Saturday, December 27, 2014

12/26/2014 Thank You

As they say, "all good things must come to an end." It's sad when I think about how I always imagined it would last "forever."

It’s been a privilege to chronicle history’s greatest Credit Bubble on a weekly basis going back to 1999.  I very much want to see this thing through.  The CBB lives.  A heart-felt “Thank You” to readers over the years.  I also invite all to join me next week – the day after my beloved Oregon Ducks play in the Rose Bowl – at my new blog.  I'm really excited for my next chapter.

For the Week:

The S&P500 gained 0.9% (up 13.0% y-t-d), and the Dow jumped 1.4% (up 8.9%). The Utilities surged 3.5% (up 27.8%). The Banks rose 1.3% (up 8.1%), and the Broker/Dealers gained 1.3% (up 16.3%). The Transports rose 2.3% (up 24.3%). The S&P 400 Midcaps advanced 1.3% (up 9.3%), and the small cap Russell 2000 jumped 1.6% (up 4.4%). The Nasdaq100 added 0.8% (up 20.1%), and the Morgan Stanley High Tech index gained 1.5% (up 14.6%). The Semiconductors jumped 1.6% (up 30.3%). The Biotechs declined 1.7% (up 49.6%). Although bullion was unchanged, the HUI gold index dropped 1.6% (down 17.7%).

One- and three-month Treasury bill rates closed the week at one basis point. Two-year government yields jumped 10 bps to 0.74% (up 36bps y-t-d). Five-year T-note yields rose 11 bps to 1.76% (up 2bps). Ten-year Treasury yields gained nine bps to 2.25% (down 78bps). Long bond yields increased six bps to 2.82% (down 115bps). Benchmark Fannie MBS yields were up seven bps to 2.89% (down 72bps). The spread between benchmark MBS and 10-year Treasury yields widened two to 64 bps. The implied yield on December 2015 eurodollar futures rose four bps to 0.96%. The two-year dollar swap spread dropped five to 18 bps, and the 10-year swap spread declined one to 12 bps. Corporate bond spreads mostly narrowed. An index of investment grade bond risk was little changed at 64 bps. An index of junk bond risk fell five bps to 342 bps. An index of emerging market (EM) debt risk dropped 11 bps to 344 bps.

Greek 10-year yields added seven bps to 8.50% (up 8bps y-t-d). Ten-year Portuguese yields slipped a basis point to 2.71% (down 342bps). Italian 10-yr yields gained three bps to 1.99% (down 214bps). Spain's 10-year yields increased two bps to 1.73% (down 242bps). German bund yields were unchanged at a record low 0.59% (down 134bps). French yields increased one basis point to 0.90% (down 166bps). The French to German 10-year bond spread widened one to 31 bps. U.K. 10-year gilt yields gained three bps to 1.88% (down 114bps).

Japan's Nikkei equities index gained 1.1% (up 9.4% y-t-d). Japanese 10-year "JGB" yields declined two bps to a record low 0.33% (down 41bps). The German DAX equities index gained 1.4% (up 3.8%). Spain's IBEX 35 equities index advanced 1.1% (up 5.7%). Italy's FTSE MIB index jumped 1.9% (up 2.0%). Emerging equities were mostly higher. Brazil's Bovespa index gained 1.0% (down 2.7%). Mexico's Bolsa rose 1.1% (up 0.6%). South Korea's Kospi index increased 0.9% (down 3.1%). India’s Sensex equities index declined 0.4% (up 28.7%). China’s Shanghai Exchange gained 1.6% to four-year high (up 49.2%). Turkey's Borsa Istanbul National 100 index rose 1.6% (up 25.3%). Russia's MICEX equities index dropped 2.2% (down 5.7%).

There was little debt issuance this week. I saw no investment-grade, convertible debt or international debt issues.

Junk issuers this week included Signature Group $305 million.

Freddie Mac 30-year fixed mortgage rates increased three bps to 3.83% (down 65bps y-o-y). Fifteen-year rates added a basis point to 3.10% (down 42bps). One-year ARM rates increased one basis point to 2.39% (down 17bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up ten bps to 4.29% (down 34bps).

