China Builds A One Million Person City - Sadly, Nobody Lives There

This is phenomenal. We complain about a bridge to nowhere, well how about a city of nobody.

This video - from Al Jazeera of all places - highlights a city built in China from scratch in the last few years that has virtually no citizenry.

This is China's GDP.

Stimulus? No.

This is clear wealth destruction in the guise of jobs. It would have been a much better use of capital to just send the money back to citizens in cash.

Professor Niall Ferguson On The Decline Of America

The ever bombastic Niall Ferguson says that the U.S. is "an empire in decline. There are no solutions." Long time readers know that we love Ferguson's thoughts. He's in agreement with TILB's Singularity (coming soon to a blog post near you) that interest payments for Federal deficit alone could easily be 20% of all federal tax receipts. He's also a long-term China bull (he's not opining on their stock market, rather on the geopolitical strength).

Enjoy.

Head Of Chinese Sovereign Wealth Fund (CIC) Says The U.S. And China Are Creating New Bubbles That Make Investing Riskless

This is just phenomenal. We go away on vacation for a few days and come back to a series of quotes from the head of the CIC, China's $300 billion sovereign wealth fund in this Reuters article. Some of these are just remarkable [emphasis added]:

"It will not be too bad this year. Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose," he said.

CIC was set up in September 2007 with $200 billion of foreign currency reserves transferred from the central bank, which manages its own stockpile of $2.13 trillion.

"If our returns are not bad and the state's FX reserves are still rising, we may go and ask for more," Lou said.

He said the risk of a decline in the dollar risks was more of a national issue for China than for CIC because its capital is in dollars.

Asked whether CIC would be a keen buyer in the United States, Lou said CIC can buy anywhere in the world, but it cannot avoid buying U.S. assets because the American economy and capital markets are so large.

Lou said CIC was building a broad investment portfolio that includes products designed to generate both alpha and beta; to hedge against both inflation and deflation; and to provide guaranteed returns in the event of a new crisis.

"We have to be in everything because you never know what's going to happen in this world," he said.

Our collective brain just short-circuited upon reading this and reflecting on the fact he's in charge of $300 billion of Chinese sovereign investments. Investment bankers and fund raisers everywhere must be salivating upon the first whiff of dumb-money blood in the water.

Third Failed Auction In China In Two Weeks

China again fails to sell the amount of bills it hoped to sell. This is getting relatively little press. This is the third failed auction for Chinese Treasuries of one term or another in two weeks. It is particularly worrisome given it is short-term paper. Imagine the buyer strike in long maturity offerings...

We believe this news spells danger for the US.

As we see demand for non-US auctions drying up (despite, arguably, a better currency in China) and the US Treasury continuing to ramp issuance volume, one cannot help but wonder where incremental demand for US Treasury absorption will come from (more than $2 trillion of incremental issuance in CY 2009). Simple math shows that even if all existing buyer cohorts increase their buying by enormous amounts, the funding gap in 2009 alone will be close to half a trillion dollars. Many people point to the growth in money market fund assets as the bridge. Of course, green shooters often claim those same money market dollars as there own when they talk about "all the excess cash sitting on the sidelines in money market funds". This alleged "excess" cash will apparently be able to fund both the US Treasury and serve as a catalyst for risk assets ("just wait until that money comes flooding back into small cap equities!"). Alas, both cannot happen without a substantial and unlikely increase in leverage.

Fed monetization is a virtual certainty.

As to the aforementioned failed auction in China, here are some highlights from Bloomberg. All emphasis added:

China’s government failed to sell as much debt as it planned for the third time in two weeks on speculation the central bank will push up money-market rates to prevent bubbles in stock and property prices.

The finance ministry sold 18.51 billion yuan ($2.7 billion) of the six-month bills, less than the 20 billion yuan on offer, Chinabond said in a statement on its Web site. The average winning yield was 1.6011 percent, higher than the 0.85 percent rate at the last sale of 182-day bills on June 19.[rates double in one month?!?!]

Yields on similar-maturity treasury bills have risen 45 basis points this month on concern the country’s 4 trillion yuan ($585 billion) fiscal stimulus package will stoke inflation. Loans rose almost fivefold in June from a year earlier to 1.5 trillion yuan and the government yesterday reported that economic growth accelerated to 7.9 percent in the second quarter.
...

The Shanghai Composite Index has jumped 75 percent this year, a performance second only to Peru among 88 global stock benchmarks tracked by Bloomberg. Home prices in China’s major cities rose in June for the first time in seven months, the government reported last week. [money printing driving prices for "investment" assets]
...
Demand for debt is cooling as investors favor assets that will benefit most from the economic recovery and this month’s resumption of new shares sales prompts investors to free up cash. China State Construction Engineering Corp. said on July 13 it got approval for what may be the nation’s biggest initial public offering in two years. [in order to participate in IPOs in China, you have to set aside the case, so apparently many are pointing to this giant IPO as a demand drain from the auction]

The government barely met its sale target in a 28 billion yuan three-year debt auction on July 15, drawing bids for 1.16 times the amount on offer, after attracting insufficient demand in two sales last week. The so-called bid-to-cover ratio at today’s sale was 0.925 times, compared with an average of about 1.5 at successful sales this year. [trouble]

[HT CM]