Default Will Lead To Default
A report from the Sydney Morning Herald. “Fears of a slowdown in Chinese economic growth continue to bubble to the surface, with the price of iron ore, Australia’s most valuable commodity, plunging to an 18-month low. But there are other factors at play that have contributed to the plummeting price. The sharp moves are caused by deleveraging to the extent that iron ore has been collateral for financing arrangements, said Deltec chief investment officer Atul Lele. The sharp moves are caused by deleveraging to the extent that iron ore has been collateral for financing arrangements, said Deltec chief investment officer Atul Lele.”
“‘Financing deals being unwound due to lower iron ore prices are driving lower iron ore prices, which is driving collateral values lower and necessitating further financing deals having to be unwound. Iron Ore prices don’t fall 8.3 per cent in one day due to slower Chinese growth. They fall because of a credit event,’ Mr Lele said.”
From Reuters. “China’s first domestic bond default has brought to the fore investors’ fears that financing deals that have locked up vast quantities of copper could unravel and erode one of the market’s main underpinnings. China is the world’s top user of copper, but much of its imports are used as collateral to raise funds, which are then loaned out into China’s shadow banking sector to earn higher yields. A lot of that money has been used to invest in real estate.”
“While no analyst or trader Reuters spoke to could give a definitive figure for how much copper is tied up in financing deals due to the opaque nature of the market, they estimated 60-80% of imports could be due to financing demand. On the ground, traders are finding it tough to get credit in a market where prices are falling. ‘Right now it is very difficult for clients to issue an LC (letter of credit) to import copper because the bank loan is very tight. Also if you import the copper in China you will lose a lot of money,’ said one trader in Singapore.”
From FX Street. “According to Peter Fell from FXBeat: ‘Speculation is that a small steel mill in China may have defaulted last Friday and that iron ore traders were forced to liquidate stocks to repay loans secured by iron ore.’”
“Argus site reports: ‘It is not China’s first bond default by a solar panel company last week that has set off credit worries in the steel sector, it is the potential first default of a steel mill on 7 March that is symptomatic of the industry.’ Argus cited the analyst adding: ‘Right now no one knows where demand is or where to set it at, and you have this reverberation going on that default will lead to default… I think the mills are already defaulting, there is no question about that,’ an international trader cited by Argus said. ‘Now what gets interesting is where do we go from here?’”
“Lastly, a China-based international trader said: ‘Those mills or traders that used iron ore as collateral to borrow money from banks, they have to cash out their stock and repay the bank.’”
Radio Free Asia. “On Feb. 24, shares of major property developers dropped sharply following reports that started after Shanghai Securities News reported that China’s Industrial Bank Co. and other lenders ‘may have stopped extending loans to property developers,’ according to Reuters. Reports also cited an internal memo to Bank of Communications branches, ordering a suspension of real estate lending, the official English-language China Daily said. The banks issued denials, but the market reaction had already begun.”
“It is unclear whether the tougher stance toward the fledgling bond market will be reflected in credit policies for housing developers, but state banks are still seen as well-prepared to backstop the financial system. ‘The Big Four banks supply the funds ultimately that go through the shadow banking system, including investments by developers in real estate projects,’ said Harvard University economics professor Dale Jorgenson. The big gap between decontrolled lending rates and controlled deposit rates has made the banks ‘very, very strong,’ said Jorgenson, calling China’s system ‘a license to print money.’”
“In December, the former chief economist of the National Bureau of Statistics (NBS) made a now-famous comment on the ease with which the banks have enriched themselves. ‘With this kind of operational model, banks will continue making money even if all the bank presidents go home to sleep and you replaced them by putting a small dog in their seats,’ said Yao Jingyuan, as quoted by the South China Morning Post.”
The Global Times. “On roads near the World Trade Center subway station in Beijing’s Central Business District, there are often people presenting housing flyers to passersby. ‘Do you want to look at a home in Yanjiao? We have a free shuttle bus for that,’ they say.”
