What We're Reading

For the love of Pete.  I can only imagine what's going through the minds of investors.  First fears of energy name defaults and now China's real estate (bubble) may have it's first big default?  It'll be a fun Sunday night when futures open. 

The Chinese real-estate developer Kaisa Group Holdings had a healthy balance sheet, according to investors and observers alike. It was the top-rated residential-property-sales firm in the city of Shenzhen, in the first half of 2014. It was known for fast, reliable work.

But on Thursday, Kaisa appeared to become the first Chinese development firm to default on offshore debt, missing a $128 million interest payment on $500 million of debt to foreign investors. Representatives of the company say they aren't sure whether the payment was made, The Wall Street Journal reports.

Consider this a slap in the face to investors chasing yield around the world and finding it (or so they think) in emerging-market junk bonds. Back in 2013, Kaisa and its fellow C

• What BMW’s China sales say about their economy.  “Xubao” or false reporting; who knew!  Quartz
• Pay your bills or we take your cat (seriously)  TheMoscowTimes
• A $1.65 billion buyout, 300 hours of video uploaded every minute,  300 million hours streaming per day, a “farm” of sorts where prominent studios are paying huge sums to acquire companies that bundle together YouTube channels,  an ever-expanding ad platform, a new premium service (Music Key) and a new marketing strategy aimed at turning YouTube starts into, well true stars.  Aand imagine; YouTube is still an experiment. NYTimes
• Why the middle class isn’t as well off as some would have you believe.  According to IRS data, 99% of American households make less than $388,000 a year, and 95% make less than $167,000 a year. The true middle in terms of income — that is, the cutoff to be in the top 50 percent of earners — is roughly $35,000 a year. Salon (and those middle class jobs are disappearing to automation and outsourcing overseas

China's state-controlled energy giant Sinopec wants to sell some long-term liquefied natural gas (LNG) import deals as a slowing economy makes them unprofitable, sources say, signalling the end of a five-year boom fueled by rising Chinese demand.

Kos here:  Note LNG and GLNG are two names in this space.  LNG shown left - click chart to enlarge..

Asia's thirst for energy has helped drive a "dash for gas" in producer countries from Australia to Canada, with LNG emerging as the fastest growing fuel source since the beginning of the century on the back of soaring Chinese imports. But just as long-planned projects start to come on stream China's economy is stuttering, which is likely to crimp demand and pull down domestic gas prices to levels that make imports unprofitable.

"We talk about China choking on LNG. There's just too much coming onto the market," said Gavin Thompson, Head of Asia Gas Research at Wood Mackenzie. Analysts say falling crude prices, which have dropped around 40 per

Just when the (last few remaining) bears were enjoying some market wide liquidation, China apparently launched some stealth QE of their own reversing AUD/JPY and sending markets plowing over weak bears.  From Bloomberg:

• CHINA’S PBOC STARTS 500B YUAN SLF TODAY, SINA.COM SAYS
• PBOC PROVIDES 500B YUAN LIQUIDITY TO CHINA’S TOP 5 BANKS: SINA
• PBOC PROVIDES 100B YUAN TO EACH BANK TODAY, TOMORROW WITH DURATION OF 3 MONTHS: SINA

According to Government Sachs

"This amount is roughly the same as a 50 bps cut to RRR for the whole banking system on a static basis.  Still, such an easing would be consistent with our expectation that (1) monetary policy will loosened amid the drastic slowdown in activity growth and falling inflation, and (2) full scale RRR and interest rate cuts are unlikely because they would be viewed as aggressive stimulus."

Toss in a little hint dropping from the Wall Street Journal's Fed-whisperer Jon Hilsenrath that that the "considerable period" language will

When Jack Ma founded the Chinese e-commerce company Alibaba in 1999, one of his stated goals was to build a company that will last for at least 102 years so that it would span from the 20th to the 22nd centuries. Now with products, technology and marketing -- what Alibaba has done is a great combination of all three.

Chinese ecommerce giant Alibaba ($BABA) is expected to begin an eagerly awaited roadshow for what could be the largest ever IPO early in the week of September 8, and its shares could list as soon as September 18 or 19, according to a person familiar with the situation.

Expected to raise about $20bn when it lists on the NYSE rivaling the Agricultural Bank of China’s $22.1bn IPO from July 2010, currently the largest on record.

Alibaba’s ability to make a transition to mobile has been a focus of analysts and investors as China’s tech groups square off for customers glued to smartphones. Last week, the company announced a surge in mobile revenues for the second quarter.

A tenf

The U.S. posted a record cross-border investment outflow in June as China and Japan reduced their holdings of Treasuries and private investors abroad sold bonds and notes.

