I have discussed copper before and something recently caught my eye which deserves a followup post. Copper inventories are rising rather dramatically.
Worldwide copper inventories and yearly change
As you can see from the chart above copper inventories are now at highs not seen since nearly 10 years ago. More importantly the year over year change is quite positive as well. The above graph is a month old but as we can see from a higher frequency chart total inventories may break 900 thousand tons soon.
Why inventories are rising so quickly could be due to several forces, some of the top of my head are:
Rising production -- New mines coming online.
Declining demand -- A sluggish Europe could be assisting in keeping demand down.
Hidden inventory being brought back onto the markets -- If this is a case of Dark Copper coming back into the official warehouses it would validate some theories regarding base metals being used as financing source in China. FT.com posts dated March 31, 2011 and April, 26 2012 provide good roundups of the possibility and mechanics.
Of course only hindsight knows why copper stocks are building right now. We have to wait to find out why.
The video I previously posted has incited a new round of Chinese Empty City Watching. Jim Chanos, the famous short seller, was recently on CNBC explaining his rationale and hinting at his short positions.
It has been over a year since I last highlighted the slow decline in official lending statistics out of China. Since then not much has happened regarding the direction of Chinese lending growth; a slow decline continues.
I point you to Steve Keen's debtwatch for why the rate of growth in lending is important.
The rate of lending growth peaked in October 2009 and has been declining ever since. Compare this to the Chinese equity markets and you'll see how Chinese stocks haven't gone anywhere since October '09 either.
Unofficial lending is naturally harder to track but there are anecdotal signs of stress in this sector as well. http://historysquared.com/ and http://www.alsosprachanalyst.com/ are two good sites to follow the 'underground' lending market.
A little more than six months ago I laid out a bearish case for the red metal, also known as Dr. Copper by those in the markets for its ability to predict future economic change. With the recent thrashing copper and many other risk assets have taken I thought revisiting the topic would be a good idea.
While China is a large factor in all base metals prices let's start with the Old World and the seemingly mundane issue of actually counting how much copper inventory is on hand. While this would appear to be as simple as looking up the LME (London Metal Exchange) and COMEX (US futures) inventory numbers it really isn't. The BBC ran a three part series on rising commodity prices in late May and spent nearly a third of the program on copper.
BBC Radio - Bubble Trouble - Part 1 - May 28,2011 BBC Radio - Bubble Trouble - Part 2 and 3 Ft.com blog highlighting the inventory issue
In part 2 around the seven minute mark the presenter takes a tour of a well known base metals warehouse in which the warehouse representative reveals only about 40% of the copper in the warehouse is registered as LME inventory. When I heard the words I had to replay it several times to ensure I understood that correctly; my brain almost rebelled at the concept of anyone just coming out and publicly stating such a figure. Now I'm not suggesting the LME reported amount is under counting European stocks by 40%, just that this one warehouse has a lot more copper inside its walls that is reported to LME. Please listen to at least part 2 of the radio series to get the full details. If it can happen in one warehouse in Rotterdam what is preventing it from happening elsewhere in the world?
So why is the copper 'hiding'? Some of it is because costs are cheaper to store it in a non registered warehouse versus an official LME warehouse. Another factor may be what is suspected to be going on in China. FT Alphaville has discussed import/export trading firms there are using copper as a credit funding vehicle because other more official forms of credit are drying up.
Here’s the gist of it.In the first instance, our source says, the strategy is not exclusive to copper markets but goes on across most commodity markets.
The banks call it “inventory financing”. And of course, we should stress, it is completely legal. The practice mainly involves pledging an asset in return for an exchange warrant or cash.
According to our source, traders can deposit copper in an exchange warehouse in order to receive a warrant which can then be used to gain financing, usually via a broker, and less a 15 or 20 per cent haircut needed to cover futures margin deposits (sometimes called margin or warrant financing).
Read the whole article to get the full weight of what they are doing. This copper-as-financing would help explain why copper continues to be imported even though for most of 2011 it has been cheaper on the domestic Shanghai exchange. For the credit focused copper trader the money created by the transaction has greater value than the actual copper, it is just a funding mechanism.
While the discount has been steadily falling one must understand China is a net importer of Copper; so why has it been cheaper to buy copper inside China?
