The Effects of Inflationism on Sex Life

Sovereign Man’s Simon Black has been on a roll. Here is another terse but eloquent article explaining the effects of money printing (inflationism) to private lives, particularly in the realm sex and demography (population changes). 

The public doesn’t see it, but political control of money and credit leads to political control of people’s private lives. This is, of course, coursed through the pricing system. Changes in the pricing system, which consequently alters the purchasing power of money (by lowering it), indirectly affects people’s values, preferences, actions and therefore lifestyle. The changes are subtle and runs over a period of time. The casual link has been non-linear.

Or stated differently, the problems from such policies will prompt for political interventions in many aspects of social lives, be it commercial or personal. In essence, intervention begets intervention. 

And it’s why political control of money and credit is in the fifth plank of Karl Marx’s communist manifesto: "Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly." 

Political control over money and credit serves as an instrument to expand political control over society.

Simon Black on the Libido crisis: (bold mine)

You know that we talk a lot about the insane level of government interference in our lives. About what we can and cannot put in our bodies. The amount of interest we’re entitled to receive on our savings. Etc.

But I’m noticing now even more ridiculous trends of governments wanting to get involved in people’s sex lives.

Last year the Danish government promoted an initiative called “Do it for Denmark”, encouraging Danes to travel abroad and have sex while on holidays. They even have a pretty racy Youtube video featuring a scantily clad gorgeous blonde waiting to do her duty for her country and procreate. 

Singapore as well has a catchy jingle about going out and making babies, brought to you by the same guys who did the Mentos theme song.

The Swedish government actually spent taxpayer money on its new genitals song, so it can start indoctrinating children early on how they can make babies.

Here in Japan, which has one of the lowest birthrates in the world, the government is desperate to find solutions to what it calls its libido crisis.

According to their data, Japanese men aren’t terribly interested in sex and the women find sex to be bothersome.

Japanese being expert process engineers are coming up with a government solution to reengineer sexual desire in their country.

(I have to imagine that if this solution reached US soil, the government option would include the smooth sounds of Barack Obama whispering some pillow talk: “C’mon, lemme give you this big tax cut, baby…”)

Easily the most ridiculous solution they came up with is to impose a ‘handsome tax’ on attractive men. I thought this was a headline from the Onion, the greatest news source in the world, but it turned out to be true.

The idea being that if you tax handsome men, then less attractive men would have more money and hence be able to attract women.

 

Zerohedge covered this in fantastic detail—I encourage you to check it out. This is not a joke.

The thing that many of these countries have in common, Japan, Denmark, etc., is a rapidly declining birthrate. 

A declining birthrate is disastrous for an economy, particularly for an ageing place like Japan. 

Ironically, the oldest person in the world turned 117 years old yesterday—and no surprise that she’s Japanese. In fact, Japan is home to one of the oldest populations in the world and has one of the longest life expectancies. 

Curiously they also have one of the largest pension programs in the world. You put all that together and you have fewer and fewer young people paying more and more of their income to support a disproportionately large population of retirees who are living for decades after they stop working. 

Each one of these governments is trying to find a solution to fix this unsustainable fiscal problem.

In Denmark they seem to think that people aren’t going on vacation enough. In Japan they think it’s a problem of sexual desire. But in actuality it has everything to do with cost of living.

Month to month, year to year, it’s hard to notice the subtle changes in costs of living and standards of living, but after a long period of time it’s easy to look back and remember how things used to be.

You used to be able to support a family on a single income. You used to be able to afford medical care and higher education.

It’s often said that the greatest expense that someone will have in their life is his or her home. That’s total nonsense.

Now, I’m not saying it’s not worth it, but the biggest expense most people will have is family, and particularly children.

And after years and years of suffering through pitiful, destructive policies that have chronically made people less prosperous, it’s no surprise that they’re coming to the conclusion—you know, we can’t really afford to have a child right now.

There are consequences to conjuring money out of thin air. There are consequences to destructive policies.

So destructive in fact that central bankers and politicians even have the power to make a population disappear.

How ironic that they try to fix their own problem by trying to introduce themselves into our bedrooms.

As repeatedly been stated here, inflationism has natural limits. Those limits are being manifested through various crises, financial, economic, political or social

Phisix: Another Record courtesy of Marking the Close

Last weekend I asked: It’s a wonder, can the index managers prevent this or defy market forces? Or will they be able to keep the correction stage moderate?

