August 25, 2015

Walking Out Of The Casino Empty-Handed

KPIX 5 reports from California. “Chinese money has been helping power the local real estate market for years. But even some of the most bullish local realtors have been flinching as markets on both sides of the Pacific have plunged in recent days. Ken DeLeon of DeLeon Realty in Palo Alto is one of them. ‘We’re definitely closely monitoring the stock market,’ DeLeon told KPIX. ‘Both the earlier drop in the Chinese equity market coupled with the most recent drops in the U.S. stock market is a bit of cause for concern.’”

“DeLeon says that 20 percent of his buyers are Chinese, with many of them paying top prices. And they often pay in cash. ‘What we’ve noticed, with our Chinese buyers, there’s still a strong desire to buy in America but maybe they’re not coming in with quite as strong offers,’ DeLeon said.”

Impact Magazine on the UK. “Growing domestic bubbles and buckling emerging markets are the makings of an economic firestorm for the West. Preparation is tenuous at best. With historically low interest rates and immense levels of debt overhang, the West is ill prepared. We used to look at the BRICs (Brazil, Russia, India and China) in envy. Not anymore. All are showing signs of weakness, and that weakness is contagious.”

“Combined with surrounding international weakness, the West also face their own domestic problems. The 2008 real estate bubble helped to create the financial turmoil that was coined The Great Recession. But despite this, ballooning property prices are being overlooked by central bankers and politicians alike. Yesterday the Royal Institution of Chartered Surveyors (Rics) warned of sizeable house price inflation in the future. But despite this, both government and independent central banks continue to push ahead with cheap credit.”

News Limited in Australia. “LF Economics’s Lindsay David said ‘too much money was printed by too many central banks,’ creating an artificial demand for stocks and inflating the value of global assets. ‘The hangover from this party will definitely require a lot more than a Panadol,’ he said. Mr David argues out of all countries, Australia was the nation that made the biggest bet on never-ending Chinese growth. ‘Unfortunately, as every day passes, its looking like the Australian economy eventually will walk out of the casino empty-handed,’ he said.”

CBS Money Watch. “For decades now, the world could bank on China pulling along global economic growth with year after year of double-digit growth. Now that the world’s profit machine is sputtering, the shock waves are being felt around the planet. Consider that well over a year before the latest Chinese market gyrations, reports of a large migration of China’s wealthiest residents out of the country starting popping up in the world financial press. ‘When the people that have been successful and pulled together these kinds of assets are leaving in droves, that is problematic on a number of levels,’ said Michael Santoro, a professor at Rutgers Business School. ‘It signals the economy is in trouble.’”

“Yongding Yu, one of China’s leading economists, warns that without capital controls in China, ‘an unforeseen shock could trigger large scale capital flight, leading to currency devaluation, skyrocketing interest rates, bursting asset bubbles, bankruptcy, and default for financial and non-financial enterprises, and, ultimately the collapse of China’s financial system.’”

The International Business Times. “The flow into emerging economies that QE provoked was unlikely to have been intended. It was instead collateral damage of desperate Federal Reserve efforts to revive the US economy. But now as emerging markets reel, the unfortunate and dangerous global side effect of the QE binge can be seen. Emerging economies’ assets are beached. And yet the lesson of the tide in and out of emerging economies and commodities is that pumping markets up with QE is liable to create asset bubbles and too expensive commodities, not stable economic growth.”

“It might also be asked who these bubbles are good for? Hedge funds and other fast-moving investors can profit from the volatility QE has created, surfing the tides up and profiting too from the outward tides by donning shorts: positions that profit from falling markets. Killing off the bubbles, however, will ultimately have benefits for the bulk of the world’s citizens: Main Street, rather than Wall Street.”

The Washington Post. “Giant skyscrapers tower unfinished and abandoned around a lake that forms the centerpiece of this new town. The wind blows through the empty hulk of what was supposed to be a multi-story hotel and restaurant complex. A salesman insists that people have moved into one of the few housing complexes to be completed around the shore, but as dusk falls only a handful of lights blink on. He offers to throw in a free car with every apartment purchased.”

“This is Shenfu New Town in the northeastern province of Liaoning, built to handle the overflow from the once-booming industrial cities of Shenyang and Fushun. ‘Build it and they will come,’ the saying goes, but here, in China’s industrial heartland, people are leaving instead of coming.”

“The Tiexi district of Shenyang is nicknamed the ‘Ruhr of the East,’ after the German district that forms the backbone of that nation’s industrial might. Yet here, the backbone of China’s economy appears to be wilting. At state-owned companies, workers say fewer shifts means their monthly pay has fallen from up to 5,000 yuan ($780) two years ago to more like 2,000 now.”

“At private factories like the Shenyang Heavy Machinery Huayang Mechanical Co., the situation is bleaker. Here, just 30 workers man old-fashioned lathes making machinery for the coal industry in a factory that once employed 400. Yao Guanghe, 22, started working here in May after his previous employer went bankrupt but fears for his future. ‘It’s very difficult to find jobs in this industry,’ he said. ‘You consider yourself lucky just to be working at all.’”

Bits Bucket for August 25, 2015

Post off-topic ideas, links, and Craigslist finds here.