A Bubble Of Epic Proportions
Readers wondered this morning, “How about that Chinese stock market?” A reply, “Didn’t we talk about it enough Friday? It was an expected correction that the Chinese are making sure goes no further.”
The Hong Kong Economic Journal. “Some mainland investors have borrowed money against their US real estate assets in order to invest in China’s red-hot stock market. The size of that investment could be as much as US$30 billion. Those investors are facing increased risk from the imminent US rate hike.”
“Meanwhile, the mainland equity and housing markets are out of sync with a slowing economy. It remains unclear whether A shares will continue their run-up after a deep correction in the past few days. The market is no longer cheap. In fact, it’s very expensive, with some small and medium companies hitting P/E ratios over 70 times. Heavyweight stocks are make more sense at 25 to 30 times P/E. The bull market has sparked all sorts of speculation.”
The Washington Post. “Shanghai Duolun Industry, a Chinese real estate company, managed to win over investors with a little re-branding in May. In the midst of a technology stock boom, the company decided to change its name to ‘P2P Financial Information Services Co.’ The company didn’t actually develop a peer-to-peer lending business — it just bought the domain name — but its shares jumped 10 percent anyway.”
“‘P2P Financial Information Services Co’ wasn’t alone in this strategy. One Chinese floorboard company doubled its share price by shifting to online gaming. A hotel group became a high-speed rail company and a ceramics specialist re-branded as a clean-energy group. Investors rewarded these decisions.”
“Here are five facts about China’s stock market bubble — each of which help explain why the bubble arose and what might happen to it. In just 12 months, Chinese stock markets have created enough value to give every person on Earth almost $900. This is a bubble of epic proportions. In 12 months, Chinese stock markets rose enough to create $6.5 trillion of value. It’s hard to picture, but that’s a stunning amount of money. It’s the equivalent of about 70 percent of China’s GDP in 2013, and about 40 percent of the total value of the New York Stock Exchange. It’s enough to pay off Greece’s debt 20 times over, circle the Earth 250 times with $100 bills, or build 43 International Space Stations.”
“People often say that stock markets follow the ‘greater fool’ theory – even if a stock is irrationally overvalued, it still might be worth purchasing if there is another fool out there willing to pay a higher price. That may now be the calculus for many Chinese stock investors. As high as valuations are, novice investors keep rushing into the market. Just last week, 1.41 million new investors opened stock accounts, according to Reuters, a similar number to each of the two weeks before.”
“A survey last year showed that that two-thirds of Chinese investors haven’t completed high school. Even Chinese farmers are giving up tending their fields in order to tend their stocks. And many investors are young: According to Chinese-language media cited by Foreign Policy, over a third of China’s 100 million investors are 30 or below.”
Investors Business Daily. “At the moment, Chinese regulators appear content with letting the correction take place. But the question going forward: How long will the correction continue before it turns or China’s government steps in to prevent a panic? A continual, cascading collapse of Chinese stocks ‘would have an impact on the broader Chinese economy and how foreigners view China as an economy and as a market,’ said Sung Won Sohn, a professor at California State University Channel Islands. ‘I don’t think the market is going to stop declining any time soon.’”
The Epoch Times. “If printing money cannot maintain growth, will issuing stocks be able to guarantee growth? We Chinese are now caught in a state of elation. There is no use to talk to anyone, as everyone is thinking about how much stocks have gone up each day. It is like being at a happy feast. The noise of the feast covers up the fundamental issue. Perhaps after the bubble has burst, we can talk about innovation. Right now, no one is in the mood to talk about innovation.”
“Some people say to me: ‘Professor, you study western economics. Chinese economics and western economics are not the same.’ When we talk about science, do we divide science into East and West? If we were to follow such a path, the concept of the cost of capital would be completely turned upside down. You think you can get money from investors for zero return. Who will bear the stock market costs? Investors, of course. Companies have obtained money. When stocks fall, investors suffer heavy losses. Those who participate in creating the bubble may not think about that.”
“Wealth is not generated in this way. In the past 200 years, wealth was not created by stock market bubbles or central banks issuing money. How is wealth created? That is a question each individual, each enterprise, and the government should ask themselves; it is the basic question in economics.”
‘Didn’t we talk about it enough Friday?’
Did you stamp your feet while you were posting that Dan? Oh, we’re going to talk about it, every bowling ball down the stairwell drop.
