If Everybody Is Thinking The Same Thing
Reuters reports on Sweden. “Having twice cut rates into negative territory, Sweden’s central bank is locked in a high-stakes currency war with the European Central Bank that could stave off deflation but risks creating another property bubble. The danger is that the ultra-loose monetary policy could encourage households to take on more debt. ‘Our fundamental view is that they have been forced to take this aggressive action because of past mistakes,’ said James McCann, European economist at Standard Life Investments. ‘The risk for them is if they go big on asset purchases it could feed through into bigger credit creation in the housing sector and they would be stoking financial stability risk.’”
“Memories of Sweden’s crippling property crash of the early 1990s remain vivid. Though set against a different backdrop — high inflation was then endemic in Sweden — a real estate lending boom crippled several banks as loans went bad, necessitating a costly state rescue. The rest of the decade was spent slowly restocking public finances amid soaring unemployment that even now has yet to return to pre-crisis levels.”
The Associated Press on Brazil. “Developers brag that the athletes’ village for the 2016 Rio de Janeiro Olympics will rival a five-star resort. The village will be turned into a private condominium complex after the games with some of the 3,600 luxury apartments selling for up to 2.3 million Brazilian reals ($700,000). Christopher Gaffney, who spent 5 1/2 years in Rio researching the 2014 World Cup and Olympics, called the village ‘a transfer of wealth program from the public (treasury) to private construction firms.’ ‘Beyond the floodlights, the Olympics are always about real-estate speculation in the local context and Rio, with its already major problems of housing stock and social polarity, is definitely no exception,’ said Gaffney, an American who teaches geography at the University of Zurich.”
The New Zealand Herald. “The head of Australia’s banking regulator says the current state of the housing market poses a possible risk to the economy, even if it isn’t in a bubble. But Australian Prudential Regulatory Authority chairman Wayne Byres stopped short of saying Australia was in a housing bubble. ‘I don’t know what a bubble is and I don’t quite know how you spot it … If these things were easy to spot and define, almost by definition regulators could deal with them,’ he said.”
The West Australian. “WA’s slowing economy and a flood of new high-density developments have pushed Perth’s housing market into oversupply. The number of Perth properties listed for sale is up by more than 2000 since the start of the year to 14,000-plus, while sales are down 15 per cent from the same time last year. The number of properties advertised for rent has also continued to rise, up 210 per cent in three years to 6500, according to Real Estate Institute of WA figures.”
“‘It’s not just that everyone’s selling, it’s that we are getting fed into the market a very high number of units and apartments that are coming on-stream,’ said REIWA president David Airey. ‘With this large supply of homes for sale and rent, it’s likely we will see negligible price growth across 2015 and a fairly slow market for those selling property or looking for tenants.’”
The Financial Post in Canada. “Real estate sales in Alberta are off as much as 30% to 40% from a year ago and listings are way up, creating one of the worst scenarios in which to sell your home. Robert Brown, who just published Wealthing like Rabbits, says preparing for a downturn comes well before the economy turns and begins with staying out of personal debt. Selling off assets is a possibility, but if everybody is thinking the same thing ‘you take a hit on price,’ as people will discover if they sell houses in Alberta today, said Mr. Brown. ‘Maybe you don’t have to sell off big-ticket items but things that are inside your home,’ he says.”
The Strait Times on Singapore. “Almost six in 10 public rental flat applicants today are former home owners who had sold their flats. Cases where unforeseen circumstances such as illness or retrenchment lead to mortgage trouble, are not uncommon, MPs, social workers and tenants told The Straits Times. They also listed debt, divorce, family conflict and imprudent spending as other reasons. There are also home owners who get carried away with the proceeds after selling their flats. ‘Many have not seen so much money before, they think it’s a bottomless pit,’ said Pasir Ris-Punggol GRC MP Zainal Sapari.”
“Chua Chu Kang GRC MP Zaqy Mohamad mentioned a family who went on vacations and stayed in hotels in Singapore after getting more than $100,000 from selling their flat. ‘By the time they came to me (three years ago), they were living in a van,’ he recalled.”
From Asia Times. “There’s certainly been no shortage of ‘How’ questions on Kaisa, the first Chinese property company to default on its offshore U.S.-denominated public bond obligations in the history of the Asian high yield market. This article though, isn’t about Kaisa. It’s more about the trends of debt in Asia and that ever-familiar sense of deja vu one gets whenever the subject turns to lending in this region.”
