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Hey China, What Is That On Your Balance Sheet

Reuters Writes: Analysis: China eyes private funds to tackle bad-debt buildup, avoid bailout

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(Reuters) – Faced with a chorus of warnings that China risks choking on bad debts, Beijing is pushing banks to raise private capital in an effort to head off the need for a second government bailout in as many decades.

The hangover from a credit binge that powered China’s swift recovery from the global financial crisis, combined with the economy’s slowdown, has prompted expectations of a repeat of the early 2000s, when Beijing shored up its major banks with hundreds of billions of dollars.

Right now, however, authorities appear focused on pushing banks to bolster their balance sheets by aggressively enforcing new international bank capital requirements, known as Basel III.

Some analysts say warnings of an impending crisis are overdone.

Goldman’s analysts calculate that China’s total debt-to-GDP ratio has surged by 60 percentage points since the global financial crisis. It says such a rapid increase is often associated with financial crises, even if the absolute level of debt is not excessive.

“China must get to a point where it can get back on a healthy growth path that is not dependent on massive amounts of credit every year,” said Fitch’s Chu last month.

Read The Full Article Here

As I have written many times before. I believe China is in big trouble. The article above clearly illustrates the fact.

Basically, no one really knows what is on the balance sheet of Chinese Banks. Not the government, not bondholders, not investors and in many cases not even the banks themselves. However, the nonperforming loan numbers being thrown out by some analyst are downright scary.

Does Chinese Government sees/understands that and by pushing banks to raise private capital trying to “Scam” outside investors while minimizing impact on Chinese economy in case of a collapse?

I believe so. What they are trying to do is recapitalize the banks before Credit Time Bomb in Chinese financial system goes off.  Mind you, any collapse can happen very fast in China. Just as it happened for Lehman Brothers in the US in 2008. Once nonperforming loans truly blow up and liquidity dries up, most Chinese banks might fight themselves insolvent literally overnight (just as Lehman did). Be aware and beware of this.  

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University Education. Another Massive US Financial Bubble.

Bloomberg Writes: Google’s Boss and a Princeton Professor Agree: College Is a Dinosaur

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Colleges and universities are indecisive, slow-moving, and vulnerable to losing their best teachers to the Internet.

That’s the shared view of Google (GOOG) Executive Chairman Eric Schmidt and Anne-Marie Slaughter, a former Department of State official and until this month a tenured professor at Princeton University. They explored the problems of higher education on Friday in a one-on-one conversation sponsored by the New America Foundation, where Schmidt serves as chairman and Slaughter is the new president.

Colleges have the luxury of thorough, democratic deliberation of issues because “they never actually do anything,” Schmidt said during the event. He cited Princeton, where he graduated in 1976 and once served as trustee, which spent six years deliberating over whether to change its academic calendar—and in the end did nothing. “Don’t get me started on that,” Slaughter laughed.

Slaughter agreed that traditional colleges and universities, with their high fixed costs, are at risk. “They’re going to lose their top talent,” she said. “We can become global teachers. The best people can become free agents.”

Read The Rest Of The Article Here

It is unbelievable how much College Education costs today. The cost of education has gone up by  7-8% per year over the last decade. Some colleges increased their tuition 50-100%  during the same time. Basically the costs of educations has skyrocketed.   

Is there a reason for that? Not particularly. Schools are just getting way too greedy. On top of it all there is $1.2 Trillion of student debt out there. That is a truly staggering amount .  The worst part about this whole “college scam” is the fact that we are ending up with a generation of college graduates who are so deep in debt that it will literally take them decades to get back on their feet.  That in return puts a significant drag on the US Economy as major purchases such as cars and homes would have to be postponed.   

I will have a complete breakdown of this enormous problem in my future posts, but for now I do hope new technologies discussed in the article above blow this “College Monopoly” sky high.  It is a must for our future economic growth. We must find a way to provide affordable education to the masses. That would be a win-win for everyone.   

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US Congress and Senate Is Full Of Vomit

Yahoo News Write: U.S. lawmakers unite in fury over Putin’s op-ed in New York Times

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It’s not every day that an opinion piece in The New York Times simultaneously insults the Republican speaker of the House and nearly causes the top Democrat on the Senate Foreign Relations Committee to  “vomit.”

But that’s exactly what happened when Russian President Vladimir Putin penned an article calling for the U.S. government, which is considering launching a military strike on Syria for alleged war crimes, to use restraint in the Middle East. In his piece, Putin also took issue with part of President Barack Obama’s national address on Syria on Tuesday night, which made the case for military action and praised “American exceptionalism.”

“It is extremely dangerous to encourage people to see themselves as exceptional, whatever the motivation,” Putin wrote.

“I was at dinner,” New Jersey Democratic Sen. Bob Menendez said on CNN after he read the piece. “And I almost wanted to vomit.”

