Global Market Watch for May 15th, 2014
Real Conspiracy – the Manipulation of Politics to Save the Euro
When the Euro was on the drawing boards, the committee to create the Euro came to our seminar in London and took the whole back row. I was there at the beginning and have first hand knowledge about how it was being designed. I warned them at that time the euro would start to fail after 13 years in line with the ECM – that was 2011. The euro officially began January 1st, 1999. Without a single national debt, the Euro could never become a reserve currency for it would lack depth.
The real problem to emerge is that the euro is more than a single currency. It has become something to defend for thousands of political jobs. The real theory has been to federalize Europe for in the mind of the elites, that would eliminate war. What they failed to grasp is that it can also promote war by dictating a one-size fits all policy.
I have written about the audacity of the EU Commission to intervene and remove elected people in Greece and Italy who wanted to leave the Euro. They are in the process of staging political coups to protect the established bureaucrats in Brussels. This is now all about maintaining power – not the Bilderberg meetings and Illuminati. Tim Geithner has confirmed the coup stating in his book:“At one point that fall, a few European officials approached us with a scheme to try to force Italian Prime Minister Silvio Berlusconi out of power.” Geither writes that he told the President about “this surprising invitation” to change the head of Italy, but they decided not to get involved (publicly): “We can’t have his blood on our hands.” Those who always blame the CIA need to expand their perspective. They say there is nothing like a woman scorned. I dare say there is. It’s a politician and unelected bureaucrats.
China’s Hard Landing Is the Envy in the West
There is growing evidence that the Chinese property market will crack after 2015.75 when public confidence drops sharply worldwide. The first signs of deterioration are evident today. China has been the envy of developed nations with real GDP growth averaging almost 10% for the last quarter century, only dipping below 5% briefly with the Japanese crisis in 1989-90. Developed countries would rejoice with what the Chinese classify as a “hard landing”.
While the market appeared to shrug off China’s first corporate default by Shanghai Chaori Solar, defaults among Chinese property development and trust companies could reverberate throughout the economy. Given capital controls, the Chinese have limited investment opportunities thus citizens have invested savings in real estate and high yielding trust products. Generally, real estate accounts for about 33% of fixed investment and 16% of GDP growth. Trust companies have provided financing to companies unable to obtain loans from the banks: real estate development and coal miners.
As in any market, prices are dependent upon investor confidence. Nothing will cause the housing market to crash faster than investor losses that fuel the human reaction of a decline in confidence. Sales dropped 5.2% yoy during the first quarter according to the National Bureau of Statistics. Residential housing sales dropped 18.4% month on month in April, down 18.1% yoy according to Homeline, one of China’s largest real estate agencies.
There is a widespread pessimism starting to surface in China about the housing industry because of weak sales. The Guang Real Estate Group, based in Shenzhen City, Guangdong Province, has admitted that the company failed to deliver some projects to homebuyers on time due to financial pressures.
Trust product maturities accelerate this year. Over the past years, trust assets have risen 50% annually, to an estimated $6 trillion. Chinese trust companies have supplied credit outside of the banking system largely to coal miners and solar developers. Many coal miners have debt ratios exceeding 100%, and weak coal prices have hurt profitability. A couple of miners have already experienced financial difficulties meeting maturities. China Cinda Asset Management, an SOE established to buy back bad loans from big banks, warns trust defaults could “explode.” The mainland’s bad debt is on the rise. China Cinda Asset Management is warning that a default peak season for its gigantic trust products sector is approaching after years of rapid yet questionable growth.
Tightening credit costs are raising debt costs for companies. SOEs formerly able to obtain financing at a discount are now a premium to the PBOC rate. Small rate rises could have significant impact given high leverage and short duration of Chinese companies. The Chinese renminbi has depreciated almost 3% since the first of the year.
At the same time corruption allegations of executives have risen, some related to the bad loans. With every downturn, the borderline deals go bad and this creates the image of fraud even when it is not, which in turn fuels the crisis even more causing capital to decline.