Tag: finance

DAILY PRICE REPORT

Today’s AM fix was USD 1,286.50, EUR 932.45 and GBP 772.67 per ounce.                   

Yesterday’s AM fix was USD 1,294.00, EUR 939.86 and GBP 777.78 per ounce.

Gold fell $9.40 or 0.73% yesterday to $1,283.30/oz. Silver remained unchanged at $19.79/oz.  

Webinar: Dr Marc Faber On Gold, Silver and Asset Allocation In An Uncertain World

This Friday , April 4th, Dr Marc Faber will give insights into his strategies for protecting and growing wealth in 2014 and beyond. Register today and don’t miss this opportunity to hear one of the world’s most respected investment experts.

Gold hovered near a 7 week low in London as investors await the jobs report Friday and clarification regarding the Fed’s policy stance after mixed signals from Yellen in recent days.  While gold fell in March, it logged a 6.8% gain for the first quarter and is one of the best performing assets year to date.

Gold in U.S. Dollars. Q1, 2014 (Thomson Reuters)

Fed Chair Janet Yellen comments yesterday were dovish but failed to support gold. She said  that the U.S. will need increased monetary stimulus for “some time” ahead of U.S. manufacturing data today.

The Fed Chair said March 19th that the central bank may start raising the benchmark interest rate about six months after terminating its bond-buying program later this year. However, many doubt if the struggling U.S. economy is robust enough to handle any more tapering and even mildly higher interest rates.

  

Silver in US Dollars. Q1, 2014 (Thomson Reuters)

Geopolitical risk remains but is not a focus of financial markets for now.  Further tension between Russia and the West, in the Middle East and in the Far East.

UK Bank Accounts Can Be Raided After Budget
HM Revenue & Customs will be able to directly access taxpayers’ bank accounts in order to recover unpaid tax, under measures announced in this month’s Budget speech.

The little noticed move gives HMRC similar powers to raid bank accounts and recover tax and tax credit debts in excess of £1,000.

 

In the Budget Red Book, the measure is described as follows:

 

“The government will modernise and strengthen HMRC’s debt collection powers to recover financial assets from the bank accounts of debtors who owe over £1,000 of tax or tax credit debts, have the financial means to pay, and have been contacted multiple times by HMRC to pay.”

At the moment, if HMRC want to seize your property or cash, they have to take you to court, win and then get a court order. Now, after a couple of warning letters and a phone call, they can do it in conjunction with your bank, with a touch of a button.

Crucially, there’s no safeguard built into this system. There should be a transparent and fair process and an appeals process.

Now, if HMRC officials decide you owe them cash, they can just take it directly from your bank account. If you haven’t managed to reach agreement with them, then you’ll just wake up one morning, check your bank account, and find your cash is gone. No insolvency proceedings, asset freezes, debt collection agencies or court proceedings. Just the government taking out whatever it believes it is owed.

This significant HMRC legislative change was buried deep in the Budget document and comes amid preparations by international monetary and financial authorities and the Bank of England for bail-ins.

 

The UK government can now confiscate UK citizens money directly from bank accounts while it decides if you have broken the law or not. This is a significant power grab and this and the real risk of bail-ins are another reason to own physical gold outside the banking system, in jurisdictions that respect private property.

Webinar: Dr Marc Faber On Gold, Silver and Asset Allocation In An Uncertain World

This Friday only, April 4th, Dr Marc Faber will give insights into his strategies for protecting and growing wealth in 2014 and beyond. Register today and don’t miss this opportunity to hear one of the world’s most respected investment experts.

In this webinar, some of the topics covered with Dr Faber include:

 

Asian Century? – Western collapse or stagnation?

Events in Ukraine – Allocations to precious metals?

How to own precious metals?

Dollar cost average or lump sum?

Take profits/ rebalance or buy and hold for long term?

When to sell?

Favoured asset allocation?

Other investment and business opportunities?

