Shadow Banking systems woes in China.

Looks like everyone's out to prove that China is going to be the next big tremor to rock the boat that is the world economy. And the origin point of choice for nearly all of them is the country's shadow banking system. Take this latest article on Bloomberg for example. It talks about how a credit risk measuring metric is hitting new highs perhaps indicating that credit risk and leverage have reached levels in China that are not sustainable. And the worst part is that the shadow banking system is out of reach of the conventional central bank policies as most of it is underground. So even if the Chinese central bank were to take some measures to curb the risk, there's no guarantee that the risk will go away. Besides, the measures that have so far been taken are very tiny compared to the size of the economy. Consequently, there's a great deal of uncertainty out there. One way to deal with this is to closely monitor which way US treasuries head. If they go higher, then there's flight to quality for sure; which in turn would mean further worsening of the Chinese situation.

Budget deficit falls at sharpest pace since WWII.

The budget deficit dropped to the lowest level since 2008 last year, falling to $680B from $1.1T in 2012. The rate of the drop was the sharpest since the end of World War II. The fall was due to an increase in federal tax revenues amid economic growth and tax hikes, and to a fall in spending. A slowdown in health costs also helped.

Eurozone inflation remains in Draghi's "danger zone."

Eurozone inflation has held steady at 0.8% on year in February, but remains below what European Central Bank President Mario Draghi has called a "danger zone" of below 1%. Draghi yesterday warned of inflation getting stuck in that zone, although he repeated his assertion that there is no deflation. Meanwhile, eurozone unemployment held steady at 12% in January, as expected.

Japanese economic activity bumps up ahead of sales-tax hike.

Japanese industrial production grew at the fastest pace since June 2011 in January, jumping 4% on month after a drop of 0.9% in December. Retail sales leapt 4.4% vs +2.5%. The strong figures are not a total surprise, as a bump in economic activity has been expected ahead of a rise in sales tax in April, which is forecast to then drag on the economy. Core inflation held steady at 1.3% on year in January, while the unemployment rate was unchanged at 3.7%.

Unlike good old days the corporate borrowers today would find it difficult to dodge bad loans. For RBI now has raised the red flags. And gone stringent with respect to ensuring swift repayment of such loans! The governor has tightened the rules to fight against bad loans. The promoters of the company would now be made more accountable towards the debt. They would be asked to suffer the first loss instead of the banks that extended the loan. Moreover, the promoters would have to bring in more equity into the company in the event of restructuring of the asset. The lenders can also take action against the troubled companies producing clean balance sheets. Also decisions with respect to projects to be referred to the CDR (corporate debt restructuring) cell would be expedited faster. In cases of viable businesses, banks would take an extra mile in financing such entities but with prudence. For once even auditors who audit such bad loans will not be spared too. Such

provisions would apply for loans exceeding Rs 1 bn.

Well, this does not come as a surprise. That's because the stressed assets (non-performing plus restructured assets) number has surpassed 10% of total advances. Lurking bad assets has taken few banks down in the dumps. While corporates have partied hard, now it's time they bear the brunt too.

BofA ups estimate of possible legal liabilities to $6.1B.

Bank of America (BAC) has added $1B to its estimate of its potential litigation liabilities, bringing the total to $6.1B vs a year-ago estimate of $3.1B. BofA also said that the U.S. Attorney's Office is investigating the bank's compliance with the Federal Housing Administration's direct endorsement program. Meanwhile, authorities in North America, Europe and Asia are probing BofA's conduct and practices in forex markets.

China's iron and steel industry is looking down the abyss. Plagued by over-capacity and high competition, profits have plunged. And this situation is not likely to change anytime soon. Steel companies in China enjoy huge subsidies from local governments, whose main focus is to meet job and growth targets. Encouraged by easy financing and cheap energy supplies, the country has steadily built more steel mills than needed. Currently, the world's second-largest economy has about 300 m metric tons of excess steel capacity, equivalent to nearly twice the steel output of the whole European Union last year. According to China Iron & Steel Association (CISA), overcapacity in the sector is unlikely to reduce anytime soon and that the sector was facing an extremely complicated situation as a result of slowing growth, structural adjustments in the economy and policies to close old capacity.