- From Monica To Loretta – The Clintons Corrupt Absolutely
Authored by Michael Goodwin, originaly posted at The New York Post,
She can’t help herself. Even yesterday, with the political world fixated on her meeting with FBI agents, Hillary Clinton had her flack mislead the public.
A spokesman said she gave a “voluntary” interview, which is true only because she agreed to talk instead of waiting to be subpoenaed. The flack also said she was “pleased” to assist the gumshoes.
Who believes she was “pleased” to be interviewed by the FBI in a criminal investigation that could upend her life?
But that’s the way the Clintons roll.
Wherever they go, whatever they do, ethics are trashed and suspicions of criminal conduct follow them like night follows day.
It’s who they are and it’s self-delusional to believe another stint in the White House would make the Clintons better people. Power exacerbates rather than cures an absence of integrity.
Yet there’s another dimension to their chronic crookedness, and it gets insufficient attention even though it might be more important to the nation’s well-being.
It is that, in addition to being personally corrupt, the Clintons are corrupters. They are piggish users, with the people and institutions around them inevitably tarnished and sometimes destroyed even as the Clintons escape to their next scam.
Monica Lewinsky is a prime example, and Loretta Lynch is the latest. The attorney general’s dumbfounding decision to meet privately with Bill Clinton while the FBI investigates Hillary’s handling of national secrets stained Lynch’s reputation and added to public mistrust of the Justice Department.
Lynch didn’t create that mistrust — she was supposed to be the antidote. Her predecessor, Eric Holder, was a left-wing activist who used his role as the nation’s chief law-enforcement officer to further his and Obama’s political agenda.
That role earned Holder an undesired distinction. His refusal to cooperate with Congress on the disastrous Fast and Furious gun sting led to a bipartisan vote in the House holding him in criminal contempt, the first time in history a sitting Cabinet member ever faced such a censure.
Lynch, as his successor, was handily confirmed by the Republican-controlled Senate, with her steady, firm demeanor and solid record as a prosecutor carrying the day.
Yet her lifetime of good work and the hope for a fresh start at Justice are now overshadowed. She acknowledges the meeting with Bill Clinton was a mistake, and pledged to accept the recommendation of FBI agents and career prosecutors on whether Hillary should face charges.
That’s not enough, not nearly enough, given the circumstances and stakes.
While Lynch offers no explanation as to why in the world she agreed to the 30-minute meeting on a plane in Phoenix, perhaps she felt she owed the former president something. Remember, he first nominated her to be the US attorney in Brooklyn in 1999, a promotion that changed her life.
After his presidency, she went to a top private law firm, and became a member of the Federal Reserve Bank of New York. Bill Clinton had been very, very good to her, and without his boost, she probably wouldn’t even have been a candidate to replace Holder.
And now her patron wanted a private meeting. Both had to know it was wrong, but he had nothing to lose and didn’t care about her reputation or the Justice Department’s.
That was her responsibility. And it doesn’t really matter if they didn’t discuss the case. Just his being there was reminder enough that she owes him.
Lynch also had to know that an FBI agent who socialized with the spouse of a suspect in a criminal case probably would be investigated and fired. Yet she agreed to the meeting anyway.
Despite Lynch’s vow to let others make the call, her refusal to recuse herself means she will remain in charge. That was never ideal because Obama endorsed Hillary and all but exonerated her, but there seemed no way to argue for a special prosecutor without more evidence that the outcome was rigged. There was also FBI Director James Comey’s reputation as an independent straight shooter to provide some reassurance that the case would be handled on the merits.
Now Lynch has broken that fragile confidence, and the need for a special prosecutor is obvious.
The explosive result shows the Clintons haven’t lost their touch for leaving destruction and chaos in their wake. The remarkable events also serve as a clear reminder that while the Clintons enriched themselves over the years, they were helping to bankrupt the public trust in its government and institutions. And they won’t stop until they’re stopped.
- Istanbul Turns Into A Ghost Town As Tourism Collapses
In the aftermath of the tragic suicide bomber attacks at Istanbul's Ataturk Airport, Turkey's biggest city now feels like a ghost town.
Restaurants sit empty in the Sultanahmet tourist district, and five-star hotel rooms can be booked for bargain prices. As AFP reports, in better times, the queues outside the Hagia Sophia (a former mosque and church that is now a museum) might have stretched an hour or longer at this time of year, today you can walk straight in and share the place with just a smattering of other visitors.
"It's disastrous. All my life I've been a tour guide, most of us have come to a turning point where we don't know if we can go on. It's tragic." said Orhan Sonmez, hopelessly offering tours of the Hagia Sophia.
Analysts say the attack on Istanbul's airport may have been a deliberate attempt to weaken the Turkish state by hitting its tourist industry, and it appears to be working. The United States, Germany and several other countries have warned their nationals against threats in Turkey, and to make matters worse, the TAK, a radical Kurdish group that has carried out several attacks in Turkey this year has also warned foreign tourists to stay away.
This development comes at a time when Turkey had just suffered its worst drop-off in visits in 22 years in the month of May, which was down 35% from a year ago. The tourism industry, which according to AFP brings in over $33 billion a year, is now in a free fall.
Part of the downturn was driven by a Russian ban on Turkish package holidays, but the ban has since been lifted, providing at least a small relief for the industry.
Those that are still visiting say they are enjoying the peace and quiet, while taking a more philosophical approach as AFP puts it. "This could happen in any city, it's an unlucky lottery. The people are really friendly, and I really think I'll come back and spend some more time here." said Nessa Feehan, a visitor for Ireland.
However, the situation is still dire for many who depend on tourism to make a living.
"If it goes on like this, many shops will close. I'm thinking of moving to America, I can't make money here." said Ismail Celebi, an owner of a jewellery shop. Even though large Chinese tour groups are still arriving, Celebi says "It's not enough, we need Americans, we need Europeans."
"Even I'm afraid to come to work here" Celebi went on to say.
* * *
These recent security concerns as well as the economic hits that Turkey has endured as a result of the attacks and overall tension in the region are key factors in President Recep Tayyip Erdogan's pivot to a softer approach in an attempt to strengthen diplomatic ties. As we reported last week, Erdogan even apologized to Vladimir Putin for the death of a Russian pilot, and even called Russia a "friend and a strategic partner."
- "China Is Headed For A 1929-Style Depression"
Authored by Sue Chang via MarketWatch.com,
Andy Xie isn’t known for tepid opinions.
The provocative Xie, who was a top economist at the World Bank and Morgan Stanley, found notoriety a decade ago when he left the Wall Street bank after a controversial internal report went public. Today, he is among the loudest voices warning of an inevitable implosion in China, the world’s second-largest economy.