Global central bank "international reserve assets" (excluding gold) - as tallied by Bloomberg – were up $221bn y-o-y, or 1.9%, to an eight-month low $11.761 TN. Over two years, reserves were $914bn higher for 8% growth.

Money market fund assets jumped $20.6bn to $2.713 TN. Money Funds were down $5.2bn y-t-d, while increasing $19bn from a year ago, or 0.7% 

Currency Watch: 

The U.S. dollar index increased 0.5% to 90.03 (up 12.5% y-t-d). For the week on the upside, the South Korean won increased 0.3%. For the week on the downside, the Swedish krona declined 1.5%, the Norwegian krone 1.4%, the Taiwanese dollar 0.9%, the Mexican peso 0.8%, the Japanese yen 0.7%, the Singapore dollar 0.6%, the British pound 0.4%, the Danish krone 0.4%, the euro 0.4%, the Brazilian real 0.4%, the Swiss franc 0.3%, the Canadian dollar 0.2%, the South African rand 0.2% and the Australian dollar 0.1%. 

Commodities Watch: 

December 26 – Bloomberg (Millie Munshi and Phoebe Sedgman): “Investors in the world’s biggest exchange- traded product backed by bullion sold the most gold in 18 months as the U.S. economic recovery cut demand for a haven. Holdings in the SPDR Gold Trust fell 1.6% yesterday to 712.9 metric tons, the biggest drop since June 2013. Assets declined to the smallest since September 2008.” 

The Goldman Sachs Commodities Index dropped 2.6% to a more than five-year low (down 32.1%). Spot Gold was about unchanged at $1,196 (down 0.8%). March Silver increased 0.7% to $16.15 (down 17%). February Crude fell $2.40 to $54.73 (down 44%). January Gasoline dropped 3.3% (down 46%), and January Natural Gas sank 13.2% (down 29%). March Copper declined 2.4% (down 17%). March Wheat fell 3.4% (up 1%). March Corn gained 1.0% (down 2%).

U.S. Fixed Income Bubble Watch:

December 24 – Bloomberg (Sarah Mulholland): “The boom in U.S. auto sales is transforming the market for asset-backed securities into one dominated by bonds tied to car loans. Sales of the debt will increase about $20 billion to $120 billion next year as the rest of the market, which includes securities tied to credit-card payments and student loans, remains stagnant, according to Citigroup Inc. That will boost the proportion of auto-linked offerings to 54% of the $224 billion in total issuance, from just under half this year. The auto industry has become the main catalyst for deals in the asset-backed bond market…”

December 23 – Bloomberg (Jody Shenn): “Remember when nobody wanted to touch U.S. subprime-mortgage debt? That’s just a distant memory as they deliver some of the bond market’s best returns. The securities that were created in the years leading before the financial crisis in 2008, the last time such notes were issued, have gained almost 12% this year, or six times more than junk-rated corporate debt, according to Barclays Plc. After contributing to the collapse of Lehman Brothers Holdings Inc., bonds tied to the riskiest home loans have returned 75% since 2010, topping speculative-grade corporate debt for three straight years. The rally in the U.S. home-loan securities stands in contrast to corporate-debt markets, which have buckled as oil prices plunged and the Federal Reserve moves toward raising benchmark interest rates from close to zero.” 

Global Bubble Watch: 

December 26 – Dow Jones (Maureen Farrell): “J.P. Morgan's… debt capital markets team is still on top in the bond world. For the fourth year in a row, J.P. Morgan topped the so-called league tables as the bank that advised on the most bond deals--both globally and in the U.S., according to Dealogic. And the $415 billion in bond offerings it advised on globally was also tops for the industry… With interest rates still hovering around record lows, 2014 has been one of the best years on record for bond issuance, with $6.2 trillion in debt issued in 2014. That trails only 2012, when $6.6 billion was issued, according to Dealogic… The data also shows that this was the best year on record for investment grade corporate bond issuance, with such companies issuing $1.8 trillion in bonds.” 

