So when will the Chinese debt bubble burst?

So when will the Chinese debt bubble burst?

I've yammered on about this for a long long time. Highlighting empty cities to nowhere, excessive debt buildup, etc. Obviously the Chinese government's ability to extend this bubble is greater than my FinTwit credibility.

Are we hitting another decision point? Will the next US recession finally detonate the bubble? Honestly I don't know, but now ever Peter Zeihan is commenting on this.

https://www.youtube.com/watch?v=PVMlEiewyT4

The more China blows the debt bubble the larger the explosion when it pops and right now they are working on exceeding the Japanese bubble from decades ago.

Source: Federal Reserve

No one wants to be blamed for ending the party but eventually it does.  I can't tell you when it will go off, but be careful when it does.

Chasing the next credit bubble. It feels best right before it pops.

A recent tweet by Kevin Smith of Crescat Capital  (someone I've had the pleasure of meeting in person) reminded me of just how far we've come since 2008 and the Great Recession.

By how far we've come I'm not meaning in a positive sense.  If you look at the selected ratios of debt to GDP for Canada, China, and Australia they've each grown tremendously since 2008/09.   While this has helped goose growth in each of their respective economies (and spilled out into the greater world as well)  it does not bode well for the future.  The thing about debt is it need to be paid off.  Somehow, someway (by default, payment or inflation) the ratios will drop when they reach such lofty heights.  

Crescat capital annotated the above chart rather nicely showing you the negative events which coincided with either a rapid rise in debt to GDP (like Thailand) OR a high ratio overall (Japan, USA, Spain)  Their implication is Canada, China, and Australia are heading toward a likely credit crises and I'm inclined to agree with them.  

These are not the only shimmering spheres on the horizon however.  Look below and you can see all three of the Scandinavian countries are above US levels before our little economic problem in 2008.

Source: Federal Reserve (link)

The challenge with calling the tops in a bubble is you are battling central bankers and their willingness to keep the debt flowing.  Who wants to say no when the money is flowing?  Even central bankers can exhibit human tendencies on occasion, they don't want to be derided for being the Grinch that stole Christmas...  As such it's very hard to know when they will finally start to restrict the lending and tighten liquidity.    While the US is not at the top of this rarified list it is entirely possible our current series of recent (and future?) rate hikes will be enough to tip one of these countries over the edge which could then get the dominos falling.  When is unknown, but that it will happen appears quite likely.

Update:  https://blog.pimco.com/en/2017/05/A%20Less%20Impulsive%20China%20Bracing%20for%20Lower%20Growth

Looks like the Chinese credit impulse may have turned negative recently.  As the data presented above is nearly 6 months old this is very interesting.  While it ripple through to the US markets? We shall see shortly.

Hugh Hendry watch - Turning Japanese

I'm a bit late in this, but here's the most recent report from Hugh Hendry's Eclectica fund.

It's a quick read so I won't excerpt from it except for one trading tidbit:  In 2008 he purchased a 10 year one touch call on the Nikkei with a 40,000 strike price !!!

Q1 Review 2013 Hendry by ValueWalk.com

ht: Mark H @fundmyfund

Japan Nuclear Update: Fear and Loathing about Fukushima

It hasn't taken very long for the charlatans and plain fear mongers to try to capitalize on the situation in Japan. I recently saw a banner ad on my web site for a company shilling a supplement to prevent radiation injury to Americans. I am not going to link to the company and give them free publicity.

To be very clear:
YOU ARE IN NO DANGER IF YOU LIVE IN ALASKA, HAWAII OR THE CONTINENTAL US.
The EPA agrees with me without using all caps.
A professor from Berkeley agrees with me.

Those who have a memory longer than a year may recall two nuclear weapons detonated OVER Japan a few decades ago. The amount of nuclear radiation emitted from those events were several orders of magnitude higher than the current situation yet we didn't have anyone dying in America did we?

This chart from http://xkcd.com/radiation/ has been floating about showing the relative levels of radiation and I think one should really take a look at it to put some of the news reports in context.  One problem is our instruments are so sensitive that its very possible in America to detect the slightly elevated levels of radiation that have made it to our shores.  Then again, getting on an airplane would provide a much higher dose but that doesn't seem to be mentioned at the same time the TV breathlessly tells you the clouds of nuclear radiation are coming this way.

