Submitted by Tyler Durden on 02/29/2016 22:22 -0500

We’ve spent more time than most documenting China’s wealth management product problem.

WMPs are part and parcel of Beijing’s sprawling shadow banking complex which, until 2014 that is, helped pump trillions of yuan into China’s economy and shouldered the burden when it came to propping up the most important economy on the planet.

But WMPs are dangerous. In fact, we flagged them as an 8 trillion black swan back in August on the way to asking what would happen if China’s shadow banking sector were to collapse altogether.

This is space that’s running what amounts to an enormous maturity mismatched fraud. Of course the describes the entire fractional reserve banking system, but in the case of China’s WMPs, it’s all on the verge of implosion. Don’t believe us? Just ask anyone who bought into products sold by Fanya Metals’ Shan Jiuliang.

This is a very real threat to the Chinese banking sector. The multifarious nature of the space's liabilities makes it virtually impossible for anyone to assess what the embedded risks are. As we first documented last summer, some 40% of credit risk is carried off balance sheet and that figure might well have grown recently, especially considering mid-tier bank's propensity to extend new credit through new cateogries of channel loans that are classified as "investments" and "receivables"

In any event, China is desperate to revive the credit impulse and that means keeping the shadow banking space alive. Here's BofA with more on China's ticking WMP time bomb:

• Growth rate accelerated. By the end of 2015, WMP balance reached Rmb23.5tr, up 56.46% YoY. Astonishingly, growth rate accelerated last year compared to the year before despite a high base – in 2014, the balance grew from Rmb10.2tr to Rmb15.0tr, up 47.25% YoY. The key drivers of this accelerated growth are joint stock banks whose WMP balance rose from Rmb5.67tr to Rmb9.91tr, up 74.8% YoY; city commercial banks, Rmb1.7tr to Rmb3.07tr, up 80.6% YoY. On the other hand, the big four state-owned enterprise (SOE) banks’ balance rose by a more moderate 53.2% YoY (from Rmb6.47tr to Rmb8.67tr) while foreign banks’ balance declined by 25.6% (from Rmb0.39tr to Rmb0.29tr).

• Liquidity risk is rising. The outstanding balance of open WMPs, of which buyers can subscribe or redeem largely at will, reached Rmb10.32tr, up 96.95% YoY. They accounted for 44% of bank-run WMPs balance as of Dec 2015, up from 35% a year earlier. The increased share of open WMPs adds to the duration mismatch in the shadow banking sector and makes the system more prone to liquidity shock in our view. In 2015, banks issued Rmb158.41tr worth of WMPs, i.e., Rmb13.2tr a month on average. If WMP buyers decide to ‘go on strike’ for whatever reason, a liquidity crunch in the shadow banking sector could quickly develop in our view.

• Implicit guarantee still largely in place. Only Rmb1.37tr worth of open WMPs, representing 13% of the total, are priced based on NAV. Also, the portion of closed WMPs that are priced similarly is tiny. This means that the vast majority of WMPs are still sold with the so-called “expected return”, which is largely viewed as promised return by WMP buyers by our assessment. In 2015, only 44 WMP products, or 0.03% of matured products during the year, caused investors to lose money. This loss ratio appears unusually low in our view. It is interesting to note that most of the 44 products were sold by foreign banks.

• Individual buyers still dominant. As of Dec 2015, individual investors, including high net-worth individual investors, accounted for Rmb13.34tr WMP balance, or 56.6% of the total (institutional investors, 30.6%; inter-banks, 12.8%). They subscribed to Rmb101.49tr of the newly issued WMPs during the year, representing 64.1% of the total. Mood of individual investors are more volatile than institutions in general.

The bottom line is this: if this implodes, it will not only tank the entire Chinese banking system but the global economy as well, as the amount of liabilities here is quite frankly enormous. 

Submitted by Tyler Durden on 03/02/2016

British workers will have to work until they are 81 if they want to build up savings that guarantee their parents' standard of retirement, according to a new study by pension provider Royal London. Without significantly higher levels of engagement in pensions, the report concludes rather ominously, "we may be witnessing the death of retirement."