Please join us for Dr Faber’s webinar this Friday, April 4th, 2014 at 0900 BST.

via Zero Hedge http://ift.tt/1iW86mn GoldCore

Europe’s scariest chart continues to stun and amaze by its scale even as Europe’s broad unemployment rate has been stagnant at around 12% for 5 months. While Greece and Spain have seen youth unemployment rates drop slightly from record highs (and its clear the disillusionment has meant people leaving the potential workforce) they remain well above 50%. Italy hovers near its all-time record high around 43% (with overall Italian and French joblessness at record highs) and broad European youth unemployment is stuck at over 23% (as Germany’s drops to new record lows). As we noted yesterday, if this is the age of civil unrest then the blue-touch-paper to light is writ large in this chart…

Broad European unemployment has been stuck around 12% for 5 months… with Greece and Spain at the top

 

But it is the youth unemployment rates (15-24) that is truly depressing…

 

Source: Eurostat

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

French President Hollande, fresh from a stunning defeat in local elections is signaling that he will once seek the EC (and Germany’s) forbearance to relax the fiscal rules yet again for the euro zone’s second largest economy.

Yesterday INSEE reported that France’s 2013 budget deficit was 4.3% of GDP.   This overshot even the revised targets.   A year ago, France committed to a 3.7% 2103 deficit.  In September, it had been re-set to 4.1%.  Last summer, the EC gave France an extra two years (2015) to bring its deficit to the mandated 3% of GDP.

France is likely to overshoot this year’s 3.6% target.  In the press conference following the election results, Hollande seems to lay the groundwork for what he will tell the EC in mid-April.  He is to provide details of the 50 bln euro in spending cuts, in 2015-2017 and a 10 bln euro in the payroll tax.  All told, Hollande plans to cut 30 bln euros charges for French businesses.  As is well appreciated, the French government spends the equivalent of 57.1 % GDP, which is among the highest in the world.  Revenue from income taxes is just less than 46% of GDP.

Hollande will ask for more time.  He said, “There can be no question of undermining growth that is just returning.”  He wants his new prime minister Manuel Valls, from the pro-business  wing of the Socialists, to convince Europe that France’s “contribution to competitiveness and growth” is more important than the fiscal commitments.

Vall’s appointment itself is part of the Hollande’s peace offering.   Valls is a fiscal conservative, if that label means anything in the context of French politics.  He advocates enshrining the 3% deficit target into the constitution.  In previous campaigns, Valls had advocated state support for small businesses, the end of the 35 hour work week and an increase in the minimum retirement age.   To solidify the pro-business thrust, the controversial industry minister Monteborg may be dismissed.

Despite the rhetoric about having to act to head of advances by the National Front, Hollande’s biggest threat comes from the revival of the center-right UMP.   Le Pen’s National Front did do well in the municipal elections, in the context of its own history, but it drew only 7% of the popular vote (and that is with a relatively low turnout) and won 12 municipalities.  The UMP won 572 municipalities with populations in excess of 10,000.  The Socialists won 349.   Moreover, the National Front lost two cities that it had led in the first round (Avignon and Perpignan) and lost Forbach, where the party’s number two (Florian Phillpport) ran.

The rebound in France’s PMI is in fact encouraging.  The manufacturing index had been below the 50-boom/bust level since July 2011, and today’s report confirmed the recovery to 52.1 (51.9 in the flash reading and 49.7 in February).  However, last week the government reported a new high in unemployment.  The EC’s 1% GDP forecast this year is still at risk.   French banks’ forecasts are generally below this, with some expecting half of this pace.

One could not tell from the performance of French bonds that they are nothing but somewhat higher yielding German bunds.  The premium France pays over Germany stands near 53 bp on 10-year bonds.  This is 10 bp less than at the start of the year.    France pays about eight bp more than Germany on 2-year paper.   Large pools of capital, like reserve managers and insurance companies, who appear to be among the more significant holders of French debt, seem to believe that when push-comes-to-shove, France will be kept in the core. 

