Money Supply and Lending Growth Decline Sharply
Both the growth rate of China's narrow M1 money supply and the broader M2 measure have recently declined to levels not seen in many years. Here is a recent chart showing both:
Annualized growth in China's narrow money measure M1 (currency and sight deposits) has collapsed to just 1.5%, a level not seen in at least the past 15 years (and probably a good while longer). M2, which includes savings deposits, corporate time deposits, deposits in trusts and a few other smaller items grew at 13.2% year-on-year, but even that is one of the lowest growth rates of the past decade – click to enlarge.
We're not 100% sure if China's M1 is a good proxy for money TMS, as there is a paucity of readily available monetary data from the PBoC (its web site is basically useless, at least it was when we last looked) and we don't know whether savings deposits are available on demand in China or not, but it is a fairly good bet that it actually is at the very least a good proxy for TMS-1.
The 'Deflation Danger' Should Abate …
What is it with this perennial fear the chief money printers have of falling prices? Not that we are likely to see it happen, but if it does, what of it? Bloomberg reports on the recent ECB decision with the following headline: “Draghi Says Deflation Danger Should Abate as Economy Revives”
The headline alone is a hodge-podge of arrant nonsense. First of all, 'deflation' (this is to say, falling prices), is not a 'danger'. Speaking for ourselves and billions of earth's consumers: we love it when prices fall! It means our incomes go further and our savings will buy more as well. What's not to love?
The problem is of course that when prices decline, the 'wrong' sectors of society actually benefit, while those whose bread is buttered by the inflation tax would no longer benefit at the expense of everybody else. But they never say that, do they? Has Draghi ever explained why he believes deflation to be a danger? No, we are just supposed to know/accept that it is.
Secondly, the 'as economy revives' part makes no sense whatsoever. Why and how should a genuinely reviving economy produce inflation? Economic growth occurs when more goods and services are produced. Their prices should, ceteris paribus, fall (of course, we are not supposed to inquire too deeply into which ceteris likely won't remain paribus if Draghi gets his wish).
Unrest in Donetsk Continues
Pro-Russian demonstrators have been rioting in Donetsk, recapturing a government building and hoisting the Russian flag again, which had been replaced by a Ukrainian one for just a few hours. According to euronews:
“Hundreds of pro-Russian activists have recaptured a government administration building in the eastern Ukrainian city of Donetsk.
Many of the activists broke through police ranks and smashed their way into the building. Some flew the Russian flag from its roof on Wednesday, just hours after Kiev’s authorities managed to fly their own flag there for the first time since Saturday.”
Policemen clad in exactly the same outfits worn by the hated 'Berkut' riot police that was just disbanded in Kiev arrested a few pro-Russian protesters, which then led to scenes of (relatively mild) rioting:
Record Junk Bond Issuance
Dow down 35 on Wednesday. Gold up slightly. A dull day on Wall Street, with investors holding onto most of Tuesday's gains. Here's another record that was broken recently …
In the late 1970s, Michael Milken persuaded his boss at Drexel Burnham to let him start a high-yield bond trading department. (High-yield bonds are non-investment grade bonds that carry high default risk. Hence their nickname: "junk bonds.") Soon, Milken's trading department started earning a 100% return on investment.
The junk-bond market was tiny – with total issuance only rising to about $30 billion in the mid-1980s. Milken was right about junk bonds being hugely profitable. But that didn't stop the feds from putting him in jail in 1990 on six counts of securities and tax fraud. (Milken didn't just stop at legitimate means of making money in the high-risk world of junk bonds.)
Nevertheless, the junk-bond market continued to grow. At the end of the 1990s, issuance was hitting new records – at about $150 billion. Then junk-bond issuance collapsed with the tech bubble.
But unlike tech stocks, junk bonds were soon flying higher than ever. In the middle of the 2000-07 period, annual junk-bond issuance rose above the $150 billion mark. But in 2013, the junk really topped the charts – with about $330 billion of new bonds issued.
Ukrainian Government Issues Arrest Warrant for Aksyonov
The latest in a series of futile gestures surrounding the situation in the Crimea is a warrant for the arrest of the Crimea's new prime minister, issued by the central government in Kiev:
“A court in the Ukrainian capital of Kiev has issued arrest warrants for the prime minister and parliament speaker of the country's autonomous republic of Crimea, the Prosecutor General's office said Wednesday.
Criminal charges had been brought against them and some other politicians in Crimea, said Ukraine's acting Prosecutor General Oleh Makhnytsky.
Last Thursday, the regional parliament of Crimea appointed Aksyonov, leader of the Russian Unity party, as prime minister in a closed session and announced that a referendum would be held over the future status of the territory on March 30.
Aksyonov said Saturday that he had asked Russian President Vladimir Putin to help ensure peace in the pro-Russian region. Ukrainian Parliament Speaker Alexandr Turchynov, who is also the country's acting president, later signed a decree to reject Aksyonov's new capacity.
