A record $1 trillion or so has fled China in the last year or so. Official reserve data is masked, so it’s difficult to pin a precise number.
We do know the official monthly drain is the smallest since June, but Daiwa Capital Markets believes PBOC Using Stealth Intervention as Reserves Decline.
The People’s Bank of China may have bought foreign currency from local banks, used the forwards market to prop up the yuan and asked the nation’s sovereign wealth fund to liquidate overseas assets, Daiwa analysts Kevin Lai and Junjie Tang wrote in a note on Tuesday. While Lai didn’t provide any direct evidence in the note, he said in an e-mailed response that his conclusions were based on a “logical deduction.”
China’s foreign-exchange reserves, the world’s largest currency hoard, shrank by $28.6 billion last month, the smallest decline since June, to $3.2 trillion. That was lower than the $40.9 billion decrease predicted in a Bloomberg survey of economists, and compares with December’s record drop of $108 billion as the monetary authority supported the yuan.
“As everyone is watching the foreign-exchange reserves number so carefully, it is important for the government to show a nice number,” said Hong Kong-based Lai. “Otherwise there will be market panic.”
The monetary authority launched a two-pronged attack on yuan speculators earlier this year, choking outflows from the mainland while mopping up the currency offshore. The nation’s defense of the yuan depleted its foreign-exchange reserves by $513 billion last year, the first annual drop since 1992.
Bloomberg Intelligence estimates that a record $1 trillion fled overseas in 2015. The official foreign reserves data don’t necessarily give a comprehensive picture because non-PBOC institutions may absorb flows, Goldman Sachs Group Inc. economists wrote in a March 7 note.
Stock Market Intervention Back as Well
Intervention doesn’t work, but that simple fact never stops central banks from trying.
Along with currency intervention, the China Equity Intervention Trade Is Back as State Funds Battle Bears.
During each of the past six days, the Shanghai Composite Index has recorded intraday losses before rallying to end the trading session higher, with index heavyweights such as Industrial & Commercial Bank of China Ltd. and PetroChina Co. leading the rebound. Some local branches of the securities regulator asked listed companies, mutual funds and brokerages to stabilize the market during annual parliamentary meetings this month, two people with direct knowledge of the situation said last week.
The resumption of late-day gains, a common occurrence during the height of the government’s market rescue campaign in July, has presented traders with a quandary: Worsening economic data suggest stocks should fall, but state intervention provides an opportunity to profit from short-term rallies. It’s yet another sign of how government meddling has undermined the leadership’s own pledge to increase the role of market forces in the world’s second-largest economy.
Shanghai Index $SSEC
The above chart is from yesterday’s close. The Shanghai Index is currently down about 70 points (2.40%), intraday, to to 2,832.
Intervention that started in July between 3,500 and 4,000 has not done a bit of good. China supposedly backed off the intervention trade but is now back at it.
Mike “Mish” Shedlock
I have the Shanghai Index on my phone “favorites” (along with Mishtalk) and check it from time to time during the course of each evening. It appears to swoon many evenings by several dozen points and then I’ll turn in for the night. Check it again at breakfast and damn, they’ve bought it back again. Just my empirical observation.
Whether or not Chinese authorities have the resources or the will do this for the long haul is another question. If this is much different from our so called “markets” I’ll leave that up to others to decide.
Shumpeter’s creative destruction is a difficult concept for dictators and central bankers. They dam up the business cycle until they have a two hundred foot wall of water behind the dam.
No no, they understand it fully.
First you get to be very creative, the more creative the better, and then you get to be very destructive, the more destructive the better.
See, easy.
With unlimited paper notes you can buy unlimited stocks and bonds.
Exactly … and why the upcoming recession will be BAD.
The longer reality denied … the worse the outcome.
Posted To RWER Blog, Ellen Brown’s Forum, the Social Credit Group, Steve Keen’s youtube Channel and Mish Shedlock’s Blog 03/08/2016
Generation screwed
“Bernie is our half-measure, our opening salvo at fixing the fucking mess that the Boomer’s post-Watergate apathy, post-Kennedy and King assassination apathy gave us. That’s right, I get it, I know why you folks didn’t continue the struggle, your leaders were slaughtered. Guess what, it happens, you pick up where they left off and you keep pushing. You have to pick up where they left off and keep pushing. Bernie did that, and its why we respect him. The man kept up the fight. While you fuckers gave up and went home, he kept up the fight.”
