Saturday, December 13, 2014

Charts of Asian Stocks Reveal of Rising Risks

The risk environment can be assessed by looking at the region's stock market performance

A glimpse of the region’s stock market performance as of yesterday (excluding China, Japan and the Philippines), based on a one year perspective. [charts below from stockcharts.com, yahoo finance and Bloomberg]

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First the outperformers. 

New Zealand’s NZ 50 at record highs (+16.42% year to date, left window), while Singapore’s STI (+4.95%) has fully recovered from October lows (right window).
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The record high India’s Sensex got dumped 3.89% this week (!!!) to break from the one year trend line. Has this signaled the inflection point? We shall see.

Now to the laggards…

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Taiwan’s TWII (left) seems to have been left out of the massive rally of sibling China’s Shanghai Index. The TWII has rebounded only halfway from the low of October vis-à-vis highs of July and presently seems under pressure (-1.95% y-t-d). 

Meanwhile, Australia’s All Ordinaries (AORD) seems to be approaching the October lows!!! (-2.17% y-t-d). Deflating bubble mate?

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Like the AORD,  Hong Kong’s Hang Seng (left) has been creeping back to the October lows (-3.14% year to date). The HSI has diverged from the Shanghai bubble, despite the Shanghai-Hong Kong Connect

Meanwhile the record low currency, the dong, has translated to the clobbering of Vietnam’s Ho Chi Minh index (-4.29% y-t-d; right)

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The Phisix look alike, the Thai SET has broken down from her support levels. This possibly indicates of the ‘double top’ formation in progress. 

The SET crashed 5.18% this week but remains 16.65% up y-t-d.

Crashes has become real time and spreading!

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The South Korean KOSPI looks like in danger from a massive head and shoulder pattern. Like the HSI and the AORD, the KOSPI seems to be testing the October lows!!! (-4.46% year to date)

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The 2008 low rupiah has so far failed to dent on the JKSE which continues to drift near record highs.

Nonetheless, the Indonesian bellwether appears to have formed a minor head and shoulders formation. (+20.73% y-t-d)

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Finally Malaysia’s KLSE has been in the process of fulfilling a head and shoulder bearish formation. The KLSE was down .94% this week and -7.18% year to date

The once sizzling hot Malaysian bellwether which have been the first to break to record highs appear to be playing the opposite role.

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The above represents the weekly performance of Asian bourses. Losses have been significant and dominant. Importantly, quasi crashes has emerged in Vietnam and Thailand. 

Remember these market pressures comes amidst easing by the BoJ, PBoC and the ECB.

The bottom line is that the region’s market breadth has evidently been deteriorating where deflationary forces has been gaining momentum in the face of weakening currencies, diminishing liquidity, collapsing commodity prices, high debt levels and slowing economic growth.

Eventually deflationary forces will overwhelm the region's entire risk asset spectrum.


Friday, December 12, 2014

Phisix: Peeved Bulls Mounts Low Volume Meltup Counterstrike!

Visibly irked and frustrated by yesterday’s selloff and from the latest botched attempt to retake the symbolical 7,400 highs, bulls today mounted a massive counterattack to send the Phisix up by 2.15%!

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In realization that casino stocks, current drivers of the correction phase had been oversold, stock market operators used the early momentum rebound as tailwind to unleash the 'afternoon delight' which climaxed again with another session marked by “marking the close”. 

About an astounding 33% or a third from today’s gains (see right window from colfinancials) had been from the last minute massaging of the index! (left chart from technistock.com).

Volume today was at a low Php 8.38 billion, but special block sales of mostly Max shares padded this up to Php 11.6 billion (PSE Quote)

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The intraday chart of all the sectors reveal of where price actions had been. 

While the morning session showed significant advances for all of the above, in the afternoon, the index climbed higher based only on services (upper left window) and property (upper middle) plus marginal advances from finance (lower window right). The Holding (upper rightmost) and Industrials (lower left) basically traded sideways.