Xie, now working independently and based in Shanghai, says the coming collapse won’t be like the Asian currency crisis of 1997 or the U.S. financial meltdown of 2008.
In a recent interview with MarketWatch, Xie said China’s trajectory instead resembles the one that led to the Great Depression, when the expansion of credit, loose monetary policy and a widespread belief that asset prices would never fall contributed to rampant speculation that ended with a crippling market crash.
China in 2016 looks much the same, according to Xie, with half of the country’s debt propping up real-estate prices and heavy leverage in the stock market — indicating that conditions are ripe for a correction.
“The government is allowing speculation by providing cheap financing,” Xie told MarketWatch. China “is riding a tiger and is terrified of a crash. So it keeps pumping cash into the economy. It is difficult to see how China can avoid a crisis.”
A longtime critic of Chinese economic growth
Xie’s viewpoints have at times attracted unwelcome attention. In 2006, when he was a star Asia economist at Morgan Stanley, a leaked email to colleagues in which he said money laundering was bolstering growth in Singapore led to his abrupt departure from the bank.
In early 2007, he termed China’s surging markets a “bubble” that could lead to a banking crisis,” and in 2009 he likened them to a “Ponzi scheme.”
Xie, who is from China but was educated at — and earned a Ph.D. from — Massachusetts Institute of Technology, has said Chinese authorities have tried to characterize him as an American spy sent to disrupt their markets after his 2007 prediction. China’s consulate general in San Francisco and its embassy in Washington did not reply to requests for comment.
While he now works independently, Xie’s opinions on Asian affairs remain influential. He writes regularly for the South China Morning Post, among other publications, in May saying China is running a “gigantic monetary bubble that has corrupted virtually every corner of the economy.”
Xie “is a respected economist,” said Huawei Ling, managing editor of Caixin Weekly and a John S. Knight Journalism Fellow at Stanford University. “I appreciate his consistency and his analysis on China’s economic issues,” she said.
His 2007 forecast, meanwhile, turned out correct. Soon after his prediction, the Shanghai Composite Index started plunging. After hitting a peak of 6,092 on Oct. 19, 2007, it fell below 2,000 over the next 12 months.
Years before hedge-fund managers like Kynikos Associates founder Jim Chanos turned bearish and George Soros predicted a hard landing, Xie was a dissenting voice amid a chorus of prognosticators enamored with China’s late 20th Century emergence from poverty.
In an interview with this reporter more than a decade ago, Xie warned of a lack of depth in China’s dazzling rise, saying the rapid growth on the country’s coastal cities masked the fact that many inner areas of the country were stuck in the “Stone Age.”
Concerns about China’s economy are more commonplace now. Two camps have formed in 2016: those like Templeton Emerging Markets Group Executive Chairman Mark Mobius, who believe a resilient China is experiencing temporary growing pains, and those who, like Soros, foresee an imminent collapse.
Xie is firmly in the latter camp.
“China grew too fast,” Xie said. “The government is using its power to stop the unraveling but not address the issue. It is just buying more time.”
Fresh worries about China after the Brexit vote
Xie’s criticism coincides with fresh worries about China after the U.K.’s vote to quit the European Union, which triggered an across-the-board selloff in risky assets as investors sought cover in safe-haven assets. Global markets have rebounded somewhat, but uncertainty remains.
Subsequent strength in the U.S. dollar has prompted analysts to predict an accelerated weakness in the Chinese yuan. The yuan slumped to a nearly six-year low against the greenback this week, according to FactSet.
More broadly, fissures have started to appear in the world’s second largest economy. After years of expanding at a blistering pace. China’s gross domestic product grew 6.9% in 2015, its slowest pace in a quarter-century.
For 2016, Beijing has set a GDP target of 6.5% to 7%; The latest spate of global uncertainties prompted Bank of America Merrill Lynch and Deutsche Bank to trim their forecasts to 6.4% and 6.6%, respectively.
The export sector, long a driver of Chinese growth, is sputtering due to global saturation and household consumption is barely 30% of China’s GDP, Xie said. In the U.S., household consumption accounted for more than 68% of GDP in 2014, according to the World Bank.
China’s stock market last year dove in June, losing more than 30% in a month as regulators tightened margin-trading and short selling rules, making it more difficult for investors to borrow money to invest in stocks. A belief that the government was not properly responding to the economic slowdown also weighed on sentiment.
Then in August, authorities unexpectedly devalued the yuan in a bid to support the flagging economy, sparking unprecedented capital flight.
Xie and other observers say the surest way to get China out of its rut is to boost consumption, marking a deliberate turn away from a manufacturing-focused economy. Efforts are under way to move China in that direction, but analysts say the process could take years or even decades — during which China could reach a breaking point.
Total social financing, a broad measure of funds secured by households and nonfinancial companies, topped $22 trillion in March, more than twice China’s $10.4 trillion GDP, according to official data.
There’s no equivalent metric in the U.S., but household debt stood at $14.3 trillion while nonfinancial debt totaled $13 trillion at the end of the first quarter, according to the Federal Reserve. The combined tally of $27.3 trillion is roughly 1.5 times the U.S. GDP.
Torsten Slok, chief international economist at Deutsche Bank said in May that China’s credit bubble is worse than the U.S. subprime buildup that led to the last financial crisis. “It is clear that in China in recent years more and more capital has been misallocated and not resulted in higher GDP growth,” said Slok.
Kyle Bass of Hayman Capital Management, who was among the few on Wall Street to correctly predict the subprime mortgage crisis, shorted the Chinese yuan earlier this year, warning investors in a 13-page February letter that China is making the same mistakes the U.S. did 10 years ago.
“The unwavering faith that the Chinese will somehow be able to successfully avoid anything more severe than a moderate economic slowdown by continuing to rely on the perpetual expansion of credit reminds us of the belief in 2006 that U.S. home prices would never decline,” Bass wrote.
Xie, meanwhile, says he is doubtful of the Communist’s Party’s ability to manage and grow China’s economy — but believes that, if they become more hands-off, the country could become the world’s leading economic force. At the core of Xie’s concerns about China is the contention that the government is doing more harm than good.
“If government takes a step back instead of dominating the economy so much, China can be twice as big as the U.S. in 20 years,” he said.
‘The Communist Party isn't compatible with the future of China’
Today’s regime in China recalls the U.S.-backed Chinese National Party, or Kuomintang, that ruled the country until its defeat at the hands of the Communist rebels in 1949, according to Xie.
The Nationalists, he says, flooded the economy with easy money to support speculation that led to runaway inflation. That, in turn, shifted public sentiment in favor of the Communists, who drove the Nationalists out of the country.
“It was very similar to what is going on right now,” said Xie. “If you keep on printing money to use for speculation, you will have hyperinflation and a currency crash,” he said. “The Communist Party isn't compatible with the future of China.”
