A Grand Experiment In Promoting Risk Taking
A weekend started by comments in Saturday’s Bits Bucket. “Is it a safe bet that the dollar will weaken and Wall Street will party Monday on the realization that no Fed rate hikes are imminent?” “Was it ever imminent?”
From Forbes. “The world has been on a debt binge, increasing total global debt more in the last seven years following the financial crisis than in the remarkable global boom of the previous seven years (2000-2007)! This explosion of debt has occurred in all 22 ‘advanced’ economies, often increasing the debt level by more than 50% of GDP. Alarmingly, China’s debt has quadrupled since 2007. The recent report from the McKinsey Institute, cited above, says that six countries have reached levels of unsustainable debt that will require nonconventional methods to reduce it (methods otherwise known as defaulting, monetization; whatever you want to call those measures, they amount to real pain for the debtors, who are in many cases those least able to bear that pain). It’s not just Greece anymore.”
“Quoting from the report: ‘Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points.’”
The Independent Record. “Risk taking is the life blood of a free market economy. However, free market economies have ups and downs, and are in fact prone to speculative bubbles. Success does not travel in a straight line. There will be failures and excesses, and money will be lost. It is the free market’s way of ensuring that in the long-term money and resources are allocated efficiently. In economic terms it is called ‘creative destruction.’”
“If you believe in the free market’s ability to effectively allocate resources and the forces of creative destruction, you might find some concern with the current state of things. In 2009, the Federal Reserve came up with a grand plan to turn the economy around by encouraging risk taking and putting a floor under home prices. As announced in 2009 by Ben Bernanke, the Chairman of the Federal Reserve at the time, it is called the portfolio balance channel strategy. This official strategy was to drive the returns on relatively safe assets such as U.S. Treasury bonds so low that yield seeking investors were forced into other higher yielding, but riskier assets.”
“It was a grand experiment, and it is still ongoing. Given the current level of stock markets globally versus their levels when the Federal Reserve implemented their strategy, one might say it has been successful in promoting risk taking. One might also consider other places money has flowed such as commodity production. The world is now awash in raw materials as the price of everything from oil to lumber is falling.”
“Bonds themselves might also be a bubble as yields and interest rates remain at historical lows in the United States, and are actually negative in many European countries. The problem with bubbles is that markets are never convinced it’s a bubble until it pops. The question is; can risk taking be induced by central bank policy? Or have the policies of the Federal Reserve and their counterpart central banks around the world lead to mal-investment, the inefficient allocation of money and resources, and asset price bubbles?”
The Houstonia Magazine. “‘From 1981 to 1984, we lost 210,000 people who moved away from the city of Houston,’ said Marvy Finger, CEO of the Finger Companies, the developer responsible for the construction of nearly 60 apartment complexes and rental communities in Houston since 1958. ‘It’s indelible in my mind, because my occupancy went from 95 percent to 65 overnight, and it wasn’t because of rent price,’ he recalled, sitting just to our left. ‘We were giving them away—we just didn’t have anybody to give it to. There just weren’t any people.’”
“‘Those were disaster times,’ intoned a man sitting to our right, part of a coterie of real estate experts who had met for lunch at a Galleria-area restaurant. He was Robert Bland, founder of Pelican Builders, which has developed some of Houston’s most sought-after high-rises, mid-rises, and single-family home communities over the last four decades.”
“‘There’s still a lot of uncertainty,’ Finger continued. Then Bland cut to the chase, asking the question that’s on every Houstonian’s mind these days: ‘Is this going to be the 1980s again?’ The table looked again to Finger, who sat quietly for a moment. ‘I’m not comparing this to the Confederacy just before the opening volley,’ he said, as the table erupted in laughter. ‘Everything’s gonna be okay.’”
“If there was a theme for the afternoon, it was this: everything is gonna be okay.”
“Martha Turner’s real estate firm was acquired by Sotheby’s in early 2014, after a banner year in which she sold $2 billion worth of properties in Houston alone. After last year, in which million-dollar home prices became the norm and sales rose nearly 13 percent, the luxury real estate market will also be cooling its heels in 2015. And before you ask, no, this doesn’t concern the legends of real estate either. ‘The bread and butter [of our industry] is $300,000 to $500,000 houses,’ said Tom Anderson, Turner’s longtime business partner. ‘It’s the bread and butter.’ Will the market correction mean lower home prices down the road, we wondered? Nope.”
“‘I don’t think you’re going to see prices go down,’ Anderson said, as the table nodded in agreement. ‘I think they’ll stabilize.’ What’s also definitely not going down is the price of land, which is the chief reason—along with a booming job market that brought in lots of out-of-towners with big paychecks—that real estate became so pricey over the last several years.”
“‘We’re all very optimistic about the future,’ said Finger as lunch came to a close, in case anyone still doubted it. The rest of the party murmured their agreement. And even if being bullish is their job—after all, building and selling homes is how they make their livelihood—perhaps we should all be optimistic. After all, even if inventory is low right now (read: prepare for a bidding war), at least prices have plateaued—for the moment.”
“‘We’re all very positive about Houston,’ Bland said, driving the point home. ‘It might moderate a little bit, but we’re not headed for disaster.’ What we are headed for is still a bit fuzzy, but expect a future of—at a minimum—more mid-rises and shiny new residential towers, all of them changing Houston’s landscape as indelibly as the oil boom did in the 1970s. ‘I think Houston could be the next Los Angeles or New York City,’ smiled Bland, an optimist to the end.”
‘In 2009, the Federal Reserve came up with a grand plan to turn the economy around by encouraging risk taking and putting a floor under home prices’
It doesn’t matter how many times this gets pointed out, some will still insist houses prices caught wind in their sails and were lifted by the inherent values of the market place. Floor? Zero rates and MBS purchases for how many years? This is a multi-year upward spiral concocted by central banks and governments.
The central banks rate actions aren’t a traffic light. Is it green, or yellow? These policies influence that actions of many millions of decisions. Should I buy a house? Where, how much should I borrow. Like these people above; do we build, how much do we pay for the land, how much do we borrow to build and how much can we charge.
The simple fact is, we’ve got many years of distortions, consumer and builder and lender, on a massive scale. And don’t forget that the GSE’s have been removed for any sort of market influence and are being run by a guy who wanted to lend with $1,000 down when he was in congress. This giant combination of manipulated decision making is the problem, not what the Fed does in the future.
Living beyond your means. This is the economy. This is the system forever being encouraged. Borrow to do it. Tomorrow never comes. Tomorrow never comes.
Its called kicking the can down the road as long as possible and hoping a miracle comes in the meantime.
World war 3 is that miracle.
I didn’t know that a can could be kicked hundreds of miles without hitting the ground…
Tracking tornado debris dumped hundreds of miles away helps scientists study how the powerful storms work
April 27th, 2013 by Kate Belz in Local Regional News Read Time: 6 mins.
…
NEW DISCOVERIES
Knox pitched what he calls his “harebrained idea” to current and former students, not sure who would be interested.
The room was full for the group’s first meeting.
