China’s Economy is Unraveling to Pieces, in Dollar Terms

I love studies like this. We all know X is X. But when X is viewed in the prism of W, it is then Y.

Y sucks and is getting worse.

Get it?

Free cash flow for the dog eating nation of China is cascading lower, at a time and place when the debt burden is skyrocketing.

This lads, and pardon my lack of civility on the subject, is when the farmers who moved into the city to work at a suicidal Foxconn den of inequity start to realize they’ve made a mistake and China’s urbanization plans turn to shit.

While in yuan terms the slowdown is more gradual, the decline in nominal GDP gains is still dramatic — to a 6.4 percent pace at the end of 2015 compared with 10.1 percent back in 2013 and in excess of 18 percent in 2010 and 2011. The slide highlights the need to follow through on slashing excess industrial capacity, eliminating unprofitable enterprises and revving up new drivers of expansion.

“The biggest problem with plunging nominal GDP growth is that the cash-flow growth to the corporate sector has declined at a time when growth in its debt servicing has accelerated,” said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. “Because debt is so much larger than the economy, debt servicing each year will still be two to three times the incremental growth of nominal GDP.”

China’s debt-to-GDP ratio surged to 247 percent last year from 166 percent in 2007, propelled by a lending binge in the aftermath of the global financial crisis. Days before the National People’s Congress, the central bank this week lowered the ratio of deposits major banks must hold in reserve, letting them deploy more in lending.

We’re back to melt up mode. Nothing is able to stop this locomotive, not even Fed heads discussing ways to destroy the global economy. Trump is in the lead. Hillary is a pathetic caricature of someone who, cravenly, wants to secure power for a corrupt elite. And oil is mending recent losses. All is well at $35 WTI.

The fuck.

Bear in mind and let it be a reminder to you: markets like to go up in March. Deep down, all humans are optimistic creatures, even the most doomful and glum of us all. It’s why pastel colored clothing now adorns your local textile retailer, instead of the appropriate choice of heavy garb. Logic dictates we should desire heavy sweaters in March– for the weather is still frigid and will continue to be as such until April. But we’re optimistic in our assessment of the weather, despite a vast bank of memories to the contrary. There was that one March in 1989 that stuck in our memories and made us hopeful that this year will be a repeat of that. As such, when we see spring clothes at Macy’s, in the fucking iceberg’d weather of late February, we buy them.

The same could be said about the seasonality effect of stocks in March and April. It’s the never-ending search for happiness and fulfilment that keeps the engine revving. These trends are easy to break, however, as the human mind is malleable and susceptible to fear. Once the news becomes important again, you’ll see centaurs on the NYSE, dictating how stocks should be treated.

The Republican Party is fucking ridiculous. It’s so obvious the special interest groups, the oligarchy, are upset that their apple card might be disrupted. Therefore, they are taking out their water boy, Romney, to try to sway the vote to Rubio.

“Mitt doesn’t believe Donald Trump is the right person to lead the party,” the Republican said. “There are a number of mainstream Republicans falling in line with Trump, and he wants to speak up before more people go that route.”

I guarantee you the exact opposite will occur. If there’s one thing Americans don’t like it’s bullshit like this. We can smell the rot a mile away.

ATTENTION CHART CHOMPERS: Your leader, the #1 rated technical analyst, Jim deGraaf says shut the fuck up and fade this rally. No word on who arbitrarily declared Jim to be #1; but I’m going with it anyway.

“This entire 150-point rally has been one of the weaker rallies in my 25-year career,” deGraaf, the top-ranked technical analyst in Institutional Investor’s annual survey for the last 11 years, wrote in a note Wednesday. The market’s long-term trend has stayed bearish and with more stocks showing signs of rising too far too fast investors should “fade this breakout,” he said. “We appreciate price momentum, but it has to be contextualized.”

Tuesday’s rally exhibited lackluster volume again. While the number of rising stocks outpaced those falling by 4.7 to 1, the ratio of their trading was “astoundingly lighter”, at 3.6 to 1, according to deGraaf. Breadth weakened too, as the proportion of stocks hitting 20-day highs stood at 35 percent, “a far cry” from the 55 percent that suggests a lasting bull market, he wrote.

At the same time, there were signs that stocks may have run ahead of themselves, he said, as the percentage of stocks signaling “overbought” versus “oversold” hit 52.4 percent, a level that suggests the market is poised to fall.

DeGraaf also cited the lack of consistent strength among stocks and assets as reason for caution. While financial shares and the credit market led the initial rebound, their performance has since been short of what Renaissance Macro expected. Over the same period, energy shares have trailed the market and credit conditions remain “uncomfortable,” deGraaf wrote.

Naturally, I put as much credence in this analysis as reports that US astronauts flew to the moon, in what Jeff Macke likes to call a calculator wrapped in tin foil. Nevertheless, I know some of you are faithful clan members of the church of charts and would appreciate to hear what your leader had to say about this rally.

Whoever decided to lower the price of the stamp, considering the precarious state of the U.S. Postal Office, is a moron.

That being said, I will save the additional 2 pennies and use them to throw at my local mail carrier, whenever I am feeling generous.

These are very minor ancillary fringe benefits from living inside of a deflationary vortex.

According to the US Postal Service, the price of a US-bound first class stamp will decrease 2 cents — to 47 from 49 cents — starting April 1o.

Stamp prices last declined in 1919 when the price of a first class stamp fell to 2 cents from 3 cents.