December 23 – Dow Jones (Karen Damato): “Strong interest from investors and a surging stock market have pushed the assets of exchange-traded funds over $2 trillion for the first time, according to industry watchers and ETFGI. said a rush of almost $14 billion into U.S.-stock funds on Monday--with most of that going into the SPDR S&P 500--tipped industry assets over the milestone figure. Wrote's Cinthia Murphy: It took ETFs 18 years to reach $1 trillion in assets, but only another four years to double those assets to $2 trillion. To put that figure into focus, hedge funds now command about $3 trillion in assets, and open-end mutual funds have $15 trillion… ETFGI… said this year has seen the U.S. ETF industry take in a record $232 billion in net new cash, beating the prior full-year record of S190 billion, set last year.” 

December 23 – Financial Times (Arash Massoudi): “Corporate takeover deals surged to their highest levels since the financial crisis this year, with merger and acquisition volumes rising 47% to $3.34tn globally. In the busiest period since 2007, megadeals returned with a vengeance, as historically low borrowing rates, buoyant capital markets and inflated share prices prompted big transactions with the potential to remake industries — particularly in pharmaceuticals, technology and media."

December 23 – Financial Times (Arash Massoudi): “Corporate takeover deals surged to their highest levels since the financial crisis this year, with merger and acquisition volumes rising 47% to $3.34tn globally. In the busiest period since 2007, megadeals returned with a vengeance, as historically low borrowing rates, buoyant capital markets and inflated share prices prompted big transactions with the potential to remake industries — particularly in pharmaceuticals, technology and media. The thirst for deals is expected to pour into the new year, led by the US and UK… Wilhelm Schulz, head of M&A at Citigroup for Europe, Middle East and Africa, said: ‘A clear theme of this year has been the need for large European companies to make acquisitions outside their main markets. That outbound M&A is likely to persist in 2015.’” 

December 23 – Bloomberg (Christopher Langner): “Bond sales in Asia are expected to trump this year’s record issuance in 2015 as Chinese companies look abroad for acquisitions and funding, according to UBS Group AG. China and Hong Kong represented 43% of the unprecedented $274.5 billion of debt denominated in dollars, euros and yen this year in Asia excluding Japan, a 33% increase from 2013… Corporations in the world’s second-largest economy made a record $316.9 billion in overseas acquisitions. China’s rise means Beijing is now home to two of the world’s top ten listed companies by revenue, China Petroleum & Chemical Corp. and PetroChina Co., and the largest bank by assets globally, Industrial & Commercial Bank of China Ltd. Giants like Alibaba Group Holding Ltd. will continue doing record-breaking transactions, driving up volumes and investment banking fees from Asia, UBS and HSBC Holdings Plc say.”

December 23 – Dow Jones (Ben Edwards): “With rate hikes looming in the developed world, frontier market countries have been rushing to sell bonds on the cheap this year. Such borrowers have raised $38.5 billion from dollar bond sales over the course of 2014, around 50% more than last year and the highest on record, according to Dealogic. …Countries from Jamaica to Vietnam were among frontier government borrowers to tap international bond markets this year, latching on to strong demand for higher yielding debt while global interest rates remain low. Jamaica, for example, which only last year restructured some if its existing debt, in July was able to borrow $800 million at a yield of 7.625%... Vietnam was able in November to borrow $1 billion for 10 years at a yield of 4.8%... Kenya in June sold $2 billion of bonds, one of the largest ever debut deals from an African country. It paid 5.875% for five-year cash…”

December 22 – Bloomberg (Glen Carey and Nafeesa Syeed): “The boom that adorned Gulf Arab monarchies with glittering towers, swelled their sovereign funds and kept unrest largely at bay may be over after oil prices dropped by almost 50% in the last six months. The sheikhdoms have used the oil wealth to remake their region. Landmarks include man-made islands on reclaimed land, as well as financial centers, airports and ports that turned the Arabian desert into a banking and travel hub. The money was also deployed to ward off social unrest that spread through the Middle East during the Arab Spring. ‘The region has had 10 years of abundance,’ said Simon Williams, HSBC Holdings Plc’s chief economist for central and eastern Europe, the Middle East and North Africa. ‘But that decade of plenty is done. The drop in oil prices will hurt performance in the near term, even if the Gulf’s buffers are powerful enough to ensure there’s no crisis.’”