“Its difficult to shake off a feeling that nothing changes in Asia until and unless it really has to under the force of circumstances. A reader can’t be faulted for asking an obvious question – if nothing has changed, what’s the point of changing it? The answer to that is worthy of a separate article. But a summary of my views are appended below.”
“The penultimate reason and one that has been largely overlooked is – Japan. That country failed to take defaulting real estate companies by the horns in the late ’80s and early ‘90s owing to self-serving logic of avoiding a rapid decline in asset prices. As history has now shown, that decision to protect these companies from bankruptcy helped to create 20 years of zero to negative growth for the nation and made it the impotent economic sideshow it now is.”
“The last reason is also one that may be controversial – but it is something I fervently believe in. Failure to repay without fear of consequences is arguably a ‘public bad’ as inefficient businesses remain in operation and end up sucking what are essentially illegal public subsidies to remain in operation.”
“As a friend who is a restructuring lawyer in Asia mentioned recently – ‘Look at the proverbial table. The issuers of debt who are now defaulting are the same chaps who defaulted in 1997. That’s bad enough, but what’s more galling is that investors who are on the other side of the table are also the same institutions (if not the same individuals) who were at the table back then. No one learns anything in Asia.’”
“He could have added that all other professionals – lawyers, financial advisers, bond traders and private investors in such bonds – are also pretty much the same from 1997.”
Sales fall off a cliff
Inventory rises
Prices hold steady…
“Hey, I am not going to give this house away”
Sales fall even more
Inventories rises even further
Prices get sticky..
“Hey, I am just chasing the market down”
The Financial Post in Canada. “Real estate sales in Alberta are off as much as 30% to 40% from a year ago and listings are way up, creating one of the worst scenarios in which to sell your home. Robert Brown, who just published Wealthing like Rabbits, says preparing for a downturn comes well before the economy turns and begins with staying out of personal debt. Selling off assets is a possibility, but if everybody is thinking the same thing ‘you take a hit on price,’ as people will discover if they sell houses in Alberta today, said Mr. Brown.
There is, in fact, a book called “Wealthing like Rabbits.” Ironically, while Canadians are “wealthing,” their birth rate has declined to 1.6 births per woman, well below replacement, which suggests that bigger problems are coming.
Negative population growth is the only thing that will save us.
ZPG or NPG would eliminate a lot of problems, but what was the point of Americans having children at less than replacement rate if we were just going to open up the borders? Canada is similarly opening its borders, albeit in a slightly more intelligent manner.
From a holistic standpoint, I don’t disagree with you, but our institutions are going to have to evolve commensurately so that they reflect contraction rather than Ponzi dynamics. Right now the “solution” is to hose young people and future generations at the expense of reform.
Right now the “solution” is to hose young people and future generations at the expense of reform.
It is and I do not understand why they continue to vote for Ponzi schemes and to continue them. Social Security needs to be made solvent and the solution requires a latter year of retirement, I know that sucks but it is required. My retirement age was already raised the last go around. Higher taxes are needed also the Bolles/Simpson fix should be passed tomorrow. Additionally, the government should have to pay 5% interest on the remaining trust fund and stop using financial repression to fund itself.
“It is and I do not understand why they continue to vote for Ponzi schemes and to continue them.”
Home equity wealth gains = retirement wealth for people with no pension or savings.
“The last reason is also one that may be controversial – but it is something I fervently believe in. Failure to repay without fear of consequences is arguably a ‘public bad’ as inefficient businesses remain in operation and end up sucking what are essentially illegal public subsidies to remain in operation.”
Since when is the ‘heads we win, tails you’re screwed’, too-big-to-fail business model illegal?
Yeah. I thought that was the ideal. You get to that point and start spouting off free-market rhetoric as a distraction.
‘Real estate developers have latched on to the auspicious occasion of Chaitra Navratri in north India, Gudi Padwa in Maharashtra and Ugadi in south India starting on Saturday to offer spot discounts and freebies in addition to deferred payment plans and other schemes.’