Xie’s criticism of the government hasn't resulted in his arrest although he was not certain whether that will not change in the future. Chinese officials have started to muzzle analysts and journalists who have published pessimistic reports on the economy, The Wall Street Journal has reported.
And his research reports are not currently distributed in China. “There are safety mechanisms to stop someone like me reaching the ordinary people,” said Xie.
Despite his frustration, however, he occasionally belies immense pride in his country and bemoans the fact that the global community may be underestimating China’s potential.
“The economists in the West who say that China isn't very important are wrong,” he said. “China isn't an emerging economy. It is the only country that caught up with the West, and it will shape the path of the global economy in the future.”
- War Of Words Erupts As Italy's PM Slams Mario Draghi: "You Could Have Done More To Help Italian Banks"
Italy’s Prime Minister, Matteo Renzi, is getting desperate, and with good reason.
As we reported this morning, the rally in European stocks fizzled and Italian banks tumbled after Italy’s 3rd largest (and the world’s oldest) bank, Monte Paschi cratered after it confirmed receipt of a letter from the ECB which had asked the troubled lender to cut its bad debts by 40% within three years, or to €14.6 billion 2018 from €24.2 billion at the end of 2015.
And since there are no natural buyers for these NPLs (at least not at the prices demanded by the insolvent bank), the ECB has effectively heaped even more pressure on Rome to stabilize its banking system at a time when Rome itself was hoping that Europe would help bail out its banks. This means that instead of being allowed to inject public – or rather European – funds into its banks while bypassing the much dreaded bail-in which could result in a panicked bank run as depositors scramble to avoid haicuts, Italian banks may have no choice but to dilute themselves to death, hence today’s abysmal price action which saw Monte Paschi’s stock price drop to an all time low.
All of this appears to have been too much for Renzi, and Italy’s troubled premier, who as Citi wrote over the weekend is now facing a very shaky future as a result of the upcoming October constitutional referendum…
… has lashed out at Mario Draghi, the very man who was supposed to be on Renzi’s side and protect him from the animosity of Merkel et al, in what Reuters dubs a very rare instance of public criticism.
As Reuters reports, Matteo Renzi criticized European Central Bank Governor Mario Draghi for not having done more to resolve Italy’s banking woes when he held a key Treasury job in Rome in the 1990s.
After taking power in 2014, Renzi’s government introduced reforms aimed at strengthening the country’s cooperative banks, but several are struggling to stay afloat and a bailout fund took control of Veneto Banca last week after the ECB said it had to raise capital or close.
“If the measures concerning the cooperatives had not been taken by us but by the centre-left government that first put them forward, but was not strong enough to enact them in 1998 … then we would not have this problem,” Renzi said.
The prime minister said that Draghi was director general of the Treasury at that time, with Carlo Azeglio Ciampi serving as economy minister.
But the punchline, and the most damning quote was Renzi’s unexpected outburst saying that “if people had the strength and intelligence to keep politics out of the banking system a bit before we did it … we would not have had cases like Monte dei Paschi di Siena,” Renzi told a meeting of his centre-left Democratic Party (PD).
In short, just as we explained last week, a failure by any one major Italian bank, or the entire banking system, will be seen not so much as a failure of Renzi, but of Draghi, who not only had a key role in Italy’s Treasury, but between 2005 and 2011 was head of the Bank of Italy, making the financial plight of Italy’s banks from bad to worse.
Meanwhile, Monte dei Paschi has been in crisis mode for years, hit by a disastrous acquisition on the eve of the financial crisis, losses from risky derivatives trades and bad debts accumulated during Italy’s worst recession since the Second World War. And, as many suspect, somewhere in there are Draghi’s fingerprints all over the events that have doomed the bank. As such its failure would only accelerate the discovery of the fact that highlight it was Draghi’s failure all along to fix Italy’s banking sector, whose insolvency has ironically been re-exposed in the aftermath of Brexit – an event Renzi had hoped to use as a scapegoat for more bailouts yet which backfire massively after Merkel said “nein.”
Then again, Merkel’s position on the matter has been clear all along. What we are far more interested in is how the sudden scandal between Renzi and Draghi will play out, and whether in the coming days we may not all witness the modern version of the “Night of the Long Knives.” The only question is who will go down and just who will have oredered said night…
- Three Charts Show How Precious Brexit Is for Gold and Silver
Gold and silver have been the standout winners in the fallout from Britain’s decision to leave the European Union according to Bloomberg. They have compiled three charts showing how “precious” Brexit is for gold and silver.
Investors seeking a haven from volatile currencies and equities pushed prices of the metals to a two-year high. With central banks pledging more stimulus to prop up markets (the Bank of England may cut interest rates within months and traders have reduced odds on the Federal Reserve raising rates), the appeal of owning non-yielding assets like precious metals has increased.
Gold has climbed 6.2 percent and silver 11 percent since the June 23 referendum, outperforming global stocks, bonds and currencies, including those also often bought as a haven.
“Macroeconomic risk and geopolitical risk were already setting gold and silver up for a good year – the Brexit fall out has just been the icing on the cake,” said Mark O’Byrne, a director at brokerage GoldCore Ltd. in Dublin. “These metals will continue to outperform as market conditions remain unstable.”