U.S. Bubble Watch:

December 23 – Bloomberg (Michael B. Marois): “California, which has won the biggest gains in creditworthiness of any U.S. state since the recession ended in 2009, may find further improvement stymied by a $350 billion bill for municipal bonds and retiree costs. A growing economy, tax increases and a new rainy-day fund have prodded the three biggest rating companies to raise their rankings four times in the past two years. Yet California remains more indebted than any state, with $101 billion of gross tax-supported debt last year, according to Moody’s… That’s on top of about $249 billion of promises to retirees.”

ECB Watch:

December 22 – Bloomberg (Jana Randow and Alessandro Speciale): “Mario Draghi has one month to win consensus on quantitative easing by reassuring those worried the European Central Bank risks losing its own money. As officials prepare to consider sovereign-bond purchases on Jan. 22, the ECB president is working to get as many policy makers and as much of the public on his side as possible. One concession being debated is to require national central banks to be responsible for at least some of their own credit risk, according to people familiar with the talks… ‘In case of sovereign QE, it’ll be difficult to square the circle to make everybody happy,’ said Marco Valli, an economist at UniCredit SpA… ‘But they are trying to make it as consensual as possible, bringing on board some of the smaller states. It would be important for the credibility of any sovereign QE program to reduce dissent as much as possible.’ Weidmann has argued that aside from the question of whether government-bond purchases are legal, there’s no need for more action now.”

Russia/Ukraine Watch:

December 22 – Bloomberg: “Two Chinese ministers offered support for Russia as President Vladimir Putin seeks to shore up the ruble without depleting foreign-exchange reserves. China will provide help if needed and is confident Russia can overcome its economic difficulties, Foreign Minister Wang Yi was cited as saying… Commerce Minister Gao Hucheng said expanding a currency swap between the two nations and making increased use of yuan for bilateral trade would have the greatest impact in aiding Russia, according to the broadcaster.” 

December 24 – Bloomberg (Olga Tanas, Anna Andrianova and Ye Xie): “Russia may lose its investment-grade credit rating for the first time in a decade after Standard & Poor’s said it’s considering a cut amid the country’s worst economic crisis since the 1998 debt default. There’s at least a 50% chance that Russia will be lowered to junk within 90 days, S&P said… The move ‘stems from what we view as a rapid deterioration of Russia’s monetary flexibility and the impact of the weakening economy on its financial system,’ S&P said.”

December 22 – Bloomberg (Yuliya Fedorinova): “Russia’s central bank pledged as much as 30 billion rubles ($531 million) to support National Bank Trust after the ruble plunged and liquidity tightened. The central bank is selecting an investor to help shore up the lender, and the Deposits Security Agency will take over its management, Bank of Russia said… Trust, once part of exiled former oil tycoon Mikhail Khodorkovsky’s business empire and later advertised in Russia by actor Bruce Willis, is one of the country’s top 15 lenders by retail savings… Faith between Russian lenders is strained, shown by the Mosprime overnight rate jumping to 27.3% on Dec. 18…”

December 26 – Bloomberg (Ye Xie and Elena Popina): “For all of the progress Russia has made over the past week in stabilizing the ruble and quelling its financial crisis, Standard & Poor’s delivered a reminder of just how precarious the situation remains. S&P said it’s considering cutting Russia’s credit-rating to junk… for the first time in a decade as the looming recession spurs concern that the nation’s banks will face mounting bad loans.”

