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THIS WEEK’S EDITORIAL
CHINA TOTAL SOCIAL FINANCING: Over the years, BOOM has often referred to the higher level of sophistication in macro money management in China compared to western “advanced” economies. Loans from Banks and loans from Shadow Banks in China are in close synchronicity over the years — one rises while the other falls and vice versa. It is like a well-choreographed dance. This allows for a dual money supply system. When the central bank wants commercial bank loan growth to fall, it allows riskier shadow loans to rise and vice versa.
This is extremely clever way to manage the money supply to the real economy, smoothing out the ups and downs and creating a reliable stability of money stock and money supply. China does not have a large domestic bond market. Thus capital does not get caught up in the round robin of funding governmental, municipal and corporate bond issuance.
These dynamics give China a huge advantage over the “advanced” economies such as the US. What they do is only possible in a centrally controlled economy. BOOM is not a proponent of that but, in the West the economies are almost totally exposed to the swings and roundabouts of fresh new money supply generated by new bank loans.
Thus, in the so-called “advanced” economies, we are always exposed to the need for emergence of new borrowers in the private sector to keep our money stock from falling as old bank loans are paid off. This is why we are so dependent upon interest rate settings from the central banks which set the short term interest rates while leaving the 10 – 30 year rates to the market. There is an endless uncertainty about what the central banks will or won’t do. And this drives fear which is the arch enemy of a stable economy. In China, stability is the goal and, thus, households and businesses can rely on a steady money stock situation (and growth) from year to year.
BOOM wrote about stability in the money stock last week in regard to the 1950’s and 1960’s when the West had no choice but to rely on the supply and circulation of large quantities of physical cash. Because cash is non-interest bearing and can be issued by the Treasury directly into the real economy, it can have a soothing effect on the swings and roundabouts of money supply.
We need to learn that lesson again in the advanced economies. At present in China, the money supply from the Shadow Banking system is in decline since late 2020. In that same time frame, the money supply from the official, commercial Banking system is rising but, notably, it is not rising as fast as the shadow supply is falling. Thus, this will, inevitably, cause a relative slowing in the real economy. And that is exactly what we are seeing. The China Economic Activity Index has fallen from above 55 in October 2020 to 52.4 in July this year.
As China’s economy slows, it will tend to lower global commodity prices — especially in regard to the key commodity inputs into the Chinese economy. The recent falls in Iron Ore prices are indicative of that. The Chinese economy is now the engine of global growth so we will see a knock-on effect globally.
THE LUMBER CRASH — TIMBER (!) The price of Lumber in the US has fallen dramatically since its peak on May 10th. The Continuous Futures Contract has fallen from around $ 1700 on that date to just $ 500. It is now back inside its trading range over the last 5 years.
Prices for Iron ore, wheat, corn, palladium and copper have all stalled or peaked around May 10th. The price of oil has been more resilient but BOOM expects it to weaken in the near future. The outlier at present is Natural Gas. Its Futures prices continue to rise. However, BOOM expects that to end soon. Some brave souls will try to pick the top and buy Puts to ride the roller coaster down. Commodities are simply returning to Earth after a bizarre surge towards heaven. China will not pay higher prices and will certainly not pay absurd prices for its key inputs.
US CONSUMER CONFIDENCE CRASHING: Meanwhile, US Consumer Confidence as measured by the University of Michigan has crashed to its lowest point in 10 years. The chart looks terrible. Take note. US DEFICIT OVER $ 3 TRILLION
Also meanwhile, the US Congressional Budget Office says the Federal Budget Deficit for the 2021 budget year, which ends in September, will exceed $ 3 TRILLION. That is the gap between Taxation Revenue and Government Expenditure. The US economy is effectively being kept alive with this deficit spending which is supposedly a “temporary” measure.
THE VACCINES HAVE A PROBLEM: The wheels are rapidly falling off the “vaccines are our salvation, our ticket to freedom” argument that is being pushed so forcefully by many governments and mainstream media in many nations. There is the smell of desperation now wafting around the world as the truth is slowly but surely emerging. The idea that economic recovery will follow mass vaccination appears to be deeply flawed.