“With no house-buying restriction policies, cheaper prices and a relatively convenient location, Yanjiao is attracting more and more people who want to buy a home near Beijing. Ge Lili, a 27-year-old employee at a newspaper, was one of the early buyers of a new apartment in Yanjiao. She bought a 92-square-meter apartment in September 2011 at a price of 9,200 yuan ($1,498) per square meter. ‘The main reason I bought a house there is the homebuying restriction policies in Beijing,’ Ge told the Global Times.”
“Ge said that the number of people actually living in her community is about 30 percent so far, although nearly all the houses there have been sold. ‘Half of the housing in Yanjiao is for investment,’ said Zhang Dawei, research director at the Beijing office of real estate consulting firm Centaline Property, but he is not optimistic about the investment future in the town.”
“However, estate agent Wang Kai said that now is still a good time to buy property there, as the government is expected to launch more policies to support the development of Yanjiao. ‘The housing price will definitely get higher and higher,’ Wang said.”
From CNBC. “China is planning a national property tax to rebalance the sector, with the blessing of many industry players. ‘Up until now, if you own a property in China, there’s no holding cost. If your home is sitting there empty — you’re not using it, you’re not renting it out — there’s no penalty because you don’t really feel hurt,’said Zhang Xin, CEO of commercial property developer Soho China. ‘There’s so many buildings being built and not really being occupied and not being utilized and so (introducing) the property tax will deal directly [with] that.’”
“Occupancy data are hard to come by. In 2010, Chaoyang, Beijing’s largest district, released data showing 1.33 million square meters of residential space was sitting vacant, with over half empty for at least three years, although it wasn’t clear if the housing was unsold or unoccupied after being sold. At the time, media reports said there were 64.5 million urban electricity meters registering zero consumption over a six-month period, but power companies denied the figures.”
From Quartz. “Yang You, the director of the board for Huaxia Pawnshop in Beijing, helps oversee high-ticket pawning at one of the oldest, largest and most luxurious pawnshop enterprises in the city. This outfit helps small and medium-sized enterprises (SMEs) realize their ‘Chinese economic dreams.’ Banned during the more than three decades of communist rule from 1956 to 1987, pawnshops are making a comeback today in China as many SMEs are pawning apartments and cars—even at high interest rates—as they’re finding it difficult to get loans from the banks. ”
“At Huaxia, apartments are the most commonly pawned item, luxury vehicles the second, and jade, expensive stones and watches make a close third. Half of Huaxia Pawnshop’s customers are business owners pawning their Beijing apartments. These high-ticket loans invite huge interest rates. Huaxia charges 3.525% interest per month on property.”
“So the spirit of unregulated borrowing and lending continues. Today, shadow lending is the fastest-growing part of China’s financial sector, and JP Morgan Chase estimated that it accounted for 69% of China’s GDP—or 36 trillion yuan ($5.9 trillion)—in 2012. ‘It’s a conduit for economic growth,’ said Ismael Pili, head of financial analytics Asia at Macquarie Group. ‘But it’s not very well regulated, and there’s emerging risks.’”
“‘Financing deals being unwound due to lower iron ore prices are driving lower iron ore prices, which is driving collateral values lower and necessitating further financing deals having to be unwound. Iron Ore prices don’t fall 8.3 per cent in one day due to slower Chinese growth. They fall because of a credit event,’ Mr Lele said.”
Sounds like quite a margin call! I sure hope this doesn’t exemplify Darryl’s ‘cascading debt default to depression’ scenario.
Makes you wonder if there is a commodity on the planet that wasn’t jacked up in price because of “leveraged financing”. I suspect not.
Seriously….What isn’t levered up?
I think the goal is for every transaction to have a built-in skim for banks and financiers.
I think the goal is for every transaction to have a built-in skim for banks and financiers.
+1000
It’s the American way. Only chumps “work”. The truly smart take a cut from everyone else’s labor.
“Leverage” is a poor man’s term to make himself “feel” rich.
Will China’s ‘credit event’ lead to a taper ‘taper’?
