2014-10-26 13:36:54 | Telegraph (UK)
Oil slump leaves Russia even weaker than decaying Soviet Union
By Ambrose Evans-Pritchard
Telegraph: 8:48PM BST 22 Oct 2014
Russia had the chance at the end of the Cold War to build a modern, diversified economy, with the enthusiastic help of the West. That chance has been squandered


It took two years for crumbling oil prices to bring the Soviet Union to its knees in the mid-1980s, and another two years of stagnation to break the Bolshevik empire altogether.


Russian ex-premier Yegor Gaidar famously dated the moment to September 1985, when Saudi Arabia stopped trying to defend the crude market, cranking up output instead. "The Soviet Union lost $20bn per year, money without which the country simply could not survive," he wrote.


The Soviet economy had run out of cash for food imports. Unwilling to impose war-time rationing, its leaders sold gold, down to the pre-1917 imperial bars in the vaults. They then had to beg for "political credits" from the West. That made it unthinkable for Moscow to hold down eastern Europe's captive nations by force, and the Poles, Czechs and Hungarians knew it.


"The collapse of the USSR should serve as a lesson to those who construct policy based on the assumption that oil prices will remain perpetually high. A seemingly stable superpower disintegrated in only a few short years," he wrote.


Lest we engage in false historicism, it is worth remembering just how strong the USSR still seemed. It knew how to make things. It had an industrial core, with formidable scientists and engineers.


Vladimir Putin's Russia is a weaker animal in key respects, a remarkable indictment of his 15-year reign. He presides over a rentier economy, addicted to oil, gas and metals, a textbook case of the Dutch Disease.


The IMF says the real effective exchange rate (REER) rose 130pc from 2000 to 2013 during the commodity super-cycle, smothering everything else. Non-oil exports fell from 21pc to 8pc of GDP.


"Russia is already in a perfect storm," said Lubomir Mitov, Moscow chief for the Institute of International Finance. "Rich Russians are converting as many roubles as they can into foreign currencies and storing the money in vaults. There is chronic capital flight of 4pc to 5pc of GDP each year but this is no longer covered by the current account surplus, and now sanctions have caused foreign capital to turn negative, too."

「ロシアは既に嵐の真っ只中だ」と国際金融研究所のモスクワ支部長、Lubomir Mitov氏は言いました。

"The financing gap has reached 3pc of GDP, and they have to repay $150bn in principal to foreign creditors over the next 12 months. It will be very dangerous if reserves fall below $330bn," he said.


"The benign outcome is a return to the stagnation of the Brezhnev era [Застой in Russian] in the early 1980s, without a financial collapse. The bad outcome could be a lot worse," he said.


Mr Mitov said Russia is fundamentally crippled. "They have outsourced their brains and lost their technology. The best Russian engineers go to work for Boeing. The Russian railways are run on German technology. It looked as if Russia was strong during the oil boom but it was an illusion and now they are in an even worse position than the Soviet Union," he said.


The Saudi drama of 1985 has powerful echoes today. We do not know exactly why the Saudis decided to drive down the oil price, though they were clearly frustrated by OPEC cheating, and needed extra revenue themselves.


Ronald Reagan biographer Paul Kengor says the chief motive was to nurture their strategic alliance with Washington, doing a favour for the US at an inflexion point in the Cold War. The former President's son, Michael Reagan, makes the same claim. "My father got the Saudis to flood the market with cheap oil," he said. The plans were allegedly hatched by CIA Director William Casey.


By then President Reagan was spending 6.6pc of GDP on defence and building his 15 aircraft carrier battle groups (never quite achieved), inviting ruinous attempts by the USSR to keep up.


The "Reagan Doctrine" twisted the knife further by backing guerrilla insurgencies against Soviet client states: in Afghanistan, Nicaragua and Angola, among others. The Pentagon's rule of thumb was that it cost Moscow 10 times as much to defend these regimes as it cost Washington to take pot shots. Hawk anti-aircraft missiles were cheap. Soviet MIG 24 helicopters were expensive.


The Saudis were again helpful. They bankrolled the Nicaraguan Contras when House Democrats cut off funding, quietly paying for an off-books operation by US intelligence. The go-between was Prince Bandar bin Sultan, then Saudi ambassador in Washington.


