September 19, 2016

A Once In A Lifetime Bubble

A report from Bloomberg on Denmark. “Danes shouldn’t expect any help from the central bank to save the economy from an overheated property market. Lars Rohde, the governor of Denmark’s central bank, says there can be no creative use of monetary policy to reflect risks to the property market, because his only concern is defending the krone’s peg to the euro. Eight years after its last property bubble burst, Denmark is wondering whether almost half a decade of negative interest rates has set the economy up for a repeat of that crisis.”

“The unprecedented nature of negative rates means that ‘nobody knows’ how this will end, Rohde said. But these days, shifts tend to rip through markets ‘much quicker than we expected,’ he said.”

“Rohde is far from alone in sounding the alarm on risks threatening the housing market. Analysts at Nykredit, Denmark’s biggest mortgage lender, have warned that Danes need to start putting the possibility of house price declines ‘on their radars’ or risk going into ’shell shock’ when it happens. They’ve also characterized price developments in Denmark’s cities as ‘out of control.’”

AM 730 on Canada. “Premier Christy Clark is questioning reports brought forward by the opposition’s housing critic earlier this week that pointed to several homes owned by students in the West Side. NDP housing critic David Eby brought to light that nine students own homes in Vancouver’s ritzy West Point Grey neighborhood — totalling $57 million. Clark says she questions where Eby got hold of the information. ‘You know I also question the facts, you got to question the source a little bit there. So, I don’t know if the facts are correct.’”

“Eby pointed out documents support $40 million worth of the purchases were backed by mortgages from three Canadian banks: the Bank of Montreal, CIBC or HSBC.”

From Calvin Ayre on Australia. “Australian casino operator Crown Resorts is in the news this week following revelations that a Chinese high roller suspected of money laundering had turned over A$855m (US $640.7m) at Crown casinos. Chinese-Australian VIP Dan Bai Shun Jin is currently under investigation by the Australian Federal Police (AFP) and the US Internal Revenue Service (IRS) after an AFP agent found vast discrepancies between Jin’s known income and his profligate gambling activity.”

“Jim, who had multiple real estate properties around the globe seized in 2013, claims to earn an annual salary of $300k in China but has so far produced no documents to support this claim. This week, Jin’s wife lost a bid to convince the Victorian Supreme Court to lift a restraining order on a $2.7m home in Fremont, California based on the Court agreeing with the AFP that the home was likely purchased with laundered money.”

“According to figures supplied to the Court by a Crown compliance manager, Jin made more than A$140m in chip buy-ins since 2010 and wagered over A$855m at Crown Melbourne between 2005 and 2013. Jin has disputed these figures, while copping to ‘very high-stakes gambling and being involved in moving millions of dollars.’”

“Crown also declined to say when exactly it might have had cause to question the source of Jin’s largesse, despite copping to being aware that Jin used multiple identity documents, including six different Australian passports. Like many other casino operators, Crown has made Asian VIP gamblers central to its business model, but this reliance isn’t without its headaches. Crown has been accused of illegally offering credit to high rollers, while a former mega-whale who dropped $8m at Crown’s tables was shot dead on the streets of Sydney while under investigation for money laundering.”

The Maritime Executive on China. “We know we are operating in one of the more volatile industries in the world and have been through severe down cycles before, but his time it is different. Slowly, but surely the realization that the commodity boom and the unprecedented Chinese hunger for raw materials was likely a ‘once in a lifetime’ bubble, is sinking in. Effectively all data relating to the dry bulk market, whether on the supply - or demand side, underlines the fact that we are now moving into a very different environment than what we grew accustomed to post-2000.”

“Demand will not solve the tonnage overhang this time as it did during the China boom, unless to significantly alter existing barriers (or the lack of barriers) to international trade. For the market to return to even modest break-even levels it is the supply side of the equation that needs to be significantly adjusted - and history tells us this will be a drawn-out process.”

“And this realization process is painful for many reasons: We all think the other shipowners should scrap their vessels. My vessels are superior! The moment there is the smallest uptick in the market, owners choose to hold onto their older vessels rather than recycle. It hurts to take and accept a loss. Many companies choose to close their eyes and hold on tight for as long as possible, even if this means a further deterioration of their position.”

The China Post on Taiwan. “With a gloomy outlook for the real estate market, 30 percent of home sellers have expressed willingness to lower their asking prices, according to a survey conducted by home price comparison app Ubee. Forty-six percent of home sellers surveyed said they thought prices would decrease in the fourth quarter. Only 3 percent said they thought prices would rise and 51 percent said they expect prices to remain level.”

“Seventy percent of homebuyers predicted that prices will drop, 24 percent predicted they will stay mostly unchanged, and 6 percent said prices may rise. Despite the pessimism, 15 percent of home owners said they won’t budge on asking prices, while 55 percent said they will put their home up for rent until the market improves. Up to 30 percent said they will lower their asking price. Based on the survey, the market looks certain to tumble in the fourth quarter, Ubee said.”

“Ubee President Yeh Kuo-hua said home owners were reluctant to lower asking prices previously because they had expected the central bank to lower interest rates and ease credit control. Also, they expected the new government to introduce measures in favor of the property market. But the market has remained stagnant, even though more than three months have passed since the new government was sworn in. There are even discussions underway about raising the property tax, which will further burden home owners, Yeh said.”

“With nearly 400,000 properties listed, (not including those listed by construction companies,) Ubee forecast a new wave of house dumping by disappointed sellers down the road. Yeh estimated that prices of over 130,000 properties have been cut recently, saying that it is moving toward a buyers’ market. Ubee’s study shows that 40 percent of the population prefers to rent now and buys after prices have retreated further.”

“Eastern Realty Chairman Wang Ying-chieh told local media that home prices could fall 10-20 percent in the second half of 2016. As fewer sales took place recently, construction firms are giving away bargains. This has pulled down older homes’ prices too, Wang said.”