Brazil Watch:

December 26 – Bloomberg (Julia Leite and Filipe Pacheco): “Underwriters of Brazil’s corporate bonds, including JPMorgan… and Citigroup Inc., are heading into 2015 with diminished expectations. Petroleo Brasileiro SA, the national oil company that accounted for 35% of corporate issuance out of Brazil in 2014, says it doesn’t plan to sell bonds next year. Some companies may be ensnared by a widening bribery investigation into the oil producer, according to JPMorgan. Borrowing costs that surged to a five-year high this month may also deter first- time issuers, Citigroup predicts. After a record $33 billion of first-half issuance in 2014, bond sales from Brazil all but stopped. In the last six months, companies raised just $5.8 billion, the least since the credit crisis.”

December 22 – Bloomberg (Mario Sergio Lima): “Brazil economists cut their gross domestic product forecast and raised their inflation estimate above the official target range as deteriorating confidence will present a challenge for the government’s new economic team. Analysts reduced to 0.55% their GDP estimate for 2015 from 0.69% the previous week… Analysts also cut to 0.13% the estimate for growth this year… Latin America’s largest economy is expected to record the slowest growth in five years as inflation hovers near the ceiling of the target range and the budget deficit remains at the highest in a decade.” 

December 22 – Bloomberg (Paula Sambo): “Brazilian companies led by Grupo Virgolino de Oliveira SA and OAS SA are poised to saddle bond investors with the deepest losses in 18 months. The nation’s corporate notes have tumbled 4.8% in December, on pace for the biggest monthly drop since June 2013…, according to JPMorgan… Speculation that sugar producer GVO will default and an investigation into alleged bribery by construction companies including OAS have compounded losses for investors reeling from a global selloff spurred by a plunge in oil prices.” 

December 23 – Bloomberg (Mario Sergio Lima and Raymond Colitt): “Brazil’s central bank forecasts inflation will remain above the center of the target range for two more years, reinforcing the chance of further rate increases. Inflation will end 2016 above target at 4.9% if the central bank raises the key rate to 12.5% next year, according to the central bank’s quarterly inflation report… A weaker real and increases in regulated prices are fueling inflation, which according to policy makers has a 37% probability of breaching the target range next year.”

EM Bubble Watch:

December 26 – Bloomberg (Selcuk Gokoluk): “Just when lira carry traders thought they had 2014 in the bag, along came the dollar. Borrowing dollars to buy lira debt earned 5.8% this year through last month, the fourth-biggest return in 23 emerging markets tracked by Bloomberg. By today, the gains had shrunk to 1.9% as a 4.3% slump in Turkey’s currency against the greenback this month ate into profits from holding the nation’s bonds. Like most riskier emerging-market assets, the lira is suffering as the strengthening U.S. economy pushes the Federal Reserve toward raising interest rates in 2015… Turkey’s currency has underperformed peers in December as the biggest current-account deficit in the developing world leaves it vulnerable to capital outflows.” 

December 22 – Bloomberg (Neo Khanyile): “South African corporate bond sales slid to the lowest level since 2009 as African Bank Investments Ltd.’s failure drove up borrowing costs and spurred companies to cancel debt plans. Issuance this year fell 39% to $4.8 billion… Global corporate bond sales increased 8.5% to a record $4.08 trillion as companies lock in borrowing costs on the likelihood the Federal Reserve will raise interest rates next year.”

December 23 – Bloomberg (Ben Bain): “To Adrian Parra, the 436,375 peso ($30,000) mortgage he got in Mexico in 2008 is a burden he can’t shake. He says inflation-linked increases to the principal have helped push the amount he owes to more than 500,000 pesos after six years of payments. To investors, mortgages like Parra’s are an opportunity to seize in Mexico’s rebounding housing market. This must be ‘a very profitable business,’ said Parra, 37, a financial adviser in Mexico City. “But since I’m a homeowner, it’s really not.’ Foreign investors have poured into Mexico’s first mortgage real-estate investment trust, which is using some of the 8.625 billion pesos raised in a share sale last month to fund purchases of inflation-adjusted mortgages. Investors in the REIT, known as FHipo, benefit from an interest rate of at least 8.5% on the mortgages…”