Izabella Kaminska followed up a few weeks later with more details on the same copper-as-collateral trade
More worryingly however is that the primary use of copper in bonded warehouse appears to be as a financing mechanism to provide cheap working capital for various types of business often unrelated to the metallic industry.
Having just come back from China my impression is that more and more people are beginning to understand that a lot of copper that has been imported has not gone into furnaces, that it is held by both foreign and Chinese financial institutions and others and I do think that even at the top level in government there is now starting to be a concern of the impact of this speculation on China's economy. Because it is not just copper - it goes much deeper than that. With money which has been so freely available in recent years, and with negative deposit rates, any company or individual is very reluctant to hold funds on deposit. So they are looking for other means of investment and it goes into commodity markets generally - the stock market, it goes into manufacturing investment and so on so forth. Whether government does anything to stop this game going on I've no idea, but there is at least a realisation at a pretty senior level that these developments are ongoing.
Mr. Hunt also brings up the insidious problem of negative real interest rates in a growing economy. Empty cities such as Ordos are an example of what happens when people respond to the obvious distortion of losing money when you put it in a bank account.
The world No.1 copper producer, Chile's state-ownedCodelco, sounded a warning shot at the CESCO copper industrygathering in Santiago on Monday, saying copper stocks in China were abnormally high and needed to be watched carefully.
Figures are tossed about regarding how much inventory has been tied up in these financing deals but one never really knows how much until the real washout hits and people are forced to dump their positions.
That being said, some analysts are putting out huge numbers as to the extent of hidden inventory, again from ft.com blog
The ICSG data shows an increase in Chinese demand of 99% for the four years between 2005 and 2009 when Chinese GDP probably rose by about a third. Obviously, there cannot possibly have been such a massive rise in copper’s intensity of use in China. You can look through all the intensity of use curves for every commodity for every economy in history and you will never find a doubling in consumption against a one third increase in GDP over so short a period of time.
The numbers are large, around 4 million tonnes since the end of 2006. This dates from when global fabricators and others started to understand that a new paradigm in the copper market had begun. It was the involvement of the financial community by buying copper directly from producers and others and warehousing the metal outside the reporting system.
High inventories in bonded warehouses point to the possibility of destocking, which could hit copper prices on the London Metal Exchange (LME). As of this week, we estimate that total copper stocks in bonded warehouses in Shanghai (usually 80% of the national total) have hit 650 thousand tonnes (kt) – equivalent to roughly four weeks of China's domestic use, a record-high level (Chart 2). This is significantly higher than 550kt in late February and the 200kt average over the past three years.
ETFs have been a useful tool to allow banks to move risk off balance sheet. When a bank takes on risk through lending to or financing a big commodity player, say for an acquisition, there is a need to hedge potentially huge commodity exposure — so as sell to lock in the commodity price, and you couldn’t sell that volume easily into the terminal market; although you could transfer a large amount of exposure to investors through an ETF more easily. The only way this used to be done is by the bank taking proprietary risk, but they now have other risk issues and aren’t prepared to carry that sort of exposure.
Using ETFs becomes a mutuality of interest, with everyone moving to launch products to investors – retail and institutional – so that they can carry the risk instead. It’s all about de-risking your book. And you saw it in the dot com bust when investment banks pushed dotcoms, but offloaded the risk to investors. When the NASDAQ crashed the investors carried the bulk of the exposure.It all has similarities to the Abacus CDO. If you want to short the market you have to create the demand, like Paulson did. If you are an institutional advisor you can do that by hyping the commodity.
The actual import numbers going into China for both refined and scrap do not mesh well with the meme of voracious demand. On a year over year basis both are falling.
Furthermore the reported inventory numbers have been wandering around the 600k number for a while. Ironically the last time year over year inventory numbers dipped into negative territory for a while was 2008.
I'm not the only one who is not a copper bull. The Reformed Broker sums it nicely while debating a copper bull:
I will admit some of my thesis is based upon information that is not reported as cut and dried numbers that can easily be looked up on a computer screen but what I do find does not add up to the template of China hoovering up all known copper deposits in the universe:
Copper is cheaper in Shanghai than in London
Copper imports of all kinds are dropping
Public reports of a LOT of hidden copper stocks, in the Old Word as well as China and confirmed by Chileans
I could go on but you need to put in some work as well. Read over the links below. I saved a few bombshells for your discovery...