Studying tornadoes is already popular among meteorology students. The social media component added a whole new layer of intrigue, Knox said.
On Saturdays, the students broke into teams and combed through photo albums on the site. They narrowed down the list of 2,000 items, excluding any that had no conclusive takeoff and landing point. That eliminated half of the items, but what remained was still more data than debris researchers had ever had to work with.
They then logged the starting points and ending points of the objects into spreadsheets, then plotted the points on a map. They then connected the dots and overlaid simulated tornado trajectories.
Their findings were jaw-dropping. They tracked dozens of items that had traveled between 130 to 160 miles, and others that reached distances Knox never expected to see.
One photograph was picked up in the storm-ravaged town of Phil Campbell, Ala., and traveled 219 miles to the Knoxville region. The journey broke the previous record for the longest-documented debris flight.
…
“The central banks rate actions aren’t a traffic light. Is it green, or yellow? These policies influence that actions of many millions of decisions. Should I buy a house? Where, how much should I borrow.”
Back in the early 1990s, there was an occupation in the financial sector informally known as ‘Fed watcher,’ a group of individuals who made their living by hanging on every word of Alan Greenspan’s Delphic utterances. Twenty years later, it seems that even individual households need to pay close attention to every wink and nod by the Fed’s poker players, or else face the prospect of watching their home equity vanish at the point when liftoff begins.
On the flip side of the coin, has the Fed created an implicit obligation to keep rates pinned to the mat, in order to not submerge a new cohort of post-2008 home debtors forever?
The Fed watching stuff always bugged me, because the newly emerging financial-news-as-entertainment cable shows turned it into, bad news is good, good news is good. (It should be pointed out that the Fed used to keep rate policy a secret for a while so people wouldn’t make trades based on it).
But OK, let’s ignore the actual markets and play along with the idea that the Fed is the Wizard of Oz. It’s their fantasy, so what are the foundations? The old punch bowl taker? Nudging the economy into motion when it’s stalled? Oh, the business cycle, remember that one? It’s nowhere in the discussion, kinda like moral hazard.
Then there was the ‘raise rates so you can cut them later’. No, not following that one this time.
My point is, the Fed came up with this song and dance about what it was doing and why, then decided to chuck it all out the window when Bernanke got behind the wheel. What used to be a 3 month cut (cut, not ZIRP, mind you) or 6 months, maybe a year if things were really bad has turned into going on 7 years of negative rates! Unprecedented indeed, Bernanke/Yellen. Gosh, you better be all knowing and powerful, because if you’re not, there could be a bunch of people about to get creamed.
There is a lively debate in economics over whether The Wizard of Oz was intended as a monetary allegory.
Is “Puff the Magic Dragon” a dope song?
How about “Proud Mary” (”Proud Mary keep on burnin’”)? Somebody recently told me it was a dope song.
‘On December 5, 1996, Chairman of the Federal Reserve Board Alan Greenspan asked: “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” Greenspan was worried about the stock market, particularly the booming tech sector, but for the next three years they just got more exuberant and more irrational.’
‘The subsequent crash took 38 percent off the DJIA and 77 percent off the tech-heavy NASDAQ in a couple of years.’
‘Greenspan’s speech incorporated no extraordinary analytical insight, merely recognition that in a finite world, off-the-chart returns can’t last forever, or as the old traders’ adage puts it: trees don’t grow to the sky. The paradox of Greenspan is that he made such a public utterance about a financial condition that he bore responsibility for perpetuating.’
‘Greenspan’s flood of money after that wreck launched the great housing bubble, and again those who muttered, “This is insanity,” and bet accordingly lost their shirts—until they didn’t. The tech bubble had been fed by dreams of technologies most of the dreamers didn’t understand, a belief in magic and a “new economy”. There’s nothing magic about a house. It’s a wasting asset, and for most of U.S. history it has been regarded as a place to live, not as an ATM, investment, or retirement nest egg. And certainly not as a speculative asset, bought on leverage, held for a short time, and flipped for a profit.’
‘So there was not even a belief in technological magic to “excuse” the housing bubble, just a lot of people on TV, in academia, on Wall Street, and in the government, proclaiming that house prices never go down (they did in the Great Depression), so buy one, or several, or many, before prices went up next month. But for the easy, cheap money spewed by the Greenspan and Bernanke Feds, the housing bubble would never have happened. When it burst the DJIA lost 54 percent from its 2007 peak to its 2009 low. Many of the derivatives created on the financial back end were worthless.’
‘Which brings us to the present day. If the tech mania was based on magic, and the housing mania was based on a supposed fact that was historically untrue, today’s mania is a mania of manias, interlinked and resting on premises that are patently illogical, contradicted by both the historical record and current experience. Those premises are: central planning works, government debt promotes prosperity, and economic growth stems from central banks buying that debt with money they create from thin air. On these premises rest manias in governments, their debts, and central banking.’
‘The term “developed country” now refers to those countries whose governments have developed mountains of debt and future commitments they have no hope of repaying…Most government debt doesn’t go towards projects that will produce an economic return; it funds consumption. The belief (hope?) persists that such consumption somehow leads to economic growth, although a weak “recovery” in the face of the greatest global governmental debt binge in history offers no support.’
‘The debt binge hasn’t worked out as planned, but the quack economic central planners have more snake oil: central bank monetization of that debt to suppress interest rates. The Japanese central bank has monetized its government’s debt at low rates for years. It is currently buying 100 percent of the government’s issuance, and the yield on its ten-year bond dropped to .31 percent, but Japan has endured serial recessions. If central bank balance sheet expansion and low interest rates were the road to riches, why not monetize everything and create universal wealth? The absurdity of that proposition is self-evident, but equity markets the world over rally every time a central banker hints of more balance sheet expansion and continuing microscopic interest rates.’
‘A good mechanic can listen to an engine’s rattle and correctly predict the car will break down, but not necessarily say whether it will be 50 or 500 miles down the road. Who knows when the jerry-rigged contraption known as the global economy will fall apart? It’s belching blue smoke. The oil market serves as a reminder that not all assets can be monetized and not all prices “administered” by the central planners. It may also be the dashboard red light that goes on just before the engine gives its death rattle and the car stops. This time, however, there will be no deficit-financing or central-bank-monetization AAA tow truck a cellphone call away to come rescue it.’
“Most government debt doesn’t go towards projects that will produce an economic return; it funds consumption…”
It’s a game that ends when not enough new debt can be taken to cover the payments on the old debt. The list of places that are already there is growing rapidly.
There is no doubt in my mind that what you describe has and is accurate and true. The stage has been set for a truly catastrophic collapse. What is surprising to me is how adept the Banksters have been at sidestepping the disaster. When Lehman went under it appeared to signal the beginning of the end. And while the downside was not insignificant somehow TPTB propped things up. I suspect that there were a host of manipulations involved including precious metals and of course the interest rates meant to prop up the equities and related markets.
That they have been able to keep this damaged vessel afloat for so long is what amazes me. It also impeaches and ideas I may have as to if and when the bottom will actually fall out of this debacle.
