Everyone Thought The Movie Would Never End
A report from the South China Morning Post. “Offshore bond sales by mainland property developers have stalled in January as rising investor fears of a flurry of debt defaults have junked one of the usually busiest months of the year for real estate issuance. With an estimated US$10 billion in offshore debt falling due for repayment this year and next, a bad January bodes ill for the ability of developers to refinance huge foreign borrowings. ‘Offshore refinancing will become more difficult and expensive for mainland developers this year and weaker players will suffer even more,’ Christopher Yip, a director of corporate ratings at S&P in Hong Kong, told the South China Morning Post.”
“Defaults by Kaisa Group Holdings are the main reason why investors are spooked. It was then that offshore investors realised that they ranked behind everyone else in the queue for repayment after onshore creditors asked for court protection to freeze Kaisa’s assets on the mainland. Specialist onshore financing vehicles had already launched a total of more than 10 products that extended 2.5 billion yuan in credit to Kaisa. Some of those products are due for repayment later this month and analysts expect the firm to struggle to make good on its obligations.”
“‘Trust defaults will blow up in the future given the sluggish property market,’ said specialist trust financing consulting firm Use-Trust Studio in a report.”
From Bloomberg on China. “After more than a decade of curbing the currency’s gains to help turn the nation into a manufacturing colossus, there are signs the People’s Bank of China is now propping up the yuan to stem an exodus of capital that’s threatening the economy. A key barometer of foreign-exchange flows on the central bank’s balance sheet, known as its yuan positions, fell 128.9 billion yuan ($21 billion) in December from a month earlier, the most since 2003, PBOC data show. China’s foreign-exchange reserves dropped to $3.84 trillion as of December, from an all-time high of $3.99 trillion in June.”
“Goldman Sachs Group Inc. says China’s official errors and omissions data point to a record $63 billion leaving the country in the third quarter of 2014. Bank of America Corp. estimates $120 billion of capital flowed out of China in the final quarter of last year. ‘Everyone thought the movie would never end, and suddenly it ended, so everyone is hurrying to leave,’ Kevin Lai, an economist at Daiwa Capital Markets in Hong Kong, said by phone. ‘The authorities need to think of a way to keep the audience in the theater’ as the economy slows, he said.”
“City Developments Ltd., Singapore’s second-biggest developer, warned last year that the local housing market may face ‘fire sales’ and mortgage defaults due to falling rents, especially for high-end homes. Rental prices of residential properties fell by 3 percent last year, URA data show. After five years of price gains, values are falling and defaults are rising. ‘Some of the properties in the auction are those where the owner has multiple properties and he can’t rent them,’ said Grace Ng, deputy managing director at broker Colliers International in Singapore.”
From Tribune India. “Karnal is among the cities in Haryana that have been in the grip of a severe slowdown in the realty sector for over two years now. There has been a significant drop in demand here and according to market watchers there has virtually been no sale-purchase in the city and its vicinity in one of the worst slowdowns so far. End users as well as investors have remained reluctant to enter the real estate market because of the paucity of funds, say local property experts.”
“Property prices have fallen by almost 30 to 40 per cent in most of the areas of the district. ‘I had purchased a plot in CHD City for Rs20,000 per sq yd in 2011. But now the price of the same has dropped and is between Rs13000 and Rs15000 per sq yard,’ says Vir Vikram Kumar, former president of Karnal Property Dealers’ Association. ‘But even this significant correction in the market has not brought back buyers here.’”
The Calgary Herald in Canada. “Unstable oil prices have created an unclear picture for what the city’s housing market will bring in 2015, say industry members. On the resale side, the Calgary Real Estate Board expects sales to ease by four per cent in 2015 and price growth of 1.5 per cent. Industry veteran Wendy Jabusch says she expects a slower stretch in 2015, adding the pull-back makes sense.”
“‘I think we are going to see the industry take a little bit of a pause, level off a bit and that’s perfectly fine,’ says Jabusch, Brookfield Residential’s VP of Calgary Homes. ‘What was happening over the course of these last couple of years is not sustainable. The run-up on prices, you just can’t keep increasing like that.’”
The Herald Scotland. “North Sea oil may be in decline but it is still central to the economic projections of the Scottish and UK governments. in conversation with those not employed in the oil industry, I note a surprising schadenfreude towards the current situation. While such a reaction is probably misguided, it is understandable. The presence of the oil industry has made Aberdeen an almost impossibly expensive place to live for those without oil-sector salaries. The cost of living, housing in particular, has been a major cause of the recruitment crisis in the health and education sectors.”