Yet except for the mines, all the above sectors had been “pumped” at the last  minute to generate the 2.15% comeback!

The broader market while exhibiting signs of optimism seemed not entirely convinced; advancers led decliners by 128-49 or 2.6 issues of gains for every issue of losses. This compared to yesterday’s carnage where 6.7 issues declined for every issue which advanced.

Today’s 2.15% erased most of the week’s losses. The Phisix has been down by a puny .09%

As one can see from the above, for the consensus, corrections are NOT permissible, stocks have been destined to go up forever, therefore the desperate attempt to manically bid up prices as well as to tolerate the managing of the index in spite of regulations

Leaders of the latest shakeout, casino stocks rebounded at varying degrees. Bloomberry’s 4.09% jump regained only half of yesterday’s losses and remains significantly down by 7.9% this week. Melco Crown soared 7.44% today to more than recover yesterday’s 4.92% crash. Melco has been sold down by a shocking 17.98% over the past 5 days! Since no trend goes in a straight line, the violent selling translated to an equally volatile rebound. Yet Melco remains down 4.46% over the week.

Melco partner PLC jumped 5.58%. Because of the absence of foreign participation, PLC posted a 1.96% advance over the week.

Lastly, Resorts World developer Travellers International only inched up .4% from yesterday’s 3.74% drubbing. Travellers closed the week down by 1.96%.

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Except for Melco, today’s rebound for the casino majors comes with a lot less volume than yesterday.

With risk building up everywhere, (including BSP's marginal tightening and slowing  statistical growth in the face of a massive debt build up locally and signs of weakening regional markets), this reckless or frantic or hysteric bidding up of severely overvalued stocks are simply symptoms of overtrading, overconfidence and of the unfolding mania, brought about by easy money policies.
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And like mindless zombies scaling up the wall from the sound of chanting humans, these manic buying represent the “pitfalls of chasing the markets” as the BSP chief recently warned. 

Such actions are based mostly on raw emotion centered on crowd following; particularly the fear of being left out, a rabid denial that artificial booms come to an end and or to pontificate on the perceived “righteousness” from mainstream political actions on the economy.

Yet as I wrote back in June of 2013: “Denial” rallies are typical traits of bear market cycles. They have often been fierce but vary in degree. Eventually relief rallies succumb to bear market forces.

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I am not a fan of technicals, but this line based chart of the Phisix exhibits what chartists calls as the bearish "double top formation".

The Malaysian KLSE’s head and shoulder breakdown seems on path to fulfill the portent of the pattern.

Will stock market operators egged on by bullish crowd and by bubble 'expert' apologists falsify the pattern? 

We will see.

Regardless of their success or non-success, history tells us that the obverse side of every mania is a crash!

Thursday, December 11, 2014

Philippine Casino Stocks Mauled Again! ASEAN Stocks Under Pressure

Even in the Philippines, stock market crashes have become real time.

Last weekend I asked: Has this week’s domestic casino stock market crash opened the Pandora’s Box of debt deflation?

Equity markets seem as suggesting so.

The Phisix closed the day bloodied. 

Losses had been broadbased; losers trounced gainers 162-24 or by a ratio of 6.7 to 1
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The market carnage was spearheaded again by casino stocks. Bloomberry Resorts plummeted 8.32% along with peers Resorts World developer Travellers International which plunged 3.74%, Melco Pacific crashed 4.92% and Melco partner Premium Leisure dived 4.83%.

Again foreigners dumped domestic casino stocks in panic. 

Incredibly this casino hemorrhage has spilled over to the broader markets, even shopping mall giant SM Prime holdings bled by 4.26%. 

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All sectors closed with significant losses. 