Jeff Gundlach: China bears watching; the taper may get tapered (recap)
March 11, 2014, 4:03 PM
Bond investing guru Jeffrey Gundlach struck several cautionary notes in a conference call Tuesday, citing concerns over slowing growth in China, and suggesting that if margin debt “hooks down,” equity markets in the U.S. could face double-digit percentage declines.
Gundlach focused a good deal of time on the Federal Reserve’s Quantitative Easing program, suggesting that the “taper could be tapered” later this year, if economic troubles in China weigh down global growth.
…
Or would that be a ‘tapered’ taper?
GROAN
“China is planning a national property tax to rebalance the sector, with the blessing of many industry players. ‘Up until now, if you own a property in China, there’s no holding cost. If your home is sitting there empty — you’re not using it, you’re not renting it out — there’s no penalty because you don’t really feel hurt,’said Zhang Xin, CEO of commercial property developer Soho China. ‘There’s so many buildings being built and not really being occupied and not being utilized and so (introducing) the property tax will deal directly [with] that.’”
I wonder if higher property tax would work here in ‘Merica to prevent owners from keeping their homes vacant and off the market forever. It’s wasteful to let houses sit empty, especially when home prices are so high, indicating a shortage of affordable housing.
Lever up, lever down. Get liquidating and make it snappy mister.
Good riddance PhoneyMae and FraudieMac
http://www.cnbc.com/id/101484120
The proposal from the two senators appears not to destroy the basic function of securitizing, but shift it from public to private. The government would still guarantee the loans. The only plus I saw was making the MBS investors eat he first 10% of losses. What’s everyone’s read?
It’s a good start on cleaning up the housing fraud.
~realtors are liars.
I saw a quote from one senator about how much he cares for “affordable housing”. IMO, it doesn’t matter much. What will crush these plans will be the legacy bad GSE debt and the foreclosures on loans written in the past three years.
2 country clubs- work 5 years and get hc for life
perkadelic -worse than fed or utility
With Contempt For Owner, Realtors Turn Listing Into Sex Den
http://www.nydailynews.com/news/national/realtors-caught-camera-frisky-sale-home-article-1.1717925
how many re markets are still “HOT”?
not many -FL,AZ,NV are back in the tank
It depends on your perspective but here’s what we know…
Falling housing prices to dramatically lower and more affordable levels is good for the economy and positively and optimistically bullish.
Seattle is still hot…
I doubt it. Prices are down 9% YoY in Seattle.
http://www.movoto.com/seattle-wa/market-trends/
Maybe overall, but prices in high-demand areas (like mine near Microsoft) are still going up. $869K for new 3K sq ft home on postage-size corner lot on a high-traffic street. The previous home that was scraped was assessed at around $350K.
I was down in the East Bay area (Livermore/Oakland) last week for work, and there was an article in the local paper about how the older $1M homes are now teardowns, so the new, $2.5M homes can be built, as many and as fast as they can.
It’s 2006 all over again . . .
I can ask $50k for my 14 year old Chevy pickup but where are the buyers?
Remember…. housing demand is at 17 year lows… and falling.
CA Real Estate Agents Found Guilty Of Bid Rigging Housing
http://www.modbee.com/2014/03/11/3234370/katakis-guilty-in-bid-rigging.html
Why is there such a need to price fix housing? Given the number of criminals involved in housing sales, it’s time for the DOJ to get involved and and shut down all the crime involved in housing sales. Especially in California.
Katakis just LOOKS like a typical California “scammer”. I swear you can spot them a mile away. Of course the black BMW or lux SUV give them away immediately.
That was my thought too. A shiny suited slimeball who requires supervision 24 hrs a day.
‘Growing numbers of Chinese are using the country’s state-backed bankcards to illegally spirit billions of dollars abroad, a Reuters examination has found. This underground money is flowing across the border into the gambling hub of Macau, a former Portuguese colony that like Hong Kong is an autonomous region of China. And the conduit for the cash is the Chinese government-supported payment card network, China UnionPay.’