The total net outflow of long-term U.S. securities and short-term funds such as bank transfers was $153.5 billion, after an inflow of $33.1 billion the previous month, the Treasury Department said in a report today. The June figure, and $40.8 billion in net selling of Treasury bonds and notes by private investors in June, were the largest on record, the Treasury said.

“Right at the beginning of June, you had a very strong sell-off of Treasuries and that’s what frightened a lot of private investors,” Gennadiy Goldberg, U.S. strategist at TD Securities USA LLC in New York, said by phone. “As yields stayed lower in subsequent months, some of the investors probably resumed their buying.”

China’s holdings of U.S. Treasuries declined by $2.5 billion to $1.27 trillion, while Japanese holdings dropped $600 million to $1.2

In September 2013, China became the biggest net importer of crude, beating out the U.S. for the first time. This came as no surprise, given how rapidly China’s thirst for oil has grown, although landing in top place happened a little ahead of U.S. Energy Information Agency (EIA) predictions that it would take place in 2014. However, where the U.S. has been shoring up its own internal production, China has lagged behind. Between 2011 and 2014, U.S. oil production rose by 31 percent, as opposed to China, which saw its own production increase by a little more than 5 percent over that time. This leaves China utterly dependent on oil imports, a vulnerable position to be in at a time when its economy is beginning to wobble.

China’s demand for black gold is only set to increase, causing it to spend a staggering $500 billion a year on imports by 2020, according to Wood Mackenzie. This increase is being fueled largely by an explosion in car ownership. But who will be the faithful bartender, ref

If you're one of the many waiting for Alibaba's IPO, you may wish to take a look at the latest recommendation from U.S. regulators when it comes to investing in Chinese names.

In May 2014, Alibaba, China’s leading e-commerce website, filed for a U.S.-based initial public offering (IPO) in what is expected to be one of the largest in U.S. history. The highly anticipated IPO will be just one in a recent wave of Chinese Internet companies launching IPOs in the United States. The trend has raised some misgivings among U.S. regulators about the corporate structures of these companies. To bypass Chinese government restrictions on foreign investment in the Internet sector, Chinese Internet companies use a complex and highly risky mechanism known as a Variable Interest Entity (VIE).

Read the FULL report

From a chart point of view, there's a definite divergence in performance in U.S. solar stocks vs. their Chinese competitors.   Forget the cold war; is a trade war heating up with China?  Charts don't lie - people do.  Full disclosure StockBuz recommended long FSLR in 2013.

The United States slapped new import duties on solar panels and other related products from China on Tuesday after the Commerce department ruled they were produced using Chinese government subsidies, potentially inflaming trade tensions between the two countries.

The U.S. arm of German solar manufacturer SolarWorld AG filed a petition complaining that Chinese manufacturers are sidestepping duties imposed in 2012 by shifting production of the cells used to make their panels to Taiwan and continuing to flood the U.S. market with cheap products.

The new complaint seeks to close that loophole by extending import duties to also cover panels made with parts from Taiwan.

In a preliminary determination, the Commerce de

A huge slowdown in Germany is on the way, yet few see it. Steen Jakobsen, chief economist at Saxo bank writes via email ...

Back from major trip to Brazil, Uruguay, US and Spain.

The one thing which to me is being ignored by the market is the coming slow-down in Germany. The market can of course go up in times of weaker growth, but my big “thing” is that no one believes Germany economically is slowing despite very negative macro changes in the last twelve months:

• The China rebalancing will cost Germany export volume.
• Germany has the most expensive energy policy in Europe – a drive away from atomic power dependency to a less obvious dependency on Russian gas.
• The Ukraine crisis impacts Germany. According to the Federation of German Wholesale, Foreign Trade and Services (BGA) about 6.200 German companies are doing business in Russia.
• The coming Chinese devaluation of the Yuan will significantly lift Chinese import prices.

I had to write a monthly OP-ED for Swiss Financial newspaper

• "There’s no way that we are not going to have massive problems in China." BloombergView
• Let the bidding begin for Elon Musk's battery gigafactory.  Bloomberg
• Possible defaults in some WMPs don’t reflect a “big problem”.  Wait, 60% of GDP is no big deal? Bloomberg
• Retailers deep discounts bring in buyers BUT weigh on margins.   IBD
• China's property boom continues to rise relentlessly. Global Property Guide
• Why Facebook bought Whatsapp (think "get the teenagers back")  Sequoia Capital
• Business investment flows continue sluggish (but the stock market doesn't seem to care)  Califa Beach Pundit
• It has never ceased to amaze me the ridiculous amounts the US government spends on it's military (20% of budget) yet when you stand back and look at things, it becomes even more ludicrous.  For example the 19 aircraft carriers we have afloat whereas China only has one and it's not even in commission yet.  BusinessInsider   More aircraft carrier numbers at Wikipedia
• After the close, CME lowers margin

While the U.S. saw their home prices plunge and begin to recover, China and Canada have still been in what's been considered a housing price bubble.  China even more worrisome when you consider their large shadow banking system (alleged to be 25-30% of their entire financial system) which runs behind the scenes and basically ignored by larger banks.  They are, after all, providing a service to small business and investor but at risk and what cost? 