Other lawmakers were equally blunt.

“I was insulted,” House Speaker John Boehner told reporters on Thursday morning. “I’ve probably already said more than I should have said, but you’ve got the truth.”

Arizona Republican Sen. John McCain called Putin’s piece an “insult to the intelligence of every American.”

Read The Rest Of The Article Here

 

Yesterday, President of Russia, Vladimir Putin sent an open letter to the American people published by The New York Times.  You Can Read The Letter Here. As a matter of fact, I challenge you to read the letter before you continue. 

Let’s put away any sticking points or special interest between Russia and the US for a second. Yes, you can argue it is a divergence and Russia is playing their own game, but stick with me for a second.

Shockingly enough, Putins message is fairly simple. It is the message of peace and desire for reflection on what is really going on in Syria.  He is essentially asking American people to pause and really think about the situation and its ramifications on the whole region and the international community before getting into another mindless war.

What’s American response? “I was insulted”, “I wanted to vomit”, it is an “Insult to the intelligence of every American”. We want WAR and we want it NOW. We don’t even care if by doing so we are partner up with Al Qaeda.

What the hell is going on here? I am an American and I am not insulted. I think Mr. Putin brought up some very good points. I think the American Government has lost touch with reality and went completely off the rails.

I think it is our Senators and our Congressman that make most Americans want to vomit. The proposed strike on Syria has a 7% approval rating, yet these idiots are still pushing for war. While this is quite entertaining, I am watching this unfold in disbelief.   

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Germany Should Leave The European Union. Like Now!!!

BusinessWeek Writes:  German Euro Skeptics Could Give Merkel An Election Shock  

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German parliamentary elections are coming up on Sept. 22, and Chancellor Angela Merkel has a problem on her hands. A euro-skeptical political party known as AfD is rising in the polls and could deny her Christian Democratic Union and its coalition partners the majority they need to continue governing.

AfD, or Alternative for Germany, currently holds no seats in the Bundestag, and until recently it barely registered in public-opinion polls. But a survey released on Sept. 4 by the Forsa polling group showed it with 4 per cent support—just shy of the 5 per cent needed to win Bundestag representation. Peter Matuschek, Forsa’s chief political analyst, says the poll may have underestimated the party’s strength. Many supporters, he told Spiegel, “are too embarrassed to admit that they are planning to vote for the AfD,” which wants Greece, Spain, and other crisis-hit countries to leave the euro zone, and possibly break up the existing monetary union itself.

Read The Rest Of The Article Here

An important election in Germany is coming up on September 22nd.

So important in fact, that the future of European Union is at stake. While most believe that Chancellor Merkel will maintain control, there is an increasing number of observers (including myself) that believe CDU will lose control.

Why is this so important? It could spell the end of the European Union as we know it. German people are fed up with supporting Greece, Spain, Italy and the rest of the freeloaders.  European Union is a  mess on multiple levels. While it is a great idea on paper, culturally speaking there is just too many differences on both the economic and cultural level.

Germany is an economic powerhouse and it should act like it.  I believe German people feel the same way and will act accordingly in 12 days.  If Merkel losses control, I have a hunch that it will set Germany on the course to eventually leave the European Union and go back to the Deutsche Mark.  This would lead to a huge surge in German Economy and that is all that German people should care about.

As soon as that happens, European Union will collapse under its own weight. While most people believe that it would be a bad, I respectfully disagree. I think it would be a boon to all European countries for various reasons. All we can do now is wait and see.  

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12 Years Ago

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We all know what happened on that fateful day and atrocities committed against innocent people. However, I choose to remember it for something good.

I remember being in Pacific Beach, San Diego on September 11th, around 9 pm. There were American flags everywhere and a ton of people outside. Everyone was either sitting quietly on the street curb in deep thought or talking. There were candles everywhere. Cars driving by with American flags sticking from the windows, honking like crazy.

I have never seen anything like that. The entire nation came together. There were no longer political parties, rich or poor, black or white. At that instant everyone was simply an American.  A beautiful site to behold indeed.

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Today I will a grab a beer in memory of all of those innocent people who lost their lives. Irregardless of your views on the subject matter, I suggest you do the same.    

 

 

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China Is An Economic Disaster Waiting For Implosion

CNBC Writes: Why China property is immune to tapering

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China’s property market is unlikely to take a hit from tighter liquidity when the Federal Reserve finally pursues the much-anticipated tapering of its bond buying program, said Wang Jianlin, chairman of Dalian Wanda, a commercial property-to-karaoke-outlet conglomerate, as well as China’s richest man according to Forbes (Bombay Stock Exchange: 502865-BY) magazine.

“The tight liquidity will push up interest rates. But I don’t think interest rates will go up by too much,” Wang told CNBC in an exclusive interview, adding China’s economy also doesn’t move in lock-step with global markets.