It is becoming clear that the Covid vaccines are “leaky”. They do not stop the vaccinated from acquiring the virus (in particular, the now dominant Delta variant) and they do not stop them transmitting the virus. A leaky vaccine is one that lacks sterilizing immunity. It may prevent severe infection and perhaps death, but it does not stop infection and colonization by the virus.
In this situation, the vaccinated become carriers, unaware of it and therefore, they can easily spread it to others. This also makes the virus more likely to become endemic. In other words, the vaccines mean that elimination is a false goal.
The famous French vaccinologist, Professor Christian Perronne recently said “Vaccinated people are at risk of the new variants. In transmission, it’s been proven now in several countries that vaccinated people should be put in quarantine and isolated from society. Unvaccinated people are not dangerous; vaccinated people are dangerous to others.“
Also, the vaccinated are now sometimes falling seriously ill with the Delta Variant and ending up in hospital. Luckily, deaths are not usually as common as with the Alpha variant. But that is not guaranteed. Israel is the test case where 80 % of the adult population over 20 years of age are vaccinated. Right now, 80 – 95% of new cases there are fully vaccinated (depending upon age bracket). Daily new case numbers have surged to 10,000 per day which is the same level as Israel experienced in its first two waves in September 2020 and January 2021. Worryingly, deaths per day numbers attributed to Covid are also presently rising towards the levels seen in those first two waves.
In Iceland, the most heavily vaccinated nation, the new cases of Delta variant are emerging at rates higher than the two first waves. So the extensive vaccination programs there have clearly failed to stop the virus. More and more, it is looking like the vaccinated are (possibly) driving the emergence of the Delta variant. Thankfully, total death numbers from all causes in Israel are still in the normal range — so there is still no Pandemic of Excess Death occurring. The word “pandemic” has been massively abused over the last 18 months by health authorities, governments and the mainstream media. It has been used to instil fear and panic with the aim being control — total control.
A Preprint study published on August 10th in the prestigious medical journal, The Lancet, has shown that 69 healthcare workers in a large infectious diseases hospital tested positive for SARS-CoV-2. All recovered uneventfully. They were all infected with the Delta variant, and tests were …. “suggestive of ongoing transmission between the workers. Viral loads of breakthrough Delta variant infection cases were 251 times higher than those of cases infected with old strains detected between March-April 2020“.
The study involved a small group of workers so this is a very early report and should not be relied upon. A larger study involving up to a thousand health workers would be much more meaningful statistically.
The conclusion of the study was: “Breakthrough Delta variant infections are associated with high viral loads, prolonged PCR positivity, and low levels of vaccine-induced neutralizing antibodies, explaining the transmission between the vaccinated people.”
Please note that these preprints are early stage research papers that have not been peer-reviewed. The findings should not be used for clinical or public health decision making and should not be presented to a lay audience without highlighting that they are preliminary and have not been peer-reviewed. The Preprint is available here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3897733
In economics, things work until they don’t. Until next week ………… Make your own conclusions, do your own research. BOOM does not offer investment advice.
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This statement is delusional. As if everybody will be on the same page if they would just look into the matter.
There are people out there that have come to the conclusion that there are more than two genders among other ridiculous beliefs.
How in the hell can you have a “delta variant” when in fact THERE IS NO TEST FOR COVID…. FUCKING IDIOTS…,.
Regarding the China section…
First, the author seems to think no countries, other than China, have forms of Shadow Banking systems. They do.
Second, the author believes that China has a great advantage over the U.S. (and others) because the U.S. has no shadow system because those can only exist in “centrally controlled economies”. This is false. One example in the U.S. would be the letters I get every week offering my business loans from Private Equity – there are many other examples.
Also, in China, one of the main reasons Shadow Banking is utilized is because the loans wouldn’t pass muster at a regulated bank. The loans are junk.
Finally, I will point out two other glaring errors – but there are more.
This is false. From Goldman Sachs (4/8/21):
“China is home to the world’s second largest onshore bond market and the third largest sovereign bond market.”