Nearly two years ago I highlighted the city of Ordos, China and how it appeared local municipalities and investors were building an empty city with no hope of a positive return on investment.
Fast forward to present day and the same reporter made a return visit to see what has changed. While there have been a few people moving in, residential construction continues at the usual Chinese breakneck pace. The new video show the same empty boulevards but with more skyscrapers being built in the background.
She interviewed the same person, Mr. Chovanec, as last time and he provides the reasons why supposedly rational people would invest in an empty city and expect a positive return. Mr. Chovanec provides more examples of bubble behavior in China in a recent blog entry titled This is What a Bubble Looks Like
China's response to the Great Financial Crisis of 2008 was to tell the banks to lend, and they did. The resulting excessive credit growth just exacerbated the already imbalanced situation brewing in their country. When the next monetary event comes with Greece's default I will not be around (metaphorically) to see if they will be able to 'fix' the problem again.
One problem with satellite photos is you don't know what has happened since taken. One may legitimately posit an apartment complex that looks empty in the image may now be filled to capacity and teeming with life. A recent expose by a journalist on the ground demolishes those theories.
What is most impressive about the apartment complex shown is how they built the entire place without adding any roads yet. Hopefully they'll get around to it. Zoom out and look around (both north and east) and you can see the scale of this new city. Like the video above almost all of this new Chenggong appears unused.
To follow up on my previous copper post here is some additional articles:
One trader (suspected to be JP Morgan) held nearly 90% of the outstanding copper on the LME in late 2010 WSJ December 21, 2010
As commodity prices soar to new records, the ability of a few traders to hold huge swaths of the world's stockpiles is coming under scrutiny.
The latest example is in the copper market, where a single trader has reported it owns 80%-90% of the copper sitting in London Metal Exchange warehouses, equal to about half of the world's exchange-registered copper stockpile and worth about $3 billion.
As is implied in the article, having just one party hold such a huge portion of the outstanding asset is just an invitation for manipulation. For some reason the LME states controls are in place to prevent abuse but I'm a bit skeptical.
I am not the first one to comment on China and their bonded warehouses' providing a convenient 'hiding spot' for excess copper. Ft.com December 21,2010
As Reuters noted, the London/China arbitrage window was after all firmly shut during the period:
The November inflow was a surprise to many market watchers given that the arbitrage window — buying from the London Metal Exchange and selling to Shanghai — was shut for much of last month, Beijing Capital Futures analyst Xiao Jing said.
And, as they also noted:
But trade and warehousing sources in China said the London Metal Exchange and Shanghai arbitrage had stayed closed last month and thatshould have prompted importers to store some arrivals of refined copper in bonded warehouses.
Bonded material can be shipped out to the international market easily or imported into China after the 17 percent value added tax is paid.
Finally, something I suspected but had no 'proof''. Chinese traders may be using copper and other base metals as a cheap funding source as well as a currency play.
From Ft.com March 9,2011
To reiterate: that’s Chinese companies using copper as collateral for financing deals — also known as a somewhat ingenious nationwide inflation hedge (in the event copper prices continue to rise).Let’s just say it’s a bit like living off a loan taken out against your house. The loan won’t be a problem because you believe the price of your house will only go up.
And while that remains your view, there’s no reason not to double up. Buy even morehouses for the sole purpose of transforming cold hard cash — not inflation proof — into an asset which can continue to be monetised via ever depreciating bank loans.
Magic.
That is, of course, until copper prices stop rising.
It's all fun and games until the party stops and the margin calls start. Just think about how much chicanery occurred during the US housing boom. You don't think games like that are being played in China?
Copper has had quite a run, but is it legit? Numerous experts are calling for continued strength in the commodity as well as continued supply deficits. I offer a contrary opinion.
There are several fundamental reasons for this alternate opinion and we'll go over them. From a technical standpoint copper as well almost all other commodities has been on a tear upwards ever since the announcement of QE 2. Recent events in the Middle East have slowed the rise in prices and higher oil prices may dent future economic growth worldwide so forces may be aligned to drive copper down in the near future.