For this week, they seem to have provided an answer: Profit taking is taboo! There is no such thing as risk or valuations! Domestic stocks can only go up forever!!!

Today, they ensured that the record high of the other week had to be surpassed...so the last minute pump. 

Mission accomplished. The chart has been made.

Basically a three industry pump for the day.

Such has been a rare phenomenon in the first run up  to 7,400 in 2013, but became rampant from 4Q 2014 onwards. Especially now where marking the close has almost been a daily affair.

Perhaps the decline of last week caught these managers by surprise, so they started the week (Monday March 2nd) with a full scale assault…

Marking the close had been more broadbased then than today…

...where almost every sector had been pumped.

 

But then the following day, they decided instead to a last minute dump…

Curiously, this week's pump had an average weekly peso volume that has been the second lowest since the week ending November 21, 2014.

All these are just signs of the quality of the so-called record run. It’s not just about wild or unbridled or hysteric speculations but of the gaming the index to ensure that the flow speculation is maintained.

For now this won’t be an issue because it benefits the establishment. But like anywhere else when the cycle turns, my guess is that this will be an issue.

Japan’s Financial Nemawashi Debt Powder Keg

SovereignMan’s Simon Black on Japan’s financial nemawashi powder keg (bold mine)

Japan is a land of irony and dichotomy. It is one of the most conservative cultures in the world, while simultaneously being one of the most perverted.

Business culture here is yet another thing that seems totally alien. Creativity and innovation are constrained by process and procedure. The individual is never celebrated, and dutiful compliance is everything.

In Japanese corporate culture, business meetings follow a strict agenda. New ideas, no matter how valuable, are simply not welcome.

They actually have a term here called nemawashi, which is a meeting before a meeting. The idea being that if you have an idea to present at a meeting, you need to discuss it first so that nobody’s caught off guard or embarrassed by not having a prepared response.

This is a cultural nuance that is completely lost on most Westerners. It stems from this mindset that everyone has an obligation to make sure that nobody else looks bad.

This carries over especially into Japan’s economic and financial situation. As a percentage of GDP the government here is carrying more debt than anyone else on the planet.

At one quadrillion yen, the debt level is so high that it now takes the government 43% of its central tax revenue just to pay interest this year.

The percentage of tax revenue to service the debt has been rising for years and is absurdly unsustainable. Yet large Japanese businesses have dutifully continued to hold Japanese government bonds as part of their obligation to make sure that the government doesn’t look bad.

It’s like a financial nemawashi, saving their counterparty from embarrassment.

This, however, is starting to change. Through its policy of aggressively seeking to create inflation, the government is now guaranteeing that anyone who holds Japanese government bonds will lose money.

This makes government bonds no longer an investment or a store of value, but a charity case. At best it’s just another tax.

Throughout history governments have often overestimated how much their citizens are willing to accept.

Japan has a beautiful stoic culture that has been able to endure tremendous suffering. That said, everyone has a breaking point.

And that’s when you see that there’s a big difference between love of country and love of government.

Bottom line—it’s already starting to unravel.

Every time I’m in Singapore now, as I was just last week, my banking contacts report exponential growth in Japanese customers. Businesses, entrepreneurs, and investors are all moving money out of Japan and into Singapore.

Even Japanese banks are aggressively expanding, following the money out of their own country.

This is precisely when capital controls end up being imposed—when a trickle of capital fleeing turns into a flood.

We’re seeing the same things right now in many places around the world, with most of the attention now focused on Greece and other parts of southern Europe.

However, as Japan has the third largest economy in the world and is the most woefully indebted, it’s really the one to watch.

When the powder keg goes off that sets the global financial system ablaze, it will most likely be in Japan where the match is lit.

In my March 3 post I pointed out that Japanese residents’ portfolio holdings of foreign currency assets has reached record highs. This are signs of intensifying capital flight. 

It’s also proof that the man in the street has been direly affected by the grand interventionist experiment called Abenomics of using of financial, economic and political nemawashi to save not only the face but of the interests of Japan’s ruling class and their allies. 

And as posted on February 24, a survey showed that a vast majority or 81% of the average Japanese questioning “where is the recovery?”. 

This is what Mr.Black has been talking about where the Japanese government’s national debt service have been devouring a large share of tax revenues.

