Back to Reality: China Has a Trillion Dollar Bond Problem

Outstanding positions in the repo market has dropped by 18% this year, as Chinese bond traders scurry about like rats to unwind blockheaded high yield positions. With NPLs soaring by 50%, year over year, bond traders are facing immense pressure as the maturity wall looms.

“It looks like everybody is cutting their leverage, passively or pro-actively, as pessimistic sentiment continues to brew,” said Wang Ming, chief operating officer at Shanghai Yaozhi Asset Management LLP, which oversees 15 billion yuan of fixed-income securities. “Carry trades have become riskier.”

State-owned China Railway Materials has suspended their bond trading schemes, citing ‘repayment issues.’ This has the bond nerds over at PIMCO pondering the very existence of life.

“When you have a large SOE who suddenly suspends its bond trading, you think: ‘How many more are there?’” said Raja Mukherji, the Hong Kong-based head of Asian credit research at Pimco, which oversees about $1.5 trillion worldwide. “It kind of leads to a bit of panic in the onshore market. Investors are likely to want to look at their portfolio and sell some of the bonds.”

Despite signs of distress, bond traders don’t think their will be extensive carnage in the Chinese corporate bond markets–because the government won’t allow it to happen.

“We don’t think there will be a big correction in the corporate bond market unless continuous and large-scale defaults trigger a liquidity crisis in the financial system,” said Wei, a money manager at Bosera Asset Management Co. in Shenzhen. “The probability of such systemic risks is very low given regulators’ good care for the market.”

I’ll bottom line it for you. A weak corporate bond market is oppressive for liquidity, which in turn is bad for stocks. As NPLs rise in China, there need for capital is greater than ever. This, of course, could become a problem.

“The volatility in funding costs, coupled with exposing credit risks, are draining the liquidity in the bond market,” Sun said. “Given the market expectation of a neutral monetary policy stance, investors may continue to be forced to de-leverage.”

As you were. The Facebook earnings were great and oil has bottomed and China has bottomed and Europe is picking up steam.

Aside from banging out 200-300 posts per month, I actively manage two twitter accounts. One of them is my personal @The_Real_Fly account, which many of you already follow. The other one is designated for breaking news flashes, earnings and analysts upgrades and downgrades.

Naturally, it’s free and has immense value for anyone in the stock racket. Follow @iBC_FN

Here is what you could expect to see on the Financial News feed.

If any of you clowns want me to follow you on Twitter or want other gentlemen of iBC to follow you on Twitter, drop your handle in the comments section. I promise that I will review each and every account and even promote it if I think it has value.

So, the news out of Washinton today is that Ted Cruz, after losing 5 primaries last night, has announced his VP pick, former HP boss Carly Fiorina. Moreover, judging by the photo of his speech below, the Rafael Cruz campaign must’ve paid some political marketing agency hundreds of thousands of dollars to strategically place all women behind him when unveiling this awesome plan. I am sure their research suggests that by doing this it would engender the trust of a certain percentage of women, in order to sway the election his way.

Scheming bastard.

Upon seeing this, I am reminded of all the reasons why I hate politicians with every fiber of my existence. All of that renegade talk by Cruz, as not ‘being one of them’, can easily be debunked after the shit he’s pulled this week.

A peace treaty with Kasich? Fucking why?

A VP pick while down by 400 delegates to Trump? Why?

The answer is straight forward: he intends to steal the nomination and circumvent the popular vote. You know, because the process of elections is about ‘grass root efforts’ and ‘political activists’ and ‘having a good ground game’.

I can’t wait for Trump to deport Cruz back to Canada.

FB is up 6.5% in the after-hours after annihilating earnings expectations. Metrics were great across the board.  Also, in an effort to maintain control of FB, while diluting the shit out of shares over time, the company has unveiled a plan to issue ‘C-share’, similar to that of Google.

