brazil reduces oil production plans

[GRG55]

Re: brazil reduces oil production plans

They can't open the credit spigots anymore. That's the problem.

I am already hearing from Chinese associates in SE Asian countries that they have cut spending, "no more large family dinners or vacations."

What do you think that does to those economies?

In SE Asia (and a whole lot of other places, including Australia, Canada, Latin America) real disposable income is getting crushed as currencies decline and the most liquid assets get repriced abruptly downward. Discretionary spending patterns most everywhere outside the USA will continue change.

Although the long overdue Yuan currency adjustment is just starting (I think we both agree on that outlook), since China is such a large importer of semi-finished goods from the rest of Asia, its buying power has been increasing. In the meantime the Euro and US$ currency valuations continue to support China's finished goods export markets.

A squeeze on local consumption in China, a "temporary" abandonment of the restructuring initiative, and a re-reversion to the tried and true mercantile model seems likely to me. I see no reason China cannot further increase its Yuan denominated money supply and funnel credit into the SOEs. For now. What do you see will cap its ability to do so?

Given the carnage elsewhere, and the enduring theme of China's magnificent growth, I don't have any difficulty imagining another reversal of FDI flows into China.

[LazyBoy]

Re: brazil reduces oil production plans

The reason: Student loan debt is one of the few channels the government has used to create continuous credit growth as the crisis engulfed the ABS issuance market.

You're absolutely right, Prodigy. Well said. Student loans are a recent innovation to prop up both the debt-based economy as well as keeping-the-lid-on welfare state subsidies.

I'd been thinking of the growth in student loans (and subsequently, college costs) as the result of naive good intentions ("All Americans should go to college!"), the straightforward desire for those interest payments and a lack of anyone making sure each loan was a good loan.

The idea that it was started purposefully to hide another issue is new to me. Any suggested reading supporting this?

[Southernguy]

Re: brazil reduces oil production plans

"A squeeze on local consumption in China, a "temporary" abandonment of the restructuring initiative, and a re-reversion to the tried and true mercantile model seems likely to me. I see no reason China cannot further increase its Yuan denominated money supply and funnel credit into the SOEs. For now. What do you see will cap its ability to do so?"

IMHO inflation

[ProdigyofZen]

Re: brazil reduces oil production plans

I'd been thinking of the growth in student loans (and subsequently, college costs) as the result of naive good intentions ("All Americans should go to college!"), the straightforward desire for those interest payments and a lack of anyone making sure each loan was a good loan.

The idea that it was started purposefully to hide another issue is new to me. Any suggested reading supporting this?

The Fed floods the spigots via narrow channels of credit and has done this since the mid 90s. Student loans are just one of those channels in order to keep up overall credit creation as credit deflation occurs in other areas of the market (namely ABS issuance since 2007/08).

Federal debt has taken has taken off since Q2 2009 and almost all of that credit creation is through student loans at the federal level.

[ProdigyofZen]

Re: brazil reduces oil production plans

I see no reason China cannot further increase its Yuan denominated money supply and funnel credit into the SOEs. For now. What do you see will cap its ability to do so?

GRG, I have answered this question privately.

[touchring]

Re: brazil reduces oil production plans

In SE Asia (and a whole lot of other places, including Australia, Canada, Latin America) real disposable income is getting crushed as currencies decline and the most liquid assets get repriced abruptly downward. Discretionary spending patterns most everywhere outside the USA will continue change.

Don't know about China, but there's a flow of funds into mini-China though.

Singapore fund managers' assets hit S$2.4 trillion in 2014: Survey

http://www.todayonline.com/singapore...on-2014-survey

[GRG55]

Re: brazil reduces oil production plans

Don't know about China, but there's a flow of funds into mini-China though.

Singapore fund managers' assets hit S$2.4 trillion in 2014: Survey

http://www.todayonline.com/singapore...on-2014-survey

Singapore became the preferred haven for Asian and Australian money after the Swiss compromised their confidentiality under pressure from the Americans and the EU. Dubai is more a haven for FSU, Indian, African and Middle East money. Few offshore funds and accounts in Singapore are in the local currency.

But the Singaporeans are also suffering a loss in purchasing power as the Sing Dollar falls...

