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Meet the man who is betting against China; Muddy Waters’ Carson Block believes that China’s banks hold more toxic assets than Western peers did ahead of the 2008 financial crash

Meet the man who is betting against China

Carson Block, the founder of Muddy Waters Research, believes that China’s banks hold more toxic assets than Western peers did ahead of the 2008 financial crash .

Earlier this month, Mr Block caused shares in Standard Chartered to fall and the cost of insuring its debt to spike after he warned the emerging market-focused lender had more risk on its balance sheet than the market commonly believed and suggested that betting against the bank was a good way to profit from any Chinese downturn. Photo: Bloomberg

By Harry Wilson

10:00PM BST 18 May 2013

He is listened to by institutional investors, regulators and politicians but he rarely speaks publicly. Last week, his analysis of Standard Chartered’s exposure to China caused a tremble in its share price and its backers to leap to the bank’s defence. Carson Block has broken his silence this weekend to reveal his fears for the global economy. The secretive fund manager said the risks within China’s banking system are more severe than those in Western financial institutions before the crisis. Mr Block, founder of Muddy Waters Research, which has gained a reputation over the past three years for its in-depth reports on financial irregularities in scores of Chinese companies, said the country’s banks hold more toxic assets than their peers in the West did ahead of the 2008 financial crash. “We believe that the domestic Chinese banking system is a mess, with an enormous amount of bad loans, or loans waiting to go bad,” he told theSunday Telegraph. Read more of this post

Chinese enterprises’ globalization ‘big in scale but weak’: Accenture

Chinese enterprises’ globalization ‘big in scale but weak’: Accenture

Staff Reporter

2013-05-19

The globalization of Chinese enterprises has been “big in scale but weak,” Claire Yang, head of Accenture’s Greater China talent and organization service line, was quoted May 14 in a report on the caixin.com Chinese business news website.

In terms of business scale, direct overseas investments made by Chinese enterprises touched US$77.2 billion in 2012, posting a growth rate of more than 20 times the levels seen less than a decade ago, the report said.

However, the global percentage of Chinese foreign investments remained at a low level compared with other countries. An Accenture report indicated that in 2011, capital flow involving Chinese direct foreign investment accounted for 16% of that of the United States and 57% of Japan, and was ranked the world’s ninth largest.

The ratio of Chinese enterprises overseas revenue was low. Using Standard and Poor’s 500 index, the average overseas revenue recorded for an enterprise accounted for 27% of the total the enterprise generated in a year. Read more of this post

Dongguan, one of China’s richest cities, suspends free services as debt crisis bites

Dongguan suspends free services as debt crisis bites

Saturday, 18 May, 2013, 12:00am

Charlotte So in Dongguan charlotte.so@scmp.com

In a telling sign of the mainland’s mounting local government debt crisis, some towns in Dongguan – one of the richest cities – are being forced to suspend free public services and infrastructure projects.

In February, Shipai town terminated the free bus services that it introduced with much fanfare about two years ago. Then in March, the township government said it was reviewing a policy of providing free education to all residents aged below 25 because the government’s coffers had dried up.

The town of Zhangmutou – dubbed little Hong Kong because of its popularity as an investment and holiday destination – has scrapped an ambitious plan to build a 100-million yuan (HK$126.4 million) recreational park, leaving a large chunk of empty land in the town centre.

Many local township authorities in Dongguan are struggling to pay the salaries of their employees.

Their problems underline the magnitude of local government debt issues on the mainland. Read more of this post

S&P warns it may lower India rating to junk status

S&P warns it may lower India rating to junk status

India faces at least “a one-in-three” chance of losing its prized sovereign grade rating. -AFP
Sat, May 18, 2013
AFP

NEW DELHI – India faces at least “a one-in-three” chance of losing its prized sovereign grade rating, global ratings agency Standard and Poor’s has warned, in another blow to the scandal-tainted Congress government. The announcement late on Friday comes after finance ministry officials have been arguing for a ratings upgrade, saying the government has been taking strong steps to curb India’s financial deficit and promote investment. India’s BBB-minus investment rating is already the lowest among its BRICS peers Brazil, Russia, China and South Africa, and cutting it to “junk status” would push up the country’s hefty borrowing costs as it would signal higher risk. Read more of this post

US energy revolution gathers pace as the Obama administration approved wider exports of liquefied natural gas and international companies committed billions of dollars for new infrastructure.

