Looks to be another insane day in Asia. Japan reeling from last weeks LDP decision on a new PM China getting ready for - who the hell knows. On the plus side, there is just today. We kick off a weeklong holiday starting tomorrow.

Today is an official work day in China. The bond market is open and the selloff in the 10 and 30 year continue. While there’s been talk and rumor of large fiscal stimulus measures to accompany the monetary moves made last week, it’s remained just that. Talk and rumors. What to look for? Well, if there is a pattern to be repeated, then the expectation is for there to be a late afternoon announcement of a MOF press conference to be given first thing tomorrow morning. This would be the most natural next step. Investors have certainly risked getting way out over their skis, and while it certainly does look as though a sizable fiscal response is set to be announced there nothing should be taken for granted. Either way, tomorrow should be an overly volatile day in the Chinese markets.

Exactly what is needed after this past hectic week. #karma. #prana

Life is a conflict between knowledge and ignorance with doubt as the friction between the two.

Looks as though I may have been so very wrong. For the past several months I've been making the claim that "Keynes is dead in China". There looked to be zero appetite at the highest levels of power in Beijing to use fiscal stimulus in an attempt to revive the economy. Monetary policy was left to do all of the heavy lifting. Well, in the days just before the weeklong National Day Holiday, it may be the case that Beijing is about to unleash trillions of RMB into the system over the remainder of the year. Nothing is yet confirmed, but below is a list of what Beijing may be set to do: - Add Rmb1.3 trillion to the special bond program - Add Rmb500billion to the long-term special treasury bond program Here is where the fiscal response will really ramp up. - A transfer of Rmb10trillion to local governments, advancing half of that (Rmb5trillion) before year end - Household subsidies will be increased by 50% for an additional Rmb1trillion. - Rural construction spending will be increased by Rmb1.8trillion. - Corporate tax rate will be reduced from 25% to 20%, albeit for "eligible companies".

I find this chart to be just hysterical. Keynes might be dead in China but not the monetary impulses.

Well isn’t this just lovely ….. https://www.reuters.com/world/china/chinas-pla-launches-intercontinental-ballistic-missile-into-pacific-ocean-2024-09-25/

There is a phrase I am forced to bear given where it is I live and work. "those seeking to undermine the liberal international rules-based order." This, to me, carries with it the underpinnings of current group think which is nothing more than a subtle threat to all whom might even call into question the actions of those countries that are promulgating that idea.

While I can’t weigh in on the numbers, I can confirm - from personal experience - that there is a rather vibrant peer-to-peer market here in Shanghai. Trades are conducted via WeChat.

Another interesting development to consider after the monetary easing by the PBoC this morning. And I need to direct this to James Lavish. @James Lavish If you see this, please bring the following analysis to Mike McGlone’s attention on your next podcast. His analysis on China need a lot of work. I mean, a lot. Getting to my point, the Chinese government 10-year bond closed yesterday at a yield of 2.02% trading down to 2.00% shortly after the announced policy easing this morning. By the end of the day, the yield traded up to 2.07%. So, investors sold out of government bonds and redeployed the funds into equities seeing that broad indices were up +4% on the day. While this is the outcome of a single day, it does go a great distance to support an ongoing thesis of mine. There has been considerable commentary by western economists that the fall in Chinese government bond yields is purely a reflection of a weak economy. There is certainly some truth to that, but it isn’t the entire story. Just as critical is an understanding of where retail investor can actually deploy idle funds/capital. Due to China having an essentially close capital account, Chinese investors are limited to domestic equities, bonds, cash or property. Property is toxic. Equities, this year especially have proven nearly as toxic. Cash yields are worse than paltry. This leaves Chinese government bonds as China’s equivalent of TINA. After the sharp stock market correction in late January of this year it was rather obvious to us that the only remaining option was for investors to pile into Chinese fixed income. Investors did just that and even to a more meaningful degree than we had expected. If today’s announced monetary easing can take root, and that is very uncertain, but if there is some success then government bond yields should rise into the end of this year.

