China’s “Ghost Collateral” Arrives In Canada, “Heralding A Crisis”

Two weeks ago, a key China-linked concern that made headlines back in 2013 and 2014 reemerged after an extensive analysis by Reuters reporter Engen Tham found that China’s “ghost collateral” problem, or collateral that was either rehypothecated between two or more loans, or simply did not exist, had not only not gone away but was still as prevalent as ever if not worse.
The report, a continuation of extensive reporting conducted on this site, said that 60% of all loans issued in China’s system are backed by property, and that China’s property values are ‘wildly misleading, which is part of the reason that China’s credit rating was recently downgraded.” Reuters reported that Chinese lenders are prone to fraud with loan officers turning a blind eye to the quality of collateral and knowingly accepting dubious and even fraudulent documents.
Now, in a follow up by the Vancouver Sun’s Sam Cooper, the real estate reporter explains that China’s “ghost collateral” problem has jumped across the Pacific and is threatening the Canadian banking system.
As Cooper notes, “as a result of the flood of money pouring from Mainland China into Vancouver real estate in recent years, some financial experts say they believe Canadian banks are directly exposed to shadow lending in China and the risks of so-called ‘ghost collateral’, collateral that may not exist or is used continuously to secure loans for multiple borrowers.”
And the stunner: “Postmedia confirmed that Canadian banks are allowed by the federal regulator, the Office of the Superintendent of Financial Institutions, to accept collateral from China to secure real estate mortgages in B. C.”

This post was published at Zero Hedge on Jun 18, 2017.

Today the Federal Reserve Is the Bank of the United States, and There Is No President Andrew Jackson

Today the Federal Reserve Is the Bank of the United States, and There Is No President Andrew Jackson
‘Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin!
You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out!’ – Andrew Jackson, shortly before ending the charter of the Second Bank of the United States.
(From the original minutes of the Philadelphia committee of citizens sent to meet with President Jackson (February 1834), according to Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels)

This post was published at Paul Craig Roberts on June 18, 2017.

German Politicians Hammer the ECB, But Only to Get Votes

They know: the Eurozone would plunge into a sovereign debt crisis all over again, only worse this time.
By Don Quijones, Spain & Mexico, editor at WOLF STREET. These days it’s easy to tell when general elections are approaching in Germany: members of the ruling government begin bewailing, in perfect unison, the ECB’s ultra-loose monetary policy. Leading the charge this time was Finance Minister Wolfgang Schaeuble, who on Tuesday urged the ECB to change its policy ‘in a timely manner’, warning that very low interest rates had caused problems in ‘some parts of the world.’
Werner Bahlsen, the head of the economic council of Merkel’s CDU conservatives, was next to take the baton. ‘The ongoing purchase of government bonds has already cost the European project a great deal of credibility and has damaged it,’ he said. ‘The ECB can only regain trust with the return to a sound monetary policy.’
As Schaeuble and Balhsen well know, that is not likely to occur any time soon. Indeed, like all other Eurozone finance ministers, Schaeuble is benefiting handsomely from the record-low borrowing costs made possible by the ECB’s negative interest rate policy. But by attacking ECB policy he and his peers can make it seem that they take voters’ concerns about low interest rates seriously, while knowing perfectly well that the things they say have very little effect on what the ECB actually does.

This post was published at Wolf Street on Jun 18, 2017.

Chapter 17: Consumption and Budgeting

Christian Economics: Teacher’s Edition
For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish’ (Luke 14:28 – 30).
AnalysisHere is the economic principle: count the cost. It applies to every area of life, not just economics. Why? Because we possess limited resources. This is most clearly the case in economic affairs. Here, accounting techniques are basic to our lives as producers and also as consumers. Most people have more things they would like to buy than money to buy them. Here is a familiar statement: ‘Human wants are infinite, but resources are finite.’ This is incorrect. We are creatures. Creatures are not infinite. Wants are therefore finite, but their prices exceed the money that most people have to satisfy them.
The Bible teaches that a good way to deal with scarcity is to limit our wants. In a famous passage, Paul wrote:
But godliness with contentment is great gain. For we brought nothing into the world, and we can take nothing out of it. But if we have food and clothing, we will be content with that. Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs (I Timothy 6:6 – 10).
This is the threat of mammon, which offers this promise: more. The confession of faith of the disciple of mammon is this: ‘more for me in history.’ This goal is not limitless wealth, for we are not infinite. Rather, the goal is indefinite wealth. It has no known limits. It therefore undermines contentment. It produces dissatisfaction.
A budget is a confession of faith: there are limits. It acknowledges that means are limited, so therefore goals are limited. Means must match ends in every area of life, especially budgetary means. It is legitimate to have large goals, but the Bible teaches that these goals must be theocentric. ‘The kingdom of heaven is like a grain of mustard seed that a man took and sowed in his field. It is the smallest of all seeds, but when it has grown it is larger than all the garden plants and becomes a tree, so that the birds of the air come and make nests in its branches’ (Matthew 13:31b – 32). To seek sufficient capital to attain these large goals is legitimate. But covenant keepers must not substitute means for ends. They must not seek increased wealth for its own sake or for their sake. To do so is necessarily to declare the means as autonomous. Nothing is autonomous. God is the cosmic Owner.