This is the same Prince Bandar - later head of the Saudi secret service - who spent four hours with Mr Putin last year at his dacha outside Moscow. A transcript of their talk was leaked by the Kremlin, in order to embarrass Riyadh. It suggests that the prince offered Russia a deal to carve up global oil and gas markets, but only if it sacrificed Syria's Assad regime. He purported to speak with the full backing of Washington.


While nothing came of the meeting, it gives a glimpse into the raw geopolitics of oil. It explains why they think the worst in Moscow today as the Saudis cheerfully shrug off a 24pc plunge in Brent crude prices since June. "This is political manipulation, and Saudi Arabia is being manipulated, which could end badly," said Mikhail Leontyev from Russia's oil arm, Rosneft.

「これは政治的な操作だ。サウジアラビアは操られている。酷い結果になるかもしれない」とロスネフチのMikhail Leontyev氏は言います。

Events never repeat themselves. The Saudis lack the spare capacity these days to dictate prices with 1980s panache. They have their own pain threshold. Their welfare blitz since the Arab Spring has run to $130bn. The Shia minority in the Eastern Province has a score to settle, and they are sitting on the giant oil fields.


Brent oil has settled at around $85 a barrel. Deutsche Bank said the "break-even price" for the Saudi budget is $99, rising to $100 for Russia and Oman, $126 for Nigeria, $136 for Bahrain and $162 for Venezuela. There is a widely-held view that the Saudis are bluffing in order to force the rest of OPEC to agree to output cuts. If so, we will find out in November.


What is clear is that the Saudis can withstand two or even three years at the current price by dipping into their $745bn foreign exchange reserves. This would have the added bonus (for them) of chilling fresh shale ventures, and perhaps killing some deep water forays in the Atlantic.


Whatever the Saudi motive, Russia is already reeling. The central bank governor Elvira Nabiulina told the Duma last week that plans are afoot to cope with a protracted slide in oil prices to $60. "We are working on a stress scenario, an emergency scenario so to speak," she said.


Moody's said the central bank has burned through $60bn of foreign reserves since the end of last year propping up companies starved of dollar liquidity. The total has dropped to $396bn on its estimates (leaving aside the Reserve Fund) and is becoming a sovereign credit risk.


This time Russia is not facing Reaganesque rearmament, but it is facing nuclear-tipped sanctions, more destructive than many realise in a globalised banking system. It is not a stretch to say that American regulatory power has never been so far-reaching, or imperial. The result is that Russian banks, companies and state bodies are shut out of the global capital markets, unable to roll over $720bn of external debt.


Russia's reserves of cheap crude in West Siberian fields are declining, yet the Western know-how and vast investment needed to crack new regions have been blocked. Exxon Mobil has been ordered to suspend a joint venture in the Arctic. Fracking in the Bazhenov Basin is not viable without the latest 3D seismic imaging and computer technology from the US. China cannot plug the gap.


Andrey Kuzyaev, head of Lukoil Overseas, said it costs $3.5m to drill a 1.5 km horizontal well-bore in the US, and $15m or even $20m to drill the same length in Russia. "We're lagging by 10 years. Our traditional reserves are being exhausted. This is the reality for our country," he said.


Lukoil warns that Russia could ultimately lose a quarter of its oil output if the sanctions drag for another two or three years.


The IMF's latest "Article IV" report on Russia is an acid verdict on the Putin era. Product market barriers are the worst of any large country in the world. The economy is a tangle of bottlenecks. Russia's development model has "reached its limits".


For details, try the World Economic Forum's index of competitiveness. Russia ranks 136 for road quality, 133 for property rights, 126 for the ability of firms to absorb technology, 124 for availability of the latest technology, 120 for the burden of government regulation, 119 for judicial independence, 113 for the quality of management schools, 107 for prevalence of HIV, 105 for product sophistication, 101 for life expectancy and 56 for quality of maths and science education. This is the profile of decline.


Russia had a window of opportunity at the end of the Cold War to build a modern, diversified economy, with the enthusiastic help of the West, before the ageing crisis hit and the workforce began shrink by 1m a year. This chance has been squandered. Mr Putin's rash decision to pick a fight with the democratic world has made matters infinitely worse. Cheap oil could prove to be the death knout.