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At one point the Phisix was down by 2%, but again stock market operators did their work, the afternoon delight was again partially implemented. And this culminated with a quasi marking the close (chart from technistock.net)

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Three sectors (holding, industrial and financed left to right; chart from colfinancial) had been pushed during the last minute but sellers on the other sectors partly offset this by pulling down the others (service and property).

Despite the grand scheme to manage the index, the Phisix now seems farther away from the record 7,400. Ironically the risk appears to be a breakdown of the 7,000 level.

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It’s not just the Phisix though; ASEAN stocks have been under pressure. Malaysian stocks which I wrote about last week, Thailand and even Vietnam’s stock markets have closed significantly lower today (table from Bloomberg)

As I have been warning here, the strong US dollar (weak regional currencies) is a sign of tightening, thereby an obstacle to risk assets.

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That’s the charts of the near identical twins Thailand’s SET and the Philippine Phisix as of yesterday. (chart from Stockcharts.com) Even today's actions seems to rhyme.

Oh as of this writing, stock markets of major Arab oil producers appear en route to close the day similar to how domestic casino developers-operators performed—with another crash!

As Oil Prices Collapse Anew, Stocks of US Energy and Oil Exploration Firms Crash!

So the US stock markets isn’t invulnerable to market crashes after all.

As I have been saying, since October, market crashes have become real time. Most importantly, incidences of global market crashes has been spreading.

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Prices of both US and Europe’s oil benchmarks continues to plummet, falling by over 3% last night. OPEC projects that demand for oil will be the weakest in 12 years. But this hasn't just been about oil. Commodity prices in general has been sluggish as seen by the CRB index or even in Industrial metal stocks (GYX)

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Meanwhile, crashing oil prices has also prompted the S&P Oil and Gas exploration (XOP) benchmark to a 4.79% meltdown last night!

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The carnage in the energy sector (XLE) led last night’s selling pressure.

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Even the bullish Bespoke Invest admits: "The S&P 500 Energy sector has now fallen 25% from its peak nearly six months ago, while the S&P 500 Oil Exploration and Production group has fallen even more at -45%.  If you want to label it a crash, be our guest." 

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The energy sector's meltdown spread to the general market.

Will the energy sector, particularly the shale industry, serve as the causa proxima to a financial crisis?

Remember these crashes comes in the face of ECB-BoJ-PBoC easing which seems to indicate that the ecstatic phase of the stimulus seems to have already faded.

And those who buy into the “immunity”, “decoupling” and G-R-O-W-T-H thesis will soon be surprised when crashes becomes THE general market condition.

History tells us that the obverse side of EVERY mania is a CRASH, central Bank Put notwithstanding!

Wednesday, December 10, 2014

Infographics: The Shanghai-Hong Kong Stock Connect

On November 17th, the long awaited Shanghai-Hong Kong Stock Connect launched, connecting Mainland China’s capital markets with Hong Kong in a way never seen before.

Before the new investment channel link, individual investors could only participate indirectly in financial securities in the Mainland, such as specific funds and ETFs. The Shanghai-Hong Kong Stock Connect, however, now allows investors to trade securities in a range of listed stocks in each both markets through their respective securities companies. This helps to promote and strengthen the connection between the two markets.

There is still a big disconnect between dual-listed companies traded in both Shanghai and Hong Kong. Some expected deeply discounted shares trading in Hong Kong to converge with their corresponding values on the Mainland. However, it is also true that shares are not directly fungible, which means that arbitrage is not possible.

It is expected that the Shenzhen Exchange will follow suit in the future if the Stock Connect is deemed successful. With all three merged, it would create the 2nd largest exchange in the world with a market capitalization of $7.5 trillion. While not yet passing the NYSE in value, the combined exchange would be bigger than the NASDAQ which has a market capitalization of $7.3 trillion.
As I previously commented: Let me say that I am in FAVOR of cross listings. That’s because in theory this allows savings to finance investments or simply connects capital with economic opportunities regardless of state defined boundaries. But with the way central banks across the globe has been distorting capital markets, cross listing (part of financial globalization) has become conduits of bubbles. Therefore I am suspicious of the timing of such liberalization. 