This post was published at Gary North on Gary North – June 17, 2017.

When Will The Fed Tighten Enough To Cause The Next Recession?

In addition to the wildly popular topic of the market’s record low volatility, coupled with speculation what could break the current spell of “endemic complacency” and what its impact would be on asset prices (yesterday we posted a fascinating take by DB’s Aleksandar Kocic on the issue of the markets current “metastability”), another question that has fascinated the economic community is when will the next recession hit.
As we discussed last weekend, according to one of the more popular contextual indicators, commercial bank C&I loan creation, the US economy is poised for a contraction as soon as months, if not weeks from now, as C&I loan growth has tumbled from 7% at the start of the year to just 1.6%, the lowest since 2011, and at the current rate is poised to go negative in the very near future.
Loan creation, however, is just one of several “pre-recessionary” early indicators. Another one comes straight from the market, and specifically the Treasury yield curve which traditionally has always flattened sharply, and in some cases turned negative, going into a US recession.

This post was published at Zero Hedge on Jun 18, 2017.

Global Equity Markets Firmer As Oil Stabilizes, Greece Gets Bailout Money

(Kitco News) – World stock markets were mostly higher overnight. Crude oil prices are firmer today, which helped out the equities. Also, Greece’s creditors approved another release of bailout money for the indebted country, which assuaged European investors. U. S. stock indexes are pointed toward slightly higher openings when the New York day session begins.
Gold prices are modestly up in pre-U. S. market trading, on a technical and short-covering bounce from solid selling pressure seen earlier this week.
In overnight news, Russia’s central bank cut its key interest rate by 25 basis points. The Russian ruble rallied on the news.
The Bank of Japan held its regular monetary policy meeting Friday and made no major changes in its policy.
The Euro zone’s consumer price index for May was reported down 0.1% from April and up 1.4% from a year ago. The numbers were right in line with market expectations but down from the European Central Bank’s target rate of around 2.0% annual inflation.

This post was published at Wall Street Examiner on June 16, 2017.

The Worst Financial Nightmare In Illinois History Erupts As State Comptroller Declares ‘We Are In Massive Crisis Mode’

Margaret Thatcher once said that the big problem with socialist governments is that ‘they always run out of other people’s money’, and unfortunately we are witnessing this play out in a major way in the state of Illinois right now. At this point, the Illinois state government has more than 15 billion dollars of unpaid bills. Yes, you read that correctly. They are already 15 billion dollars behind on their bills, and they are on pace to take in 6 billion dollars less than they are scheduled to spend in 2017. It is the worst financial crisis in the history of Illinois, and State Comptroller Susana Mendoza sounds like she is about ready to tear her hair out in frustration…
‘I don’t know what part of ‘We are in massive crisis mode’ the General Assembly and the governor don’t understand. This is not a false alarm,’ said Mendoza, a Chicago Democrat. ‘The magic tricks run out after a while, and that’s where we’re at.’
It’s a new low, even for a state that’s seen its financial situation grow increasingly desperate amid a standoff between the Democrat-led Legislature and Republican Gov. Bruce Rauner. Illinois already has $15 billion in overdue bills and the lowest credit rating of any state, and some ratings agencies have warned they will downgrade the rating to ‘junk’ if there’s no budget before the next fiscal year begins July 1.

This post was published at The Economic Collapse Blog on June 18th, 2017.

Hedge Funds Have Never Been This Bullish About Small-Cap Stocks

The last two weeks have seen the biggest increase in hedge fund bullish Russell 2000 positions since July 2008 pushing the net speculative long position for leveraged funds to a record high.
The reflexive combination of hedge fund shorts being squeezed and FOMC Drift pushed Small Caps higher early in the week, but notably since the cut-off data for CFTC reporting, Small Caps have dropped…

This post was published at Zero Hedge on Jun 18, 2017.

