{"id":51828,"date":"2023-08-23T01:47:34","date_gmt":"2023-08-23T05:47:34","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/fortune-cookie-seeking-alpha\/"},"modified":"2023-08-23T01:47:39","modified_gmt":"2023-08-23T05:47:39","slug":"fortune-cookie-seeking-alpha","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=51828","title":{"rendered":"Fortune Cookie | Seeking Alpha"},"content":{"rendered":"<div data-test-id=\"content-container\">\n<p><figure class=\"getty-figure\" data-type=\"getty-image\"><picture>  <\/picture><figcaption> <\/figcaption><\/figure>\n<\/p>\n<blockquote>\n<p><em>\u201cYou American people worry too much about the China economy. Every time you think China is a problem, we get better, but when you have a high expectation for China, China is always a problem.\u201d &#8211; Jack Ma<\/em><\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible\">Watching with interest the Chinese financial \u201cdoomers\u201d going onto overdrive recently, we reminded ourselves of the China doom and gloom reports of 2017. At the time we did exchange our thoughts with Kevin Muir from the excellent Macro Tourist blog:<\/p>\n<blockquote class=\"paywall-full-content invisible\">\n<p>\u201cThe PBoC does not want this devaluation to be a one way street where speculators easily earn profits. Keeping everyone honest by strengthening the Yuan right ahead of a devalue seems perfectly logical to me.<\/p>\n<p>I believe the Chinese purposely tightened last year so that they could ease into this Autumn\u2019s People\u2019s Congress (China Downgrade &#8211; buy the news?). After writing that piece, a great<span class=\"paywall-full-content no-summary-bullets invisible\"> macro writer by the name of Martin Tixier, who pens the terrific Macronomics blog, wrote me to say, China is conducting a \u201ccontrolled demolition of their WMPs (wealth management products).\u201d What an awesome line. And I couldn\u2019t agree more. Their tightening was designed to take some steam out of the frothy areas of their economy.<\/span><\/p>\n<p class=\"paywall-full-content no-summary-bullets invisible\">But now they have tightened enough. They have slowed their economy. Withdrawn liquidity out the global financial system. They have accomplished what they set out to do.\u201d \u2013 Kevin Muir, June 2017<\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible no-summary-bullets\">So, given the \u201cnegative narrative\u201d on Chinese woes, when it came to selecting our title analogy, we decided to go for \u201cFortune cookie\u201d. A fortune cookie is a crisp and sugary cookie wafer with a piece of paper inside, a &#8220;fortune&#8221;, an aphorism, or a vague prophecy. The message inside may also include a Chinese phrase with translation and\/or a list of lucky numbers used by some as lottery numbers. \u201cFortune cookies\u201d are often served as a dessert in Chinese restaurants in the United States, Canada, Australia, and other countries, but they are not Chinese in origin. There are approximately 3 billion fortune cookies made each year globally, the majority of them consumed in the US. Authorities briefly investigated Wonton Food in 2005, after 110 Powerball lottery players won about $19 million after using the &#8220;lucky numbers&#8221; on the back of \u201cfortunes cookies\u201d messages. As such, it appears to us, that when it comes to making Chinese economic predictions, it is more a US centric marketing activity rather than a Chinese one but, we ramble again.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">In this conversation we would like to look at the Chinese \u201cdoom\u201d narrative. As well we want to continue to look at the US \u201ctrajectory\u201d in continuation to our recent post relating to the \u201cLatam playbook\u201d and fiscal woes, which in our book explains the de-anchoring of the US long bonds and the continuation in the rise of yields.<\/p>\n<ul class=\"paywall-full-content invisible no-summary-bullets\">\n<li>\n<h2><strong>Controlled demolition 2.0<\/strong><\/h2>\n<\/li>\n<\/ul>\n<p class=\"paywall-full-content invisible no-summary-bullets\">In 2017 we used the \u201ccontrolled demolition\u201d analogy when it came to assessing what the Chinese authorities were trying to achieve relative to their shadow banking sector which was generating financial instability. As such they had to clamp down on the \u201cWealth Management Products\u201d. It is a point we discussed at the time with Anthony Crudele in a podcast for those interested.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Again, this year we are hearing growing concern relative to the ailing Chinese economy in general and Chinese real estate in particular. To simplify our reasoning behind our analysis we would like to point out towards David P. Goldman assessment of the ongoing situation as he astutely demonstrated out in his Asia Times article entitled \u201cThe China contagion that never was\u201d:<\/p>\n<blockquote class=\"paywall-full-content invisible no-summary-bullets\">\n<p>\u201cThe China property market shakeout is not contagious enough to herald a full-scale financial crisis<\/p>\n<p>The price of hedging China risk on world markets hasn\u2019t fluttered during the past couple of weeks, which means that investors with real money on the line and speculators looking for a score aren\u2019t worried about China\u2019s property market.