Hedge Funds Are Losing Faith in Precious Metals

Gold is out of favor with money managers and it’s not the only precious metal facing investor exodus.
Hedge funds and other large speculators are hitting the exit as they brace for monetary tightening in the U.S. and Western Europe. Money managers are not waiting around for signs that the Federal Reserve may change its rate trajectory, as they turn bearish on precious metals. These charts show the trend in sentiment.
In the week ended July 11, the net-long position in gold fell to the lowest in 17 months, before the metal posted its first weekly gain in six weeks. The changes came just before government data showed consumer prices were little changed, fueling speculation the Fed may take longer to meet its goal, especially after Chair Janet Yellen said earlier in the week she sees uncertainty over inflation.
Silver is also losing its luster in the eyes of hedge funds. The position in gold’s cheaper cousin swung to a net-short from a net-long and is the most bearish since August 2015. Investors concerned by the prospect of higher interest rates exited in droves — just as the metal capped its biggest weekly advance in six months on dovish U.S. economic data.
Money managers pushed their net-short position in platinum — used to curb vehicle emissions — to a record before data showed European car sales slowed in June as Brexit-related concerns weighed on a peaking vehicle market.

This post was published at bloomberg

In Urban China, Cash Is Rapidly Becoming Obsolete

There is an audacious economic phenomenon happening in China.
It has nothing to do with debt, infrastructure spending or the other major economic topics de jour. It has to do with cash – specifically, how China is systematically and rapidly doing away with paper money and coins.
Almost everyone in major Chinese cities is using a smartphone to pay for just about everything. At restaurants, a waiter will ask if you want to use WeChat or Alipay – the two smartphone payment options – before bringing up cash as a third, remote possibility.
Just as startling is how quickly the transition has happened. Only three years ago there would be no question at all, because everyone was still using cash.
‘From a tech standpoint, this is probably one of the single most important innovations that has happened first in China, and at the moment it’s only in China,’ said Richard Lim, managing director of venture capital firm GSR Ventures.

This post was published at NY Times

Shocking rise in China’s shadow banking enrages Xi Jinping

China’s central bank has revealed shocking figures on the scale of shadow banking operations in the country, admitting that off-balance sheet business is more than double previous estimates.
Bank assets are approaching $38 trillion (29 trillion). The explosive growth of hidden activities on the margins of the financial system has alarmed the People’s Bank (PBOC), and suggests that the two-year credit spree since the downturn in early 2015 is treacherously unstable.
The Chinese version of the PBOC’s Financial Stability Report – not yet available in English – shows that the shadow banking nexus is bigger than all other regular activities of the lenders put together.
Regulators had thought it was equivalent to 42pc of on-balance sheet business at the end of 2015. They have revised this drastically, admitting that it reached 110pc by the end of last year.

This post was published at The Telegraph

China’s Economy Charges On as Officials Target the Risk ‘Gray Rhino’

China’s economy grew faster than expected in the second quarter, putting the nation on track to meet its growth target this year and giving backing to officials in their campaign to corral oncoming financial risk.
Data showing that the world’s second-largest economy expanded 6.9 percent in the second quarter, matching the pace from the first three months, was released hours after the Communist Party’s People’s Daily newspaper warned of potential “gray rhinos” — highly probable, high-impact threats that people should see coming, but often don’t.
In China’s case it’s the relentless buildup of risks caused by the debt-fueled investment that’s contributing to growth, a development tackled by a major meeting of top leaders in Beijing at the weekend. Until now, regulators have homed in on financial-sector excesses; that probe is now widening to debt in the broader economy, a shift that prompted a sell-off in domestic stocks.
China is grappling with how to ensure annual growth of at least 6.5 percent this year while reining in financial sector risks ahead of a twice-a-decade leadership transition this fall at the 19th Communist Party Congress. A regulatory crackdown pushed up money market rates and helped damp down speculative lending while at the weekend President Xi Jinping warned regulators that failing to spot and dispose of risks in a timely manner would amount to a “dereliction of duty.”
“The gray rhinos are containable,” said Liu Ligang, chief China economist for Citigroup Inc. in Hong Kong. But the economy is “still relying quite a lot on investment and credit and overall financial leverage is still building up. There’s no doubt that China’s debt overhang is still a serious challenge.”

