China on the other hand "surprised" (was coming as data continues to deteriorate) ...
Bank Of England Hikes QE By £50 Billion As Expected, As China Cuts Benchmark Rate In Surprising Move
Submitted by Tyler Durden on 07/05/2012 - 07:06
Bank of England BOE China CPI Credit Conditions Monetary Policy People's Bank Of China United Kingdom
While everyone was expecting the BOE to return back to QEasing with a £50 Billion increase in its asset purchase program(me), to a total of £375 billion, which is what just happened, the bigger news came 1 second before the BOE announcement, with China declaring it has cut benchmark interest rates as once again the fate of the whole world is in the hands of small groups of academics, promising each other bottles of Bollinger if they can only get the S&P500 over 1,400. In other words, once again small groups of people around the world sat down and conspired (perfectly legally) to manipulate global interest rates. No hearings are scheduled.
Bank Of England Hikes QE By £50 Billion As Expected, As China Cuts Benchmark Rate In Surprising Move
Submitted by Tyler Durden on 07/05/2012 - 07:06
Bank of England BOE China CPI Credit Conditions Monetary Policy People's Bank Of China United Kingdom
While everyone was expecting the BOE to return back to QEasing with a £50 Billion increase in its asset purchase program(me), to a total of £375 billion, which is what just happened, the bigger news came 1 second before the BOE announcement, with China declaring it has cut benchmark interest rates as once again the fate of the whole world is in the hands of small groups of academics, promising each other bottles of Bollinger if they can only get the S&P500 over 1,400. In other words, once again small groups of people around the world sat down and conspired (perfectly legally) to manipulate global interest rates. No hearings are scheduled.
My guess is the ramp we've had of late already was snuffing this out and we sell the news after US open ... Futures chopping around slightly green for now ... Jobs data tomorrow .... Maybe global cuts will work this time .... Didn't in 08
this whole thing is one bad joke just insanity the efforts taken to keep the ship from sinking (anybody following the liebor scandal)
this whole thing is one bad joke just insanity the efforts taken to keep the ship from sinking (anybody following the liebor scandal)
Oopsie
----------
PFG Is Now MFG(lobal) Part 2 As $220 Million In Segregated Client Money Has Just Vaporized
Submitted by Tyler Durden on 07/09/2012 - 19:17
Commodity Futures Trading Commission fixed MF Global None
UPDATE 2: Have no fear though since as recently as January 2012, the CFTC did not find any "material breaches of customer funds protection requirements" at FCMs (firms like PFGBest)
UPDATE 1: Account-holders may not be so surprised to find who is the custodian for the PFGBest FX accounts: none other than huge MFGlobal fans, JPMorgan!
Remember when the entire segregated account fiasco was supposedly fixed in the aftermath of the November 2011 MF Global bankruptcy, and where regulators: the CFTC, the SEC, the CME, and anyone you asked, swore up and down this would never happen again? Turns out that 7 months later, the spirit of MFG has struck again, only this time with one letter switched: it is now known as PFG, as we suggested first 3 hours ago when we broke the story.* From the just filed affidavit by Lauren Brinati who is working with the National Futures Association, which in turn has just filed notice prohibiting PFGBest from operating further, and freezing all of its accounts: "On July 9, 2012, NFA made inquiry with US Bank and learned that rather than the $225 million that PFG had reported as being on deposit at US Bank just days earlier, PFG had only approximately $5 million on deposit at U.S. Bank."* Translation: another $220 million segregated account pillage, in the vein of none other than Jon Corzine and MF Global.
The money has now officially vaporized.
------------
Amd warns in after hours citing Europe and china weakness ... Much more to come I'm sure as q2 earnings spill in (the important market moving part being q3 and beyond guidance)
----------
PFG Is Now MFG(lobal) Part 2 As $220 Million In Segregated Client Money Has Just Vaporized
Submitted by Tyler Durden on 07/09/2012 - 19:17
Commodity Futures Trading Commission fixed MF Global None
UPDATE 2: Have no fear though since as recently as January 2012, the CFTC did not find any "material breaches of customer funds protection requirements" at FCMs (firms like PFGBest)
UPDATE 1: Account-holders may not be so surprised to find who is the custodian for the PFGBest FX accounts: none other than huge MFGlobal fans, JPMorgan!