[touchring]

Re: brazil reduces oil production plans

Singapore became the preferred haven for Asian and Australian money after the Swiss compromised their confidentiality under pressure from the Americans and the EU. Dubai is more a haven for FSU, Indian, African and Middle East money. Few offshore funds and accounts in Singapore are in the local currency.

But the Singaporeans are also suffering a loss in purchasing power as the Sing Dollar falls...

I don't believe there's a significant increase in prices due to currency changes, at least not yet, since the bulk of imports are food from China, Australia, NZ, Malaysia, Vietnam and Indonesia. Prices have risen regardless of what happens to the price of the underlying commodity as the rent, wages and taxes component is always rising.

To give an example, while the price of gasoline in the entire world has fallen since a year ago, they have risen in Singapore.

I'm still watching if there's a slowdown in the economy. Restaurants are still full of people and malls are packed, but I can see a slowdown in the IT services market. Residential rent has also soften or has stopped rising, a result of increased supply and reduced foreign intake.

[Bundi]

Re: brazil reduces oil production plans

"A squeeze on local consumption in China, a "temporary" abandonment of the restructuring initiative, and a re-reversion to the tried and true mercantile model seems likely to me. I see no reason China cannot further increase its Yuan denominated money supply and funnel credit into the SOEs. For now. What do you see will cap its ability to do so?"

IMHO inflation

Current Chinese reserves are still quite large with significant portions of these reserves tied to underlying liabilities (internal bond issuance to sanitize balance of payments inflows) and buffers held for potential capital account outflows (hot money reversal, etc..). However there are also significant foreign exchange reserves not tied to any liabilities, sovereign funds and other buckets. Is this now a source of capital being channeled internally to prop up banks?

A policy to increase the printing of Yuan in the face of a net decrease in US$ inflows may be inflationary. I suppose taken to the nth degree that would potentially undermine an export economy based on a lower cost of production model. Perhaps even the currency mercantilism would be overwhelmed by the erosion of labor/input cost arbitrage. Then again in the current scenario, a little or even a fair amount of inflation may be a lever for policy makers to use to their advantage. So long as oil prices remain in check anyway.

A look back at several years of posts on this site is helpful. China has, since 2010 or so, been “about to crash”.

[thriftyandboringinohio]

Re: brazil reduces oil production plans

...A policy to increase the printing of Yuan in the face of a net decrease in US$ inflows may be inflationary...

Bundi, to your point about printing money. China also just reduced the required rate of reserves for banks to 18%.
That's as good as printing money.

[ProdigyofZen]

Re: brazil reduces oil production plans

Is this now a source of capital being channeled internally to prop up banks?

It's always been a source of capital to create private bank debt.

The difference between 2010 and now is 5 years of 21+ trillion in debt creation and the fact that FX reserves began to reverse in Q2 2014 for the "first time ever" in China.

China isn't "about to crash" they are "in a long term crash process."

Be careful what you wish for in regards to "inflation in China."

[touchring]

Re: brazil reduces oil production plans

It's always been a source of capital to create private bank debt.

The difference between 2010 and now is 5 years of 21+ trillion in debt creation and the fact that FX reserves began to reverse in Q2 2014 for the "first time ever" in China.

China isn't "about to crash" they are "in a long term crash process."

Be careful what you wish for in regards to "inflation in China."

Sounds like that, a slow motion crash, but is not unique to China.

[GRG55]

Re: brazil reduces oil production plans

Current Chinese reserves are still quite large with significant portions of these reserves tied to underlying liabilities (internal bond issuance to sanitize balance of payments inflows) and buffers held for potential capital account outflows (hot money reversal, etc..). However there are also significant foreign exchange reserves not tied to any liabilities, sovereign funds and other buckets. Is this now a source of capital being channeled internally to prop up banks?

A policy to increase the printing of Yuan in the face of a net decrease in US$ inflows may be inflationary. I suppose taken to the nth degree that would potentially undermine an export economy based on a lower cost of production model. Perhaps even the currency mercantilism would be overwhelmed by the erosion of labor/input cost arbitrage. Then again in the current scenario, a little or even a fair amount of inflation may be a lever for policy makers to use to their advantage. So long as oil prices remain in check anyway.