Europe Watch:

December 24 – Bloomberg (Marcus Bensasson and Eleni Chrepa): “As Prime Minister Antonis Samaras’s political maneuvers to avoid early elections edge toward a dead end, his warning of turmoil risks falling on deaf ears among Greeks numbed by years of upheaval. After losing a second vote in parliament yesterday on his candidate for a new president, Samaras needs to win over a dozen lawmakers before a final ballot on Dec. 29. Should he fail, the constitution dictates that elections must be called, with opposition party Syriza leading opinion polls. ‘We’ve already been living through chaos for years now,’ said Kostas Grekas, a 23-year-old computer-technology student in Athens… ‘I’d prefer there to be elections now so that Syriza gets in, just to break up the old party system and to see something different.’”

December 24 – Bloomberg (Mark Deen): “French jobless claims rose to a record after President Francois Hollande failed to revive the nation’s economy in the first half of his mandate. The number of people actively looking for work in France increased by 27,400, or 0.8%, to 3.49 million in November… Jobless claims have risen in all except three months during Hollande’s first 2 1/2 years in office as the economy barely grew…”

Geopolitical Watch: 

December 22 – Bloomberg (Ting Shi): “China’s military is building a large military base on islands about 300 kilometers (190 miles) from an islet chain at the center of a territorial row with Japan, Kyodo News reported… The base on the Nanji islands in Zhejiang Province is designed to enhance China’s readiness to respond to a potential military crisis and strengthen surveillance over an air defense identification zone it declared in the area in November last year, the news agency said.”

China Bubble Watch:

December 24 – Bloomberg (Shai Oster and Justina Lee): “UBS Group AG is flagging risks from China’s $1 trillion worth of unhedged foreign debt as forecasters see bets against the greenback unwinding in 2015. The world’s second-largest economy is exposed to shifts in currency and interest rates as never before because of expanding international trade and easing foreign-exchange regulations, said Stephen Andrews, head of Asia banks research… at UBS. Daiwa Capital Markets has a $1 trillion estimate for carry-trade inflows since 2008, bets on the difference between yields in China and overseas. It sees a 5.7% drop in the yuan next year. The renminbi is heading for a 2.8% loss in 2014… Capital controls and record foreign- exchange reserves will help the PBOC cope with any similar situation to 1997’s Asian financial crisis, when firms struggled to repay debt as currencies slumped, Andrews said. ‘This could get very uncomfortable very quickly,’ he said… ‘I boil it down to its basics. You’ve borrowed unhedged and leveraged: you’re at risk.’”

December 26 – Bloomberg: “China plans to temporarily waive a requirement for banks to set aside reserves for some deposits, people with knowledge of the matter said, highlighting efforts to boost lending amid a slowdown of the world’s second-largest economy. Commercial lenders won’t be required to set aside reserves for the savings that they hold for non-deposit-taking financial institutions, the people said… The waiver is seen as another move to replace a universal reserve-requirement ratio cut that the People’s Bank of China needs to boost credit and bolster the economy. Concerned that a broad reduction might send out a strong easing signal and bring turmoil to stock market, the PBOC has added liquidity by stealth at least four times in the past four months.” 

December 24 – Bloomberg: “The People’s Bank of China is turning to a hidden hand as it seeks to stimulate the world’s second-largest economy without worsening debt risks. Contrary to the Federal Reserve’s forward guidance, the Bank of England’s increased transparency and a Group of 20 Nations vow to clearly communicate policies, China has added liquidity by stealth at least four times in the past four months. One proxy it has been using is China Development Bank Corp., the nation’s biggest policy lender. Balancing the need to buoy an economy set for its slowest full-year expansion since 1990 and efforts to contain a debt pile that’s almost doubled in six years, China’s leaders have sought a targeted monetary path that’s deviating from advanced economy peers. Problem is, by keeping in the shadows, speculators have jumped in, pushing the stock market up over 20% since the PBOC’s benchmark interest rate cut on Nov. 21… ‘It lacks both transparency and effectiveness,’ said Ding Shuang, senior China economist at Citigroup…, who used to work at the PBOC. ‘On this year’s policies, I can say I have no clue of their reasoning.’”