Plutonium:
There's been reports plutonium has been found on the grounds of the Fukushima power plants and we should all hit the panic button  Plutonium is a natural by product of the normal fission cycle which occurs in a power plant. What they didn't mention in the first reports is the scale of the plutonium concentration and that matters a lot. For some sanity I suggest you listen to this interview:
http://georneys.blogspot.com/2011/03/14th-interview-with-my-dad-nuclear.html

Tepco came out with some clarification of the Plutonium and it's not something to worry about
http://www.tepco.co.jp/en/press/corp-com/release/11032812-e.html


Finding people in Japan:
The red cross has another site for finding people in Japan here:
http://www.familylinks.icrc.org/web/doc/siterfl0.nsf/htmlall/familylinks-japon-eng
I mentioned another site run by Google a couple days ago.

Predictions for cleanup taking 30 years:
I ran across a Bloomberg article predicting it will take 30 years and billions to clean this mess up. I link to it so we can see how accurate they are. I find it odd to make such predictions when the smoke hasn't even settled.

There's an interesting presentation by Arevea floating around which appears to give a good timeline of what has happened. Of course this is a theory regarding the damage of the cooling torus but it does look like a possible reason for the elevated radiation readings in the water.
https://docs.google.com/present/view?id=dg4hcz37_289dr9g62f6

I'm not trying to sugar coat the issue in Japan which is still volatile and dangerous but please respond to any positive or negative news reports with a healthy dose of skepticism.

An amazing rescue story from Japan

The tragic stories coming from Japan keep piling up and the death toll climbs every day as the Japanese try to dig themselves out of the rubble.   The humanitarian challenge of caring for a couple hundred thousand homeless is straining even the organized Japanese.

Amongst the despair and rubble there are amazing stories of bravery and determination emerging.

Here is one of them.
Hideaki Akaiwa escaped the earthquake and tsunami, but after being unable to find his wife, scrounged up some SCUBA gear and went back into the waters to find his wife! He succeeded and later pulled the same technique to find his mother.  A somewhat embellished but great read of the story goes something like this (from Badassoftheweek 03/18/11)

Regardless of how he came across this equipment (borrowing, stealing, buying, beating up a Yakuza SCUBA diving demolitions expert, etc.) Hideaki threw on his underwater survival gear, rushed into the goddamned tsunami, and dove beneath the rushing waves, determined to rescue his wife or die trying. I'm not exactly sure whether or not the dude even knew how to operate SCUBA equipment, but according to one version of his story he met his wife while he was surfing (which is awesome, by the way), so it doesn't seem like that much of a stretch to say that he already had a little experience SCUBA diving under a more controlled situation. Of course, even if this dude didn't know how to work the gear I'm certain that wouldn't have stopped him either – Hideaki wasn't going to let a pair of soul-crushing natural disasters deter him from doing awesome shit and saving his family. He dove down into the water, completely submerged in the freezing cold, pitch black rushing current on all sides, and started swimming through the underwater ruins of his former hometown.
Surrounded by incredible hazards on all sides, ranging from obscene currents capable of dislodging houses from their moorings, sharp twisted metal that could easily have punctured his oxygen line (at best) or impaled him (at worst), and with giant fucking cars careening through the water like toys, he pressed on. Past broken glass, past destroyed houses, past downed power lines arcing with electrical current, through undertow that could have dragged him out to sea never to be heard from again, he searched.
Hideaki maintained his composure and navigated his way through the submerged city, finally tracking down his old house. He quickly swam through to find his totally-freaked-out wife, alone and stranded on the upper level of their house, barely keeping her head above water. He grabbed her tight, and presumably sharing his rebreather with her, dragged her out of the wreckage to safety. She survived.

Read the whole article.