2014-10-26 13:36:36 | Telegraph (UK)
One simple reason why global stock markets are reeling
By Ambrose Evans-Pritchard, International Business Editor
Telegraph: 6:45PM BST 17 Oct 2014
The world's central banks have slashed stimulus by $125bn a month since the end of last year - leading to the current market rout


It is no mystery why global liquidity is evaporating. Central banks have turned off the tap. They have reduced net stimulus by roughly $125bn a month since the end of last year, or $1.5 trillion annualized.


That is a shock for the financial system. The ratchet effect has been incremental, but relentless. We are finally seeing the consequences, with the usual monetary policy lag.


The Fed and People's Bank of China (PBOC) have stopped their two variants of global QE altogether (for now). Others have chopped their purchases of bonds by half or more. The Brazilians are net sellers, and in a sense they carrying out reverse QE. The Russians have just joined them again.


Fed tapering has taken out $85bn a month. The markets are having to go it alone as of this month, without their drip feed. Less understood is the effect of global reserve accumulation by the BRICS, emerging Asia, and the Petro-states. This has collapsed.


Nomura's Jens Nordvig has crunched the latest numbers for Q3. They show that China's PBOC has completely withdrawn from global asset markets. In fact, it may have sold almost $9bn of bonds, (even adjusting for currency effects). This is a policy shift by Beijing. Premier Li Keqiang said in May that China's $4 trillion foreign reserves are already so big they have become a "burden".


China bought $106bn as recently as the first quarter of 2014, so this is a very sudden shift. Yes, I know, China's purchases of US Treasuries, Gilts, Bunds, French bonds, and Japanese JGBs are not quite the same as QE. There are complex sterilization effects.


Yet there is a fungible effect whether the Fed is buying Treasuries or whether the Chinese central bank is buying them. It is all a form of global QE. It all helps to inflate asset prices, and vice versa if it reverses.


This was really what Ben Bernanke meant when he first began talking of the "global savings glut". The flood money into the bond markets was compressing yields for everybody. Hence the subprime debt crisis in the US, and hence too the Club Med debt bubble.


The money had to go somewhere as the rising world powers boosted global FX reserves to $11.3 trillion from under $1 trillion in 2000. It went into safe-haven bonds, displacing that money into everything else.

で、セーフヘイヴンの債券に向かい、そのマネーは 他の全てのものに取って代わりました。

Over the latest quarter, almost every country has been choking back: the Bank of Korea has cut net purchases from $25bn to $9bn; the Reserve Bank of India from $43bn to $12bn; the petro-states have cut from $19bn in Q1 to $11bn. (That must surely turn steeply negative with oil at $86 a barrel).


Net sellers were: China (-$9bn), Brazil (-$7bn), Singapore (-$7bn), Malaysia (-$5bn), Thailand (-$3bn), Turkey (-$1bn). Overall FX accumulation worldwide fell from $106bn to $22bn.


The Bank of Japan - now on QE8 -- is buying $75bn a month of Japanese domestic debt. But that is almost a fixture. It is not raising the pace of monthly stimulus.


Stephen Jen from SLJ Macro Partners said QE by the West since the Lehman crisis has - by a complex process -- set off a roughly comparable increase in the scale of bond purchases by central banks in developing countries. This is a sort of "two-for-one" stimulus, at least for the global bond markets.


"The effect has been massive for the world economy, and one of the least understood. Reserve managers are faceless. They sit at computers pressing buttons. The data is not well-tracked," he said.


Unfortunately, it means that the end of QE by the Fed also has a "two-for-one" impact. The world is doubly leveraged on the way back down


For at least three years a liquidity bonanza has fueled asset booms despite a weak global economy, a slowing China, perma-slump in Europe, and stagnation in Brazil, and Russia. The assumption was that the world economy would eventually catch up with stockmarkets and the frothiest of assets. It has not done so.


The obvious risk is that the S&P 500, the FTSE-100, the DAX and other bourses will have to continue deflating downwards as the whole process goes into reverse, until the gap is closed.

ハッキリしたリスクは、何もかもがリバースする中で、S&P500、FTSE 100、DAXその他がギャップが埋まるまで下がり続けなければならなくなることです。

Or just as likely, until the blinking starts at the Fed and the People's Bank. QE4 is creeping onto the table already.