Remember when the entire segregated account fiasco was supposedly fixed in the aftermath of the November 2011 MF Global bankruptcy, and where regulators: the CFTC, the SEC, the CME, and anyone you asked, swore up and down this would never happen again? Turns out that 7 months later, the spirit of MFG has struck again, only this time with one letter switched: it is now known as PFG, as we suggested first 3 hours ago when we broke the story.* From the just filed affidavit by Lauren Brinati who is working with the National Futures Association, which in turn has just filed notice prohibiting PFGBest from operating further, and freezing all of its accounts: "On July 9, 2012, NFA made inquiry with US Bank and learned that rather than the $225 million that PFG had reported as being on deposit at US Bank just days earlier, PFG had only approximately $5 million on deposit at U.S. Bank."* Translation: another $220 million segregated account pillage, in the vein of none other than Jon Corzine and MF Global.
The money has now officially vaporized.
------------
Amd warns in after hours citing Europe and china weakness ... Much more to come I'm sure as q2 earnings spill in (the important market moving part being q3 and beyond guidance)
LEGAL/REGULATORY JULY 9, 2012, 8:38 PMComment
After MF Global, Another Brokerage Firm Collapses With $200 Million Missing
BY AZAM AHMED
After the failure of the futures brokerage firm MF Global left customers missing more than $1 billion, regulators promised to tighten rules, enhance oversight and crack down on wayward firms.
But months later, regulators are scrambling to deal with the collapse of another brokerage firm.
After discovering accounting irregularities, regulators on Monday essentially shut down PFGBest, a prominent player in the small world of futures trading.
Now, banks accounts with customer funds appear to be short more than $200 million, regulators said. On Monday morning, according to a statement to clients, the brokerage firm’s chairman and chief executive, Russell R. Wasendorf Sr., tried to commit suicide.
While regulators are still trying to piece together what happened, the National Futures Association said the bank statements from U.S. Bank and Trust, where the money was held, might have been fabricated. The discrepancies date back a couple of years. In February 2010, an account that purported to have some $218 million, in reality contained just $10 million.
The loss of customer capital — just months after the bankruptcy of MF Global — could have major implications for regulators. Authorities recently conducted reviews of brokerage firms in the wake of the MF Global scandal, and found nothing alarming.
“How on earth can a regulated entity can just make up the bank statements for three years?” asked James Koutoulas, the head of the Commodities Customer Coalition, a group of customers still fighting for the return of their missing money following the collapse of MF Global. “I don’t even know what to say – I’m so shocked that you can forge bank statement for years, and the regulator wouldn’t just check the account balance at the bank directly.”
The futures group did not immediately respond to requests for comment.
Mr. Koutoulas, a hedge fund manager, said his firm held less than $3 million with PFGBest. Regulators said Monday that no one would be allowed to withdraw their money from the firm for the time being.
“How do you trust the financial industry,” asked a bewildered Mr. Koutoulas.
The specifics of the firm’s downfall remain hazy. Regulators said that on June 29 the firm indicated that it had about $400 million in customer money. Of that, about $225 million was located at U.S. Bank.
On Monday, the association received information that Mr. Wasendorf “may have falsified bank records.” The regulator called U.S. Bank and discovered the firm only had about $5 million on deposit.
In the futures industry, customer money is not insured, meaning that if the cash is not recovered clients will have little recourse. Regulators have proposed a number of fixes, including setting up an insurance fund to guarantee the money.
“We continue to witness circumstances which make a futures insurance fund a needed option,” said Bart Chilton, a commissioner at the Commodity Futures Trading Commission. “Such a fund is critically important. Futures customers should be protected like banking and security customers are protected.”
