Seeking Alpha

PBOC to tolerate "reasonable interest-rate volatility"

  • The People's Bank of China is prepared to tolerate "reasonable" volatility in money-market interest rates as it attempts to rein in soaring debt in the country.
  • While the PBOC will ensure "appropriate liquidity," it won't fund growth that is dependent on investment and debt.
  • "The massive borrowing and construction led by local governments in recent years" increased risks in the economy, the bank said. Such a model can "easily lead to rising debt and may squeeze credit for other players, especially small businesses."
  • The PBOC's remarks come after repurchase rates spiked to high levels at various points over the past several months, causing ructions in stock markets. The bank credited a particularly sharp rise in June with taming excessive expansion in money and credit.
  • ETFs: FXI, PGJ, GXC, FXP, CYB, YINN, HAO, CNY, TAO, CHIQ, ASHR, CHIX, KWEB, DSUM, YANG, MCHI, CQQQ, PEK, QQQC, XPP, YAO, CHXX, FXCH, CHII, CHXF, ECNS, YXI, CHIE, CHIM, KFYP, FCA, CHLC, CHNA, TCHI
Comments (10)
  • june1234
    , contributor
    Comments (2489) | Send Message
     
    Tightening
    9 Feb, 04:57 AM Reply Like
  • Interesting Times
    , contributor
    Comments (10084) | Send Message
     
    MARKETS have been up for a few days yet gold has not sold off. Would appreciate any thoughts why on the latest chapter in the blog.

     

    Some feel that gold ONLY trades on fear...I can use some help explain why this isn't true.

     

    Thanks

     

    http://seekingalpha.co...
    9 Feb, 09:15 AM Reply Like
  • Brian Bobbitt
    , contributor
    Comments (1887) | Send Message
     
    INTERESTING TIMES: You pose a question with a big answer, and as it is Sunday morning, it is impossible for me to go in to an expose' to answer it in full; perhaps this will help.
    Gold does trade on fear(up), and also during it is a refuge against hard times such as inflation. There is some inflation fears in the air as the rhetoric of many touts it as a major fact.
    The best answer to you question is that gold is money, is a reflection of the difficult times fiat monies (printed currencies) are having globally.
    Now this 'trouble' the world is having is simply an effect of governments spending more than they are taking in. This causes inflation and a steadying or rising precious metal (and all) prices.
    As the world gets more sophisticated, larger populations demand more toys and more toys demand more gold related items from jewelry, TV's spacecraft and the sum total puts upward pressure on the limited supplies and the price rises or stabilizes. It is all a large cauldron in which the price of gold boils.
    Now one thing for sure, gold is desirable correct? Who does now want a nice gold watch or a wonderfully shiny gold ring or other bauble for the world to see? All the world cherishes gold and its attributes from savings, showing off wealth, storing wealth and so on.
    It will serve you well to believe and understand, that the real price of mining an ounce of gold on average globally is around $1150 and rising. For gold to sell too long below the producer price just ain't gonna happen. Costs are handed down the line to the end user, which is the price you see in the London Fix every morning, and the FX price in the futures market daily.
    The current gold price is a reflection of its actual value. (in our currency)
    One of the reasons gold is not flying higher right now is the other camp claims deflation. And they may be right to a point. I believe the fact that their could be deflation also in the wind, whereby if inflation and deflation are fighting for superiority, then stabilization will be the word of the day until one out powers the other. Kind of like a financial arm wrestling competition.
    I don't know which will win, but I say inflation. Deflation seems not to have staying power like inflation. However, one can look at Japan, and get the other argument and it is real, not just rhetoric.
    Gold does go up on fears, but that is not the only reason. The flip-side is easy, when the reasons for gold rising weaken, so does the price. I don't believe you will see it below the $1150 mark soon, if ever. This world would have to change its spots for good to become undesirable.
    So, I hope that helps.
    Capt. Brian
    The Lost Navigator
    GET SOME GOLD/SILVER!
    9 Feb, 10:23 AM Reply Like
  • Interesting Times
    , contributor
    Comments (10084) | Send Message
     
    BRIAN

     

    I think the answer is a little deeper then your response. Gold is being hoarded by the West. The USA does not have what they want us to believe they have. Silver is more of an industrial metal, not gold.

     

    Join us in my blog as we discuss manipulation ( now we renamed managing ) and I also believe we are in a deflationary period right now. That is why the FED isn't slowing down the tapering. They WANT rates to rise. Once they don't maybe the tapering will be discontinued for a while and the printing presses turned on again.?

