China: Local government debts have risen imprudently fast.

   According to a report from the Wall Street Journal,China's local government debt problems are growing.

 Local government debts have risen imprudently fast and reflect deep structural issues that will make it difficult for the economy to grow as quickly as Beijing wants. Banks and other lenders are stuffed with short duration loans to beleaguered local governments that fund questionable infrastructure or projects that have a payback only after decades. Moody's survey found that only around half of local government financing vehicles had the cash needed to meet debt payments this year. Yet defaults are rare, as lenders rollover loans.

Of course, China's ample domestic savings means a serious debt crisis isn't imminent. And reforms outlined at the recent Communist Party congress to boost local governments' tax revenue and budgeting transparency will improve the situation over the long term.

Meanwhile, however, the most likely scenario is for lenders to continue forbearing. More than 20% of the local government debt counted in the audit came due this year. Another 40% is due in the next two years. Rolling debt has costs: It weighs bank balance sheets with unproductive lending and creates moral hazard as debtors are spared the consequences of poor decisions. Ultimately, either the central government steps in with a bailout, or banks and shadow lenders will have to write down the bad debts.

For such an important aspect of the economy, investors should get more than a sporadic audit of local government debts every couple of years.

WSJ: Natural Gas Finishes 2013 As Best-Performing Commodity

    According to a report from the Wall Street Journal,"natural gas for February delivery tumbled 19.7 cents to $4.23 a million British thermal units on the New York Mercantile Exchange. The 4.5% drop was the biggest one-day decline since May".

Still, natural-gas futures rose 26% this year, their biggest one-year rise since 2005 and the largest percentage gain for any commodity in 2013. After a relatively mild winter last year reduced demand for gas-powered heating in homes and offices, this winter started off unusually cold and wintry weather has persisted.

About half of all U.S. households use natural gas as their primary heating fuel, with natural-gas prices having climbed from less than $3.50/mmBtu in early November due to robust heating demand.

Unusually large amounts of natural gas have been withdrawn from storage in recent weeks, a sign of strong demand. Inventories as of Dec. 20 stood at 3.071 trillion cubic feet, 16% below the exceptionally high year-ago level and 9.2% below the five-year average for the week.

Colder-than-normal weather is forecast to continue in the next six to 10 days, especially in the Midwest and East Coast, key markets for natural-gas-powered heating, according to Commodity Weather Group LLC, a private forecaster based in Bethesda, Md.

US markets stellar year 2013, and positive outlook 2014

Equities have had another stellar year in 2013, with the Dow and S&P 500 on pace for the best annual gains since 1995 and 1997, respectively. A near-term pullback to relieve extended sentiment conditions would neither be a surprise nor unwelcomed. The gains came in the face of ongoing macro challenges, illustrating again that stocks often like to climb a "wall of worry." Heading into the New Year, economic growth appears to be gaining some traction and we are seeing some developments that we think will help contribute to a still-positive equity environment in 2014. Moreover, despite regional differences, an improved global growth outlook in 2014 is likely to have a positively reinforcing impact economically and could improve confidence for businesses, consumers and investors.

Source: Schwab's Chief Investment Strategist Liz Ann Sonders

US markets closed at record highs.

 2013 With More Record Highs

As Father Time moves to usher in a new year, the bulls ended the current one in style by posting record highs for the Dow and S&P 500, while looking to extend their streak into 2014. Stronger-than-expected domestic Consumer Confidence and housing price reports provided the day's sustenance, despite a deceleration in regional manufacturing activity. Meanwhile, volume was light ahead of tomorrow's New Year holiday, on which all U.S. markets will be closed, and Treasuries finished mostly lower in a shortened session following the data. In equity news, Hertz Global Holdings announced a "poison pill," while private-equity firm KKR & Co disclosed a 6.8% stake in Marvell Technology Group Ltd. Crude oil prices were lower, while gold and the U.S. dollar were higher.

Source: Schwab

Gold for Feb. Delivery closed at US$ 1,202.30 an oz 28% lower Y/Y,its first loss since 2000

 Gold futures settled slightly lower on Tuesday, the last trading day of the year in which investors, hoping for an extension of a 12-year streak of annual gains, where hammered. Gold for February delivery settled down $1.50, or 0.1%, at $1,202.30 an ounce on the Comex division of the N.Y.Mercantile Exchange . That was 28% lower than the most active contract's close a year earlier, its first loss since 2000, and its worst loss since at least 1984, according to FactSet records. For the month, gold fell 3.8%, its fourth straight monthly loss. For the fourth quarter, the commodity lost 9%. Low inflation and a expectation the Federal Reserve would end its quantitative easing were two big factors sapping gold's run this year.

Source: Marketwatch

Housing is largest worry of Chinese: survey

A survey conducted by Renmin University of China showed that the top three concerns of theChinese public are housing, medical care and commodity prices, China News Service reportedon Monday.

Researchers surveyed urban and rural residents from 31 provinces, autonomous regions andmunicipalities on health, education, living standard and social environment.