Risk… Is How Much You Lose When You’re Wrong

For the last couple of months, we have discussed the risk of the narrowing of leadership as money piled into an ever reducing number of primarily large-cap technology stocks. To wit:
‘This really is a more bizarre clustering of markets and sectors that I have witnessed in quite some time. However, for now, the rotation between sectors remains tight and it is the #FANMAG stocks that continue to elevate markets because of their sheer size. ($FB, $AAPL, $NFLX, $MSFT, $AMZN, $GOOG)
The question that continues to linger over the markets is just how stable is the advance? The answer to that question is unclear, but it is quite likely the spat of earnings growth seen over the last couple of quarters will soon end as year-over-year comparisons get decidedly tougher.’
Last Friday, a news headline questioning valuation levels triggered algorithmic trading programs to reverse and dump those stocks in mass.

This post was published at Zero Hedge on Jun 18, 2017.

The Public’s Revocation of Legitimacy

There is a famous phrase in American politics: “the consent of the governed.” It is an important phrase. It is the essence of political legitimacy.
Throughout most of history, the consent of the governed has been grudging. People put up with the political system they live in. They think it is not worth their time to fool around with politics. The overwhelming number of people throughout history have ignored politics except its special election times. This has been a wise attitude. Salvation is not by politics.
The only society in history that has enjoyed nearly full-time interest in politics by the masses was classical Athens. It was a society that rested economically on slavery. Athens committed suicide through its empire and war. Alexander “the Great” had no trouble defeating Athens and Sparta. He was not a democrat. He had studied democracy under Aristotle, and he had contempt for it.
Classical Athens believed in salvation by politics. That religion did not last a century.
What most people want most of the time is to be left alone by civil government. They do not want to be bothered by the technical details of civil government. This always benefits political insiders and the small fraction of the population that is actively involved in politics.
We forget what should be obvious: grudging consent is nevertheless consent. People grouse about the government, but they rarely get involved in politics except to vote in major elections.
People groused about the government in the Soviet Union. The government even had a humor magazine that allowed a certain amount of criticism of local bureaucrats. It was titled Krokodil. People went into slave labor camps for open criticism of the Communist Party, but the Party allowed a certain latitude of criticism of the bureaucracy. Bureaucracies are always a problem for politicians. They can successfully resist political change. Politicians never trust bureaucrats, any more than the general public does. This is one of those rare examples of the shared wisdom of the general public and politicians.

This post was published at Gary North on June 16, 2017.

Global Liquidity Reaching a Tipping Point

ICYMI! Global #liquidity is close to its tipping point!
— jeroen blokland (@jsblokland) June 16, 2017

This week the Fed announced that they are going to begin reducing their $4.2 trillion balance sheet starting this year. Here’s what Louis-Vincent Gave at Gavekal Research said about this yesterday (see Louis-Vincent Gave on Tech, Fed Balance Sheet, and More):
‘In our system today, there are four central banks that matter a lot and have a disproportionate impact on global markets: the Fed, the Bank of Japan, the ECB, and People’s Bank of China. Starting from really six months ago, we’ve gone from zero central banks tightening to now two, because (in addition to the Fed) the Chinese central bank is also tightening.’
Here’s an updated chart from Moody’s illustrating where central banks across the globe are currently, showing, as Louis says, US and China tightening while Japan and the ECB maintaining a loose policy stance (h/t @SoberLook):

This post was published at FinancialSense on 06/16/2017.

Situation “Under Control” After Armed Gunmen Storm Luxury Resort Outside Mali Capital, Hostages Freed

BREAKING: UN mission official: Terror attack underway at resort area in Mali's capital; casualties, hostages reported.
— The Associated Press (@AP) June 18, 2017

Update: AFP reports that about 20 hostages seized in Bamako resort attack are freed, according to security minister
A luxury resort popular with Western expats outside Mali’s capital Bamako has been stormed by armed gunmen on Sunday, a spokesman at the Security Ministry said according to Reuters.
The attack took place at the Le Campement resort in Dougourakoro, to the east of the capital Bamako, and is said to still be going on. The rural resort offers luxury accommodation, a spa and three swimming pools, as well as running excursions and sports for guests.

This post was published at Zero Hedge on Jun 18, 2017.