Chinese Copper Demand
Copper is traded worldwide on several exchanges and as such provides an opportunity to see where prices (and by implication demand) are higher.
China is commonly cited as a source of continued copper demand. If this is so one would think copper sells at a premium to elsewhere in the world. This is not the case and copper has been selling at a discount to the LME (London Metal Exchange) for several months. As you can see here the last time couple times Chinese copper was cheaper worldwide prices stopped going up. (ht news-to-use.com )
One can see the real time arbitrage price difference on Bloomberg. While the arbitrage values do swing between positive and negative, since mid July the arbitrage price has been negative. Take a look at the long term trends and you'll see periods of negative arbitrage have coincided in the past with lower future prices as well as increasing inventory levels.
Inventories
One of the common bullish themes is how copper has been in a deficit for several years and will continue to be so in the future. A long term inventory chart provides some clarity. Longer term copper inventories have been both lower and higher than today. While right now copper inventories are dropping on a year over year basis the last inventory peak was in early February 2010 and as you can see inventories tend to trend in one direction or another for a period of several months. Right now we are on an upswing. Copper inventories (LME, SHFE, Comex) bottomed mid December and have risen nearly 130,000 thousand tonnes since then and are rising at over one thousand tonnes a day right now.
Furthermore the number of cancelled warrants continues to drop and has remained well below 20,000 for several weeks now. A low cancelled warrant number is an indication of fewer lots of copper coming out of inventory for delivery.
The dog that did not bark
A most interesting news article ran across Bloomberg late last year regarding Shanghai and bonded warehouses.
Why provide this option of delivering copper from 'non official inventory' warehouses if it did not already exist? While getting hard numbers about how much hidden inventory exists is nearly impossible, this rule change leads one to believe there is significant supply available, otherwise why provide the option?
Furthermore the 'movement' of inventories into and out of the official stockpiles occurs rather easily. In January aluminum inventories went up 100,000 tonnes in one day. http://traderightuk.wordpress.com/2011/01/10/now-you-dont-now-you-see-it/ 100 thousand tonnes is a LOT of material. The largest ships in the world move 150 thousand tonnes of cargo to give you a sense of the mass involved.
Just because you can't see the copper (or aluminum) doesn't mean it is not there. There are other quantitative numbers showing us there is a lack of demand in China such as the the lower relative price as well as a lack of imports.
Both refined and scrap copper imports have leveled off over the last few years and do not show a sustained rise in imports as one would expect if China is truly the voracious eater of copper as people have posited.
Four dollar copper does wonders for encouraging more supply. Heck, there's even supply developing underwater. Nautilus minerals is currently building an underwater 'mine' and if they can pull it off the potential is huge.
Furthermore a little corruption goes a long way. There's a 17% VAT tax on copper in China. Does one honestly believe there is no skirting of the law? A truckload of copper would be an easy thing to 'misplace' at a large import facility.
Betting against the house
Looking at copper futures over the past several years one can see (green line) how commercial traders have never been this short as they have been during this recent run up in price. Remember when you are buying copper right now the person selling probably has more information about copper prices than you do.
Avoiding Imperial Entanglements and Bernankflation
Almost all commodities have been on an tear upwards since Ben Bernanke announced QE 2 in late 2010. The results have come home to roost however as higher food prices may have been the spark that set off the political unrest in the Middle East. Higher oil prices from the riots and regime change in Tunisia, Egypt, and Libya have people wondering who is next and what will that do to oil supplies. Oil prices are now well above $100 a barrel and that price shock has yet to be fully realized throughout the world economy. To hedge my short base metals position I'm also long precious metals and this combination has worked out well recently. Continued tension in the oil producing nations will most likely keep gold rising and depress copper prices as people grow concerned about future economic growth.
Alternative learning annex
For those of you who can't stand looking at data and trying to understand the nuances of localized supply and demand I have created a short video explaining the high points of this post.
An odd way to start a post but as mentioned in my previous entry it is hard to know how much lending is truly going on in China these days. The official data shows a decline in the rate of growth in lending and the government appears to be reigning in credit growth by raising reserve ratios.