“The industry-wide inflated salaries are the principal cause of sky-high living costs. An acquaintance working as a contractor recently bemoaned a reduction in his day rate. It was hard to avoid responding, ‘welcome to my world.’ particularly as it wasn’t so long ago that he let me know that the rate was more than a £1,000.”
“The downturn in the price is an opportunity for the industry to take a close look at its costs. Some companies have already started the process with interesting side effects. The attendance at one company’s Christmas bash was way down on previous years. It wasn’t hard to find the reason: employees had to pay for their tickets and the bar was no longer free. Welcome to the real world.”
“Defaults by Kaisa Group Holdings are the main reason why investors are spooked.”
Oh? And why is that?
“It was then that offshore investors realised that they ranked behind everyone else in the queue for repayment after onshore creditors asked for court protection to freeze Kaisa’s assets on the mainland.”
“offshore investors … ranked behind everyone else in the queue for repayment”
Imagine that! What a surprise!
And this is in … in China, of all places!
Truly, from out of the blue it came.
Lending is easy. Getting repaid is the harder part.
Isn’t that where the lender of last resort steps in to make too-big-to-fail lenders whole again?
+1 trillion
+$4 trillion
It went, bail-out, bail-out, bail-out,
…who’s getting screwed?
Credit Equals Gold indeed!
And the treasury/central bank is spending a good amount keeping the currency pegged to the USD. Read the article and you’ll see discussion of abandoning that peg. Swiss Franc redo?
Swiss Franc redo ??
The repercussions of which that have yet played out I might add…
Smartest thing said today.
And the U.S. guaranteed Fannie and Freddie bonds would be paid back at par as if they were U.S. Treasuries after decades of paying higher interest than U.S. Treasuries — why?
Of all the bailouts, that was the least justifyable. At the very least, the interest on all those bonds should have been cut to the U.S. Treasury 10-year rate going forward.
Combo - your comment cracked me up!
“‘The authorities need to think of a way to keep the audience in the theater’ as the economy slows, he said.”
I might be willing to offer up a few suggestions as to how this can be done.
“North Sea oil may be in decline but it is still central to the economic projections of the Scottish and UK governments.”
Go here to see what effect a decline of something extracted from the earth just may do to an economy and its economic projections:
https://www.google.com/search?q=bodie+ghost+town&biw=1813&bih=857&source=lnms&tbm=isch&sa=X&ei=KHjHVJahIIjdoAT3hoC4CA&ved=0CAYQ_AUoAQ&dpr=0.75
“In conversation with those not employed in the oil industry, I note a surprising schadenfreude towards the current situation.”
Yeah? Well ask yourself this question: Just where does the money come from that flows into the pockets of those “not employed in the oil industry?”
“While such a reaction is probably misguided, it is understandable.”
You want to understand the understandable? A visit to Bodie might be of help.
“The presence of the oil industry has made Aberdeen an almost impossibly expensive place to live for those without oil-sector salaries. The cost of living, housing in particular, has been a major cause of the recruitment crisis in the health and education sectors.”
“The industry-wide inflated salaries are the principal cause of sky-high living costs. An acquaintance working as a contractor recently bemoaned a reduction in his day rate. It was hard to avoid responding, ‘welcome to my world.’ particularly as it wasn’t so long ago that he let me know that the rate was more than a £1,000.”
I’ll bet a lot of the people who lived in Bodie a hundred years ago had the same complaints.
“The downturn in the price is an opportunity for the industry to take a close look at its costs.”
… whether they want to or not.
“Some companies have already started the process with interesting side effects.”
“Interesting side effects” = Bodie
“Welcome to the real world.”
Realty getting a dose of Reality.
Denver, CO Sale Prices Plunge 14% YoY; Plummet 15% MoM As Housing Correction Ramps Up
http://www.zillow.com/denver-co-80220/home-values/
LaJolla, CA Sale Prices Crater 11% In 2014 As Declines Spread In SoCal
http://www.zillow.com/san-diego-ca-92037/home-values/
Check out Rancho Santa Fe when you get a chance. The UT-San Diego real estate price change color map in yesterday’s paper showed it in pink, indicating price declines.
How about prices in ‘Sudden Valley’?
Rancho Santa Fe:
The median home value in Rancho Santa Fe is $2,226,500. Rancho Santa Fe home values have declined -0.6% over the past year and Zillow predicts they will fall -1.1% within the next year. The median list price per square foot in Rancho Santa Fe is $585.
Nobody cares about “values” Jingle_Fraud.
Looks like prices are down 4% in 2014 and falling.
http://www.zillow.com/rancho-santa-fe-ca/home-values/
“‘Everyone thought the movie would never end, and suddenly it ended, so everyone is hurrying to leave,’ Kevin Lai, an economist at Daiwa Capital Markets in Hong Kong, said by phone.”