‘Richa Realtors in Mumbai and Avalon Group in Delhi are offering spot discounts of up to Rs 5 lakh in some of their projects. Tata Housing Development Company and Godrej Properties, on the other hand, are focusing on the 30:70 payment plans to attract buyers to their projects in Bengaluru and Mumbai respectively.’
‘While Omkar Realtors & Developers and Olympeo Infrastructure in Mumbai and Mahagun Group in Delhi are offering gold coins on home purchases, Bengaluru-based Ozone Group is offering a lower down payment of 10% for Ozone Urbana in the city.’
‘That’s not all. Supertech is offering a three-bedroom apartment at a price of a two-bedroom unit at one of its projects in Greater Noida during Navratras.’
‘The offers come after home sales plunged 17 per cent in top six markets in 2014 and the inventory level rose to 647,484 units, according to property consultant Knight Frank India, leaving the developers with a severe liquidity crunch.’
‘Experts say this is a win-win situation for buyers and developers. “No one will get better pricing levels than that exist today, and to top it all if the buyers are getting more discounts or an added freebie, it’s an icing on the cake,” said Mudassir Zaidi, national director (residential services), Knight Frank India.’
‘A report from analysts at Barclays suggest that demand is waning in China for a number of commodities, including oil, and will likely continue that way for the next five years. What that could mean for the Canadian economy remains to be seen.’
“Oil prices seem poised to dip further and housing risks are growing as demand in Alberta’s hot real estate markets appears to be plummeting,” said Alexander Lowy, an associate economist at Moody’s Analytics in a note.’
With China clearly past peak construction, the price for all the construction inputs drop all around the world. Not the least of these is oil. Five years for them to recover from a $30 Tr debt binge? That seems a bit optimistic.
Chinese will have 7.2 percent growth this year and 7% growth next year according to an outside source:
http://europe.chinadaily.com.cn/business/2015-03/24/content_19897268.htm
China GDP Growth To Ease To 6.85% In Q1: Think Tank
3/24/2015 3:32 AM ET
China’s economic growth could ease further in the first quarter of this year from a five-year low logged in the final three months of 2014, a top government think-tank predicted this week.
Gross domestic product growth could ease to 6.85 percent in the first quarter of the year from 7.3 percent in the fourth quarter of 2014, the Chinese Academy of Social Sciences said.
Earlier this month, the State Information Centre predicted that China’s economic growth is set to slow to 7 percent in the first quarter of this year.
Full year growth in 2014 was 7.4 percent, which was the slowest in more than two decades. This month, the government lowered its growth forecast to 7 percent this year from 7.5 percent set for last year.
On Tuesday, the Asian Development Bank said China’s growth is likely to moderate this year as the economy adjusts to a new normal, while the pickup in India and other Southeast Asian nations are set to balance the deceleration.
…
1. 6.8% is around 7% by any reasonable measure
2. The interest rate cuts need time to have an impact and there will be more as the year goes on.
3. It is interesting that the article mentions that growth will moderate according to the ADA but fails to mention that moderation is from 7.4% to 7.2% according to them.
You’re backpedaling again.
Not at all, my prediction has always been China will grow around 7% in both 2014 and 2015, find a post where I said different from that.
Except that you didn’t predict anything. You only parrot what the Communist Party boss predicts (and self reports). It is meaningless.
No, the Chinese government was predicting 7.5% and it is not meaningless since numerous outside entities are also reporting growth in China at around 7%. Most on this board were seeing and predicting a collapse of China which has not happened. It is Brazil and the EU that have been seriously under performing not China.
China has just closed two coal electric plants near Beijing. One plant is 93 years old and the other is 66 years old. That is reflective of a lot the closures that are going on in China. When new factories, electric plants etc. were built the older less efficient more polluting entities were not shutdown to meet the 10% GDP growth targets. With a 7% growth target, they are being shut down. However, this just makes China a tougher competitor.
Are China’s official numbers any more believable than our own gamed stats?
No, but no less believable. Certainly, it is easy to see that the Chinese are far wealthier than they were twenty years ago, certainly, I cannot say that about Americans.
“…will grow around 7%…”
around = weasel word
Growth hit looms
Tuesday, March 24, 2015
China’s economic growth in the first quarter may drop to 6.85 percent in what would be the lowest for the past 24 years, according to the latest report from the Chinese Academy of Social Sciences.