Until then I’ll just stay my own course and do my best to remain fiscally healthy.
If you ignorant pukes want to get a true glimpse of what is really going on with the economy then you should go to Wikipedia and enter the term “financial capitalization”.
Here’s a hint of what you will learn:
“Finance capitalism or financial capitalism is the subordination of processes of production to the accumulation of money profits in a financial system.
“Financial capitalism is thus a form of capitalism where the intermediation of saving to investment becomes a dominant function in the economy, with wider implications for the political process and social evolution: since the late 20th century it has become the predominant force in the global economy, whether in neoliberal or other form.”
Some people feel the financial part of the economy is the REAL economy but, IMO, we’re not quite there - but many of us hope to be there very soon.
“It’s a game that ends when not enough new debt can be taken to cover the payments on the old debt.”
Would it be correct to describe that as the point of ‘debt Ponzi collapse’?
uncle fed will expand its balance sheet as much as needed to make sure there is currency available to pay the bills. Its like some people get currency for free and then demand others to pay it back.
Don’t be silly Poet.
“Finance capitalism or financial capitalism is the subordination of processes of production to the accumulation of money profits in a financial system.
“Financial capitalism is thus a form of capitalism where the intermediation of saving to investment becomes a dominant function in the economy,
——————————————–
Can the Ponzi scheme go on forever?
The financial sector has become parasitic with this philosophy. Our homes have become the objects of a racket. Our jobs go to sweat-shop countries. Then they are frustrated by a lack of qualified buyers, so they destabilize the system with bad debt.
The system is not sustainable and implodes in extreme greed and corruption. Can I say there is alot of incompetence involved here with this extreme greed? Few benefit. Many suffer.
‘Finding an apartment in the Grand Forks area has become a little easier, based on most recent local apartment vacancy rates. The vacancy rate was 5.47 percent in February for privately owned rental housing, up from 4.41 percent last February, according to a twice-annual survey. In recent years, rental housing became almost scarce in Grand Forks, with a vacancy rate as low as 2.29 in February 2013.’
‘This prompted sharp increases in the cost of rent and rapid construction of apartment buildings, including a record-high number of multifamily housing building permits issued by the city in 2013, equating 830 rental units. There were 685 rental units under construction, as of January, according to the city’s online housing dashboard.’
‘Emily Wright, executive administrator of the Grand Forks Housing Authority, said she’s not surprised the vacancy rate has increased by this year, due to the large amount of new apartments recently built. “My hope would be that a higher vacancy rate will help stabilize rent rates, though we know it won’t lower them,” she said. While the rents may be stabilizing, “we still have a very expensive market,” Wright added.’
“I’d also assume that the vacancies are in high-end or new units, not affordable units,” she said. Much of the increased vacancy rate this year is in two-bedroom apartments, which more-than doubled in vacancies between this February and last February.’
‘Earlier this month, Deputy City Planner Ryan Brooks said some developers were choosing to hold off on new multifamily housing projects, waiting to see the impact of housing already under construction, but other developers are still eager to build new apartment buildings.’
““My hope would be that a higher vacancy rate will help stabilize rent rates, though we know it won’t lower them,” she said. While the rents may be stabilizing, “we still have a very expensive market,” Wright added.’”
Absolutely fawking brilliant. Nothing which goes up could ever come down. Nooooosirrreeeee!
‘Big-money investors are leading the charge to buy houses for their value as rental properties, fueling the fastest home-price appreciation in the Greensboro-High Point metro area in years. The metropolitan statistical area ranks fourth in the nation for home-price appreciation, according to a new report by RealtyTrac. In this metro, one company alone bought 114 houses in 2014.’
“We have some of these big institutional investors, what we call Wall Street investors, coming in,” Blomquist said. “The Greensboro market is really ideal for that because they’re looking for stuff below $200,000 that they can turn around and make a profit — not as a flip (quick resale) but holding it as a rental property.”
‘And while foreclosure sales are rising again as banks unload their surplus properties from the housing crash, Blomquist said the biggest investors are willing to bid a little higher because they typically earn an 8 percent profit renting the homes. And in a market where many people still can’t afford or don’t want to commit to buying a house, renting is an attractive option, Blomquist said.’
‘Big investors have deep pockets, which can be tough competition for local landlords. “If they’re buying 100 properties in a market and they’re making an 8 percent return annually on each of those, that’s good enough for them whereas a ‘mom and pop’ may need a higher return,” Blomquist said.’
‘American Homes 4 Rent, one of those top investors, bought 115 homes in 2014, more than any other buyer in the Greensboro-High Point metro area last year. The company’s website lists about 70 properties for rent in Whitset, Summerfield, High Point, Greensboro and other nearby towns. Photos show virtually new houses in the 1,400-square-foot to 3,000-square-foot range. Monthly rents range from $1,125 to $1,725. And the company bought 28 local houses in the first two months of 2015.’
‘The company nearly tripled the number of homes it owns from 138,000 in 2013 to about 400,000 in 2014 with financing from the Blackstone Group which, through a variety of corporate names, is the nation’s largest buyer.’
‘The company’s top four rental markets are Dallas-Fort Worth, Indianapolis, Atlanta and Charlotte. With access to such growing cities, these big-money buyers may eventually become sellers if their markets appreciate enough. And it’s hard to say when the trend may stop, especially as investors keep finding good deals in the market that’s still full of foreclosure sales.’
“Especially with low interest rates, they’re looking at anything they can get,” Blomquist said.’
If there are any American Homes 4 Rent investors here on this message board I hope you are not at all troubled that your company is doing (or has done) its fourth
http://biz.yahoo.com/e/150311/amh8-k.html
(Well, that post was bit muffed. Let’s try it again …)
AMH is doing (or has done) its fourth OFF BALANCE SHEET financing using some nifty tranching.
Wikipedia says: “Off-balance sheet (OBS), or Incognito Leverage, usually means an asset or debt or financing activity not on the company’s balance sheet.”
Which means if you are an potential investor and you are scrutinizing the company’s balance sheet for liabilities a lot of these liabilities will not show up … which is not the same thing as saying that they do not exist.
‘bought 115 homes in 2014…The company’s website lists about 70 properties for rent’
8% return?
An eight percent return is a snap if the money you use to buy up the properties is somehow not counted.
Go here for a chuckle or two:
http://finance.yahoo.com/q/ks?s=AMH+Key+Statistics
After you chuckle at AMH’s profit margin of MINUS 12.05 percent you might want to allow your eyes to drift down to where it says that the total debt is 1.78 billion while keeping in mind that the latest off balance sheet borrowing transaction - the latest of FOUR such transactions - was for 552.8 million.
It’s been a while but I seem to recall that the previous off balance sheet transactions were for similar amounts.
What’s nifty about having an SEC (from a company’s viewpoint) is the SEC demands full disclosure - which means a company is allowed to mislead investors as creatively as they so desire as long as the company discloses to investors that they are doing so.
At the risk of beating this to death …go here for a peek at AMH’s balance sheet statement:
http://finance.yahoo.com/q/bs?s=AMH+Balance+Sheet&annual
Note the astounding growth of total assets: In three years the number off total assets went from $921.458 million to $6,227,351.
