Yuan Dumps, Bitcoin Jumps As China Researchers Suggest “One-Off Devaluation” & Capital Controls

As we have detailed numerous times recently, the recent move in Bitcoin has been strongly suggesting increasing fears of capital controls and/or expectations of a looming (and quite notable) devaluation of the Yuan against the US Dollar. Tonight saw China’s largest nationalist tabloid suggesting that China should consider one-off yuan devaluation to keep the currency stable at equilibrium level. Offshore Yuan is tumbling – to new record lows.

As we noted earlier, a quick look at the uncanny correlation between the decline in the Yuan and the rise in the bitcoin, confirms that the digital currency has indeed been largely used to evade capital controls. 

Based on this chart alone, the recent surge in Bitcoin would imply that a substantial devaluation of the yuan is looming. That, or even more aggressive capital controls.

And tonight, researchers with State Information Center led by Zhu Baoliang wrote in an article published on Shanghai Securities News, that China should consider one-off yuan devaluation to keep the currency stable at equilibrium level and suggest capital controls and as well as what seems like a reference to “virtual currency”…

…the effect of monetary policy continues to weaken. After repeatedly cut interest rates, lowering after registration, our short futures money market interest rates have dropped to about 2.2%, in the history of a relatively low level. Money supply growth rate far exceeds the rate of economic growth, social capital is abundant. But because of the lack of investment opportunities, more funds through the state-owned enterprises and financing platform to invest in less efficient infrastructure, or real estate, or idle in the virtual economy. Capital continues to off real to the virtual, will breed all kinds of asset bubbles, a huge impact on financial stability. At the same time, state-owned enterprises, financing platforms, real estate and other sectors and industries a large number of financing, but also pushed up the financing costs of financial markets, private enterprises and small and medium-sized enterprises to reduce the financing cost is not large, thus out of private investment.

 

 

It is suggested that the total social financing and broad money growth should be about 12%, and maintain a reasonable and reasonable liquidity scale. The second is to further improve the RMB exchange rate market-oriented level, and enhance the flexibility of the RMB exchange rate, or even a one-time devaluation of the renminbi, so as to maintain the stability of the RMB in the equilibrium level.

 

At the same time, the proper control of foreign exchange outflow, the state-owned enterprises in overseas real estate, antiques, teams and other non-substantive, non-technical M & A activities to be strictly limited. Third, closely tracking study American influence elected president’s economic policies on China, the foreign exchange market volatility and prevent cross-border capital outflows triggered massive financial risk domestic bond market, the real estate market.

And for now the reaction is offshore Yuan selling to record lows…

 

And Bitcoin (in China) surging very close to record highs…

 

7,588 Yuan per Bitcoin in the record high and volume in this most recent surge is dramatically higher. But as we noted earlier, for those buying into bitcoin here on the momentum, most of which originates in China, we urge readers to be cautious as by now the PBOC has certainly noticed that the digital currency remains one of the final, and most successful, means of bypassing capital controls in China. Should Beijing mandate that bitcoin no longer be a means to illegally transfer capital offshore, there is risk of a dramatic, and sharp, drop in its price.

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Edward Snowden Trashed In Absurd WSJ Op-Ed

Submitted by Mike Shedlock via MishTalk.com,

Edward Jay Epstein has an op-ed in the Wall Street journal promoting his new book “How America Lost Its Secrets: Edward Snowden, the Man and the Theft”.

Epstein discusses the Fable of Edward Snowden

At the forefront of Epstein’s claims is the fact that Snowden lied. “As he seeks a pardon, the NSA thief has told multiple lies about what he stole and his dealings with Russian intelligence,” says Epstein.

snowden

Of all the lies that Edward Snowden has told since his massive theft of secrets from the National Security Agency and his journey to Russia via Hong Kong in 2013, none is more provocative than the claim that he never intended to engage in espionage, and was only a “whistleblower” seeking to expose the overreach of NSA’s information gathering. With the clock ticking on Mr. Snowden’s chance of a pardon, now is a good time to review what we have learned about his real mission.