This is for Dan too:
‘Professor, you study western economics. Chinese economics and western economics are not the same.’ When we talk about science, do we divide science into East and West?’
They build cities and then figure out what they’re for! What a joke.
I for one would love to see documentation of AlbqDan’s predictions of the carnage which has hammered the Chinese stock market over the past two weeks. Perhaps my recollection is foggy, but all I can remember are hundreds of self-congratulatory posts on the steadfast correctness of “his” 7% China GDP growth prediction, plus quite a few more posts suggesting that the soaring Chinese stock market was clear evidence of the country’s economic sucess and the Chinese people’s above-average IQs.
If genius is a rising market, what is a falling market?
“If genius is a rising market, what is a falling market.?” Obama’s fault, of course.
Some of this money is Yellen bucks.
Yeahbut she’s an Obama appointee (blah, blah, blah…).
Here’s a question; is anybody to blame for this state of affairs? Is this like the new sharing economy, we’re all to share the blame? Like Mel Watts; he can’t be expected to do anymore than he has done. Good intentions! And Yellen worries that our housing wealth might go down. The spirit is what counts.
What I said:
Comment by Albuquerquedan
2015-04-03 07:08:11
I do not own any Chinese stocks so I have no worries. You are six months too late to buy Chinese stocks.
And I said this and it does not matter since China does not need a bull market to achieve 7% growth:
Comment by Albuquerquedan
2015-06-19 06:23:35
P.S. by the way I never said the Chinese market would not correct, in fact I said the opposite, it would correct but it would be dangerous to try to time it and I would avoid the market at these levels. Now, if you want to make a bet on how far it will fall, I will say this, when the dust settles on the correction the market(s) will still be significantly higher than it was last summer although an ugly thirty to forty percent correction certainly cannot be ruled out. That number includes the amount it has already fallen so it would be twenty to thirty percent from here. On the other hand the Chinese government could announce no further tightening of margin requirements and it could be up big Monday. The reason I want nothing to do with that market.
7%, 70%, 700%…. The number can’t be trusted.
What we do know is China GDP is falling.
Round figures like 7%, that barely change from one reporting period to the next, are NEVER to be trusted. This is especially so if inconsistent with breaking developments in the real economy and if too often repeated by propaganda outlets.
Ponzi anyone?
‘The financial burden of many state-owned enterprises in China could be far more onerous than investors think and this could pummel equity markets once punters realise how parlous the situation is. The reason for this is the difference in the accounting treatment between China and the international market and its impact on the operating cash flow of a company.’
“It is possible for firms to reclassify interest expenses in the cash flow statement from operating cash flow to financing cash flow under Chinese accounting standards,” equity strategist Mark Jolley said in a research report by China Construction Bank International, the overseas brokerage arm of China’s second biggest bank. “By exploiting this accounting convention and by borrowing via related parties, it is likely that A-share companies have greatly overstated operating cash flow and free cash flow.”
‘As a consequence, the true operating cash flow of many companies could easily be negative.’
‘The elevated financing cash flow is “a sure sign that A-share companies are carrying a greater interest expense burden than they are showing in their accounting by their non-listed parents and subsidiaries,” according to Jolley.’
‘The major problem is concentrated in the large-cap state-owned enterprises. In the Shenzhen market the ratio is only 1.7 times – still high but far less troubling – versus 7 times in the large-cap dominated CSI300 Index, which are made up of the biggest 300 mainland blue chips like PetroChina and Industrial and Commercial Bank of China.’
“The parent and the group overall might not have a problem but the listed company definitely has a much greater financing burden than one might think from a cursory view of the accounts,” said Jolley. “This problem has been around since the global financial crisis of 2008 and it is not going to cause immediate problems unless the parent companies run into funding problems.”
I eagerly await the day when the 7% China GDP growth prediction turns out to be about as accurate as the Rasmussen poll prediction for a Romney win in 2012 turned out.
The problem is the lies always persist, so you never get the real numbers. They could contract 7% and still be trumpeting growth.
Eat up Dan….. eat up.
http://goo.gl/CXO2eS
“China Deflating; Japanese Yen Breaking Down”
http://www.valuewalk.com/2015/06/albert-edwards-yen/
“We Chinese are now caught in a state of elation.”
