Entering The Ponzi Stage
A report from Business Insider. “Quietly, over the last three months, Sotheby’s auction house has seen its stock lose one-quarter of its value. This is, in large part, due to its high-end clients. Something is about to happen to them. The polite way to say it is that — as Sotheby’s CEO Tad Smith put it earlier this month — they are about to get more ‘discerning.’ The frank way to say it is that they’re about to get walloped by this year’s choppy markets.Yes, we’re seeing record-breaking sales for some items, but if you look below that tier the picture isn’t so great. ‘The Modigliani sold last week for $170 million, but we’re seeing second-tier artists and second-tier works by the best artists starting to slide down in price,’ billionaire hedge fund manager and art collector Ken Griffin said in a CNBC interview.”
“For years, some have said that we are in the midst of an asset bubble spurred on by the Federal Reserve’s low-interest-rate policy. ‘When you keep the price of money at zero, all sorts of silly things start to happen,’ said Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management at a Bloomberg conference.”
The Press and Journal in Scotland. “The number of homes sold in the Aberdeen area has fallen in the last six months due to the effects of the oil price crash, new figures have show. A report by property firm Savills shows that the number of house sales in the Aberdeen area fell by 23%, while homes selling above the £400,000 mark dropped 44% between May to September 2015, based on the prior year. In the third quarter of the year compared to the same period the year before, homes over £400,000 saw their values drop 9%.”
“Faisal Choudhry, Savills’ head of residential research Scotland, said this had to be taken in context of the stellar rise in residential values in recent years. ‘Looking at the ten year average for the overall residential market, values are 24% higher in Aberdeen and 19% higher in Aberdeenshire, compared to 11% for Scotland as a whole,’ he said. The property group said it expects ‘further adjustment’ next year as the oil price is expected to remain subdued.”
The National Post in Canada. “The slumping oilpatch in Alberta continues to take its toll on the Fort McMurray housing market, as the average MLS sale price of a home in that northern community plunged by more than $117,000 in October. Data obtained from the Canadian Real Estate Association indicates that the average sale price for the month of $468,199 was down 20 per cent from $585,438 in October 2014. Sales also plunged by 41 per cent to 85 from 144 a year ago.”
“Doug Porter, chief economist with BMO Capital Markets, said there are many — mostly oil-driven — cities that have softened markedly. ‘The renewed sag in oil in recent months looks to have triggered a renewed weakening in housing markets across much of Alberta and Saskatchewan. Six of the 25 major markets reported double-digit declines in sales last month, and four of those were in these two provinces,’ he said.”
AFP on Brazil. “Brazilian Monica de Oliveira thought she’d forever left behind those days of worrying about getting her daughter new clothes. Biting recession in the world’s seventh biggest economy is starting to undermine the country’s widely lauded progress in dragging some 40 million people out of poverty, starting in 2003. De Oliveira knows what it’s like to be one of them and now she’s afraid her family is sliding back. She and her husband had a combined monthly salary of about $500 working as security guards in Caieiras, near Sao Paulo, and both have been laid off.”
“One by one their little luxuries have disappeared. Family outings on the weekend are over, the dream of a new car and bigger house is on hold. Even interest payments on debts are no longer feasible. She’s far from alone. ‘Soon there will be no new clothes for my daughters. We won’t go to the circus, we won’t go out to McDonalds,’ de Oliveira, 36, said. ‘I wanted to pay for them to study, to give them a better life.’”
From Perth Now in Australia. “Perth rental vacancies have risen 64 per cent in 12 months, according to a report. Property analysts SQM Research said the figure was based on a total of 7507 vacancies in October this year compared to 4567 vacancies at the same time last year. Asking rents were also down 6.4 per cent for houses and 8.4 per cent for units in the past 12 months, the company found. Perth is second behind Darwin for a challenged rental market, with their vacancy rate rising 75 per cent in the 12 months and their asking rents falling 20.5 per cent.”
“‘Clearly, vacancies have been soaring in Perth and Darwin, while our east coast capital cities have generally been stable,’ the SQM report found. ‘This is just one indicator on how the mining downturn has effected the economy. Clearly, not everywhere has been effected, but those cities and townships that do have exposure have been hit hard.’”
The South China Morning Post on Hong Kong. “Hong Kong’s home rents fell 1.8 per cent month on month in October, the biggest monthly decline in four years, a private study shows. The worst performer was City One Sha Tin, where average rents fell of 4.5 per cent month on month to HK$36.20 per square foot. ‘It is the biggest monthly decline in four years,’ said Wong Leung-sing, head of research at Centaline Property Agency, citing an increase in supply as a reason.”
“Rents have also been softening in popular housing estates such as Taikoo Shing. ‘The average rent once hit more than HK$42 per square foot when the market peaked in the second quarter, now it’s down to the HK$39.60 level,’ said Kenneth Chiu, sales manager at Centaline’s Taikoo Shing branch. ‘The average rent a few months ago was HK$26,000 a month. Now you can rent one at between HK$23,000 and HK$24,000.’”
From Bloomberg on China. “Chinese borrowers are taking on record amounts of debt to repay interest on their existing obligations. The amount of loans, bonds and shadow finance arranged to cover interest payments will probably rise 5 percent this year to a record 7.6 trillion yuan ($1.2 trillion), according to Beijing-based Hua Chuang Securities Co. Dubbed ‘Ponzi finance’ by Hyman Minsky, the use of borrowed funds to repay interest was seen by the late U.S. economist as an unsustainable form of credit growth that could precipitate financial crises.”
“‘Some Chinese firms have entered the Ponzi stage because return on investment has come down very fast,’ said Shi Lei, the Beijing-based head of fixed-income research at Ping An Securities Co., a unit of the nation’s second biggest insurance company. ‘As a result, leverage will be rising and zombie companies increasing.’”
“China Shanshui Cement Group Ltd. became the latest company to default on yuan-denominated domestic notes last week as overcapacity in the industry hurt profits and a shareholder dispute stymied financing. State-owned steelmaker Sinosteel Co., which pushed back an interest payment on a bond last month, postponed it again this week.”
“The amount of bad debt among Chinese banks rose 10 percent in the third quarter from the previous three months to 1.2 trillion yuan, about the size of New Zealand’s economy. Total debt at listed companies has climbed to 141 percent of common equity, based on a market-capitalization weighted average, the highest level in three years. Defaults will probably keep rising as profits fail to keep up with interest expenses at some Chinese borrowers, according to Zhou Hao, a senior economist at Commerzbank AG in Singapore. ‘We will see more defaults and rising bad loans in the financial system,’ Zhou said.”