 

Mr. Snowden’s theft of America’s most closely guarded communication secrets occurred in May 2013, according to the criminal complaint filed against him by federal prosecutors the following month. At the time Mr. Snowden was a 29-year-old technologist working as an analyst-in-training for the consulting firm of Booz Allen Hamilton at the regional base of the National Security Agency (NSA) in Oahu, Hawaii. On May 20, only some six weeks after his job there began, he failed to show up for work, emailing his supervisor that he was at the hospital being tested for epilepsy.

 

This excuse was untrue. Mr. Snowden was not even in Hawaii. He was in Hong Kong. He had flown there with a cache of secret data that he had stolen from the NSA.

Well la-de-friggin da. The idiocy of those opening paragraphs is obvious to the world.

What was Snowden supposed to say? “Hey guys I am not coming into work because I stole documents and I am meeting up with Greenwald?”

So of course Snowden lied… he had to lie.

It was not the quantity of Mr. Snowden’s theft but the quality that was most telling. Mr. Snowden’s theft put documents at risk that could reveal the NSA’s Level 3 tool kit—a reference to documents containing the NSA’s most-important sources and methods. Since the agency was created in 1952, Russia and other adversary nations had been trying to penetrate its Level-3 secrets without great success.

 

Yet it was precisely these secrets that Mr. Snowden changed jobs to steal. In an interview in Hong Kong’s South China Morning Post on June 15, 2013, he said he sought to work on a Booz Allen contract at the CIA, even at a cut in pay, because it gave him access to secret lists of computers that the NSA was tapping into around the world.

Snowden figured out the NSA was involved in illegal activity and he wanted to investigate the depth of it. He succeeded. Congratulations to Snowden for a job well done.

In October 2014, he told the editor of the Nation, “I’m in exile. My government revoked my passport intentionally to leave me exiled” and “chose to keep me in Russia.” According to Mr. Snowden, the U.S. government accomplished this entrapment by suspending his passport while he was in midair after he departed Hong Kong on June 23, thus forcing him into the hands of President Vladimir Putin’s regime.

 

None of this is true. The State Department invalidated Mr. Snowden’s passport while he was still in Hong Kong, not after he left for Moscow on June 23. The “Consul General-Hong Kong confirmed that Hong Kong authorities were notified that Mr. Snowden’s passport was revoked June 22,” according to the State Department’s senior watch officer, as reported by ABC news on June 23, 2013.

Mercy! His passport was invalidated on June 22, not June 23. Call out the national guard. It’s treason I say.

To provide a smokescreen for Mr. Snowden’s escape from Hong Kong, WikiLeaks (an organization that the Obama administration asserted to be a tool of Russian intelligence after the hacking of Democratic Party leaders’ email in 2016) booked a dozen or more diversionary flight reservations to other destinations for Mr. Snowden.

Oh yes, let’s drag Obama’s stupidity into the discussion. The only thing Epstein failed to deliver was nonsense from the Washington Post. Perhaps it’s in the book.

Nowhere did Epstein make the case Snowden was anything more than a whistle-blower.

His op-ed is so ridiculous, one can dismiss the book as the work of a misguided fool who fails to understand what the US constitution is all about.

@ggreenwald @snowden Edward Snowden is a genuine US hero. It’s fake-patriot, book-writing fools like Epstein the US really has to fear.

— Mike Mish Shedlock (@MishGEA) January 2, 2017

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Singapore GDP Surges Over 9% In Q4 – Most Since 2012

Following Q3’s 2% contraction, and with analysts’ highest expectation at +5.1% (StanChart), Singapore GDP grew at a shocking 9.1% in Q4 QoQ…

 

This was four standard deviations above average estimates.

These are preliminary numbers based on the fuirst two minths of the quarter butthe rebound was broad based…

  • Manufacturing +14.6% q/q;
  • Construction -4.7% q/q;
  • Services +9.4% q/q

Year-over-year, Singapore’s 4Q GDP grew 1.8% according to Ministry of Trade and Industry, smashing expectations of +0.3%. As The FT reports, Manufacturing experienced a big jump, growing 6.5 per cent in the fourth quarter from a 1.7 per cent year-on-year rate in the three months to September 30.

