Chinese property prices have declined in April once again although sales picked up as developers slashed prices to attract buyers, reports Chinese government media.

“Out of 70 major cities tracked by the government, 46 recorded a year-on-year price fall in April, eight more than in March, the National Bureau of Statistics said on Friday. On a monthly basis, 43 cities recorded a price fall, while 24 remained flat. In March, 46 cities posted a price decline from  the previous month,” reports China Daily.

Chinese property prices are considered by many analysts as a bubble that has burst and some investors are actively betting that the property prices could drag China’s banking sector into a melt-down and the country into hard landing with negative repercussions for global growth.

Property accounts for 10% of Chinese GDP so a slowdown could negatively affect overall growth.

Chinese central bank has recently slashed banks’ reserve requirement by 0.5% signaling that it expects an increase in lending.

Century 21 says that sales in May rebounded strongly saying that “7,132 apartments were sold in the first 15 days of May, up 103 percent year-on-year. Sales of pre-owned homes jumped 75 percent to 5,645 units.”

China Index Academy also shows data of increased sales saying that “about 60 percent of the cities it monitors saw a rebound in property sales last week on a yearly basis.”

“Fixed-asset investment registered the lowest growth in a decade at 20.2 percent in the first four months of the year. New property investment growth slowed to 18.7 percent from 23.5 percent growth in the first quarter, according to the NBS,” says China Daily.

Walter Industries has been the only coal stock not to sell off like its peers but as of yesterday its day has finally arrived.

WLT has had good speculative fortune because many have parked their cash into this name believing that it is a takeout candidate.

It has repetitively bounced off $53 area and today we see the name in a free-fall. It looks that those who want to buy WLT are more patient and have won the waiting game and may wait until the stock is done cliff-diving.

In yesterday tweet, it was noted that WLT is setting up for a monster short, at least into 30s but the cliff-dive would have few bumps against the cliff.

There may be some stops at $50 but support there looks flimsy particularly against the avalanche of the fundamentals: there is glut of steel in China and not enough demand for it everywhere else to drive WLTs coking coal price higher.

Ultimately, WLT looks to settle, rather quickly into $30s range possibly even dipping into $20s.

In the past week, several finance houses issued a bullish price call on WLT. Wells Fargo gave it “outperform”, Nomura went “neutral”, Merrill priced WLT at $75, Morgan gives WLT “overweight” and Brean Murray, itself probably holding lots of WLT, recently issued a buy rating on the stock.

Of course, all these calls could eventually be correct but only after the interim that is ahead of us.

European Bank for Reconstruction and Development has issued a warning on Eastern Europe saying that banking troubles in the Eurozone will migrate to that region and could result in a severe contraction.

“As European parent banks continue to deleverage, subsidiaries in the transition countries will see reduced cross-border funding and therefore extend less credit,” EBRD has warned.

Over the past 16 or so years, Eurozone banks have flocked to the Eastern Europe and in some places like Hungary or Romania these foreign banks look like the only game in town.

If the EBRD warning materializes, some countries are expected to have much more of a difficult time ahead with their currency as a likely target for slashing.

Several studies say that foreign banks have a disproportionate negative impact on the downside while their impact on the upside is muted.

For example, IMF finds that presence of foreign banks reduces private credit subsequently impacting GDP in negative ways. Using a large, diverse sample, IMF study finds that “one standard deviation increase in the share of foreign banks is associated with a decline in private credit by some 6 percentage points, economically significant, since the average ratio of private credit to GDP in our sample is 50 percent.”

IMF also says that the influence foreign banks have on the local market is non-linear, meaning negative effects are much larger than the size of the cause. In 2009, IMF documents that foreign banks reduced their lending much more then the domestic ones, so in places where banking is virtually a foreign operation expectations of grim days ahead may only be an underestimation.

In a 2010 study of foreign bank transmission of distress during 2007-08, Popov and Udell find that in places like Bulgaria, Croatia, Estonia, Latvia, Lithuania, Macedonia and Romania half of enterprises needed a loan yet rejection rates were equally high (see table below).