PFGBest is one of a handful of futures firms, which essentially line up buyers and sellers of futures contracts for commodities. The firm was wholly owned by Mr. Wasendorf. While not the size of MF Global, which held more than $5 billion in customer cash before its collapse, PFGBest was a major player in the tight-knit world of Chicago brokers.
But the industry has been under fire in recent years. Commissions have flattened, as new entrants and online trading take a bite out of business. Even the interest typically earned for simply holding customer money has been close to zero, amid the low-rate environment in the United States.
It was that weak business outlook that prompted the head of MF Global to pursue risky strategies, in an effort to bolster profit and pay for the company’s transformation into an investment bank. But the bets that Jon S. Corzine made as leader of MF Global were too risky, the market lost confidence and the firm went under. As it collapsed, the firm misused customer money in an effort to stay afloat, leaving farmers, traders and others missing more than $1 billion.
On Monday, Mr. Wasendorf, the head of PFGBest, was discovered in his car outside his company’s Iowa headquarters, according to local press reports. He was flown to University of Iowa Hospitals and Clinics in critical condition.
In addition to his financial firm, Mr. Wasendorf founded several publications during his career, including SFO – Stocks, Futures and Options, the Official Advocate for Personal Investors, according to a biography on the firm’s Web site. He also serves on the FCM Advisory Committee of the National Futures Association.
PFGBest has previously faced scrutiny. In February of this year, PFGBest was fined $700,000 for failing to detect a Ponzi scheme perpetrated by a Minnesota man who used the firm as a broker.
Ben Protess contributed reporting
After MF Global, Another Brokerage Firm Collapses With $200 Million Missing
BY AZAM AHMED
After the failure of the futures brokerage firm MF Global left customers missing more than $1 billion, regulators promised to tighten rules, enhance oversight and crack down on wayward firms.
But months later, regulators are scrambling to deal with the collapse of another brokerage firm.
After discovering accounting irregularities, regulators on Monday essentially shut down PFGBest, a prominent player in the small world of futures trading.
Now, banks accounts with customer funds appear to be short more than $200 million, regulators said. On Monday morning, according to a statement to clients, the brokerage firm’s chairman and chief executive, Russell R. Wasendorf Sr., tried to commit suicide.
While regulators are still trying to piece together what happened, the National Futures Association said the bank statements from U.S. Bank and Trust, where the money was held, might have been fabricated. The discrepancies date back a couple of years. In February 2010, an account that purported to have some $218 million, in reality contained just $10 million.
The loss of customer capital — just months after the bankruptcy of MF Global — could have major implications for regulators. Authorities recently conducted reviews of brokerage firms in the wake of the MF Global scandal, and found nothing alarming.
“How on earth can a regulated entity can just make up the bank statements for three years?” asked James Koutoulas, the head of the Commodities Customer Coalition, a group of customers still fighting for the return of their missing money following the collapse of MF Global. “I don’t even know what to say – I’m so shocked that you can forge bank statement for years, and the regulator wouldn’t just check the account balance at the bank directly.”
The futures group did not immediately respond to requests for comment.
Mr. Koutoulas, a hedge fund manager, said his firm held less than $3 million with PFGBest. Regulators said Monday that no one would be allowed to withdraw their money from the firm for the time being.
“How do you trust the financial industry,” asked a bewildered Mr. Koutoulas.
The specifics of the firm’s downfall remain hazy. Regulators said that on June 29 the firm indicated that it had about $400 million in customer money. Of that, about $225 million was located at U.S. Bank.
On Monday, the association received information that Mr. Wasendorf “may have falsified bank records.” The regulator called U.S. Bank and discovered the firm only had about $5 million on deposit.
In the futures industry, customer money is not insured, meaning that if the cash is not recovered clients will have little recourse. Regulators have proposed a number of fixes, including setting up an insurance fund to guarantee the money.
“We continue to witness circumstances which make a futures insurance fund a needed option,” said Bart Chilton, a commissioner at the Commodity Futures Trading Commission. “Such a fund is critically important. Futures customers should be protected like banking and security customers are protected.”