Try not to get trampled as you race through the exit door from the burning theater.
Sounds like Return of the King.
I have to wonder whether a global property crash could be causing the oil price collapse. I suppose we will have to wait until this episode is visible through the rear view mirror to really know.
“I have to wonder whether a global property crash could be causing the oil price collapse.”
Or … perhaps global deflationary pressures are causing both.
“… global deflationary pressures …”
Such as …
“Apple supplier Foxconn to shrink workforce as sales growth stalls”
http://finance.yahoo.com/news/exclusive-apple-supplier-foxconn-shrink-102032374.html
I think we’ll continue to see Apple and these other empty tech outfits shed labor as their products are deliberately commoditized.
Apple supplier Foxconn to shrink workforce as sales growth stalls ?
iPhone and iPad Sales Drive Record Revenue and Operating Profit..
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB4QFjAA&url=http%3A%2F%2Fwww.apple.com%2Fpr%2Flibrary%2F2014%2F01%2F27Apple-Reports-First-Quarter-Results.html&ei=S6THVImnF4HcggTy5YCQDA&usg=AFQjCNEAbf2qwolmrAGX4J3OjHDCZYumYQ&sig2=nCE38iaqxzTw_PIn5gWdfg
With warehouses filled to the rafters with cheap chinese built gadgets, why wouldn’t profits and layoffs be up?
You think it might have something to do with massive excess supply of commodities and houses and plummeting demand at current prices?
Bingo.
“a global property crash could be causing the oil price collapse…”
You might be onto something. Everything that goes into a building takes oil or coal or gas to get there, from the mining, refinement, manufacture and all the transport in between. We will likely soon have an indication of how many millions of barrels a day was wasted on excess, surplus and luxury construction.
Also will soon witness that morning after moment of collective awareness when the world suddenly notices how much money and resources were wasted on the property mania.
and that they will be in debt as a result for a very long time.
Seattle, WA Sale Prices Plummet 17% In 2014; Declines Accelerate As Excess Housing Inventory Balloons
http://www.zillow.com/seattle-wa-98122/home-values/
Still using zillow to support your assertions, I see.
There is no excess housing inventory in Seattle, unless you are counting all of the empty (but fully-paid-off) houses that the Chinese own.
Those are transaction prices. Take it up with your regional MLS office.
Zill’s fairly legit. 4 home sales in our nabe, +/- about 5K between Zestimate and sale price.
‘Rashpal Heer, an associate director at DTZ, agrees. “The market is going through a period of correction and, whilst difficult to quantify the full extent, we expect the fall in oil price to further impact the property sales market in the short to medium term in the UAE, particularly Dubai, as domestic, regional and international investors from key oil dependent markets reign in investment,” he says. “We expect the residential market will be the greatest affected, in particular residential off-plan sales at recently launched or soon to be launched developments,” he adds.’
‘CBRE predicts if the price of oil continues to drop for a sustained period then the huge GCC government-owned funds tasked with spending surplus cash on assets abroad may cut back on plans to buy European prime assets. “The biggest impact is potentially on the international property markets than the local markets,” says Nick Maclean, the managing director of CBRE’s Dubai office. “Because we see that the principal component of the surplus where oil is priced and production costs goes to the sovereign wealth funds in the region.’
“And the sovereigns in the GCC are such an important component of new cash for the international markets that if that is withdrawn a little then it has an impact,” he adds. “Potentially if the price of oil falls … for a prolonged period, they could stop buying so many buildings in London.”
‘Last month the Abu Dhabi Financial Group fund surprised local markets by shelling out £370 million (Dh2.13 billion) – £120m more than the asking price – for the 600,000 square feet New Scotland Yard police headquarters office block in Westminster, London.’
‘And the Qatari Investment Authority is currently bidding with the US property company Brookfield to take full control of Songbird, the majority owner of the Canary Wharf estate in the London Docklands.’
‘CBRE predicts if the price of oil continues to drop for a sustained period then the huge GCC government-owned funds tasked with spending surplus cash on assets abroad may cut back on plans to buy European prime assets.’
Considering the proven horrible store of value real estate represents and massive risk involved in holding it, why is it these outfits are buying such risky depreciating assets?
Nobody expected a “paucity of funds”.
‘The realty market in Chandigarh is subdued even after the 25 basis points rate cut announced by the Reserve Bank of India last week.’
‘The proliferation of group housing societies in the suburbs of Chandigarh by the local builders created a glut in the market and slowdown in demand-effected the realty sector.’