The above budget estimates has been sourced from Japan’s Ministry of Finance under Japan’s fiscal condition as of January 2015

What’s truly remarkable has been that the budget has been premised on a very optimistic light. The Japanese government expects the burden of debt payment to get reduced from 51.46% and 46.54% in 2013 and 2014 to only 43% this year. This comes as tax revenues has been expected to grow 16.02% in 2014 and 9.4% in 2015.

Meanwhile government spending has been expected to grow 3.53% in and 4.7% in 2015.

The difference is that while government spending represents allocated spending, money that will be spent as part of the budget, tax revenues mainly depends on economic performance, and secondarily, administrative tax collection efforts

But remember the Japanese statistical economy fell into a technical recession in 2014. Granted that even if we consider the rebound during the last quarter where annualized gdp q-o-q jumped by 2.2%, that number is unlikely to raise the government’s projection of 16% tax revenue growth.

As an aside, Japan has three ways of looking at the statistical GDP. The GDP annual growth rate still shows Japan in a recession.

Importantly as I recently pointed out, the 4Q bounce was all about statistical growth and not real economic growth

Mediocre investment activities, consumption boost from BoJ’s devaluation, and a big boost from government spending means Japan’s 4Q GDP represents no less than a government statistical pump—or growth only in statistics.

Another important factor, bond dependency ratio or the use of bond financing as % of revenues. Since taxes have been insufficient to finance government expenditures, the government has become almost entirely dependent on bond financing. 

Yet due to rosy expectations on tax revenue growth, the Japanese government projects this bond ratio to fall from 46.3% in 2013 to 38.3% this year. I don’t think this target will be met. Not with the current data. Japan’s nemawashi finance looks very much like Ponzi financing—debt in debt out.

Some mainstream experts recently cheered that wage inflation has appeared. Unfortunately, wage inflation has been lower than the CPI. 

From Bloomberg-Japan Times: Increases in the cost of living outpaced annual earnings that rose for the first time in four years in 2014 as the Abe administration sought to reflate the economy. Average earnings climbed 0.8 percent last year while pay, adjusted for inflation, fell 2.5 percent, the labor ministry said Wednesday. Base wages excluding overtime and bonuses were unchanged in 2014, ending eight years of decline, preliminary data showed. Earnings that trail inflation crimp the spending power of households, undermining the sustainability of price gains. Prime Minister Shinzo Abe and the Bank of Japan are pumping unprecedented stimulus into the economy in an effort to end two decades of stagnation.

Adding to the Japan’s woes, last week Japan’s government announced unemployment rate last January increased to 3.6%.

So despite the money pumping and fiscal stimulus what the economy has shown has been sustained stagnation where fiscal imbalances signify a hole which the Japanese government keeps digging deeper.

Japan is in a debt TRAP. Japan can hardly grow out of its way from the current debt levels. Also, the Japanese government's policies have become an impediment to real economic growth. Instead of promoting the incentives for productive agents to flourish, distortion from interventions only foists uncertainty, e.g. devaluation distorts pricing system. 

So the government's aim has now been about showbiz, manipulating markets to show buoyancy.

Yet these policies will accelerate Japan's path to a credit event.

If inflation does go up, due to G-R-O-W-T-H, this would mean “guaranteeing that anyone who holds Japanese government bonds will lose money” then interest rate will spike and expose the fragility of the government’s mountain of debt.

On the other hand, if stagnation persist, or if Japan's financial bubble goes bust, those colossal debt levels will eventually be seen by the markets as susceptible to credit events.

Either way, the future of Japan’s debt is either default or a debt jubilee. It’s a question of when not an if.

For now the BoJ’s policies has monetized much of the government spending. (chart from Zero Hedge)

The BoJ’s monetization process comes with future consequences. As I recently wrote:

According to Japan Macro Advisors: In terms of the BoJ's market share in the JGB market, it renewed its new peak. In January 2015, the BoJ owned 25.6% of the JGB market, measured in value, and 20.9% measured in aggregate duration risk. We expect BoJ's market share will exceed 30% by the end of 2015, and approach 40% by the end of 2016.

So by siphoning liquidity out of the JGB markets, the ramifications of BoJ’s actions has been to increase volatility. Such volatility has emerged in the form of reduced demand for JGBs that has spiked yields. Current events may signify as the unintended long term consequences from the BoJs inflationary policies.