‘On a recent day at the Choi Seng Jewellery and Watches company, a middle-aged woman strode to the counter past dusty shelves of watches. She handed the clerk her UnionPay card and received HK$300,000 ($50,000) in cash. She signed a credit card receipt describing the transaction as a “general sale”, stuffed the cash into her handbag and strolled over to the Ponte 16 casino next door.’
‘The withdrawal far exceeded the daily limit of 20,000 yuan, or $3,200, in cash that individual Chinese can legally move out of the mainland. “Don’t worry,” said a store clerk when asked about the legality of the transaction. “Everyone does this.”
When you read stories like this, it’s tough to believe that the Chinese government truly has control of anything. It’s like saying that a patient has control of a viral infection.
$50 pound limit for uk in 70’s.
‘Malaysia is turning into the darling of Chinese developers as mainland investors turn their backs on market restrictions in Hong Kong and Singapore and bet billions on cheaper housing and higher returns in the Southeast Asian country.’
‘Mortgage terms are also better for non-residents in Malaysia, with buyers able to borrow 70 percent of a property’s value. That’s more generous than the 40 percent to 60 percent in Singapore and 30 percent to 50 percent in Hong Kong.’
‘Since the middle of last year, Country Garden has been organising subsidized tours to Malaysia for potential Chinese buyers…One morning is spent at Country Garden’s Danga Bay villa in Iskandar. The web page, topped with a banner that says “300,000 yuan to get residency for the whole family in a city next to Singapore”, also gives details about Malaysia’s immigration policies.’
symbol EWM
1998 asian crisis- 1999 begins construction of worlds largest building
here- welfare for everyone
don’t be bad mouthing Malaysia and Singapore
they rock !
‘Iron ore traders say buyers are standing on the sidelines and stockpiles are rising in China’s ports as a drop in exports and tightening credit make steel mills reluctant to add inventory. Copper prices are down on fears that inventory would flood the market as companies dump the metal to unwind risky trades.’
‘At the Grand Canal Northern Port, a run-down coal loading station in Shandong province, there was no activity Wednesday afternoon. “Things aren’t so good now. Coal prices just aren’t stable,” said Meng Fanqiang, a manager at the port.’
“Pessimism is permeating every corner of the stock market at the moment,” said Tangyue Yanglin, a senior investment adviser at Everbright Securities.’
‘Copper extended a dramatic three-day dive, falling a further 3.2% in Shanghai, bringing its decline for the year to nearly 15%. The price for premium hard coking coal from Australia fell 2.4% on Wednesday and is down 13% this year.’
‘Economic concerns about China intensified over the weekend after it said exports fell 18.1% in February, far worse than the 5% increase that economists had expected and following a 10.6% expansion in January. The country also posted a rare $22.98 billion trade deficit for last month.’
‘ Tim Condon, economist at ING, said the lack of transparency in China’s financial policies often generates uncertainties and anxiety for investors. “Sentiment has definitely turned sour toward China and it does raise the question why it’s so easy to accentuate the negative in this country,” he said.’
‘While Beijing’s recent move to guide the yuan lower is widely considered a tactic to deter excessive “hot money” inflows, its tolerance of an extra supply of the local currency flooding the nation’s financial system is also being interpreted as a stimulus effort.’
‘it does raise the question why it’s so easy to accentuate the negative in this country’
Maybe because it’s a sh#t-cart of corruption, fed by counterfeit money and leveraged by insane speculation?
‘Copper extended a dramatic three-day dive, falling a further 3.2% in Shanghai, bringing its decline for the year to nearly 15%.”
Recession ahead ?
Monterey County, CA Housing Demand Dives 14% YoY; Declines Accelerating
http://www.zillow.com/local-info/CA-Monterey-County-home-value/r_2444/#metric=mt%3D30%26dt%3D1%26tp%3D5%26rt%3D6%26r%3D2444%26el%3D0
‘Ads touting new apartments in Brooklyn appeared recently on the Internet. This is nothing unusual, except that the promotion for these New York homes is appearing in Chinese on China’s largest real estate website, and the development is being built by a Beijing-based real estate company.’