This does not tell the entire story. There is a boatload of off balance sheet lending but there are no 'official' numbers for that.
The WSJ (Sept 28,2010 ) recently commented:
A report from Standard Chartered economist Stephen Green estimates that by the end of August between 2 trillion yuan and 3 trillion yuan worth of loans (the banks don’t formally disclose the amounts) were moved off balance sheets–and outside the PBOC’s formal loan data–in this way. Over the same period, PBOC data showed the banks lending out 5.6 trillion yuan, suggesting the banking system has already passed the central bank’s 2010 target for new credit creation. It also means that the tightening signaled by the loan quota never happened.
Standard Chartered is guessing an additional 50+% of unofficial lending this year. Not a small number. If the bank regulators crack down on this unofficial lending the rate of true loan growth would fall dramatically.
It has been a while since I have updated you on the bank lending situation in China. This is not due to me slacking off (I'll admit to a slower pace of posts recently, but I have some good excuses, really) following this topic. The data source, People's bank of China, has suddenly been a little more reticent in publishing this data in English and as my Chinese language skills are a bit lacking this data series has languished....
Data released recently shows a continuing trend of official slowing in the rate of loan growth. I put official in italics because there appears to be some off balance tomfoolery going on. . .
Despite regulatory directives aimed at preventing banks from removing loans off their balance sheets to dodge credit restrictions, China's banks did not slow down their pace in packaging loans as wealth management products.
Banks and trusts cooperated on wealth management products, effectively allowing them to shirk their responsibilities toward credit limits imposed nationwide under the central government's macroeconomic controls.
In the first half 2010, according to trust company reports, the value of wealth management products cooperatively offered by banks and trusts rose to 2.6 trillion yuan, topping the previous year's 1.77 trillion yuan.
This amount combined with the 4.58 trillion yuan in on-the-books, new credit issued by banks in the first half brought total lending in China through June 30 to near the 7.5 trillion yuan limit set by the government for all 2010.
[The 4.58 trillion yuan number matches my data. Look at the 'wealth management products' value of 2.6 trillion. Greater than 50% of the 'on the books official' value of 4.58 trillion. Continuing . . ]
By charging fees as well as commissions of up to 2 percent, banks earn more than trusts when they jointly market bank-trust products. Moreover, by cooperating with trusts, banks keep customers otherwise unavailable due to credit controls, since off-book business doesn't require bank capital and thus avoids CBRC capital constraints.
When companies start hiding assets off balance sheet it rarely ends well.
If you are wondering where all that money is going, this blog entry by staff at the World bank is stunning. Not only for the information presented but the absolute lack of surprise. (ht Mish)
In Chenggong, there are more than a hundred-thousand new apartments with no occupants, lush tree-lined streets with no cars, enormous office buildings with no workers, and billboards advertising cold medicine and real estate services – with no one to see them.
I went to China in 2003 and I can assure you I NEVER saw a single piece of urban pavement that was not completely full of cars, trucks, bikes, scooters, etc at all times. I have mentioned empty Chinese cities before such as Ordos. How many more empty cities in China are there? Andy Xie has wrote about this before. Here is his latest article regarding the excess housing stock in China:
What distinguishes China’s property bubble from others is its unprecedented quantity dimension. China just doesn’t have any constraint limiting supply. The current debate about the quantity of empty flats is about the extent of quantity excess. The stock of empty flats measures the size of the quantity bubble. Taiwan experienced a price-cum-quantity bubble in late 1980s. At the time the market quantified the number of empty flats by obtaining data from the electricity supplier on flats without usage of electricity. The stock of empty flats measured this way was about 15% of the total households. Some analysts are trying the same tactic to quantify the volume of empty flats in China. The problem with this methodology is the complexity of China’s housing conditions. . . . While the data are not accurate, we can confidently conclude that China doesn’t have absolute housing shortage and the per capita space is above Europe and Japan’s level. Indeed, if we adopt Japan’s standard, China already has sufficient urban housing space for everyone in the country, i.e., there is housing for every person in the countryside to move into city. . . Four unique factors may explain China’s unique phenomenon.
1) Sustained negative real interest rate has led to declining demand for money and rising appetite for speculation. Greed and fear of inflation are working together to form unprecedented speculative demand for property.