The recent spike by yields of 10 year JGBs has been pushed back by the BoJ’s assurances of more easing.

But it appears that this has not been enough (chart from investing.com as of yesterday’s close). The yields are back testing the recent highs.

Japan’s Nikkei trades at 15 year high. Such milestone highs have not come in the favor of locals as households have been net sellers. It’s only foreigners and domestic institutions whom are being rewarded from the political redistribution.

But record stocks come in the face of record imbalances at the precipice.

Again Simon Black

When the powder keg goes off that sets the global financial system ablaze, it will most likely be in Japan where the match is lit.

Japan may just be one of the matches.

Governments in a Panic Mode: India and Poland Cut Rates as China’s Lowers GDP Growth Targets to 7%!

A few days back I wrote about the divergence between central bank actions and record stocks

Record high stocks have spawned an ocean of misimpression that such dynamic has been about G-R-O-W-T-H and the ebbing of risk.

But on the other hand, the rush to ease by many central banks extrapolate that these monetary institutions have seemingly been in a panic mode. Insufficient G-R-O-W-T-H has been exposing credit risks that have only been pressuring central banks to lower the cost of servicing debt through policies.

Two different responses to divergent perceptions.

Yesterday India’s central bank unexpectedly cut interest rates for the second time this year.

From the Wall Street Journal

RBI governor Raghuram Rajan explained his decision to cut rates ahead of the central bank’s next scheduled monetary-policy meeting in April, saying: “The still-weak state of certain sectors of the economy as well as the global trend toward easing suggest that any policy action should be anticipatory.”

With its latest move, the RBI joined a dozen central banks, from Singapore to Switzerland, which have cut rates since January to stimulate economic growth and stave off deflation. The People’s Bank of China lowered rates Saturday for the second time in less than four months.

But jumping on the easy-money bandwagon carries risks for India and other emerging markets. If the U.S. Federal Reserve starts tightening, developing economies could face large capital outflows…

Mr. Rajan said he moved in part because “disinflation is evolving along the path set out by the Reserve Bank in January 2014 and, in fact, at a faster pace than earlier envisaged.”

Ah disinflation, euphemism for deflation risk. Too much debt which leads to depressed economic activities that subsequently heightens credit risk.

As I previously said, central bank creed of the euthanasia of the rentier will dominate the sphere of monetary policy making. This will be complimented by political pressures, social desirability bias and path dependency.

Last night Poland also jumped into the easing bandwagon.

From Reuters:

Poland ended its monetary-easing cycle on Wednesday with a deeper-than-expected rate cut intended to curb deflation and prevent excessive zloty gains as the euro zone begins a massive stimulus programme.

The central bank's Monetary Policy Council cut the benchmark rate 50 basis points to 1.50 percent, a record low. Most analysts polled by Reuters had expected a 25-basis-point reduction.

The zloty weakened after the decision, then reversed losses and gained up to 0.9 percent after the bank said its easing cycle was over.

"There is never a situation that the promise of the MPC in any country is carved in stone," Governor Marek Belka said. "But taking into account the current economic situation ... I cannot see room for further rate cuts and expectations thereof."

Belka said the European Central Bank's bond-buying programme was one factor leading to the reduction.

"If a major currency ... is a subject to a quantitative easing at a significant scale, then one can expect appreciation pressure at currencies surrounding the euro," he said at a conference following the decision.

Same dynamics with India but with an added dimension. One intervention begets another intervention. The snowballing rate of interventions will bring about unintended consequences such as swelling rate of government securities having negative yields and record stocks.

By the way, India and Poland’s actions accounts for 20 central banks cutting rates (Central Bank Rates). And this is aside from other easing measures, lowering reserve requirements, QE and etc…

So financial markets continues to rise even as real economic fundamentals deteriorate from which central banks respond to with amplified easing

And as proof of worsening of economic conditions, the Chinese government just announced a lowering of economic growth targets to 7%

From the Wall Street Journal:

China lowered its economic growth forecast to about 7% this year at the opening of the country’s biggest political event of the year, ushering in what leaders have dubbed a “new normal” of slower growth in the world’s second-largest economy.

Premier Li Keqiang ’s speech on the economy opened the National People’s Congress, China’s annual legislative session. Last year’s goal was “about 7.5%” though when actual growth came in at 7.4%—the slowest in more than two decades—officials disputed that it represented a miss…

In recent weeks, Beijing has unveiled increasingly dramatic moves to spur bank lending in a bid to rekindle economic momentum. But such moves could set back its efforts to shift away from excessive reliance on exports, a bloated property market and government spending.