Ideally, trade and finance should have no boundaries. Money should flow where it is treated best. But it is a different thing when “liberalization” has been utilized to inflate a bubble such that when bubbles burst, the blame will fall on the markets.

Nonetheless find below a nice infographic of the Shanghai-Hong Kong Stock Connect from the Visual Capitalist

Courtesy of: Visual Capitalist

Causa Proxima: Will US Shale Oil Debt function as the Modern Day Equivalent of Housing Subprime Mortgages?

Every crisis requires a trigger, a causa proxima or events or “incidences which saps the confidence in the system” as historian Charles Kindleberger wrote in his classic book; Manias, panics and Crashes.

Could high yield debt from US Shale industry be the modern day equivalent of the US housing subprime mortgages of 2007-8?

I explored on this last weekend: Yet it’s a wonder how the oil and energy industry (also the material industry) will respond to still collapsing prices or how they will affect economic activities. So far, new oil and energy permits have plummeted 40% (!), and so with Shale permits down 15% for across all major oil formations last month. Shale oil at the Bakken oil field at North Dakota has seen prices even plunge to $49.69 last November 28 (!), according to a Bloomberg report. That’s way (24%) below the $65.63 WTIC oil quoted last Friday. Yet from 2007-2012, about 16% of job growth came from the oil gas industry which outperformed the other sectors, according to the EIA. If the oil industry retrenches this will impact jobs as well as other sectors attached to them.

Analyst David Stockman splendidly expounds on this (excerpted from Mr. Stockman’s Contra Corner)

The US housing mania… [bold original, italics mine]
At bottom, the leading edge of the housing mania was the implicit price of land. That’s what always get bid up to irrational heights when the central bank fiddles with free market pricing of capital and debt.

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Even as land prices were being driven to irrational heights you didn’t need to spend night and day in arcane data dumps to document it. All you had to do was look at the stock price of the homebuilders.

As I documented in The Great Deformation, the combined market cap of the big six national homebuilders including DH Horton, Lennar, Hovnanian, Pulte, Toll Brothers and KBH Homes soared from $6.5 billion in 2000 to $65 billion by the 2005-2006 peak. Yet you only needed peruse the financial statements and disclosures of any of these high-flyers and one thing was screamingly evident. They weren’t homebuilders at all; they were land banks that did not own a single hammer or saw or employ a single carpenter or electrician.

Stated differently, the homebuilders’ soaring profits were nothing more than speculative gain on their land banks—gains driven by the cheap mortgage mania that had been unleashed by Greenspan when he slashed the so-called policy rate from 6% to 1% in hardly 30 months of foot-to-the-floor monetary acceleration between 2001 and 2004.

Indeed, that cluelessness amounted to willful negligence. DH Horton was the monster of the homebuilder midway—–a giant bucket shop that never built a single home, but did accumulate land and sell finished turnkey units by the tens of thousands each period. Did it not therefore occur to the monetary politburo that DH Horton had possibly not really generated a 11X gain in sustainable economic profits in hardly 5 years?

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The Shale oil mania…
So now we come to the current screaming evidence of bubble finance—–the fact that upwards of $500 billion of junk bonds ($200B) and leveraged loans ($300 B) have surged into the US energy sector over the past decades—–and much of it into the shale oil and gas patch.

Folks, you don’t have to know whether the breakeven for wells drilled in the Eagleville Condy portion of the great Eagle Ford shale play is $80.28 per barrel, as one recent analysis documents, or $55 if you don’t count all the so-called “sunk costs” such as acreage leases and oilfield infrastructure. The point is, an honest free market would have never delivered up even $50 billion of leveraged capital—let alone $500 billion— at less than 400bps over risk-free treasuries to wildly speculative ventures like shale oil extraction. 