See full article here
Gold and Silver News
Gold Climbs 1.3% on Week and Silver Soars 10.1% (Coin News)
Gold inches up, silver passes $20 threshold at near 2-yr highs (Reuters)
Gold Posts Longest Run of Gains in Two Years on Stimulus Bets (Bloomberg)
Silver scores biggest weekly jump in almost 3 years (DJ Marketwatch)
Gold heads for fifth week of gains and silver soars (Reuters)Best And Worst Performing Assets In June And Q2 (Zerohedge)
How the UK’s vote affected Irish shares, sterling, bond prices and safe-haven gold (Irish Times)
Precious Metal Pandemonium – Silver Spikes Limit-Up, Gold Surges As China FX Basket Hits Record Low (Zerohedge)
500 Tons of Gold That Show Global Rise in Investor Angst (Bloomberg)
Read More HereGold Prices (LBMA AM)
04 July: USD 1,348.75, EUR 1,213.07 & GBP 1,016.42 per ounce
01 July: USD 1,331.75, EUR 1,199.51 & GBP 1,001.34 per ounce
30 June: USD 1,317.00, EUR 1,183.59 & GBP 976.82 per ounce
29 June: USD 1,318.00, EUR 1,191.64 & GBP 984.36 per ounce
28 June: USD 1,312.00, EUR 1,185.79 & GBP 985.84 per ounce
27 June: USD 1,324.60, EUR 1,200.49 & GBP 996.36 per ounce
24 June: USD 1,313.85, EUR 1,181.28 & GBP 945.58 per ounceSilver Prices (LBMA)
04 July: USD 20.36, EUR 18.31 & GBP 15.36 per ounce
01 July: USD 19.24, EUR 17.29 & GBP 14.48 per ounce
30 June: USD 18.36, EUR 16.48 & GBP 13.61 per ounce
29 June: USD 18.21, EUR 16.42 & GBP 13.55 per ounce
28 June: USD 17.57, EUR 15.84 & GBP 13.17 per ounce
27 June: USD 17.70, EUR 16.06 & GBP 13.40 per ounce
24 June: USD 18.04, EUR 16.32 & GBP 13.18 per ounceRecent Market Updates
– BREXIT Day – Markets Becalmed – Gold Panic Prelude – Trading Hours
– Gold Lower Despite “Panic” Due To “Supply Issues” In Inter Bank Gold Market
– Gold Slips Despite UK Gold Demand Surging – Investors “Seek Stability”
– Gold Prices Surge to Highest in Nearly Two Years On FED and Brexit Haven Demand
– Gold Bullion Has Little Downside, Brexit Or Not, Says HSBC
– Central Bank of Ireland Warns Risks are Debt, Brexit, Geopolitical Tensions and Migration
– Gold In Euros Surges 6.5% In June and 17% YTD On BREXIT Concerns
– Soros Buying Gold On BREXIT, EU “Collapse” Risk
– UK Gold Demand Rises On BREXIT “Nerves”
– Pensions Timebomb in “Slow Motion Detonation” In UK, EU, U.S.
– Silver – Perfect Storm Brewing in the Market
– Martin Wolf: There Will Be Another “Huge” Financial Crisis - Not Even Death Will Help You With Student Loans
Student loans are incredibly difficult to discharge, even through bankruptcy, this is widely known. However in New Jersey, it appears as though student loans are still expected to be paid, even if someone gets cancer or even dies.
This is something that Marcia DeOliveira-Longinetti learned when trying to close out a list of things to take care of after her son's unsolved murder last year. When Marcia called about federal loans that her son had taken out for college, an administrator offered condolences and assured her that the balance would be written off. However, the New Jersey Higher Education Student Assistance Authority gave a quite a different response.
"Please accept our condolences on your loss. After careful consideration of the information you provided, the authority has determined that your request does not meet the threshold for loan forgiveness. Monthly bill statements will continue to be sent to you." a letter from the agency read.
Of course Marcia was shocked, and even though she co-signed the loans was left confused. However, as a joint investigation by ProPublica and the New York Times discovered, this was not an isolated case.
According to the NYT, New Jersey's loans, which total $1.9 billion, come with extraordinarily stringent rules that can lead to financial ruin.
As the NYT explains
New Jersey’s loans, which currently total $1.9 billion, are unlike those of any other government lending program for students in the country. They come with extraordinarily stringent rules that can easily lead to financial ruin. Repayments cannot be adjusted based on income, and borrowers who are unemployed or facing other financial hardships are given few breaks.
The loans also carry higher interest rates than similar federal programs. Most significant, New Jersey’s loans come with a cudgel that even the most predatory for-profit players cannot wield: the power of the state. New Jersey can garnish wages, rescind state income tax refunds, revoke professional licenses, even take away lottery winnings — all without having to get court approval.
“It’s state-sanctioned loan-sharking,” Daniel Frischberg, a bankruptcy lawyer, said. “The New Jersey program is set up so that you fail.”
The authority, which boasts in brochures that its “singular focus has always been to benefit the students we serve,” has become even more aggressive in recent years. Interviews with dozens of borrowers, who were among the tens of thousands who have turned to the program, show how the loans have unraveled lives.
The program’s regulations have destroyed families’ credit and forced them to forfeit their salaries. One college graduate declared bankruptcy at age 26 after struggling to repay his debt. The agency filed four simultaneous lawsuits against a 31-year-old paralegal after she fell behind on her payments.
Chris Gonzalez is another example of how strict the state is. Gonzalez got non-Hodgkin's lymphoma and was eventually laid off by Goldman Sachs (after three years of cancer treatments – nice bunch over there). While the federal government allowed him to suspend his payments because of hardship, New Jersey sued him, seeking $266,000 in payments, and seized a state tax refund he was owed.
One reason that is given for the tactics is that that the state depends on Wall Street investors to finance student loans through tax-exempt bonds, and the state needs to satisfy those investors by keeping the loans to a minimum. Also, loan revenues cover about half the agency's administrative budget. Governor Chris Christie declined to respond to questions, but Christie appointed its executive director Gabrielle Charette, and Christie also has the power to appoint at least 12 of the agency's 18 board members, and can veto any action taken by the board.
Marcia DeOliveira-Longinetti continues to pay on her son's loans, having made 18 payments to New Jersey in the amount of $180 a month, with about 92 payments to go. "We're not going to be poor because of this, but every time I have to pay this thing, I think in my head, this is so unfair." Marcia said.
As the NYT explains, for decades states served as middlemen for federal student loans, but in 2010 Congress and the Obama administration effectively eliminated the role of state agencies by having only the federal government lend directly to students. Some states decided to downsize and transfer their federal loan portfolios, but New Jersey went a different direction.
For decades, states served as middlemen for federal student loans. Most of the loans were made by banks and were handled and backed by regional and state-based agencies as well as by the federal government. The arrangement was unwieldy, expensive and marked by scandal.
After Pennsylvania’s student loan agency lost a public records lawsuit in 2007, documents revealed that the agency had spent nearly $1 million on things like fly-fishing, facials and falconry lessons.
That same year, New Jersey’s agency was caught in what amounted to a kickback scheme. The state attorney general found that the agency had improperly pushed one company’s loans in exchange for annual payments of $2.2 million. A subsequent investigation by the state’s inspector general found that the agency was in “disarray.”
In 2010, Congress and the Obama administration decided to effectively eliminate the role of state agencies by having only the federal government lend directly to students.
Some states, like California, decided to downsize and transferred their federal loan portfolios. Others, such as Pennsylvania, won contracts from the federal government to service debt from the federal loan program.
New Jersey chose a different path. In the years leading up to the end of the federal program, New Jersey sharply expanded its loan program, slowly replacing the federal loans it once handled with state loans. From 2005 to 2010, loans from the agency nearly tripled, to $343 million per year. Since then, the agency has reduced its loans by half, but its outstanding portfolio has remained roughly the same, about $2 billion.
Ms. Karrow said the growth of New Jersey’s program was simply a result of both the increasing number of students and the rising cost of tuition. But in fact, college enrollment and tuition have not grown as rapidly as the program’s size.
In contrast to New Jersey, Massachusetts, which is the next largest program with $1.3 billion in outstanding loans, automatically cancels debt if a borrower dies or becomes disabled, something many other states do also according to the NYT.