‘The ads on Soufun.com are for homes in The Oosten, a project acquired by New York Stock Exchange-listed Xinyuan Real Estate for $54.2 million in October of 2012, in the first major U.S. property acquisition by a Chinese firm.’
‘Since that time several other cashed-up Chinese real estate companies have bought into the US market, including a February ground-breaking for a 61-storey residential project in Manhattan by China’s largest developer, and additional projects by Chinese companies in Los Angeles and San Francisco.’
‘The eagerness of Chinese buyers to snatch up new homes off the plan was demonstrated last year when Xinyuan rival, Greenland Group, sold more than $245 million in new homes during its first weekend of sales for a project in Sydney, Australia that had not yet broken ground.’
‘The sale in December of last year resulted in nearly all of the available units being sold, largely to Chinese customers.’
Riverside County, CA SFR Rental Rates Dive 5% YoY
http://www.zillow.com/local-info/CA-Riverside-County-home-value/r_2832/#metric=mt%3D48%26dt%3D1%26tp%3D5%26rt%3D6%26r%3D2832%26el%3D0
‘The big gap between decontrolled lending rates and controlled deposit rates has made the banks ‘very, very strong,’ said Jorgenson, calling China’s system ‘a license to print money.’
I’d be pretty strong too, if I could print money and get away with it. I might even travel the world buying stuff, if I could get it across borders and other countries would take my printed money.
Alameda, CA(SF Bay Area) Housing Prices Crater 17% YoY
http://www.movoto.com/alameda-ca/market-trends/
Dude, use the chart filter to show the last five years in the graph. That 2013 spike is obviously an extreme outlier in the trend line. But maybe you already know that.
A guy in my office sold his house recently in Alameda County (within the last 30 days). From listing to closing was less than a month (the buyer closed in 15 days from contract).
How do you think he would describe the market?
How would he describe the market?
“A epic bubble about to burst, thank you greater fool!”
Prices are falling Peter.
“Prices are falling Peter.”
They certainly should but that graph says that Alameda ain’t falling today. Inventory is down from last March too. Not that the zillow inventory reports mean anything, but you seem to be fond of them.
Sure they’re falling. Not only that but prices are falling on a square foot basis MoM, QoQ and YoY. Take a look at the link.
As far as zillow goes, they show demand falling in Alameda.
‘The Indian iron-ore fines export market has been hit by panic with export offers plunging 13% over the past month. The export price for Indian high-grade iron-ore fines has been under downward pressures since the beginning of the year and this turned into a crippling bear hug over the past week, threatening to bring outward shipments to a complete halt.’
‘Traders and miners said that while export volumes had been falling over the past months, buyers, which consisted mostly of traders representing Chinese steel mills, had not made any purchase commitments since early this month and even the continuous lowering of export offers failed to evoke any buying interests.’
‘On the buyers’ side, depression in the commodity market in China coupled with excess stocks and liquidity problems faced by steel mills in China had put off any fresh purchase transactions for Indian iron-ore.’
‘Traders said that the latest crash in prices would bring export shipments, already on a downward curve, to a complete halt. Five iron-ore pellet plants across the country had stopped production, claiming that the export tax had made export shipments unviable. India currently had 36 iron-ore pelletisation plants with an aggregate capacity of 63-million tonnes a year, and according to industry these were being operated at 50% capacity.’
‘Market sources and analysts said that Indian iron-ore export prices continued to have further downside risk potential, as stock at Chinese ports was estimated to be in excess of 100-million tonnes, no strong rebound was expected.’
‘Furthermore, Indian exporters were fearful of payment default by buyers in view of reports of a liquidity crisis in the steel industry in China, they added.’
You don’t see “panic crash” in a title very often.
“Markets are watching what is happening in copper with awe and trepidation,” said Societe Generale head of currency strategy Kit Juckes. “It’s partly ongoing concern about Chinese growth (or lack thereof) and nagging worries about the Ukraine. And partly it is just that the commodity bubble burst last year and not everyone noticed.”
