China's 10 TRILLION in Stimulus Is Failing Massively, Here's why
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The age of government stimulus might finally be over. China's latest massive attempt is already fAiling, and that's where the wave of deflation building underneath IT. The more the government they are announced, the more disappointment IT creates.

And that's already a huge concern with one of the largest drops and industrial profits on record. What that means, however, is as chinese industry is trying to dump its access production on the rest of the world, they are finding IT difficult, if not impossible, without dramatic Price cuts. This is exactly what everyone outside of china has been afraid of since dumping first prop up earlier this year.

So you think the government over there would be urgently trying to fix the domestic part of that, to raise internal activity to correct these deeply negative pressures? What's becoming very clear, too clear, is that there is indeed the urgency, but no real idea about what actually to do the picture. Most people certain in those in the stock market have in mind is one where the chinese bail out the world, just the nick time before a major deflationary global recession, sort of like how people remember twenty sixteen into an extent, two thousand nine.

But while jian paying is throwing around huge numbers in terms of borrowing, everyone is starting to get the sense the entire point may be just to simply throw around huge numbers. This is a psychology Operation rather than stimulus, as most people conceive of IT, china's priorities are to try to bail itself out first, and even that much is proving exceptionally difficult. So we have a lot of global markets and risk taking that has become massively over extended based on a premise of a bazooka that is a bazooka in name only.

In the meantime, the actual and cyclical global problems continue on a just as the oil market china just confirmed a couple nights ago, weak demand for oil, the stimulus package, the bazooka is proving to be just another dud, an exceptionally pry dud, but of failure, none's and is IT fails, maybe just maybe improves that we're finally moving beyond the massive stimulus era. So on friday, china's ministry of finance gave another press conference after the congress voted for some legal measures related to the stimulus that had been least. The idea is that had been announced previously, and in that press conference, many people, markets, participants, everyone, was hoping for even more critical details about what the chinese are actually planning here.

And as has been has become usual, chinese officials come up short, short on details. And what's becoming even clear, short on ideas. What was announced on friday was a ten trillion u.

Wan program for local government financing. Mostly these hidden, hidden vehicles called local government financing vehicles. Basically, the central government is going to do a det swap with these local government financing vehicles, issuing bonds through the central government into the treasure market.

And it's likely to be funded through twenty twenty eight. So you're talking about a couple trillion per year that's in u. An total ten rowing wants around one point four trillion dollars in equivalency.

The local government said they had barreled a ton of money to fuel these real estate bubbles, trying to get china through the silent depression, because that's what the real estate bubbles was initially Sparked in two thousand and eight and two thousand. And night late two thousand and eight, china was the first one to go into massive stimulus. Kicking off this era of massive government stimulus, IT was china who started the real estate bubble using these local government financing vehicles, and in that initial wave, to get IT all started.

And then IT was real estate bubble, hoping to buy time while the global economy recovered from the great, not recession. But because this was not a recession, because IT was actually a silent depression, the chinese continue to build upon real estate projects, upon real state project, building things that nobody needed in china, just to continue to keep up the idea of economic growth in lieu of going back to the way the economy work. The global economy had worked previously because there was no week to go back in the year dollar era.

So left him with all the debt, a massive Price bubble, an incalculable hang of housing supply. And worst of all, none of the economic growth or even worse than that growth potential. And because of that, now we're talking so many years later, well over a decade, local governments on the side of the pandemic, they can no longer service their deaths because so much of their revenues had depended upon land sales and other fees collected for development.

So they borrow ed, all of this money to build things china didn't need, which then raise government revenues, local government revenues, so they could build and borrow even more that they didn't need, so on and so on. All in the vain hopes that somehow, some way, first of all, the global economy would recover in china could go back to being the factory to the rest of the world, as the rest of the world started to be robust again. But that wasn't going to happen.

Silent depression, ever dollar breakdown. So then the idea was the continue with the real estate bubble to rebaLance chinese economy away from industry and investment toward, hopefully more of a consumer internal demand LED model. But that didn't happen either.

So they continue to build up that. They continue to build up and baLances. They continue to build and build and build without the economic growth and potential to pay forward. That's china's big problem, and there is no easy solution to IT.

So on the one hand, it's understandable why the central government has made local government financing vehicles and just local government finances such a priority, but IT isn't what everyone has been hoping. What they're doing is still trying to clear up a past problem rather than doing something proactive to stimulate the future. And that's where the disappointing comes in because that past problem people are realizing is absolutely gigantic.