New Jersey's solution to the problem is to encourage students to buy life insurance in case they die to help co-signers repay. How very nice of them.
When consumer lawyers protested the program's onerous conditions at a 2014 agency meeting, the agency said that giving borrowers a break would make the bonds sold to finance loans "less attractive to the ratings agencies and investors." Which according to Moody's is an accurate assessment, as Moody's cited the authority's "administrative wage garnishing, which it uses aggressively for significantly higher collections" compared with other programs.
* * *
"I felt so comfortable because it was the State of New Jersey. It's the state, my government, trying to help me out and achieve my American dream. It turns out they were the worst ones" Gonzalez said. Indeed, when Wall Street is a key source of funding and the bond issuer dares not push back, apparently death nor cancer can't get you out of your student loan payment.
Read the full article here.
- "All Out Of Gummy Bears" – Marijuana Store Survey & Industry Outlook Q2 2016
Via ConvergEx's Nick Colas,
This report marks the 2-year anniversary of our quarterly survey on the legal recreational marijuana market in Colorado. We’ve picked up a couple more states since then, now covering prices and business developments in Washington and Oregon. We survey numerous stores’ managers to track how a new market matures and how its cost structure and product mix evolves. Each state reported downward pressure in pricing, but has seen it steady over the past couple of months. An eighth of retail cannabis in Colorado sells for an average range of $25 to $45, but our contacts said they are running more sales of $25 eighths during the week and $20 on the weekends. In Washington, we reported the price of a gram dropped to $10 three months ago; some contacts said it’s now as low as $8. A gram sells for about $10 to $15 in Oregon as well.
Foot traffic is starting to pick up as we carry forward into summer, as the industry benefits from tourism. As for sales, Colorado stores brought in $69.4 million during April, setting a monthly record; sales total $242 million this year thru April. Washington stores garnered $229.6 million in revenue, and Oregon stores have sold nearly $60 million. Expect Oregon’s figure to jump in the months ahead, as stores can now sell edibles/concentrates/extracts as of this month.
Bottom line, Colorado and Washington posted double digit growth in sales relative to 2015 every month of this year. Make no mistake, this is a fast growing industry with massive upside potential with as many as nine states possibly voting on marijuana-related measures this fall. Including California…
Note from Nick: We can’t be “All Brexit, all the time” so today we bring to you Jessica’s quarterly note on the state of the U.S. marijuana business. Simply put, it is going gangbusters. Read on for the details…
As of July 1st, you can’t buy one of retail marijuana stores’ top selling products in Colorado: gummy bears. Or gummy worms or chewy candies in the shape of animals or fruits for that matter. Governor Hickenlooper recently signed a bill into law that bans marijuana-infused edibles in shapes attractive to children.
We’ve conducted a quarterly survey on the recreational marijuana industry in Colorado for two years now, and one of our main contacts said gummies outsell all his store’s other products. He doesn’t see this change as “too big of a deal,” however, as vendors can make gummies that aren’t in kid friendly shapes. So how are cannabusinesses faring in Colorado these days? Here’s a breakdown of our usual price/units/product mix analysis:
#1 – Price: Stores can still sell an ounce of recreational cannabis for an average range of $150 to $350, and an eighth for $25 to $45. Our contacts said they continue to experience price drops, however, due to more competition and as bigger companies put pressure on smaller stores by cutting prices. Some respondents said the lowest they’ve seen larger players reduce the price of an ounce was to $100. Most stores run discounts, and our contacts said they have been selling more eighths for $25 during the week, and even $20 on the weekends. They don’t forecast prices falling too much further. One store said a full price eighth is still $40, but wouldn’t be surprised if it declines to $30 within the next six months or year.
#2 – Units/Traffic: The average transaction size has dropped slightly to about $40 to $50 dollars from $50 to $60. One store has successfully brought transaction sizes back up by prepackaging flower in eighths for some strains, rather than just half eighths to encourage customers to buy in larger quantities. Around 150 to 350 customers still visit our contacts’ stores each day, although some report there was greater foot traffic six months ago than the past three. This has to do with the time of year, as stores are busiest during the winter and summer since tourists make up about 50% of their customer base. One store even said the trend is moving towards more tourists, speculating that a greater number of locals may have decided to grow their own. All in all, respondents expect a bump in customers as students come back from college.
Stores are also gearing up for July 4th by planning some specials like a buy one edible get another half off sale. Our contacts typically experience an uptick in sales around holidays. July 4th falls on a Monday, so they expect customers to stock up on the prior Friday and Saturday. The biggest day of the year is always on April 20th, the so-called national holiday for marijuana. One of the largest festivals for the day relocated to California this year, but it didn’t stop stores from besting last year’s sales figures. Dispensaries were eager to beat last year’s comp and they did. Not only did our contacts say they outpaced sales from the previous year, but MarketWatch reported retail sales jumped 53% year over year to $7.3 million on April 20th according to BDS Analytics. Another plus, our contacts said they have been better prepared to deal with such high volumes due to learning from their experiences last year.
#3 – Mix: Our contacts still report a 50/50 split between flower and edibles/concentrates/accessories. They said numerous vendors continue to ask them to try out new products like concentrates or cartridges. The influx of vendors also puts downward pressure on wholesale prices, which contributes to lower prices at their stores. Overall, concentrates and cartridges are still the hottest products growing in popularity due to their discretion and ease of use.
In short, we’ll let the numbers do the talking on the success of the marijuana industry in Colorado. Stores brought in $69.4 million from recreational sales just in April, based on tax data from the Colorado Department of Revenue. That’s up 58.2% y/y and marks a monthly sales record since stores first started selling retail cannabis in January 2014. Dispensaries have already generated $242 million in retail sales from January thru April (latest available data), almost half the sales garnered in 2015 ($575.8 million) in just the first four months of this year.
So how are the economic and business developments shaping up in Washington and Oregon? Here’s the scoop:
Prices in Washington and Oregon abated slightly, down to an average range of $25 to $50 for an eighth from $25 to $60 three months ago. Prices continued to contract especially for grams. A gram of recreational cannabis sells for an average of $10 to $15, but some stores said it now sells for as low as $8. One Washington contact said “it used to be a $10 gram market,” but over the past three months it’s now “an $8 a gram market.” He also said his store is reluctant to raise prices due to the hefty sales tax of 37% on recreational cannabis. These stores run daily and weekly discounts just like in Colorado, such as “take $4.20 off an 1/8th or more of the strain of the day!”