“Growth was primarily driven by the electronics and biomedical manufacturing clusters, even as the transport engineering and general manufacturing clusters continued to contract”, MTI said.

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JPM: “Central Banks Have Created Unprecedented Distortions In Government Bond Markets”

As part of his just released 2017 outlook, JPM’s Michael Cembalest, chairman of markets and investment strategy, notes that while “political upheavals and unorthodox central bank actions persist” he prdictes “more of the same in 2017: single digit returns on diversified investment portfolios as the global economic expansion bumps along for another year.” Of course, the alternative is a recession call, which considering the current expansion will be the third longest in US history by the time Trump is inaugurated in less than three weeks, is probably not too farfetched.

Something else, however, caught our eye: the same observation that was considering “fake financial news” less than a decade ago, and is now part of the mainstream jargon – the following statement by the JPM strategist:

“True Believer” central banks have created unprecedented distortions in government bond markets. Bond purchases and negative policy rates by the ECB and Bank of Japan led to negative government bond yields. Whatever their benefits may be, they also resulted in profit weakness and stock price underperformance of European and Japanese banks. The poor performance of European and Japanese financials was a driver of lower relative equity returns in both regions in 2015/2016.

We agree, and now that these “True believes” are being phased out – at least in mental models, and if only for the time being – replaced by hopes that Trump’s still undetermined fiscal policies and a global push for reflation will somehow bootstrap the global economy groaning under trillions in excess debt, and swamped by a demographic picture that is massively deflationary, we are far less sanguine about the “single-digit gains” forecast by JPM.

In any case, here is the Executive Summary from JPMs “Eye on the Market” outlook for 2017, a preamble to a far longer piece noted below.

* * *

Political upheavals and unorthodox central bank actions persist, but it looks like more of the same in 2017: single digit returns on diversified investment portfolios as the global economic expansion bumps along for another year.

How we got here. By the end of 2014, central bank stimulus lost its levitating impact on markets, GDP and corporate profits, all of which have been growing below trend. Proxies for diversified investment portfolios generated returns of just 1%-3% in 2015 and 6%-7% in 2016

The biggest experiment in central bank history ($11 trillion and counting as of November 2016) helped employment recover in the US and UK, and more recently in Europe and Japan. Across all regions, however, too many of the benefits from this experiment accrued to holders of financial assets rather than to the average citizen. As a result, the political center of a slow-growth world has begun to erode, culminating with the election of a non-establishment US President with no prior political experience, and the UK electorate’s decision to leave the European Union. The market response to Trump’s election has been positive as investors factor in the benefits of tax cuts, deregulation and fiscal stimulus and ignore for now potential consequences for the dollar, deficits, interest rates, trade and inflation (see US section on the “American Enterprise Institute Presidency”).

True Believer” central banks have created unprecedented distortions in government bond markets. Bond purchases and negative policy rates by the ECB and Bank of Japan led to negative government bond yields. Whatever their benefits may be, they also resulted in profit weakness and stock price underperformance of European and Japanese banks. The poor performance of European and Japanese financials was a driver of lower relative equity returns in both regions in 2015/2016.

For the last few years, I have written about a preference for an equity portfolio that’s overweight the US and Emerging Markets, and underweight Europe and Japan. This has been one of the most consistently beneficial investment strategies I’ve seen since joining J.P. Morgan in 1987 (see chart below, right). It worked again in 2016, and despite the negative consequences of rising interest rates and a rising dollar for US and EM assets, I think it makes sense to maintain this regional barbell for another year as Europe and Japan once again snatch defeat from the jaws of victory.