The fact is, few North American shale oil fields make money below $55/barrel WTI on a full cycle basis (lease cost, taxes, overhead, transport, lifting cost etc.). As shown below, that actually amounts to up to $10 less on a netback to the wellhead basis—–the calculation that drives return on drillings costs.

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In short, as the oil market price takes its next leg down into the $50s/bbl. bracket, much of the  fracking patch will become a losing proposition. Moreover, given the faltering state of the global economy and the huge overhang of excess supply, it is likely that the current crude oil crash will be more like 1986, which was long-lasting, than 2008-09, which was artificially resuscitated by the raging money printers at the world’s central banks.

So why is there a shale patch depression in store? Because there is literally a no more toxic combination than the high fixed costs of fracked oil wells, which produce 90% of their lifetime output in less than two years, and the massive range of short-run uncertainty that applies to the selling price of the world’s most important commodity.

Surely, it doesn’t need restating, but here is the price path for crude oil over the past 100 months. That is to say, it went from $40 per barrel to $150, back to $40, up to $115 and now back to barely $60 in what is an exceedingly short time horizon.

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Obviously, what we have here is another massive deformation of capital markets and the related flow of economic activity. The so-called “shale miracle” was not made in Houston with some technology help from Silicon Valley. The technology of horizontal drilling and well fracking with chemicals has been around for decades. What changed were the economics, and those  were made in the Eccles Building with some help from Wall Street.

As to the latter, was it not made clear by Wall Street’s mortgage CDO meth labs last time that when the central bank engages in deep and sustained financial repression that it produces a stampede for “yield” which is not warranted by any sensible relationship between risk and return? It should not have been even possible to sell a shale junk bond or CLO that was based on assets with an effective two year life, a revenue stream subject to wild commodity price swings and one thing even more unaccountable. Namely, that the enterprise viability of virtually every shale junk issuer has always been dependent upon an endless rise in the junk bond issuance cycle.

Stated differently, oil and gas shale E&P operators are drastic capital consumption machines. Due to the lightening fast decline rates of shale wells, firms must access more and more capital just to run in place. If they don’t flush money down the well bore, they die along with all the “sunk” capital that was previously put in place.

In the case of shale oil, for example, it is estimated that were drilling to stop for just one month, production in the Eagle Ford, Bakken and one or two other major provinces would drop by 250,000 barrels per day. After four months, the drop would be 1 million bbl./day and after a one-year, nearly half the current four million barrels of shale oil production would disappear.

That’s why all of a sudden there is so much strum and drang about “breakeven” pricing. Obviously, new drilling is not going to go to zero under any imaginable price scenario, but for all practical purposes the shale revolution could shut down just as fast as did the housing boom in 2006-2007. In effect, the shale financing boom presumed that both the junk bond cycle and the oil price cycle had been eliminated.

Needless to say, they have not. So the impending “correction” may well be as swift and violent as was the housing bust.

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The coming shale oil bust…
Indeed, in the short-run the shale crash could be worse. The fantastic, debt-fueled drilling spree of the past 5-years is now sunk and will produce rising levels of production for a few quarters until rig activity is sharply curtailed and some of the better capitalized operators stop drilling in order to avoid lease expiration writeoffs.

So as the WTI market price is driven toward $50/ barrel, recall that the netback to the producer is significantly less. In the case of the biggest shale oil province, the Bakken, the netback to the well-head is upwards of $11 below WTI.  Accordingly, cash flow will plunge and that source of drilling funds will evaporate with it.

But the big down-leg is coming in the junk market. This time around, Wall Street has been even more reckless in its underwriting than it was with toxic securitized mortgages. Barely six months ago it sold $900 million of junk bonds for CCC rated Rice Energy.  The latter operates in the Marcellus gas shale trend but that makes the story even more preposterous.