But then look at long-term debt: In those same three years long-term debt went from nothing to … to … to only $181.661. And this magical feat is an easy one to perform if you are allowed to NOT COUNT most of your debt.
Didn’t Enron’s Andrew Fastow play a role in developing and propagating this “off balance sheet” tactic to hide liabilities from creditors?
“‘We’re all very positive about Houston,’ Bland said, driving the point home. ‘It might moderate a little bit, but we’re not headed for disaster.’ What we are headed for is still a bit fuzzy, but expect a future of—at a minimum—more mid-rises and shiny new residential towers, all of them changing Houston’s landscape as indelibly as the oil boom did in the 1970s. ‘I think Houston could be the next Los Angeles or New York City,’ smiled Bland, an optimist to the end.”
Possibly irrelevant connection: Wasn’t Enron headquarted in Houston?
Being “an optimist to the end” later becomes “never saw it coming”.
“never saw it coming”
There is yet another possibly irrelevant connection to Enron.
And for yet another possibly irrelevant connection to Continental Illinois, Enron, and Andrew Fastow, didn’t the U.S. GSEs, Fannie Mae and Freddie Mac, go hog wild with off-balance-sheet securitization in the years leading up to their spectacular collapse in September 2008? If memory serves, then packaging mortgages into asset-backed securities (MBS) was the central driver of their business model.
Luckily the dangers of this deceptive, high-risk financial practice have been widely recognized and it has died out…right?
If memory serves, then the Fed recently purchased tens of billions of dollars worth of asset-backed securities (MBS).
Does anyone know what ever became of those?
I sure do feel lucky for having the foresight to buy a slice of Vanguard’s REIT mutual fund at the point when the Fed announced their housing market reflation program in January 2012.
BOJ, PBOC, ECB follow the Fed and reload the property price bazooka
Author: Asia Unhedged March 26, 2015
It’s all about hitting the bull’s-eye – or in Japan’s case – not.
Yutaka Harada, the Bank of Japan’s (BOJ) newest board member, admitted at his inaugural press conference today that the 2% inflation goal the BOJ set in a two year time frame would be difficult if not impossible to achieve.
Japan isn’t the only one in danger of missing its inflation target. Europe faces growing deflation and the U.K. has hit zero inflation for the first time. The Fed similarly faces low wage and price inflation, yet is soon declare “mission accomplished” on stimulus as they raise rates. Don’t tell this to property markets or REIT investors around the world, whose market values are surging.
As the central banks around the world admit that price deflation and real wage stagnation is a long-term phenomena, they are focusing on what really matters to bank balance sheets, and the one area that monetary stimulus has proved a runaway “success” – property price inflation (if increasing unaffordabilty can be deemed a successful policy).
Each bank has its own mechanisms to spur property markets and consequently shore up bank balance sheets. The Fed bought over $1 trillion of mortgage-backed securities, sending mortgage rates to historic lows and as Bloomberg reports, “Wages climbed by 1.3% from the second quarter of 2012 to the second quarter of 2014, compared to a 17% increase in home prices around that time, according to a new report from RealtyTrac.” (A 13X greater rate of property price growth than wage growth, Bloomberg notes).
With rates rising and wage growth sluggish, the US increasingly depends on institutional and international investors searching for yield to purchase the inflated market. In many markets, the housing recovery has “largely been driven over the last two years by buyers who are not as constrained by incomes – namely the institutional investors coming in and buying up properties as rentals, and international buyers coming in and buying, often with cash,” Daren Blomquist, vice president at RealtyTrac and author of the report, said in an interview.
The European Central Bank (ECB) has explicitly targeted the asset-backed security (ABS) market in their public purchase program with dramatic success on both ABS prices and consequently bank return on equity for new lending. Last month the ECB bought 4 billion euro in ABS. Bloomberg reports this pushed the prices of notes to the highest level in 7 years. “The debt sales are the first indication that the ECB is breathing life into the ABS market, which the ECB is targeting,” Bloomberg said.
“Average prices for bonds secured by assets ranging from Dutch mortgages to Spanish small business loans is at 98.2 on the Euro, near the highest since October 2007, according to data compiled by Barclays. They were quoted as low as 74.3 cents in May 2009, the data show”, Bloomberg said.
Consequently yields on the senior tranches, which are floating rate have collapsed to nearly zero. While much of the emphasis on the first round of purchases is that it “frees up bank balance sheets”, the more important long term effect not discussed is that a buyer of senior risk near zero yield significantly improves the return on equity on banks new lending after it’s securitised. As European banks place their AAA tranches with the ECB at near zero yield, the return on equity on their retained junior trances surges, i.e. by collapsing the yield of the AAA ABS tranches (“the funding assets”), the ECB has spurred property lending per their goal by driving the premium into the pieces of the lending structure retained by banks, thus driving up the return on equity of the securitised lending activity.
The hope is that by incentivizing securitisation in this manner, this will spur new lending and issuance in the moribund European ABS market. The ECB is targeting an important aspect of the price and transmission of credit in Europe that had all but collapsed.
According to Bloomberg: “Europe’s asset-backed securities market contracted more than 40% since 2010, while annual issuance averaged 77 billion euros over the past five years, down from a peak of 524 billion euros in 2006, according to JPMorgan Chase & Co. Sales will reach 100 billion euros this year, Morgan Stanley and Barclays forecast.”
The BOJ has gone a step further, via the direct purchase of REITS in their QE program, with Yutaka Harada opining in his inaugural comments that this program can be expanded.
This follows Bank of Japan Governor Haruhiko Kuroda’s comments in Japan’s parliament Monday that the central bank aims to “revive overall markets by lowering risk premiums” and that the purchases of J-REITS is “extremely small” compared to the size of those markets. As Bloomberg reports: “The remarks suggest Kuroda is comfortable that the central bank isn’t yet pushing any limits on its purchases of assets linked to Japan’s equity and property markets” Kuroda said the BOJ has bought about 190 billion yen ($1.6 billion) worth of J-REITS out of a market worth 10 trillion yen (less than 2% of the market. Minuscule compared to their 100% purchases of net JGB issuance).
REIT investors globally have harvested a windfall. Over the last year the largest traded U.S. REIT ETF (Vanguard) has surged 28% vs 11% for the S&P.
…
I’m up about 40 percent on my Vanguard REIT so far. Not all that bad for a period of low inflation and fairly paltry investment returns.
Though I am no fan of the status quo, I am a realist. If you can’t beat ‘em, join ‘em!
BTW the Fed’s rate hike delay Kabuki dance should play well into REIT price appreciation, as lower interest rates lead to higher property values.
Those higher values via low interest rates are a dicey proposition going forward. Prices are already trending downward in CA outside of the uber-prime areas. The oil patch areas are getting destroyed. It seems the South East is the only area left to be inflated. These REIT’s will likely run it the same cap rate and cash flow problems there as they have in areas where the bubble is deflating. There is only so much they can borrow without investors getting wise and rushing to cash out. Sooner than later there are going to he liquidatons. When there are I expect many of these houses to be in piss poor shape with all the loading up on roommates people are doing just to get by.
