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China’s GDP is about to undergo the same magic that US GDP received earlier in the year. The “Chinese system of National Accounts” will see five significant adjustments that are expected to (surprise) boost the size of the nation’s estimate of its GDP. The National Bureau of Statistics is considering making the changes to reflect the latest economic and social developments and implement the reform guidelines unveiled at the 3rd Plenum recently. From the addition of research and development – intellectual properrty – (just as the US did) to including mark-to-market changes (read rises) in employee stock options and real estate in consumption data, the Chinese appear dead set on making a once-unbelievably goal-seeked number into an entirely fantastical representation of reality (which of course enables moar higher manipulation as to avoid any debt-to-gdp hurdles that the real world might see as a concern).

 

Via Xinhua,

The nation plans to give GDP readings and the revised historical figures of this indicator under new calculation method after the end of this year…

the U.S. revised its GDP data, the most important amendments is to research and development expenditures as well as entertainment, literary and artistic originals such as fixed capital formation expenditure included in GDP. This great repercussions in the international arena, in China also attracted relatively widespread concern, there has been speculation heated debate whether China’s national accounting system to do the appropriate amendments?

New accounting system will likely increase in total GDP:

The plan includes 5 key sections that change how the nation’s balance sheet and income (consumption) is calculated…

1. the introduction of the concept of intellectual property products, research and development expenditures will be included in GDP

 

2. the introduction of “economic ownership” concept, so that more reflect the actual accounting results

 

3. the rapid development of the real estate market, housing prices and rents are rising

 

4. land contract management rights transfer income to become an important part of farmers’ income

 

5. the employee stock options included workers compensation

Which leaves 3 critical aspects of make-believe for Chinese GDP statistsics:

1. Research and development expenditure will be included in GDP – based on best guesses, historical and current R&D will be “priced” into GDP data leaving plenty of scope for a goal-seeked guess at what the number needs to be.

 

2. Accounting of actual final consumption – this means that government-provided services – that improve people’s living standards – will be ‘valued’ and added to consumption data. This includes education, health, social security and other spending data. Furthermore, the mark-to-market gains from employee stock options will be included in final consumption data (so even more need to keep that stock market high for the PBOC)…

 

3. Gains (losses) from housing – the GDP data will include some adjustment based on the mark-to-market of home prices as a consumption-based positive. In other words, as the bubble grows, the rise in house/real estate prices will be included in GDP consumption calculations

 

In other words, China will be adding to its base GDP data all the bubble-driven aspects of the economy as the bubble continues to grow… one can only imagine what that will do to a) volatility, and b) the downswing when these ‘adjustments’ are forced the ‘wrong’ way…

On the bright side, this plan is not expected to be fully implemented until 2015 – and who knows what this will all look like by then…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/3Q_yt0Ahgu8/story01.htm Tyler Durden

The stock below is up 1200% year-to-date. The company in question is insolvent by any and all measures and has a "parent" under great pressure to take whatever gains it can get (as opposed to leave anything for shareholders). The company is exposed to the worst of the worst in the housing market. The smart money (as they are called) is piling in. The company is, of course, Fannie Mae (or Freddie Mac – same discussion). This chart, like none other, reflects the "investment" thesis in America today, as Grenwood's Walter Todd notes, “Either you’re going to make a lot of money or you’re going to lose everything you put into it."

 

 

However, as he adds, "I cannot fathom the government allowing someone to profit from these two entities given everything that’s happened, and the pain endured by the government and the taxpayer.”

The consensus in Washington among Democrats and Republicans is that Fannie Mae and Freddie Mac should be dismantled and shareholders wiped out. The Obama administration believes the two should be wound down, the Treasury Department said in a statement.

 

But why not gamble on the likelihood that against all odds, you can become instantly rich…

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/VCzD0ZxKeDg/story01.htm Tyler Durden

While the domestic euphoria in the stock market bubble has succeeded to sucker in everyone into the biggest multiple expansion rally in 15 years (as was noted earlier today, 75% of the S&P’s YTD return has come from its trailing PE expanding to 16.5x now from 13.7x in 2012 – the largest increase since 1998), foreigners continue to vote with their feet. In fact, as today’s August TIC data report showed, in August – perhaps due to Tapering fears – foreigners sold $16.9 billion in US equities. This was the fourth largest equity outflow in history. Transactions in other securities were mixed, with $10.8 billion in long-term Treasury sales offset by $16.8 billion in MBS/agency purchases, as well as $2.3 bilion in Corporate Bond buys.

 

How does this chart look on a trailing 12 month basis? Not good – the 12 month rolling average of net foreign purchases of Long-Term US securities dropped to just $17 billion from $25 billion last month. This is also the lowest average print since the 2009 recession.