Ironically, the buying of French bonds by these large pools of capital have eased the pressure on the successive French governments from truly reforming.   German had the fall of the Berlin Wall to provide, after a time, impetus for reform.  Many peripheral countries have been forced by the financial crisis (and Germany and EC) to reform.  France had the luxury of neither.  The relatively low bond yields (and a CDS that is below 50 bp) gives French officials little sense of urgency.

via Zero Hedge http://ift.tt/1jw2CzD Marc To Market

Following the big plunge in January, the world’s extrapolators have been exuberant over the snap-back from weather-driven anomalies… today, ISM dashed those hopes to some extent as the pace of the v-shaped recovery slowed notably and ISM missed expectations for the 3rd of the last 4 months. While new orders rose, employment fell to its lowest in 9 months. Of course this bad news is just what the doctor ordered and those oh-so-not-front-running algos just lifted stocks to a new all-time record high… imagine if it had missed by even more!

 

 

The detailed index breakdown from the report:

From Bradley Holcomb, chair of the ISM:

“The March PMI registered 53.7 percent, an increase of 0.5
percentage point from February’s reading of 53.2 percent, indicating
expansion in manufacturing for the 10th consecutive month. The New
Orders Index registered 55.1 percent, an increase of 0.6 percentage
point from February’s reading of 54.5 percent. The Production Index
registered 55.9 percent, a substantial increase of 7.7 percentage points
compared to February’s reading of 48.2 percent. Employment grew for the
ninth consecutive month, but at a lower rate by 1.2 percentage points,
registering 51.1 percent compared to February’s reading of 52.3 percent.
Several comments from the panel reflect favorable demand and good
business conditions, with some lingering concerns about the particularly
adverse weather conditions across the country.”

As yes, weather. No matter the temperature though, the goalseeked respondents couldn’t be more giddy:

• “Seeing improvement in the overall economy. Hearing strong bookings in residential contractor and home repair work.” (Paper Products)
• “First quarter business still strong.” (Fabricated Metal Products)
• “Business beginning to heat-up, along with the weather.” (Petroleum & Coal Products)
• “Business is good and we are optimistic that orders will continue to come in at a decent pace.” (Transportation Equipment)
• “Year starting off very good. Outlook very bright for 2014.” (Computer & Electronic Products)
• “Export orders are picking up — volume is improving although pricing, and thus profitability, are still challenged. Domestic business seems to be holding steady despite earlier predicted declines.” (Chemical Products)
• “Short supply of hardwood lumber continues to challenge sales’ ability to maximize volume targets. Demand is sound.” (Wood Products)
• “Weather has created major delays on inbound materials and outbound sales. We need spring.” (Food, Beverage & Tobacco Products)
• “Economy is looking positive and commodities are stable.” (Machinery)
• “Business continues to improve.” (Furniture & Related Products)

So whether it was the weather or not doesn’t matter – you buy on good news as it confirms your bias and you buy on bad news as it reinforces the Fed’s back stop. And why not – the Fed demands it.

via Zero Hedge http://ift.tt/1jw2znw Tyler Durden

The 2nd class data point, that quickly became the darling of the algo pumpers when it beat expectations by a record last month, has tumbled back to a less exuberant reality and missed expectations by the most in 7 months. Printing at 55.5 (vs 56.0 exp.) the index is still in expansion mode but factory jobs and factory orders sub-indices both fell...

• *MARKIT U.S. FACTORY ORDERS INDEX DECLINES TO 58.1 FROM 59.6
• *MARKIT U.S. FACTORY JOBS INDEX GREW AT SLOWER PACE IN MARCH

 

 

 

From the report:

 

March data indicated that the U.S. manufacturing sector remained on a solid growth footing, with output levels and new business volumes both rising sharply. The latest increase in new work was slower than in the previous month, but still the second-fastest since May 2010. Meanwhile, the rate of production growth was little-changed from the near three-year high recorded in February. Survey respondents commented on a combination of improving underlying demand and a catch-up effect following the weather-related slowdown seen earlier in the year.