Not bad, PB… Just don’t join them on the way back down!
Rule #1 of asset bubble investing: Get out before the rush to the exit.
I was out on the beach of Ocean Ridge, FL today where they had built up the beach about a year ago to protect all that high end real estate. Mother Nature is not cooperating. The beach has gotten very steep again and there are sections where walls of sand have formed. Not Nice.
Across the intercoastal canal in Boynton Beach, GL Homes has bought up 100’s of acres of what was farmland to develop and Lennar is planning a community with around 200 SFH even though around 15% of the real estate is under water and another 12% have delinquent mortgages.
http://www.zillow.com/boynton-beach-fl/home-values/
Harry Dent says 2017 will be the time to buy real estate in Florida and that the bottom will be lower than the last one.
“Harry Dent says 2017 will be the time to buy real estate in Florida and that the bottom will be lower than the last one.”
Dead cat bounces are a painful experience. Take a look at a 40 year chart of interest rates if you want to know what housing prices look like over the next few decades.
‘Former Federal Reserve Chairman Ben Bernanke admitted as such when he testified to Congress in July 2013 during his tenure: ‘I don’t think the Fed can get interest rates up very much, because the economy is weak, inflation rates are low; if we were to tighten policy, the economy would tank.’
http://thehousingbubbleblog.com/?p=8941
It’s different now because…?
P.S. In case anyone is bored today, it might be interesting to look at the HBB archives for how many years back it was when some of us first noted the Fed was pushing on a string. Can’t recall if it was 2008 or 2007, or some other year?
Over seven years and running…
Historical footnote: The first month of The Great Recession was December 2007, concurrent with the publication of the article posted below.
Markets & Finance
The Fed: ‘Pushing on a String’
By Peter Coy
December 10, 2007
The Federal Reserve’s expected rate cut won’t necessarily stimulate growth and protect the U.S. economy from the threat of recession
The Federal Reserve’s rate-setting committee is widely expected to cut the target federal funds rate by a quarter percentage point on Dec. 11, to 4.25%, but it’s not clear how effective the move will be in keeping the U.S. economy from sliding into recession.
Four years ago, an economist from the Federal Reserve Bank of St. Louis, Jeremy Piger, demonstrated the problem that’s giving Fed Chairman Ben Bernanke and his crew such a tough time. Piger showed that it’s a lot harder for the Fed to boost growth by cutting interest rates (as it seeks to do now) than it is for the Fed to slow growth by raising rates (as it tries to do when the economy is overheating).
Specifically, Piger found that in the two years following a one-percentage-point increase in the federal funds rate, quarterly GDP growth fell 1.21 percentage points. In the two years following a one-percentage-point cut in the funds rate, quarterly growth rose 0.53 percentage points.
Slowing growth? Easy. Stimulating it? Hard.
Stringy Economics
The problem is, the Fed can make more money available in the financial system, but it can’t force lenders to lend it out—or borrowers to borrow it. Economists refer to this problem as “pushing on a string.” You can push and push, but the string just collects in a pile. Nothing happens.
Pushing on a string is more of a problem than usual because in the current credit crisis, lenders are unusually afraid that if they make loans, they won’t be repaid. Even the loans that banks make to each other are getting more expensive. William Gross, chief investment officer of giant bond manager PIMCO Bonds, said in his December newsletter, “Fed ease has lowered Treasury yields, but for the rest of the market—the segment that influences the bottom line of U.S. corporations, homeowners, and consumers—not much has changed.”
Gross concludes that the Fed “may need to eventually go down to 3% or lower” on the federal funds rate before money will be cheap enough to give the economy some real stimulus.
Solid Job Market?
Luckily for Bernanke & Co., the job market has held up remarkably well in spite of the credit crunch. On Dec. 7, the Labor Dept. announced that the economy created 94,000 jobs in November, and the unemployment rate held steady at 4.7%. That good news lessened the chance that the Fed would cut the funds rate by a half percentage point, which would be seen as something close to an emergency move. Instead, the market is expecting a quarter-point cut.
…
“if we were to tighten policy, the economy would tank.’
This guy really is a seasoned liar and trained illusionist.
a) The economy already tanked
b)Job losses already occurred and haven’t recovered, nor will they.
c) Housing demand is already at 20 year lows and sinking
d) It’s all about the price for these liars. And now the prices are falling.
Up yours.
We are in a very dangerous period right now, with big-name economists on the loose propagating Broken Window Economics theories that “war is good for the economy” against a backdrop of unrepairable wreckage from the 2008 financial collapse.
Fixt.
“unrepairable wreckage from 30 years of reckless borrowing and throttling and torquing of the economy resulting in the 2008 financial collapse.”
Agreed.
Is there any surprise to see a large drop in the number of U.S. drilling rigs in the wake of a 50% drop in oil prices that ‘nobody could have seen coming’?
This certainly seems like an ordinary supply response to a massive unanticipated demand shock. Are some particularly savvy HBB posters discerning an unusual development beyond a simple and ordinary equilibrium adjustment process?
The Economist
Houston’s economy
Life in the sprawl
America’s fastest-growing metropolis faces up to cheaper oil
Mar 14th 2015 | HOUSTON | From the print edition
Timekeeper
No zoning nonsense here
FOR a view of Houston’s economy, get in a car. At the intersection of the Loop and Freeway 225, two motorways in the south-east of the city, you drive over a high, tangled overpass. To the east, where the port of Houston sits on Buffalo Bayou, the skyline is an endless mass of refineries, warehouses and factories: Houston is an oil town. To the west, glistening skyscrapers and cranes puncture greenery. In between, the landscape is a sprawl of signs advertising motels and car dealerships.
Houston is not pretty, but it thrives. In the decade to 2010, the population of its metro area grew more than that of any other American city. Between 2009 and 2013 its real GDP increased by 22%, more than twice as fast as the American economy as a whole. Its growth infuriates new urbanists who insist that dense, walkable places such as Manhattan or San Francisco are the future. The question is, can Houston continue to thrive in an oil bust?
Over two-thirds of the growth in crude oil production in the United States between 2009 and 2014 took place in Texas. As well as refineries and drillers, oil brings office jobs: ConocoPhillips and Halliburton both have their headquarters in Houston, as does BP’s America division. Exxon Mobil is building a huge new campus near The Woodlands, a wealthy suburb north of the city. In the past, oil-price gains and job gains have kept in close step (see chart).
The slump is hitting some businesses already. In Houston, when prices fell, “it was almost like the lights just went out,” says Peter Wyatt, the boss of Micron Eagle, which makes hydraulics for drillers. Last year the drillers’ main concern was simply to get their rigs running as quickly as possible, for which they paid hefty prices. Now, instead of demanding speed, they want discounts. Across America the number of drilling rigs pumping oil has fallen by 38% since December, according to Baker Hughes, an oil-services firm.