Popov and Udell find that causes of stringent lending are (1) low equity ratios; (2) low Tier 1 capital ratios; and (3) severe losses on financial assets.

They calculate that “in foreign bank dominated markets if the average Tier 1 capital ratio of the parent of banks present in a particular locality decreases by 2 standard deviations, the probability of firms in that locality being constrained increased by about 55%” with low-equity and losses having similar effects.

As a result, Popov and Udell say that presence of foreign banks carry an “exceptional downside risk” for the domestic country and the downside risk is caused by the bank’s balance sheet and not by events in the local market such as problem loans or small deposit base.

In their study of foreign bank distress transmission De Haas and Van Horen conclude that “international banks that are exposed to a financial shock –either in their home or in a third country– reduce lending to other countries” and the size of the reduction is related to geography – the closer a foreign bank is to its domicile less will it shrink its lending during crisis. As a result, De Haas and Van Horen say that domestic countries need to make a good decision on “whether to open up their banking system but also to whom.”

Using Popov and Udell foreign bank sample, names that often appear in the troubled parts of Eastern Europe are Raiffeisen, Erste Group and Hypo Group from Austria, Alpha and Pireus from Greece, Intessa and UniCredit from Italy and Societe Generale.

Of course, presence of these banks in the eastern European market does not necessarily translate to their dominance but if things are to get bad there, as EBRD warns, these look like names to be focused on.

Related:
Recession hits “pretty grim” EU states in the east

London Metals Exchange (LME) is considered the seller of last resort of things metal, like copper and zinc, yet as of late it has been under fire because its treader-dealers have been creating delivery queues, be that in copper, aluminum or zinc so recently the LME has barred top trading firm Glencore from delivering copper from one of its European ports fearing that Glencore will use its market muscle to push the copper, already seen as tight on supply, way higher in price simply by creating delivery queues at its warehouses.

Well, Glencore has retaliated for the LME snub over copper not at the copper market but in zinc, where Glencore controls 60% of the global trade.

“Commodity trader Glencore is tightening its grip on the global zinc market by moving material to inaccessible locations, forcing industrial users to pay high physical premiums for a metal that is in surplus,” reports Reuters.

In other words, Glencore sells lots of metal but if it is made inaccessible then those who want it will have to pay a premium to get it because it is, as one brutal Scarface character says before chopping up the victim - “I hes de stoff bot is clos bi u now”.

Zinc is, judging by the chart above, in a global supply glut, meaning there is too much of it yet the price hasn’t been reflecting the glut so now we have Glencore and its market controlling power that will jack up the price.

“Premiums – the amount paid over the LME cash price for physical metal – are currently at around $130-135 a tonne for zinc in Rotterdam. By contrast, premiums for copper [another manipulated metal], a metal in deficit which trades at four times the price of zinc, are only at around $70-80 a tonne,” reports Reuters.

“Glencore has always controlled zinc in Europe. They don’t want a surplus there, they want higher premiums, so they’re shipping all the surplus from Asturiana de Zinc (in Spain) to New Orleans, where no one wants it,” Reuters London-based source says.

Will the LME blink?

It is important to watch because LME has warehouses in the US owned by Glencore and Goldman Sachs where artificial cues are also created and if the higher-price posse takes over the LME it casts doubt as to whether they are a real marketplace.

As Facebook IPO frenzy grips Wall Street, it is worth remembering that in not so distant past many websites, riding on fads, had valuations that eventually went to zero, and Facebook, for all the spin and wishful claims that it is a “tech” company, is in essence a fad made up of over 900 million “users” whose content, in the aggregate, is as useful as the second issue of the National Enquirer.

Let’s face it… Facebook produces nothing, makes nothing and in the long run, as an investor, one needs to understand that drunken pictures of Johnny on Facebook add as much value as the posse with whom he shares the banality who look at it once, laugh and move on to another idiot – not even repetitive value like, say Google search.

For such immediate and non-repetitive gratitude, someone in the future is surely going to find a better platform but, just to round up the past, barely anyone anymore remembers free personal web service like Geocities, Xoom or Tripod nor is anyone finding any of their products in an antique shop.