What strategy Chinese leaders pick matters on a global level. A plan that emphasizes short-term growth could give a boost to a world economy suffering from Europe’s malaise and an unsteady recovery in the U.S., but it could also raise questions about China’s long-term role as a global economic growth engine.

At home, leaders face pressure for more action. Many businesses say they don’t want to borrow or expand given weak demand. Smaller companies that do say banks are holding back credit because of worries about bad loans.

The trajectory of declining economic growth rate aligns with the hissing credit and property bubble trends. And symptoms of balance sheet problems have been apparent; as noted above, businesses don't want to borrow or expand due to weak demand. You can lead the horse to the water but you can't make it drink. And for those who do, banks are withholding access to credit for the same reasons: balance sheet problems...worries about bad loans. 

As I recently noted, if the US experience should serve as a paragon, China could be consumed by a recession in mid 2016. Yet domestic and international policy actions could play a wild card, they could either buy time or even accelerate the process.

Going back to central bank actions. Harvard economist and former chairman of the Council of Economic Advisers under ex-US president Ronald Reagan, Martin Feldstein, explains at the Project Syndicate why central bank easing to combat deflation signifies a 'bogeyman'. For now, this unsustainable arrangement has camouflaged a massive build up of systemic risks.

Why, then, are so many central bankers so worried about low inflation rates?

One possible explanation is that they are concerned about the loss of credibility implied by setting an inflation target of 2% and then failing to come close to it year after year. Another possibility is that the world's major central banks are actually more concerned about real growth and employment, and are using low inflation rates as an excuse to maintain exceptionally generous monetary conditions. And yet a third explanation is that central bankers want to keep interest rates low in order to reduce the budget cost of large government debts.

None of this might matter were it not for the fact that extremely low interest rates have fueled increased risk-taking by borrowers and yield-hungry lenders. The result has been a massive mispricing of financial assets. And that has created a growing risk of serious adverse effects on the real economy when monetary policy normalizes and asset prices correct.

Again, two different responses to divergent perceptions.

The Natural Limits of Profit Growth: Berkshire Hathaway Edition

A year back, I explained that profit growth are constrained by natural economic forces: in particular, the law of compounding, competition, changes in  the risk environment, changes in the production process (lengthening or shortening), boom bust cycles, and government interventions (e.g.taxation and deficit spending).

Warren Buffett's flagship Berkshire Hathaway should serve as a great example.

In terms of prices, while Berkshire Hathaway had, in the past, outclassed the S&P by a wide margin especially during its maiden years, that magic appears to be ebbing.

Since 1999, Berkshire returns appears to be growing at a rate similar to that of the S&P. In conventional perspective, this makes Mr. Buffett's company a seeming proxy for the S&P.

The crux is that natural economic barriers to profit growth has been eroding on the foundations of Berkshire’s profit growth rates as reflected by stock prices as shown by the chart above from Businessinsider

Now the growth aspect. Agora publishing’s Bill Bonner at the Daily Reckoning says that in realization of this phenomenon, Mr. Buffett seems to be moving his goal post to in order to embellish his social position : (bold mine, italics original)

This focus on quality over price is what turned Berkshire Hathaway into such a money machine for Buffett and his partner, Charlie Munger. For 36 years, the duo tossed their coins and got heads every year.

But in 2000, the tails began to appear. You may say that Buffett and Munger “changed their strategy.” Or they “made a mistake.” But if their success were based on skill, why would they suddenly forget how to make money?

“Berkshire’s investment portfolio performance has been extremely poor for at least the last 14 years,” writes colleague Porter Stansberry.

Between 1970 and 2000, the lowest 10-year annualized return on Berkshire’s investment portfolio was 20.5%.

Starting in 2000, however, the wheels come off. Between 2000 and 2010, the annualized return was 6.6%. And, after never recording an annual decrease in book value, Buffett lost money twice in the 10-year period (2001 and 2008).

note here of the effect of boom bust cycles on Berkshire's balance sheets…

Relative to the S&P 500, these numbers haven’t gotten better since 2010.