<\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927337361914852.png\" alt=\"China CDS 5 year\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">China CDS 5 year <span>(David P. Goldman &#8211; Asia Times)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<blockquote class=\"paywall-full-content invisible no-summary-bullets\">\n<p>Credit default swaps are a form of bond insurance that makes creditors whole after a default. They are quoted in basis points (100ths of a percent) above the cost of interbank funding. The cost of default protection on China traded Aug. 18 at 80 basis points, on the lower side of its historic range.<\/p>\n<p>Even in an extreme case, I showed in a companion article, China\u2019s central government could cover the interest payments on defaulted local government debt with a bit over 1% of tax revenues. The shakeout in the property market and the financial vehicles that lend to it, including Local Government Financing Vehicles, isn\u2019t a financial crisis as such; rather, Beijing is asserting central control over local governments that have coasted for years on rising land prices.<\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927334778934236.png\" alt=\"China High Grade bond indices\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">China High Grade bond indices <span>(David P. Goldman &#8211; Asia Times)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<blockquote class=\"paywall-full-content invisible no-summary-bullets\">\n<p>The broad Chinese corporate bond market has ignored the property market fallout.<\/p>\n<p>There\u2019s a world of difference between the performance of property bonds, which make up most of Bloomberg\u2019s China High Yield US Dollar Index, and the performance of investment-grade Chinese corporate bonds. The chart above shows that the high-yield dollar bond index has lost more than three-quarters of its value since the middle of 2021.<\/p>\n<p>But the overall China bond index has registered positive returns throughout, and Bloomberg\u2019s index of lower investment grade Chinese corporate bonds (rated Baa by Moody\u2019s) has gained as well. The US corporate bond market has fallen in value because the Federal Reserve pushed up US interest rates. Bond prices move inversely to yields.<\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927337512607737.png\" alt=\"China RMB vs Yen\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">China RMB vs Yen <span>(David P. Goldman &#8211; Asia Times)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<blockquote class=\"paywall-full-content invisible no-summary-bullets\">\n<p>China\u2019s RMB (ticker CNH) is lower against the US dollar, but that\u2019s due to higher US dollar interest rates, not RMB weakness. The Chinese currency has traded in lockstep with the Japanese yen for the past year.\u201d \u2013 Source David P. Goldman, Asia Times, August 19, 2023<\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible no-summary-bullets\">The rest of the article is obviously a must read. Some financial pundits want you to believe that the Chinese real estate sector woes are a \u201cLehman\u201d moment, we do not buy \u201ccheap\u201d narratives and as well, we do not fall for central bankers \u201cJedi tricks\u201d (Fed\u2019s Barkin: \u201cRecent moves in bond yields not a sign of inappropriate market tightening, likely a response to strong economic data\u201d). Credit matters in our book and as concluded by David P. Goldman:<\/p>\n<blockquote class=\"paywall-full-content invisible no-summary-bullets\">\n<p>\u201cThe simple fact is that countries with enormous trade surpluses and very high savings rates don\u2019t have financial crises. The Chinese government has the resources to cover the debt service of dodgy local government debt if it so chooses, and the banking system has vast resources to issue new loans. Whether Beijing will do so is a political, not a financial choice.\u201d \u2013 David P Goldman, Asia Times, August 19, 2023<\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible no-summary-bullets\">An entire generation of investors have now been used to \u201cbailouts\u201d being the instrument of \u201cdefault\u201d (pun intended). As pointed out by Frank Borman:<\/p>\n<blockquote class=\"paywall-full-content invisible no-summary-bullets\">\n<p>\u201cCapitalism without bankruptcy is like Christianity without hell.