And the commentary which this time “blames” the improvement in the weather:

March data indicated that the U.S. manufacturing sector remained on a solid growth footing, with output levels and new business volumes both rising sharply. The latest increase in new work was slower than in the previous month, but still the second-fastest since May 2010. Meanwhile, the rate of production growth was little-changed from the near three-year high recorded in February. Survey respondents commented on a combination of improving underlying demand and a catch-up effect following the weather-related slowdown seen earlier in the year.

 

Commenting on the final PMI data, Chris Williamson, Chief Economist at Markit said:

 

“The fall in the composite Manufacturing PMI masks the ongoing resilience of output, new orders and employment growth, all of which continued to rise at historically strong rates in March. That’s because the PMI also includes a measure of supplier delivery times, which dragged the PMI down but only because deliveries were quicker as a result of improved weather.

 

“The survey indicates that factory output growth has picked up again after the weather-related disruptions seen at the start of the year, presenting policymakers with an encouraging picture of a healthy goods-producing sector that is generating jobs at the rate of 15-20,000 per month.

 

“With warehouse inventories falling, in many cases due to sales outstripping production, factories look set to continue to expand capacity in coming months, taking on more staff and boosting business investment.”

So… bad weather last month led to a record high PMI, and the weather improvement in March led to a decline. Got it.

via Zero Hedge http://ift.tt/1hvKO7d Tyler Durden

Japan’s economic farce has gotten so bad it is becoming painful to even discuss it: first, every newspaper writes effusive, extended articles about how after nearly two years of consecutive declines in base pay praising Abenomics, and then the next month the “increase” is promptly revised lower in a footnote in some article which gets zero to no prominence, which however continues to reaffirm that Abenomics is an absolute, unmitigated disaster. Sure enough this is what happened today, when last month’s bombastic “Japan Base Wages Rise for First Time in Nearly Two Years” can now be retracted and instead replaced with this: “regular pay slipped an annual 0.3 percent in February, falling for a 21st straight month after a 0.2 percent slip the previous month.“

And what’s worse, real wages, which take into account consumer inflation, dropped an annual 1.9 percent in February, down for a eighth straight month.

So much for forcing companies to boost worker wages (which many have agreed to, boosting monthly pay by 2000 Yen, or about 4 BigMacs). By now even the most clueless economist PhDs (i.e., all of them), should be aware that as long as there is no sustained wage growth, Japan can have all the inflation it wants – it simply means that even less consumption will take place. Add the imminent sales tax hike into the equation and suddenly the specter of all out recession, even as the Nikkei continues to soar solely due to currency collapse, becomes an all too real possibility.

via Zero Hedge http://ift.tt/1dNAPL6 Tyler Durden

Authored by Lars Seier Christensen (CEO Saxo Bank) via his blog at TradingFloor.com,

Has The EUR Reached Its Biggest "Sell" Since Inception?

I have to admit that I have been surprised by the EUR's resilience in recent months…

Readers of my past blogs and editorials elsewhere will know that I think the EUR is a monumentally bad idea. In fact, if it is possible to hate a financial asset, I hate the EUR. It has created countless victims in its trail, de facto bankrupted multiple countries, lost most of an entire young generation in Southern Europe and lead Europe in the direction of a totalitarian super state. So yes, I hate the EUR. May it disappear one day soon, leaving only a sad and frightening memory of an irresponsible, dangerous experiment that is never to be repeated. It will also leave behind gigantic economic and human costs. But it would be far better to take that unavoidable loss soon, before it becomes impossible to reverse. Recovery will follow much sooner if the root cause of the current malaise is removed.

I admit it would be naive to think that the EUR situation will be resolved anytime soon owing to the vast amount of political capital that has been invested in it. The huge European bureaucracy and especially the political elite that feed off the EU will do all they can to prevent the EUR’s fall, at least until it becomes inevitable. This will be either due to pressure from voters (even if they are very rarely consulted in this post-democratic political structure) or from the markets, which eventually must reassume their role that has been perverted beyond recognition during the crisis: the true role of allocating capital and pricing money and assets rationally.