Socialism is reactionary cost shifting, Social Credit is the much more workable and evolutionary profit making system.
It wasn’t some concocted Boomer generation that stole the future of Millennials and 99% of everyone else….it was a monopolistic private, self interested financial paradigm of loan only which did not and still does not allow the necessary financial paradigm of direct monetary Gifting to the individual to be integrated into economic policy.
Before we allow the incredibly fractious and poisonous idea of generational blame to take hold and deal a final blow to social cohesion we had better chose the intelligent and wise option of Grace as in free Gifting to resolve our financial and economic problems and so de-throne, de-tooth and make the glaringly inconsistent monopolistically dominating business model of Finance take its proper and smaller place in the economy.
https://en.wikipedia.org/wiki/Social_credit
wisdomicsblog.com
chdwr Bernie is doing nothing more then pandering. There is no way you can increase taxes 15 trillion dollars to pay for his so-called in your mind social credit. Call it what it is pandering and more welfare. The total output of the private sector is 4.4 trillion. I guess we will continue to print with your method of social credit.
This has nothing to do with generational differences as boomers did not create this mess it was created before they were born and continued with LBJ. Young people bought the biggest lie in history. Get a degree and you will make a million more then if you went to work with a HS education. They forgot to tell them you need a degree you can use and not political science or basket weaving.
Your wisdom as usual is flawed as always. Get your money for nothing does not work. How many time are you going to change your comment name and come here and post this dribble?
The problem with all ideologies is their implementation and administration. Those tasked with doling out this social credit will be the same source of corruption as those who decide who deserves free education and healthcare and who shall pay.
Cynicism is not a critique of the truth. And Old Guy….neither is puritanism. If a business takes out a loan of $1million to buy/create productive means and facilities that costs $600k they have to make $1 million PLUS $600k to replace their productive capability plus interest from the prices they charge their customers, or when those productive means wear out or become obsolete go to the Bank and take out ANOTHER loan to stay in business….and that probably means bye, bye business. Wake up! Social Credit is the only theory that accurately considers this concrete cost accounting reality and offers a systemic solution for it.
In other words you conservative/puritanically moralistic/austerian theorists are unwilling/incapable of seeing the inherently destabilizing effects of depreciation costs as well as the diminutions of income from the circular flow. Just drop the habitual/obsessive moralizing and look at the system AS IT ACTUALLY IS!!!
Mish,
Might be good timing to write a short article Illuminating likely investment winners and losers under a Trump Regime. It is easy to Id losers, but not so Much winners.
Losers:
Big Pharma
Medical Insurers
TBTF Investment Houses
War Profiteers and Contractors
Federal Suppliers
Trump Essential argues that he’ll squeeze all these Industries via price competition and efficiencies.
Winners???:
Big Oil
Coal
Construction
Resorts & Casinos
US based manufacturing
It would be interesting to start thinking about Various themes and get Ahead of the curve.
I will think about that
It’s possible there are only relative winners given absurd valuations across the board
Mish
If China and Saudi Arabia need to sell Bonds to raise dollars to support their currency or domestic spending, WHO is buying this amount? The Japanese? No. The Russians? No. Venezuela and Brazil? No.
The US bond markets are a $12.8 to $13.5 trillion market and China only owns a total of around $1.2 trillion in US Treasuries.
“It’s yet another sign of how government meddling has undermined the leadership’s own pledge to increase the role of market forces in the world’s second-largest economy.”
Just what country is allowing market forces? China is right in step with everyone else, including the U.S.
Prop up the yuan? …. maybe so … for the moment.
But massive devaluation in the cards … soon.
Not even China knows what China is doing and that’s a big problem.
1.) Any support for the Yuan should be seen in a rising US Treasury yield as China sells its US debt. Maybe the Federal Reserve wants to raise interest rate often and significantly so the Chinese take losses?
2.) If a pattern of late day buying of Chinese stocks, then traders will simply sit on the sidelines until just before they expect government support to step in. This eventually makes liquidity dry up as nobody will bid in the early and middle parts of the trading day. Prices will crash without liquidity.
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