Source: TIC

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NAHB sentiment dropped to its lowest since June (after hitting 8-year highs just 3 months ago). This is the 3rd miss in a row as a huge rebound in prospective buyer traffic (read hope) in the NorthEast seemed to save the data from a fate worse than death. The prior print was revised down from 57 to 54 as it appears for the 3rd time in 20 years, the exuberance in realtor confidence is shown to be a false flag…

 

 

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European officials found a compromise between those wanting to allow the ESM to recapitalize banks directly, until the bank financed resolution funds has adequate resources, and those that who were opposed.  German opposition was most vocal and the compromise was to allow the German parliament veto power over any direct aid from the ESM.

Others may find comfort in the Bundesbank’s monthly report that appeared to endorse the ECB’s accommodative stance, despite reports suggesting that BBK President Weidmann and Asmussen, the German representative on the ECB’s Executive Board, opposed the recent rate cut. 

Yet, below the surface, there appears to have been a shift in the balance of power between the creditors and debtors in the euro area.   First, the EC and ECB joined forces to defeat the German push to exempt the landesbanks from the ECB’s regulatory authority. 

Germany can argue that the landesbanks are not systemically important, but this is to give too much credence to the superficial populist coverage as opposed to more rigorous analysis.  Much ink has been spilled on too-big-to-fail, while there is much to be concerned about, the fact of the matter is that in the euro-area, the substantial threats emanated not from the TBTF, but from the smaller, arguably, less supervised banks, such as Allied Irish in Ireland, the cajas in Spain and Laiki in Cyprus.  German regional banks have received among the largest bailouts in the euro area.

Second, as noted, the ECB cut rates over Germany representative objections.  Compounding the injury with insult, the French representative on the ECB’s Executive Board has been touting the possibility of outright bond purchases by the central bank.  Recall that in objection to the ECB’s bond purchases under then-President Trichet, two German (Weber and Stark) resigned.  Weidmann has objected to Draghi’s Outright Market Transaction (OMT) scheme, which while not deployed, has helped bolster sentiment and help diminish the existential nature of the euro area crisis.  We do recognize that OMT was conditional on a program with the Troika and was not as subjective as Trichet’s SMP effort.

Third, the EC announced it would initiate a formal review of the German current account surplus, which is above monitoring levels.   This seems to have irked the German establishment more than the rate cut, which Asmussen assured that the real issue was only about the timing.

The EC review follows on the heels of similar misgivings from the IMF and the US Treasury report on the foreign exchange market last month.  One of the perennial German fears, that of being isolated, has been borne out.  For its part, German officials see the current account surplus as evidence of its economic prowess and competitiveness.  

Others see the German surplus as a symptom of its compression of domestic demand, though miserly wage increases, reluctance to boost public infrastructure investment, and the failure to liberalize services.     Essentially, this view sees Germany as unwilling to offset the austerity in the periphery by pursuing more stimulative policies at home. 

This pressure on Germany reflects a shift in the balance of power in Europe.  Although France’s Hollande is terribly unpopular at home, Brussels and the ECB seem to be taking up his charge in trying to get Germany to pursue policies that benefit EMU as a whole.  Separately, note that France will be selling bonds this week for the first time since last month’s S&P downgrade (to AA) on Nov 8.

France had wanted the ESM to be available to direct recapitalization of European banks if needed, especially following the ECB’s asset quality review and stress tests.  Several of the other creditor nations were reluctant, wanting national backstops, if banks could not raise capital through retained earnings and capital markets.  If those national authorities could not act as the backstop (again not too big to fail, but too big for national officials aid), then it would have to accept conditionality associated with a memorandum of understanding with the Troika. 

An agreement before the end of the year was seen as important in order to give the European parliament sufficient time to approve it before dissolving ahead of next May’s election.    The resolution mechanism needs to be in place prior to the results of the asset quality review.  With it, the risk is that the reports trigger a new crisis of confidence.  Even though the German ability to negotiate appears hamstrung by the lack of a government (CDU and SPD a moving toward a grand coalition government but it is not yet in place).  While the ESM will be able to lend directly to the banks, German parliament has retained the veto. 

This may look like a German victory, but it may not really be one. Consider a situation where Country X is in a crisis, and several of its banks no longer have access to the capital market.  The amount of funds it needs outstrip the sovereign’s ability to deliver, with risking its fiscal objectives.  Many of the periphery countries want to go to the ESM.   Would the German parliament really prevent this and risk a widespread crisis in Europe?

With the UK re-thinking if it wants to be in the EU any more and the US pivoting toward Asia, Germany can be the unchallenged hegemon in Europe.   However, it is finding it increasingly difficult.  We had anticipated that it would seek to exert its influence through European institutions.  Weber’s resignation prevented Germany from taking the helm of the ECB.  In the more democratic institutions, it has been frustrated by the fact that a majority are debtors.   