These bonds were sold at barely 400 bp over the 10-years treasury, and the issue was 4X oversubscribed. That is, there was upwards of $4 billion of demand for the bottom of the barrel securities of a shale speculator that had generated the following results during its 15 quarters as a public filer with the SEC. To wit, it had produced $100 million of cumulative operating cash flow versus $1.2 billion of CapEx. In short, if the junk bond market dies, Rice Energy is a goner soon thereafter.
The transmission mechanism: From debt to the economy…
As the global boom cools, oil demand withers, the junk market craters, and the shale patch tumbles into depression, someone might actually note the chart below.

Its been another central bank parlor trick. The job count in the 45 non-shale states last Friday was 400,000 lower than it was at the end of 2007. That’s right, not one new job—even part-time or in the HES complex—- for the last seven years.

All the new jobs have been in the 5 shale states. That is, they were manufactured by the Fed’s tidal wave of cheap capital and the central bank fueled global recovery which created the illusion that $100 oil was here to stay.

But it isn’t and neither is the shale boom, the shale jobs or the shale investment spike, which counts for a good share of overall CapEx growth since the crisis.

Yes, indeed. The monetary politburo did it again.

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Bloody Tuesday: GCC, European Stocks Battered; Greek Stocks Collapse 13%!

Add to the carnage in China’s stock markets, it has been a largely bloody Tuesday for global risk assets.


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The 4% crash in Europe’s crude oil, the Brent (as of Monday December 8), sent stock markets of major oil producers the Gulf Cooperation Council (GCC) plunging, again
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table from ASMA

US oil WTIC rallied mildly today.

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Risk OFF Tuesday hit European stocks pretty hard (from Bloomberg)

Since October, crashes have become real time. Greece’s financial markets cratered!

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The Athens General index lost 12.78% in a single day (stockcharts.com

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Today’s meltdown signifies the single biggest crash since 1987. Notes the Zero Hedge: (bold original)
Greek stocks are now down 13% - the biggest single-day drop since (drum roll please) the crash of 1987... led by total carnage in Greek banks (down 15-25% on the day). Greek bond yields exploded, 3YR +183bps to a new post-bailout high at 8.32% (and inverted to 10Y).

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Greek bond yields also soared.


The anti-bailout leftist group the Syriza which has been said to “promise everything to everyone” by reneging on deals for bailout, halting austerity, restoring social spending, continue to receive subsidies from the Eurozone, IMF and labor protection reportedly leads in the opinion polls. In short, the popular leftist group wants a bankrupt nation to revive free lunch policies and expect to get a free pass on the economy. So market’s response has been rational.

Interesting to see how a revival of the Greek crisis will impact a vulnerable Europe, in the face of a Japanese recession, a highly fragile Chinese economy and a slowdown in Emerging markets, aside from heightened geopolitical tensions.

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Nonetheless US markets bounced backed from the depths of the selling pressure from a recovering USD-yen, buoyant small cap and technology stocks.

Tuesday, December 09, 2014

What goes up MUST come down: China’s Shanghai Index DIVE 5.43%!

What goes up must come down.

China’s streaking hot stock market which has seen a Viagra like vertical climb as noted last week seems to have hit its speed limits.

From Bloomberg:
Chinese stocks tumbled the most since 2009 amid volatile trading that spurred the benchmark index’s biggest swings in five years and sent turnover to a record.

The Shanghai Composite Index (SHCOMP) dropped 5.8 percent to 2,844.11 at 2:54 p.m. local time, heading for the steepest retreat since August 2009, after earlier gaining as much as 2.4 percent. Lower-rated bonds fell and the yuan weakened to a more than four-month low after policy makers said riskier bonds can no longer be used as collateral for some short-term loans.

Volatility in Chinese stocks is increasing, with the Shanghai index swinging by more than 250 points today, as investors assess the sustainability of a rally that has topped every other market worldwide during the past month and propelled share prices to the most expensive levels since 2011. The value of equities changing hands on exchanges in Shanghai and Shenzhen reached a combined 1.24 trillion yuan ($200 billion), almost five times the one-year average.