PFGBest is one of a handful of futures firms, which essentially line up buyers and sellers of futures contracts for commodities. The firm was wholly owned by Mr. Wasendorf. While not the size of MF Global, which held more than $5 billion in customer cash before its collapse, PFGBest was a major player in the tight-knit world of Chicago brokers.
But the industry has been under fire in recent years. Commissions have flattened, as new entrants and online trading take a bite out of business. Even the interest typically earned for simply holding customer money has been close to zero, amid the low-rate environment in the United States.
It was that weak business outlook that prompted the head of MF Global to pursue risky strategies, in an effort to bolster profit and pay for the company’s transformation into an investment bank. But the bets that Jon S. Corzine made as leader of MF Global were too risky, the market lost confidence and the firm went under. As it collapsed, the firm misused customer money in an effort to stay afloat, leaving farmers, traders and others missing more than $1 billion.
On Monday, Mr. Wasendorf, the head of PFGBest, was discovered in his car outside his company’s Iowa headquarters, according to local press reports. He was flown to University of Iowa Hospitals and Clinics in critical condition.
In addition to his financial firm, Mr. Wasendorf founded several publications during his career, including SFO – Stocks, Futures and Options, the Official Advocate for Personal Investors, according to a biography on the firm’s Web site. He also serves on the FCM Advisory Committee of the National Futures Association.
PFGBest has previously faced scrutiny. In February of this year, PFGBest was fined $700,000 for failing to detect a Ponzi scheme perpetrated by a Minnesota man who used the firm as a broker.
Ben Protess contributed reporting
nother warning this time from a big engine maker
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Cummins Going
Submitted by Tyler Durden on 07/10/2012 - 13:31
In yet another negative pre-announcement, Cummins (common belwether among the talking-est heads) has just cut its revenue guidance dramatically. From expectations of a 10% jump in 2012 revenues, they have cut the full year to breakeven with 2011 now. S&P 500 futures dipped on this news and remain at the cliff's edge. CMI is down over 4% but thanks to a 25% boost in their dividend (makes perfect sense when cutting forecasts?) it's not more (yet - we expect more) - though this confirms some of the signals of increased leverage in credit land as cash piles get burned through just to support dividends or share prices.
----------
Cummins Going
Submitted by Tyler Durden on 07/10/2012 - 13:31
In yet another negative pre-announcement, Cummins (common belwether among the talking-est heads) has just cut its revenue guidance dramatically. From expectations of a 10% jump in 2012 revenues, they have cut the full year to breakeven with 2011 now. S&P 500 futures dipped on this news and remain at the cliff's edge. CMI is down over 4% but thanks to a 25% boost in their dividend (makes perfect sense when cutting forecasts?) it's not more (yet - we expect more) - though this confirms some of the signals of increased leverage in credit land as cash piles get burned through just to support dividends or share prices.
PFG's Chairman Was Forging Bank Documents For Years Even As The CFTC Gave An "All Clear"
Submitted by Tyler Durden on 07/10/2012 - 17:55
Bernard Madoff Capital Markets Commodity Futures Trading Commission fixed MF Global Post Office Reuters
If there is an event that should cost Gary Gensler his job as head regulator at the CFTC, it is this. According to a just released Reuters report, the head of MFG(lobal) part 2, PFG, whose story we broke yesterday, Russell Wasendorf Sr. "intercepted and forged bank documents for more than two years to cover up hundreds of millions of dollars in missing money, a person close to the situation." Once Wasendorf realized he was caught, and knew the implications of his actions would be exposed for the whole world to see, he tried to commit suicide, and failed. "Wasendorf, 64, is reported to be in a coma after a suicide attempt Monday morning, according to a complaint filed by the Commodity Futures Trading Commission on Tuesday that accuses Wasendorf and Peregrine of fraud." And while crime happens all the time, what is truly stunning is that as we reported previously, the CFTC gave the firm a clean bill of health in its January inspection of Peregrine Financial Group. That's 6 months ago. The CFTC, as a reminder, was it regulator. The entity whose sole charge is to make sure that firms at least have real, not rehypothecated, cash in their segregated client bank accounts. PFG never did for the past two years. And somehow the CFTC missed this. MF Global was a warning shot, and the CFTC missed it entirely. And not only that but 2 months later ir pronounced PFG clean. For this Gensler has to be fired immediately, and with prejudice.