In regards to Washington, medical growers and stores are not currently licensed or regulated, unlike the retail market. They will merge on July 1st, in which only recreational stores licensed under I-502 can remain in operation. Those who want products intended for medical use can buy them at retail stores that are medically endorsed. The Washington State Liquor and Cannabis Board (WSLCB) raised the retail store cap of 334 to 556 for the merger, but medical marijuana stores that don’t receive a license will have to shut down. Our contacts are generally happy about the merger as they are licensed and would appreciate more defined regulations. We asked the WSLCB what this would mean for prices. They said prices would likely continue to drop as there will still be plenty of licensed stores in operation and more will open; licensed stores will continue to compete against each other with their retail products as opposed to the medicinal products sold by unlicensed stores.
Average transaction sizes for both states are similar to Colorado at about $45. The number of daily customers is also similar at around 200 on average, although we received a wide range of answers all the way up to as many as 600 per day; many contacts also noted increases in foot traffic over the past month likely due to the time of year. In terms of 420 for Washington, one store manager said it was a “madhouse” and “absolutely crazy.” MarketWatch reported impressive figures compared to last year just like Colorado, as the state doubled the amount of sales on April 20th to $5.5 million according to Headset. They’re also getting ready for July 4th. Now it’s about beating 2015’s comps during this year’s holidays. There will be plenty of specials consequently, like a gram of retail cannabis for just $5 or pre rolls for $3. In Oregon, one contact expects a successful weekend for the 4th of July because her community’s payday is on that Friday.
Washington stores’ product mix is similar to Colorado in terms of selling about 50% flower and 50% edibles/concentrates. Our contacts said popular products include vape pens and pre rolls. While medical stores in Oregon have been able to sell flower since last fall (recreational stores don’t open until later this year), they haven’t been able to sell recreational edibles and extracts until this month. These new options have increased sales at our contacts stores across the board. With that said, some respondents noted the potency is too low. While one dose of cannabis-infused edible can have up to 15 milligrams of THC, the state wants to bring that figure down to 5 milligrams which is half of what’s allowed in Colorado. Washington received tourists from Oregon before it could sell edibles, but given the low potency in that state our Washington contacts said they still get customers from Oregon. One Oregon store manager even said he’s seen customers walk out of his store and complain that’s not what they were looking for in terms of edibles. For Oregon stores, however, they’re just thrilled they can sell recreational marijuana with one contact claiming it was “life-saving in terms of business sustainability.” The ability to sell edibles is still an added bonus.
Sales at Washington retail marijuana stores are growing at an impressive clip, even though they are outpaced by their Colorado counterparts. So far this year thru May, they’ve brought in $229.6 million compared to $357.6 million last year, according to data provided by WSLCB. Here are the numbers for each month: January ($39.6 million, +202% y/y), February ($42.3 million, +163% y/y), March ($46.7 million, +119% y/y), April ($49.1 million, +97% y/y), and May ($51.9 million, +71% y/y).
As for Oregon, the state’s Department of Revenue said it received $14.9 million in recreational tax payments as of May 30th. Only 57% of the 319 dispensaries in Oregon that have made at least one monthly tax payment have filed a quarterly tax return, however. With a tax rate of 25%, that suggests retail stores gained almost $60 million in revenue during the first five months of this year. It also implies stores have been bringing in about $12 million on average each month. By comparison, Colorado stores received $90.2 million and sales averaged about $18 million per month during the first five months it was sold legally. Nevertheless, Oregon’s figures will likely increase when recreational stores open later this year and now that they can sell edibles, concentrates, and extracts.
Even with money flowing in, the legal marijuana industry has its fair share of challenges. Regulations on products, packaging, and potency limits, for example, keep changing and are continually up for debate. These states still have a lot to figure out as the industry is still in its infancy, which gives stores a level of uncertainty. One of the most pressing issues is that the drug is still illegal on a federal level, making banks largely inaccessible to store operators. One store manager said he would love to accept debit and credit cards, but only makes cash transaction to avoid any complications and puts ATMs in all of his stores. Currently, marijuana is a Schedule I narcotic, but the U.S. Drug Enforcement Agency could reschedule the drug to allow medical use with a prescription or deschedule it to allow recreational use. Some reports suggest the DEA may reclassify the drug this summer. We’ll keep you posted.
This fall’s elections could put pressure on the DEA. There are as many as nine states in which people will potentially vote on cannabis measures this fall, most likely including California as it secured the necessary number of signatures to put the Adult Use of Marijuana Act on the ballot. Despite the possibility of losing some tourist activity, store managers across Colorado, Washington, and Oregon hope the ballot in California passes this fall. One contact said “every state that checks off another going recreational is a win” in his book and that it’s another in line until they get them all. They also said California already has the infrastructure in place since medical marijuana is legal.
In short, continue paying attention to this fast growing industry and we’ll keep you updated. If California legalizes recreational marijuana in the fall, it will likely produce a domino effect. And now voters and states can see the benefits from the ongoing successful case studies we laid out in this note. In the words of Donald Trump – also likely on the ballot in November – “It’s gonna be huge.”
- Senator Admits The FBI Is "About To Ask Putin For His Copies Of Hillary's Emails"
It is well known that the FBI still does not have roughly 30,000 emails that Hillary Clinton deleted from her private server due to Clinton categorizing them as personal and not work related. We have also reported that Russia may be in possession of those emails, and according to Judge Andrew Napolitano, there is a debate going on in the Kremlin about whether or not to release them.
Given that the FBI still doesn't have the emails, Arkansas Republican Senator Tom Cotton (of the US is "under-incarcerated" fame), who is a Trump supporter and also serves on the Senate Intelligence Committee, has become so frustrated that Cotton suggests the FBI is about to ask Putin for his copies. Cotton also took a jab at Bill Clinton's meeting with Loretta Lynch, saying that his plane was also on the tarmac, and he thought Bill Clinton may be waiting to climb on board to talk with him as well.
As Breitbart reports
A combat veteran of Iraq and Afghanistan, Sen. Thomas Cotton (R.-Ark.) said he was glad to make it on time for his speech after a series of travel delays.
“We were on the tarmac, I thought Bill Clinton might be boarding my plane to talk to me,” said the former Army Airborne Ranger officer.
Cotton said it was shocking, but not shocking to him, that the former president would meet with Attorney General Loretta Lynch — whose department is investigating both his wife and himself for his handling of the Clinton Foundation.
Clinton’s decision to conduct all her official business on her own private email account on her own private server and the way she has handled official and media inquires about it was just teaser of how her administration will approach transparency and national security, Cotton said.
The FBI still does not have 30,000 emails the expected Democratic nominee for president claimed to have deleted.
“It has gotten so bad, the FBI is on the verge of asking Vladimir Putin for his copies of Hillary’s emails,” Cotton said.
In addition to the criminal nature of the former first lady scheme, he said, conducting official and classified business on an unsecured server exposed American national security to our enemies.