\u201d<\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible no-summary-bullets\">As such if one can argue that the 5 years Sovereign CDS is a proxy for \u201ccredit risk\u201d then indeed the latest \u201cdoom &amp; gloom\u201d in the financial sphere is not even warranted with China\u2019s 5 years CDS trading at 84 bps:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927334777415388.png\" alt=\"China 5 year CDS\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">China 5 year CDS <span>(Macronomics &#8211; Datagrapple.com)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">And to add some \u201cinteresting comparison\u201d just for the fun of the argument, one could argue that JP Morgan Senior CDS at 55bps is trading too tight relative to China (84 bps) given the most recent S&amp;P multiple US Banks downgrades on growing liquidity worries as well as Fitch downgrading the United States of America\u2019s rating:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927334779233675.png\" alt=\"China 5 year CDS vs JP Morgan\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">China 5 year CDS vs JP Morgan <span>(Macronomics &#8211; Datagrapple.com)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">One would opine that this is akin to a \u201clogical fallacy\u201d. Everyone is entitled to their opinion as the saying goes.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">When David P. Goldman was asked about what would be a sign of contagion in regards to \u201ccontagion\u201d, he answered:<\/p>\n<blockquote class=\"paywall-full-content invisible no-summary-bullets\">\n<p>\u201cCDS above +125, for example. Or a big fall in RMB unrelated to other markets.\u201d \u2013 David P. Goldman<\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible no-summary-bullets\">As well we read with great interest Alexandre M. Andreoni\u2019s take in our LinkedIn feed relative to Chinese woes:<\/p>\n<blockquote class=\"paywall-full-content invisible no-summary-bullets\">\n<p>\u201cI&#8217;ve been reading a lot about China over the last few days, and I&#8217;ve been working on the Chinese file for several years now.<\/p>\n<p>Let&#8217;s put things into context so that we can better understand and avoid the noise of the capital markets.<\/p>\n<p>First, investors should understand that there is a group of financial companies under Zhongzhi, including licensed and unlicensed companies. The problems concerned unlicensed financial companies such as Hengtian Wealth Management. This is an independent case, which will have no impact on the financial system and will not entail any risk of contagion. Most of Zhongzhi&#8217;s companies are unlicensed and do not have many business relationships with traditional financial institutions, including banks and securities companies. Zhongrong Trust&#8217;s asset balance is less than $100BN, and no way this event could trigger China&#8217;s &#8220;Lehman moment&#8221;.<\/p>\n<p>Second, Why is China&#8217;s story different from Japan&#8217;s? China has a long way to go before it experiences the same scenario as Japan in 1990. In the 1990s, Japan&#8217;s per capita residential area was 45 cm2, whereas China&#8217;s per capita residential area is currently 30 cm2. It will take at least 15 years for China&#8217;s real estate sector to develop and reach a balance between supply and demand. In 1990, Japan&#8217;s urbanization rate was 85%, while China&#8217;s is currently 65%.<\/p>\n<p>Today, China is closer to Japan&#8217;s 1970 stage of development.<\/p>\n<p>Third, Zhongzhi and Country Garden<\/p>\n<p>Zhongzhi: Zhongrong&#8217;s real estate products are mainly purchased by UHNWI in China for their targeted return of 6-7% with a high leverage ratio. It is obvious that today this product suffers from a liquidity problem due to the lack of sufficient risk management.<\/p>\n<p>Country Garden: The main reason for the delay in debt payment is closely linked to the company&#8217;s operating capabilities and aggressive expansion. The company operates mainly in China&#8217;s third- and fourth-tier cities, where downward pressure on housing prices is greatest. By contrast, a real estate company like Longfor Properties, whose activities are concentrated mainly in first-tier cities, is not affected by the crisis due to its prudent management of operations and risks.<\/p>\n<p>Fourth, let&#8217;s not forget that China&#8217;s long-term economic development is based on the private economy. Private companies contribute 60% of Chinese government tax revenues, 60% of GDP and 70% of innovation, provide 80% of employment and account for 90% of the number of registered companies.<\/p>\n<p>To conclude, the rhetoric of political speeches over the past few months concerning the immobility and lack of urgency of officials no longer seems to be a concern and has evolved into a new dimension where the constructive and proactive environment signals an outright reset in response to investor sentiment and capital markets that were somewhat appraised after the Politburo meeting of July.&#8221;- Alexandre M. Andreoni<\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Again \u201cbailouts\u201d are \u201cpolitical decisions\u201d. China has sufficient means to tackle these ongoing issues which we clearly identified in 2017 and some were already addressed at the time. What matters to China is \u201cstability\u201d. China doesn\u2019t want destabilizing rampant speculation and yes, some \u201cspeculators\u201d will pay the price in true \u201ccapitalist\u201d fashion like they did in 2017 with the previous clamp down on \u201cWealth Management Products\u201d (WMPs).