:

  1. Putin ‘probably’ ordered the murder of Litvinenko.
  2. Putin ordered the murder of Litvinenko because Litvinenko was about to reveal that Putin was a pedophile (seriously, I kid you not – check for yourself!).
  3. WWIII could start by Russia invading Latvia.
  4. According to the US Treasury, Putin is a corrupt man.
  5. According to George Soros, Putin wants the “disintegration of the EU” and Russia is a bigger threat than the Jihadis.
  6. Russia is so scary that the Pentagon wants to quadruple the money for the defense of Europe.
  7. The Putin is strengthening ISIS in Syria and causing a wave of refugees.

There is no need to continue the list – you get the idea. It is really Bosnia, Kosovo, Iraq, Libya all over again, with the exact same “humanitarian crocodile tears” and the exact same rational for an illegal aggression. And instead of Sarajavo “martyr city besieged by Serbian butchers” we would now have Aleppo “martyr city besieged by Syrian butchers”. I even expect a series of false flags inside Aleppo next “proving” that “the world” “must act” to “prevent a genocide”.

The big difference, of course, is that Yugoslavia, Serbia, Iraq and Libya were all almost defenseless against the AngloZionist Empire. Not so Russia.

In purely military terms, Russia has taken a number of crucial steps: she declared a large scale “verification” of the “combat readiness” of the Southern and Central military districts. In practical terms, this means that all the Russian forces are on high alert, especially the AeroSpace forces, the Airborne Forces, the Military Transportation Aviation forces and, of course, all the Russian forces in Crimea and the Black Sea Fleet. The first practical effect of such “exercises” is not only to make a lot of forces immediately available, but it is also to make them very difficult to track. This not only protects the mobilized forces, but also makes it very hard for the enemy to figure out what exactly they are doing. There are also report that Russian Airborne Warning and Control (AWACS) aircraft – A-50M – are now regularly flying over Syria. In other words, Russia has taken the preparations needed to go to war with Turkey.

Needless to say, the Turks and the Saudis have also announced joint military exercises. They have even announced that Saudi aircraft will conduct airstrikes from the Incirlik air base in support of an invasion of Syria.

At the same time, the Russians have also launched a peace initiative centered around a general ceasefire starting on March 1st or even, according to the latest leaks, on February 15th. The goal is is transparent: to break the Turkish momentum towards an invasion of Syria. It is obvious that Russian diplomats are doing everything they can to avert a war with Turkey.

Here again I have to repeat what I have said already a million times in the past: the small Russian contingent in Syria is in a very precarious position: far away from Russia and very close (45km) to Turkey. Not only that, but the Turks have over 200 combat aircraft ready to attack, whereas the Russians probably has less than 20 SU-30/35/34s in total. Yes, these are very advanced aircraft, of the 4++ generation, and they will be supported by S-400 systems, but the force ratio remains a terrible 1:10.

Russia does, however, have one big advantage over Turkey: Russia has plenty of long-range bombers, armed with gravity bombs and cruise missiles, capable of striking the Turks anywhere, in Syria and in Turkey proper. In fact, Russia even has the capability to strike at Turkish airfields, something which the Turks cannot prevent and something which they cannot retaliate in kind for. The big risk for Russia, at this point, would be that NATO would interpret this as a Russian “aggression” against a member-state, especially if the (in)famous Incirlik air base is hit.

Erdogan also has to consider another real risk: that, while undoubtedly proficient, the Turkish forces might not be a match for the battle-hardened Kurds and Syrians, especially if the latter are supported by Iranian and Hezbollah forces. The Turks have a checkered record against the Kurds whom they typically do overwhelm with firepower and numbers, but whom they never succeeded in neutralizing, subduing or eliminating. Finally, there is the possibility that Russians might have to use their ground forces, especially in the task force in Khmeimim is really threatened.

In this regard, let me immediately say that the projection of, say, an airborne force so far from the Russian border to protect a small contingent like the one in Khmeimim is not something the Airborne Forces are designed for, at least not “by the book”. Still, in theory, if faced with a possible attack on the Russian personnel in Khmeimin, the Russians could decide to land a regimental-size airborne force, around 1’200 men, fully mechanized, with armor and artillery. This force could be supplemented by a Naval Infantry battalion with up to another 600 men. This might not seem like much in comparison to the alleged 18’000 men Erdogan has massed at the border, but keep in mind that only a part of these 18’000 would be available for any ground attack on Khmeimin and that the Russian Airborne forces can turn even a much larger force into hamburger meat (for a look at modern Russian Airborne forces please see here). Frankly, I don’t see the Turks trying to overrun Khmeimin, but any substantial Turkish ground operation will make such a scenario at least possible and Russian commanders will not have the luxury of assuming that Erdogan is sane, not after the shooting down of the SU-24. After that the Russians simply have to assume the worst.