So as IT sucks up more, more resources just to try to pay for the past, that leaves less and less for potentially the future, not that the stimulus would do any good anyway. And that's really what the government is saying by holding off on the direct spending plans. The key thing is under everybody, imagine what they're really saying is we don't think it's gonna.

So we're going to prioritize to stabilizing these other areas, not just local government financing. That was that was what was the priority was on friday. They've also announced program to buy up houses to try to try to absorb some of the overhang and supply, which is drop in the bucket there.

Clusters got to to be passive amounts of funds for the chinese bank recapitalizing plan. That's a big one as well. So direct spending and stimulus, says it's commonly understood, is way down the list here, which is what markets are starting to get ancle and disappointed by as well as realizing that all of the stimulus, all of the stuff that is being announced, again, it's looking backward, not looking forward.

So the recap friday's meaning from the ministry of finance while policymakers didn't announce measures to directly stimulate domestic demand, finance minister landfall on promised, quote, more forceful fiscal policy next year signally bother steps could come after trumps inauguration in january. Yeah, it's always next year with the stuff, right? It's it's we're going to do something to fix the econometric ic problem.

Then I wait, we'll in a couple, a months and then a couple months later, we going to fix this economic. We'll do IT again a couple of months, just wait till next year. They keep pushing IT further and further off.

And again, the reason why is because they're not really sure what to do. Investors had waited for weeks for the fiscal side of that campaign, with media reports stoking expectation, which is the true point here, for more spending to stabilize the property market in boost consumption. Disappointment was palpable at the start of the presser, with the offshore on weakening as much as six tens of a percent before pairing the declining to three tens of percent as the full scale the package was known.

That was just the usual market focal ation. But that's really the point. As I keep saying, the idea is to stimulate sentiment, to throw around big numbers and get everybody's hopes up and hope that IT sticks long enough, that IT starts the pump priming process and people start taking risk, and the real economy starts creating activity, and then the chinese government doesn't actually have to do anything if they can get the economy to do the job for them.

And you don't really need to do anything other than announced these big numbers and then just go back and back fill in all of these trouble areas after its all, after its all works, at least according to plan. But while market struggled the measures, land called the package a quote, major policy decision taking into consideration international and domestic development environments. Yeah, the reason markets struggled all of the details because this was not the stimulus they were hoping for.

And as they keep pointing out to keep saying, everyone has started to get the sense that they don't really know what else to do and that they're just hoping the markets do the work form. Of course, that has work to a big extent in the stock market, but not so much in the rest of the real economy or in the real marketplace where the markets touch real economic variables. So on friday, the response in the crude oil market, wti was down more than three percent, briefly drop back into the the sixty dollar range before settling around seventy dollars, a little bit above that.

That was despite the fact that all pack had announced earlier in the week that they were delaying restoring their supply, which they had already delayed before. The weak demand continues to be at the forefront of the global oil market. Hoping just hoping that something will happen in china because the oil market has the global economy has a major china problem.

And as I talked about in the video on tuesday, lost of its all of the election fury. The ie a has said that it's now considering diesel fuel, gas, oil fuel as likely to contract usage of this critical energy supporters. Energy of format is gonna contract this year, which is a rare occurrence, hadn't happens since twenty twenty. That's one reason why we keep seeing oil curves. These of curves guessing to extent to, but really oil start to lose its backwardation.

Wti futures flattening ing out in now are with inside of constant go because with weak demand, not just in china, but around the rest of the world, united states, there is a huge and growing risk of actual oversupply of code, which is why OPEC we didn't restore their supply as they had anticipated just a couple months ago. Coppers, another one to key commodity that one has been all over the map this week is down three percent on friday, but I had been up four percent on thursday, given stimulus room. That was after that followed a five percent decline on the day, which brought IT all the way down to four twenty three.

And despite this huge up and down back in four copies, just kind of stuck around the fourth thirty four thirty range. Basically, we spend, after the initial stimulus euphoria, really started to wear off in the big one. Certainly, to me, chinese government bonds, bond yields in the chinese markets are not buying the stimulus whatsoever.

Any part of IT, there was a back up and yields, for example, the chinese ten year board, the rate got out around two point two one percent on october eight. First of all, that wasn't even that much of a cell off from where I had been at the lows in the early part of timber. So I didn't back up all that much to begin with from the record law, got up around two point two one percent.

And then as of friday, it's already back down to two point one two percent, which means closer to the record low than not. And nothing, nothing that the chinese government has done throughout october into november has dissuaded bond buyers from buying more bonds. The two year chinese government bond that won't got down to one thirty one point three five percent in the middle of september, which was near a record loss.