But if we are stuck with this "Currency of Mass Destruction", shouldn’t we at least try to make some money from it? I think it is a fair assumption that the EUR either has already topped out here ahead of 1.4000…

Why are we likely near or at the highs for the cycle? I think a number of elements point in that direction:

1. The economy is extremely weak across the entire EU area and the EUR should never have been where it is in the first place.

 

2. The Eurozone wants the EUR lower — and needs it lower. The ECB is probably less skilled and less inclined to drive down its currency than other central banks, but this level is simply getting too painful even for the complacent ECB.

 

3. Deflation is right around the corner and I think the probability is much higher than the 20 percent odds being bandied round by the IMF and others.

 

4. The Bundesbank seems to be giving up on its usual resistance to quantitative easing. Not a good sign at all as they are the only true guardian of healthy money left in a world of competitive devaluation. Nevertheless, it seems to be happening. The alternative is negative interest rates, but either outcome should drive the EUR lower.

 

5. There will be more and more unrest in Europe as unemployed youth and public sector employees will make up a strange coalition of bedfellows with small-to-medium enterprises (SMEs) as their interests align against the big business / big bank / political elite coalition. Never forget that SMEs create the jobs, but have very limited access to credit.

 

6. The populations of Europe will continue to rebel against the undemocratic Brussels, trying to force through one hare-brained, intrusive measure after the next. The obvious, and rare, opportunity to express dissent will be the EU Parliament elections in late May. I think the protest movements will do extremely well in the UK, France, Italy and elsewhere.

 

7. And finally — technically the EUR looks top heavy after the multiple attempts above 1.3800 in EURUSD in recent months couldn’t get anything going to the upside. As well, volatility is simply too low to stay here forever, and there could be strong momentum and trading interest if the EUR breaks to the downside.

So all in all, things are stacking up against the EUR, even without mentioning the unsustainable debt/GDP ratios, the fragile banking system, the geopolitical embarrassment of Europe’s extreme inability to act decisively and the external economic shocks coming from, among others, China and Russia.

The number of things that can go wrong for the EUR are legion. What can go right is hard to imagine.

Read more here on how Christensen suggests to position for just such an outcome

via Zero Hedge http://ift.tt/1jvSjf7 Tyler Durden

For those used to smooth, undisturbed, Fed-assisted, no-risk-all-return, sailing, both the month of March and the entire first quarter were quite the wake up call, because while the broader market did manage to recover from down for the year just a few days before the quarter end courtesy of an impressive last day window dressing rally, as Deutsche’s Jim Reid explains Q1 has not only turned out to be a fascinating roller-coaster ride for most asset classes but has also seen many consensus views from the start of the year struggle for momentum. The main consensus trades at the start of the year were perhaps; a) bullish DM equities, b) bullish the US Dollar, c) bullish the Nikkei, d) bearish DM rates, e) bearish Oil, f) bearish EM equities, and g) bullish DM credit. Many of these trades have struggled so far although the last few days of the quarter have helped some.

Indeed although the S&P 500 (+1.8% YTD TR) and Stoxx600 (+2.6% YTD TR) are off to their worst start since 2009 (post-Lehman crisis) and 2011 (European sovereign crisis), respectively, they have seen a decent end to the quarter after being lower YTD in mid-late March. The peripherals have been the stand-out equity markets in the DM space. Elsewhere the Dollar is flat against a basket of major currencies, the Nikkei is -8% YTD and WTI is up about 3%. The bearishness in EM equities has generally played out well with equities in Russia, Brazil and China down -9%, -2% and -4% year to date but who would have thought that Indian and Indonesian equities would be up by more than 6% and 11% by now given the struggles elsewhere in the sector?