‘Anil Chopra, Chairman, CREDAI Punjab, said prices were at rock-bottom-level. “There has been a correction of 30 per cent to 40 per cent in the residential property in the tri-city in the past one year. Despite huge discounts, sales have decreased to 20 per cent of what it was three years back”, he said.’
“A 25 basis point rate cut is a drop in the ocean. We are hoping to get more such announcements by RBI to revive the sentiments,” said Chopra.”
‘According to Mangat Rai, the director and partner of Subhash Mangat and company, “Genuine buyer has always been there but the investors are missing. The demand for Budget housing has not been less-effected but a substantial dent in overall demand has been there.”
“by RBI…”
Oh Government, save us!
You should have been building housing that people could afford to live in.
I thought this was funny:
‘Seven out of nine randomly chosen e-commerce platforms have been found selling fake or unlicensed products, China Central Television reported on Monday, citing quality checks from the State Administration for Industry and Commerce (SAIC) and the China Consumers’ Association.’
‘Out of 92 samples, 38 failed quality tests, while online shopping platforms such as Jingdong Mall, Taobao, Tmall, The Store and zol.com all had unlicensed products on sale. Taobao was the worst performer, with 32 samples out of 51 products without license.’
‘Merchandise problems include the sale of imitation goods, poor quality items, refurbished products, lack of safety certification and the use of unauthorized sales channels, along with goods failing to match product descriptions.’
Behold… The Chinese Economic Juggernaut in all its glory. With a little luck, you might even get a side-order of melamine mixed in with your product. Mmmmmmm nom-nom-nom-nom!
Crappy quality and fraud from China?
There’s still time to jump in on Alibaba stock before it completely tanks.
Plenty of that goes on at Amazon too, some items (like cell phone accessories, etc) have customer reviews going way back indicating they are not the brand name claimed, and/or of very poor quality, etc…yet Amazon does not boot the item or vendor…and these things generally do come from mainland China.
‘A global research company says Australia is on the brink of a housing correction, as its forecast for the Australian economy remains “downbeat”. The recent upswing phase – which has seen house prices in Sydney surge 30% over the past two years – is expected to change in the coming months, according to Guy Bruten, a senior economist for AllianceBernstein.’
“… with signs of oversupply starting to emerge in pockets of the market, and with APRA … starting to offer “guidance”—a weak form of macro prudential policy—one wonders how long this can continue,” he said in a note to investors. “There’s a clear risk that falling house prices may be the next phase in the post-commodity-boom adjustment story.”
‘Lumber Price Falls Due to Overcapacity’
‘With the labor market strengthening, more and more people are making big spending decisions. So why is the lumber price falling when there is increasing demand?’
‘Lumber price in the US peaked in the first quarter of 2013 to $405/thousand board feet, up 42% year-over-year and the highest level since 2008. This was mainly to due high import demands from China. However, since 2013, the price has been at a steady downward trend due to falling demand from China as the growth momentum in the country weakens. Pushing the price down even further, European importers of lumber have been curbing imports from the US due to the weakness of the euro against the dollar. Consequently, the short-term lumber price has been on a downward trend for 2 years despite record high levels of new homes being built in the US in recent months.’
‘It seems that the US lumber industry has not reacted fast enough to the falling demand from China and Europe, since there is currently a significant level of overcapacity of timber in the market. Timber harvest in the US has gone up for 4 consecutive years. Soft-wood lumber harvest was 5% higher in the third quarter of 2014 than the previous year. US lumber production in October 2014 totalled 2.8 billion board feet, up 7% from the previous month, according to the Western Wood Products Association’s Lumber Track. This increase in production is likely to continue in the US in the upcoming months due to a number of sawmills being built and capacity increasing in the existing ones.’
‘In addition, even with 1.1 million housing build starts, the US consumer faith in the long term health of the US economy has not picked up as quickly as the housing and construction industry had perceived.’
despite record high levels of new homes being built in the US in recent months ??
I question that statement….Would like to see the numbers…
It’s sort of like the record high affordability stuff we hear. People get a little carried away.
‘US corporates have started reporting their financial results for the 4th quarter of 2014. So far, it looks horrible.’
‘4% sales growth is close to the trailing four quarter average at the end of 3Q for the S&P. This is also consistent with the 2.5%-3% real growth seen in most of our main macro indicators (post). So sales seems to be continuing its trend. There is no smoking gun here.’
‘However, 4% EPS growth is less than half of the 9% trailing four quarter average at the end of 3Q. That’s a big drop. What accounts for that difference?’
‘Recall that the higher growth rate in EPS relative to sales is a product of expanding margins. A 10 basis point increase in margins adds about 100 basis points to EPS growth. Over the past year, trailing 4 quarter margins have expanded by about 40 basis points. This has turbo-charge EPS growth in recent years.’