As AP reports,

The research released Wednesday comes as the British government embarks on a review of pensions that has prompted speculation it will raise the retirement age to compensate for a burgeoning older population. The retirement age for men and women is already set to rise to 66 between December 2018 and October 2020.

Royal London says changes in workplace pensions mean workers aren't saving enough to ensure they have the same kind of retirement their parents expected.

Royal London notes that changes in workplace pension provision mean that coming generations of retirees could have a radically different experience of retirement from their parents. Unless today’s workers begin to save significantly more for their later life, many will find that the quality of later life enjoyed by their parents will be unattainable unless they work well beyond traditional retirement ages.

For many people, continuing to work to these much higher ages may simply be beyond their physical capability.Without significantly higher levels of engagement in pensions, we may be witnessing the ‘death of retirement’.

Full Royal London Report below:

The Death Of Retirement

The Death Of Retirement

 

 

As Nate Hagens noted, "people think that the economy runs on money but it runs on energy," and as Art Berman details in the following interview how the current oil price collapse represents devaluation from over-investment in unconventional oil - and most commodities - because of cheap capital, and is simply a classic bubble. "Continued oil prices of $30 per barrel or less are the only reasonable path to higher growth and a balanced oil market," Berman contends, adding that he expects $16.50/bbl - "I think we're gonna get there."Berman concludes ominously, we're not going 'back' to anything - "Normal is over, and there is no new normal yet."

Full Art Berman interview below (via Macro Voices):

Breakdown:

18:25 - OPEC will cut production in 2016

19:05 - OPEC’s objective is to kill shale drillers’ source of funding

19:30 - The idea that Iraq/Iran will cooperate with Saudi Arabia is laughable

22:30 - EIA/IEA numbers are estimates at best, and almost certainly wrong

24:00 - He doesn’t believe recent EIA figures saying consumption has fallen dramatically

24:40 - US production must drop in a more meaningful way before OPEC can affect crude price

27:00 - Baker Hughes Rig Count is only focused on by traders because it’s available data, not because it matters

29:00 - Regardless of rig count, regardless of what people think, the number of producing wells continues to increase!

31:30 - US production not necessarily in direct competition with Iranian production

33:15 - As long as storage numbers are 80% of capacity or more, prices will remain “crushed”

35:45 - Forget about the nonsense that you read in the WSJ about “the true breakeven price” for shale operators - the true breakeven price for the best operators in the 3 main US shale plays is $60-70/bbl

38:40 - These shale operators “have no money”

39:00 - If investors abandon shale company stock, their total assets decline and their debt is in trouble

40:45 - Pretty obvious to anyone who knows that this situation is going to crash in a big way, it’s just a question of when

40:55 - Similar situation to “The Big Short”

44:40 - Very few options beyond increasing Cushing storage capacity, which takes time

46:30 - Whiting Petroleum clearly out of money, made a terrible acquisition, and is stopping further drilling because they have no other option. They could care less about the shareholders and are acting out of desperation.

48:05 - Midwestern gasoline refineries cutting back on crude purchases as they don’t see sufficient demand

50:00 - $16.50/bbl - “I think we’re gonna get there”

52:35 - Capital providers clearly pulling back from investing in US tight oil projects

53:00 - Future investments in the Oil Sands are dead

54:05 - In the first half of 2016 there will be a wave of shale operator bankruptcies and defaults on bond payments, a collapse in the high yield bond market which could spill over into other markets, as well as further distress in the banking industry - “will be a bloodbath”

55:00 - 2016 shale operator bankruptcies could reach 50%

57:00 - Iran will not get back to 1970’s levels as they would like to suggest. Production levels will be far less.

58:45 - Libya is the wild card. If they ever get their civil unrest under control, they could bring 1.5MMbbl/day to market and “that would be a disaster(for oil prices)”

1:04:15 - We’re not going back to anything - “Normal is over, and there is no new normal yet”

Source: MacroVoices.com

*  *  *

And finally Art Berman's Presentation:'

Art Berman Origins Oil Price Collapse 25 FEB 2016 by zerohedge