If one narrows the time frame just to the month of March, Deutsche Bank notes that the month was certainly lively as far as macro headlines were concerned. We started the month with escalating tension in Ukraine/Crimea which led to the annexation of the Black Sea peninsula. We’ve also had never-ending headlines and stories from China on concerns around growth and corporate defaults. The widening of the trading band in CNY was another major event although perhaps not a surprise given the authorities’ priorities around reforms – a theme that was the major take-away from the latest National People’s Congress in early March. Away from EM, it was perhaps the hawkish display from the FOMC that surprised markets the most which also led to a bear flattening of the UST curve.

With all those key stories contributing to the volatility in March, soft commodities (Wheat +16%, Corn +10%), the Bovespa (+7.1%), FTSEMIB (+6.1%), Portuguese equities (+3.9%), EM  Bonds (+2.7%), and the IBEX (+2.5%) were amongst the best performers. On the other hand, Silver (-6.8%), Copper (-6.6%), Russian equities (-5.2%), Gold (-3.2%) and the Hang Seng (-2.6%) were the main underperformers in March. The uncertainty in Ukraine (a major global wheat exporter) and weather issues in the US certainly supported the rally in Wheat; whereas the heightened volatility in RMB and fears around commodity financing deals contributed to the sell-off in Copper. Otherwise, it was an uninspiring month for DM equities with S&P 500 (0.8%), Stoxx 600 (-0.7%) and the Nikkei (+0.6%) all fairly flat. Considering the negative returns in Treasuries (-0.3%), US credit did reasonably well with most indices holding up modestly in positive territory. European credit also did well overall with a slightly better month for high yield (+0.7%) than high grade (+0.4%) on a total return basis.

Best and worst performing assets in Q1:

 

And just the month of March:

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

First we had Jeab-Claude Juncker saying it's ok to lie to the people, then President Obama's poster-child for Obamacare who later discovered she was unable to get the healthcare she expected and now following Janet Yellen's apparently 'uber-dovish' "jobs are not plentful" sob story spech yesterday we have more governmental factual inaccuracies. As Bloomberg reports, in her first speech as Federal Reserve chair, Janet Yellen told the stories of three people who had trouble finding work to illustrate her concern about the unemployed — omitting the fact that two had criminal records that might have influenced employers’ decisions on whether to hire them.

 

Oddly the "Jobs Plentiful" index has been nothing but positive throughout all of this… but as is clear below, remain a very long way from the 'plentiful-ness' of the '90s (and appear to have hit resistance)…

 

 

As Bloomberg reports, the first of the three people mentioned by Yellen was Dorine Poole, who lost her job processing medical insurance claims when the recession hit.

“When employers started hiring again, two years of unemployment became a disqualification,” Yellen said in her speech yesterday to a community development conference in Chicago. “Even those needing her skills and employment preferred less-qualified workers without a long spell of unemployment.”

 

Poole was convicted of felony theft 20 years ago after she fell in with a “bad circle,” she said in a telephone interview. She was 18 at the time and served two years of probation.

The second persion Yelle noted was Jermaine Brownlee, a skilled construction worker and apprentice plumber, “saw his wages drop sharply as he scrambled for odd jobs and temporary work,” Yellen said.

Brownlee said in a telephone interview that he was convicted of possession of heroin last year and currently is on parole.

The story beats the facts…

Yellen met personally with both people and knew about their records before the speech, according to a Fed spokeswoman who requested anonymity and declined to comment further.

 

Politicians commonly tell real-life stories to connect with voters and illustrate policy proposals. While the images can be powerful, there are risks.

But why would she need to do this? To ensure we all graciously accept money printing for the good of the rest of the people (convicted or not?)

The fact that Yellen omitted critical details about Poole and Brownlee shows “poor staff work or poor judgment,” said Republican strategist Stuart Roy, founder of Strategic Action Public Affairs in Alexandria, Virginia.

 

“Real-people examples are very powerful and they’re very dangerous at the same time,” Roy said. “When you’re talking about the Fed, people have no idea what the Fed does. If you can relate it to Main Street and real people it can be very powerful.”