Last updated: May 17, 2013 9:21 pm

US energy revolution gathers pace

By Ed Crooks in New York, Jonathan Soble in Tokyo and Guy Chazan in London

The growing role of the US in world energy markets was underlined on Friday as the Obama administration approved wider exports of liquefied natural gas and international companies committed billions of dollars for new infrastructure.

The developments were both consequences of the shale revolution in the US, in which improvements in the techniques of horizontal drilling and hydraulic fracturing, or “fracking”, have unlocked new supplies of oil and gas, and raised the prospect that the US will be an increasingly important supplier of energy to the rest of the world.

The Department of Energy on Friday authorised the Freeport LNG project in Texas to export to countries that do not have a trade agreement with the US, including Japan and the members of the EU. It was the first such approval to be granted for two years and only the second ever. Read more of this post

China deal ends distraction, but not questions, for Caterpillar

China deal ends distraction, but not questions, for Caterpillar

Fri, May 17 2013

By James B. Kelleher

CHICAGO (Reuters) – Caterpillar Inc’s (CAT.N: Quote,Profile, Research, Stock Buzz) deal to cut the purchase price of a Chinese mining-equipment maker it bought last year ends an embarrassing episode that overshadowed the company’s effort to expand in China and distracted its executives for months. Now, analysts say, comes the hard part: Proving to investors that ERA Mining Machinery, the Chinese maker of hydraulic roof supports that Caterpillar purchased, really can help penetrate China’s huge underground mining market. In January, Caterpillar took a $580 million impairment related to the ERA deal after discovering what it characterized as a “deliberate, multi-year, coordinated accounting misconduct” at Siwei, a subsidiary that handled ERA’s principal business. Late on Thursday, Caterpillar said it reached a deal with the former controlling shareholders of ERA to cut $135 million from the $886 million purchase price – a move welcomed by analysts even if the money involved was, in the words of one, “a blip” in the U.S. company’s overall finances. “Outside of the reduction in purchase price, the chief benefit of the settlement is to eliminate the management distraction caused by the issue and get on with realizing the potential that led Caterpillar to buy this company in the first place,” said Alex Blanton, a senior analyst at Clear Harbor Asset Management in New York. “Whether or not it realizes the potential is another question,” he said. Read more of this post

Coming to terms with China’s growth prospects

Coming to terms with China’s growth prospects

Yukon Huang

May 16, 2013

Markets have not been enthused by the numbers coming out of China in recent months. Typical headlines are “China’s production indicators disappoint” or “analysts are worried that rapid expansion is faltering”. Estimates of China’s economic growth this year are slipping from more than 8 per cent to something closer to 7.5 per cent. Those concerned about the country’s longer-term growth challenges, however, tend to be more relaxed about near-term outcomes but preoccupied with the new leadership’s commitment to reforms. Is there a trade-off between reviving the economy and establishing a sustainable basis for longer-term growth? Unfortunately there is. Beijing has run out of good options to further stimulate the economy as a strategy to buy time until western economies rebound. There are lessons from what happened in the aftermath of China’s post Asian financial crisis stimulus more than a decade ago. At that time China responded with a massive programme comparable to its more recent effort in the aftermath of the global financial/fiscal crisis spurred by the economic collapse in the US and Europe. China’s confidence in stimulus programmes was unrealistically buoyed by its success in dealing with the Asian crisis which resulted in a soft landing followed by years of sustained and rapid growth. But the lingering consequences of the 2009 stimulus package have not been as benign, with no signs that the resulting high debt levels are moderating and that continued expansionary credit policies are spurring production and real demand. Read more of this post

As cost of living rises, Singaporeans turn to pawnshops; Economist Intelligence Unit has ranked Singapore the world’s sixth most expensive city to live in.