2014-10-25 17:26:53 | Telegraph (UK)
World braces as deflation tremors hit Eurozone bond markets
By Ambrose Evans-Prtichard, International Business Editor
Telegraph: 9:03PM BST 16 Oct 2014
'The forces of monetary deflation are gathering. Global liquidity is declining and central banks are not doing enough, either in the West or the East to offset the decline,' warns CrossBorderCapital


Eurozone fears have returned with a vengeance as deepening deflation across Southern Europe and fresh turmoil in Greece set off wild moves on the European bond markets.


Yields on 10-year German Bund plummeted to an all-time low on 0.72pc on flight to safety, touching levels never seen before in any major European country in recorded history. "This is not going to stop until the European Central Bank steps up to the plate. If it does not act in the next few days, this could snowball," said Andrew Roberts, credit chief at RBS.


Austria's ECB governor, Ewald Nowotny, played down prospects for quantitative easing, warning that the markets had "exaggerated ideas about purchase volumes" and that no asset-backed securities (ABS) would be bought before December.


Calls for action came as James Bullard, the once hawkish head of St Louis Federal Reserve, said the Fed may have to back-track on bond tapering in the US, hinting at yet further QE to fight deflationary pressures and shore up defences against a eurozone relapse.


"The forces of monetary deflation are gathering," said CrossBorderCapital. "Global liquidity is declining and central banks are not doing enough, either in the West or the East to offset the decline. This may not be a repeat of 2007/2008, but it is starting to look more and more like another 1997/1998 episode." This is a reference to the East Asia crisis and Russian default triggered by withdrawal of dollar liquidity.


Ominously, French, Italian, Spanish, Irish, and Portuguese yields diverged sharply from German yields in early trading today, spiking suddenly in a sign that investors are again questioning the solidity of monetary union. The risk spread between Bunds and Italian 10-year yields briefly jumped 38 basis points. This was the biggest one-day move since the last spasm of the debt crisis in 2012.


This sort of price action suggests that the markets fear deflation is becoming serious enough to threaten the debt dynamics of weaker EMU states. The yields are not just discounting a protracted slump, they are also starting to price default risk yet again, or even EMU break-up risk. This is a new development that may some heartburn in Frankfurt.


The markets were further rattled by an IMF warning that just 30pc of eurozone banks are in a fit state to rebuild capital and boost lending, a hint that the ECB's stress tests could contain some nasty surprises for lenders when results are released this month. The IMF says 80pc of US banks are healthy.


Greece's yields have soared 300 basis points to 8.73pc over the last month as markets react badly to populist plans by premier Antonis Samaras to break free of the EU-IMF Troika and return to the markets for debt finance.


This is compounded by fears that political deadlock will force a general election in February, opening the door for the Syriza party's firebrand leader Alexis Tsipras. The latest polls put Syriza six points ahead of the government. The party has vowed to tear up Greece Troika "Memorandum", deeming the terms to be debt servitude.


One banker with Greek ties said the local sell-off is entirely political. "The Athens stock market has tanked 24pc and residual Greek bonds have lost almost half their value. That is the clearing price for a Tsipras government. But at the end of the day the EU has too much at stake in Greece to let it fail," he said.


Professor Richard Werner from Southampton University said talk of recovery in the eurozone over recent month has been wishful thinking. "There has been a huge contraction in bank credit in southern Europe, and that means their economies are slowly imploding."


The stress in the bond markets came as data from Eurostat showed that Italy, Spain, Greece, Slovenia, and Slovakia were all in deflation in September, as were Poland, Hungary, and Bulgaria outside the eurozone. Italy's inflation rate has collapsed to an annualized rate of minus 5pc over the last six months, once tax distortions are stripped out. Marchel Alexandrovich from Jefferies said core inflation for the eurozone as a whole has dropped to 0.53pc when adjusted for taxes, and just 0.2pc for France.


The so-called "5Y/5Y" swap rate watched closely by markets as a deflation barometer crashed to a new low of 1.68pc in intra-day trading, ever further below the 2pc line etched in the sand by the ECB. "There seems to be a total capitulation in inflation expectations," said Mr Alexandrovich.


The proportion of goods in the eurozone's price basket in deflation jumped to 31pc in September from a month earlier, according to Jefferies data. The figure was 32pc in France, 45pc in Holland, 47pc in Portugal, 52pc in Spain, 57pc in Slovenia, and 76pc in Greece. Japan's experience in the late 1990s suggests that the danger line is around 60pc.