<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Also note that China has closed the \u201cspeculative\u201d gap between CNY and CNH. The yuan&#8217;s onshore exchange rate ticker is CNY. Foreign businesses trading within mainland China can accept CNY as payment, but when they want to use yuan offshore, they need to exchange CNY to CNH. CNH is renminbi traded offshore from mainland China:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927334780575166.png\" alt=\"Offshore Yuan swap points\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">Offshore Yuan swap points <span>(Bloomberg &#8211; Twitter)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">More importantly Yen has fallen relative to CNY (offshore yuan):<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927334779313822.png\" alt=\"Yen vs Offshore Yuan\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">Yen vs Offshore Yuan <span>(Bloomberg &#8211; Twitter)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">There has been has been a significant weakening of the Japanese yen in synch with the rise in US Treasury 10 year yields:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927334794948382.png\" alt=\"USTs 10 year yield vs USD\/JPY 6 months chart\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">USTs 10 year yield vs USD\/JPY 6 months chart <span>(Macronomics &#8211; TradingView)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">The weakening of the Japanese yield is the consequence of significant amount of bonds purchase by the Bank of Japan. As we pointed out in our March conversation \u201cThe Cheshire Cat\u201d, Japan already owned 56% of the Japanese government bond market and given their willingness in boosting their defense spending and that Japanese are reluctant to accept tax hikes, the easiest way of course is therefore to issue more bonds and for the Bank of Japan to buy more of it:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-1692733478982379.png\" alt=\"Bank of Japan bond buying\" contenteditable=\"false\" loading=\"lazy\"> <\/picture><figcaption>\n<p class=\"item-caption\">Bank of Japan bond buying <span>(Bloomberg &#8211; Twitter)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">As such, China is in effect trying to \u201coffset\u201d Japanese yen weakness and closing the gap via offshore yuan (CNY) and prevent speculation. Many pundits are pointing towards \u201cdeflation\u201d in China. In any case China 10 year yields 2.554%, its lowest level since April 2020.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">But returning to \u201cFortune cookies\u201d, as per our Jack Ma\u2019s opening quote we like to be contrarian. We discussed in our previous conversation the attractiveness of Alibaba ($BABA) and since our last conversation, sure, the stock\u2019s performance has been erased but, we continue to think it has attractive valuation metrics (ETF XLK vs ETF KWEB vs $BABA, one month chart):<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927334794030867.png\" alt=\"ETF XLK vs ETF KWEB vs $BABA, one month chart\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">ETF XLK vs ETF KWEB vs $BABA, one month chart <span>(Macronomics &#8211; TradingView)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">As a reminder our friend Geoffrey has realized an augmented media presentation relating to GraphCall &#8211; Navigation valuation for those who wants to investigate more thoroughly this \u201cvalue\u201d proposal (should you want to subscribe to this service, you can use our discount code MNDOCUTALK).<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">While China\u2019s \u201cdoom &amp; gloom\u201d is still the clickbait du jour it\u2019s been a big month for tech earnings in China. On August 16, JD.com reported that net revenues for the quarter ended June 30 jumped 7.6 percent to $39.7 billion (287.9 billion RMB). Last week, rival Alibaba similarly beat Wall Street estimates as revenue surged 14 percent year on year to $32.3 billion (234.16 billion RMB) in the same period. After several years of tech crackdowns and Covid-19 restrictions, China\u2019s e-commerce giants are making a comeback and there are even new IPOs taking place:<\/p>\n<blockquote class=\"paywall-full-content invisible no-summary-bullets\">\n<p>&#8220;SF Express, China\u2019s largest express delivery company, has filed for a Hong Kong second listing that could raise as much as $3 billion.&#8221; &#8211; Bloomberg.<\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Of course China\u2019s slowdown is real but we would argue that a lot of European countries would take a 5% projected GDP growth any day. Let\u2019s move on to the continuation of US woes fiscal wise given that the de-anchoring of the US long end is a worrying trend in our opinion.<\/p>\n<ul class=\"paywall-full-content invisible no-summary-bullets\">\n<li>\n<h2><strong>US Fiscal policy is out of control<\/strong><\/h2>\n<\/li>\n<\/ul>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Whereas in \u201crisk-off\u201d episodes investors where racing towards the safety of US treasuries, the US long end has continued rising and it seems that many investors are positioned the wrong way we think:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927334796959023.png\" alt=\"Investors US bond positioning\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">Investors US bond positioning <span>(Bloomberg &#8211; Twitter)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">The Fed can control the short end of the yield curve but, not really the long end. The long bonds are de-anchored. Why is so? Because as we discussed in our previous conversations, the US needs to put its fiscal house in order.