2) The massive amount of gray income looks for a ‘safe’ haven. China’s gray income of various sorts could be around 10% of GDP. In an environment of rising inflation and depreciating dollar-the traditional safe haven, China’s rising property market is becoming the preferred place for this money.
3) China’s masses have no experience with property bubble. The property crash in the 1990s touched a small segment of the society. Foreigners and state-owned enterprises were involved. Geographically, it was restricted to Southern freewheeling zones like Hainan and Guangdong and Shanghai. Most people in China don’t know that the country had a property crash. Lack of fear is turbo-charging the greed.
4) Speculators believe that the government won’t let property price fall. They correctly surmise that local governments all depend on property for money and will try every effort to prop up its price. But, their faith in the government omnipotence is misplaced. In the end, market is bigger than government. Government behavior can delay, not abolish market force. Nevertheless, this faith in government is removing the fear over the downside. Hence, the speculative demand just grows with credit availability unchecked.
When this bubble goes pop you better have some popcorn and a good seat because the explosion will best any action film explosion sequence.
BEIJING - More property developers have began to cut prices and adjust their business portfolios to cope with sluggish transaction numbers due to government tightening of the real estate sector. According to Li Wenjie, general manager of property agency Centaline China's North China Region, most Beijing developers have lowered prices by 15 percent on new projects.
Shenzhen-based Vanke, the country's largest real estate firm, made public sale prices of a large-scale project in Beijing over the weekend, with units priced 1,600 yuan ($236) lower than the expected price of 15,000 yuan per square meter.
Shanghai-headquartered Shimao Group just launched an upscale residential project called "Royal Garden" in Beijing's Central Business District area at a price of 65,000 yuan per sq m. The average price of similar projects nearby has been close to 70,000 yuan per sq m.
Of course the article quotes real estate firms spinning the lower prices but as I have mentioned previously first volume slows and then the price cuts start. Is the beginning of the end or just the end of the beginning?
Patrick Chovanec has a good post on several topics but one passage really jumped out at me:
Even before my plane landed in Changchun, I could tell from just looking at the city out my window that it was in the midst of an incredible building boom. Row upon row of high-end villas and apartment towers were sprouting like crops all along the outskirts of the city. The same image greeted us on our approach to Jilin City by bus — I couldn’t even count the number of cranes rising over half-completed projects. It’s not any one development, it’s a cumulative impression made by dozens of projects, one after another, on a scale that’s overwhelming. Remember, despite the booming auto industry, this is still a relatively depressed and out-of-the-way part of China. I don’t like to use the Dubai comparison — China is not just a dream in the desert — but I was in Dubai two years ago, and the resemblance is creepy.
We visited one luxury residential development up close. I won’t name the developer, not only because they were our hosts, and I don’t want to be ungracious, but also because they don’t really deserve to be singled out. They’re just doing what dozens of other developers are doing, all around them. This particular project, we were told, had 100 buildings (although I only saw about 40 or so on the display model), the last of which had just been completed. Over the past two years, prices had risen from RMB 3,000 per square meter to RMB 6,000. The entire project was 90% sold out. It was clear, though, that it was also completely unoccupied. Row upon row of buildings stood in pristine luxuriousness, with not a resident in sight.
I suggest you read the whole post.
The anecdotal evidence of residential overbuilding keeps piling up . . .
Reuters reports today that Mexican federal police broke up the cordon around the Cananea mine.
Grupo Mexico retook control of Mexico's biggest copper mine after hundreds of federal police dislodged protesting workers on strike for nearly three years, the government and the company said on Monday. Hundreds of police backed by helicopters arrived Sunday evening, surprising miners guarding the entrance. A company source said the Cananea mine, which once produced 40 percent of Mexico's copper but has been closed since July 2007, could be running again as soon as the end of this year.
Grupo Mexico hopes to get the mine back up to full production (estimated at 160k tons) by the end of the year.
The Chinese government continues clamping down on housing rules and regulations. If the final new article in this post is accurate the results are quite impressive.
Chinese developer Evergrande Real Estate Group on Thursday started to offer a 15 percent discount on prices of its 40 property projects across the country to promote sales amid government tightening measures to cool down the red-hot sector, Shanghai Securities News reported.