The ECB aims to "stir" its balance sheet by €1 trillion or so over the next two years. Yet the balance has in fact contracted by €21bn over the last two weeks as "passive tightening" continues, and has dropped by roughly €85bn since the bank's spending plans were unveiled in June.


Anna Grimaldi from Intesa SanPaolo sadi the ECB will not be able to buy more than €7bn-11bn a month of covered bonds and ABS. This is a tiny fraction of QE volumes in the US, the UK, or Japan. "We expect total purchases to amount to just under €400bn," she said.


The ECB is relying on a weaker euro as its main defence against deflation but Japan's travails shows that this is a risky strategy without powerful action to back it up. Stephen Jen from SLJ Macro Partners said it will take very large outflows of capital to offset the eurozone's current account surplus of €230bn, and then to push the exchange rate down to €1.20 against the dollar, the minimum level needed to kick start a recovery. "If the ECB's actions are too weak, the euro could perversely appreciate, just as the yen did from 1990 to 2012," he said.


Prof Werner, who first coined the term QE as an adviser to Japan in the 1990s, said the ECB is making the same mistakes as the Bank of Japan at the onset of deflation. "They are following BoJ script to the letter, even repeating the same demands for structural reform. But the crisis is caused by lack of demand not lack supply. Their arguments are completely false," he said.


Richard Koo from Nomura, a specialist on Japan's deflation, said the ECB's cheap lending facilities for banks (TLTROs) cannot work at a time when companies and households are trying to pay down debt. "TLTROs are useless in a world of no borrowers," he said.


The error has been compounded by demands for fiscal austerity, a destructive policy in a deflationary crisis. "The ECB is at least partly responsible for the eurozone slump, giving a helpful push to the countries of the eurozone as they dropped off the fiscal cliff. If a government stops borrowing and begins saving despite zero interest rates at a time when the private sector has done the same, the economy will fall into a deflationary spiral," he said.




2014-10-18 20:44:09 | Telegraph (UK)
World economy so damaged it may need permanent QE
By Ambrose Evans-Pritchard
Telegraph: 9:36PM BST 15 Oct 2014
Markets are realising that the five-and-a-half year recovery since the financial crisis may already be over, says Ambrose Evans-Pritchard


Combined tightening by the United States and China has done its worst. Global liquidity is evaporating.


What looked liked a gentle tap on the brakes by the two monetary superpowers has proved too much for a fragile world economy, still locked in "secular stagnation". The latest investor survey by Bank of America shows that fund managers no longer believe the European Central Bank will step into the breach with quantitative easing of its own, at least on a worthwhile scale.


Markets are suddenly prey to the disturbing thought that the five-and-a-half year expansion since the Lehman crisis may already be over, before Europe has regained its prior level of output. That is the chief reason why the price of Brent crude has crashed by 25pc since June. It is why yields on 10-year US Treasuries have fallen to 1.96pc, and why German Bunds are pricing in perma-slump at historic lows of 0.81pc this week.


We will find out soon whether or not this a replay of 1937 when the authorities drained stimulus too early, and set off the second leg of the Great Depression.


If this growth scare presages the end of the cycle, the consequences will be hideous for France, Italy, Spain, Holland, Portugal, Greece, Bulgaria, and others already in deflation, or close to it. The higher their debt ratios, the worse the damage.


Forward-looking credit swaps already suggest that the US Federal Reserve will not be able to raise interest rates next year, or the year after, or ever, one might say. It is starting to look as if the withdrawal of $85bn of bond purchases each month is already tantamount to a normal cycle of rate rises, enough in itself to trigger a downturn. Put another way, it is possible that the world economy is so damaged that it needs permanent QE just to keep the show on the road.


Traders are taking bets on capitulation by the Fed as it tries to find new excuses to delay rate rises, this time by talking down the dollar. "Talk of 'QE4' and renewed bond buying is doing the rounds," said Kit Juckes from Societe Generale.


Gentle declines in the price of oil are typically benign, a shot in the arm for companies and consumers alike. The rule of thumb is that each $10 drop in the price adds 0.3pc to GDP growth over the next year.


Crashes are another story. They signal global stress, doubly dangerous today because the whole industrial world is one shock away from a deflation trap, a psychological threshold where we batten down the hatches and wait for cheaper prices. That is the Ninth Circle of Hell in economics. Lasciate ogni speranza.