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/zmNLavfvvq8/story01.htm Marc To Market

Thanks to some overnght levitation (and in spite of major outflows from foreigner from the US as seen in the TIC data), US equities have opened this morning to new all-time highs. As “investors” watched in disappointment on Friday at the ‘miss’, the opening this morning – amid a double POMO day – has lifted the Dow above 16,000 and the S&P 500 above 1,800 for the first time ever (now up around 10% from the debt-ceiling lows in the last month). The S&P 500 has seen a 3x rise in the multiple this year… still chepa though, right? Caracas here we come…

S&P 500 1,800

 

Nearing The Fed’s year-end target…

 

 

Dow Jones Industrials 16,000

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/zKIyraYI998/story01.htm Tyler Durden

Thanks to some overnght levitation (and in spite of major outflows from foreigner from the US as seen in the TIC data), US equities have opened this morning to new all-time highs. As “investors” watched in disappointment on Friday at the ‘miss’, the opening this morning – amid a double POMO day – has lifted the Dow above 16,000 and the S&P 500 above 1,800 for the first time ever (now up around 10% from the debt-ceiling lows in the last month). The S&P 500 has seen a 3x rise in the multiple this year… still chepa though, right? Caracas here we come…

S&P 500 1,800

 

Nearing The Fed’s year-end target…

 

 

Dow Jones Industrials 16,000

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Lately Bill Clinton has not been doing the president many favors. First, the “is” definition-challenged former president had some harsh words about Obamacare, and most recently in an overnight question-and-answer session before a standing-room-only crowd in a Beijing hotel ballroom, Clinton who was in Beijing for meetings with China’s President Xi Jinping as well as to promote the work of his New York-based philanthropic organisation, the Clinton Foundation, while withholding comments on Obama – whose approval rating has plunged to an all time low – refused to criticise Edward Snowden. Instead he said he believed it was “perfectly legitimate” for the US government to search “big data pools… to see if there are patterns of communication between certain numbers or sites and others known to be in the possession of terrorist groups”. But he went on, via AFP: “The question is when, if ever, is the government justified in going beyond the patterns to listen to telephone calls, read emails, read text messages, and who’s supposed to decide that? Mr Snowden obviously thought that it was excessive.”

He added:

The fact that Snowden was able to receive a top-secret security clearance despite having only been a contractor for several months “made me think that we are on the verge of having the worst of all worlds: We’ll have no security and no privacy”, Clinton added.

 

“I think the US and China and everybody else, we’re going to have to be more upfront with each other and probably with our own people about what it is we’re looking for and listening to,” he said.

Of course, it is unlikely that anything will change, much to the detriment of US companies with international operations such as Cisco, whose revenues are projected to tumble in big part due to the blowback resulting from the Snowden revelations. Whether this will be a limited, one-time event remains to be seen.

More amusingly, among Clinton’s other comments was his speculation on the gender of the next US president.

Former US president Bill Clinton hopes there will be a woman in the White House in his lifetime and will support his wife Hillary in whatever she decides to do, he told a Chinese audience on Monday.

 

Hillary, who earlier this year stepped down as US secretary of state, has not yet said whether she plans another presidential run after her failed 2008 bid for the Democratic nomination.

 

“I hope we have a woman president in my lifetime, and I think it would be a good thing for the world as well as for America,” Clinton said at a conference organised by the respected Chinese financial magazine Caijing.

 

“But I do not know if she’s going to run, and there is no such thing as a sure thing in politics,” he added.

 

In a question-and-answer session before a standing-room-only crowd in a Beijing hotel ballroom, Clinton, who was president from 1993 to 2001, was asked whether he envisages becoming a “first husband” in the future.

 

“You know, if I knew the answer to that, I couldn’t say,” he responded. “But I can give you an honest answer: I have no idea.”

 

He called his wife “the ablest public servant I have ever worked with” and said that he would support her whatever decision she makes on a White House run.

 

“If that’s what she wants to do, I will support her,” Clinton said. “But if she decides for whatever reason she doesn’t, I will support that.”

 

“It’s very interesting for us; we still feel young and we still feel healthy,” he added, noting that compared with several decades ago, he believes his wife now is “less motivated… by a fear of failure”.

Naturally, it would only be logical that the first female Fed chair be followed by the first female president. One can only hope, however, that in both cases it is not some gender quota driving the choice but the candidate with the best credentials. Then again, considering the current sorry state of the US economy, one wonders what difference does it make just who the next US president will be.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/lgGYOnxEb6k/story01.htm Tyler Durden

Amid the Spanish FinMin’s “concerns about the pace of the increase” in government debt, and PM Rajoy’s confidence that the nation would exit the eurozone-fueled banking bailout by January, bad loans in the still disastrously-troubled nations have re-accelerated to an all-time record high of 12.68% of total loans. Mostly linked to the collapsed property sector, bad loans climbed by 6.9 billion euros from the previous month to an unprecedented 187.8 billion euros ($254 billion) in September. Having almost completed the drawdown of its 41 billion bailout – and with the situation fundamentally worse than ever (e.g. record high unemployment), Spanish bond spreads have collapsed to 250bps – their lowest in 29 months.

 

 

Chart: Bloomberg

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