Our guess is that Aksyonov's resolve has just been strengthened immeasurably. If they really mean it, then he has henceforth nothing left to lose. Just as Kiev thinks his government is illegitimate, so he believes the Kiev government to be illegitimate. The irony is that both governments were proclaimed by the same methods: First, protesters took over government buildings and thereafter, the respective parliamentarians appointed a new government. Both were slightly dubious affairs from a legal standpoint.
Homeland InSecurities, A Case for Divestment, Part 2
The Homeland however, the last post warman standing, the leader island of the Pax Americana, defender of individual liberty and democracy, though clearly not a defender of transparency, had itself started the journey taken by those failed states. Its journey began with the creation of the Federal Reserve (1913) on the one hand, and on the other with the Federally mandated promise to provide a guaranteed quality of life for every citizen via a perpetual tax on the wages earned by each new member of the nation's work force: Social Security in 1933 (and the many thousands of programs since) to the unaffordable everything that is the national business of Homeland Inc. today. The planners of these programs did not account for mismanagement, inflexibility or the simple possibility there may one day not be enough funds to pay for claims against long ago promises made. They are annuities clearly gone bad, and as bad as any private sector Ponzi scheme.
The top 200 corporations (of thousands) who do business with the Homeland, as of this writing, receive over 560 billion dollars for the work they do for it. (Source: http://www.govexec.com/) This does not include the expense of the mass army of salaried spendingminders (with handsome and liberal social benefits unique to them) who inhabit every pocket of the nation as the overseers of Federal programs and those programs directly funded to the states, who then have their own cohorts of minder reporters (indeed legions) in descending order fromthe state capitol buildings to the neighborhood precinct captains, minding down and reporting back to the very top, while the funds flow and all take their delegated and or, in government speak, appropriated cut.
Happy Death of Chavez Day
Venezuela commemorated the late 'Commandante' Hugo Chavez on Wednesday – as is so often the case, the fact that the dear leader of the revolution is no longer among the quick probably helped with a good bit of nostalgic transmogrification.
One feels reminded of the many crying babushkas in the streets of Moscow when news of Stalin's departure from this earthly plane hit, even while his former colleagues in the party probably got ready for a week of vodka-drenched partying to celebrate the psychopathic tyrant's demise. No longer did they have to worry about who was going to be purged next.
Chavez was of course no Stalin (not by a long shot), we merely want to highlight that no matter how bad a ruler, once he goes to his eternal reward, many of those left behind begin to see him in a better light than he probably deserves. Chavez did of course shower some of Venezuela's oil riches on the poor, and they loved him for it. However, he incidentally ran the country's oil industry into the ground, so it was a decidedly mixed blessing, by dint of being completely unsustainable and leaving everybody poorer in the end.
Bill Bonner and Addison Wiggin: America's Glorious Empire of Debt
Let us take a moment to stand back and gaze at America's great Empire of Debt. It is the largest edifice of debt ever piled up. It sustains the most magnificent world economy ever assembled. It suppers more people in better style than any system ever before devised.
Not only is it incomparably effective, it is also immeasurably entertaining. For it has burnished helmets and flying banners; its intellectuals and its gladiators; its Caesars, Antonys, Neors and Caligulas. It has its temples, its forums, its Capitol, its senators; its praetorian guards; its Via Appia; its proconsuls; centurions and legions all over the world as well as its bread and its circuses in the homeland; and its costly wars in periphery areas.
The Roman Empire rested on a classical model of imperial finance. Beneath a complex and nuanced pyramid of relationships was a foundation of tribute formed with the hard rock of brute forces. America's Empire of Debt, on the other hand, stands not as a solid pyramid of trust, authority and power relationships but as a rickety slum of delusion, fraud and misapprehension.
"My tax guy has been bugging me … You know, real estate is where it is at.” In June 2005, NBC quoted a young someone who had bought a second home at a Colorado resort. According to the report, more than a third of the houses sold in the previous 12 months were not primary residences, but second homes or investments.
Down at the bottom of the pyramid were petty agents spreading deceit and misinformation – such as the aforementioned "tax guy.” You would think a young woman could trust her certified tax advisor to give her sound counsel. Instead, he urged her to speculate on the most bubbly property market in American history.
In California, house prices raced so far ahead of incomes that barely 1 in 10 buyers could afford the median house. Yet thanks to "creative finance,” more houses were being sold than ever before.
New Record in Margin Debt
Wow! Peace for our time, the media reported on Tuesday. The stock market celebrated with a 227 point jump in the Dow. Gold slouched away. We would have thought that every possible stock buyer had already placed his order. Where did the money come from to push the indexes even higher on Tuesday?
It was borrowed. That's another record that has been broken lately: margin debt. Never before has so much money been borrowed specifically to buy equities.