FB announced that the board of directors has approved a proposal to amend and restate existing certificate of incorporation to create a new class of non-voting capital stock, known as the Class C capital stock. If the proposal is approved it will issue two shares of Class C capital stock as a one-time stock dividendin respect of each outstanding share of our Class A and Class B common stock. This proposal is designed to create a capital structure that will encourage Mr. Zuckerberg to remain in an active leadership role at Facebook. The adoption of the proposal is subject to the approval of our stockholders at our 2016 Annual Meeting of Stockholders to be held on June 20, 2016.

I love how they word it. They are simply stripping shareholders of their power in order to keep Mark interested in Facebook.

This is corporate governance run amuck. I am surprised people go along with this stuff without even protesting.

Via Briefing:

• Reports Q1 (Mar) earnings of $0.77 per share, $0.15 better than the Capital IQ Consensus of $0.62; revenues rose 51.8% year/year to $5.38 bln vs the $5.26 bln Capital IQ Consensus.
  • Advertising revenue increased 57% y/y to $5.2 bln.
• Daily active users (DAUs)- DAUs were 1.09 billion on average for March 2016, an increase of 16% year-over-year.
  • Mobile DAUs- Mobile DAUs were 989 million on average for March 2016, an increase of 24% year-over-year.
• Monthly active users (MAUs- MAUs were 1.65 billion as of March 31, 2016, an increase of 15% year-over-year.
  • Mobile MAUs- Mobile MAUs were 1.51 billion as of March 31, 2016, an increase of 21% year-over-year.
• Mobile advertising revenue- Mobile advertising revenue represented approximately 82% of advertising revenue for the first quarter of 2016, up from 73% of advertising revenue in the first quarter of 2015.
• Capital expenditures- Capital expenditures for the first quarter of 2016 were $1.13 billion.
• Free cash flow for the first quarter of 2016 was $1.85 billion.

No one care about earnings or even revenues anymore. All that matters is QE, helicopter money, and firings. The more firings the better, just as long as it doesn’t interfere with RECORD low unemployment numbers.

The real puzzle for the maze masters is to figure out how to fire as many people as humanly possible without putting a dent into the unemployment rate. I am confident our leaders, who are taking up the mantle of the former speaker of the house, and head of all child molesters, Denny Hastert, are working diligently on this great problem we are facing as Americans.

Also, and additionally, the oil sector is back in force. The lucky lads over at PXD are drilling as fast as humanly possible, as well as the Sauds, Russians, Iranians and everyone else. The great collapse of oil was shit upon by the drilling elite. They shall have their cakes and eat them too.

Lastly, there is the important matter of war. In spite of the fact that Obama mentioned 16 times that we would not put boots on the ground in Syria, we are putting boots on the ground in Syria.

What a wondrous world of fantasy, lies and propaganda we live in.

The Great Marinator of Ice’d Cubes in Chief, Art Cashin, points to crude as being the obvious catalysts in this market and explains why stocks are so strong, in spite of the spate of poor earnings reports.

Looking forward, he thinks the fate of small cap domestic stocks hold the key to market sentiment and whether or not the BOJ can deliver on their depraved form of central banking.

Is there any truth to what Arthur is saying, or is he drinking at work?

Let’s have a look under the hood.

Here are the 1 week returns of stocks, grouped by market cap.

Over $50 bill: +0.10%
Between $10-50 bill: +0.18%
Between $5-10 bill: +0.39%
Between $1-5 bill: +0.33%
Under $1 bill: +0.20%

It looks like the sweet spot has been in market caps from $5-10 billion. But over the past month, with more data to analyze, there is a clear bias given to companies whose market caps fall under $5 billion. The highest returns could be found in market caps ranging from $1-5 billion. Within that market cap grouping, the winners are almost exclusively in basic resources.

As such, wherever oil goes, so will the market.

Bossman Gundlach suggests buying treasuries here, especially after the recent spike in yields. Amazingly, he thinks we’re at a point in this central bank QE narrative that ‘helicopter money’  might come into play.