The National Academy of Economic Strategy, which operates under CASS, said gross domestic production may slide 0.6 percentage points to 6.85 percent from the first quarter of last year, with inflation slight at 1.3 percent.
This is likely to be dragged down by sluggish investment and industrial growth. China’s GDP growth target is 7 percent.
…
Monkeys will fly out of your butt according to an outside source.
I have a question for the board on how we keep track of housing crashes and account for currency movements. Take for instance Brazil, its currency has fallen more than 35% against the dollar over the last two years. Thus, if someone from the U.S. bought there they would be down that much even before accounting for the decline of the house in the local currency. China’s currency over the last two years has stayed about the same. Thus, has Brazil had a stealth crash in housing prices?
The following excerpt is responsive to Blue Skye a don’t know how what China is recovering from, 7% growth is hardly weak.
Excerpt from China Daily:
China is set to post GDP growth of 7.2 percent this year and 7 percent next, the Asian Development Bank said in its annual economic report on Tuesday.
Asia’s largest economy is likely to retain its position as the biggest contributor to world GDP growth over the next two years.
“China’s economy can continue to deliver solid growth as long as the government makes steady progress on its reform agenda which can elevate productivity,” said ADB chief economist Shang-Jin Wei.
“Deepening financial sector reform, such as reducing the dominance of State-owned banks and liberalizing interest rates while preserving financial stability, is a key element of the needed reform package,” he said.
China’s economy will contribute 32 percent of world growth this year, compared with 16 percent from India, the report said.
The strengthening of the RMB against the currencies of most the country’s partners that began in 2014 may continue in 2015, in line with a strongly appreciating US dollar and the still close connection between the two currencies, according to the ADB report.
“Blue Skye a don’t know how what China is recovering from…”
Quite possibly we are not speaking the same language. Either that or your smart phone should be revoked.
The Commie Daily Liar (self published) is sometimes rather amusing. Now China is going to increase GDP by eliminating bribes and kickbacks, oh and by shifting more to shadow banking. The other day they were going to grow by building more houses and factories (service sector growth). Brilliant.
Last year we learned that China built 60 million too many houses that stood empty. Last year was supposedly their peak completion year so that number is probably a gross understatement. Now we learn that there are another 70 million housing units that have started but not yet completed. So, China will have to recover from building some 140,000,000 useless empty houses. At the height of the mania in the US, we only built 1,200,000 houses.
The China miracle has been hollowed out. There is a gaping hole in it that you can drive a super tanker through on the way to the scrap yard. The rest of us can now enjoy the bountiful natural resources that have been heaped up in preparation for the China to infinity show.
Either that or your smart phone should be revoked.
You might be correct on that. How do those teenage girls type so fast on smart phones?
‘The Reserve Bank of Australia is likely to keep cutting interest rates as the need to support the economy leaves policy makers willing to stoke a housing boom, according to Goldman Sachs Asset Management.’
‘With debt yielding little or nothing after consumer price gains, investors will increasingly look to other asset classes such as property or equities, said Philip Moffitt, head of Asia-Pacific fixed income at the Goldman Sachs unit, which oversees $US1 trillion. Swaps markets show the RBA is likely to cut interest rates at least once more from an already record low level and government bond yields out to six years are now below 2 per cent, the lower end of policy makers’ inflation goal.’
‘RBA Governor Glenn Stevens has succeeded in pushing home prices to record highs in some cities and driving down shorter-term bond yields in an effort to revive “animal spirits” among businesses. He’s signalled further easing is possible amid a drop in mining investment, plunging commodity prices, unemployment near a decade-high and a currency above its historical average.’
“The most obvious and direct beneficiary of this environment will be continued real asset appreciation, particularly houses because they’re easy for people to buy, it’s easy to transact and it’s visible and tangible,” Moffitt said in an interview in Sydney on March 17. “It seems to me that the RBA has just accepted that a strong housing price move is an acceptable consequence, it’s the lesser of two evils basically.”
“With debt yielding little or nothing after consumer price gains, investors will increasingly look to other asset classes such as property or equities, said Philip Moffitt, head of Asia-Pacific fixed income at the Goldman Sachs unit, which oversees $US1 trillion.”
If debt yields little or nothing then these “investors” most likely will not be the little guys who do their own investing and do their own thinking but instead it will be the investment pros who handle other people’s money and charge a fee for doing so.