The world is also more stretched. Morgan Stanley calculates that gross global leverage has risen from $105 trillion to $150 trillion since 2007. Debt has risen to 275pc of GDP in the rich world, and to 175pc in emerging markets. Both are up 20 percentage points since 2007, and both are historic records. The Bank for Settlements warns that the world is on a hair-trigger. The slightest loss of liquidity can have "violent" effects.


Saudi Arabia has clearly shifted strategy, aiming to force high-cost producers out of business across the globe, rather than defend OPEC cartel prices by slashing its own output to offset rises in Libyan supply. Bank of America thinks the Saudis are targeting $85 a barrel, partly in order to squeeze three enemies, Iran, Russia, and the Caliphate.


If crude prices stay low for long, almost all the major oil producers will have to start dipping into their foreign reserves to fund their welfare states and military apparatus. The "fiscal break-even" price needed to cover the budget is $130 for Iran, $115 for Algeria and Bahrain, $105 for Iraq, Russia, and Nigeria, and almost $100 even for Abu Dhabi. The Saudis themselves are probably well above $90 by now.


This means that they will have to sell holdings of foreign bonds, assets, and gold to plug the gap. Russia has run through $7bn in recent days defending the rouble. The scale of this could be huge, and it comes at a time when China has stopped accumulating reserves for its own reasons, taking away the biggest global source of fresh purchases.


Nor does the chain reaction stop there. Lower prices chill the US shale industry, which has lifted US (liquids) output from 7m barrels a day (b/d) to 11.6m since 2008, and turned America into the world's biggest producer. Bank of America says the pain starts at around $75 for the most costly fields. "Shale oil output is very sensitive to price conditions," it said.


The US Energy Department says oil and gas companies have been amassing huge debts drilling for marginal output in ever more hostile regions. Net debt rose $106bn in the year to March, on top of $73bn of asset sales. Yet revenues were stagnating even when crude prices were above $100. The fossil fuel nexus has spent $5 trillion since 2008, and much of this is at risk. It has in itself become a systemic threat.


Yet the oil crash is not merely a supply story. "There has been a rapid collapse of demand," said Edwin Morse from Citigroup. The International Energy Agency says demand fell by 50,000 b/d in France, and 45,000 b/d in Italy in August, below earlier estimates. China's oil demand is no longer rising by half a million b/d each year. It has slowed to a quarter a million.


The global slowdown has caught the global authorities off guard, as it always does. Above all, it has confounded the central banking fraternity. In thrall to "creditism", it insists that QE works by forcing down interest rates across the maturity curve. Ergo, Fed tapering does not matter so long as rates stay low. By the same logic, ECB policy is "accommodative" because rates have collapsed, a claim would have Milton Friedman turning in his grave.


Monetarists say this is a cardinal error, bound to cause serial mishaps. Indeed, Robert Hetzel from the Richmond Fed blames the Lehman crisis and all that followed on monetary overkill in early to mid 2008, arguing in his book "The Great Recession" that the Fed ignored the warning signs that M2 money was buckling.

リッチモンド連銀のロバート・ヘッツェル氏は、2008年の初版から中盤にかけてのリーマン危機とそれに続く諸々の行き過ぎを非難していて、著書『The Great Recession』でFRBはM2が減るというワーニング・サインを無視したと論じました。

We forget that the Venetian Grain Board regulated commerce over the centuries by altering the quantity of money, not interest rates. So did the Bank of England in the 18th Century, injecting liquidity when Easterly winds brought ships into London. The Bank continued to target the quantity of money in the early 20th Century when QE was known as open market operations. Quantity was Friedman's lodestar in his great opus.


Quantity is not doing very well. The Center for Financial Stability in New York says "Divisia M4" - its measure of broad money growth - has fallen to 2.5pc from around 6pc in early 2013. The US economy can perhaps handle some loss of dollar liquidity. The world as a whole cannot. There are $11 trillion of cross-border loans outstanding, and two thirds are still in US dollars. Emerging market companies have borrowed a further $2 trillion in dollars since 2008.

