Countries & Regions Archives - Page 127 of 380

August 16, 2015

CBA, ANZ, NAB and Westpac: The incredible shrinking big four banks | afr.com

Great article by Chris Joye:

Welcome to the world of that beautiful $140 billion behemoth, the Commonwealth Bank, which has inverted the axiom that there is a trade-off between risk and return. Years ago I highlighted a perversion embedded at the heart of our financial system: the supposedly lowest (highest) risk banks were producing the highest (lowest) returns. Normally it works the other way around.

…..contrary to some optimistic reports, the capital-raising game has only just begun.

The terrific news for shareholders is that this belated deleveraging will transform the majors into some of the safest banks in the world, which will be able to comfortably withstand a 1991-style recession, exacerbated by a 20 per cent decline in house prices.

In the past I have been critical of APRA’s failure to properly police Australia’s vastly-undercapitalized banking system but must now give them credit for their leadership towards creating a world-class system that will be able to withstand serious endogenous or exogenous economic shocks.

Shareholders face lower returns from reduced leverage but will benefit from improved valuations due to lower risk premiums and stronger, more stable, long-term growth.

August 12, 2015

Desperate times, desperate acts

A sharp fall in global trade is the most likely reason for China’s decision to devalue the Yuan — not aspirations for CNY to be considered a reserve currency.

There are clear signs that global trade is contracting. Shipbrokers Harper Petersen’s Harpex weekly index of charter rates for container vessels fell 9 percent in July and August is following a similar path. Reduced demand for container shipping reflects a sharp fall-off in international trade in manufactured goods.

Harpex Index

Tyler Durden from zerohedge.com highlighted China’s falling exports last week (August 8):

Goldman breaks down the geographic slowdown:

Exports to the US contracted 1.3% yoy, down from the +12.0% yoy in June.

Exports to Japan fell 13.0% yoy in July, vs -6.0%yoy in June

Exports to the Euro area went down 12.3% yoy, vs -3.4% yoy in June.

Exports to ASEAN grew 1.4% yoy, vs +8.4% yoy in June

Exports to Hong Kong declined 14.9% yoy, vs -0.5% yoy in June.

Slower sequential export growth likely contributed to the slowdown in industrial production growth in July. Weaker export growth is likely putting more downward pressure on the currency, though whether the government will allow some modest depreciation to happen remains to be seen.

Durden presciently concludes:

As global trade continues to disintegrate, and as a desperate China finally joins the global currency war, it will have no choice but to devalue next.

Michael Leibowitz at 720Global.com also warns of the destabilizing effect carry trades may have on any adjustment:

The “one-off” adjustment has now become two…. this devaluation is likely not a one-time event but rather the beginning of an ongoing and persistent depreciation of the CNY versus the USD. The embedded USD short position within the [estimated $2Tn to $3Tn] carry trades will begin to result in losses and margin calls as the USD appreciates versus the CNY, thus forcing investors to liquidate some of their positions. These trades, which took years to amass, could unwind abruptly and exert an influence of historic magnitude on markets and economies.

August 11, 2015

Let the Global Race to the Bottom Begin | Foreign Policy

Patrick Chovanec writes:

On Aug. 11, the People’s Bank of China announced a decision to devalue China’s currency — the renminbi, or RMB — by 1.9 percent, by resetting the daily band within which it’s traded…..

The Chinese will try to argue they are just letting the market have its way. This is misleading: For years, the Chinese prevented the RMB from rising in value by buying nearly $4 trillion in foreign currency. The current market “equilibrium” is predicated on that massive distortion. The only way to get to a truly market-based RMB is to first unwind China’s past intervention by supporting the RMB and drawing down China’s foreign currency reserves. We shouldn’t want the RMB to float until that happens…..

August 11, 2015

Window on Eurasia: Kyiv Must Work to Isolate Moscow Rather than Negotiate with It

From Paul Goble:

Staunton, August 11 – Up to now, Ukraine has made “a serious error” by trying to negotiate with Russia about the Donbas, Bogdan Yeremenko [former Ukrainian diplomat] says. What it should be doing is devoting all its efforts to isolating Russia internationally. That will have far more impact on Moscow’s behavior than any talks Ukraine might have with it……

Up to now, Russia has acted more effectively than Ukraine by “imposing its will and taking the initiative both on the battlefield and at the negotiating table.” Ukraine in contrast “has held fast to a disastrous strategy responding with diplomacy to armed aggression and reducing the opportunities of its own Armed Forces.”

“…..Diplomatic efforts ought to be concentrated not on talks with Russia but on the creation for it of an uncomfortable foreign policy environment and the resolution of practical issues of securing the defense capacity of the country.”

July 28, 2015

China: Deja vu all over again

The Shanghai Composite today found support at 3500 today after plunging more than 8% on Monday. The large divergence on 13-week Twiggs Money Flow continues to warn of selling pressure.

Shanghai Composite Index

* Target calculation: 4000 – ( 5000 – 4000 ) = 3000

Japan’s Lost Decade

From Wikipedia:

The Japanese asset price bubble….. was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation regarding asset and stock prices had been closely associated with excessive monetary easing policy at the time.