…
Though it is hard to discern the dates on the horizontal scale of the chart linked to that Economist magazine story, I believe there is a very interesting coincidence between the oil price decline in the wake of the Fall 2008 financial collapse, the trend reversal from (roughly) 2009 through 2014 during the period of QE1, QE2, and QE3, and the recent 50% drop in the price of oil contemporaneous with the phase out of QE3.
Is it reasonable to conjecture the oil price will remain at or below post-2008 crisis lows from now until the advent of QE4?
Our favorite oil price pimp seems to be MIA today. Has he thrown in the towel with his nonsensical propaganda?
I begin to suspect that attorney school trains their students in the squid method: Blind the reader in a cloud of ink.
“What we are headed for is still a bit fuzzy, but expect a future of—at a minimum—more mid-rises and shiny new residential towers, all of them changing Houston’s landscape as indelibly as the oil boom did in the 1970s.”
Dumb question of the day:
Isn’t the status quo much more similar to the mid-1980s oil bust than the inflationary boom times of the 1970s?
As usual, I seem to be completely missing the MSM writer’s point.
“Alarmingly, China’s debt has quadrupled since 2007.”
Let’s examine that statement in isolation for a moment. Why is this alarming? Isn’t it an established fact by now that the path to economic prosperity is paved with Keynesian deficit-funded expansion?
‘Ghost towns’ pop up in northeast China: report
2015/03/22 21:32:27
Taipei, March 22 (CNA) As Chinese cities and towns pursue economic growth through ambitious land development projects, some of them have inadvertently turned themselves into “ghost towns,” with a particularly high concentration in northeast China, according to a newspaper report.
A map compiled by the Hong Kong-based South China Morning Post, shows cities where uninhabited housing units proliferate amid rapid urbanization and these appear to be concentrated in areas where the local economy is heavily dependent on natural resources, heavy industries and farming, and not diversified enough to offer a wide range of employment.
“Unlike ghost towns in the West which are laid waste by wars, natural disasters, disease or failed economies, the ones in China are created out of haphazard and rushed projects by local governments attempting to boost GDP growth and reach urbanisation targets,” the newspaper said in a report titled “Chasing ghosts,” published last month.
Housing revenue is a key pillar of China’s economy, the report said, citing Chinese government data that indicates that nearly 12 percent of China’s GDP in 2014 came from new home sales, a similar level to the previous year.
Based on property research by brokerage CLSA, that figure is more than the 10 percent recorded in the U.S. and even higher than the 8-9 percent in Hong Kong from 1997-1998, before the property bubble burst, the report said.
The unprecedented proliferation of massive construction projects in provincial capitals, however, has triggered debate about whether these cities are producing more and more ghost towns, the South China Morning Post reported.
Citing CLSA research on China’s ghost towns from 2014, the report said the average vacancy rate in China for property completed from 2009-2014 was 15 percent — equivalent to 10.2 million empty units — which on the surface is nothing to worry about considering the U.S. vacancy rate stands at 10 percent.
“The bigger concern is the 17 percent vacancy rate in remote, low-value properties,” the report added.
…
World Travel
Ghost cities: The bustling places with no people
15 days ago March 21, 2015 9:12AM
An empty mall in New South China Mall, Dongguan, China. Source: Supplied
THEY are the cities and towns filled with museums, big buildings and even mega highways.
The only thing missing is people.
From capital cities to mega towns, these are places that time, and people, have literally forgot.
In some cases, the cities wait for people to move in, while in others they have been left to rot.
Here are just a few of the places around the world which are full of buildings but are empty of residents to fill them.
SOUTH CHINA MALL, DONGUAN, CHINA:
Opened in 2005 and hailed as the largest luxury shopping centre in the world with 659,612 square meters the owners expected 100,000 visitors a day, CNN reported.
However, one employee claimed it had just a 20 per cent occupancy rate and the visitor rate is far from that.
Dongguan is home to more 10 million residents and the luxury centre was built in a rural area, with some suggesting its residents are unable to afford the designer labels it aspires to sell.
NAYPYITAW, MYANMAR:
This purpose-built city became the capital of the country formerly known as Myanmar in 2005.
It was commissioned by the then ruling military junta three years earlier and hosted the ASEAN Summit in 2014.
The city boasts large government buildings, parks, golf courses, housing and even a 20-lane highway.
Its name literally means “seat of the king”, but the only leader who lives here is President Than Shwe.
It’s a space he shares with other government workers, military and police in a city designed for one million people, according to government figures.
The city has a military-only zone, a ministry zone while its residential zone is filled with apartments which are allocated according to rank and marital status.
ORDOS, INNER MONGOLIA:
Filled with wide empty boulevards, Ordos has a central plaza that’s 2.5km long which seems massive when you consider the city has a population of just 140,000.
The roads are wide and even in peak hour appear to be empty according to SBS Asia correspondent Adrian Brown.
KANGBASHI, MONGOLIA:
The city located on the outskirts of Ordos is another giant place which appears to be empty.
Originally designed to accommodate a million people, many of the city’s properties have been sold, but according to Brown, remain empty.
The homes were purchased for an investment when a mining boom which is now over.
GARY, INDIANA:
This once thriving Chicago area was established as a company town for US Steel back in 1906.
However, the steel industry began declining in the 1960s and many residents went elsewhere, leaving dozens of houses and buildings empty.
Between 6500 of the 7000 properties the city owns are abandoned, according to NBC News.
Crime is a massive issue with once cozy homes now vacant while the rest of the city is filled with empty lots and illegal dumps.
HASIMA ISLAND, JAPAN:
Located off the coast of Nagasaki, this island was once a major coal mining centre for almost a full century.
Purchased by Mitsubishi in 1890 to be developed as a coal mining island, this once-thriving place has now earned the nickname Gunkanjima, or battleship island due to its now abandoned, derelict buildings.
As petroleum replaced coal in the late 1960s, Mitsubishi closed the mine in 1974, and seemingly many residents left with it.
The island is now filled with deserted aging apartment buildings that are now some of the oldest apartment buildings in the country.
…
Centrally planned economies and ghost cities go hand in hsnd.
China monthly: How to fix China’s real estate problem
27 March 2015 08:52
Source:ICIS Chemical Business
No less than 22% of housing in China is standing empty, thanks to the real estate bubble.
…
The nature of an investment bubble is such that unless you keep on pumping more and more air into that bubble, it will become unstable and then burst.
This is exactly what seems to be happening in China’s property market at the moment as the pace of construction continues to decelerate.
“While housing sales will likely improve this year, construction and all the industrial activity that depends on it will not. So an upturn in housing sales will not deliver much of a boost to growth,” wrote Rosealea Yao of Gavekal Dragonomics in a February 2015 report, which was quoted in a 2 March Bloomberg article.
Property starts, measured by area of floor space, declined by 26% year-on-year last December following a 35% drop in November, she added. This compared with a 5.5%fall in starts between January and October 2014.
Parcels of land allocated for new projects also fell by 25% last year over 2013, said Yao. This is a big problem for local governments in China, as they are heavily dependent on land sales to balance their budgets.