‘So the upshot is this: excluding energy, margins for the rest of the S&P may have reached a plateau. This is quite a change. Why might this be?’
‘US corporates have started reporting their financial results for the 4th quarter of 2014. So far, it looks horrible.’
Oh the humanity! Sales and profits are still growing, just not as quickly as Wall Street’s insatiable maw demands! Profit is only up 4%. Most people can only dream of a 4% raise.
No problem, this can be fixed with more layoffs and offshoring, plus salary and benefit reductions for those who are lucky enough to not get axed.
Now get cracking and look busy!
“In addition, even with 1.1 million housing build starts, the US consumer faith in the long term health of the US economy has not picked up as quickly as the housing and construction industry had perceived.”
Just remember the pre-2008 reality for U.S. housing. 1.5 million units started was an average year. 2 million was a peak year. 1 million was a severe recession.
We had lots of peak years, followed by lots of below recession years. In the end the housing bubble might lead to a housing shortage, at least in places where more is needed, because capital flees the sector. The same may happen to energy.
In the end the housing bubble might lead to a housing shortage, at least in places where more is needed, because capital flees the sector ??
Huh ?? If there is a shortage would not Capital go towards it vs. flee it ??
Not only lumber - steel, copper and other construction related commodities are tanking….
see here……https://confoundedinterest.wordpress.com/2015/01/22/where-is-the-demand-construction-commodities-continue-to-tank-in-price-new-chapter/
The chart showing lumber, copper, steel etc is telling.
On Singapore:
‘The vacancy rate for private homes is at its highest level in nearly 10 years - the result of rising completions and curbs on foreigners coming here to work, experts say. About 7.8 per cent, or 24,062 completed private residential units, were vacant at Dec 31 last year, according to figures released by the Urban Redevelopment Authority (URA).’
.That was an increase from 7.1 per cent or 21,569 vacant units in the third quarter of last year and the highest vacancy rate recorded since 8.4 per cent in the fourth quarter of 2005..
.The vacancy rate includes sold and unsold units, but most of the completed units would have been sold as they were launched before the introduction of the total debt servicing ratio, said Mr Alan Cheong, Savills Singapore research head. “(The high vacancy rate) is symptomatic of supply coming on stream faster than demand. And the structure of demand has been changing… Whereas, for the past 30 or 40 years, one expatriate could be mapped onto one apartment, one expatriate may now be taking up a smaller apartment or a room.”
‘Last year, 19,941 private residential units were completed, up 52 per cent from 13,150 in 2013. Another 21,359 units are pegged for completion this year, and 20,919 next year. “It’s quite a great magnitude; vacancy rates could rise further if leasing demand does not pick up,” said Mr Ong Teck Hui, JLL national research director.’
‘As most new completions are condos, the non-landed segment’s vacancy rate rose to 9.1 per cent in the fourth quarter from 8.2 in the third quarter, said Mr Ong.’
‘The completions have put pressure on rents, which fell 1 per cent for the fourth quarter and 3 per cent for the full year - a reversal of four straight years of rising rents. Across different residential types, rents for semi-detached homes fell the most at 7.6 per cent for the year, and non-landed homes the least at 2.6 per cent.’
‘Rents are set to fall by up to 8 per cent this year, with the drop most pronounced in the central region as firms keep cutting back on housing allowances, said Mr Ong Kah Seng, R’ST Research director. The market could head towards a 10 per cent vacancy rate this year, said Mr Cheong. “With cooling measures in place, we are heading into a period of uncertainty and sailing into a storm.”
‘Yet even if measures are relaxed now, demand may not come back, he said. For example, many multinational corporations will not be pushing as many staff to Asia as their home economies have not recovered for some time, and they are facing slower demand in Asia owing to China’s slowdown, he said.’
“As long as Singaporeans hold a job, we can take 10, 11 per cent vacancy rates. But if another global crisis hits and unemployment goes up, rents will start to crash and there will be foreclosures. In fighting asset inflation, we have also increased risk.”
‘A cooling property market has deterred real estate agents from entering the industry - and more are choosing to let their licences lapse, figures from the Council for Estate Agencies revealed yesterday.’
‘As at Jan 1, after the latest annual licence renewal exercise, there were 30,830 “registered salespersons” or property agents, down from 31,783 last year. Of these, 3,006 were new entrants, down from 3,336 last year and 4,567 the previous year.’
‘PropNex Realty chief executive officer Mohamad Ismail Gafoor was not surprised by the fall in interest, given the recent slowdown in both the private and public property markets. “When people know that existing agents are struggling, they don’t want to join,” he said.’