As cost of living rises, Singaporeans turn to pawnshops

Agence France-Presse

Posted at 05/18/2013 12:31 PM | Updated as of 05/18/2013 12:32 PM

SINGAPORE – Singaporean housewife Siti Khadijah Abdul Rahman accumulated a few thousand dollars’ worth of gold accessories over the past two decades, but now a rising cost of living is forcing her to pawn them.

With a stretched household budget that must also cater to school expenses for her two teenaged children, the 49 year-old is pawning her gold to relieve pressure on her security guard husband, who earns Sg$1,500 ($1,211) a month.

“Pawning is better than going to friends or family when you have budget problems,” said Abdul Rahman. “When I have money, I will claim it back.”

She is one of a rapidly increasing number of people opting to take short-term pawnshop loans to try to keep up with rising prices, in what the Economist Intelligence Unit has ranked the world’s sixth most expensive city to live in. Read more of this post

American Capital Fights Fed Exit Worry as Investors Flee

American Capital Fights Fed Exit Worry as Investors Flee

Gary Kain built American Capital Agency Corp. (AGNC) into the fastest growing real estate investment trust as the Federal Reserve pushed borrowing costs to record lows. Now he’s trying to persuade investors to stay with him as he navigates the central bank’s retreat.

American Capital slumped 11 percent since May 2 through yesterday, the worst performance in a Bloomberg index of 34 companies that invest in mortgage bonds, after reporting an 8.6 percent drop in book value from the prior quarter. Annaly Capital Management Inc. (NLY), the only mortgage REIT bigger than American Capital, said its book value, a measure of its assets minus its liabilities, fell 4 percent.

“The issue isn’t if the Fed exits, it’s a question of whether they exit way earlier than expected,” Kain said in a telephone interview. “We feel like positions are in much better shape now than they were in the January-February time frame.”

Firms that buy government-backed home-loan bonds are under pressure as investors speculate the Fed will withdraw from buying $40 billion of mortgage securities each month as the economy shows signs of strengthening. American Capital, which increased assets over three years more than 20-fold to $100.5 billion at the end of 2012, plunged the most of mortgage REITs after targeting higher-priced bonds that would benefit from continued Fed intervention. Read more of this post

Europe’s EUR 500 Billion Ticking NPLTime Bomb

Europe’s EUR 500 Billion Ticking NPLTime Bomb

Tyler Durden on 05/17/2013 20:14 -0400

Europe’s non-performing loan problem is such an issue that there is increasing bluster that the ECB may take this garbage on to its balance sheet since policymakers realize that bad debts and non-performing loans (NPLs) reduce the capacity of banks to lend, hindering the monetary policy transmission mechanism. Bad debts consume capital and make banks more risk averse, especially with respect to lending to higher risk borrowers such as SMEs. With Italy (NPLs 13.4%) now following the same dismal trajectory of Spain’s bad debts, the situation is rapidly escalating (at an average of around 2.5% increase per year). As we discussed in detail here, the bottom line is that at its core, it is all simply a bad-debt problem, and the more the bad debt, the greater the ultimate liability impairments become, including deposits. As we answered at the time – the real question in Europe is: how much impairment capacity is there in the various European nations before deposits have to be haircut? With Periphery non-performing loans totaling EUR 720bn across the whole of the Euro area in 2012 and EUR 500bn of which were with Peripheral banks, it seems the Cyprus deposit haircut non-template may indeed become the key template. Simply put, the greater the unemployment the more the strain on banks to generate “profits” by any means possible (GGBS?) to cover the capitalization shortfall from NPLs until at some point liability haircuts have to begin… 

Non-performing loans as % of total loans across the Euro area; Unemployment rates across Euro area countries

Via JPMorgan: It is not surprising that the periphery is exhibiting a rising pattern in terms of NPL ratios. What is worrying is the speed of increase, at 2.5% per year. Within the periphery, Greece is the outlier with a NPL ratio of 25%, and no signs of abating yet. Ireland follows with a NPL ratio of 19%. Italy (at 13.4%) is above Spain and Portugal (at close to 10%)… The German divergence is making the task of the ECB very difficult both in terms of setting monetary policy for the whole region, but also in terms of dealing with an impaired transmission outside Germany. Draghi clarified in its latest press conference that it is not the ECB’s role to clean up banks’ balance sheets, meaning that the ECB is unlikely to deal itself with the €500bn large non-performing loan problem in periphery.