We had a single digit portfolio return view for 2015 and 2016 (which is how things turned out), and we’re extending that view to 2017 as well. There are some positive leading indicators which I will get to in a minute, but first, the headwinds:

  • While global consumer spending has held up, global business fixed investment remains weak, in part a consequence of the end of the commodity super-cycle and slower Chinese growth
  • We expect the emerging market recovery to be gradual, particularly if Trump policies lead to substantially higher interest rates and a higher US dollar
  • We expect a near-term US growth boost (amount to be determined based on the composition of tax cuts, infrastructure spending and deregulation), but trend growth still looks to be just 1.0% in Japan and 2.0% in Europe
  • The global productivity conundrum continues, leaving many unanswered questions in its wake
  • Even though private sector debt service levels are low, high absolute amounts of debt may constrain the strength of any business or consumer-led recovery

  • And finally, even before Trump takes office, we’re already seeing a rise in protectionism as global trade stagnates. The degree to which Trump follows through on campaign proposals on trade is a major question mark for 2017

So, with all of that, why do we see 2017 as another year of modest portfolio gains despite the length of the current global expansion, one of the longest in history? As 2016 came to a close, global business surveys improved to levels consistent with 3% global GDP growth, suggesting that corporate profits will start growing at around 10% again after a weak 2016. More positive news: a rise in industrial metals prices, which is helpful in spotting turns in the business cycle (see Special Topic #8).

Furthermore (and I understand that there’s plenty of disagreement on the benefits of this), many developed countries are transitioning from “monetary stimulus only” to expansionary fiscal policy as well. Political establishments are aware of mortal threats to their existence, and are looking to fiscal stimulus (or at least, less austerity) as a means of getting people back to work. The problem: given low productivity growth and low growth in labor supply, many countries are closer to full capacity than you might think. If so, too much fiscal stimulus could result in wage inflation and higher interest rates faster than you might think as well. That is certainly one of the bigger risks for the US.

So, to sum up, here’s what we think 2017 looks like:

  • A modest growth bounce in the US from some personal and corporate tax cuts, deregulation and infrastructure spending, with tighter labor markets, rising interest rates and a stronger dollar eventually taking some wind out of the US economy’s sails. If I’m underestimating something, it might be the potential increase in confidence, spending and business activity resulting from a slowdown in the pace of government regulation
  • A little better in Europe and Japan in 2017, but no major breakout from recent growth trends
  • China grows close to stated goals, supported by multiple government bazookas firing at once
  • Emerging markets ex-China continue recovering after balance of payments adjustments; while countries with high exposure to dollar financing will struggle, overall risks around a rising dollar have fallen markedly since 2011
  • The world grows a little faster in 2017 than in 2016, but as shown above, a lot of that is already in the price of developed market equities. So, another single digit portfolio year ahead

* * *

Much more in the full forecast below (link)

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The Russian Hacking Frenzy (Summed Up In 200 Words)

Authored by BelowGotham.com’s Bill Blunden,

The New York Times has published an interactive piece which encapsulates, in all of 200 words, the alleged campaign by Russian hackers to influence the outcome of the 2016 election. Yet the media’s framing of events eschews basic facts – the actual content of the leaks – in favor of screaming “thief” at the top of its lungs.

And so the following 200-word summary is presented as an antidote to the establishment’s clumsy post-election messaging

Someone delivers exact copies of emails written by Democratic Party mandarins into the public record. These messages are subsequently posted online. Thank you WikiLeaks!

Several email threads demonstrate that the Democratic National Committee (DNC) secretly ganged up on Bernie Sanders to undermine his campaign.

Hillary Clinton, who made over a hundred million in speaking fees with her husband, furtively reassures American oligarchs that her “private position” on economic issues won’t threaten their bottom line. In one related email which highlights big money in politics, a wealthy donor jokes “I guess it takes a study to point out the obvious.”

Voters learn that the DNC leveraged its extensive contacts with the media to manipulate coverage in an effort to elevate Trump. The DNC’s strategy document includes a list of Republican “Pied Pipers” which the media was told to “take seriously.”

The Democratic elites become desperate. Rather than accept their party’s role in Trump’s victory and their betrayal of the working class, they decide to blame Russian Hackers.

The Washington Post hyperventilates about Russian Hackers “penetrating” a utility in Vermont. The headline is exposed as a shameless distortion.

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