As a ratio of GDP, margin debt only saw these heights twice before in recent history: in 2000 and in 2007. In dollar terms, total margin debt stood at $451 billion at the end of January – 15% higher than it was at the peak of 2007 … and nearly 3% of GDP.
But be warned: Hearts and records break from time to time, but never without some pain. The crying begins immediately after a broken heart. After a record high S&P 500, on the other hand, it can take some time.
NYSE margin debt and the S&P Index in real terms (current dollars, deflated by CPI), via Doug Short – click to enlarge.
Read the rest of this entry »
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the center cannot hold;
Mere anarchy is loosed upon the world,
The blood dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
The Second Coming, 1st Stanza, 1919, William Butler Yeats
Keeping Up With the Debt
More analysis from Chris on the situation in the Crimean Peninsula below. This is a fast-moving situation with big implications for our favorite emerging market, Russia. (Hint: We still think it’s a bargain.)
What we know for sure is that the news out of the region gave the markets a serious case of the heebie-jeebies. The Dow ended Monday's session down 153 (back from a 250-point sell-off). Gold rose by $28 an ounce.
We also know that the Fed’s zero-interest-rate policy … and its $4.1 trillion balance sheet are a standing invitation for trouble. What form that trouble takes will be determined later. Meanwhile, Washington’s mountain of debt gets bigger and bigger – aiming for $20 trillion of official debt by 2020. As it gets bigger it weighs on the economy. Several studies have shown debt slows down economic growth.
Newly Appointed Chief of Ukrainian Navy and Other Military Leaders Defect to Crimea
The new government in Kiev quickly disbanded the former riot police Berkut, as well as firing all top Ukrainian military commanders in an attempt to install commanders held to be more likely to obey its orders. In an ironic twist, the new commander-in-chief of the Ukrainian navy, rear admiral Denis Berezovsky – appointed by interim president Turchynov only on Saturday in order to replace Yuri Ilyin – decided to defect to the autonomous Republic of Crimea a mere two days after his appointment. A good chunk of the Ukrainian navy seems to have defected with him. Precise figures are not available, but European TV stations reported on Tuesday morning that only two vessels in Crimean ports still declared their allegiance to Kiev.
“Admiral Berezovsky appeared in Sevastopol before cameras alongside Sergiy Aksyonov, the pro-Russian politician elected by Crimea's regional parliament as local prime minister.
Mr Aksyonov announced he had given orders to Ukrainian naval forces on the peninsula to disregard any orders from the "self-proclaimed" authorities in Kiev.
Sunday, he said, would go down in history as the birthday of the "navy of the autonomous republic of Crimea". The admiral then pledged to "strictly obey the orders of the supreme commander of the autonomous republic of Crimea" and "defend the lives and freedom" of Crimea's people.
Admiral Berezovsky was later sacked by interim Ukrainian Defence Minister Ihor Tenyukh and a treason case launched against him.”
Avoid Car Dealerships
Today, a warning about the US shale oil boom …
But first, a little practical advice. You want to buy the car you want at the price you want? Don’t go into a dealership. We met a man here in Aiken, South Carolina, who owns a nationwide car dealership. He explained:
“This is how it works. The dealer doesn’t really make much by selling cars. He makes it on the add-ons. The customer comes in. He knows what he wants. But he leaves with much more. The salesman shows him the upgrades. The shiny wheels, the on-board entertainment, four-wheel drive, service contract, and so forth.
You want to save money? Just figure out what you really want then get a couple dealers to bid on it. Don’t go into the dealership.”
There … that will save you some money, dear reader.
Russian Troops in the Crimea
“You just don't in the 21st century behave in 19th century fashion by invading another country on completely trumped up pre-text," Kerry told the CBS program "Face the Nation."
This new-found respect for the sovereignty of foreign nations represents a laudable 180 degree change in US foreign policy. You just don't do that in the 21st century! Like e.g. invading Iraq by making up tall stories about “weapons of mass destruction” hidden there. It's just not done. As an aside to this: in February, the civil war currently raging in Iraq has cost yet another 1,705 lives, with 2,045 wounded. The death toll is a considerable increase from January's 1,284 dead and 2,088 wounded. Perhaps you weren't aware there is a civil war raging in Iraq? If so, that is no surprise. The Western media have fallen almost completely silent on the topic. Yet, this is what the famous 'mission' has actually 'accomplished'.
As Jason Ditz reports regarding the recent escalation in the Crimea:
“While US politicians have also ratcheted up the rhetoric, US officials concede that Russia’s troops in Crimea are setting up defensive positions and are in a “self-defense posture only.”
Reports from Crimea’s government say they’ve got Russian troops helping them protect government buildings in anticipation of the referendum, and with a sense that will easily back secession and re-accession into the Russian federation, it seems that Russia doesn’t need to “invade” at all, but simply needs to keep the interim government at bay until Crimean voters affirm the switch.”