What is clear is that in any war between Russia and Turkey NATO will have to make a key decision: is the alliance prepared to go to war with a nuclear power like Russia to protect a lunatic like Erdogan? It is hard to imagine the US/NATO doing something so crazy but, unfortunately, wars always have the potential to very rapidly get out of control. Modern military theory has developed many excellent models of escalation but, unfortunately, no good model of how de-escalation could happen (at least not that I am aware of). How does one de-escalate without appearing to be surrendering or at least admitting to being the weaker side?

The current situation is full of dangerous and unstable asymmetries: the Russian task force in Syria is small and isolated and it cannot protect Syria from NATO or even from Turkey, but in the case of a full-scale war between Russia and Turkey, Turkey has no chance of winning, none at all. In a conventional war opposing NATO and Russia I personally don’t see either side losing (whatever ‘losing’ and ‘winning’ mean in this context) without engaging nuclear weapons first. This suggests to me that the US cannot allow Erdogan to attack the Russian task force in Syria, not during a ground invasion and, even less so, during an attempt to establish a no-fly zone.

The problem for the USA is that it has no good option to achieve its overriding goal in Syria: to “prevent Russia from winning”. In the delusional minds of the AngloZionist rulers, Russia is just a “regional power” which cannot be allowed to defy the “indispensable nation”. And yet, Russia is doing exactly that both in Syria and in the Ukraine and Obama’s entire Russia policy is in shambles. Can he afford to appear so weak in an election year? Can the US “deep state” let the Empire be humiliated and its weakness exposed?

The latest news strongly suggests to me that the White House has taken the decision to let Turkey and Saudi Arabia invade Syria. Turkish officials are openly saying that an invasion is imminent and that the goal of such an invasion would be to reverse the Syrian army gains along the boder and near Aleppo. The latest reports are also suggesting that the Turks have begun shelling Aleppo. None of that could be happening without the full support of CENTCOM and the White House.

The Empire has apparently concluded that Daesh is not strong enough to overthrow Assad, at least not when the Russian AeroSpace forces are supporting him, so it will now unleash the Turks and the Saudis in the hope of changing the outcome of this war or, if that is not possible, to carve up Syria into ‘zones of responsibility” – all under the pretext of fighting Daesh, of course.

The Russian task force in Syria is about to be very seriously challenged and I don’t see how it could deal with this new threat by itself. I very much hope that I am wrong here, but I have do admit that a *real* Russian intervention in Syria might happen after all, with MiG-31s and all. In fact, in the next few days, we are probably going to witness a dramatic escalation of the conflict in Syria.


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Hong Kong Real Estate Price Plunges 70% In Latest Government Land Sale

Two weeks ago, in our latest report on the Hong Kong housing market, we observed that according to the local Centaline Property Agency total Hong Kong property transactions in January were on track to register the worst month since 1991, when it started compiling monthly figures. In other words, the biggest drop in recorded history.

Centaline estimated that only 3,000 transactions will have registered with developers slowing down new launches, while only 394 units were sold in the first 27 days of January, 80.3 per cent lower than the 2,127 deals lodged in December. Meanwhile, sales of used homes fell by a fifth to 1,276 deals in January.

But while the number of transactions was crashing, prices – while down 10% from the recent all time highs…

 

… have been relatively tame, as sellers have not been desperate enough to hit the collapsing bids, yet.

Yet one place that provides some glimpse into true price discovery was the just completed government tender, in which a parcel of land sold by the government in the New Territories went for nearly 70% less per square foot than a similar transaction in September.

In the deal that could not be postponed “because the seller waits for a better market”, the 405,756 square foot (37,696 square meter) site in Tai Po sold for HK$2.13 billion ($274 million) or HK$1,904 per square foot, in a tender that closed on Feb. 12, according to the Hong Kong Lands Department website. According to Bloomberg, the buyer was Asia Metro Investment Ltd., a subsidiary of China Overseas Land & Investment Ltd.

As we have noted previously, the Hong Kong housing bubble has already suffered a “spectacular collapse”, and all that is left now is confirmation not only in terms of transactions, but prices. We already had the former; now we have the latter.