Stranded Dad Decries Frankfurt Ban on Night Flights Aiding Dubai; “You can hub through Dubai rather than Heathrow or Frankfurt. There is no curfew in Dubai.”

Stranded Dad Decries Frankfurt Ban on Night Flights Aiding Dubai

Shortly after 10 p.m. in Frankfurt, Peter Meany settled into his seat on Qantas Airways Ltd. (QAN) flight QF6, looking forward to reuniting with his family in Sydney for his son’s birthday after a two-week business trip across Europe.

Meany, a 38 year-old fund manager with Qantas frequent-flier status, would miss the party. As the plane crawled to the runway, passengers were surprised to learn that they were five minutes over the last permitted takeoff time and would need to turn back. Frustrated and tired, Meany and his fellow travelers spilled back into the deserted airport building.

“People knew they weren’t going to see their families as planned, or wouldn’t make their meetings,” Meany said. “Bad weather is unavoidable, but I haven’t been in a situation like this in 20 years of flying.”

Meany is among more than 28,000 passengers who have been left stuck on the outskirts of Germany’s financial capital since Frankfurt introduced the night-flight ban in October 2011. While creating a steady stream of involuntary guests for local hotels, the directive has eaten into Deutsche Lufthansa AG (LHA)’s earnings and encourages long-distance passengers to travel via Dubai, where operations run around the clock. Read more of this post

EU Ban Leaves Buyers Holding 144 Million Homeless Carbon Credits

EU Ban Leaves Buyers Holding 144 Million Homeless Carbon Credits

Companies holding United Nations carbon offsets equivalent to 7 percent of the European Union’s annual emissions cap risk losing their investment unless they find a buyer for the credits the bloc banned earlier this year. Power stations and factories in the EU’s emissions-trading system still hold 144 million of the UN offsets after surrendering 552 million in the five years through 2012, EU data compiled by Bloomberg show. The bloc banned the use of credits awarded to projects that destroy nitrous oxide and hydrofluorocarbon-23, two powerful greenhouse gases. The UN’s Clean Development Mechanism awards Certified Emission Reductions, or CERs, to projects in developing countries that reduce climate pollution. The projects can sell the offsets to buyers in cap-and-trade markets such as Europe’s, who use the credits to cover emissions, or to governments seeking to meet Kyoto Protocol emissions targets. The banned credits, known as grey CERs, will “either end up in the hands of the sovereigns, or they become worthless,” Trevor Sikorski, an analyst in London at Energy Aspects Ltd., said by e-mail May 16. “With market prices where they are, one should be able to pick up an issued grey CER spot for 10 euro cents or so.”

Read more of this post

Purloined Picassos Chased by FBI Art Sleuths for Wealthy; “Stolen art, stolen antiquities move into a legitimate market very easily.”

Purloined Picassos Chased by FBI Art Sleuths for Wealthy

Stored inside a laptop at FBI headquarters are photos of thousands of paintings, sculptures and artifacts, works by Vincent Van Gogh and Henri Matisse, Pablo Picasso and Paul Cezanne — international treasures worth millions of dollars each. All are missing.

The computer belongs to Bonnie Magness-Gardiner, a PhD in Near Eastern archeology who leads the agency’s art-theft program and considers herself one of the least-likely employees walking through the doors of the J. Edgar Hoover Building headquarters in Washington each morning.

As wealthy investors seek to diversify their assets and Wall Street art enthusiasts like SAC Capital Advisors LP founder Steven Cohen beef up their collections, art crime is a growth industry and an increasingly important target for the Federal Bureau of Investigation. Read more of this post