Housing was the top concern, with 13.1 percent of the respondent's vote, while medical carecame second with 12.4 percent and commodity price was ranked third with 12 percent.

Other issues, like children's education, food safety as well as retirement and pension, alsoreceived more than 10 percent of the vote.

Source: ChinaDaily

China: Markets SOE's lead fall in stock market

State-owned enterprises led the fall in market value in China's A-share market in 2013, asequities went through another tough year.

The benchmark Shanghai Composite Index dropped by 0.18 percent, ending at 2,097 onMonday,    marking a 7.9 percent drop year-to-date.

By last Monday, a total of 811 listed companies had seen their market value decrease from the start of the year, according to Wind Information, a financial data provider.

SOEs took up 80 percent of the positions in the top 100 companies that suffered the most severely   from falling share prices.

Among the top 10 companies hit by the biggest market loss of value, six were SOEs, including three   State-owned energy giants, PetroChina Co Ltd, Shenhua Group Corp Ltd and ChinaPetroChemicalCorp  (also known as Sinopec), two national lenders - Industrial and CommercialBank of China and Bank of   China - and China Life, the nation's biggest insurer in terms ofassets.

Market value had shrunk by 820.2 billion yuan ($134 billion) for the above six companies by last   Monday, according to Wind.

On the other hand, thanks to the solid performance of the Growth Enterprise Board, China's      Nasdaq-style market, total market capitalization of the A-share market grew by more than 400billion yuan.

The misallocation of capital in China's economy has lasted for more than 10 years, partly because of   the inefficient operation of some large SOEs, while small companies with innovationability and growth potential are thirsty for funds, said Xin Yu, president of Zequan Investmentbased in Guangzhou.

Source: ChinaDaily

Jiro Honzawa: PM Abe visit to Yaukuni Shrine may lead to the collapse of his administration

 Japanese Prime Minister Shinzo Abe' s visit to the controversial war-linked Yasukuni Shrine may lead to collapse of his administration, a Japanese political commentator told Xinhua in an exclusive interview.

The political commentator also said the worship made Japan trustless in the international community.

Jiro Honzawa, who once was a veteran political reporter and accompanied with then Prime Minister Masayoshi Ohira on a China visit in December 1979, told Xinhua Monday that Abe failed to perform his duty as a prime minister by making Japan lose credibility among the international community.

Despite strong opposition from neighboring countries, Abe on Thursday visited the notorious shrine which honors Japan's war dead including 14 class-A war criminals in World War II. It is the first time in seven years that a sitting Japanese prime minister visited the notorious shrine. Former Prime Minister Junichiro Koizumi paid a visit in August 2006.

The visit has drawn widespread condemnations at home and abroad, especially from Japan's neighboring countries that suffered Japanese brutal wartime aggression, as the Yasukuni Shrine, which Honzawa called as a shrine of war, is considered a spiritual tool and symbol of Japanese aggression in World War II.

Honzawa said Japan's key ally had demonstrated its indignation over Abe's shrine visit, referring to a statement issued by the U. S. embassy in Tokyo after Thursday's visit which said the country was "disappointed" over Abe's act which "will exacerbate tensions with Japan's neighbors".

The commentator went on to say that UN Secretary-General Ban Ki- moon also released a statement over the shrine visit, showing the international community is saying "no" to Abe's challenge against post-war international order and justice.

Visit to Yasukuni Shrine by a prime minister is actually related to the government's attitude toward wartime history and the political basis of Japan-China relations, said the expert, adding Abe does not bother to reflect over past history.

"Abe aims at boosting Japan's military forces and planting nationalist sentiment among the Japanese people by using conflicts between Japan and its neighboring countries," Honzawa said.

In fact, Abe's thought is deeply influenced by his grandfather Nobusuke Kishi, who was then minister of industry for much of the war and arrested after Japan's surrender, but was never charged and went on to serve as prime minister, Honzawa said.

After the worship, Abe made a "pledge for everlasting peace", claiming "Japan must never wage a war again".

However, Honzawa said the prime minister is lying. "If the prime minister really means what he said, what he has to do is to maintain current war-renouncing pacifist constitution" rather than revising it, he said. "Abe's acts belie his words." "If the prime minister does take feelings of Chinese and Korean peoples into consideration, he will not pay the visit," the expert added.

Honzawa predicted that Abe would worship the Yasukushi Shrine in the future but repeated visit will increase public antipathy over such a move.

A latest survey also showed that about 47.1 percent of those surveyed said it "was not good" that Abe visited the shrine, exceeding 43.2 percent who appreciated it, while 54.6 percent of the respondents supported the idea to create a new facility, instead of the Yasukuni, for people to worship the war dead, compared with 32.9 percent who did not.

"The planned sales tax hike will be carried out in April. At that time, Abe's administration would be punched if the plan is impeded and that would put the administration at the risk of collapse at any time," Honzawa said.

A Kyodo News poll in late December showed the approval rate for Abe's cabinet at 54.2 percent, dipping from the 62.0 percent right after he took office on Dec. 26, 2012.