The writer inadvertently left out a couple of letters in the word ‘deflation.’
Well, that was written a week or so ago.
This is from yesterday.
Yu Yongding
JUN 26, 2015
Can China Beat Deflation?
BEIJING – At a time of slowing economic growth and massive corporate debts, a deflationary spiral would be China’s worst nightmare. And the risk is mounting. The producer price index (PPI) has been in negative territory for 39 consecutive months, since February 2012. The growth of China’s consumer price index (CPI), though still positive, has also been falling steadily, from 6.5% in July 2011 to 1.2% in May. If past experience is any indication, China’s CPI will turn negative very soon.
In China’s last protracted bout of deflation, from 1998 to 2002, persistent declines in prices were the result of monetary and fiscal tightening that began in 1993, compounded by the lack of exit mechanisms for failed enterprises. After peaking at 24% in 1994, inflation began to decline in 1995. But GDP growth soon began deteriorating rapidly. In an effort to revive growth in a difficult global environment and buffer exports against the impact of the Asian financial crisis, the Chinese government loosened monetary and fiscal policy beginning in November 1997.
But it was too little too late. By 1998, when CPI inflation began to fall, producer prices had already been declining for eight months, and remained negative for a total of 51 months, with CPI growth beginning to recover after 39 months.
An obvious lesson is that the government should have switched to loosening earlier, and more forcefully. But this experience also underscores the impotence of monetary policy in a deflationary environment, owing to the unwillingness of banks to lend and of enterprises to borrow. The fact that loss-making enterprises were allowed to churn out cheap products, eroding the profitability of high-quality enterprises (and thus their incentive to invest), prolonged the deflation.
Nonetheless, China eventually managed to rid itself of deflation and return to rapid economic growth. For starters, a decline in investment during the deflationary period – together with firm closures, mergers, and acquisitions – reduced overcapacity, clearing the way for investment to rebound strongly in 2002. At the same time, expansionary fiscal policy increased effective demand, while the government, backed by its strong public-finance position, was able to tackle nonperforming loans effectively, thereby increasing commercial banks’ willingness to lend and firms’ ability to borrow.
Moreover, housing-market reforms and the development of a mortgage-loan market in the late 1990s fueled rapid growth in real-estate investment, which reached an annual rate of over 20% in 2000. As a result, real-estate development became the most important contributor to economic growth, even as exports boomed following China’s accession to the World Trade Organization.
The problem with the emergence of these new growth engines is that it enabled China’s leaders to delay important structural reforms. As a result, China now faces many of the same challenges it faced in the late 1990s – beginning with overcapacity.
After 15 years of rapid growth in real-estate development, this is not surprising. But that does not make it any less risky. In fact, if overcapacity is allowed to continue putting downward pressure on prices, China’s economic growth will not stabilize at a rate consistent with its potential; instead, the economy will be pushed into a vicious spiral of debt deflation.
…
Dan is getting b!tch-slapped into next year. He’s become the laughingstock of the blog.
He’s become the laughingstock of the blog ??
No…He posts data and stakes out personal positions on them…Most of us on the blog are suspicious of information coming out of China…
Laughingstock ?? One poster on this blog has that position firmly in control…
“He’s become the laughingstock of the blog ??”
You’re a close second Depreciation Dave.
Dan could be right. But it’s looking less likely by the day.
From an economist based in Norway:
http://www.chinadaily.com.cn/business/2015-06/27/content_21120588.htm
Excerpt from link and BTW I see it the other way, I predicted around 7% growth for China in both 2014 and 2015, with around 18 months of data in so far I have been right, it is the people that have been predicting the collapse that have been proven increasing wrong and they only have six months left for the collapse.
OSLO - China is currently experiencing a slowdown in growth while the longer-term outlook of the world’s second-largest economy is good, Marc Lanteigne, a China expert, told Xinhua in a recent interview.
“In the short term there are going to be some bumps. I believe that the best outcome or the most likely outcome would be a soft landing,” said Lanteigne, a senior research fellow at the Norwegian Institute of International Affairs.
“In the longer term, I think China’s outlook is looking quite good,” he said. “We are seeing China begins to internationalize its economy. China’s economic power starts to grow in many parts of the world.”
The expert said as global demand for goods is still falling in general, the slowdown of China, a very strong manufacturer, is “basically inevitable.”