Powerful indeed… or just more smoke and mirrors… As we noted yesterday…

But there is something about the aftermath of the Great Recession, a something that is augmented by Big Data technology, that has made it okay to embrace public misdirection and miscommunication as an acceptable policy “tool”. It’s telling when Jon Stewart, a comedian, is the most authentic public figure I know.

 

It’s troubling when I have to assume that everything I hear from any politician or any central banker is being said for effect, not for the straightforward expression of an honest opinion.

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

In the middle of 2012, to much yield chasing fanfare, China launched a private-placement market for high-yield bonds focusing China’s small and medium companies, that in a liquidity glutted world promptly found a bevy of willing buyers, mostly using other people’s money. Less than two years later, the first of many pipers has come demanding payment, when overnight Xuzhou Zhongsen Tonghao New Board Co., a privately held Chinese building materials company, failed to pay interest on high-yield bonds, according to the 21st Century Business Herald.

The company located in the eastern province of Jiangsu, missed the 10 percent coupon payment due March 28 on the notes, which it sold 180 million yuan ($29 million) of last year in a private placement.

As predicted, once Chaori Solar opened the gates for China’s default superhighway two months ago, and the realization that China will no longer bail out any and everyone, the default deluge has begun.

Bloomberg reports:

“In general, what we will see is a gradual unwinding of implicit government guarantee for a lot of credit products in China,” said James Zhao, chief investment officer in Beijing at the international department of CCB Principal Asset Management Co. “There will continue to be a mixture of bond defaults and too-big-to-fail, or too-entangled, cases. It’s now up to the market to find the pattern and investors will now have to figure out who is creditworthy and who is more likely to fail.”

 

Sino-Capital Guaranty Trust, the guarantor for the Zhongsen Tonghao security, refused to pay on behalf of the company, according to the Guangzhou-based financial newspaper.

 

A woman who answered the phone at Zhongsen Tonghao and wouldn’t give her name said the company couldn’t immediately comment on the matter. Two calls to Sino-Capital Guaranty Trust went unanswered.

 

Reluctance to bail out companies that can’t repay debt signals “regulators’ higher tolerance for corporate bond defaults amid financial market reforms, which is in line with the current central administration’s shift to adopt more market-oriented policies,” Moody’s Investors Service said in a report on March 7.

 

The number of Chinese companies whose debt is double their equity has surged since the global financial crisis, suggesting more defaults may come. Publicly traded non-financial corporates with debt-to-equity ratios exceeding 200 percent have jumped 57 percent since 2007. Chaori Solar may become China’s own “Bear Stearns moment,” prompting investors to reassess credit risks as they did after the U.S. securities firm was rescued in 2008, according to Bank of America Corp.

 

“SME private bonds are now facing relatively high risk,” said Pengyang’s Yang. “We expect more defaults to come in this area, especially those private enterprises without guarantees.”

We have written extensively about the imminent funding and liquidity threats facing China’s real estate developers following the collapse two weeks ago of another closely held company based in neighboring Zhejiang province, property developer Zhejiang Xingrun Real Estate Co. This in turn has sent shockwaves throughout the Chinese housing market, and especially the offshore cash parking version, where recently we have witnessed the start of a mass liquidation wave in Chinese offshore property haven, Hong Kong. However, it now appears that the funding danger is becoming more pervasive than even we expected, and as a result a major adverse risk and rate repricing is imminent.

And while this default came out of the blue, the one we are waiting for is that of the Magic Property which we profiled before:

31 Mar 2014, Rmb196mn borrowed by Magic Property & arranged by CITIC Trust

• Details: invested in an office building in Chongqing. The Chongqing developer ran into financial problems in mid-2013. CITIC Trust tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders.
• Potential outcome: The developer and the trust company may share the repayment.
• Reasons: 1) When CITIC Trust sold the product, it did not specify the underlying investment project. 2) The local government has intervened, fearing social unrest. A local buyer of a unit in the office building committed suicide as he/she could not obtain the title to the property due to the title dispute between the trust and the developer.

We can’t wait to see the look on Chinese investors” faces when they too learn the term re-re-re-re-rehypothecation.

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