In The News Today

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Bill Holter’s Commentary

Only $400 billion? I would bet multiples of this, but then again I am a conspiracy theorist because I question no U.S. gold audits since the 1950’s and…I’m pretty sure Epstein didn’t kill himself…? By the way, they do have some pretty cool infrastructure from what they already borrowed…!

China Is Facing A $400 Billion “Liquidity Hole” In January
December 18, 2019

It’s not just the US which is facing an unprecedented liquidity crunch as a result of a shortage of reserves, which threatened to lock up the all-important repo market: China is also facing a potentially destabilizing “liquidity hole” of 2.8 trillion yuan ($400 billion) in January according to Guotai Junan Securities, as people across the nation will withdraw cash for the Lunar New Year holiday. That, according to Bloomberg, means bond traders expect the central bank to unlock funds to avoid the liquidity-driven panic seen in October, when the benchmark 10-year yield spiked the most in six months.

And just like in the US, where the Fed responded by backstopping nearly $500 billion in liquidity in the form of term and overnight repos to help dealers and banks bridge the gap to 2020, some analysts expect the People’s Bank of China to ease aggressively in the coming weeks, by cutting the RRR rate, reducing the amount of cash lenders must hold as reserves. It could also opt to inject funds through its daily open-market operations, according to others. But, as Bloomberg notes, no analyst is calling for a massive net liquidity injection or a benchmark interest-rate cut, as Beijing won’t want to risk inflating prices when the consumer price index is at a seven-year high largely due to soaring pork prices due to China’s ongoing struggle with the consequences of “pig ebola.”

“Bonds will get a short-term boost next month as China may cut reserve ratios to offset the liquidity drainage,” said Overseas-Chinese Banking economist Tommy Xie, adding that just like the Fed’s Not QE is not really QE4 (spoiler alert: it is), this can’t be viewed as the start of a broad easing cycle. “The central bank just wants to tailor the solution to the liquidity problem. The long-term outlook for the debt market will still hinge on China’s economy and the trade negotiations.”