“The question here is whether it would be a kind of controlled slowdown like it slows down very gradually and does not cause a lot of damage. Or would it be a little bit more rough, such as what happened in Europe,” Lanteigne said.
“So far it looks like the first option. So far it looks like things are slowing down and there is concern about areas of the Chinese economy, but so far it appears to be a kind of soft landing,” he said.
China had a long period of very high-rate growth and now the country is facing a completely new method of growth and new set of economic challenges, he added.
As growth is slowing down, the new normal is a reality in China, Lanteigne noted, referring to the concept proposed by the Chinese government to describe a period of more moderate but balanced economic growth.
He said Beijing is making efforts to avoid major shocks to the stock market and property prices and also placing emphasis on addressing urgent issues that might greatly affect the Chinese economy, such as poverty, income inequality and pollution.
“There are going be a lot of heavy obstacles but I really believe the Chinese economy will get through them quite well,” Lanteigne said.
In the meantime, as China has become the world’s second-largest economy, it is under a lot more stress to maintain not only its domestic economy, but also its role in international economy, the expert said.
It used to be that the main drivers of global economy were the United States and Europe and now China has also become an important driving force for world economy and will continue to play the role, Lanteigne said.
Even though China has begun to pivot its growth strategy to focus more on domestic consumption, the country is also making efforts to enhance its foreign trade, which is manifested in its Belt and Road Initiative, he said.
The Belt and Road Initiative, which refers to the Silk Road Economic Belt and the 21st-Century Maritime Silk Road, is a development framework proposed by Chinese President Xi Jinping in 2013 to bring together countries in Asia, Europe and even Africa via overland and maritime networks.
Lanteigne said the Belt and Road Initiative is very welcome and is looked at very seriously in Europe as it is going through “five years of very serious economic trauma.”
“There is the idea that Europe needs to increase its trade with China as well as some other big countries, such as India, as natural partners,” he said. “There is the idea that the United States would not necessarily be the only partner any more.”
Why do your European economist opinions always come delivered in Chinese fish wrap?
“…with around 18 months of data in so far I have been right…”
Does your eighteen month period exclude the panic selling and margin calls in China’s stock market over the past two weeks?
“…and they only have six months left for the collapse.”
We’ll see. But last I checked, stock market moves were a leading indicator for the future outlook in the real economy.
Yet another “speaker” on the CCP payroll. When you are paid to speak in China, you say the right things.
And to get quoted by the US press you have to say the right things about China too like it is close to collapse by reading both you get a better sense of what really is occurring.
Let the deflationary spiral rage on.
Redmond, WA Housing Inventory Skyrockets 95%; Prices Dive 10%
http://www.movoto.com/redmond-wa/market-trends/
Lying again with statistics, I see. The 3BR 1988-built home behind me just closed a few days ago. It sold for $787K, which was $38K over asking.
No price reductions here in Redmond, and there is NO inventory, so all it takes is for one more home to be for sale on the day of the month when they take the data as compared to the last month, and you can get an inventory percentage increase like that.
That’s how you lie with statistics, HA. Good job, you get an ‘A’.
Refute the data.
Seattle, WA Housing Prices Fall 9%
http://www.zillow.com/seattle-wa-98105/home-values/
I just did.
I have boots-on-ground data, which refutes internet data every single time.
Too bad you’re not smart enough to realize that. If you were really smart, you could find one one other source besides zilloto. But apparently you’re not, because that’s all you ever post links to.
Refute the data my friend. Don’t run from it. Refute it.
I smell fear. Is that you, Dan?
http://www.zerohedge.com/news/2015-06-27/desperate-china-cuts-key-policy-rates-after-stock-market-crash-its-just-1987
Nah…he said he doesn’t own China stocks.
‘Shanghai Duolun Industry, a Chinese real estate company, managed to win over investors with a little re-branding in May. In the midst of a technology stock boom, the company decided to change its name to ‘P2P Financial Information Services Co.’ The company didn’t actually develop a peer-to-peer lending business — it just bought the domain name — but its shares jumped 10 percent anyway. ‘P2P Financial Information Services Co’ wasn’t alone in this strategy.’
Let’s review. These companies were strangling on debt. The government completely contrived this stock bubble to shift debt to square-dancing women and janitors. (People in China think the government will always bail-out whatever the government is pushing, an absurd notion). Financial markets and real estate bubbles are always somehow connected, but the Chinese have managed to converge multiple bubbles.