Essentially, what that means is central banks giving money away. How the fuck do they think they can do that without becoming Zimbabwe? Or, maybe that’s the goal here. Who knows?

All I know is that earnings blow, the economy is Yellen soft, and Gundlach manages $95 billion and was inspired to run money from watching Lifestyles of the Rich and Famous.

I think it is a reasonable strategy to start legging into the Treasury market,” Gundlach said in a telephone interview.
“We’ve been buying a little bit today … we bought a small amount of guaranteed mortgages,” particularly Freddie Mac MBS, Gundlach said.
Gundlach, who runs $95 billion at DoubleLine, said he does not expect much from the latest Federal Reserve meeting but does expect somewhat “hawkish” language about the potential for hikes at meetings later this year.
Gundlach suggested that a “helicopter money” drop could be the government’s next big monetary and fiscal move to stimulate the U.S. economy.
“Helicopter money is going to happen,” he said.

TLT is moderately higher today, but well off recent highs. All ark dollars, apparently, have gone into oil stocks again.

Strong words for the hedge fund industry– coming from one of the best in the business, Dan Loeb from Third Point Capital.

“There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies,” the New York-based firm said in a quarterly letter posted on its website.

Third Point, which was founded in 1995 and lost 2.3 percent in the first three months of this year, described the industry’s performance as one of the most “catastrophic periods” that it could remember since the firm was started. It said the “increasing complexity” in markets over the past few months is here to stay.

Most investors were “caught offsides at some or multiple points” since August, Third Point said, when China’s surprise currency devaluation roiled global markets. The firm said market participants were hurt by bets against the yuan in February and investments in Facebook Inc., Amazon.com Inc., Valeant Pharmaceuticals International Inc. and Pfizer Inc.

“Further exacerbating the carnage was a huge asset rotation into market neutral strategies in late the fourth quarter,” Third Point said. “Unfortunately, many managers lost sight of the fact that low net does not mean low risk and so, when positioning reversed, market neutral became a hedge fund killing field.”

Here’s a free piece of advice for Dan and his buddies struggling to make ends meet in the stock picking business: get on over to Twitter. I’ve found everyone there to be quite the fashionable expert on the economy and for the management of money. They’re always right. To prove their success, I’ve seen many pictures of exotic vacation spots, as well as new cars and fast women.

Dan, if you want new cars, fast women and a chance to parlay in exotic places around the world with stacks of cash on your desk, do yourself a favor and visit Twitter and behold the expert opinions of so many astute and well qualified investors.

I’ve done my good deed for a lifetime. I can die now, knowing that I’ve made a difference.

The market is barely lower, after the world’s largest company missed…by a lot (Extra Trump). More than that was the horrid numbers coming out from a sundry of companies, like BWLD, TWTR and any number of banks of your choosing.

Apple is down 8% and the Dow is off by 40. Amazing.

While this can change as the day progresses, I can’t help but to marvel at how different this market is from what we’ve seen over the past two years. Gone are the days of false rallies and failed momentum. The market smugly presses higher, with crude marooned in the $40’s, after the energy sector has bled out to the tune of $100 billion in free cash flow over the past 12 months.

Everyone is so optimistic and filled with hope. If I didn’t have a brain, I might be fooled by it and sop up the koolaid myself.

What balls these hedge fund shills have, posting reports via Seeking Alpha for the explicit purposes of making a stock trade lower. This is all very convenient for these people who take positions before hand. It’s perfectly legal, apparently.

iBankCoin has a fairly large audience. Why, I’m missing out on huge pay days by not publishing hedge fund short reports on the site for a large sum of coin.

I wonder how many puts the catamites at Seeking Alpha bought before publishing the latest XON short piece?

The first report really crushed the stock. This being the second report in as many weeks, it’s having a much more subdued affect on the share  price.

Truth is, I think some of these short sellers do the market a great service. Many of their reports are spot on. My sole complaint is the obvious front running taking place here, a method of stock manipulation by which nefarious American Greed type scam artists will use to commit fraud.