On Singapore:
‘The vacancy rate for private homes is at its highest level in nearly 10 years
Sounds like another Asian Tiger, one that is utterly dependent on exports, is beginning to cough. Is it just a “tickle” in their throats or is it something a bit more serious?
More serious as in contagious Paucity of Funds?
“Paucity of Funds”
Would be a good user name.
or is it something a bit more serious ??
Thats the zillion dollar question now isn’t it…
‘Greek property prices posted the biggest drop in the entire European Union in the third quarter of 2014, according to Eurostat figures published on Wednesday in Brussels. The data reflected the picture shown by a Bank of Greece survey, which pointed to a 7 percent yearly decline in the July-September period.’
‘Slovenia ranked second, with a 5.4 percent slide, while Cyprus ranked fourth, as its property prices dropped 1.7 percent cheaper last summer. In the first nine months of last year Greek property prices fell by 7.8 percent on a yearly basis, according to Eurostat.’
‘The Greek housing market remains negative even though there has been a clear slowdown in the rate of decline since end-2012, when prices had posted a 13 percent fall. The BoG’s downward revision of the original data it had issued for the first half of last year and for the whole of 2013 illustrate the negative conditions: The latest figures show a 10.9 annual decline in 2013 (against an originally foreseen drop of 10.3 percent), an 8.8 percent drop in the January-March 2014 period (from 8.5 percent) and a 7.7 percent fall in April-June 2014 (from 7.3 percent originally).’
‘The recent intermediary report by the central bank stressed that the deepening of the crisis in the property market and the significant fall in demand are due to the major tax burden on real estate in recent years.’
it’s ok, greece just voted them selves FREE everything, Like us.
Let’s recap how Greece got there. Previous governments were suddenly able to borrow at the same rate as Germany. Boy did they borrow. But unlike the past, they couldn’t just ditch their currency and default. This is the EU! And there were these guys:
‘February 13, 2010′
‘Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.’
‘Interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.’
‘Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.’
‘The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.’
‘It had worked before. In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.’
‘Financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.’
‘In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.’
‘Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country’s liabilities.’
‘While Wall Street’s handiwork in Europe has received little attention on this side of the Atlantic, it has been sharply criticized in Greece and in magazines like Der Spiegel in Germany.’
“Politicians want to pass the ball forward, and if a banker can show them a way to pass a problem to the future, they will fall for it,” said Gikas A. Hardouvelis, an economist and former government official who helped write a recent report on Greece’s accounting policies.’
‘One such instrument, called an interest-rate swap, can help companies and countries cope with swings in their borrowing costs by exchanging fixed-rate payments for floating-rate ones, or vice versa. Another kind, a currency swap, can minimize the impact of volatile foreign exchange rates.’
‘But with the help of JPMorgan, Italy was able to do more than that. Despite persistently high deficits, a 1996 derivative helped bring Italy’s budget into line by swapping currency with JPMorgan at a favorable exchange rate, effectively putting more money in the government’s hands. In return, Italy committed to future payments that were not booked as liabilities.’
“Derivatives are a very useful instrument,” said Gustavo Piga, an economics professor who wrote a report for the Council on Foreign Relations on the Italian transaction. “They just become bad if they’re used to window-dress accounts.”
‘In Greece, the financial wizardry went even further. In what amounted to a garage sale on a national scale, Greek officials essentially mortgaged the country’s airports and highways to raise much-needed money.’
‘In 2005, Goldman sold the interest rate swap to the National Bank of Greece, the country’s largest bank, according to two people briefed on the transaction. In 2008, Goldman helped the bank put the swap into a legal entity called Titlos. But the bank retained the bonds that Titlos issued, according to Dealogic, a financial research firm, for use as collateral to borrow even more from the European Central Bank.’
‘Edward Manchester, a senior vice president at the Moody’s credit rating agency, said the deal would ultimately be a money-loser for Greece because of its long-term payment obligations. Referring to the Titlos swap with the government of Greece, he said: “This swap is always going to be unprofitable for the Greek government.”
‘February 13, 2010′
So Greece has been “taking its medicine” for 5 years and so far only Mr. Banker has benefited.
The commies will makes things worse, but I can see how they’re fed up. Expect Spain, Portugal and other nations to follow suit and also repudiate their debts.
What’s that word that gets used around here a lot? I remember now, its “poof!”.
IMF is 18% funded by US taxpayers- kiss it off
30% gov workers producing nothing is a bit of a drag-US is at about 14%?
The EU should teach all this lesson
more gov=less growth
‘Despite plunging oil prices, the mayor of Fort McMurray, Alta., is still optimistic about the future of the oil boomtown. Speaking to CTV’s Question Period, Mayor Melissa Blake said that that while the community of Fort Mac, as it is commonly known, is conscious of the low oil prices, residents are still “living life as they always have.”