     

    Janet is left with a mess to be sure...I agree that gold won't go below $1100 bucks however I still feel the markets have plenty of fear left in them. So join us, anyone, the link is above !!.
    9 Feb, 11:17 AM Reply Like
  • Robert Duval
    , contributor
    Comments (2823) | Send Message
     
    IT,

     

    You are not understanding the effect of tapering. Long rates are, and will continue, to go Down on tapering, confounding the CNBC experts. Why? Simple, tapering is tightening, which will flatten the yield curve, as it always has. I think gold is simply following the inverse of 10 year rates, as it is a substitute safety trade.
    9 Feb, 04:16 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
     
    For years "Panda Huggers" have denied that this out of control, debt-fueled spending by local governments represented a problem. In their view, building empty cities was simply "advanced spending" that was visionary in nature, and were quick to overlook that interest on the debt incurred must be paid in the meantime, and that servicing this debt often could be achieved only through the issuance of new debt.

     

    When that could no longer be denied, they shrugged off concerns that the new debt was often short-term in nature, and subject to higher and higher interest rates (e.g., money market yields of 10% to 20%) because China was China and could easily deal with this problem through means such as:

     

    Extending Non-Performing Loans [NPL's] so they would never come to light [and China could preserve its perfect record of no loan defaults];

     

    Permitting banks to engage in clever financial engineering tricks that would either keep these loans off their balance sheets are disguise them as inter-bank loans subject to lower capital requirements than direct loans to real estate developers and local government financing platforms;

     

    Printing massive amounts of new money to keep the credit markets flowing [although this trend may now be reversing as China places more reliance upon other countervailing measures instead]; and

     

    Creating Asset Management Companies that could also buy NPL's from banks and others so that they could keep on borrowing and lending.

     

    Some still believe that China can get away with all this since their capital markets are closed and China's "official" government debt is not owed to foreignors (i.e., the debt issued directly by the government as opposed to the debt issued by SOE's and debt incured by other entities that is guaranteed by the Chinese central government). And they may be right in that the ramifications may be more difficult for other countries to deal with. In other words, its their debt but our problem.

     

    But, this too may be short-sighted because China relies heavily upon exports so slowing economies elsewhere can negatively impact China. To the extent that a slowdown in some of these countries can also trigger financial crises, and financial linkages among these countries can create a further rippling effect [for example, Greek banks were among the primary lenders to Turkey] dampening China's exports still further.

     

    Even though it may no longer be desirable to offset a decline in export revenues with Fixed Asset Spending that has soared to about 50% of China's GDP since 2008, It could be argued that the intended reforms announced by the CCP at their Third Plenum in November will result in increased capital inflows from foreignors that would allow them to fund their growing debt financing needs from this source instead. But, less money printing by China [which accounts for far more of the increase in the global money supply in recent years than that attributable to the Federal Reserve] can cause interest rates to rise, resulting in less borrowing thus less funds available for investment. And, until much needed reforms to China's economy, and to their financial and judicial systems, are actually implemented, investors may be less comfortable investing in China than the CCP hopes.

     

    So, while China's demonstrated prowess in many areas, not the least of which being their civil engineering capabilities, seems likely to contribute to continued economic growth in the long-run, their near-term outlook seems less optimistic, and this could be troublesome for many other countries as well.
    9 Feb, 10:24 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8130) | Send Message
     
    The smart Chinese are quickly converting their yuan, urban RE holdings and domestic equity investments in the local financial sector into physical gold, silver and platinum.

     

    China 2014 = America 2007
    9 Feb, 10:30 AM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
     
    China's Grand Strategy is to increase consumer income levels since, without that, higher consumer spending levels can't be achieved. Their route to this end is to transform their economy away from low wage activities toward higher wage activities involving more high tech.

     

    So, while Chinese insiders may be getting their capital out of the country and using gold and precious metals both as a means to do so and as a temporary parking place, I would expect more Chinese investments in high tech companies.

     

    Given the SEC's six-month ban on financial statements audited by Chinese accounting firms for Chinese companies listed on US exchanges, I would also expect such investments to be directed toward higher stakes in US technology companies. If you can't attract capital to China, and you can't entice high-tech companies to locate their most advanced manufacturing facilities in China, why not invest in US high tech companies and get the technology you're seeking that way?
    9 Feb, 10:51 AM Reply Like
  • Sam Liu
    , contributor
    Comments (3864) | Send Message
     
    There was a medical equipment conference at Singularity University. I spoke to a South American university attendee and he said start-ups would best register their innovations in Cn due to bureaucracy, taxes, laws and other costs ...

     

    I commented on this back in March/April in SA.

     

    But elaborating on your comment, back in 2006-07, while researching on Lenovo et al, it is best for Cn corporations to get a minority ownership into certain strategic companies to get an understanding of the industry and procedures done.
    9 Feb, 12:25 PM Reply Like
  • divinecomedy
    , contributor
    Comments (466) | Send Message
     
    Fear mongering abound and yet January 31st went by without anything happening.
    Admit it, the authorities (Western and Eastern) have things under control.
    9 Feb, 10:04 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|