This occurred to me; this stock move is destined to collapse. Is it a sign of frantic desperation to throw many millions of uneducated stock gamblers under the bus for a few more months of ponzi? Is it so the “elite” (one generation removed from rag wearers) can scuttle a few more billions out of the country?
One generation removed from exterminators of tens of millions.
The China bubble is bursting….
“China Stocks Open Lower On Falling Home Prices”
http://www.moneycontrol.com/news/asian-markets/china-stocks-open-lowerfalling-home-prices_1535281.html?utm_source=ref_article
“Rats Leaving A Sinking Ship As China’s Equity Bubble Implodes”
http://www.telegraph.co.uk/finance/china-business/11701472/Rats-leaving-a-sinking-ship-as-Chinas-equity-bubble-implodes.html
‘Since the beginning of the year China’s stock market bubble has inflated to epic proportions as speculators piled in by borrowing money to buy stocks in ever larger volumes. At the beginning of the year, the value of outstanding loans used by securities firms to fund investment had swollen to exceed $260bn. By the beginning of this month that figure had grown to $364bn.’
‘Many of those investments are now worth less than the value of the loan as more traders exit the market in order to cover margin calls on their outstanding debts.’
Reserve bank 5 year plans and manipulation are no more effective for China and the US than the Soviets.
‘China’s Politburo and the People’s Bank of China have deliberately ignited the stock market madness with bullish policy jawboning and successive rate cuts even as its property/shadow banking bubble implodes, its export growth plummets and its GDP is at its lowest levels since 1990. It is common for recent Shenzhen tech IPOs to trade at 400, or in one case, 700 times earnings. Bubbles spawn bubble gum financiers and China is no different but its shadow banking system is a $2 trillion Ponzi scheme.’
‘China’s stock markets are fragile, badly-regulated, rumour-driven, hyper-leveraged and manipulated by zombie investment trusts owned by princelings from the rival clans or the Communist Party. China’s debt is a shocking 240 per cent of GDP.’
‘Wall Street’s financial mania of the Jazz Age led to the stock market crash, a banking crisis and the Great Depression in the 1930s. The stock market mania in late 1980s Tokyo led to Japan’s two lost decades of deflation. Financial history could repeat itself in China in 2015-16. Shanghai now trades at 25 times earnings, still well below its October 2007 valuation peaks.’
‘President Xi Jinping has sent a big chill in government with his anti-corruption campaign and periodic purges of party power brokers amid Stalin-style show trials. A stock market crash will be disastrous for the political legitimacy of the Xi Politburo and send world financial markets in a spasm of risk aversion. The electoral reform debate in Hong Kong or the collapse of a major Mainland broker could be the catalyst that triggers a Chinese stock market crash.’
‘China’s economy exhibits clear evidence of distress. Homes sales were down five per cent in May and six per cent in April. Imports have fallen 16 per cent year-on-year, as have freight volumes and industrial production. Inflation is a mere 1.2 per cent. China’s 143,000 state-owned companies and provincial governments are overexposed to a property bubble that has now burst. China’s corporates will be unable to service bank loans as their cash flows plummet.’
‘Great Wall Motors slashed prices on its fleet of new SUVs. MSCI has refused to include China A shares in its emerging markets index. Yet the Shanghai Composite Index is up 60 per cent in 2015 alone and up 135 per cent since last summer — but markets can remain irrational a lot longer than we can stay solvent.’
‘Saudi Arabia’s Tadawul index is now open to foreign investors who manage at least $5 billion in assets. Retail investors have bid up Saudi equities to unrealistic levels in expectation of the CME opening.’
‘Since Saudi Arabia is not yet included in MSCI emerging market indices, only active fund managers would buy the kingdom’s listed companies now that the Capital Market Authority has opened the market to them. Yet active fund managers are sensitive to valuations. The Saudi Tasi is up 15 per cent since 2015. The Tasi is now 9,500 or 16.7 times current earnings, a post-global crisis high and far too expensive for an index dominated by megacap banks, petrochemicals and cement companies.’
‘China’s economy exhibits clear evidence of distress. Homes sales were down five per cent in May and six per cent in April. Imports have fallen 16 per cent year-on-year, as have freight volumes and industrial production. Inflation is a mere 1.2 per cent. China’s 143,000 state-owned companies and provincial governments are overexposed to a property bubble that has now burst. China’s corporates will be unable to service bank loans as their cash flows plummet.’