‘One of the biggest worries in Fort McMurray right now is the housing market, which is one of the most expensive in the country. For instance, a 1,400-square-foot house listed at $739,000 — an average price for the city — recently dropped from an original listing price of $759,000 last summer.’
I don’t have much experience building on perma-frost but I can only guess there is one way to do it and that’s to pin it with friction piles like on the beach. Even with that additional expense which likely isn’t any more than $30/driven foot, there is no way the cost to build it nears one-third of that price.
These little guys seem to have it figured out.
http://www.geostrategis.com/p_beavers-longestdam.htm
Those photos remind me what a wondrous place BC is. I drove up the Alaskan Highway to Anchorage and back down the Cassiar toward Vancouver in 2001.
http://www.milepost.com/highway_info/cassiar_highway
I probably think about it at least once a day. But even then, house prices were really high.
‘Taiwan’s Foxconn Technology Group, the world’s largest contract electronics manufacturer, will cut its massive workforce, the company told Reuters, as the Apple Inc supplier faces declining revenue growth and rising wages in China.’
‘Under its flagship unit Hon Hai Precision Industry Co Ltd, the group currently employs about 1.3 million people during peak production times, making it one of the largest private employers in the world.’
‘Special assistant to the chairman and group spokesman Louis Woo did not specify a timeframe or target for the reduction, but noted that labor costs had more than doubled since 2010, when the company faced intense media scrutiny following a spate of worker suicides.’
“We’ve basically stabilized (our workforce) in the last three years,” Woo said. When asked if the company plans to reduce overall headcount, he responded “yes”.
‘That decade saw the firm ride an explosion of popularity in PCs, smartphones and tablets, largely driven by its main client Apple, but now it is feeling the effects of falling growth and prices in the gadget markets it supplies, a trend that is expected to continue.’
‘Growth in smartphone sales will halve this year from 26 percent in 2014, according to researcher IDC, while PC sales will contract by 3 percent. Similarly, the average smartphone will sell for 19 percent less in 2018 than last year’s $297.’
“Even if technology is improving, the price will still come down,” Woo said. “We’ve come to accept that, our customers have come to accept that.”
as the Apple Inc supplier faces declining revenue growth and rising wages in China ?
Well, I guess this means forward guidance because Apple just reported record sales…
Well, I guess this means forward guidance because Apple just reported record sales…
They did recently introduce a new phone and all the lemming got in line to trade in their old iPhones for a telephone that costs more than a desktop computer. We’ll see what next quarter’s numbers are like.
We’ll see what next quarter’s numbers are like ??
Well I think thats what the FoxCom layoffs are all about…Its guidence forward meaning lower Apple sales…
Foxconn contract manufactures for multiple (all) cellular phone vendors, not just Apple. A shrinking Foxconn workforce may mean other manufacturers Samsung/LG, Chinamobile, etc are shrinking.
Hey Apple……Louis Woo - Wooed you into a Fox Conn!!!!
‘U.S. single-family home price appreciation slowed further in November as lean inventories and tight lending standards have limited housing activities, according to a closely watched survey released on Tuesday.’
“With the spring home buying season, and spring training, still a month or two away, the housing recovery is barely on first base,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement. “Prospects for a home run in 2015 aren’t good,” he added.
I thought the “lean inventories” were making prices go boom. And what is it with the “home run”? Do you always need prices to go up and up?
And what is it with the “home run”? Do you always need prices to go up and up?
It’s what creates churn. And that generates commissions and fees. If prices get stagnant or worse, fall, then buyers start worrying about catching falling knives and slam their wallets shut.
Realtors are programmed to say “this one has good appreciation potential”. They don’t say “this is a nice, affordable house where you can raise your kids until they leave”. No, they are already planting the bug to get you to move again in another few years, to trade up to a bigger house, which of course generates commissions and fees.
God I hate shop talk like “lean inventories” - speak English!!!
Dallas, TX Sale Prices Nosedive 16% In 2014 On Falling Crude Prices
http://www.zillow.com/dallas-tx-75206/home-values/
‘Caterpillar Inc on Tuesday reported lower quarterly net profit that missed expectations as lower prices for copper, coal and iron ore hurt mining equipment orders, and warned the recent fall in oil prices would make for a difficult year in 2015.’
‘The world’s largest maker of construction and mining equipment said it expects only a modest improvement in the global economy in 2015 and gave an earnings outlook for the year below Wall Street estimates. Chief Executive Officer Doug Oberhelman said without a doubt Caterpillar faces a “tough year in 2015.”