“The traditional correlation between housing sales and indicators like steel use and construction starts will break down,” she warned.
It seems therefore logical there will also be a breakdown of the correlation between housing sales and demand for the chemicals and polymers that go into construction.
Arguably, the level of real estate oversupply is also truly shocking, even by the standards of China where data usually has the capacity to take your breath away.
For example, a 16 February report by investment analysts, Motley Fool Australia, said that as of 2013, 49m apartments in China were sitting empty – 22% of the total. That is enough vacant real estate to absorb six years’ worth of further urbanisation in China, added the same report.
In other words, all this vacant real estate could add up to six years of “lost demand”, during which the chemicals and polymers that would have gone into building new homes might not be needed.
With this oversupply has come a fall in prices and a rise in unpaid debts. China’s total debt quadrupled from $7trillion in 2007 to $28tr by the middle of last year with half of these loans linked to the property sector, said a February 2014 McKinsey study.
…
‘No less than 22% of housing in China is standing empty,’
13% of US housing stands empty, verified. Of the other 87%, a quarter of it is in default or delinquency.
Commentary / World
China’s real property problem is in the supply
by William Pesek
Bloomberg
Mar 2, 2015
As China slows down, leaders in Beijing are understandably turning to one of their favored economic growth stabilizers: housing.
A record decline in new-home prices in January has, as my Bloomberg News colleagues reported last week, prompted Chinese officials to contemplate additional stimulus measures, including reducing the required down payments on second homes and eliminating sales tax after only two years of ownership instead of five.
And why not? To this point, various price-boosting schemes have helped China ward off the kind of downturn that befell America in the late 2000s and Japan two decades earlier. Unfortunately, though, they’re no longer likely to have the same impact today.
That’s because of a little-recognized shift in the nature of China’s property bust — from the demand side to the supply side. As research done by Rosealea Yao of Gavekal Dragonomics shows, China’s real problem is that new construction is evaporating no matter what sales and prices do. That means the knock-on effects of additional stimulus — on cement, steel and so on — will necessarily be limited.
“This is a supply-side correction in property,” Yao writes in a new report. “While housing sales will likely improve this year, construction and all the industrial activity that depends on it will not. So, an upturn in housing sales will not deliver as much of a boost to growth.”
…
This article is quite breathtaking — a beautiful work of art and breath of fresh air in the bleak landscape of online journalism. Enjoy! (Esp. AlbuquerqueDan)
Chasing ghosts
Where is China’s next wave of empty ‘new towns’?
By Yifei Chen
Published: February 13, 2015, 6:00pm HKT
A pair of skyscrapers bearing an uncanny resemblance to the ill-fated World Trade Centre in New York stand – half-completed – in downtown Guiyang, the capital city of China’s Guizhou province.
The towers, set to be 406 metres tall upon completion, are part of a mega-housing project which features a luxury shopping mall, an amusement park and even a wetlands reserve.
It’s a grand effort by a government-backed developer to attract around 500,000 residents – equivalent to 11 per cent of the city’s total population of 4.5 million.
There is just one problem: experts fear that this 90 billion yuan (HK$113 billion) housing project will turn into yet another ghost town.
Stunning – but empty – housing complexes are hardly unusual in the southwestern province, which at 176,000 square kilometres is roughly the size of US states Missouri or Oklahoma.
As of last year, 16 mega-projects, each with more than 1 million square metres of total saleable area, had been built or were under construction in the provincial capital alone. Together, they provide enough housing for more than one fourth of the city’s existing population.
The unprecedented proliferation of massive construction projects in provincial capitals like Guiyang, Wuhan, Nanjing and Hefei has triggered intense debate among academics, property moguls and policymakers about whether these cities are producing more and more ghost towns.
Unlike ghost towns in the West which are laid waste by wars, natural disasters, disease or failed economies, the ones in China are created out of haphazard and rushed projects by local governments attempting to boost GDP growth and reach urbanisation targets.
…
Saving face by losing your a$$.
An old-timer said to me long ago that agriculture is the beginning of art. I think that anyone not able to connect with nature on a frequent basis has a barrier to peace and contentment. So what is the advantage overall for a culture of trying to squeeze all of these people into highrises in the city? I lived on one for a year and it was probably my worst living. Maybe so they will all work in factories, a double whammy.
Slavery, and it is called progress.
“An old-timer said to me long ago that agriculture is the beginning of art.”
He was wrong. Art existed in hunter-gatherer societies.
And today, children, we will do cave art: How finger painting shows hunter-gatherer children went to ‘prehistoric pre-school’
* Experts can identify the age and gender of those behind the drawings, with one of the most prolific artists being a prehistoric girl aged five
* ‘Some of the children’s flutings are high up on the walls and on the ceilings, so they must have been held up to make them or have been sitting on someone’s shoulders’
* Images found deep inside the Rouffignac caves, France, are likely to be at least 13,000 years old
By Chris Parsons
Updated: 05:28 EST, 30 September 2011
Archaeologists have uncovered cave art providing evidence that hunter-gatherer children may have attended a form of prehistoric pre-school.
Researchers have revealed that 13,000 years ago, prehistoric children created art in caves with the help of their parents.
A conference on the Archaeology of Childhood at Cambridge University, starting today, will reveal the latest research into art made by children as young as three in one of the most famous prehistoric decorated caves in France.
Stunning drawings of mammoths, rhinoceros and horses have been found within the five-mile ‘Hundred Mammoths’ cave system in Rouffignac.
Experts recently developed a method of identifying the age and gender of those behind the drawings, with one of the most prolific artists being a prehistoric girl aged five.
Some of the drawings by children were found high up on walls, meaning they could have been helped up there under the watchful eye of an adult.
Also evident are thousands of lines - a simple form of art or decoration known as finger flutings - made by people running their hands down the soft surfaces of the walls and roofs of the many galleries and passages that make up the complex.
Archaeologist Jess Cooney said: ‘Flutings made by children appear in every chamber throughout the caves even those that are a good 45 minutes’ walk from the entrance - so far, we haven’t found anywhere that adults fluted without children.
‘Some of the children’s flutings are high up on the walls and on the ceilings, so they must have been held up to make them or have been sitting on someone’s shoulders.
…
Well, flutings. I dare say they were not nomads, living in a cave and all. Some things don’t change. I’ve had a few 5 year olds do such to my interior walls, more than once, and without “help”.
they must have been held up to make them or have been sitting on someone’s shoulders.
The assumption that the height of the caverns was the same thousands of years ago as it is today strikes me as highly questionable, nay, border-line stupidity.
China’s Potemkin Villages
Jerry Jasinowski
Posted: 09/09/14 08:17 AM ET Updated: 11/09/14 05:59 AM ET
Grigory Potemkin was a successful military leader and sometime lover of his patron Catherine the Great of Russia. But he is known to history primarily for building faux villages along a route the great queen would pass to put on a show of prosperity for her and her royal guests who came from all over Europe.