Americans should not be surprised that the former secretary of state would put America at risk, he said. Working with President Barack Obama, Clinton oversaw a foreign policy that treated allies as troublemakers and our enemies as victims with legitimate complaints about the United States. Chief among the enemies is the Islamic Republic of Iran, which Obama-Clinton empowered by lifting sanctions, thawing frozen assets, and ignoring Iran’s support of violent terrorism.
* * *
Truth be told, it may not be a bad idea.
- Goldman Reveals How China Is Covering Up Hundreds Of Billions In Capital Outflows
In order to mask the tremendous capital outflows leaving its country – in order to prevent and/or delay a depositor panic – China has resorted to various gimmicks: back in October, we reported that the first one involved the PBOC gradually shifting from FX spot intervention to the using forwards as a preferred mechanism of market intervention as it is not as obvious, or as transparent to detect, to wit: “we need to take account not only of the PBoC’s non-spot market intervention efforts in the offshore market, but also of banks’ forward books if we want to get a better read on capital outflows in China.”
Then, when Wall Street figured out how to back into the true capital outflow numbers, China stopped reporting key capital flow data outright. As SCMP reported in February, “sensitive data was missing from a regular central bank report in China amid concerns about the flow of cash out of the country as its economy slows and currency weakens.” FT added that the People’s Bank of China removed the data category “Position for forex purchase”, which tracked total foreign exchange purchases by both the central bank and other financial institutions. In its place, a separate series that captures only central bank forex purchases is substituted. A rise in forex purchases is considered a sign of capital inflows, while a drop suggests outflows.
However, not even this was enough to mask the massive outflow of capital leaving China’s economy and being parked offshore.
So what did China do? Why it resorted to the oldest trick in the book: fabricating data outright. Only… it was caught again. As Goldman calculates, cross-border yuan flow in recent months could have masked the true level of outflow pressure in China. According to the bank, SAFE data on onshore FX settlement show outflow of about $2b in May; was also $24b in RMB flow to offshore, meaning underlying outflow in May could be $26b, analysts including MK Tang and Maggie Wei write in a note released overnight.
More notably, they calculate that since October total net FX outflow has been about $500 billion, which is 50% above $330b implied by SAFE’s onshore FX settlement data.
They adds that there are no obvious market forces to explain RMB flow in recent months, adding that non-commercially driven factors seem a more likely explanation. They note that it is possible that offshore clearing banks or Chinese entity have been buying CNH and selling back onshore; this is justified by near-daily anecdotes of frequent CNH smoothing operations by Chinese institutions. As a result, flow to offshore doesn’t show in foreigners’ holdings of CNH assets.
Goldman also observes that since the August yuan “reform”, CNH has been generally weak; but this hasn’t led to net flow from offshore to onshore. “In a stark contrast, the relationship is in total reverse since October last year – the cheaper the CNH (vs CNY), the greater the net flow of RMB from onshore to offshore.”
Here are the details from Goldman’s MK Tang:
China capital flows update—sources how cross-border RMB flow might mask outflow pressures
- We have updated our estimates of sources of China’s capital n outflows. Our analysis suggests net capital outflows at $123bn in Q1 (vs. $504bn in Q3-Q4 combined last year).
- Of the Q1 net outflows, about 70% was due to Chinese residents’ accumulation of foreign assets; 40% to repayment of FX liabilities; and -10% to foreigners’ demand for RMB assets (i.e., foreigners were a source of net inflows in Q1). This composition is broadly similar to our earlier estimates for 2015 H2.
- Separately, we flag a large $170bn net RMB flow from onshore to offshore since last October, which has helped reduce FX reserve drawdown and put downward pressure on CNH forward points. This flow cannot be readily explained by marketbased factors in our view, and did not seem to result in an increase in foreigners’ CNH holdings. We think it might have masked the true FX outflow pressure in China, on the order of some $20bn (or 50%) per month in recent months.
- Going forward, we think it will be important to also track cross-border RMB movement to get a fuller picture on China’s underlying flow situation.
For those not intimately familiar with China’s capital outflow battle over the past year, here is a quick recap from Goldman:
We have updated our estimates of sources of China’s capital outflows based on the framework we introduced in January. In Q1 this year and 2H last year, the big picture was the same as we estimated in the piece – Chinese residents accumulating foreign assets remains the dominant source of total capital outflows. The mix of the different sources appears slightly different though, and we will discuss in more detail in the following session.
- Corporates paying down FX debt: By our estimate, outflows driven by Chinese corporates paying down FX debt were US$156bn in 2H 2015, and around US$60bn in Q1 this year. As exhibit 1 and 2 show, we break down Chinese corporates FX debt into four major segments, namely trade liabilities, offshore banks’ claims on Chinese nonbanks, FX bonds issued by Chinese corporates, and FX loans lent out by onshore banks (such as Industrial and Commercial Bank of China etc.) to domestic Chinese nonbank sectors.
- Chinese residents’ cumulating FX assets: There were around US$372bn outflows driven by Chinese residents demand for foreign assets in 2H last year, and another US$108bn outflows in Q1 this year based on our calculation. In the headline reported data, Chinese residents cumulating FX assets include outward direct investment, portfolio investment assets and other investment assets. These three channels saw around US$ 268bn outflows in 2H last year and US$69bn outflows in Q1 this year. We also add “net errors and omissions” (NEO) as part of the outflows motivated by Chinese residents buying FX assets—as we’ve been discussing for a while3., we think the negative numbers in NEO might represent disguised capital outflows (Exhibit 3).
- Foreigners reducing RMB assets: This driver has become less obvious in Q1 this year, compared with 2H last year. Around US$7.4bn outflows were driven by foreigners reducing RMB assets in 2H last year, and in Q1 this year situation actually reversed, i.e. on net basis, foreigners accumulated around US$19.6bn RMB assets rather than reducing, mainly helped by inbound FDI and the relatively stable holding of offshore CNH (more on this in the second part of the report).
Goldman sums it up as follows:
Summing up different sources of outflows, in Q1 this year, of the total net capital outflows of $123bn, Chinese residents buying foreign assets accounted for around 70% of the outflows, and Chinese corporates paying down FX debt explained another 40% of the outflows. Foreigners’ adding RMB assets helped mitigate outflows by around 10%. In 2H last year, according to our calculation based on factual data, residents buying FX assets accounted for 70% of the outflows, FX debt repayment was another 29%, and foreigners reducing RMB assets only represented 1% of the outflows. This was broadly in line with our analysis in the January’s work (we estimated the split at 60%/30%/10%), although the final official data suggests that foreigners reducing RMB assets was an even less important driver, while residents buying FX assets was more important than what we found based on our estimates of some BOP and FX debt data.