In 2011, Berkshire’s portfolio return was 4%. (The S&P 500 was up 2.1%.) In 2012, Berkshire’s portfolio return was 15.7%. (The S&P 500 was up 16%.) In 2013, Berkshire’s portfolio was up 13.6%. (The S&P 500 was up 32.4%.) In 2014, Berkshire’s portfolio was up 8.4%. (The S&P 500 was up 13.7%.)

Last week, Buffett moved the goalposts. Instead of reporting Berkshire’s results in terms of book value only, he showed how well the company did in terms of share price.

Why he did this is a matter of some controversy.

Did he do it, as he claimed, because book value no longer gives an accurate picture of the value of his “sprawling conglomerate”?

Or did he do it because the gods have turned against him; his book value increases have underperformed the S&P 500 for the last 14 years and it is becoming embarrassing?

Barron’s offers an opinion:

Buffett probably can be faulted for not being forthright in the letter about the disappointing performance of the Berkshire equity portfolio that he oversees.

Of the company’s big four holdings, American Express, IBM, Coca-Cola and Wells Fargo, only Wells Fargo has been a notable winner in recent years. […]

Buffett tends to manage the portfolio’s largest and longest-standing investments. Two managers who help run the rest, Todd Combs and Ted Weschler, have outperformed Buffett in the past few years.

If the law of economics has affected the world's greatest investor, why do you think others will be immune?  

In the Philippine context, those stratospheric valuations justified on supposedly perpetual headline G-R-O-W-T-H will be faced with reality soon.

What’s the Link between Hong Kong’s Slumping Retail Sales and Crashing Macau’s Casino Stocks?

A few weeks back I wrote,

Interestingly, Hong Kong’s tourism seems as suffering from a facelift. Chinese tourists have become dominated by ‘Day Trippers’ which now accounts for a record 60%of Chinese tourists. According to a report from Bloomberg, Day-trippers spent an average of around HK$2,700 ($350) per capita in Hong Kong in 2013, compared with about HK$8,800 by overnight tourists, according to government data.

Wow, that’s a 69% collapse in spending budget by tourists! And this has resulted to a slump in luxury brand sales but a surge in medicine and cosmetic sales! What the report suggests has been that China’s economic slowdown and the government’s anti-corruption drive (political persecution) have changed the character of Hong Kong based Chinese tourists.

Well if the trend continues, then this will radically shake up the Hong Kong economy!

It appears that the tourism ‘facelift’ has resulted to the cratering of retail sales down by 14.6% in January on a year and year basis!

This is how mainstream media explains the slump, from the South China Morning Post:

A slump of 14.6 per cent in retail sales ahead of the Lunar New Year is the worst since a 2003 outbreak of severe acute respiratory syndrome, putting businesses and concern groups at loggerheads over whether to curb the inflow of mainland visitors.

Sales in January fell to HK$46.6 billion from a year ago, the Census and Statistics Department said yesterday.

It is the first decline in any January since 2007, when sales dipped 1.6 per cent.

The Retail Management Association reacted strongly, saying the data reflected retail difficulties in the face of slowing growth in cross-border arrivals. The association would object to limiting visitor numbers, chairwoman Caroline Mak Sui-king said.

That stance will put the industry in conflict with political parties and anti-mainland protesters that advocate caps on a multiple-entry visa scheme granting permanent Shenzhen residents unlimited trips to Hong Kong.

As one would note this has been blamed on mainland tourist flows.

Chart from Investing.com 

I would like to point out that rate of growth of Hong Kong’s retail industry has been on a downtrend since its peak in the 1Q of 2013. It plunged to a negative in the 2Q 2014, bounced slightly during the 4Q and has retrenched again to its biggest loss since, as stated above, 2003.

What’s been interesting has been that changes in mainland visits to China has been volatile. As the chart above from Quartz pointed out, the Umbrella protests has even induced more arrivals from both mainland and ex-China tourists.

And if one looks at Hong Kong’s January 2015 tourist arrivals, it’s been growth from Asian visitors that has exhibited negative (-.4%). This has been led by Indonesia (-19%) Singapore (-5.3%) and Japan (-3.5%).  

Mainland tourists have been up by only 3.3% which is at the lower level of the 2014 growth trend. 

Thus what explains the slump in retail sales has been the change in the character of mainland tourists (or the Day Trippers with limited spending power) and partly, the slack of growth from Asian visitors.