“Because the profit margin for China’s real estate industry is above the global average, a 1 percent to 2 percent rise in interest [rates] will have very limited impact on the profit margins of bigger property players,” added Wang.

China property developers’ gross margins were around 34 percent in the first half of the year, UOB (Singapore Exchange: UOBH-SG) Kay Hian said in a recent report on the developers it covers. It noted the second half is usually stronger.

Wang also expects Beijing to re-focus its sector cooling measures, with property firms to soon be allowed to refinance after a nine-year hiatus on the segment’s IPOs, in a move set to spur further development.

The Shanghai Securities Journal reported last week that detailed regulations on refinancing approval would be released in a couple of weeks at the soonest.

“China’s economy now needs the property industry,” Wang said. “Given the decline in export and investment, China’s economy has turned from high growth to moderate growth with further downside risks.”

Deutsche Bank (XETRA:DBK-DE) also expects Beijing’s drive toward urbanization to offer a long-term fillip to the property sector. The “new form” of urbanization will include developing big city-clusters, rather than just a few big cities, with more urban retail properties in Tier two, three and four cities, it said in a recent report.

“We expect domestic consumption to pick up given higher urbanization and higher productivity,” the investment bank said.

Wang is also bullish on China’s consumption outlook in the longer term. “This will be key for the country’s future economic development,” he said. Wang’s Wanda Dalian conglomerate operates 57 department stores. “By 2015, China is set to become the largest consumer market in the world at over CNY30 trillion ($4.9 trillion).” 

Immune? Sure, just as I am immune from dying.

If you have been to China over the last couple of years you have seen it firsthand.  There is so much real estate development that it is a site to behold. There are literally entire cities coming up all at once in the middle of nowhere.  I was impressed and I am not that easily impressed.

The problem is, most of these developments are driven by speculation and capital misallocation. The majority of these developments are empty, bought by Chinese speculators using multi generational savings and loans.

What surprised me the most is that not a single Chinese person I talked to (and I was mostly talking to very intelligent business/government folk) even remotely worried about this issue. Every single one of them said something to the tune of….”Real estate will always go up in China, if market begins to decline our Government will backstop it to prevent losses. There is no risk, it’s an easy way for us to make money.”

I didn’t want to argue with them to prove my point, but such a statement by itself is a clear indication of a speculative bubble.  Any reliance on the Chinese Government to prevent or stop a collapse from happening is just an illusion at best. Those who study financial markets know that there is no way to prevent or to stop a collapse when it happens. I don’t care what kind of a government it is. Not even GOD can do.

China is a fiscal time bomb that will eventually go off.  I believe that time is coming up very soon. When that happens Chinese property bubble will implode, millions of Chinese families will lose their multi generational savings and that in itself will lead to political instability and a possible revolution.  Simple as that.     

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Americas Hidden Depression

Bloomberg Writes: Recession? Depression? One in Three Thinks So

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A third of Americans think the U.S. economy is in a recession or a depression and only one in six think it’s growing, says a new survey that also finds “deep-seated pessimism about the medium term.”

Americans are highly critical of policymakers, unwilling to take risks with their savings, planning to reduce their indebtedness over the next year, suspicious of the stock market, and more worried about inflation than unemployment, according to the survey released today.

The National Bureau of Economic Research has declared that the U.S. pulled out of recession more than four years ago—in June 2009—but a lot of people apparently didn’t get the memo.

The survey found that 85 percent of the 1,000-plus adults worry to some degree about their financial situation, compared with 90 percent three years ago. People who say they’re worse off than they were a year ago outnumber those who say they’re better off, 28 percent to 22 percent.

Read The Rest Of The Article Here

This is fairly easy to explain.  The survey above shows the true state of the US Economy. Even though the numbers shows that the US Economy has recovered significantly from the March of 2009 bottom, nothing could be further from the truth.

The recovery was fueled and financed by Credit Bubble Finance. Meaning that the US Government basically wasted about a Trillion Dollars (some claim a lot more) to prevent a complete collapse in the US Economic System.  However, the original “SIN” of massive credit expansion, cheap finance and speculation hasn’t been fixed yet. On the contrary, it has been made a lot worse.

Now the US Economy has massive imbalances that cannot be dismissed or fixed in any favorable fashion. It could only be done either through massive inflation or massive defaults. Even war is no longer a tool. 

I am sorry to say, but my timing work clearly shows that both of those things are about to happen. First, deflationary credit defaults from now till 2016 final bear market bottom (and 2018 secondary bottom), followed by accelerated inflation thereafter.

Unfortunately, in such a scenario no one wins, but it does pay to be prepared.  

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China Is A Mess

Reuters Writes: China locks foreign investors out of another bad-debt cleanup

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HONG KONG (Reuters) – Chinese banks have a colossal mess of bad debts to clean up for the second time in as many decades, but they are unlikely to call in the financial world’s most efficient mop and broom.