Hong Kong home prices surged 370 percent from their 2003 trough through the September peak before the correction began, spurred by a rising supply of housing and a slowdown in China. As Bloomberg notes, lower prices paid for land could eventually lead to cheaper home prices down the road, and are viewed as a leading indicator of the negative sentiment on the market.

Making matters worse is that just like in the oil market, Hong Kong is now facing a spike in supply: “adding to the downward pressure on prices was the government on Jan. 13 raising its five-year target for new housing supply to 97,100 new homes, up from a previous estimate of 77,100 units.

It is unclear who will be the biggest victims of Hong Kong’s housing bust: recent land sales have been dominated by mainland Chinese developers. Hong Kong property companies have been less active, as they’re struggling to sell existing units in their inventories and offering discounts of more than 12 percent to entice new buyers.

Yet stunningly, even the bursting of the Hong Kong housing bubble will not be fully clear as Chinese construction companies are merely using the HK real estate market as yet another way to circumvent Chinese capital controls and park their funds offshore: according to Nicole Wong, head of property research at CLSA Ltd. said mainland companies are outbidding their Hong Kong counterparts because they expect lower margins and are also anxious to park money offshore given the devaluation of the yuan.

One can imagine where HK real estate prices would be, if it weren’t for the ingenuity of mainlanders to park hot money into one of the few remaining venues willing to accept it, and that hasn’t been blocked by Beijing.

Still, local real estate experts remain “cautiously optimistic” even in the face of a property tsunami:

Wong cautioned against drawing conclusions on the basis of two land transactions, as it’s impossible to find two sites that are identical. She estimates land prices overall have fallen about 15 percent since their peak, based on the assumption that housing prices have fallen about 10 percent and land accounts for about 60 percent of overall development costs.

Ironically, it was Hong Kong Chief Executive Leung Chun Ying who introduced a raft of measures to cool the property market since 2012 after a rally in home prices fueled complaints of a widening wealth gap. Well, can now now undo those measures. Now that prices are finally starting to fall, property analysts including Raymond Ngai of Bank of America Corp.’s Merrill Lynch unit expect the government will ease the measures and pray to reflate the bubble once more.

However, one way to be absolutely certain that the housing crash will be far worse before all is said and done, comes courtesy of Standard & Poor’s which just issued a report today projecting a 10% to 15% decline in property prices, and said that they would need to fall 30 percent before triggering a ratings downgrade on Hong Kong developers. With S&P’s track record, a 50% collapse is now virtually assured.

The ultimate winner, however, from the bursting of the HK housing bubble are local residents, for whom housing may finally become affordable once again: Hong Kong ranked as the most expensive housing market among 87 major metropolitan regions, according to the annual Demographia International Housing Affordability Survey, which used data from the third quarter of 2015. The median home in Hong Kong costs 19 times the median annual pretax household income, the highest multiple Demographia has measured, and up from 17 in last year’s report, according to the company’s website.

Now if only the Chinese would stop buying up every piece of real estate in the US and Canada as well…


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What Markets Are Telling Us

Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,Last week US stock markets tumbled yet again, leaving the Dow Jones index down almost 1500 points for the year. In fact, most major world markets are in negative territory this year. There are many Wall Street cheerleaders who are trying to say that this is just a technical correction, that the bottom is near, and that everything will be getting better soon.They are ignoring the real message the markets are trying to send: you cannot print your way to prosperity.

People throughout history have always sought to acquire wealth. Most of them understand that it takes hard work, sacrifice, savings, and investment. But many are always looking for that “get rich quick” scheme. Monetary cranks throughout history have thought that just printing more money would result in greater wealth and prosperity. Every time this was tried it resulted in failure. Huge economic booms would be followed by even larger busts. But no matter how many times the cranks were debunked both in theory and practice, the same failed ideas kept coming back.

The intellectual descendants of those monetary cranks are now leading the world's central banks, which is why the last decade has seen an explosion of money creation. And what do the central bankers have to show for it? Lackluster employment numbers that have not kept up with population growth, increasing economic inequality, a rising cost of living, and constant fear and uncertainty about what the future holds.

The past decade has been a lot like the 1920s, when prices wanted to drop but the Federal Reserve kept the price level steady through injections of easy money into the economy. The result in the 1920s was the Great Depression. But in the 1920s prices were dropping because of increased production. More goods being produced meant lower prices, which the Fed then tried to prop up by printing money. Unlike the “Roaring 20s” however, the economy isn't quite as strong today. It's more of a gasp than a roar.