Honzawa said if the ruling Liberal Democratic Party's small ruling partner the New Komeito Party could quit form the ruling bloc, it will probably accelerate the falling of Abe's administration.

The small ruling party also criticized Abe's shrine visit. Natsuo Yamaguchi, leader of the party, called the visit " regrettable" and said his party had consistently urged the prime minister not to visit the shrine.

Source: Xinhua

Xinhua Insight: China's direct government debt risks controllable

China disclosed its total government debt on Monday and said that debt risk was under control.

China's total public debt to GDP ratio is about 53.3 percent, with 31.5 percent of that attributed to local government debt and 21.8 percent down to the central government, said Lu Ting, chief China economist with Bank of America Merrill Lynch, in a research note.

"We believe the markets and the Chinese government should be alarmed by the rapidly rising leverage, but we do not believe China is on the brink of a debt crisis," he wrote.

RISING GOVERNMENT DEBT

The National Audit Office (NAO) said on Monday, after two months of nationwide audits in August and September, that governments in China were liable for a total direct debt of 20.7 trillion yuan (3.4 trillion U.S. dollars) at the end of June, up 8.6 percent, or 1.63 trillion yuan, since the end of 2012.

Total debt guaranteed by governments at various levels amounted to 2.93 trillion yuan at the end of June. Over and above this amount, debt which governments might have some liability for amounted to 6.65 trillion yuan.

In breakdown, direct central government debt stood at 9.81 trillion yuan the end of June, up 4 percent (375 billion yuan) on the end of 2012. Treasury bonds, loans from international financial institutions and foreign governments account for nearly 84 percent and should be paid by the central budget.

The remaining 10.89 trillion yuan was borrowed by local governments, an increase of 13 percent (1.25 trillion yuan) over the end of 2012.

The debt guaranteed by the central government was 260 billion yuan; debt guaranteed by local governments, 2.67 trillion yuan.

While debt for which the central government might shoulder some of the rescue burden stood at 2.3 trillion yuan in June. That for local governments amounted to 4.34 trillion yuan.

Regarding local government debt, direct debt borrowed by the 31 provincial-level regions totaled 1.78 trillion yuan.

The 391 prefecture-level cities had borrowed a total of 4.84 trillion yuan and about 2,778 counties owed a total of 3.96 trillion yuan, according to NAO. The remaining 307 billion yuan was borrowed by 3,3091 towns nationwide.

RISK CONTROLLABLE

Risks of government debt are generally controllable, but there are some risks in some places, the NAO statement said.

Over the past year or so, the market has been worried by China's rising debt burden and leverage, and there had been no official update since 2011, when the NAO put local government debt around 10.7 trillion yuan at end of 2010.

Local government debt exploded during the investment and construction binge that was part and parcel of a stimulus in 2008 to buffer against the global financial crisis.

The NAO said central authorities took the problem of government debt very seriously, and governments at various levels had made some progress in paying back some debt and regulating local government financing vehicles.

A huge number of debt-financed projects have not generated any cash flow. Local government debt has become a major threat to financial stability.

Resolving risk associated with local government debt was a main theme of the four-day Central Economic Work Conference which ended on Dec. 13. The conference traditionally sets the tone for following year's economic policy.

Lu Ting, of Bank of America Merrill Lynch, maintains China won't face an imminent debt crisis for five reasons -- a very low debt-to-GDP ratio at 21 percent for China's central government, almost all government debt denominated in the Chinese currency Renminbi, huge national savings and quite large good assets owned by governments at various levels.

In addition, China still has high economic growth and fiscal revenue growth despite the slowdown, he said.

Lu, however, warned of a number of rising issues.

Growth of debt has been significantly higher than economic growth in the past two years.

Public debt is dominated by local government debt with significant duration mismatches.

China's 111 percent corporate debt-to-GDP ratio is higher than many other developed economies, due mainly to the weak equity capital market which cannot raise enough capital to support growth.

To solve the problems, Lu suggested China should deleverage its local governments while leveraging up the central government, and should try to replace local government short-term bank and trust loans with longer bonds.

"To maintain both economic growth and financial stability, China should avoid simplistic deleveraging and debt reduction," he added.

Source: Xinhua

US stock markets open higher,on track for another record.

U.S. stocks opened the final session of 2013 with small gains Tuesday morning, with the Dow Jones industrial Average eying another record close and blue-chip equities on track for their biggest annual percentage gain since the 1990s. The Dow Jones Industrial AverageDJIA +0.26% rose 33 points, or 0.2%, to 16,536, a day after eking out its 51st record finish of 2013. The index is up around 26% since the beginning of 2013, on track for its biggest annual gain since 1996. The S&P500SPX +0.33% rose 3 points to 1,844 and is up more than 29% for the year, which would mark its biggest annual jump since 1997. The Nasdaq Composite COMP +0.48%advanced 9 points to 4,164, setting the stage for a nearly 38% annual rise, which would be the largest since 2009. 

Source:Marketwatch