It is a pointed fact that Zuckerberg once had tremors that people could simply abandon Facebook and, oups, there go the billions of the website boy - a parable worth remembering for those who fail to flip the Facebook stock in timely manner.

Some draw comparisons to the other internet robot, Google, who eventually developed technologies so the presumption is that, once billions in capital are raised, Facebook will hire an army of techies and go the way of Google. Perhaps… yet after a decade of tech development, and a sizeable purchase of Motorola patents, Google still relies heavily on advertising, part of the business that relies on repetitive use of Google pages.

So apart from Google, all of the big portal sites, including Yahoo and AOL, are troubled entities whose stock market valuation is way ahead of the replacement value of all of its physical capital… and Facebook is no better.

In the end, owning a share of an internet stock like Facebook is like owning an electronic gizmo whose computing speed erodes faster than its popularity so once the popularity is gone the actual value is, just like all them Dells in the dumpster… negative.

More on other reasons folks find Facebook useless:
As Facebook grows, millions say, ‘no, thanks’

After topping in September 2009, Greek bank deposits have been declining at a brisk clip, according to the data by the Greek central bank.

There were 237,824 million euros in deposits in Greece in September 2009 and as of March this year, data shows that bank deposits have shrunk to 165,356 million euros. That is a 30.5% decrease in available funds.

Anecdotal evidence is suggesting that the pace of these declines has accelerated in May however no official data on that is available.

Still, the 30.5% decline in deposits has been a silent bank run and if the anecdotal evidence gets corroborated the silent run maybe getting noisier.

Folks are worried about a contagion effect, particularly in Spain but a glance at Spain’s data shows bank deposits to be rather steady in the range of 6 billion euros.

Like Greece, Spanish data is also as of March so we do not have a snapshot of the last month and a half during which time the current financial turbulence has evolved.

Given that in the financial world month and a half is almost an eternity, things could very well be much worse.

While global demand in Q1 for gold decreased sequentially by 5%, the demand by ETFs rose by 13% tying up additional 51.4 tons of the metal, latest gold report by the World Gold Council (WGC) shows.

“ETFs and similar products were the beneficiary of solid inflows during the quarter, as investors almost completely reversed the net profit-taking of Q1 2011 with 51.4 tonnes of net demand,” says WGC.

ETFs now tie up 389.3 tons of gold equivalent of $21.2 billion, says WGC.

The other additional source of demand came from China where consumer demand surged 10% to 255.2 tons of gold.

“Further growth [in China] is expected: investors remain wary of high inflation rates; and property market restrictions continue to drive demand for gold,” says WGC.

No data exists on purchases made by the Chinese central bank although all of the purchased gold, if held in government banks, could de facto be considered as central bank holding.

Of note is the surge in central bank buying by Turkey where, as of October 2011, up to 10% of official bank reserves can be in gold. In March 2012, this threshold was increased to 20% so gold purchases moved higher and are at 12% of all reserves suggesting more buying ahead.

Report is available here.

Dollar still predominates foreign exchange reserves, says the Fed, but questions whether Chinese Yuan is behind the dramatic rise in – what IMF reports as – “other currencies”.

“After accounting for all of the traditional reserve currencies, however, the IMF lumped 7 percent of foreign-currency reserves in an ‘other currencies’ category—an eye popping amount. Usually, this ‘other currencies’ category amounts to only 1 percent or 2 percent of the total,” note Cleveland Fed authors.

Is the Yuan the dominant in this “other” category? Not clear.

“A rise in the ‘other currencies’ category gained almost as much as the dollar lost. The IMF does not report the currencies in the category, but the Chinese renminbi seems a likely candidate,” say authors.

Back in 1995, US dollar constituted well over 70% of foreign exchange reserves and after steady decline it is at 58% as of 2011. While British pound and the Yen stayed rather flat, the Euro was grabbing share of those reserves.

“Making a jump from the dollar to a new international currency requires a substantial portion of people to switch in close concert; otherwise the network benefits are lost,” reminds Fed.