Production today is barely above 2007 levels, while heavily-indebted households already hurt during the financial crisis don't want to keep spending. The bad debts and mal-investments from the last Federal Reserve-induced boom were never liquidated, they were merely papered over with more easy money. The underlying economic fundamentals remain weak but the monetary cranks who run the Fed keep trying to pump more and more money into the system. They fail to realize that easy money is the cause, not the cure, of recessions and depressions. They didn't realize that prices needed to drop in order to clear all the bad debt and mal-investments out of the system. Because they don't realize that, we are on the verge of yet another financial crisis.

Don't be confused by any stock market rallies over the next few months and think that the worst is over. Remember that after Black Tuesday in 1929 the Dow Jones rallied over the next year before it began slowly and steadily to sink again. The central bankers will do everything they can to delay the inevitable. If they had allowed housing prices to fall in 2008 and hadn't bailed out the big Wall Street banks, the economy would have corrected itself. Yes, it would have been a severe correction, but it would have been nothing compared to the inevitable correction that will present itself when the Fed runs out of easy money options. The Fed may try to cut interest rates again, maybe even going negative, or it will do more quantitative easing, but that won't work. Creating more money does not lead to economic growth and well-being. The more money the Federal Reserve creates, the more ordinary Americans will end up suffering.


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Why Tomorrow’s “Secret” Meeting Between Russian, Saudi Oil Ministers Will Not Lead To A Cut In Production

For the past two weeks recurring flashing red headlines of an agreement, or at least a meeting, between Russia and Saudi Arabia – the world’s two largest oil producers – have led to aggressive short-covering rallies in oil on just as recurring hopes that the Saudi strategy of flooding the market with excess supply (by its own calculations as much as 3 million barrels daily) adopted during the 2014 Thanksgiving Day OPEC meeting, will come to an end.

Tomorrow this endless “headline hockey” will come to an end, following what is now a confirmed “secret” meeting between the two oil superpowers when, as Bloomberg reports, Saudi Arabia’s oil minister will meet with his Russian counterpart in Doha on Tuesday “to discuss the oil market.”

According to Bloomberg, Ali al-Naimi, the most senior oil official of the world’s biggest crude exporter, will speak with Russia’s Alexander Novak in the Qatari capital, “according to the person, who asked not to be identified because the talks are private.” The person didn’t say what the agenda of the meeting will be, which will also be attended by the kingdom’s fellow OPEC member Venezuela. The energy ministries of Russia and Saudi Arabia declined to comment.

Going into the meeting, one thing is certain: over the past 15 months Saudi Arabia has never once indicated any interest in curtailing production: after all, that would go against its unstated directive of putting marginal oil producers, read US shale companies, out of business:

Saudi Arabia has insisted that it won’t reduce production to tackle the global oil glut unless major producers outside the Organization of Petroleum Exporting Countries co-operate. While Novak has said he could consider output cuts if other producers joined in, Igor Sechin, chief executive officer of the country’s largest oil company Rosneft OJSC, said last week he would defend traditional markets and expressed doubts over coordinated action.

To be sure, the Saudis have felt the pain from collapsing oil prices resulting in a record budget deficit, accelerating austerity at home, and the alleged liquidation of Saudi FX reserves, including European financial stocks and potentially US and other sovereign bonds. The market has gone as far as pricing in a very high probability of a Saudi Riyal devaluation as expressed by the currency’s forward market as observed here previously.

It is this “pain” that has made the market doubt Saudi’s steadfastness in sticking to its excess production plan: “the slightest signs of an accord have roiled oil markets. West Texas Intermediate futures rallied 12 percent on Feb. 12, the biggest surge since 2009, after the United Arab Emirates reiterated OPEC’s long-held position that the group is prepared to engage with non-members.”

But even if the Saudis are receptive to some token compromise, Russia itself may be unable to cut production. As Bloomberg writes in a separate piece, “neither a recession nor a collapse in revenue has yet been enough to convince Russian President Vladimir Putin that it’s time to join with OPEC in cutting oil output to boost prices. His reasons may be pragmatic rather than political.”

As Russia’s oil minister meets his Saudi Arabian counterpart in Doha on Tuesday, the world’s second-largest crude producer faces numerous obstacles in cooperating on such a deal even if Putin decides it’s in the national interest. Reducing the flow of crude might damage Russia’s fields and pipelines, require expensive new storage tanks or simply take too long.

