China gives subtle signals as to what the Fed better do ?
China Affirms Yellen's "Six Month" Guidance, Says Not To Expect Any "Big Stimulus" Out Of Beijing
Submitted by Tyler Durden on 03/23/2014 15:42 -0400
Apparently China did not get the memo that the Fed's apologists are furiously scrambling to packpedal on Yellen's "6 month" guidance in virtually all media outlets. The is the only way to explain why Vice Minister of Finance Zhu Guangyao said overnight that "the U.S. Federal Reserve will begin boosting interest rates within six months after exiting “unconventional” monetary policy, and that will have a “significant impact” on the U.S. and world economy, as Market News International reported earlier. Zhu told China Development Forum this weekend “we believe a the Fed meeting this October, the exit of their quantiative easing will complete." In other words while the spin for public and algo consumption is that the Fed will continue placating those long the stock market until everyone's price target on the S&P 500 is hit and everyone can comfortably sell into an ever-present bid, China is already looking for the exits.
Understandably, Zhu Guangyao also indicated that China is uneasy about the impact of such a move. He should speak to the army of vacuum tubes which has no idea how to exist in a world in which the Fed isn't injecting at least a few billions in reserves every month.
From Market News:
"The basic judgement, if there is no big accident, is that within six months after the Fed fully exits from its unconventional monetary policies, the Federal Reserve Bank will launch the process of raising interest rates and that will have a significant impact on the United States and the world economy as well," he said."Based on the current progress, we believe at the Fed meeting this October, the exit of their quantitative easing will complete," Zhu said at the China Development Forum at the weekend.But Zhu's comments -- the most detailed from the top of the Chinese government since Yellen took over from Ben Bernanke last month -- suggest that the authorities here are beginning to brace for an end to the extraordinary monetary accommodation of recent years. They come even as the Chinese government presses on with a sweeping reform program which has already plunged domestic financial markets into uncertainty.The yuan fell sharply last week following the widening of the currency's trading band to the U.S. dollar to 2% from 1% around the central parity. That was part of an ongoing move to deregulate the currency and interest rate regimes in order to better prepare the economy to handle swings in capital flows. The government also appears more willing to tolerate defaults as part of a long-delayed clean-up of the financial system.
But while the end of QE appears a given, at least until the market realizes there is no handover to an economy that is a moribund as it has ever been in the past five years, and the Fed has no choice but to untaper and return with an "even more QE" vengeance (it certainly won't be the first time - just recall the "end" of QE1, QE2, Op Twist, etc), a bigger question surrounds whether China, already sliding in credit contraction and suffering a plunging stock market with its housing sector also on the edge of a bubble bust, is about to take over from the Fed and proceed with its own stimulus program.The answer is no.
Bloomberg reports: "China used big fiscal stimulus in 2008 during the global financial crisis and this made the economy heat up quickly, Finance Minister Lou Jiwei says at a forum in Beijing, according to a transcript of his comments posted on Sina.com’s website."
This year, however, China will focus on quality of growth this year according to Lou, which means no shotgun stimulus program. He added that China will pay more attention to the environment and won’t use large-scale fiscal stimulus to spur investment in order to reduce overcapacity.
So with China caught in a deleveraging vortex, with the world used to Chinese "asset creation" in the range of $3.5 trillion each year, and with no endogenous credit creation to offset the phasing out of Fed QE, one wonders: will the next big surge in outside money come from the ECB, where outright QE is against the charter, or from the BOJ, where Abenomics has failed so miserably so far, that any additional surge in import food and energy prices may just lead to an outright recession. And it is in this context that we expect the stock "market" will surge to new all time highs again this coming week.
Russia Returns Favor, Sees Chinese Yuan As World Reserve Currency
Submitted by Tyler Durden on 03/23/2014 18:32 -0400
Following China's unwillingness to vote against Russia at the UN and yesterday's news that China will sue Ukraine for $3bn loan repayment, it seems Russia is returning the favor. Speaking at the Chinese Economic Development Forum,ITAR-TASS reports, the Chief Economist of Russia's largest bank stated that "China's Yuan may become the third reserve currency in the in the future."
