Transport Volumes Up

Carloads and intermodal units up 2.2% YoY. Four carload commodities showed increases over 2019, led by grain, up 23.9%;  six were down, most notably coal (minus-20.1%) and petroleum and petroleum products (minus-19.1%).

For the year to date, total traffic is down 9.8%, with intermodal units down 5.1% and carloads down 14.9%.

Red Ponzi Saber-rattling

“Every rocket force brigade in Fujian and Guangdong is now fully equipped.” Chang asserts that this is evidence of the communist regime’s invasion plans: “The size of some of the missile bases in the Eastern and Southern theatre commands have even doubled in recent years, showing the PLA is stepping up preparations for a war targeting Taiwan.”

“When the European Union speaks as a superior, Russia wants to know: Can we do any business with the EU?”

Lavrov: “No matter what we do, the West will try to hobble and restrain us, and undermine our efforts in the economy, politics, and technology. These are all elements of one approach.”

Question: “Their national security strategy states that they will do so.”

Lavrov: “Of course it does, but it is articulated in a way that decent people can still let go unnoticed, but it is being implemented in a manner that is nothing short of outrageous.”

Question: You, too, can articulate things in a way that is different from what you would really like to say, correct?”

Lavrov: “It’s the other way round. I can use the language I’m not usually using to get the point across. However, they clearly want to throw us off balance, and not only by direct attacks on Russia in all possible and conceivable spheres by way of unscrupulous competition, illegitimate sanctions and the like, but also by unbalancing the situation near our borders, thus preventing us from focusing on creative activities. Nevertheless, regardless of the human instincts and the temptations to respond in the same vein, I’m convinced that we must abide by international law.”

Systemic Risk in the Red Ponzi

According to Reuters, Beijing now wants a full accounting of everything going on at local developers.

“The government is monitoring everything now, unless you want to cheat, but they will be able to tell from your monthly figures,” said a senior executive at one of the developers in the pilot scheme.

Following concerns of too much developer leverage sparked by Evergrande’s liquidity crisis, Chinese media reported that the cap for the debt-to-assets ratio will be set at 70%, the cap for net debt to equity will be set at 100% and the developers should also have enough cash to match their short-term liabilities. While authorities have yet to announcement details of the implementation, the industry expects the rules to be applied sector-wide in the first half of next year.

According to analysts at ANZ, about one-fifth of real estate companies with China A-shares have leverage ratios exceeding the thresholds. They warn that a sharp reduction in leverage “could rattle credit markets and weigh heavily on the property sector”, a key driver behind China’s swift economic recovery from the coronavirus crisis.

SocGen China analyst Wei Yao wrote that “a new chapter of deleveraging has begun”:

A succession of events in the past few weeks have pushed the debt risk of China’s real estate sector to the forefront. Markets were at one point deeply concerned about the default risk of Evergrande, China’s biggest property developer. And even worse–the risk of a systemic debt crisis that could follow. This situation, while still developing, has calmed somewhat. However, this is probably really only the beginning of a new deleveraging campaign.

“It all started with the government’s proposal to contain developers’ leverage. On 20 August, the PBoC and the Ministry of Housing and Urban-Rural Development (MOHURD) held a meeting with key real estate companies where policymakers proposed the so-called “three red lines” framework for monitoring debt risk and reducing leverage in the sector. According to media reports, the “three  red  lines” were drawn up based on three financial metrics, including 1) the debt-to-asset ratio, 2) the net debt ratio,and 3) cash flows to short-term debt ratio.

“Future debt growth of real estate companies will be restricted in various degrees based on their current leverage as measured by  these metrics (see the table below). In  the harshest scenario, a developer will not be allowed to raise any more debt. Based on its current financial situation, Evergrande would in fact fall into this category.

Enjoy Oligarchy

“Step one, help yourself to tasty assets from the public trough. Step two, figure out how to keep them.

“The best investment in Ukrainian history may be about to become even better—Burisma’s recruiting of Hunter Biden to its board. After a government minister allegedly awards himself lucrative gas rights, the Ukrainian people overthrow a regime famous for its corruption. In the normal course of events, a successor regime would seek to establish its bona fides by clawing back the disputed gas rights, except for one thing: The new government, under military threat from Russia, is desperately dependent on a U.S. administration whose vice president was Joe Biden.

“It was unnecessary for Mr. Biden to do anything. The new regime was checkmated from the start in its desire to relieve Burisma of its questionably obtained assets. Now U.S. reporters frightened to be seen playing it straight in the middle of an election insist there’s nothing to see here except the sad misjudgment of Mr. Biden’s dissolute son. A normal person, though, can’t help regarding Burisma as the culminating chapter in a Hunter Biden career in which, from day one, every job and opportunity was handed to him by someone seeking influence with his father.”

Loss Loss Reserves – and CECL Relief

With Senator Chuck Schumer covering their backs under CARES Act stimulus, mega banks don’t need to think much about reserving for losses on financial instruments under Current Expected Credit Losses or CECL (pronounced Cecil).

So, what kind of reserves are indicated? A lot less than the Crash.