And because they charge a fee in a low-return environment they will be forced to take a lot of imprudent risks that they normally would not be forced to take in a high return environment if for no other reason but to generate enough money so to extract their fees. And these imprudent risks should not really bother them all that much since the money they are subjecting to these risks BELONGS TO SOMEBODY ELSE.
And it’s not as if they have much of a choice in the matter since extracting fees from piles of OPM is what they do.
Maybe Mr. Moffitt can help me out on this. What is the other evil?
‘With the European Central Bank’s fight against deflation pushing yields on almost a third of the euro area’s $6.26 trillion of government bonds below zero, even the most risk-averse investors are taking chances on assets and regions that few would have considered just months ago. That’s exposing more clients to the inevitable trade-off that comes with the lure of higher returns: the likelihood of deeper losses.’
‘The shift is a consequence of how topsy-turvy the bond market has become as falling consumer prices and stubbornly high unemployment prompted the ECB to step up its quantitative easing with government debt purchases.’
‘About 1.44 trillion euros sovereign debt, valued at about $1.9 trillion as of their issue dates, from Germany to Finland and even Slovakia, carry negative yields.’
‘That means the bonds guarantee losses for buyers who hold them to maturity. In effect, investors are betting the securities will appreciate in price before then, allowing them to sell at a profit before they come due.’
‘On average, the 19 countries that use the common currency can effectively borrow euros for almost a decade and pay about 0.5 percent in interest, index data compiled by Bloomberg show.’
‘The perils of going into riskier debt were demonstrated when Austria removed its support for state-owned Heta Asset Resolution AG, undermining confidence in the 1.3 trillion-euro market for state-guaranteed debt that was once deemed risk-free.’
‘Before the credit crisis, bond investors could get yields closer to five percent from benchmark debt issued by Italy and Portugal, compared with yields of 1.3 percent, and 1.72 percent, respectively, as of 3:55 p.m. in London.’
‘Now, monetary easing by more than two dozen central banks around the world, from those in Japan to Switzerland to China, means some investors are going further afield such as Indonesia to get the similar returns.’
‘Iain Stealey, a fixed-income manager at JPMorgan Asset Management, which oversees $1.7 trillion, is doing just that. He says low borrowing costs and subdued inflation will support junk-rated corporate debt, which yields 3.6 percent in Europe.’
“When you are paying some governments to own their bonds, 4 percent actually looks very decent,” Stealey, who declined to comment on specific fund holdings, said from London.’
Is that a mis-print? Junk bonds yield 3.6%?
Turning and turning in the widening gyre.
Junk, the new normal.
‘The King Abdullah Economic City, or KAEC — pronounced “cake,” is being constructed by Saudi Arabia. The planned megacity in the desert will be slightly larger than Washington D.C. and home to approximately two million residents.’
‘Covering 70 square miles, the metropolis is costing $100 billion and lies 62 miles from Jeddah, the commercial hub of the kingdom. The city currently resembles a dusty building site dotted with building cranes. Work is not expected to be complete on the building for at least 10 years.’
‘KAEC is one of four new cities being built to diversify the Saudi Arabian economy, which is overly dependent on oil. The city has its own Web site showing plans, maps and including details on how to invest.’
“We’re building with the 65 percent of the population who are under 30 in mind,” officials say. “And we have almost 200,000 Saudis studying abroad. Inevitably they are going to change things when they come back.”
‘There are flies in the ointment . Given that more women than men graduate from university, the Saudi landscape will shift over the coming years in many ways. There are 56 miles of roads in use in KAEC. Under present deeply held religious beliefs prohibiting it, no women in the country are able to drive on them.’
Building an empty city in the middle of the desert for 2 million people - what could go wrong?
No water
No factories
No farms
No mines
No manufacturing
Everyone will have a nice a\c office job and live in a condo…
Makes you wonder how many of these 100,000 plus women going to school abroad will actually want to return.
Dave Eggers’ novel “A Hologram for the King” was set in King Abdullah Economic City. Highly recommended reading. An unmistakable theme of the book was how emasculating economic changes in the United States have been.
This quote was from the former ruler of Dubai, but it applies to the entire Arabian peninsula: “My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.”