Foreign investors that specialise in buying up distressed debt are queuing outside the industry’s door, but bankers say China’s reluctance to pay the price of a privately funded clean-up means that door probably won’t open — to the cost of Chinese tax-payers and, ultimately perhaps, the wider economy.

Some economists believe the current mess will need a bigger clean-up than was required after the late-1990s Asian financial crisis. From 1999 to 2007, about $323 billion in bad loans were swept out of the banks, according to a PriceWaterhouseCoopers (PwC) review of media reports over the period, in what amounted to a taxpayer-funded bailout.

“Sometimes the door is open for foreigners to come up and make money, and sometimes it’s closed,” said one veteran debt specialist who has bought and sold Chinese debt for global investment banks. He declined to be named due to the sensitivity of discussing China’s sovereign debt.

“Our belief right now is that the door is closed.”

Read The Rest Of The Article Here:

It doesn’t look like it yet, but China is in a huge mess.  From outside it looks like an economic marvel growing at 7% per year, yet it is in huge trouble.  While a good chunk of Chinese economic growth over the last decade has been export and manufacturing related (which is great), some economist estimate that as much as 50-75% of that growth came from government debt and domestic property misallocation (aka building empty cities and roads to nowhere).

That is the primary reason Chinese banks don’t want foreign investors to look at their balance sheet or their assets. They know that as soon as someone looks at their debt they will be horrified of what they see.  At that point the news will get out and the state controlled economy that is China will not be able to control the outcome. The game will be up.  

As they say, ignorance is bliss. The Chinese economy will keep moving forward through the minefield until one of those mines goes off. I believe the time is at hand or will be shortly. At that point the jig will be up and Chinese economy will go through a severe correction.  

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Philippine Bureau of Internal Revenue(BIR) Is Now Training Their Agents To “Shoot-To-Kill” For Tax Evasion

BusinessWeek Writes: The Philippines’ Tax Sheriff Gets Tough

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When Kim Henares took over the Bureau of Internal Revenue in the Philippines three years ago, she began looking for tax dodgers by poring over the society pages of newspapers and magazines. She says that as a result, she sent federal prosecutors complaints against two television actresses, a doctor, and a Lamborghini-driving pawnshop owner. “If you’re ready to flaunt it, then you must have paid taxes on it,” Henares says.

Her take-no-prisoners approach is part of President Benigno Aquino III’s crusade to erase a Philippine legacy of graft. Not paying taxes is one of the nation’s most common forms of corruption; the government estimates that $10 billion, or 4 percent of gross domestic product, goes unpaid every year. Henares says it’s her job to claw back as much of that as she can, and “if people don’t like me, that’s fine.”

Her agency alleged in 2011 that former President Gloria Arroyo’s son Juan Miguel had evaded taxes. His mother, a friend of Henares’s in-laws, had played a prominent role at her 2001 wedding. The case is continuing. Ruy Rondain, Juan Miguel Arroyo’s lawyer, says his client believes the charges are politically motivated. “There’s no case, so they made one up,” Rondain says. Last year, Henares’s agency asked prosecutors to file charges against former world boxing champion Manny Pacquiao, who’s now a federal legislator, for allegedly failing to submit documents proving that he paid the correct amount of taxes in 2010. A city prosecutor declined the agency’s request to file charges. Pacquaio told the Associated Press the complaint against him was “plain and simple harassment.”

Henares doesn’t discount the official statistics as a sign of progress. But for proof that her crackdown is haunting the country’s moneyed elite, she points to a more informal source. Henares says her mother hears from acquaintances that it now can cost 60 percent more than in the past to bribe an official for help dodging taxes.

Read The Rest Of The Article Here

Of course the headline above is a joke.  I just wanted to bring as much attention as I could to the article for those living and/or working in the Philippines.

Overall it’s a great step forward for the country and it is always nice to see international recognition. As much as I hate paying taxes, it is one of the most important steps in fighting corruption and setting up a fair taxation environment that Philippines so desperately needs.

A fair taxation and representation system is a must key step for any future economic growth.  Without any such structure only a small percentage of the overall economy/people will benefit. I wish Kim Henares all the luck she needs.

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A Must Read

A Must Read For Everyone, 

David Stockman writes through The Daily Beast: The End of U.S. Imperium—Finally!

After having rained napalm, white phosphorous, bunker busters, drone missiles, and the most violent machinery of conventional warfare ever assembled upon millions of innocent Vietnamese, Cambodians, Serbs, Somalis, Iraqis, Afghans, Pakistanis, Yemeni, Libyans, and countless more, Washington now presupposes to be in the moral-sanctions business? That’s downright farcical.

Read The Rest Of The Article Here. Highly Recommended.

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