This expected decrease stems from an act of Congress passed in 2013 that allowed the USPS to add a 4.3% surcharge in order to stem the massive losses for the Service because of the Great Recession.

In a release from the USPS, the group said the act expires when the surcharges had accounted for $4.6 billion in revenue, which will happen April 10.

At that time, stamps will revert back to their inflation-pegged pricing, dropping the price to 47 cents for a first class stamp and sticking the USPS with an additional $2 billion in annual losses.

Postmaster General and CEO Megan Brennan says this will be a disaster for the postal service.

“The exigent surcharge granted to the Postal Service last year only partially alleviated our extreme multi-year revenue declines resulting from the Great Recession, which exceeded $7 billion in 2009 alone,” said Brennan in a release. “Removing the surcharge and reducing our prices is an irrational outcome considering the Postal Service’s precarious financial condition.

The last time the stamp went down in cost, Woodrow Wilson was president.

Just a few days since being indicted for rigging bids, the former CEO of CHK, a once force to be admired in the American oil boom, was found dead in an apparent car accident.

It looks like a suicide, according to police on the scene. Aubrey’s Tahoe caught fire after speeding and crashing into a wall.

Capt Balerrama of OK city said: “He pretty much drove straight into the wall.” No one else was hurt during the accident.

Condolences to his family.

Fed Williams, certified asshole from the Federal Reserve, said in a speech today that the ‘dot plot’ sketched out by the malevolent people at the Fed might be tweaked ‘here or there.’

I’m guessing that means more than 16 rate hikes, which is what the dot plot calls for, is in store–since these people are nuts.

Moreover and most importantly, he said economic data hasn’t changed since December, in spite of the market. He said the Fed was on the path to raise interest rates, in very plain words.

There “could be a tweak here or there” in projections known as the dot plot, Williams told reporters Wednesday in San Ramon, California. He declined to comment on whether he’d support a rate increase at the FOMC’s March 15-16 meeting, and said he won’t “opine” on how often policy makers will tighten borrowing costs this year.

Williams said economic projections haven’t changed by more than a “tenth here or there” compared to December, and he sees no signs of fragility in the U.S. economy. The Fed continues to be “on the path to raising rates.”

If it turns out more stimulus is warranted, policy makers should resort to forward guidance or more quantitative easing, he said. “We’re not doing negative interest rates.”

This news would’ve shaved a quick 300 off the Dow a few weeks ago. Now it’s viewed through rose colored glasses, since everything is magnificent again.

This market is quietly in beast mode. A few weeks ago I identified 5 stocks that embodied the risk inherent in the tape. I dubbed them TWDFM (these will definitely fuck me), so that you’d remember them. If, by chance, you are short any of these in recent weeks, you’re certainly feeling less than zestful about your financial future.

For the day, TWTR. WYNN, DB, FCX and M are up nearly 4% as a unit, spearheaded by FCX.

The old favorites of last year, FANG, have woefully lagged behind, indicative of the fact that investors are more interested in dumpster diving for distressed assets than buying serious companies with solid prospects.

All in all, markets are digesting recent gains with gallantry. The bias is certainly to the upside, with a watchful eye on the apocalypse, for it could rear its ugly head at any moment.

With over $500 billion in maturities due this year, you are going to be barraged with solicitations from advisors and will read lots of reports, such as the shit BofA touched upon today in an interview.

If you’re bullish on markets, I suppose bonds are a great buy. Otherwise, you’re entering a clownish world filled with ridiculous people. Naturally, the best credits are attractive, up to a point. But if the global economy is set to grind lower, buying corporate bonds now is not ideal.

The extra yield that investors demand to hold U.S. investment-grade bonds over Treasuries, or spread, may drop to 150 basis points by the end of the year from 211 on Feb. 26, said Hans Mikkelsen, head of U.S. investment-grade credit research at Bank of America Merrill Lynch. The measure last touched that level in July.

While issuers stepped to the sidelines this year because of increased volatility, more positive sentiment since mid-February is helping spur sales and tighter yield premiums, Mikkelsen said in an interview.

“There is a general sense among our investors that corporate balance sheets are late cycle and that leverage ratios are sort of getting to the peaks we have seen historically,” Mikkelsen said. “I just take the opposite view of that.”

Banks need their bonuses and their bread buttered. Buy bonds.

ADP, aka the least reliable data provider on earth, said 214k jobs were added over the past month, well ahead of expectations. Recent market success has indeed made you slothful and craven for more Federal Reserve induced pain.

What the fuck am I talking about?

First, let me just remind you that markets found a bid after market conditions wrecked portfolios and caused the very best propagandists on Wall Street to lobby the Fed to chill out. Since then, the Fed has eased up on their rhetoric, which has permitted stocks to rally.

And now all of the chatter on Twitter is pointing to a singular theme, which is ‘if the economy is doing so good, then the Fed must hike in March.’

Some of these people actually believe it’d be a good thing, since it worked out so grand the first time.

‘It’s not gonna be so bad. The economy can handle it.’

The fuck it can.

You will rue the day you clamored for that crazy woman, Yellen, to enter back into rate hike discussions. Be grateful for the respite you’ve enjoyed in recent weeks. Rest assured in knowing that the second rate hikes are back on the table, all of your degenerate gains will David Copperfield right out the fucking door in what will be a bidless market.

The truth will be laid bare in forex markets.