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The incredible intraday volatility of the Shanghai composite can be seen in the above. The SSEC spiked by 2.3% by midday followed by a meltdown through the session's close.

But instead of 5.8% loss as indicated by the report, the SSEC closed down 5.43% after a minor rally near the session's end. So today's session had an astounding 7%+ swing!

Why the collapse? Because the Chinese central bank, the PBoC, has been reported to have applied "tightening" via a reduction of collateral availability used for margin. 

Writes the Zero Hedge (bold original)
the PBOC appears, by its actions tonight, to be concerned that things have got a little overheated in its corporate bond and stock markets as hot money ripped into the nation's capital markets on hints of further easing and QE-lite a few months ago. In a show of force, the PBOC simultaneously fixed CNY significantly stronger (implicit tightening) and enforced considerably stricter collateral rules on short-term loans/repos. With Chinese stocks concentrated is even fewer hands than in the US (and recently fearful of the surge in margin trading), it appears the PBOC is trying to stall the acceleration is as careful manner as possible. The result, as Bloomberg notes, is a major squeeze in CNY (biggest drop since Dec 2008), interest-rate swaps ripped higher along with corporate bond yields,  and most Chinese stocks sold off (with two down for every one up) though the latter is stabilizing now.
Perhaps in realization that soaring stock markets meant more destabilization than prosperity, the PBoC may have acted to spurn the spectacle of intensifying speculative orgies. The PBOC, in the words of former Fed governor William McChesney Martin, "has ordered the punch bowl removed just when the party was really warming up".

Again as I noted last weekend:
The bottom line: there is no free lunch for money printing. Natural barriers will emerge to eventually prevent debt overload or from a full-scale destruction of the monetary system.
We will see how effective the PBoC's "taking away of the punch bowl" will be over the coming days. 

Yet if losses will be sustained, then the critical question is how will these affect margin trades or trades funded by debt, which reportedly hit record levels?  

More interesting developments.

Monday, December 08, 2014

BIS Warns (Again) on Strong Dollar’s Impact on Emerging Markets, Deep Dependence on Central banks!

The central bank of central banks, the Bank for International Settlements just can’t get enough from dishing out warnings after warnings on global risk. Obviously they are doing this because the consensus ignores them.

A month ago, I posted here the BIS chief Jaime Caruana’s ‘debt trap’ speech.

Now from the BIS’s December Quarterly Review we read of more warnings.

From BIS chief economist Claudio Borio

On the central bank put during the sharp recovery from the October meltdown: (bold mine)
At the same time, a more sobering interpretation is also possible. To my mind, these events underline the fragility - dare I say growing fragility? - hidden beneath the markets' buoyancy. Small pieces of news can generate outsize effects. This, in turn, can amplify mood swings. And it would be imprudent to ignore that markets did not fully stabilise by themselves. Once again, on the heels of the turbulence, major central banks made soothing statements, suggesting that they might delay normalisation in light of evolving macroeconomic conditions. Recent events, if anything, have highlighted once more the degree to which markets are relying on central banks: the markets' buoyancy hinges on central banks' every word and deed.

The highly abnormal is becoming uncomfortably normal. Central banks and markets have been pushing benchmark sovereign yields to extraordinary lows - unimaginable just a few years back. Three-year government bond yields are well below zero in Germany, around zero in Japan and below 1 per cent in the United States. Moreover, estimates of term premia are pointing south again, with some evolving firmly in negative territory. And as all this is happening, global growth - in inflation-adjusted terms - is close to historical averages. There is something vaguely troubling when the unthinkable becomes routine.
On crashing oil and the strong US dollar.
These developments will be especially important for emerging market economies. The spike in market volatility in October did not centre on these countries, unlike at the time of the taper tantrum in May last year and the subsequent market tensions in January. But the outsize role that commodities and international currencies play there makes them particularly sensitive to the shifting conditions. Commodity exporters could face tough challenges, especially those at the later stages of strong credit and property price booms and those that have eagerly tapped equally eager foreign bond investors for foreign currency financing. Should the US dollar - the dominant international currency - continue its ascent, this could expose currency and funding mismatches, by raising debt burdens. The corresponding tightening of financial conditions could only worsen once interest rates in the United States normalise.