Tool for finding people in Japan via Google

Google has a service for people looking those lost or missing in Japan. The url is:
http://japan.person-finder.appspot.com/?lang=en
They currently have over 250 thousand records. One word of caution however, some cruel people are posting entries stating some people have died and these entries are entirely false so while I don't want to encourage false hope be cautious of such entries.
From metro.uk

One family were crushed when a message posted on the Google people finder by Lucas. A said that Brian Hickebottom had died in the disaster. However, it emerged that the information was wrong, and he had found refuge in the school where he and his wife work, much to his relatives' relief . . . Responding to a post about US marine Justan Browning, which said he had died when a building collapsed, someone going by the name Canadian Friend wrote: 'I have seen several false reports that people are deceased. It is disgusting. Do not give up hope. Call your government to verify the above report.'

Real time radiation data?

Internet trolling pays off again.  I think I've found some (semi real time) radiation data sites.  My Japanese is limited to the auto translate function in Google Chrome but it appears there are some locations still publishing radiation data. I'm not quite certain of the units due to the translator but you can see peaks and valleys in the data and the peaks are not too much worse than the valleys. It also appears they liken 50,000 to a chest xray, or at least that's how Google Chrome is translating it....

Google map with locations  (The locations near the plant are offline it appears)
Ibaraki Prefecture page  (southwest of powerplants)
Recent Data

Japanese nuclear situation interviews

Again the power of social media reveals itself.  There is a multi part interview series here
http://georneys.blogspot.com/2011/03/third-follow-up-interview-with-my-dad.html
of a retired Navy and civilian nuclear engineer which I highly recommend you listen to.  He does an excellent job laying out the facts of what we know and don't know as time has progressed through this emergency.

I'm not going to comment/report/speculate on the current news of the moment regarding the nuclear situation in Japan as its changing so often and right now the news flow from Japan is sparse as it is night time over there.  In a few hours we'll have another update on what is going on.  If you listen to the interviews above you can get a sense of the unfolding situation and how Mr. Mervine predicted the fuel rod storage problem.  Hopefully the 3 active plants will be successfully cooled down and the fuel rod storage situation in the 3 (#4,#5,#6) non active plants will be contained.

You can follow the blog's author on Twitter at:
http://twitter.com/#!/GeoEvelyn

Real time Geiger counter in Tokyo

While trolling around the internet attempting to find hard data on what sort of radiation levels we are seeing in Japan I found this site where someone is graphing radiation levels in real time in Tokyo.
 http://park18.wakwak.com/~weather/geiger_index.html

The site is in Japanese but you can translate it using google translate or other services available on the web.   While the graph shown does show an increase in radiation levels it is only ~4 times the background level which is very minimal.  This is good news compared to the other reports coming out of Japan regarding the radiation leaking from the stricken nuclear plants.  It is important to get factual data about what sort of radiation levels are being detected and where and unfortunately it has been hard to find so far.

 If you can pass along any quantitative data I'd appreciate it.


ht: http://bravenewclimate.com/2011/03/15/fukushima-15-march-summary/#comment-115804

News and Photos of Japanese destruction

The news and photos out of Japan are incredibly powerful.  Here's a bit of what I've found:

http://totallycoolpix.com/2011/03/japan-hit-by-massive-earthquake-and-tsunami/
http://totallycoolpix.com/2011/03/the-japan-earthquake-and-tsunami-aftermath/

The site fades in and out and I'm guessing it is due to massive traffic to the site. The photos are stunning. Here's a few samples:

While I have not heard anyone separate the damage between the two events it appears the tsunami did more damage. I was watching CNN a few minutes ago and the official body count is approximately 1,600 but they have just found another 2,000 bodies so I'm certain the toll will rise as the days progress.

Video:

Keeping up to date:  There are some English based news sources in Japan

http://www3.nhk.or.jp/daily/english/index.html

On Twitter:

https://twitter.com/W7VOA - Voice of America reporter on the ground.

Nuclear power plant situation:  This is an ongoing event and so separating the facts from rumor or speculation is a challenge.  What we know right now is there have been explosions at  Fukushima Daiichi plants #1 & #3.  Before you panic it appears this was due to the venting of hydrogen from the inner core which mixed with oxygen and exploded.   When the earthquake hit the nuclear power plants immediately shut down by dropping their control rods.  The problems started when the backup generators failed due to the tsunami and could no longer run the pumps cooling the reactor cores.  (Even after a shutdown there is a massive amount of residual heat which must be shunted away from the core)  In an attempt to prevent the central core from breaching they vented gas to bring the pressure down and release heat which then released the hydrogen and it blew off the exterior structure.  