Average daily transactions of completed apartments in Beijing dropped to two units during the three-day holiday, down 96 percent year-on-year, and that of homes yet to be constructed fell 35 percent to 205 units, according to Beijing Real Estate Transaction website. Compared with April, the transaction volume decreased more than 80 percent.
BEIJING (MNI) - China's housing market is reeling from a government effort designed to clamp down on rampant speculation and surging house prices, with potential buyers running to the sidelines as the level of uncertainty rises.
The sales center for C-King Towers should have been teeming with life last Sunday, with potential buyers cramming the room to snap up units in the mid-to-high end residential development on the north side of Beijing's Third Ring Road. That would certainly have been the case before the middle of last month.
But on Sunday it was a virtual ghost town; two receptionists chatted above the hum of the rap music being pumped into the room to entice non-existent buyers. Rows of tables draped in brown velvet, which should have been the setting for dealmaking, stood unoccupied.
And finally, after volume slows to a stop prices start falling:
May 11 - China Daily
According to Yahao Real Estate, a Beijing-based property brokerage firm, the city's residential housing cost averaged 16,898 yuan per square meter from May 3 to 9, fell 9.60 percent from a week earlier and declined 31.43 percent from the week ( April 4 to 11) before the policy has been taken, the newspaper said.
While this is only 'anecdotal' evidence on a certain level it certainly is powerful reading if accurate. As my previous posts have alluded to the Chinese government wants to clamp down on housing speculation. Considering their capabilities it is going to happen. Whether in an elegant or destructive manner is yet to be determined.
I'm starting to watch rebar and wire rod prices in China. I'll give you an update once I have enough data.
From March 2, 2010 Fast Money
The folks on the desk suddenly noticed copper inventories in China surging. I'll have more on this later but the trend has reversed declining and is starting to work back up again . . . Copper discussion starts around 5:25 and goes to 10:40
Been busy with tax day but here's some links and comments . . .
Greece 10 year bond yields keep rising and are very close to piercing pre bailout yields.
Some German profs are preparing a lawsuit. -- Telegraph.co.uk
Has Greece hit the Chandrasekhar limit and just doesn't know it yet? Once you go passed the limit there is no turning back.
Some back and forth on strategic defaults fueling consumer spending:
Pro Tinfoil: Creditwritedowns
Anti Tinfoil: The Big Picture
Creditwritedowns pulls together a lot of subjects and puts a nice bow on top describing a theory I agree with: We are in a balance sheet recession that will not produce a strong rebound and will take a long time to reconcile. I posted the Koo and Chanos videos recently but Mr. Harrison does more work tying it all together.
Total copper inventories have now risen for 2 weeks straight and are close to penetrating their recent peak level; LME inventories have dramatically slowed their decline and Shanghai inventories hit new highs today. Copper's getting smacked today. I'll write more about this soon(tm).
It's been a while since I last updated you on Chinese loan growth. Some of that was due to the problems of getting the data out of China. I was finally able to extract the data and it appears the peak in lending is finally in. March data comes out soon but considering the difficulties of updating this data I thought I'd get you up to date now.
Even with the 'record' lending in the first two months of 2010 both the trailing twelve month total of lending and year over year percent change of total loans outstanding have peaked.
As with every massive increase in lending it ends up on all sorts of places and turns out to be much more prevalent than commonly thought. Elite Chinese Politics blog (Mr. Victor Shih) has some serious allegations of hidden debt in the local government investment entities that are the analog of the Special Investment Vehicles (SIV's) of our banking bust. Here's some more reading on the matter at businessinder.com and here. Of course this is difficult to 'prove' as the Chinese accounting books are not the most transparent but Mr. Shih's work should not be discounted out of hand. I suggest you go to his blog and read the comments and rebuttals. It's good stuff. . .
My bearish opinion of copper has been met with (polite) derision by some people. It is nice to see I'm not the only one who is very bearish on the metal
One of the Fast Money members took the very opposite viewpoint from Threlkeld but I find his reasoning incorrect. As I have mentioned in previous posts copper inventories continue to rise and new supply (TCK for example) is coming from various sources.