For those of you who might be interested, below is a cheat sheet of sorts regarding the announced policy change by the Chinese PBoC. Shout out to the team here at Z-Ben Advisors. They do all the heavy lifting. I'm nothing more than a glorified salesman. cc @Lyn Alden @James Lavish @preston The announcement measures include: 1. 50bps cut on RRR. A further 25 to 50bps cut before the end of the year will be depending on economic conditions. 2. 20bps cut on 7-day repo rate. 3. A new stock market support facility (a swap program with brokers, insurers, FMCs for A-share investments); a special-purpose relending program for the banks to provide lending to listed companies and their major shareholders for buybacks. 4. 50bps cut on the outstanding mortgage rate. The downpayment ratio for second home is cut to 15% from 25%. 5. CSRC to announce supportive policies on long-term capital’s A-share investments and listed companies’ M&A activities. 6. CSRC to further optimize equity fund registration and promote broad market-based passive fund innovation. 7. NFRA to arrange the core tier-1 capital increase of the 6 large banks. 8. NFRA to expand its commercial banks’ subsidiary financial institutions’ equity investment pilot. 9. PBoC to support commercial banks buying land from property developers. 10. Optimizing the affordable housing relending program. PBoC’s share of capital commitment in the 300bn program is increased to 100% from 60%. 11. Corporate lending renewal policies. Not a material change to the monetary policy framework. Nothing on property developer bailout. The A-share market support facility is interesting, but we need to wait for the actual rules, which will specify its size and terms. But this should further boost the ETFs. NFRA’s bank capital increase and CSRC’s M&A encouragement are the things to watch. Will see if MoF will do a heavyweight press conference soon. Edit: Pan added just now: as for the swap facility with brokers, insurers and FMCs, the phase-one quota is RMB500bn. Accepted collateral include bond, equity ETF and CSI300 index’s underlying stocks. Institutions will receive treasuries and central bank notes for A-share investments. PBoC is open to further expansion of the facility. Pan also said they are studying the possibility of a stabilization fund when answering a reporter. CSRC chairman said CSRC will further support Central Huijin’s buying.

Is it me, or does Bloomberg sound desperate with this sort of headline?

Or I could be wrong. PBoC Chairman Pan just came out with cuts in the Reserve Requirement Ratio (RRR) and a cut in the 7-day repo. He also announced "plans" for some sort of program to provide liquidity specifically meant to support the stock market. This all then means that the pain throughout by both business and households has reached a level that a shift in policy is required. Now we wait to see how the information gets internalized by all market participants.

CNBC

China central bank releases slate of support measures amid a deepening economic slump

Beijing will cut the amount of cash banks need to have on hand, known as the reserve requirement ratio, or RRR, by 50 basis points in the near term...

The definition of insanity. Doing the same thing over and again expecting a different result. The head of China's central bank is set to give a press conference this morning and - once again - all the talk is of a policy shift (finally) in favor of stimulating the economy. Keynes is dead in China. This has been made crystal clear time and again over the past two years. I expect there will be nothing material out of this press conference.

CNBC

China central bank releases slate of support measures amid a deepening economic slump

Beijing will cut the amount of cash banks need to have on hand, known as the reserve requirement ratio, or RRR, by 50 basis points in the near term...

Was reminded of a great saying from back in the day. "Suck it up buttercup." The 70s were such special time.

Always lovely to hear air raids going off in Shanghai on a weekend.

Well the PBoC decided to hold rates intact. Expect a ton of “talking heads” to lose their shit over this decision. For me, just more evidence that Keynes is well and truly dead in China.

Next up with rate cuts is here in #China. Not a done deal, but PBoC is expected to cut later this morning.

You may have read somewhere that China is acting aggressively in the South China Sea. Even 60 Minutes ran a story this past weekend. Ramming Philippine ships. What is never raised is “why”. This Reuters story goes to the core of the issue. What it doesn’t do is connect the dots. America placed several missile batteries in the northern Philippines for “training purposes”. Now those missile batteries are staying put. I always state that the press on China isn’t wrong. The issue is that the coverage is woefully - and dangerously - incomplete. https://www.reuters.com/world/us-keeps-missile-system-philippines-china-tensions-rise-tests-wartime-deployment-2024-09-19/