(China home price index to the left - Canada's home pricing index to the right. )

In 2013 Fitch estimated China's shadow banking system represented an astounding 60% of GDP.  Yep, 60% and no one's paying attention to the children in the playground?  Mind blowing.   For all the complaints here in the US over government regulation, they are there when we need them; pulling on the reigns and don't wait until the child runs into traffic in front of a truck.  Well, they usually don't.

In any case, China's credit-market gauges are triggering al

"A couple of weeks ago, we recommended to clients to buy the September Natural gas $3.50-$3.60 put forabout $500-$900/contract for a potentialprofit of $1200-$2,000 (3x to 5x) return over the next month." From Cumberland Advisors hat tip @Ritholtz

However GannGlobal is proposing a runaway move in commodities is fast approaching.  If you're a believer in "herd" mentality (that big investors move together as a herd and the herd moves the market), you may wish to checkout their video and register for their free webinar

This would make sense with the breakout in BDI in late June  (see my prior blog posts in February and March) as well as the theory that the next step for China is to build out their rail system to connect their (ghost) cities and dramatically improve their distribution channel, connect people to jobs and lower costs.

If this move in commodities were to take place, we as investors, would want to establish positions in commodity futures and/or equity/producer names (or co

We've already seen China build subdivisions, a mall, amusement park, a university and more, all sitting (essentially) empty so what is next?   For your consideration, this McKinsey video where their research shows that over the next 10 years, China plans to spend tens of billions of dollars building thousands of kilometers of metro lines to connect 35 cities (I wonder how many of those are currently ghost cities) which will not only transport people, but enormously improve efficiencies on shipment of goods.

During the last few years, a lot of hype has been heaped on the Brics (Brazil, Russia, India, China, and South Africa). With their large populations and rapid growth, these countries, so the argument goes, will soon become some of the largest economies in the world – and, in the case of China, the largest of all by as early as 2020. But the Brics, as well as many other emerging-market economies – have recently experienced a sharp economic slowdown. So, is the honeymoon over?

Brazil's GDP grew by only 1% last year, and may not grow by more than 2% this year, with its potential growth barely above 3%. Russia's economy may grow by barely 2% this year, with potential growth also at around 3%, despite oil prices being around $100 a barrel. India had a couple of years of strong growth recently (11.2% in 2010 and 7.7% in 2011) but slowed to 4% in 2012. China's economy grew by 10% a year for the last three decades, but slowed to 7.8% last year and risks a hard landing. And South Africa grew by

The sharp increases in investment that have driven China’s rapid economic growth for the past 30 years are not sustainable, and consumers can’t provide additional demand unless wealth is redistributed toward Chinese households. The most obvious consequence of rebalancing is that it will result in much slower growth over the medium term. While many economists now project that average annual economic growth will fall to between 5 and 7 percent a year during the next decade, I expect it to slow even more, perhaps to 3 to 4 percent a year. In modern history, no country that has experienced an investment-driven growth “miracle” has avoided a slowdown (such as Japan’s after 1990) that surprised even the pessimists, and it is hard to find good reasons to think China will be an exception. 

As a result, many businesses in China and around the world will thrive, while others will be forced to make wrenching changes. Here are four predictions about the ways China’s rebalancing will affect the

BEIJING—By lowering China's growth target to 7.5% this year, Premier Wen Jiabao has signaled that an era of supercharged expansion may be coming to an end, a shift with profound implications for countries like Australia and Brazil that have prospered from red-hot Chinese demand for commodities.

The NPC will set key economic priorities for 2012 but as the WSJ's Aaron Back tells Deborah Kan, it's often what goes on behind the scenes that's most telling.

China has announced it is lowering its target growth forecast to 7.5% from 8%. Not a big move but enough to send a few tremors through the world's financial markets. Andrew Peaple and Martin Essex discuss what this means for the global economy. Photo: AP

The adjustment suggests that China's leaders have reached a comfort level with slower growth, and that they don't intend to stimulate the economy through state-led investment, as they have in the past. Instead, they plan to let a long-touted shift away from expor