Managing Director and Chief Economist of investment company Sberbank Yevgeny Gavrilenkov said at the 15th governmental Chinese economic development forum in the Chinese capital on Sunday (via ITAR-TASS):
"China’s yuan (renminbi) may become a third reserve currency in the world in the future""This forecast can be made on figures of domestic economic growth. Probably the country will keep high GDP growth rate and the GDP volume will increase to around 14-16 trillion U.S. dollars for a brief period of time, the indicatorscomparable to the European Union and the United States.Meanwhile, Chinese securities are more attractive for the countries that have a surplus in economy, particularly the Middle East states; and China will obviously follow the path of securing the country’s assets,"
The forum which opened in the Chinese capital on March 22 discusses a broad range of issues of economic reforms andChina’s stronger role as the second largest world economy. First Deputy Prime Minister of the Chinese State Council Zhang Gaoli, Managing Director of the International Monetary Fund Christine Lagarde and top managers of major world corporations participate in the forum as honorary guests.
Of course, as we noted previously, nothing lasts forever...
and with Friday's "Petrodollar Alert"perhaps things are moving faster than many assumed.
China Takes Sides: Sues Ukraine For $3bn Loan Repayment
Submitted by Tyler Durden on 03/22/2014 18:38 -0400
It is widely known that Russia is owed billions by Ukraine for already-delivered gas (as we noted earlier, leaving Gazprom among the most powerful players in this game). It is less widely know that Russia also hold $3b of UK law bonds which, as we explained in detail here, are callable upon certain covenants that any IMF (or US) loan bailout will trigger. Russia has 'quasi' promised not to call those loans. It is, until now, hardly known at all (it would seem) that China is also owed $3bn, it claims, for loans made for future grain delivery to China.It would seem clear from this action on which side of the 'sanctions' fence China is sitting.
In 2012, The State Food and Grain Corporation and the Export-Import Bank of China agreed to provide Ukrainian corporation loan of $ 3 billion, which was planned to be on the spot and forward purchases of grain for future delivery to China....Minister of Agrarian Policy and Food of Ukraine Igor Schweich confirmed that China has filed a lawsuit against Ukraine in a London court for the return of a loan of $3 billion.
The Ukraine minister disagrees with China's case:
"filed false information that there are no claims to us from China. According to the contract have different interpretations, different interpretations, which led to the treatment of the Chinese side in court Gaft who works in London. Registered dispute between the parties exists," - said Minister told reporters.According to him, the parties agreed to take the following week a representative of the Chinese corporation for the possibility of peaceful settlement of the dispute."We, for our part, will do their steps to ensure that the other party or retract its announcement, or we found another way to a peaceful settlement," - he said. According to Schweich, a meeting will be held on March 26.
Ukraine appears to claim that these loans were made by the previous administration
The Minister added that the main problem lies in the fact that some leaders of PJSC "State Food and Grain Corporation of Ukraine" incorrect information. "These people are now removed during the protest,"- said Schweich, noting that China "is relevant to understand."In February 2014. the current Prime Minister of Ukraine Yatsenyuk said that "location $ 3 billion is not found."
While China has been relatively quiet in the background - though abstaining from the UN vote waqs a clear signal of relative support for Russia - this is a meaningful step in the direction of pressure against the West, as yet again, any bailout funds would flow straight to either Russia (gas bill sor callable bonds) or China (agriculture loans).
Russian Forces Storm Crimean Military Base In Belbek - Live Webcast
Submitted by Tyler Durden on 03/22/2014 11:12 -0400
As we reported earlier, while Ukraine military forces are either slowly leaving the Crimea or joining the Russian army, one outpost, that at the Crimean airforce base of Belbek, remains undaunted by Russian demands to hand over the premises as the Russian ultimatum to surrender has expired, and moments ago wire services reported that shots were fired as Russian forces stormed the front gate of the Crimean outpost. Watch a live webcast from the scene below as the Russian force take control of the last place of presence of Ukraine forces in the Crimea.
Interpreting Putin's Decision
Submitted by Tyler Durden on 03/23/2014 20:47 -0400
Submitted by Wei Zongyou via The Diplomat,
People around the world were astounded by Vladimir Putin’s rapid decision to annex Crimea in response to the latter’s referendum to secede from Ukraine and join Russia, which Kiev and the West view as illegal. The decision also drew worldwide criticism and vehement condemnation by the West and Ukraine, and triggered a second wave of economic sanctions from the United States, and soon afterwards Europe. Relations between Russia and the West are at their chilliest since the end of the Cold War.
