Tuesday, June 23, 2015

The Madoff Report

Watching Globalization Melt-down in broad daylight, while stoned zombies trade Netflix

In summary: 
-The world's second largest economy (China) is falling apart in real time amid Municipal borrowing at ~12x last year's rate
-The unwinding EM carry trade is the largest in two centuries on a relative basis
-The Japanese Yen is the last leg of the stool poised to go RISK OFF

Overnight, the Shanghai Composite fell another 5%, and then rallied back for a 2% gain.

Meanwhile, also in China, "explosive" Municipal bond issuance last month alone equaled the same amount for ALL of 2014 i.e. 600 billion Yuan:

"Driving the huge new issuance of municipal bonds is an estimated 22.6 trillion yuan of high interest local government debt, which provinces are struggling to refinance more cheaply."

"...local government spending collapsed in the second quarter to just 1.2 percent growth from a year earlier and investment growth is at a 10-year low

Chinese stocks with Chinese GDP (red)
(U.S. close yesterday):

EM Carry trade is just the largest in two centuries:
Real risks of course are centered in the totally ignored Emerging Markets which don't have the ability to monetize their debts. Combined EM dollar debt is 20x Greece...

UK Telegraph, December 2014:
EM dollar debt tripled in a decade to $6 trillion: 
"It is comparable in scale and ratio-terms to any of the biggest cross-border lending sprees of the past two centuries."

EM debt (local currency terms) and EM Currencies w/U.S. stocks (Small caps):

As long as the Japanese Yen doesn't go RISK OFF, like the dollar already has...
Yen (black) with European stocks (red): I knew I'd seen that chart before...