‘Copper’s fall follows China’s first domestic bond default which has raised concerns about a possible unravelling of the many loan deals which have used the metal as collateral.’
‘At least one U.S. scrap copper trader has suffered “large” losses after a buyer in China defaulted on a deal in the past week, one of the first signs that sinking prices and tightening credit are affecting the physical market.’
Mortgage Applications Sink
http://online.wsj.com/article/BT-CO-20140312-703551.html
Cratering Commodity Of The Day; Cu
http://www.bloomberg.com/image/iGL9CvOsgkuA.jpg
Updated chart
http://4.bp.blogspot.com/-aCR5E8gXNM4/Ux-vdrQ22qI/AAAAAAAAeGI/LKi-hu9POLw/s1600/Copper.PNG
‘At the dinner parties and restaurant tables of inner Sydney, the supposed role of Chinese investment in real estate is the hot topic. “Pat’s daughter Ruby is trying to buy a house and she’s been outbid by Chinese bidders at the last four auctions.” It’s somehow unfair that they’re prepared to pay a higher price. There’s a sense that the government ought to be doing something about it.’
‘The conversations are whipped along by media reports of real estate agents alleging that Chinese residents are illegally buying property on behalf of their non-resident relatives, and broking analysis claiming that Chinese buyers are snapping up one in five new properties in Sydney and one in seven in Melbourne.’
That article is premium content and I can’t see the rest of it, but I can sense the condescension. “Supposed” role of Chinese “investment”? “Somehow” unfair to locals? And why might the Chinese be prepared to pay a higher price?
Apart from this, the relationship between the two countries is not exactly a basis for exuberance. Being the natural resources supplier to a larger economy is a very Third World position to be in.
‘China is also the top importer of a number of agricultural commodities, including soybeans, over which there are heightened concerns that the country’s importers are about to start on a wave of cancellations of orders of US supplies, after already apparently ditching some Brazilian cargos.’
‘Luke Mathews at Commonwealth Bank of Australia said “talk that the Chinese may have cancelled more than 500,000 tonnes of Brazilian soybeans continues to unsettle the trade”.
‘Brian Henry at Benson Quinn Commodities said: “There’s talk of additional cargos of Brazilian soybeans being cancelled and the possibility of Chinese buyers electing to default on US purchases. “Additionally, Chinese ownership is actively seeking opportunity to roll purchases forward.”
So they’re so screwed that they can’t even afford to eat? But they have those awesome skyscrapers in Shanghai and other big cities. China has to be rich!
You can take that to the pawnshop!
‘Half of Huaxia Pawnshop’s customers are business owners pawning their Beijing apartments. These high-ticket loans invite huge interest rates. Huaxia charges 3.525% interest per month on property’
where’s Mr Banker ?
Jim Chanos was right, almost
I’m responsible for some sales to China of heavy rotating metal things. I get a wire transfer of the entire sales amount before shipping. No exceptions. Some things only need to be learned once. It takes a generation to get over a bad reputation.
Mill Valley, CA(SF Bay Area) Housing Prices Crater 17% YoY On Rising Inventory
http://www.movoto.com/mill-valley-ca/market-trends/
‘National Bureau of Statistics data show rents in January 2014 increased 4.6 percent year-on-year, and demand for rental housing increased in Beijing, Shanghai, Shenzhen and Guangzhou (the latter two in Guangdong province) after Spring Festival.’
‘According to Soufang, a real estate information portal, the average rent for 11 cities, including Beijing and Shanghai, was 2,742 yuan ($446) a month in January, an annual increase of 5.37 percent, much higher than the increase in the consumer price index.’
‘But despite the buoyant demand for rented homes, some experts fear that the housing market bubble will soon burst. In fact, housing prices have already dropped in some places. For example, angry homebuyers smashed the sales office of a housing project in Hangzhou, Zhejiang province, because housing prices dropped after their purchase.’