So long as the GDP growth needle remains indefinitely stuck at 7%, why do any of these boring details even matter?
As corporate profits plummet? Where are you getting this B.S?
China domiciled corporate profits are down YoY.
I also read widely; but I put more faith in articles from countries without a dog in the fight than from communist propaganda outlets.
“As corporate profits plummet?”
Read carefully: The article said ‘cash flows plummet’, not corporate profits. Of course, these two accounting measures tend to be positively correlated.
“Where are you getting this B.S?”
Right out of The Khaleej Times article Ben Jones posted:
http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/opinionanalysis/2015/June/opinionanalysis_June21.xml§ion=opinionanalysis
Read, Dan, read!
Santa Monica, CA Housing Prices Plunge 5%
http://www.movoto.com/santa-monica-ca/market-trends/
Except that chart shows prices in May 2015 were $1,450,000 and went up in June 2015 to $1,495,000.
Playing that game, in June 2010 median prices were $969,000. Horrible drop in median prices over the last 5 years based on the chart you linked.
And down 5% YoY with a long way to fall.
Your point?
The point? That you cherry-pick data-points and ignore the story told by the remainder graph… Blinders…
And the graph shows falling prices YoY.
Your point?
The graph shows an overall up-and-to-the-right trendline for the past several years (including the last couple of years during which you have said that things are CRATER!ing)—with ALOT of noise in the data.
What was the YoY last month? What will the YoY be next month?
Yeah, you picked noise to support your argument. Again.
And the 6 month graph shows a collapse.
Your point?
And the 6 month graph shows a collapse.
No, the past five months show a slow climb, up and to the right. 2013 and 2014 show an incredibly noisy signal that makes it easy to show 30% drops or increases, depending on which points of noise you choose.
You love noise.
‘Canadian mining industry feeling the sting from China’s steel surplus’
‘The steel industry is about to go from bad to worse. China, the world’s biggest consumer of steel, needs less metal. The Chinese housing market, responsible for using the bulk of steel, is bulging with empty properties. As a result, the country, also the largest steel producer, is swimming in the metal and exporting more to get rid of it.’
“Things are getting worse and I don’t see any possibility of a rebound in under three years,” said Tim Murray, managing partner with investment adviser J Capital Research Ltd. “What I have seen actually is a deepening of the crisis.”
‘Last year, China’s steel exports jumped 50 per cent. The surge came in the same year that steel consumption eased 3 per cent, according to the World Steel Association. And that trend is continuing this year. China is on track to export even more than it did in 2014. It is also on track to consume less steel as the country grapples with an excess of residential properties – an overhang that will take a long time to work out.’
“Who wants to build more when what you have got to worry about is getting rid of your inventory. And who wants to buy when everything is on sale and probably the prices will go down,” said Patrick Chovanec, managing director with Silvercrest Asset Management.’
‘The surplus of steel has had a ripple effect throughout the commodities industry. Iron ore and metallurgical coal, used to make steel, have lost more than 70 per cent of their value over four years. Iron ore once traded at $190 a tonne in 2011 and is now about $60. Likewise, metallurgical coal used to trade around $300 a tonne and is now around $90.’
‘That has led to mine closings and suspensions, including temporary summer shutdowns at Teck Resources Ltd.’s six coal mines in Western Canada.’
‘The fallout has been felt most acutely in the Labrador Trough, a 1,600-kilometre-long iron-ore-rich area that borders Labrador and Quebec. The trough used to be home to three iron-ore mines and a slew of mining startups. Today there is essentially one survivor, Rio Tinto PLC’s Iron Ore Company of Canada, which recently laid off around 100 miners.’
‘Rio is one of the world’s four biggest iron-ore producers, along with Anglo-Australian BHP Billiton Ltd., Brazil’s Vale SA and Australia’s Fortescue Metals Group Ltd. Together they spent billions of dollars to expand production and now their iron ore is flooding the market as demand weakens. The glut of iron ore is has forced higher-cost producers to shut down.’