This post was published at bloomberg

Spain’s Piraeus Bank Races to Reach ECB Target for Reducing Bad Loans

The new chief executive officer of Piraeus Bank SA is trying to make up for lost time.
CEO Christos Megalou must offload 4 billion ($4.6 billion) in bad loans by the end of the year under a restructuring plan worked out with the European Central Bank’s supervisory arm months before he took over at the largest Greek lender.
“There is a decision of this management to accelerate the implementation of the restructuring plan in order to pay back state aid as soon as possible,” Megalou said in an interview at the bank’s headquarters in Athens. Piraeus has received 2.72 billion in government funding since November 2015, and Greece’s rescue fund owns more than a quarter of the lender.
Megalou got a late start on the overhaul, joining the bank from Eurobank Ergasias SA only in March after a leadership struggle that makes him the third CEO in less than two years. Two predecessors stepped down in a dispute with Paulson & Co. Inc., one of the lender’s main shareholders.
Piraeus shares have climbed 45 percent since Megalou took over, giving the bank a market value of about 2.3 billion.

This post was published at bloomberg

New U.S. Subprime Boom, Same Old Sins: Auto Defaults Are Soaring

It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud. Only this isn’t the U.S. housing market circa 2007. It’s the U.S. auto industry circa 2017.
A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide.
Subprime car loans have been around for ages, and no one is suggesting they’ll unleash the next crisis. But since the Great Recession, business has exploded. In 2009, $2.5 billion of new subprime auto bonds were sold. In 2016, $26 billion were, topping average pre-crisis levels, according to Wells Fargo & Co.
Few things capture this phenomenon like the partnership between Fiat Chrysler Automobiles NV and Banco Santander SA. Since 2013, as U.S. car sales soared, the two have built one of the industry’s most powerful subprime machines.
Details of that relationship, pieced together from court documents, regulatory filings and interviews with industry insiders, lay bare some of the excesses of today’s subprime auto boom. Wall Street has rewarded lax lending standards that let people get loans without anyone verifying incomes or job histories. For instance, Santander recently vetted incomes on fewer than one out of every 10 loans packaged into $1 billion of bonds, according to Moody’s Investors Service. The largest portion were for Chrysler vehicles.

This post was published at bloomberg

Chevy Forced To Extend Shutdown Of Bolt Plant After Realizing That Literally No One Wants A Bolt

General Motors launched it’s much-hyped, all electric Chevy Bolt at the end of 2016. The Bolt was expected to make a splash as it was the first electric car in the U. S. market to offer 200 miles of driving range at an affordable price starting around $35,000. The only problem is that pretty much no one seems to want one.
Unfortunately, that lack of demand is about to earn a bunch of UAW workers at GM’s Orion, Michigan plant an extended summer vacation.
As AOL Finance points out today, GM has managed to sell just over 7,500 Chevy Bolts through the first six months of 2017. Moreover, since dealers are sitting on about 111 days worth of inventory, we’re going to go out on a limb and say the Bolt launch slightly underperformed expectations. All of which has resulted in GM’s decision to extend the shutdown currently in effect at it’s Orion plant for just a little while longer.
General Motors Co has extended a shutdown at the Michigan factory that builds the new Chevrolet Bolt electric car as part of a broader effort to get control of bulging inventories of unsold vehicles in the United States.
“Shutdown periods vary by plant based on launch timing of new or refreshed models across the portfolio and our ongoing efforts to align production with market demand,” GM said in a statement.

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

What Bond Traders Are Most Worried About Right Now

The latest monthly survey of credit investors from Bank of America, released overnight, shows the same familiar paradox we have seen ever since the start of the year: most survey respondents are allegedly scared worried about geopolitics and a concerned that the market is a bubble, and yet at the same time, most are allocating even more assets into what may be the biggest and riskiest credit bubble of them all: junk debt.
As BofA’s Hans Mikkelsen writes, while high grade investors reduced their positioning somewhat in June “although remaining significantly overweight”, high yield investors in contrast shifted from a small underweight to a small overweight.

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