As of 2013, based on Hong Kong Census and Statistic Department, wholesale and retail trade account for 5.3% of Hong Kong’s statistical GDP while accommodation and food services account for 3.6%. 

So a slump in retail sales will have some effect on the economy.

And what’s even more interesting has been that slumping Hong Kong Retail sales seems to coincide with activities in Macau’s casinos.

Macau’s gambling revenues HALVED last February. Monthly gross revenues fell 48.6% while accumulated gross revenues collapsed by 35.1% according to Gaming Inspection and Coordination Bureau Macao SAR

Nikkei Asia on the culprit: Beijing's crackdown on corruption and a move toward a full smoking ban are just two sources of concern. Late last month, it was reported that the Macau government was weighing restrictions on the entry of mainland tourists.

Note that negative numbers of Macau's casinos appeared in the 3Q 2014, almost a quarter after Hong Kong’s retail sales turned negative.

Yet another article from Bloomberg reinforces the changing character of Chinese tourists affecting Macau’s tourism and casino business which seem to resonate with Hong Kong's dynamics (bold mine)

The recent wave of mainland Chinese visitors also spend less than before, a further blow to the fine-dining eateries, luxury retail malls, and high-end hotels that casinos have set up next to their gambling halls. Excluding gambling, per-capita shopping expenses by Chinese tourists dipped 32.8 percent to 1,079 patacas in the fourth quarter of 2014, according to data from the Macau government.

Average occupancy at 3-star to 5-star hotels for the so-called Golden Week period of Chinese holiday, which ran from Feb. 18 to 24, fell 6.9 percentage points to 87.5 percent, while average room rates declined 15.4 percent, the Macau Government Tourist Office announced on Feb. 26.

While crackdown corruption may be a factor, this has been more of epiphenomenon (or secondary phenomenon) or a contributing force. 

The changing character of Chinese spending in Hong Kong and Macau has been reflecting more about economic conditions of China.

And note the hit in Macau’s revenues have been affecting malls and hotels.

Just to show an update of the 3 year charts of Macau’s major casinos

MGM China Holdings (HK:2282)

Galaxy Entertainment Group (HK:27)

Melco Crown Entertainment (HK: 6883)

Sands China Ltd. (HK: 1928)

Wynn Macau Ltd. (HK: 1128)

SJM Holdings Ltd. (HK:880) owner of Grand Lisboa

What goes up MUST come down!

Again it’s not just Macau, Singapore’s casinos have likewise been taking a beating.

Singapore’s Genting (G13.SI) operator of Resorts World Sentosa reported a 30% crash in net profits in 4Q according to Reuters. So the grueling bear market in her stocks.

Meanwhile Marina Bay Sands operated by Las Vegas reportedly doubled profits in 4Q 2014 due to non recurring tax benefits and from a statistical sigma event from higher-than-usual win percentage at its tables according to Channel News Asia

That doubling of profits have left the markets unconvinced as shown in the charts of Las Vegas Sands from stockchart.com

The trend flows of LVS mirrors the activities of the US Dow Jones Gambling index.

Incidentally, a unit of US casino operator Caesar Entertainment filed for bankruptcy for Chapter 11 last January. Such are just signs that casino troubles have not been limited to Macau, Singapore but also the US. 

Have the Chinese government been able to 'crackdown' on Chinese gamblers in the US?

So if Chinese tourist spending have been down, and if Chinese high rollers have been curtailed by their government's crackdown where will the casinos of the Philippines, Vietnam,South Korea and others get their clientele base, especially that they have been in a frantic race to build capacity?

Will the casino crash in Macau prompt for a shift by Chinese gamblers to Manila?

Yet if economic factors have been the main drivers of crashing casino stocks in Macau and Singapore and of Hong Kong retail activities, that declared shift looks like wishful thinking. And as noted above, there are other countries likewise competing for Chinese money. 

So essentially a shrinking market in the face of a massive buildup in capacity.

Remember, for the local industry, there have been about Php 57.22 billion of debt backing this race with the region. And a failure of expectations will not just mean losses and surplus supply, but importantly credit problems.

Yet many media reports look like company press releases that have been anchored on hopium.

Europe’s Negative Yields on Government Bonds Inflate to $1.9 Trillion!

Water now flows uphill.

From Bloomberg:

The European Central Bank’s imminent bond-buying plan has left $1.9 trillion of the euro region’s government securities with negative yields.