That’s not large enough to be considered a “large domestic bond market”?
Good God Man – was this line written by the head of the CCP propaganda department?!
This may be a “goal”, but reality shows completely the opposite:
https://tradingeconomics.com/china/money-supply-m0
Take a look at a graph of the money supply growth in China from, say, 2000-2021. You will see it going from 1 to 10 trillion in 20 years. That is not stability of the money supply – it is the same as every other Central Bank issuing fiat currency: devalue by inflating.
The author ignores so many other potential catalysts affecting currency issuance/supply, such as, the want of a country like China (in this example) to manipulate it’s currency valuation to achieve specific economic goals. Goals like decimating the manufacturing sectors of competing countries.
Regarding the China section…
First, the author seems to think no countries, other than China, have forms of Shadow Banking systems. They do.
BOOM did not say that. The article does not refer to Shadow Banking in other nations. The reference is about shadow banking versus conventional banking in China.
Second, the author believes that China has a great advantage over the U.S. (and others) because the U.S. has no shadow system because those can only exist in “centrally controlled economies”. This is false. One example in the U.S. would be the letters I get every week offering my business loans from Private Equity – there are many other examples.
BOOM did not say there is no shadow system in the US. The reference was about how closely the Chinese control money supply between their commercial banks and their shadow banking system.
Also, in China, one of the main reasons Shadow Banking is utilized is because the loans wouldn’t pass muster at a regulated bank. The loans are junk.
Loans in any shadow system will always be riskier than those from the regulated, commercial banking system. That is obvious.
Finally, I will point out two other glaring errors – but there are more.
China does not have a large domestic bond market. Thus capital does not get caught up in the round robin of funding governmental, municipal and corporate bond issuance.
This is false. From Goldman Sachs (4/8/21):
“China is home to the world’s second largest onshore bond market and the third largest sovereign bond market.”
That’s not large enough to be considered a “large domestic bond market”?
The total bond issuance in China is estimated to be around US $ 15 Trillion. The US market is estimated to be US$ 50 Trillion. BOOM regards the Chinese market as “not a large domestic bond market” in comparison with the US and especially in regard to its population which is around 5 times larger than the US. Being the world’s second largest market does not make it “large” relative to those two comparators. China has avoided bond issuance as a major financing methodology compared to the US.
Japan’s Bond Market is around US$ 13 Trillion (with a population of less than one tenth that of China). The Emerging Markets combined actually have a total bond issuance of more than $ 15 Trillion i.e. more than China.
In China, stability is the goal and, thus, households and businesses can rely on a steady money stock situation (and growth) from year to year.
Good God Man – was this line written by the head of the CCP propaganda department?!
This may be a “goal”, but reality shows completely the opposite:
https://tradingeconomics.com/china/money-supply-m0
Take a look at a graph of the money supply growth in China from, say, 2000-2021. You will see it going from 1 to 10 trillion in 20 years. That is not stability of the money supply – it is the same as every other Central Bank issuing fiat currency: devalue by inflating.
The graph shows a very steady trend in growth in m0 measured in CNY over 20 years. It has grown at 7 % per annum each year for the last 20 years. That is steady growth and indicates a steady money stock occurring in an expanding economy. What else would you expect in a centrally controlled economy?
The author ignores so many other potential catalysts affecting currency issuance/supply, such as, the want of a country like China (in this example) to manipulate it’s currency valuation to achieve specific economic goals. Goals like decimating the manufacturing sectors of competing countries.
China plays all the same games in those areas as does the US and Europe. That is not the topic under discussion in the article.</str
Hmm…with all of the droughts and floods I’m surprised that futures are down on corn and wheat. Here in my part of the South corn etc. did damn well. We had a wet late spring and summer. None of the farmers in my area are hurting when it comes to crop yields . My cow is getting fat on grass and hay…..he’s going to be mighty tasty soon enough . As soon as it gets cooler deer and wild boar will be in the freezer .
My cow..he? No problem, I tell people I have X cows even though one is bull.