The reserves trend since the 2007 Great Recession is clearly negative, a period during which the value of the dollar ossified… and that has many critics worried that the switch in “close concert” gets to be closer as the purchasing value of the dollar weakens to the point that all those holding it are convinced that they may be better off with another currency.

What isn’t clear is the lower threshold of the dollar that convinces its holders that an alternative is a better deal.

Back in 1798, Thomas Malthus wrote in his An Essay on the Principle of Population that geometric growth of a population must eventually exceed the arithmetic growth of resources and yesterday another do-gooder organization has come out with rhetorical platitudes appealing with poetical emotionalism restating such Malthusian syllogism.

In its biennial survey of the Earth’s health, WWF International says that the “ever-growing demand for resources by a growing population is putting tremendous pressures on our planet’s biodiversity and is threatening our future security, health and well-being”.

Whereas Malthus refused to be pinned on the actual date to the “eventuality”, WWF International says that by 2030, that’s it, humanity is toast.

“We are living as if we have an extra planet at our disposal. We are using 50 per cent more resources that the Earth can sustainably produce and unless we change course, that number will grow fast – by 2030 even two planets will not be enough,” said Jim Leape, Director General of WWF International.

By saying that there are only 18 years left until our planet enters the resource Armageddon, Leape, in contrast to Malthus, seems rather brave on his time call: It has been 215 years since Malthus predicted the resource Armageddon and some folks are still patiently waiting for it.

… and what would such dismal scaremongering predictions be without rhetorically emotional poetic platitudes nestled with symbolic and expensive unveiling of such words of wisdom.

“We only have one Earth. From up here I can see humanity’s footprint, including forest fires, air pollution and erosion – challenges which are reflected in this edition of the Living Planet Report,” said astronaut André Kuipers who went up in space in order to launch this report.

So one is supposed to be moved by the enormity of the Earth’s site from space and so inspired to do something.

“While there are unsustainable pressures on the planet, we have the ability to save our home, not only for our benefit, but, above all, for generations to come,” he said.

Not really, says WWF International because if we are to continue desiring resources at such pace we need another planet to satisfy our desires.

“We are living as if we have an extra planet at our disposal. We are using 50 per cent more resources that the Earth can sustainably produce,” Leape says.

Substantiation of all this hoopla is some sort of an Living Planet Index that tracks “9,000 populations of more than 2,600 species” and that disappearance of some of these species from certain Earth’s regions are caused by too high of demand for resources.

Like, hm, dude… could we, like, see the correlation coefficient, the t-statistic, level of confidence used to test such claim… if it even exists.

Then again, absence of credible statistics substituted with rhetorical platitudes that are endorsed by UN and other unelected bodies did manage to get at least some attention by being scrolled on the Bloomberg TV ticker.

Related to this:
Psychological anchors and oil prices: John Kemp

May Empire State Manufacturing Survey shows this morning that business conditions improved 11 points to 17.1, new orders are higher to 8.3, shipments are up 18 points to 24.1 and the prices paid for all this are subdued.

“Employment index readings remained relatively healthy, suggesting that employment levels and hours worked continued to expand. Future indexes were noticeably lower than last month, indicating a positive but somewhat less optimistic view of the six month outlook,” writes NY Fed.

Forward visibility has been tainted for some time now with some headlines that cast doubt on global growth prospects (China) or others, like Greece, that are given too much weight right now but, in the end, things in the US are not gloom.

Matters in Greece are, of course, far from certain and until a next set of elections conclude there the issue is set to drag on – which will give the EU more time to evaluate whether amputating Greece out of the Eurozone is one-off event or a contagious one.

There is now noticeable change in rhetoric on this.

“The Greek creditors may be willing to give Greece more time to deliver on fiscal austerity measures if Athens succeeds in forming a working government,” says Valentin Marinov, head of European and Group-of-10 currency strategy at Citigroup in London.

If politicians manage to postpone Greek problems once again, US growth may come back to dominate trading.

In any event, this week is shaping up as crucial in determining whether some key technical levels in the stock indices will remain or be broken.