To be sure, the jawboning on Russia’s side has been quite loud: energy minister Alexander Novak has said he could consider reductions if other producers joined in. Igor Sechin, chief executive officer of the country’s largest oil company Rosneft OJSC and a close Putin ally, said last week in London that coordination would be difficult because no major producer seems willing to pare output.

Still, many are skeptical that just like in the case of Mario Draghi, talk will escalate into actions: “The history of relations with OPEC suggests that Russian companies are not keen to cut production,” James Henderson, an oil and gas industry analyst at the Oxford Institute for Energy Studies, said by phone. “There are certain practical difficulties, and the companies would rather somebody else did that, and they could benefit once the price goes up.”

Here are some of the all too practical challenges facing Russia should it indeed plan to cut production:

In Siberia, Russia’s main oil province, winter temperatures can go below minus 40 degrees Celsius (minus 40 Fahrenheit). That’s a challenge for anyone thinking of turning off the taps.

 

The oil and gas that flows from wells always contains water, so once pumping stops, pipes may freeze, Mikhail Pshenitsyn, who has worked for more than 10 years in the Russian oil industry, said by e-mail. The problem goes away in summer, but there’s still the risk of a long-term reduction in output because a halted reservoir can become polluted with salts and residues, he said. Production from a shut-in well might never be restored in full, Maxim Nechaev, director for Russia at consulting firm IHS Inc., said by phone.

Furthermore, Russia is running into a problem that is facing both the U.S. and China: running out of land-based storage space:

Russia could reduce exports to global markets without cutting production simply by putting more crude into long-term storage. Trouble is, the country has too few facilities.

 

The bulk of onshore storage capacity in Russia is owned by pipeline company AK Transneft OAO and already in full use to ensure steady flows to refineries and ports, Vladimir Feigin, head of the Moscow-based Institute for Energy and Finance, said by phone. Building the massive new reservoirs required to store a significant proportion of production for an extended period would cost billions of dollars and couldn’t be done quickly, he said.

Additionally, unlike the U.S., Russia has little offshore storage: while crude can be stored in vessels moored just offshore, Russia has “only seven tankers — four products and three crude — in floating storage,” Antonia Mitsana, marketing manager at London-based Drewry Maritime Advisors, said by e-mail. Their total capacity is just over 643,000 metric tons, according to Drewry, or about 0.1 percent of the nation’s production last year.”

And while chartering foreign vessels to store significantly more oil could be done, it would be very expensive. Freight rates are up in the short-term tanker market and ships in limited supply, Mitsana said. Also, keep in minda that this is a Russia which is now considering dumping diamonds in the market just to sporadically fill holes in its budget.

Ironically, when taking Russia’s deteriorating financial situation in consideration, Russia actually has an incentive to boost not reduce production: the government is seeking ways to increase revenues from the energy industry, which generates more than 40 percent of the national budget. Finance Minister Anton Siluanov suggested cutting the price threshold for oil exempt from production taxes to $7.50 a barrel from $15, according to a report from RIA Novosti, a domestic news agency. More production therefore would mean more taxes; less production would lead to an immediate hit to the Russian budget.

Also, as Bloomberg notes, changing the tax regime is a slower process than the “emergency” response Venezuela is seeking. “Usually such big tax changes would come into force from January of the next year” if they were included in the annual draft budget due in October, Sergei Likhachev, associate director for tax practice at Moscow-based law firm Goltsblat BLP, said by phone.

Finally, as a reminder, after his recently concluded meetings in Moscow and Tehran, Venezuelan Oil Minister Eulogio del Pino said six nations were ready to meet and discuss output cuts. The problem is that as the above demonstrates, the probability of such an agreement including Russia remains distant.

“Last year, things didn’t move beyond talks,” said IHS’s Nechaev. “I am sure the same is going to happen this year.”

Which means that all that will happen tomorrow is that the biggest short squeeze trigger, the threat of an imminent production cut and recurring flashing headlines hinting at this, will be eliminated. At that point the market can focus on the real underlying dynamics: not only excess supply but clearly slowing global demand…

 

… and U.S. oil land storage, which as we and the market have been warning, is about to overflow.


via Zero Hedge http://ift.tt/215rx1F Tyler Durden

Here’s Why (And How) The Government Will “Borrow” Your Retirement Savings

Submitted by Simon Black via SovereignMan.com,

According to financial research firm ICI, total retirement assets in the Land of the Free now exceed $23 trillion.

$7.3 trillion of that is held in Individual Retirement Accounts (IRAs).

That’s an appetizing figure, especially for a government that just passed $19 trillion in debt and is in pressing need of new funding sources.