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">On a side note on US woes we highly recommend listening to Bill Isaac, former FDIC chair\u2019s interview relative to the title of our bullet point and US fiscal woes. In the video Bill Isaac recounts his handling of large bank failures in the 1970s and 1980s, including the collapse of Continental Illinois, which was the largest FDIC takeover until Washington Mutual in 2008. Back in March in our conversation \u201cReverse polarity\u201d we indicated that the banking woes were akin to the Savings &amp; Loan crisis. As such, in similar fashion to the period experienced by Bill Isaac you will see more bank failures and consolidation of the US banking sector and of course more inflationary pressures down the line.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Returning to the long-end of the curve, the US fiscal trajectory is unsustainable because of Quasi Fiscal Deficit in the US. (For more on QFD issues we highly recommend watching Geoffrey Fouvry quick take on Graph Financials, part 1 and part 2).<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">But when it comes to US woes in particular and the \u201cLatam\u201d playbook in general, we recommended you in our previous conversation to read both John H Welch research paper from the Federal Reserve Bank of Dallas entitled \u201cHyperinflation, and internal debt repudiation in Argentina and Brazil\u201d published in 1991 as well as Charles W. Calomiris paper from the Federal Reserve Bank of Saint Louis entitled \u201cFiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements\u201d.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">What is our great concern when it comes to the \u201clong end\u201d of the US yield curve is falling \u201cforeign\u201d demand. On the 10<sup>th<\/sup> of August, the Fed bought almost 40% of the $23 billion 30 year bond issued at a yield of 4.189% at a time where the Federal deficit in just 7 months has hit $1.2 trillion, up 242% over 2022:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927334793191848.png\" alt=\"US Calendar fiscal deficit\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">US Calendar fiscal deficit <span>(@ThHappyHawaiian \u2013 Twitter)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">As commented by our friend Geoffrey, the \u201cbond vigilantes\u201d are in control of the long-end and do not care about inflation numbers but care about the fiscal position of the United States. So either the US Congress comes up with a real fiscal plan or they will have to monetize much more and in effect go for full fiscal dominance \u00e0 la Argentina:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-1692733479376003.png\" alt=\"G10 10y Yields vs Global Reserves as percentage of GDP\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">G10 10y Yields vs Global Reserves as percentage of GDP <span>(Variant Perception &#8211; Twitter)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<blockquote class=\"paywall-full-content invisible no-summary-bullets\">\n<p>\u201cFrom 2000-2015, long-term FX reserve buildup boosted demand for USTs, pushing yields lower. That trend started reversing in the mid-2010s and is accelerating post-Covid. While not a day-to-day timing device, this is an unambiguous structural headwind to USTs\u201d \u2013 Variant Perception \u2013 Twitter<\/p>\n<\/blockquote>\n<p class=\"paywall-full-content invisible no-summary-bullets\">If you want a concerning chart, much more concerning than a Chinese one, we think this one is more appropriate:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-1692733479576413.jpg\" alt=\"Tail volatility\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">Tail volatility <span>(Bloomberg &#8211; Twitter)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">There are growing liquidity issues in the US Treasury Markets.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">As such no wonder the US 10 year has broken out of its range:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927334789867926.png\" alt=\"US 10 year yield breaking range\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">US 10 year yield breaking range <span>(Bloomberg &#8211; Twitter)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">When it comes to \u201cFortune cookies\u201d it seems that China is having a different read on its economy and has more concerns on the US fiscal situation given it has cut its US Treasury Notes holdings to a 14 year low:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-1692733479450166.jpg\" alt=\"China's holdings of US Treasuries\" contenteditable=\"false\" loading=\"lazy\"><\/span> <\/picture><figcaption>\n<p class=\"item-caption\">China&#8217;s holdings of US Treasuries <span>(Christophe Barraud Twitter)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">As well as we pointed out in our previous musing, Bondzilla is \u201cMade in Japan\u201d. With the Bank of Japan tweak of the Yield Curve Control (YCC), Japanese long-term yields have risen (due to tighter monetary policy). Yet another large foreign holder of US Treasuries, becoming less interested in US bonds and asking for a premium.