Posted on 07/23/2015 5:20:22 AM PDT by Enlightened1
On Friday, alongside China's announcement that it had bought over 600 tons of gold in "one month", the PBOC released another very important data point: its total foreign exchange reserves, which declined by $17.3 billion to $3,694 billion.
We explained all of his on Friday in "China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium", and frankly we have been surprised that this extremely important topic has not gotten broader attention.
Then, to our relief, first JPM noticed. This is what Nikolaos Panigirtzoglou, author of Flows and Liquidity had to say on the topic of China's dramatic reserve liquidation
Looking at China more specifically, it appears that, after adjusting for currency changes, Chinese FX reserves were depleted for a fourth straight quarter by around $50bn in Q2. The cumulative reserve depletion between Q3 2014 and Q2 2015 is $160bn after adjusting for currency changes. At the same time, a current account surplus in Q2 combined with a drawdown in reserves suggests that capital outflows from China continued for the fifth straight quarter. Assuming a current account surplus in Q2 of around $92bn, i.e. $16bn higher than in Q1 due to higher merchandise trade surplus, we estimate that around $142bn of capital left China in Q2, similar to the previous quarter.
JPM conclusion is actually quite stunning:
This brings the cumulative capital outflow over the past five quarters to $520bn. Again, we approximate capital flow from the change in FX reserves minus the current account balance for each previous quarter to arrive at this estimate (Figure 2).
(Excerpt) Read more at zerohedge.com ...
LRoggy, if you re-read my post, I not only admitted that I’m no expert on the gold market (or any market), but leaving open the possibility that markets could be manipulated was based on what “some say”.
That all means I don’t claim to know what’s really going on, only what I’ve read/heard what others say; others who themselves claim to know.
BTW, if I really did know what’s going on in the markets, I’d be typing this from some beachfront property in Hawaii, enjoying a glass of fine wine.
Instead of working like a dog, and worrying about where the price of bread, milk, and gas will be next week, I meant to add.
You are so screwed.
Not likely anything meaningful. They could have always used the treasuries as collateral if needed.
We have to stop thinking these central planners in China are Supermen, they are not. They have no experience in the long run with how marlets truly operate and central allocation of capital is just as stupid as central allocation of economic investment (ie-ghost cities).
Win some, lose most. That will be the experience.
I have an analytical thought process by nature. If something doesn't make sense, I try to piece together a hypothesis to which it's a logical conclusion. Sometimes we get some hints that steer us the right way.
You are so screwed.
I am so screwed.
Good point!
I’m not sure but suspect several things are missing in this analysis.
Does it include capital going to sovereign loans and investments?
South America {for just one example) receives maybe 30 billion a year in Chinese capital. Probably at a much higher ROI than US treasuries.
Heck, China pretty much owns South America.
I'm just wondering if they need liquidity. The 600 tons of gold sound more like collateral.
In my opinion, it is. When I look at the illusion of printed currency and the manipulation of metal prices I think it’s only a matter of time before things right themselves.
A lot.
.China’s securities regulator banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months, its latest effort to stop the nation’s $3.5 trillion stock-market rout.
What's your opinion on the issuance of corporate debt for the purpose of retiring common stock while at the same time basing executive bonuses on EPS. Is that what you call a market?
Story sounds kind of like a Maven trap.
I’m less of a fan of issuing the executives stock options instead of stock, there’s far more manipulation embedded in that approach. Nearly 30 years ago i wrote to the WSJ (it was Taranto’s Management weekly column back then) about giving the rank and file cash bonuses based on a targeted ROE (return on equity) instead of stock grants as a fair way to incentivize them.
The actual long-term impetus for top executives to get so much stock-based compensation came out of the 1970’s bear market, when CALPERS (the true 400-lb. gorilla of institutional investing back then) insisted on taking away the perks like country club memberships and access to private planes and replacing them with stock-based grants.
This didn’t work too well for the income equality types because the Dow was under 1,000 then and when the next bull market hit those options were worth a lot more than anyone predicted. Large corporations then reacted in the 80’s by eliminating bonuses and substituting stock grants, which saved them cash in the short term but when the job layoffs ensued many lost those grants because they hadn’t vested yet.
If you want to really blame anyone for wealth inequality you can look at this approach and this time frame for screwing the worker in many large corporations.
To specifically address your question, it’s not so much the granting of stock that is the problem, it is the RETROACTIVE reduction of the ‘strike price’ that drives me crazy when Boards of Directors do it. That rewards either a) failure of the execs to reward shareholders or b) faulty design of the award at the start.
Top executive talent is pretty scarce, which is why some CEO’s really make out. There’s a lot of mediocrity out there too . . . Rometty, Chenault, etc., who have been off strategically (if a CEO can’t get it’s core strategic approach right nothing else they do should be rewarded).
Issuing corporate debt to retire stock should be based on the combination of free cash flow, an undervalued stock price and future confidence in that cash flow. EPS bonuses are the price you pay today to hire the right CEO. A great example of it working well was DirecTV, where value was truly unlocked. A bad version was IBM, which has retired over 50% of it’s float over the past 12 years or so but would have been better off utilizing free cash to buy into some more exploratory technologies.
5 quarters =/= 90 days
I must be a gold bug.
IIRC, the total gold mined to date is about 181,000 standard tons.
So, the 600 tons is just a little over .003% of that total.
Didn’t say it was a bad thing. Just saying that owning a share of stock in gold isn’t the same thing as owning gold.
Thanks for your reply.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.