December 24 – Wall Street Journal (Shen Hong): “Following years of explosive growth, China’s shadow-banking industry is experiencing a sharp slowdown after Beijing tightened its grip on the sector, which has been a key source of funding for the economy but also has added to rising debt levels and other risks in the financial system. The industry, a mélange of informal lenders such as trust companies and leasing firms, takes in money from investors and lends it to often risky projects for which traditional bank lending is unavailable. Investors have flocked to the so-called wealth-management and trust products sold by shadow lenders in recent years because they typically promise returns ranging from 4% to more than 10%, much higher than a bank account. But the sector has been hit especially hard in the second half of this year. Investors have shifted their cash into the rallying stock market. The slowdown may become even more pronounced next year, with authorities set to increase efforts to rein in financial risks as the economy slows… The outstanding value of shadow-banking products stood at 21.87 trillion yuan ($3.52 trillion) at the end of November, up 14.2% from the level a year earlier, according to estimates by Nomura Securities… That growth is significantly slower than the 35.5% rise it registered for the whole of last year and the 33.1% gain in 2012.”

December 23 – Bloomberg (Billy Chan): “Citic Securities Co. has become the world’s fourth-largest securities firm by market value, as China’s stock rally lures new investors and bolsters trading fees. …Citic’s market value has about doubled in the past month to $55 billion as of Dec. 19, surpassing Credit Suisse Group AG and approaching UBS Group AG… Citic’s shares surged 153% in Shanghai this year as the benchmark index’s 47% climb prompted investors to open new trading accounts and almost tripled loans taken out to finance equity purchases… The profit outlook for Citic and its peers has brightened as individual investors opened almost 900,000 accounts to trade stocks in the week ended Dec. 12, the most since November 2007. The value of outstanding margin debt in China climbed to a record 987.9 billion yuan as of Dec. 18 from 335.9 billion yuan a year ago…”

December 23 – Bloomberg: “Chinese President Xi Jinping’s decision to investigate his predecessor’s top aide for corruption marks the downfall of the remaining ‘tiger’ in a group that Communist Party cadres termed the ‘New Gang of Four.’ Ling Jihua, former chief of staff to retired president Hu Jintao, was the last member of the quartet who had long been in Xi’s sights, analysts said… Removing Ling… emphasizes Xi’s iron grip on the party just two years after he became its chief, and may further strengthen his ability to mold the next generation of leaders. ‘Ling Jihua’s investigation suggests that it is likely we will see changes in the anticipated leadership lineup,’ at the next party congress in 2017, said Joseph Fewsmith, a political science professor at Boston University… ‘Xi is indeed emerging as the strongest leader in China since at least Deng Xiaoping.”

Japan Watch:

December 26 – Bloomberg (Keiko Ujikane and Toru Fujioka): “Japanese drew down savings for the first time on record while wages adjusted for inflation dropped the most in almost five years, highlighting challenges for Prime Minister Shinzo Abe as he tries to revive the world’s third- largest economy. The savings rate in the year through March was minus 1.3%, the first negative reading in data back to 1955… Real earnings fell 4.3% in November from a year earlier, a 17th straight decline and the steepest tumble since December 2009… A higher sales tax combined with the central bank’s record easing are driving up living costs, squeezing household budgets and damping consumption… ‘Households are suffering from a decline in real income,’ said Hiromichi Shirakawa, an economist at Credit Suisse Group AG who used to work at the Bank of Japan.” 

December 26 – Bloomberg (Toru Fujioka): “Japan’s inflation slowed for a fourth month in November, and industrial production and retail sales unexpectedly dropped, pointing to further weakness in an economy Prime Minister Shinzo Abe is trying to revive from recession. Output fell 0.6% in November from a month earlier… Retail sales slid 0.3%, while consumer prices excluding fresh food rose 2.7% from a year earlier. Real wages fell the most since 2009.”