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">The US dollar recycling machine from oil to US Treasuries seems to have lost its appeal at the long end of the curve given also Saudi Arabia has cut on its holdings to the lowest level in 6 years:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">\n<figure class=\"regular-img-figure paywall-full-content invisible\" contenteditable=\"false\"><picture> <img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/08\/651730-16927334791677992.png\" alt=\"Saudi Arabia holdings of US Treasuries\" contenteditable=\"false\" loading=\"lazy\"> <\/picture><figcaption>\n<p class=\"item-caption\">Saudi Arabia holdings of US Treasuries <span>(Bloomberg &#8211; Twitter)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Maybe Jack Ma is right and the US Fortune cookie is wrong?<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">With Geoffrey\u2019s help, we endeavor to touch more on various subjects through GRAPHFINANCIALS<\/p>\n<blockquote class=\"paywall-full-content invisible no-summary-bullets\">\n<p><em>\u201cThere is no instance of a nation benefitting from prolonged warfare.\u201d &#8211; Sun Tzu<\/em><\/p>\n<\/blockquote>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/seekingalpha.com\/article\/4630430-fortune-cookie?source=feed_all_articles\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u201cYou American people worry too much about the China economy. Every time you think China is a problem, we get better, but when you have a high expectation for China, China is always a problem.\u201d &#8211; Jack Ma Watching with interest the Chinese financial \u201cdoomers\u201d going onto overdrive recently, we reminded ourselves of the China [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":30812,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-51828","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Fortune Cookie | Seeking Alpha | iFintechWorld<\/title>\n<meta name=\"description\" content=\"\u201cYou American people worry too much about the China economy. Every time you think China is a problem, we get better, but when you have a high expectation\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=51828\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Fortune Cookie | Seeking Alpha | iFintechWorld\" \/>\n<meta property=\"og:description\" content=\"\u201cYou American people worry too much about the China economy. Every time you think China is a problem, we get better, but when you have a high expectation\" \/>\n<meta property=\"og:url\" content=\"https:\/\/ifintechworld.com\/?p=51828\" \/>\n<meta property=\"og:site_name\" content=\"iFintechWorld\" \/>\n<meta property=\"article:published_time\" content=\"2023-08-23T05:47:34+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-08-23T05:47:39+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/07\/1688398171_image_1386416320.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1536\" \/>\n\t<meta property=\"og:image:height\" content=\"1025\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"News Room\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"News Room\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"16 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/ifintechworld.com\/?p=51828#article\",\"isPartOf\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=51828\"},\"author\":{\"name\":\"News Room\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61\"},\"headline\":\"Fortune Cookie | Seeking Alpha\",\"datePublished\":\"2023-08-23T05:47:34+00:00\",\"dateModified\":\"2023-08-23T05:47:39+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=51828\"},\"wordCount\":3164,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/ifintechworld.com\/#organization\"},\"keywords\":[\"Featured\"],\"articleSection\":[\"News\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/ifintechworld.com\/?p=51828#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/ifintechworld.com\/?p=51828\",\"url\":\"https:\/\/ifintechworld.com\/?p=51828\",\"name\":\"Fortune Cookie | Seeking Alpha | iFintechWorld\",\"isPartOf\":{\"@id\":\"https:\/\/ifintechworld.com\/#website\"},\"datePublished\":\"2023-08-23T05:47:34+00:00\",\"dateModified\":\"2023-08-23T05:47:39+00:00\",\"description\":\"\u201cYou American people worry too much about the China economy. Every time you think China is a problem, we get better, but when you have a high expectation\",\"breadcrumb\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=51828#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/ifintechworld.com\/?p=51828\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/ifintechworld.com\/?p=51828#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/ifintechworld.