COMMENTS: 150READS: 7,090
Submitted by Tyler Durden on 07/10/2012 - 17:55
Bernard Madoff Capital Markets Commodity Futures Trading Commission fixed MF Global Post Office Reuters
If there is an event that should cost Gary Gensler his job as head regulator at the CFTC, it is this. According to a just released Reuters report, the head of MFG(lobal) part 2, PFG, whose story we broke yesterday, Russell Wasendorf Sr. "intercepted and forged bank documents for more than two years to cover up hundreds of millions of dollars in missing money, a person close to the situation." Once Wasendorf realized he was caught, and knew the implications of his actions would be exposed for the whole world to see, he tried to commit suicide, and failed. "Wasendorf, 64, is reported to be in a coma after a suicide attempt Monday morning, according to a complaint filed by the Commodity Futures Trading Commission on Tuesday that accuses Wasendorf and Peregrine of fraud." And while crime happens all the time, what is truly stunning is that as we reported previously, the CFTC gave the firm a clean bill of health in its January inspection of Peregrine Financial Group. That's 6 months ago. The CFTC, as a reminder, was it regulator. The entity whose sole charge is to make sure that firms at least have real, not rehypothecated, cash in their segregated client bank accounts. PFG never did for the past two years. And somehow the CFTC missed this. MF Global was a warning shot, and the CFTC missed it entirely. And not only that but 2 months later ir pronounced PFG clean. For this Gensler has to be fired immediately, and with prejudice.
COMMENTS: 150READS: 7,090
Financial system today is a fooking joke
Just criminals running wild.... Legalized mafia type shit... as the average joe packs prisons full for many times bullshit like drugs and what not ...
More regulation!!!! That'll do the trick what we need are more GS alums keeping an eye on things and telling us everything is A-OK
Just criminals running wild.... Legalized mafia type shit... as the average joe packs prisons full for many times bullshit like drugs and what not ...
More regulation!!!! That'll do the trick what we need are more GS alums keeping an eye on things and telling us everything is A-OK
Because Once You Drop By Bankruptcy Court, You Don't Stop: San Bernardino On Chapter 9 Deck
Submitted by Tyler Durden on 07/10/2012 - 22:14
Bank of England BOE European Central Bank Greece Meredith Whitney
Meredith Whitney made her doomsday prediction. The nothing. Nothing. Then lots of glib muni expert pundits gloating because the Fed, the ECB, the BOJ, the BOE, the SNB, and of course, the central bank of Kenya, had managed to delay the inevitable by a year. Then some more nothing. Then suddenly Stockton, Mammoth Lakes, and now San Bernardino all file in the span of 2 weeks.
SAN BERNARDINO, CALIFORNIA, WEIGHING CHAPTER 9 BANKRUPTCY
SAN BERNARDINO COUNCIL TO DISCUSS ACTION, SPOKESWOMAN SAYS
SAN BERNARDINO SPOKESWOMAN GWENDOLYN WATERS SPOKE IN INTERVIEW
There is a reason marginal events are oh so very important: because as Greece showed, and now one after another broke California municipalities are dropping like flies, one the precedent is there, the easiest thing to do is to just hit Print on that Chapter X petition. After all everyone else is doing it, and remember: he who files first, files best.
Submitted by Tyler Durden on 07/10/2012 - 22:14
Bank of England BOE European Central Bank Greece Meredith Whitney
Meredith Whitney made her doomsday prediction. The nothing. Nothing. Then lots of glib muni expert pundits gloating because the Fed, the ECB, the BOJ, the BOE, the SNB, and of course, the central bank of Kenya, had managed to delay the inevitable by a year. Then some more nothing. Then suddenly Stockton, Mammoth Lakes, and now San Bernardino all file in the span of 2 weeks.