Just kidding, in very close to low set, twenty twenty IT went backed up to one point four eight percent and october night and gotten a little bit higher, told the end of october, one point five eight percent of then even here since october twenty third, two year treasury in china going back down to one one point four four percent as of friday. So so much for either the stimulus or the p BOC. The abc that had been trying to derail the bond rally, which which could date always back to last december, saying that among other things, Better watch out when the chinese government really it's going the amount of the event of bone supply is going to completely obliterate the chinese book, mark.

And that's the warning that they were trying to send. And really, nobody bought IT because first of all, supply doesn't matter, fundamentals do. And the fundamentals are for china's, same as united states, lower growth and inflation expectations, no matter what beijing does, what its bazooka is.

In fact, the more the chinese do, the worse you know what is. That's what the bond market is trading on. And IT ignored the abc because the fundamentals are the ones that demand the chinese government do bigger and bigger things. In terms of economic data, though, the chinese government announced just recently that industrial profits had absolutely collapsed during the summer time, what they announced an accumulated basis for industrial profits was IT would had seen pretty steady through the middle of the year. The accumulated year to date rate, the year over year change and the accumulated year to date for industrial profits was three point four percent in may, three point five percent of unit, three point six percent.

And you lies a relatively steady to the middle year, and suddenly the accumulate rate fell to just plus zero point five five percent and August, but then september IT take turn, even the worst turn down to minus three point five percent. And on an accumulated basis a year to date basis, IT would take an enormous decline that far into a year to turn around and accumulated year over year change. And that's exactly what they announced in August, minus seventeen point eight percent just in amount of August.

And as bad as that was, which was among the worst entire series, september comes in at minus twenty seven point one percent, which is actually the fourth worst in the entire history of chinese industrial profits. The only times that have been worse where january in february of twenty twenty, that's a single period, march of twenty twenty, and then the january, february in two thousand nine. So what that said was that as the chinese government is telling industrial firms of manufacturer to dump their access products on the rest of the world, the chinese have been doing IT, as we'll see just a second with their export numbers.

But theyve been finding IT increasingly difficult to the point that they have to drink, ally, reduce Prices just to sell what they've made on global markets during the summer. So now, is this a negative reflection on chinese position and china's position? But IT also tells you about global domain falling off sharply during the summers time, another one showing exactly the same cyclically change.

The export number looked really good, was up twelve point seven percent in us dollar terms year over year october twenty twenty four compared to october twenty twenty three, well above expectations for around five percent. And that was far Better than septembers, which had been in two point four percent year over year. And they sold a lot of the stuff that people have been complaining about, integrated circuit appliances and a ton of cars that were ship from china all around the world as we just saw industrial profits, but only after uncorking, a huge wave of deflation and goods.

It's everything that everyone around the world has been afraid of. As far as chinese dumping their access, not only do we have them undercutting local production and local capacity around the rest of the world, but that also has IT also negatively reflects upon conditions around the rest of the world, massive Price discounts just to sell their goods, not to, not to gain market share, just to get rid of the stuff in chinese, in portraits. By the way, those actually declined two point three percent year over year.

In october, there was another week months for crude oil demand, meaning chinese imports of crude oil volumes were down eight percent compared to october twenty twenty three. So that's why OPEC isn't going to start restart their production. That's why oil Prices continue be weaker to matter what happens in the middle east because the oil market, any normous china problem and none of the things that beijing has announced thus far are going to do much about.

That's what the market position is in, not just an oil and energy copper as well as bonds and everything else outside of stocks. So china's stimulus is disappointing because they're stuck trying to bail out all of their past mistakes, not really giving themselves a whole lot of room that keeps saying they have done of room, but they're really not giving themselves a whole lot of room to do something about restarting into the future. But maybe most important of all, they don't really know what to do here.

And that I think that the messages that the markets are starting to really honey on the real economies in big trouble regardless of what beijing does, and people are starting to see this isn't just going to be some easy fixed just by throwing a few trillions or tens of trillion around real estate. Local governments banker capitalization may be to get around to some expanding at some point, but IT won't matter. This isn't two thousand sixteen or even two thousand nine.

The age of stimulus is over. Maybe the most important news this week, aside from the U. S.

Presidential contest, the ie. A gas, oil, diesel demand outright contracting and went over. Those details the video link below.

As always, thank you very much for join me. huge. Thank you to euro. All university members and subscribers until next time do take care.