Germany sold five-year notes at an average yield of minus 0.08 percent on Wednesday, a euro-area record, meaning investors buying the securities will get less back than they paid when the debt matures in April 2020.

By the next day, German notes with a maturity out to seven years had sub-zero yields, while rates on seven other euro-area nations’ debt were also negative. While some bonds had such yields as far back as 2012, the phenomenon has gathered pace since the ECB’s decision to cut its deposit rate to below zero last year.

Even when investors extend maturities, and move away from the region’s core markets, returns are becoming increasingly meager. Ireland’s 10-year yield slid below 1 percent for the first time this week, Portugal’s dropped below 2 percent, while Spanish and Italian rates also tumbled to records….

Eighty-eight of the 346 securities in the Bloomberg Eurozone Sovereign Bond Index have negative yields, data compiled by Bloomberg show. Euro-area bonds make up about 80 percent of the $2.35 trillion of negative-yielding assets in the Bloomberg Global Developed Sovereign Bond Index, the data show.

Traditionally borrowers pay creditors and savers interests (positive yields). Negative yields means that this relationship has been overturned, borrowers are now paid by savers and creditors to borrow.

The reason for this; because of the promise to buy government securities, bond punters have been front-running the ECB to drive rates at subzero levels.

This chart is from February 2 when negative yields constituted $1.7 trillion. This means an 11.7% increase of bonds with negative yields since.

With ECB’s promise to monetize a significant number of debt which Zero Hedge estimates as possibly 100%, bond market liquidity will likely shrink and thus risking an upsurge of volatility.

One may have the impression that perhaps immaculate balance sheets may have prompted the public to pay government to borrow. But as shown above, except for Germany, the Bloomberg’s debt chart reveals that debt from European countries has materially been inflating even from a one year basis.

Negative yields implies that credit risks has almost been totally eliminated!

See water flows uphill now.

The ECB has provided colossal subsidies (or resource transfer) to the banking system, bond holders and the government.

Financial analyst David Stockman at his website the Contra Corner has an incisive treatise on this.

Here is an excerpt: (bold mine)

That investors anywhere in this age of fiscal profligacy would pay to own the notes and bonds of sovereign states is a testament to the financial deformations of modern central banking. But the fact that nearly $2 trillion of debt issued by European governments is currently trading at negative yields——now that’s a flat-out derangement.  After all, the aging, sclerotic economies of the EU have been making a bee line toward fiscal insolvency for most of the last decade.

So it goes without saying that this giant agglomeration of pay-to-own government debt is not reflective of an outbreak of fiscal rectitude or any other rational economic development. It’s purely an artificial trading result stemming from central bank destruction of every semblance of honest price discovery. In this case, the impending ECB purchase of $70 billion of government debt and other securities per month for the next two years has transformed the financial casinos of Europe and elsewhere into a front runner’s paradise.

As today’s Bloomberg piece tracking Europe’s $2 trillion of exuberant irrationality makes clear, sovereign bond prices are soaring because traders are accumulating, not selling, in anticipation of the ECB’s big fat bid hitting the market in the weeks ahead:

“It is something that many would not have pictured a year ago,” said Jan von Gerich, chief strategist at Nordea Bank AB in Helsinki. “It sounds very awkward in a sense, but if you look at it more, the central bank has a deposit rate in negative territory, and there’s a huge bond-buying program coming. People are holding on to these bonds and so you don’t have many willing sellers.”

Needless to say, this is the opposite of at-risk price discovery; it amounts to shooting fish in a barrel. Never before have speculators been gifted with such stupendous, easily harvested windfalls. And these adjectives are not excessive. The hedge fund buyers who came to the game early after Draghi’s “anything it takes”ukase have enjoyed massive price appreciation, but have needed to post only tiny slivers of their own capital, financing the balance at essentially zero cost in the repo and other wholesale funding venues.

Indeed, the more risk, the bigger the windfall. German yields have now been driven below the zero bound on all maturities through seven years, emboldening speculators to move out on the risk curve. So doing, they have gorged on peripheral nation debt and have been generously rewarded. In the case of the 10-year bond of Ireland—-a state which was on the edge of bankruptcy only a few years ago—-leveraged speculator gains are now deep into three figures.

Continue with the rest of the article here 

 

The obverse side of every money manipulation stoked financial asset mania is a crash.