SAN BERNARDINO, CALIFORNIA, WEIGHING CHAPTER 9 BANKRUPTCY
SAN BERNARDINO COUNCIL TO DISCUSS ACTION, SPOKESWOMAN SAYS
SAN BERNARDINO SPOKESWOMAN GWENDOLYN WATERS SPOKE IN INTERVIEW
There is a reason marginal events are oh so very important: because as Greece showed, and now one after another broke California municipalities are dropping like flies, one the precedent is there, the easiest thing to do is to just hit Print on that Chapter X petition. After all everyone else is doing it, and remember: he who files first, files best.
Forget China's Goal-Seeked GDP Tonight; This Is The Chart That Keeps The PBOC Up At Night
Submitted by Tyler Durden on 07/12/2012 20:12 -0400
Bond China Copper Gross Domestic Product Lehman M1 None Reality Renminbi
As we wait anxiously for the not-too-hot and not-too-cold but just right GDP data from China this evening, we thought it instructive to get some sense of the reality in China. From both the property bubble perspective (as Stratfor's analysis of the record high prices paid just this week for Beijing property - by an SOE no less - and its massive 'microcosm' insight into the bubbliciousness of the PBOC's attempts to stave off the inevitable 'landing'); to the rather shocking insight that Diapason Commodities' Sean Corrigan offers that 'Hot Money Flows' have left China at a rates exceeding that during the worst of the Lehman crisis; take a range of key indicators – from electricity usage, to Shanghai container throughput, to nationwide rail freight ton-miles, to steel output – and you will notice that none of these shows a rate of growth during the second quarter of more than 4% from 2011, and some are as low as 1%. Whatever fictive GDP number we are presented with this week, the message is clear: “Brace! Brace! Brace!”
Via Sean Corrigan of Diapason Commodities,
Indeed, there are clear signs that some of these dangers are beginning to be realised. Taking the difference between the reported size of China’s forex reserves and the sum of trade and FDI inflows (and making some best-guess reckoning of the effects of reval changes and interest gains), one gets an estimate of hot money movements being diffused across the porous barrier of capital controls - most famously via the metals L/C rehypothecation scam. Between March’09 and February of this year, such ‘unexplained’ flows amounted to no less than $560 billion - roughly two-fifths of China’s total reserve accumulation and a third of its coincident increase in M1.
*
The last four months of increasing angst about the state of the ‘landing’ have seen a dramatic reversal of these flows, to the point that the discrepancy in the books suggests that China may have lost no less than $128 billion – a flight which exceeds that suffered during the worst of the Lehman crisis.
*
Taken at face value, this implies further, self-reinforcing pressure for the renminbi to weaken, for the Dim Sum bond bubble to deflate, and for commodity loans to be unwound, either suddenly - by means of re?exporting some of the swelling inventories of copper, et al – or gradually – by cutting back on new imports until the excess has worn off and the bills settled.
*
Either way, a chilling prospect, even if this does not trigger a new financial crisis among China’s complex and shadowy interweaving of ‘loan guarantee’ companies and off?balance sheet ‘wealth management products’.
*
China has now begun to react, of course, cutting the effective bellwether, one-year lending rate from 5.9% (6.55% official less the permitted discount of 10%) to 4.2% (6.0% less the widened 30% rebate) in the space of a month. As Wang Shuo, Managing Editor of the influential and highly-regarded Caixin Magazine blogged at once on his Weibo page: “This is an admission that the hard landing is already here.” In this, he only anticipated his sovereign overlord, President Hu, by a few hours, for this latter worthy soon thereafter started bleating that the economy faces - severe downwards pressure?.
*
You bet it does! Take a range of key indicators – from electricity usage, to Shanghai container throughput, to nationwide rail freight ton-miles, to steel output – and you will notice that none of these shows a rate of growth during the second quarter of more than 4% from 2011, and some are as low as 1%. Whatever fictive GDP number we are presented with this week, the message is clear: “Brace! Brace! Brace!”