Even when you account for all federal assets (like national parks and aircraft carriers), the government’s “net financial position” according to its own accounting is negative $17.7 trillion.

And that number doesn’t include unfunded Social Security entitlements, which the government estimates is another $42 trillion.

The US national debt has increased by roughly $1 trillion annually over the past several years.

The Federal Reserve has conjured an astonishing amount of money out of thin air in order to buy a big chunk of that debt.

But even the Fed has limitations. According to its own weekly financial statement, the Fed’s solvency is at precariously low levels (with a capital base of just 0.8% of assets).

And on a mark-to-market basis, the Fed is already insolvent. So it’s foolish to think they can continue to print money forever and bail out the government without consequence.

The Chinese (and other foreigners) own a big slice of US debt as well.

But it’s just as foolish to expect them to continue bailing out America, especially when they have such large economic problems at home.

US taxpayers own the largest share of the debt, mostly through various trust funds of Social Security and Medicare.

But again, given the $42 trillion funding gap in these programs, it’s mathematically impossible for Social Security to continue funding the national debt.

This reality puts the US government in rough spot.

It’s not like government spending is going down anytime soon; it already takes nearly 100% of tax revenue just to pay mandatory entitlements like Social Security, and interest on the debt.

Plus the government itself estimates that the national debt will hit $30 trillion within ten years.

Bottom line, they need more money. Lots of it. And there is perhaps no easier pool of cash to ‘borrow’ than Americans’ retirement savings.

$7.3 trillion in US IRA accounts is too large for them to ignore.

And if you think it’s inconceivable for the government to borrow your retirement savings, just consider the following:

1) Borrowing retirement funds is becoming a popular tactic.

 

Forced loans have been a common tactic of bankrupt governments throughout history.

 

Plus there’s recent precedent all over the world; Hungary, France, Ireland, and Poland are among many governments that have resorted to ‘borrowing’ public and private pension funds.

 

2) The US government has already done this with federal pension funds.

 

During the multiple debt ceiling fiascos since 2011, the Treasury Department resorted to “extraordinary measures” at least twice in order to continue funding the government.

 

What exactly were these extraordinary measures?

 

They dipped into federal retirement funds and borrowed what they needed to tide them over.

 

In fact, the debt ceiling debacles were only resolved because the Treasury Department had fully depleted available retirement funds.

 

3) They’ve been paving the way to borrow your retirement savings for a long time.

 

Two years ago the government launched a new initiative to ‘help Americans save for retirement.’

 

It’s called MyRA. And the idea is for people to invest retirement savings ‘in the safety and security of US government bonds’.

 

Since then they’ve gone on a marketing offensive involving the President, Treasury Secretary, and other prominent politicians.

 

(Most recently Nancy Pelosi published an Op-Ed in the San Francisco Chronicle a few days ago promoting the program.)

 

They’ve also proposed a number of legislative reforms to ‘encourage’ American businesses to sign their employees up for MyRA.

 

Just last week, Congress introduced the “Making Your Retirement Accessible”, or MyRA Act, which would charge a penalty to employers whose workers don’t have a retirement account.

 

The proposed penalty is $100. Per worker. Per day.

 

Imagine a small business with, say, 10 employees who don’t have retirement accounts. The penalty to Uncle Sam would be a whopping $30,000 PER MONTH.

 

There’s a word for this. It’s called extortion.

 

Obviously when facing a $30,000 monthly penalty, an employer will pick the easiest option.

 

Given the absurd amount of government regulation on the rest of the financial industry, MyRA is the fastest choice.

This isn’t about fear or paranoia. It’s about facts.

And the reality is that the government in the Land of the Free is moving in the direction of borrowing more and more of your retirement savings.

If you still remain skeptical, remember that last year the government stole more from its citizens through Civil Asset Forfeiture than thieves in the private sector.

Or that just 45-days ago a new law went into effect authorizing the government to strip you of your passport if they believe in their sole discretion that you owe them too much tax.

No judge. No jury. No trial. They just confiscate your passport.

This is happening. It’s a reality that rational, thinking people should plan for.

And yes, there are solutions for now.

For example, it’s possible to set up a more robust retirement structure that protects your savings and gives you much greater influence over your funds.

This is something that may make sense no matter what; it may be a good idea regardless to do some long-term financial planning that increases your influence over your own retirement savings and expands your investment options.

And if you want to learn more about the risks and solutions for your retirement savings, click here to access our free black paper.


via Zero Hedge http://ift.tt/1okHraz Tyler Durden