Stocks and Precious Metals Charts – Blues en Mineur 1940

“Man has places in his heart which do not yet exist, and into them enters suffering, in order that they may have life.”
Lon Bloy
There was a stock option expiration for June on this Friday past as noted on the option calendar below.
There will be a Comex option expiration for the precious metals on June 27th which is the Tuesday after next.
The economic news still indicates an economy that is faltering on the edge of a sustainable recovery. The biggest problem is still the lack of real income (wage) growth among the breadth of the participants in the real economy.
I am afraid that the deck is still stacked pretty much against the 99% because of financial, regulatory, and political distortions in favor of the wealthiest few at the expense of the many.

This post was published at Jesses Crossroads Cafe on 18 JUNE 2017.

Macron Wins French Parliamentary Majority Amid Record Low Turnout: Live Feed

Live feed:
Despite pollsters’ projections of pro-Macron candidates receiving up to 450 seats (in France’s 577-seat lower house), a record low turnout has left Macron with just 360 seats (but still a massive majority) and Le Pen’s National Front with just 6 seats.
French polling agencies are projecting that President Emmanuel Macron’s new centrist party will have a large majority in the powerful lower house of parliament and a clear mandate to overhaul the way France works and does business. As AP reports, the projections from Sunday’s second-round legislative elections suggest that Macron’s Republic on the Move! party handily beat the traditional left and right parties that have led the National Assembly for decades. The pollsters project that Macron’s candidates and their allies won as many as 360 seats in the 577-seat chamber. That was less than some had expected after its crushing victory in last week’s first-round vote.
With roughly 130 seats, the Republican party is looking at a better result than initially expected: they become the biggest opposition party albeit significantly weaker according to France24.
Pollster Kantar Sofres estimates outcome of second and final round of parliamentary election based on sampling of early votes.

This post was published at Zero Hedge on Jun 18, 2017.

NY Fed Nowcast Downgrades Q2 GDP Growth To 1.86%, Bad Housing Start Data Latest Culprit (Slip Slidin’ Away)

The New York Federal Reserve’s NOWCAST model for GDP growth just downgraded Q2 GDP growth to 1.86%.
The latest culprit? The rotten housing starts data from this morning.
And we were so hopeful about 3%+ GDP growth in February. Alas, Congress is not going along with Trump’s economic agenda.

This post was published at Wall Street Examiner on June 16, 2017.

Cab Drivers Union Says Chicago Taxi Industry Near Collapse

In addition to repaying loans on their medallions, taxi operators also have to pay thousands of dollars each year in city expenses, like the ground transportation tax and medallion license renewal fee – expenses that rideshare drivers are not subject to. (Cab Drivers United/ Twitter)
Ghana-born John Aikins has been a cab driver in Chicago for two decades. About 15 years ago, he decided to go into business for himself by taking out a loan with his wife to purchase a medallion – a city-issued license to operate a taxi – for $70,000. Paying it off within a few years thanks to a steady stream of passengers, they took out loan for a second medallion five years ago, using the first as collateral. Watching his medallions appreciate in value over the years, Aikins planned to eventually sell or lease them to other drivers, a common practice in the industry. ‘I hoped it would be my retirement investment, and I had planned to retire this year,’ Aikins told In These Times.
But with the introduction of Uber and other rideshare companies to the city – which can operate without the expensive, city-issued medallions – Aikins has seen his clientele plummet over the past three years, making it increasingly hard to keep up with his medallion loan payments.

This post was published at Zero Hedge on Jun 18, 2017.

We’re in a Boiling-Point Crisis of Exploitive Elites

The “fixes” to the stagnation of postwar Capitalism in the 1970s were financialization, globalism, and the sustained expansion of debt–all have run out of steam. Many of us have written about cycles in the past decade: Kondratieff economic cycles, business/credit cycles, the Strauss – Howe generational theory (an existential national crisis arises every four generations, as described in their book The Fourth Turning), and long-wave cycles of growth and decline, as described in seminal books such as The Great Wave: Price Revolutions and the Rhythm of History and War and Peace and War: The Rise and Fall of Empires. There is another Rhythm of American History that few recognize: the economic, social and political crises sparked by exploitive Elites. There are two dynamics that drive these crises: 1. The exploitation of commoners by financial/political Elites reaches extremes that create systemic instability as commoners no longer have the means to improve their conditions.

This post was published at Charles Hugh Smith on SUNDAY, JUNE 18, 2017.