Trouble on the way
The Hong Kong-based Noble group is an integral player in the physical commodity supply chain, buying, moving and selling 20 popular commodities; the Asian leader by revenue — and it is in serious financial trouble. The top three rating agencies have downgraded the company’s bonds to “junk” status, meaning that it will be harder for it to obtain financing following the global commodities meltdown.
Unlike state-owned companies in China, Noble is on its own, to stand or fall on its fundamentals. With the People’s Bank of China so busy supporting stock prices and the exchange rate by wholesaling US Treasuries, it is hard to imagine that they will care if a Hong Kong trader goes under. The bank simply cannot print enough yuan to save everyone, and if they do, they would destroy all faith in China’s currency.
Elsewhere, Australian bank Macquirie, which is focused on the resource sector, published a report showing that up to 20 percent of Chinese companies do not make enough profit to service their debt.
Think about this. These companies do not make enough money to pay interest on their loans, never mind the principal, an inevitable result of mal-investments across the economy.
And it gets worse. “Official government statistics” peg the non-performing loan ratio at about 1.7. When it comes to companies who deal in commodities like iron, coal, copper and industrial metals, these companies are getting crushed under toxic debt.
As of last year, 2 trillion yuan (US$304.6 billion) in loans was put at stake to resource arbitrageurs who thought that prices would go higher. They lost amid the commodities collapse. Defaults are much closer than on the horizon.
Experts assert that China’s real GDP growth is closer to 3.5 percent and non-performing loans are running between 10 and 15 percent.
Keep in mind that if debtors cannot even pay the interest on their loans, it is quite unlikely that they will be able to pay back the money they threw into this preposterous gambling scheme. This situation makes Macau look honest.
With two-thirds of Chinese commodity companies unable to repay only interest on their loans, I expected more defaults as the next wave of the crisis hits.
This will not end well. China is about to crash.
International shipping figures show that world trade is grinding to a halt. China’s electricity usage is only at 3 percent growth — these are not signs of an up-and-coming economic superpower.
Turning now to the gold market, it is still being manipulated by paper shorts, regardless of how Bloomberg attempts to characterize the recent price fall. The COMEX warehouse is running out of the physical metal to deliver to actual buyers who want to take possession in their own hands.
At delivery windows everywhere, “spot” prices, which are what you pay to take it out the door in your pocket, are at record highs, way above the paper price.
Happily, this ruse will soon come to an end. Unhappily, this means the destruction of the current fiat currency system. Invest wisely.
Torch Pratt
New Taipei City
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