By August 1990, the Nikkei stock index had plummeted to half its peak by the time of the fifth monetary tightening by the Bank of Japan (BOJ)…..the economy’s decline continued for more than a decade. This decline resulted in a huge accumulation of non-performing assets loans (NPL), causing difficulties for many financial institutions. The bursting of the Japanese asset price bubble contributed to what many call the Lost Decade.

“…uncontrolled money supply and credit expansion….overheated stock market and real estate bubble.” Sound familiar? It should. We are witnessing a re-run but this time in China. Wait, there’s more…..

…..At the end of August 1987, the BOJ signaled the possibility of tightening the monetary policy, but decided to delay the decision in view of economic uncertainty related to Black Monday (October 19, 1987) in the US.

…..BOJ reluctance to tighten the monetary policy was in spite of the fact that the economy went into expansion in the second half of 1987. The Japanese economy had just recovered from the “endaka recession” ….. closely linked to the Plaza Accord of September 1985, which led to the strong appreciation of the Japanese yen.

…..in order to overcome the “endaka” recession and stimulate the local economy, an aggressive fiscal policy was adopted, mainly through expansion of public investment. Simultaneously, the BOJ declared that curbing the yen’s appreciation was a “national priority”……

Global stock market crash leads to prolonged monetary easing…… aggressive expansion of public investment to stimulate the domestic economy…..central bank efforts to curb appreciation of the currency. We all know how this ends. We’ve seen the movie before.

It’s like deja-vu, all over again. ~ Yogi Berra

July 25, 2015

Does a Dead Kazakh KGB Chief Own Sherlock’s House? – The Daily Beast

From Michael Weiss:

…..“These wealthy oligarchs all come to London because it’s a really good place to put your money,” Simon Farrell QC, a British attorney who specializes in corporate crime and money laundering, told The Daily Beast. “It’s a fantastic place to hold property because it’s a secure democracy where the rule of law is taken seriously, where the judiciary is not corrupt and where you can trust the legal profession. In many parts of the world the super-rich can’t be sure that their assets will be safe.”

Indeed, London has now earned the unflattering designation of the world’s No. 1 money-laundering capital, with an estimated $1 billion pouring in each month…..A stunning £122 billion in real estate in England and Wales is held be companies registered outside England and Wales, according to Global Witness….

July 24, 2015

Chinese Manufacturing Activity Falls in July – The New York Times

From Reuters:

BEIJING — China’s factory sector contracted by the most in 15 months in July as shrinking orders depressed output, a preliminary private survey showed on Friday, a worse-than-expected result that should reinforce bets the struggling Chinese economy will get more stimulus.

The flash Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) dropped to 48.2, the lowest reading since April last year and a fifth straight month below 50, the level which separates contraction from expansion.

July 22, 2015

Japan Escalates Its Standoff With China in the South China Sea | VICE News

By Jennifer Peters
July 22, 2015 | 8:45 am

Japan has put its foot down — at least in writing — over China’s attempts to assert greater control of the South China Sea.

….Japan isn’t the only one pushing back against China’s expansion in the region. The Philippines is taking China to court over territorial claims to the South China Sea, with top Filipino officials appearing at The Hague to argue their case before a United Nations arbitral tribunal. China has called it a “political provocation.”

“The Chinese take kind of a Leninist approach to these things,” [Kelley Currie, a senior fellow with the Project 2049 Institute] said. “They probe with the bayonet until they hit steel, and then they’ll stop. When they start to see that people are serious about pushing back, then they will back off a bit.”

July 22, 2015

Cold wind blows for crude oil producers

Long-term June 2017 Nymex Light Crude futures (CLM2017) broke support at $60/barrel, offering a target of $54/barrel*.

Nymex WTI Light Crude June 2017 Futures

* Target calculation: 60 – ( 66 – 60 ) = 54

In the short-term, September 2015 futures (CLU15) are testing support at their March low of $50/barrel. Breach is likely, given the long-term down-trend, and would offer a target of $40/barrel*.

Nymex Light Crude September 2015 Futures CLU15

* Target calculation: 50 – ( 60 – 50 ) = 40

Declining prices will hurt the Energy sector in the short/medium-term, but the benefit to the broader economy will outweigh this in the longer term. Lower fuel prices will especially benefit the Transport sector. Highly industrialized exporters like Germany, Japan, China and the broader EU, will also benefit. While oil exporters like Russia, Iran, the Middle East, Nigeria, Angola, Venezuela, and to a lesser extent Norway, face hard times ahead.

July 22, 2015

War is politics by other means…Putin’s goals are political

From Brian Whitmore at RFERL:

….War is politics by other means and the Kremlin’s goals in Donbas are ultimately political.

Vladimir Putin may have once dreamed of seizing all of what his propagandists call Novorossia — the strip of land from Kharkiv to Odesa — and establishing a land bridge to Crimea.

But that’s off the table now and he is clearly not interested in annexing the war-ravaged and economically devastated enclaves his separatists currently hold.

“The Kremlin, for its part, is losing interest in the armed conflict it helped create: It wants to move on from military interference in Ukraine to quieter political destabilization,” political commentator Leonid Bershidsky wrote in Bloomberg View.

….If you want to see Ukraine’s future under this scenario, just look at Bosnia.