Unfortunately, there are few hard numbers about the size and location of currency mismatches. What we do know is that these mismatches can be substantial and that incentives have been in place for quite some time to incur them. For instance, post-crisis, international banks have continued to increase their cross-border loans to emerging market economies, which amounted to $3.1 trillion in mid-2014, mainly in US dollars. And total international debt securities issued by nationals from these economies stood at $2.6 trillion, of which three quarters was in dollars. A box in the Highlights chapter of the Quarterly Review seeks to cast further light on this question, by considering the securities issuance activities of foreign subsidiaries of non-financial corporations from emerging markets.

Against this backdrop, the post-crisis surge in cross-border bank lending to China has been extraordinary. Since end-2012, the amount outstanding, mostly loans, has more than doubled, to $1.1 trillion at end-June this year, making China the seventh largest borrower worldwide. And Chinese nationals have borrowed more than $360 billion through international debt securities, from both bank and non-bank sources. Contrary to prevailing wisdom, any vulnerabilities in China could have significant effects abroad, also through purely financial channels.
I have been repeatedly saying here that strong US dollar-weak Asian currencies will pose as a significant headwind to the region’s financial assets and economies
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As of this writing based on Bloomberg data, Malaysia’s ringgit, Indonesia’s rupiah, Australian dollar and New Zealand dollar are being crushed!

As China’s Export Growth Falls, Import Growth Contracts, Stocks Fly!

China’s international trade data speaks loudly of the Chinese and global economic conditions.

The Zero Hedge writes: (bold original)
Chinese imports and exports dramatically missed expectations this evening but it is imports that was the real driver that pushed the trade surplus to $54.47 billion (higher than the $43.95 billion expected) record highs. Exports rose just 4.7% YoY (against expectations of an 8.0% rise and previous 11.6% rise) for the slowest growth since April. Imports utterly collapsed; plunging 6.7% YoY (against expectations of a 3.8% rise and prior 4.6% YoY rise). This is the biggest drop since March and 4th largest plunge since Aug 2009. Of course, in any real world this means 'the rest of the world' should be suffering from huge drops in exports... but we are sure, by the magic of fradulent invoicing that will not be the case. The PBOC may have got a glimpse and fixed CNY at its strongest since March and highest premium to the market since August.

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Add to "the rest of the world' should be suffering from huge drops in exports", contracting imports postulates to a sharp slowdown in domestic economic activities. 

Yet the slowdown in exports have been blamed on supposed  crackdown on over-invoicing. Perhaps.

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But this may also reflect on a substantial downdraft in the economic activities of China’s trading partners. (chart from statista.com)

I said last night
since 2008, stocks have NOWHERE been about G-R-O-W-T-H, but about LIQUIDITY and CREDIT from which CONFIDENCE or MOMENTUM has been a product of. Expand liquidity and or credit, then financial assets (stocks, real estate, bonds etc…) booms, regardless of the direction of the economy.
Well, bad news has actually been good news for Chinese stock market speculators
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The Shanghai index has even broken the 3,000 levels! 

This according to the Bloomberg, has been the first time in 2011. Why? Because according to a quoted expert, “There are expectations for further rate cuts”

Well it’s not just China.  

Japan’s 3Q adjusted GDP reportedly fell to 1.9% from 1.6%. This means that the 3Q recession has been worst than originally estimated. 

No bad news for stocks, though. Japan’s Nikkei closed higher marginally higher by .08% today!