‘The bifurcation between owner-occupied and rental housing markets means the investment in the former is mainly for asset appreciation. Rental yields are low, and the “buy-to-let” phenomenon is neither common nor the driver for housing development in China. The housing market has actually been driven by capital liquidity and monetary expansion; it is quite sensitive to the capital market. The development of the housing market in smaller cities was detached from demand, which led to houses lying vacant in some new districts or “ghost cities”.
‘But a different possibility is being noticed in the capital market since June 2013. With the tapering of quantitative easing in the United States, capital began to flow out of emerging markets.’
‘The supply of rental housing, however, is faltering because demolition of houses in old areas and “urban villages” has reduced the number of affordable rented homes and homebuyers are more interested in asset appreciation than renting their property.’
Houses are still flying in Seattle… I don’t really see any slowdown…
Prices are down 9% YoY in Seattle.
http://www.movoto.com/seattle-wa/market-trends/
Buy high and buy now!!!
I was just curious about the Redmond WA area sales and found this craptacular gem that went for a cool 400K. Yes, folks we’re playing in the bubbles again…
http://www.zillow.com/homedetails/13771-NE-76th-Pl-Redmond-WA-98052/49088072_zpid/
In that neighborhood (I live less than a mile away), houses much nicer than this are bought and razed. There are a dozen or two new houses, not to mention several short-plats, in planning or construction right now in that same area. It’s about a 10-min. drive to Microsoft or Google from there so a very good location for the Eastside (of Seattle), plus in a good school district (walking distance to all grade levels from this house).
‘Cascading copper prices have multiple root causes that lead to one conclusion: The anticipated global economic recovery may not be all it’s cracked up to be. Chinese lenders, especially in the nonbank or “shadow” sector, often allow copper to be pledged as collateral. With expectations that the government is going to allow more bond defaults- the first happened last week -lenders are beginning to worry that copper’s value will decline.’
‘Commodities pro Dennis Gartman also believes that the banking problems have more to do with copper’s decline than fears over economic troubles. Writing Wednesday in The Gartman Letter, he theorized:
“We’ll argue that Dr.Copper is not sending a signal to the world of impending economic weakness but is instead sending a signal to the world that the banking system in China has very real problems. …”
“We suspect that some banks have already called in their loans made in this manner, and that what we’ve seen in the past week is the first layer of that loan unwinding; however, there is no way to quantify that notion and we offer it up as it stands, without hard data. However, our fear is that the last banks in … the smaller banks; the regional banks; the banks that are always last to the feeding trough … are still holding copper collateralized loans that have gone from badly performing to horrid to now deeply under water in the matter of days. Panic liquidation has set in; the margin clerks are in charge and it is then that prices make their lows, but there is no way to tell when or where and at what prices those loans shall be finally liquidated.”
‘Technical analyst Abigail Doolittle at Peak Theories Research noted a multiyear chart divergence between copper and the S&P 500 (^GSPC) stock market index, which tend to run in tandem. Doolittle concluded that copper has the economic direction correct and stock market investors, rendered complacent by the Federal Reserve ’s $4 trillion in liquidity injections, could pay the price.’
“Irrespective of what copper’s current flirtation with multiyear lows reflects, it is the long-term monthly chart of copper and the S&P that suggests some trouble-some very bearish trouble-may be ahead for both copper and the S&P,” Doolittle said. “In turn, it seems likely that copper will turn out to be ‘right’ about whether 2013 was a false initial reaction in the S&P and one that many investors may come to wish they had ignored.”
“may come to wish they had ignored…”
I think he meant “not ignored”.
We had some articles posted here a few years ago about why copper was such a wonderful collateral in China for loans. You could buy a bar of copper and set it in your barn. Take out a loan against it. Then take another loan against it from somewhere else. Then another, and so on. Sort of marginal banking turned against the bankers.
Should be interesting to watch that unwind!
Actually just a few weeks ago I posted an article suggesting metal was being used as collateral multiple times in China. Can’t do that at a pawn shop I bet.