On August 3, Lesley Stahl of CBS’s Sixty Minutes aired a report from China about that nation’s obsession for building apartment and condo complexes without end in new cities all over the country, though there are precious few people who can afford to live in them. It is always difficult to glean reliable data from China, but some reports suggest China has invested upwards of $2 trillion in what may prove the most expansive real estate bubble in history.
Beijing has a tiger by the tail. Tens of millions of Chinese have bought condos in these ghost towns as long-term investments. Each condo represents the life savings of a middle class Chinese family. Many millions more Chinese are employed building these vacant edifices and the roads around them that are mostly empty of traffic. The bureaucrats in Beijing do not dare puncture this balloon so it just keeps expanding.
Predictably, the Chinese banking system is heavily over-extended in property. Chinese banks have huge portfolios of non-performing loans that are being swept under the rug because the problem is simply too big to deal with. The Chinese government is pushing forward on interest rate liberalization to inject more competition into the financial sector dominated by state institutions, but this amounts to closing the barn door after the horses have fled.
What we are witnessing is the inevitable day of reckoning between a sclerotic centralized bureaucracy and a runaway free enterprise economy that lacks stabilizing institutions to curb excessive behavior. The bureaucrats in Beijing are trying to control the economy in the old-fashioned communist, top-down way but it just doesn’t work anymore. Under communism, for example, food was always a problem. So China subsidizes food production when it isn’t needed. The government is sitting on an estimated 150 million tons of grains — including rice, wheat and corn. The stockpiles are enormous and the excessive food supply will soon begin to rot.
Real estate bubbles and surpluses driven by subsidies are familiar to us but we have a transparent political system built upon democratic processes, the rule of law, a free media and an independent court system that enable us to deal with them. For too long, China has been ruled by a tight inner circle of corrupt party cadres enriching themselves. President Xi Jinping is clamping down on corruption, and that has positive implications, but what China really needs is a transparent political system to tackle corruption based on enforcement of laws, not insider favoritism. Xi is against corruption and must now make major reforms in the Chinese system to provide more transparency and independent legal review.
For many years, I have marveled at the Chinese economic miracle but I have always said it could have setbacks. The property bubble will be major setback that could threaten the regime’s survival. The longer Beijing postpones the day of reckoning, the harder it will be.
_____________
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. September 2014
Here are some possible take-homes from the post-2008 financial crisis experience:
1) Nothing has been learned — nada, zilch, zip, zero.
2) The PTB are currently in the process of repeating the same steps that led up to the 2007-08 financial collapse, only on a larger, more global scale.
3) If HC gets takes occupancy of the OO, you can bet your bottom dollar that will will get to relive the entire buildup to the subprime mortgage crisis that started in 1992 when WJC took occupancy.
“…will will…”
we will
Buildup? When WJC came in had there already been a multi year buildup? Cause that’s what happened the last 3 years. Not to mention what occurred even before. She’s coming in at a different point and with more turds in the punchbowl already.
4) The hair-of-the-dog hangover cure for a debt-fueled collapse has never been more fashionable.
It is being done now, so do not even try to put it on HC already. It will have been 16 years since she was in the OO as First Lady and she is a whole lot smarter now than she was then. She will really need to be, because we are all in one ugly mess already.
Gilroy, CA Sale Prices Plummet 10% YoY; Sellers Bring Cash To Close
http://www.zillow.com/gilroy-ca/home-values/
‘Hirotoshi Ogura is Daikin Industries’ master of doing more with less – and part of the reason Japan’s recovery remains stuck in the slow lane. As Japan heads into the season of peak demand for room air-conditioners, Ogura and other Daikin managers have been tasked with figuring out how to boost output by some 20 percent at a plant in western Japan that six years ago the company had almost given up on as unprofitable.’
‘The wrinkle: they have no budget for new capital investment at the 45-year-old Kusatsu plant. “We can do a lot without spending anything,” says Ogura, a 33-year Daikin veteran who joined the company just after high school. “Anything we need, we first try to build ourselves.”
‘Like Dai’kin, a number of Japanese manufacturers are shifting production back to Japan from China and elsewhere to take advantage of a weaker yen.’
‘Japan’s top automaker last week unveiled the results of a five-year-old program to re-engineer the way it makes cars to cut the costs of retooling existing factories and building new ones. Already running its factories at 90 percent of capacity, Toyota expects to be able to cut the cost to retool an existing production line for a new model by half of what it cost in 2009 and cut the investment needed for the new plants it is planning for Mexico and China by 40 percent from earlier levels.’
‘Like Daikin, the savings at Toyota will come by a thousand cuts, from smaller and more efficient paint booths to a faster and more flexible robot welding system that will also be installed at factories in Japan.’
‘Atsushi Takeda, chief economist for the Itochu Economic Research Institute, said there was not much Abe’s government could do to shake companies out of their caution, apart from cutting regulations and encouraging new industries, areas where progress has been slow. Most Japanese companies still see better growth outside Japan and are investing accordingly.’
“Companies were so hard hit by the excessive yen strength after the Lehman shock they want to be convinced there won’t be a reversal of the weak yen over the next five to 10 years,” Takeda said. “They are in no mood to take risk.”
http://finance.yahoo.com/news/japans-wary-manufacturers-resist-abes-urge-splurge-010513979–business.html
‘Several real estate sources have told the DJC that Macy’s is selling the top four floors of its eight-story building in downtown Seattle as a “commercial condo interest.”
‘The sources would not speak for attribution but said Starwood Capital Group of Greenwich, Connecticut, is the buyer. The most likely use is office space for creative firms.’
‘When asked for a comment last week, Jim Sluzewski, Macy’s senior vice president of corporate communications, responded: “As we have said in the past, our objective is to make better use of empty/unproductive space on the upper floors of the building.”
‘It’s been a busy quarter for people who buy and sell office buildings in the Puget Sound region. More than $1.5 billion in transactions have closed, according to information compiled by Jones Lang LaSalle. That number is close to the sales value for all of 2014, when $1.6 billion in office properties changed hands, JLL reports.’
‘Lori Hill, managing director at Jones Lang LaSalle, said the $1.5 billion figure could be a little misleading. Several deals that closed this quarter were agreed to late last year, so they are more of a reflection of the 2014 office market.’
‘Hines was the buyer on two of the three biggest sales so far this year. The international real estate company paid $319.8 million, or $610 per square foot, for The Summit in downtown Bellevue. The Summitt has two buildings with 524,130 square feet and permits for a third.’
‘Hines also bought Civica Office Commons in downtown Bellevue for $205.1 million, or $671 per square foot.’
‘The biggest sale in Seattle, and the second biggest so far this year, was CBRE Global Investors’ acquisition of Metropolitan Park East and West at Howell and Yale streets. The two buildings, collectively known as the “Twin Toasters,” sold for $272.8 million or about $385 per square foot.’
California Sale Prices Fall Statewide Every Month Since July 2014
http://www.zillow.com/ca/home-values/
The most annoying aspects are the hubris, the refusal to recognize policy mistakes and the pretense that all is well.
Those who refuse to recognize past errors and learn from them are doomed to relive them.
bursting bubbles are a great excuse to print some more cash.
Which does nothing for collapsing demand.