‘Would you live in a funky floating apartment? It’s happening all over the world, and might help solve Melbourne’s housing crisis. It’s the first of 10 solutions we’re showing you today.’
‘Here’s what is happening in Vancouver (pic courtesy of najarich/flickr). And here’s one in The Netherlands (photographer Luuk Kramer).’
‘Here’s some in Seattle, where real estate company Copper Jacobs specialises in such properties. And here’s one in London, called Inachus Floating Home, by Sanitov Studio.’
‘Floating homes are but one of a number of radical - and less confronting - ideas to fix one of Melbourne’s biggest problems; a lack of housing options. It’s a menacing situation that is already shackling our aging and rapidly growing population’s ability to enjoy life in our sprawling metropolis. In essence, we have too many dog-box apartments in the CBD, too many massive new homes on the fringes and too many single dwellings on quarter-acre blocks in the middle suburbs.’
‘Here are the other nine ideas: 1. CONVERTED SHIPPING CONTAINERS: Would you live in a home created from shipping containers?’
‘8. TINY (AND EXTREMELY CUTE) PORTABLE HOMES. A Melbourne-made international documentary premieres in Brunswick this month. It is called Small is Beautiful is a documentary on the tiny house movement - which started after Hurricane Katrina wiped out so many homes in New Orleans in 2005 and which refers to complete homes of less than 9.3 square metres.’
‘Here’s one made by Australian James Galletly, also known as The Upcyclist.’
‘10. REPURPOSING EXISTING BUILDINGS. Converting warehouses has long been embraced as an enchanting way to create housing options. Here’s a terrific twist on that notion - turning a silo into apartments. This one is in Abbotsford, where a grain storage space was turned into 48 apartments.’
‘By failing to create options, we are not only depriving individuals and families of lifestyle flexibility. We are also imposing traffic hell on so many people, at huge social and economic cost. Many, many thousands of people are losing so much precious time and money and suffer so much stress doing this.’
I hear there will be plenty of new housing in new desert cities in Saudi Arabia…
Riverboat may house luxury condos on Mississippi
Luxury riverboat condos may coming to New Orleans
Meg Farris / Eyewitness News 6:01 p.m. CDT March 10, 2015
NEW ORLEANS — We’ve done stories before about how downtown living in New Orleans is booming, but not like this. Some developers have come up with a new concept. Imagine living on a floating home, and your address the Mississippi River.
“It’s totally different and we’re kind of breaking new ground,” said Becky Jones, a co-owner of the project and a real estate agent with Top Agent Realty.
That’s the vision of some Slidell businessmen and women, to move an iced in river vessel from it’s home as a former casino boat in Madison, Iowa, down to the Crescent City to be renovated into a four-story entertainment venue. It will be complete with 20 condos, hotel rooms, wedding and party ballrooms, a chapel and a gym.
“There’s such a market for condos here and it’s just such a unique vessel. It blends in with New Orleans,” she added.
…
Personally, I prefer detached single family boating.
I loled.
‘Look at the proverbial table. The issuers of debt who are now defaulting are the same chaps who defaulted in 1997. That’s bad enough, but what’s more galling is that investors who are on the other side of the table are also the same institutions (if not the same individuals) who were at the table back then. No one learns anything in Asia.’”
“He could have added that all other professionals – lawyers, financial advisers, bond traders and private investors in such bonds – are also pretty much the same from 1997.”
____________________________/
This illustrates one of the paradigm issues of our time — the complete failure of so-called expertise to solve problems or even manage them. Indeed, an alien looking at the last several decades readily would conclude that the function of expertise is to perpetuate problems, because that’s where the profit is.
When I started this blog, people at the Federal Reserve would mention moral hazard from time to time. It’s been years since they’ve let that past their lips. But here’s the thing; moral hazard is either a real issue with real consequences, or it isn’t. It’s looking like the hazard is dead ahead.
Moral hazard?
When fraud laws are not enforced and government guarantees all banker decisions?
These days it is a hazard to have morals.
That is spot on!
Good one.
The expert comes in, looks at the problem, quickly realizes that there is a pretty easy fix to it, then realizes that the fix gores someone’s ox. Either it will cause people to lose their jobs or higher ups to lose crony benefits or profits or cause the power of some important constituency to wane. A deal is then made exchanging toned down solutions that will not really work for something the expert values.