A look back at several years of posts on this site is helpful. China has, since 2010 or so, been “about to crash”.

Not "about to crash", but setting the stage for that probability. Notice the date of slope change in the chart below. That was but one of the key indicators that attracted the notice of anyone paying attention. Identifying economic/financial circumstances that are irrational is not difficult, but requires being a contrarian. Vancouver housing being but one contemporary example. Identifying when the irrational behaviour is on the verge of reversing (the start of the crash) is infinitely more difficult. The latter is my primary reason for frequenting this forum.

Even now, despite a lot of reasoned debate on iTulip, it is not certain that China is indeed in a cyclically irreversible crash. Even separating the secular from the cyclical is difficult. I beleve PoZ is correct on the secular trend, but the cyclical movements within that "long crash" can kill an investor. As PoZ has noted the PBOC and Beijing cannot defend every variable, so a continuing declining trend stock market and a declining Yuan seem highly likely. But the increased liquidity actions that are now ensuing are almost certainly going to goose the property market, and cause many to declare that the Chinese economy is improving. Cyclically perhaps...

[touchring]

Re: brazil reduces oil production plans

Not "about to crash", but setting the stage for that probability. Notice the date of slope change in the chart below. That was but one of the key indicators that attracted the notice of anyone paying attention. Identifying economic/financial circumstances that are irrational is not difficult, but requires being a contrarian. Vancouver housing being but one contemporary example. Identifying when the irrational behaviour is on the verge of reversing (the start of the crash) is infinitely more difficult. The latter is my primary reason for frequenting this forum.

Even now, despite a lot of reasoned debate on iTulip, it is not certain that China is indeed in a cyclically irreversible crash. Even separating the secular from the cyclical is difficult. I beleve PoZ is correct on the secular trend, but the cyclical movements within that "long crash" can kill an investor. As PoZ has noted the PBOC and Beijing cannot defend every variable, so a continuing declining trend stock market and a declining Yuan seem highly likely. But the increased liquidity actions that are now ensuing are almost certainly going to goose the property market, and cause many to declare that the Chinese economy is improving. Cyclically perhaps...

Analyzing the Chinese market is not easy as we like to treat China like one country when it resembles more like the EU with different states (or provinces) in different stages of development and income levels.

West China which I went to early this year is only one third developed and you can see rapid development and urban renewal going on. That part is still growing at close to 10% a year.

http://www.gochengdu.cn/news/busines...ark-a1201.html

Even within the same region, economic activity differs greatly from industry to industry, for example, construction has slowed down sharply across China as we can see from the fall in prices of iron and copper. On the other hand, e-commerce is booming, particularly so with the falling oil prices and the cost of transportation. There's also a lot of room for growth in domestic tourism, the repair/maintenance industries and cleantech.

Personally, I would like to see the Chinese stock market fall more so I can scoop some ecommerce stocks for long term bet.

But how to know when it is the right time to enter?

[Southernguy]

Re: brazil reduces oil production plans

"Even within the same region, economic activity differs greatly from industry to industry, for example, construction has slowed down sharply across China as we can see from the fall in prices of iron and copper. On the other hand, e-commerce is booming, particularly so with the falling oil prices and the cost of transportation. There's also a lot of room for growth in domestic tourism, the repair/maintenance industries and cleantech."

That's, I think the new growth engine for China. At 7% anually it's GDP would double in 10 years. Given slow growth of ROW, particularly western developed countries China's share of world GDP would jump from 12% now to near 20% in 2024.
The only way that would be possible given resources relative scarcity would be to growth stem from services economy rather than infrastructure-heavy industry.
The challenge is for the masters to manage such a huge transformation without major disruptions.
So far they have been doing it quite acceptably.
As for a "sudden stop" episode I frankly can't see it. External debt is less than 10% of GDP and 3 times current account surplus.
I think both variables should change significantly before such a development could happen.
There is, as a new factor, growing capital outflow, part of it can't be explained by foreign direct investment which has been lately a ways of ensuring adequate provision of vital raw materials and infrastructure necessary for them to get to China. Difficult for me to see this as a destabilization item so far.