So why has Putin risked Russia’s economic welfare and political space to swallow Crimea, push Ukraine out, and alienate the entire Western world? Is Putin “in another world” as German Chancellor Angela Merkel claimed he is? In my opinion, there are at least two considerations behind Putin’s decision.
The first is the realist, geo-political consideration. In Putin’s world, since the collapse of the former Soviet Union, Russia has lost nearly one fourth of its geography, one half of its population, and more than half of its GDP. Among the “lost” territories are those that are strategically important or militarily advanced, such as Ukraine and the Baltic states. With the eastward expansion of NATO, and the integration of former Soviet satellite states and republics in Eastern Europe and the Baltics into Europe, the traditional buffer zone between Russia and the West is increasingly squeezed and Russia’s space for strategic maneuvering becomes smaller with each year. When Russia craved for entry into the West, this might not have been particularly worrisome or embarrassing for Moscow. But since Russian leaders decided long ago that joining the West was neither particularly helpful to Russia’s political standing nor particularly attractive in terms of economic gains, it has begun to view the expansion of the West at its own strategic expense as both ill-intentioned and threatening.
Ukraine holds a unique position in Russia’s geo-strategic consideration. First, it is crucial territory in the passage of Russia’s oil exports to Europe. Each year more than one third of the oil Russia ships to Europe travels via the Ukraine pipeline. Second, Crimea gives Russia’s Black Sea Fleet access to the Black Sea. If the pro-West Kiev government were to have decided to end its lease to the Russian naval base in Crimea, Russia would have lost its strategic gateway to the Black Sea and the Mediterranean Sea. Third, Ukraine is deemed the most crucial member of Russia’s Eurasia Union project, an economic and strategic plan to closely connect Russia, Belarus, Ukraine, and Central Asia. If all goes according to plan, this union will integrate these former Soviet republics and now independent countries economically, politically, and diplomatically with Russia, and go some way to restoring the glory of the Soviet empire at its peak. The “coup d’état” in Kiev and the political orientation of the new government put all these things in jeopardy, if Russia remains disinterested and passive.
The second consideration is more psychological in nature. Following the end of Cold War, embracing the West was the first priority of Russian foreign policy. But to Moscow’s dismay, it found that the West still harbored strong reservations and considerable distrust. Years spent courting and wooing provided little of what Russia craved most: equal membership in the West and economic prosperity. Though Russia became part of the exclusive G8, it never enjoyed the full status and say of the other seven members, always remaining an “other.” Economically, the shock remedy proposed by the West and faithfully implemented by Boris Yeltsin didn’t bring the expected economic benefit. Instead, it took Russia’s economy into freefall, leaving the average Russian worse off than before. Russia’s look West ended in humiliation and disaster.
It was Putin who saved Russia from its miserable condition. He readjusted both Russia’s domestic and foreign policies, and distanced the country from the West, instead seeking opportunities to resurrect past Soviet glories. As the Russian economy improved, the West found that its time was passing. The 2008 economic crisis hit the U.S. and Europe hard and they found themselves more reliant on the emerging powers, Russia included. It is Britain, France, and even Germany who are now busy appealing to Russian oil bacons to buy more and invest more. The balance of power between Russia and the West has shifted. The small war in Georgia in the summer of 2008 only strengthened this trend and the response from the West impressed Russia greatly: Europe is rotten and the U.S. has become too weak to lead. Then came the Arab Spring and the Syria crisis. In the former case, the U.S. “led from behind,” and in the latter it was Russia that decided the course of the Syria civil war.
Russians, and especially Putin learned a hard lesson from the post-Cold War romance with the West: For all the talk of democracy and freedom, the fact remains that the strong dictate to the weak.
With Europe rotten and United States weakened, a resurgent and confident Russia will definitely not let a geo-strategically important former Soviet republic fall entirely into the West’s camp. By annexing Crimea, Putin not only secured Russia’s naval base and its strategic gateway to the Black Sea, he also sent a powerful message to Ukraine and the West: Ignore Russia’s legitimate strategic concerns at your own peril.