So far so good: a modest $123 billion in Q1 outflows. There is just one problem: the real number is vastly greater. Here is Goldman’s explanation:
While according to the BOP the pace of capital outflows has slowed in Q1, it might not have in fact slowed by as much as the data suggest. We have in the past discussed various caveats to interpreting official flow and reserve data, and in the following we add one more, in light of a large unusual cross-border RMB flow in recent months that we believe could have masked the true outflow pressure in China.
A $170bn flow of RMB to offshore…
Specifically, since October last year we have seen a large net flow of RMB from onshore to offshore, primarily due to trade settlement in RMB (i.e., Chinese importers pay for the imports in RMB). This totaled $170bn through May or about $20bn per month on average (Exhibit 4). This flow has helped lessen the overall outflow pressure faced by China because it means that importers did not have to buy as much FX to pay for imports (since they just used RMB). This also helps explain in our view the general decline in CNH forward points (or equivalently, CNH interest rates) in the last few months (Exhibit 5), despite market perception of large-scale CNH smoothing operations by state-related entities (more on this below).
Compared to previous actions, this is somewhat unusual. In the past, net crossborder flow of RMB had typically been driven by offshore RMB sentiment, e.g., when offshore RMB sentiment is strong, CNH tends to be more expensive than CNY ($/CNH is below $/CNY), naturally driving a net flow of RMB from onshore to offshore (e.g., for trade settlement) to satisfy high RMB demand; and vice versa.
However, especially since the August 2015 RMB reform, offshore RMB has been generally weak. While the CNH-CNY gap has narrowed in the last few months, CNH has still been usually cheaper than CNY ($/CNH above $/CNY). Therefore, the typical market-driven relationship would have suggested a net flow of RMB from offshore to onshore instead. Indeed, in a stark contrast, the relationship is in total reverse since October last year—the cheaper the CNH (vs. CNY), the greater the net flow of RMB from onshore to offshore. This is more consistent with a supply-push pattern (an exogenous push of RMB from onshore to offshore, which causes CNH to trade cheaper), rather than a market driven demand-pull relationship.
In short, we cannot point to any obvious market forces that could explain the RMB flow in the last several months; non-commercially driven factors seem to be a more likely explanation, in our view.
… that does not seem to result in any increase in foreigners’ CNH holdings
Another interesting observation is that this large amount of net RMB flow to offshore does not seem to show up in foreigners’ holdings of CNH assets. In general, if the RMB is received by foreign non-banks, that would likely end up as CNH deposits; and if it is received by foreign banks, that would show up as an increase in banks’ holdings of CNH assets. However, CNH deposits in Hong Kong and Taiwan, two key CNH centers, have been on a decline in the last several months (Exhibit 7); and Hong Kong banks’ spot position of “other currencies” has also been falling (Exhibit 8).
More broadly, overseas entities’ holdings of onshore RMB deposits (which include placement of CNH by offshore banks to onshore banks) have as recently, sharply deviated from the hitherto synchronized pattern with the cumulative net flow of RMB from onshore to offshore, and have been even surpassed by the latter in absolute level (Exhibit 9).
What does this mean? In simple terms, China is masking massive capital outflows, far greater than the $123 billion reported for the first three months.
These various official data pieced together are consistent with either of the following two possibilities:
- Some offshore RMB clearing banks buy RMB in the offshore market and sell the RMB back in the onshore FX market. In this scenario, it is unlikely that most of the RMB is sold to PBOC, because in the last few months PBOC’s FX reserve data have been roughly in line with the onshore demand for FX as suggested by SAFE’s onshore FX settlement data (i.e., it does not suggest that PBOC has used much of their reserves to meet offshore clearing banks’ demand for FX). In other words, in this scenario, it is likely that banks (or other non-PBOC participants of the onshore FX market) used their own FX position to buy the RMB. and in doing so, banks have likely suffered losses as CNY has generally weakened in the last few months. In late April, SAFE relaxed the regulatory floor on onshore banks’ FX net open position, expanding further their scope to short FX by $100bn.
- A Chinese entity (possibly state-backed) that has access to both
offshore and onshore markets buys RMB (with FX) in the offshore market
and invests the RMB in onshore assets. Since this entity is Chinese, its
RMB assets would not be reflected in foreigners’ holdings of RMB assets
Goldman notes that in this context, “there have been market anecdotes on frequent offshore CNH smoothing operations by Chinese institutions.” Actually, not anecdotes: those are all too daily, all too real interventions by “large banks” who keep a barrier on both the CNY and CNH from moving far beyond 6.65. It is precisely in these “streamlining” operations that this massive “outflow” is hidden.
Summing it all up, the reality is that instead of $330 billion in FX outflows since October, the real number is 50% greater, or half a trillion, which also suggests that instead of getting better, China’s capital outflow situation is as bad as it has been, and not only that, but the government is now actively covering up the reality. Here’s Goldman:
Given the discussion above, it is possible that the actual underlying FX flow situation (i.e., FX/RMB demand by Chinese corporates/households and foreigners) has been less encouraging than even the SAFE data on onshore FX settlement imply10. (e.g., according to that data alone, FX outflow was about $2bn in May.), but there was also $24bn in RMB flow to offshore during the month—if we assume that that flow was not market-driven and that it was not subsequently held by foreigners, then the underlying FX outflow could instead be $26bn in May. In the eight months since last October, this approach would have suggested a total net FX outflow of about $500bn, or 50% above the $330bn implied by SAFE’s onshore FX settlement data.
All of this is bad news for the PBOC, now that the market is on to it:
Going forward, we believe also tracking the data on cross-border RMB flow (released monthly by SAFE) will be important to coming to a more comprehensive view on the underlying flow picture. For the time being, we will be incorporating this into our measure of net FX flow (Exhibit 10 shows this modified version
This means that either China’s central bank will have to disclose the truth, or further cover up the true nature of China’s capital outflows, in the process unleashing even more skepticism, even more outflows, and even more concerns about China’s economy (and banking system), to the point where these concerns reflame the same cross-asset (and market) contagions that led to the December/January swoon and which have been temporarily brushed under the rug while the Shanghai Accord still forces central banks to avoid major market moves in response to the sweeping capital outflows undertaken by China.
For now, however, we will be content to watch how the narrative that China’s capital outflows are “moderating” crashes and burns, and how long it takes other capital markets to realize that far from fixed, China is furiously burning through virtually any and all liquid reserves it still has access to, only doing so in a way that only a handful of central bankers were aware of it. Well, now everyone else knows as well thanks to Goldman…. which brings us tothe Goldman note from a month ago, in which Goldman revealed the FX doom loop…
… and in which the bank openly declared war on the Yuan, which it expects will crash in the coming months. To be sure, no better way to achieve that than by actually revealing the truth.
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