ニューヨークの金融安定センターによれば、「Divisia M4」(同センターのブロードマネーの伸びの尺度)は2013年初頭の約6%から2.5%にまで下落したそうで。

China is no longer tightening, but it is not loosening much either. It is actively steering down the growth rate of M2 money, even though house prices have been falling for five months, industrial output has stalled, and factory gate inflation has dropped to minus 1.8pc. President Xi Jinping seems resolved to break China's credit bubble early in his 10-year term, come what may. This will not be pretty. Standard Charted says debt has reached 250pc of GDP, off the charts for a developing economy.


Property curbs have been lifted. The central bank has injected small bursts of liquidity into the banking system. But this time China has not let rip with credit from the state banking system to keep the game going. "We cannot rely again on increasing liquidity to stimulate economic growth," said premier Li last month.


He is targeting jobs, not growth, willing to deflate the economy and purge excess capacity in the steel and ship-building industries as long as unemployment does not rise much above 5pc. This may be the right course for China, but it is an unpleasant shock for those across the globe who feed the dragon for a living.


China will eventually blink if the slowdown deepens, and so will the Fed in Washington. First the markets will have to learn the hard way that they have mispriced the reality of a broken global economy.




2014-10-18 20:43:55 | Telegraph (UK)
BIS warns on 'violent' reversal of global markets
By Ambrose Evans-Pritchard, International Business Editor
Telegraph: 9:00PM BST 14 Oct 2014
Investors take zero-rates for granted and unwisely believe that central banks will protect them, says the capital markets chief of the Bank of International Settlements


The global financial markets are dangerously stretched and may unwind with shock force as liquidity dries up, the Bank of International Settlements has warned.


Guy Debelle, head of the BIS's market committee, said investors have become far too complacent, wrongly believing that central banks can protect them, many staking bets that are bound to "blow up" as the first sign of stress.


In a speech in Sydney, Mr Debelle said: "The sell-off, particularly in fixed income, could be relatively violent when it comes. There are a number of investors buying assets on the presumption of a level of liquidity which is not there. This is not evident when positions are being put on, but will become readily apparent when investors attempt to exit their positions.


"The exits tend to get jammed unexpectedly and rapidly."


Mr Debelle, who is also chief of financial markets at Australia's Reserve Bank, said any sell-off could be amplified because nominal interest rates are already zero across most of the industrial world. "That is a point we haven't started from before. There are undoubtedly positions out there which are dependent on (close to) zero funding costs. When funding costs are no longer close to zero, these positions will blow up," he said.


The BIS warned earlier this summer that the world economy is in many respects more vulnerable to a financial crisis than it was in 2007. Debt ratios are now far higher, and emerging markets have also been drawn into the fire over the last five years. The world as whole has never been more leveraged.


Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since the Lehman Brothers crash.


The new twist is that emerging markets have also been on a debt spree, partly as a spill-over from quantitative easing in the West. This has caused a flood of dollar liquidity into these countries that they have struggled to control. It has pushed up their debt ratios by 20 percentage points to 175pc, and much of the borrowing has been at an average real rate of 1pc that is unlikely to last.


China was able to act as a stabilizing force during the global downturn of 2009, letting rip with an immense burst of credit. These buffers are now largely exhausted. All of the BRICS (Brazil, Russia, India, China, South Africa) countries have hit structural limits, and face difficulties of one form or another.


Mr Debelle said the markets may at any time start to question whether the global authorities have matters under control, or whether their pledge to hold down rates through forward guidance can be believed. "I find it somewhat surprising that the market is willing to accept the central banks at their word, and not think so much for themselves," he said


The biggest worry is a precipitous sell-off in the bond markets once the US Federal Reserve and the other major central banks begin to tighten in earnest. Mr Debelle cited the US bond crash in 1994, but warned that it could be even more violent this time with a "fair chance that volatility will feed on itself".


The picture is further complicated by a fall in the depth and inventory of market makers, the side-effect of new regulations that have raised costs and caused firms to exit this specialist business. "Market liquidity is structurally lower now than it was in the past. The question today is whether there is too little capacity. When volatility returns, it may well rise quite rapidly," he said.


Mr Debelle may be especially sensitive to the risks, given his ring-side seat in Australia where authorities are grappling with a housing bubble and a commodity shock from China. Yet his warning is global: investors have taken on too much risk, and the illusion of liquidity can vanish almost overnight. "That strikes me as a dangerous combination and unlikely to be resolved smoothly," he said