It was steady as she goes until the early 90’s:
http://finance.yahoo.com/echarts?s=CAT+Basic+Chart&t=my
Nice posts today Ben….Caterpillar….Thats a world wide economic pulse…
Also…P&G complaining today about the strong dollar effecting their global sales…
Q; With all expecting FED to raise rates, in light of world-wide easing will the FED pull the trigger ?? Will they just sit on their hands ?? If the world order gets worse, could they even think of a cut ??
For now, I think they sit on their hands for the remainder of the year unless world economies do a turn-around…
Hopefully they’ll do QE4 which will further crater demand. Substantially lower prices of all items is the only cure.
Also…P&G complaining today about the strong dollar effecting their global sales…
That one doesn’t make sense. P&G manufactures its wares locally around the world, they don’t export them from the USA, and if there are markets where they don’t manufacture, they would just import from another, bigger 3rd world cesspool.
The rising dollar means fewer dollars are returned from overseas operations, all other things being equal.
scdave
I agree. sit on their hands. do nothing - a lot better than the mess they have put us in.
But lower oil, copper and iron prices should drop manufacturing costs substantialally…
Deflation anyone?
Yep…
Mark Hanson latest via David Stockman…..
http://davidstockmanscontracorner.com/the-feds-massive-qe-failed-to-revive-housing-demand-home-prices-now-heading-down-again/
When will we see a SF bay area wide decrease in prices?
Prices are falling there right now.
http://business.financialpost.com/2015/01/27/will-oils-big-drop-pop-canadas-housing-bubble/
Check out the comments section. The majority of comments are like this:
Finally an article that is actually reflective of what might happen with our housing market. Toronto isn’t going anywhere. There is much too much demand and not enough supply. Vancouver is almost the same. You would need an Asian flu to dampen the costs there and Alberta is more vulnerable.
http://business.financialpost.com/2015/01/27/will-oils-big-drop-pop-canadas-housing-bubble/
Check out the comments section. Many comments are jus tlike this:
Finally an article that is actually reflective of what might happen with our housing market. Toronto isn’t going anywhere. There is much too much demand and not enough supply. Vancouver is almost the same. You would need an Asian flu to dampen the costs there and Alberta is more vulnerable.
Per Zillow I don’t see any such price decrease in Fremont.
Same deal in Seattle area - dual-income techie couples keeping demand very high. Houses priced right sell in a day or two.
Don’t know what to tell you bud. Falling prices and collapsing demand at any price.
Walk away? Default? Those are your options.
It’s getting worser:
‘Troubled Chinese property developer Kaisa Group failed to remove a local government block on sales at its Shenzhen projects during talks with public officials on Monday, a company source familiar with the discussions said.’
‘Kaisa is struggling after a string of senior executives left unexpectedly and authorities blocked sales at some of its projects in Shenzhen late last year. The company failed earlier this month to make a $26 million interest payment on its bonds due to mature in 2020, and now has until Feb 9 to pay that coupon or else become the first Chinese real estate firm to default on its offshore debt.’
‘Kaisa’s bond prices came off their day’s highs after Reuters reported the company had failed to remove the sales block, traders said. Kaisa bonds that are due to mature in 2017 were trading at 62/66 cents on the dollar, off the morning levels of 66/69.’
‘Kaisa’s problems have left buyers of apartments in their upcoming developments unsure as to whether they will get their flats or suffer hefty financial losses if the firm goes bust.’
‘On Saturday, some 2000 Kaisa home buyers wearing white T-shirts with the slogan “I want my home”, staged a protest to demand authorities protect their rights. Police set up barricades preventing protesters from getting close to Shenzhen’s government headquarters.’
http://www.reuters.com/article/2015/01/27/kaisa-group-debt-talks-idUSL4N0V61U320150127
‘Itochu Corp’s US$5 billion purchase of a stake in China’s Citic Ltd. has almost doubled the Japanese trading house’s default risk amid threats of a rating downgrade.’
‘Itochu’s credit-default swaps jumped to 79.5 basis points yesterday from 47 in early-December, when reports appeared on talks to invest in the Chinese conglomerate with Thailand’s Charoen Pokphand Group. Yen corporate credit-default swaps cost 66.5 basis points on average yesterday, down from a two-month high of 76.5 in mid-December, according to the Markit iTraxx Japan index.’
‘The investment was announced on the same day Citic said it will write down as much as US$1.8 billion on an investment in an Australian iron ore mine that’s over-budget and was subject to a royalties dispute with local tycoon Clive Palmer.’
http://www.businesstimes.com.sg/banking-finance/itochus-us5b-china-bet-doubles-default-risk-japan-credit