*
The trick will now be to avoid re-inflating the property bubble – and information suggesting 125% of June’s overall loan total was comprised of household credit offers little reassurance on that score. It is also imperative that the regime acts to assuage the fears of a populace who were already, in the aftermath of the first rate reduction, responding to official survey questions in a high and increasing proportion that they feared an imminent ?surge? in consumer goods prices. Good luck with that, Comrades!
Submitted by Tyler Durden on 07/12/2012 20:12 -0400
Bond China Copper Gross Domestic Product Lehman M1 None Reality Renminbi
As we wait anxiously for the not-too-hot and not-too-cold but just right GDP data from China this evening, we thought it instructive to get some sense of the reality in China. From both the property bubble perspective (as Stratfor's analysis of the record high prices paid just this week for Beijing property - by an SOE no less - and its massive 'microcosm' insight into the bubbliciousness of the PBOC's attempts to stave off the inevitable 'landing'); to the rather shocking insight that Diapason Commodities' Sean Corrigan offers that 'Hot Money Flows' have left China at a rates exceeding that during the worst of the Lehman crisis; take a range of key indicators – from electricity usage, to Shanghai container throughput, to nationwide rail freight ton-miles, to steel output – and you will notice that none of these shows a rate of growth during the second quarter of more than 4% from 2011, and some are as low as 1%. Whatever fictive GDP number we are presented with this week, the message is clear: “Brace! Brace! Brace!”
Via Sean Corrigan of Diapason Commodities,
Indeed, there are clear signs that some of these dangers are beginning to be realised. Taking the difference between the reported size of China’s forex reserves and the sum of trade and FDI inflows (and making some best-guess reckoning of the effects of reval changes and interest gains), one gets an estimate of hot money movements being diffused across the porous barrier of capital controls - most famously via the metals L/C rehypothecation scam. Between March’09 and February of this year, such ‘unexplained’ flows amounted to no less than $560 billion - roughly two-fifths of China’s total reserve accumulation and a third of its coincident increase in M1.
*
The last four months of increasing angst about the state of the ‘landing’ have seen a dramatic reversal of these flows, to the point that the discrepancy in the books suggests that China may have lost no less than $128 billion – a flight which exceeds that suffered during the worst of the Lehman crisis.
*
Taken at face value, this implies further, self-reinforcing pressure for the renminbi to weaken, for the Dim Sum bond bubble to deflate, and for commodity loans to be unwound, either suddenly - by means of re?exporting some of the swelling inventories of copper, et al – or gradually – by cutting back on new imports until the excess has worn off and the bills settled.
*
Either way, a chilling prospect, even if this does not trigger a new financial crisis among China’s complex and shadowy interweaving of ‘loan guarantee’ companies and off?balance sheet ‘wealth management products’.
*
China has now begun to react, of course, cutting the effective bellwether, one-year lending rate from 5.9% (6.55% official less the permitted discount of 10%) to 4.2% (6.0% less the widened 30% rebate) in the space of a month. As Wang Shuo, Managing Editor of the influential and highly-regarded Caixin Magazine blogged at once on his Weibo page: “This is an admission that the hard landing is already here.” In this, he only anticipated his sovereign overlord, President Hu, by a few hours, for this latter worthy soon thereafter started bleating that the economy faces - severe downwards pressure?.
*
You bet it does! Take a range of key indicators – from electricity usage, to Shanghai container throughput, to nationwide rail freight ton-miles, to steel output – and you will notice that none of these shows a rate of growth during the second quarter of more than 4% from 2011, and some are as low as 1%. Whatever fictive GDP number we are presented with this week, the message is clear: “Brace! Brace! Brace!”
*
The trick will now be to avoid re-inflating the property bubble – and information suggesting 125% of June’s overall loan total was comprised of household credit offers little reassurance on that score. It is also imperative that the regime acts to assuage the fears of a populace who were already, in the aftermath of the first rate reduction, responding to official survey questions in a high and increasing proportion that they feared an imminent ?surge? in consumer goods prices. Good luck with that, Comrades!