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Fortune Cookie | Seeking Alpha\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/ifintechworld.com\/#website\",\"url\":\"https:\/\/ifintechworld.com\/\",\"name\":\"Repay Down\",\"description\":\"Latest Personal Finance News, Tips and Updates\",\"publisher\":{\"@id\":\"https:\/\/ifintechworld.com\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/ifintechworld.com\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/ifintechworld.com\/#organization\",\"name\":\"Repay Down\",\"url\":\"https:\/\/ifintechworld.com\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png\",\"contentUrl\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png\",\"width\":558,\"height\":90,\"caption\":\"Repay Down\"},\"image\":{\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61\",\"name\":\"News Room\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png\",\"contentUrl\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png\",\"caption\":\"News Room\"},\"sameAs\":[\"https:\/\/ifintechworld.com\"],\"url\":\"https:\/\/ifintechworld.com\/?author=1\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Fortune Cookie | Seeking Alpha | iFintechWorld","description":"\u201cYou American people worry too much about the China economy. Every time you think China is a problem, we get better, but when you have a high expectation","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/ifintechworld.com\/?p=51828","og_locale":"en_US","og_type":"article","og_title":"Fortune Cookie | Seeking Alpha | iFintechWorld","og_description":"\u201cYou American people worry too much about the China economy. Every time you think China is a problem, we get better, but when you have a high expectation","og_url":"https:\/\/ifintechworld.com\/?p=51828","og_site_name":"iFintechWorld","article_published_time":"2023-08-23T05:47:34+00:00","article_modified_time":"2023-08-23T05:47:39+00:00","og_image":[{"width":1536,"height":1025,"url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/07\/1688398171_image_1386416320.jpg","type":"image\/jpeg"}],"author":"News Room","twitter_card":"summary_large_image","twitter_misc":{"Written by":"News Room","Est. reading time":"16 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/ifintechworld.com\/?p=51828#article","isPartOf":{"@id":"https:\/\/ifintechworld.com\/?p=51828"},"author":{"name":"News Room","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61"},"headline":"Fortune Cookie | Seeking Alpha","datePublished":"2023-08-23T05:47:34+00:00","dateModified":"2023-08-23T05:47:39+00:00","mainEntityOfPage":{"@id":"https:\/\/ifintechworld.com\/?p=51828"},"wordCount":3164,"commentCount":0,"publisher":{"@id":"https:\/\/ifintechworld.com\/#organization"},"keywords":["Featured"],"articleSection":["News"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/ifintechworld.com\/?p=51828#respond"]}]},{"@type":"WebPage","@id":"https:\/\/ifintechworld.com\/?p=51828","url":"https:\/\/ifintechworld.com\/?p=51828","name":"Fortune Cookie | Seeking Alpha | iFintechWorld","isPartOf":{"@id":"https:\/\/ifintechworld.com\/#website"},"datePublished":"2023-08-23T05:47:34+00:00","dateModified":"2023-08-23T05:47:39+00:00","description":"\u201cYou American people worry too much about the China economy. Every time you think China is a problem, we get better, but when you have a high expectation","breadcrumb":{"@id":"https:\/\/ifintechworld.com\/?p=51828#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/ifintechworld.com\/?p=51828"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/ifintechworld.com\/?p=51828#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/ifintechworld.com\/"},{"@type":"ListItem","position":2,"name":"Fortune Cookie | Seeking Alpha"}]},{"@type":"WebSite","@id":"https:\/\/ifintechworld.com\/#website","url":"https:\/\/ifintechworld.com\/","name":"Repay Down","description":"Latest Personal Finance News, Tips and Updates","publisher":{"@id":"https:\/\/ifintechworld.com\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/ifintechworld.com\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/ifintechworld.com\/#organization","name":"Repay Down","url":"https:\/\/ifintechworld.com\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/","url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png","contentUrl":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png","width":558,"height":90,"caption":"Repay Down"},"image":{"@id":"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61","name":"News Room","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/image\/","url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png","contentUrl":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png","caption":"News Room"},"sameAs":["https:\/\/ifintechworld.com"],"url":"https:\/\/ifintechworld.com\/?author=1"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/51828","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=51828"}],"version-history":[{"count":1,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/51828\/revisions"}],"predecessor-version":[{"id":51829,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/51828\/revisions\/51829"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/media\/30812"}],"wp:attachment":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=51828"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=51828"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=51828"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}