 So far it appears the main central core which actually holds the fissable material is still intact.  Fortunately the prevailing winds are blowing any radioactive gas east offshore and into the ocean.  Right now they are flooding #1 reactor with seawater and boric acid to cool the reactor.

I have simplified this description a bit but if you want the technical details I suggest you go to:

http://bravenewclimate.com/2011/03/12/japan-nuclear-earthquake

which has quite a bit of technical information and a continuing discussion of the ramifications.

I'm not making any predictions as to what happens but the central core appears to be still intact and considering what is has been through is actually pretty impressive.  They still need to cool both cores and keep them from breaching. I'll be watching this closely over the next few days.

Update: Here's a video of plant #3 exploding

Portuguese recycling & Iceland recovery -- Why the Chinese and Japanese are buying EU debt

The recent news of both China and Japan buying EU debt provides a very interesting window into the various motivations of investors.  While most investors are leaving the PIIGS debt markets, China and Japan appear very willing to invest.  Why?  It appears the Asian nations' motivations are different than return of principal.  Both are exporting nations and if more European trading partners are forced into austerity measures of higher taxes and lower government spending their own export industries will suffer.

American policy makers should be mindful of this when negotiating with China. It may appear they have the upper hand when looking at their massive foreign exchange reserves, but China also needs our markets to keep their factories running.

Unfortunately Portugal looks to be the next domino to fall, Asian assistance notwithstanding.  FT's blog lays out the timeline I have previously alluded to: It appears once a PIIGS' bond yield pierces the 7% level a bailout eventually follows.

However even with these 'bailouts' and Euro Central Bank assistance the problem has not been solved. As austerity measures and budget cuts drag GDP down the burden of debt grows ever higher in a nasty feedback loop.
From Satyajit Das:

Cuts in government spending and higher taxes have mired the economy in recession. Falls in tax revenue necessitate increasingly deeper cuts in spending to try to stabilise public finances. In 2010, the budget deficit was forecast at 12% of GDP, even after spending cuts and tax rises worth Euro 14.5 billion   The problems of the banking sector are increasing due to the poor economic conditions. Hitherto largely confined to commercial property, problems are now spreading to the broader economy. Unemployment and lower incomes mean that householders are unable to meet payment obligations on mortgages and other loans. Weak economic conditions have affected businesses, increasing default levels. In the absence of strong economic growth, inflation and a massive devaluation, the peripheral economies, such as Ireland and Greece, may be unable to shrink themselves to solvency. A simple relationship demonstrates the unsustainable position:

Changes In Government Debt = Budget Deficit + [(Interest Rate – GDP Growth) X Debt]

In order to restore solvency, overburdened borrowers must stabilise debt and begin to reduce the level of borrowing. This requires GDP Growth exceeding interest rates, a budget surplus (through spending cuts and/or tax cuts) or a combination of these. EU/ IMF assistance to Ireland was designed to address the high yields on Irish bonds, which curtailed the State’s ability to borrow. But the 5.80% cost of the bailout debt requires an equivalent growth rate and a balanced budget simply to stabilise debt at current very high levels.

Meanwhile the recovery in Iceland provides contrast to the current austerity and higher tax drudgery in the weaker European countries:

The Nordic economy grew at 1.2pc in the third quarter and looks poised to rebound next year. It ends a gruelling slump caused largely by the "New Viking" antics of Landsbanki, Glitnir and Kaupthing, the trio of lenders that brought down Iceland's financial system in September 2008. . .

This has led to vastly different debt dynamics as they enter Year III of the drama. Iceland's budget deficit will be 6.3pc this year, and soon in surplus: Ireland's will be 12pc (32pc with bank bail-outs) and not much better next year . . . 

The pain has been distributed very differently. Irish unemployment has reached 14.1pc, and is still rising. Iceland's peaked at 9.7pc and has since fallen to 7.3pc.