‘Late last year, Cleveland-based Cliffs Natural Resources Inc. closed its Bloom Lake mine in Quebec and another in Wabush, Labrador, putting hundreds of miners out of work. The company is restructuring its Canadian operations under bankruptcy protection. In June, the company cancelled medical benefits for about 1,000 retirees from the Wabush mine. That dealt another blow to the town of Wabush, which was built around the mine and is still reeling from the closing.’
“This company is not bankrupt. They are still doing business. They decided not to do it here in Canada any more. You don’t get to walk away from legal, negotiated contracts. Time for our government to step in and say ‘No, no, you can’t do that here,’” said Ron Barron, who worked at the Wabush mine for 30 years.’
‘The Canadian government offered retraining for miners who lost their jobs, but many could not afford to attend. “You can’t pay your mortgages on unemployment,” Mr. Barron said.’
Don’t worry Ron, I’m sure you’ll find a buyer for that $400,000 single wide in the middle of nowhere.
LOL….
Mukilteo, WA Housing Prices Fall 10%; Housing Demand Plummets
http://www.zillow.com/mukilteo-wa/home-values/
“The company didn’t actually develop a peer-to-peer lending business — it just bought the domain name — but its shares jumped 10 percent anyway.”
Stupid is as stupid buys.
“People often say that stock markets follow the ‘greater fool’ theory – even if a stock is irrationally overvalued, it still might be worth purchasing if there is another fool out there willing to pay a higher price. That may now be the calculus for many Chinese stock investors. As high as valuations are, novice investors keep rushing into the market. Just last week, 1.41 million new investors opened stock accounts, according to Reuters, a similar number to each of the two weeks before.”
Stock markets also follow the ‘falling knife’ theory.
Try not to catch yourself one.
“You think you can get money from investors for zero return. Who will bear the stock market costs? Investors, of course. Companies have obtained money. When stocks fall, investors suffer heavy losses.”
Falling knife theory in a nutshell…
US-Listed Chinese Stocks Plummet After Home Market Correction
“Before leaving the world, I wish to say I concede defeat. With capital of 1.7 million yuan and four-times margin, I bet the entirety on China Railway Rolling Stock Corp (CRRC). I have only myself to blame, nobody else.”
‘So reads the suicide note left by a 32-year-old stock market speculator from Hunan who jumped to his death in early June after losing his life savings within two days. The man took out a huge loan worth four times his own capital from a ‘grey market’ lender. Believing the government’s gargantuan ‘One Belt, One Road’ plan was a sure fire bet, he staked everything on the state-owned railway carriage builder.’
‘Deflation, which means falling prices, is tightening its grip on the Chinese economy according to the data of recent months, and this worsens the outlook for company profits, consumer spending and the debt burden. Despite three interest rate cuts by the central bank in seven months and other measures to ease the pressure upon highly indebted companies, the real cost of lending is rising as a result of deflation. The annual debt servicing costs of China’s non-financial companies is now equivalent to 15 percent of GDP, a gigantic burden. The country’s debt-to-GDP ratio, at around 280 percent, is twice as high as Greece.’
‘This debt burden prompted Beijing to generate a stock market boom to provide an alternative source of funds for over-leveraged companies and to take pressure off the overextended banking system. For over a year, the Chinese regime has engaged in manipulation of the stock market on a massive scale, learning from the experience of other governments.’
‘Beijing has engineered the latest stock market boom by implementing a succession of regulatory changes (such as legalising margin debt in 2012) and a campaign by state-controlled media to ‘talk up’ the market. The effect of these changes has been to unleash speculation on a staggering scale.’
‘Reflecting an increasingly desperate search for policy alternatives to rescue the Chinese economy from a looming debt and banking crisis, Beijing hopes to use a booming stock market to generate the funds to recapitalise debt-laden state-owned companies. The state-owned banks are themselves in need of capital injections and are no longer able to shoulder this burden. In order for this to succeed the stock market must continue to attract new sources of ‘investment’ especially from the private sector. This is also why Beijing is moving faster to open up its stock and bond markets to foreign capital through an ambitious but ‘controlled’ liberalisation.’
‘The bubble has also opened a new lucrative field for the shadow banking sector, which Beijing has been struggling to suppress as a potential trigger of a wider banking collapse. As in the case of the Hunan suicide, shadow banks have moved to fill the demand for high-risk stock market bets, offering margin loans that breach the government’s limit of 100 percent of a borrowers’ capital. Officially, margin debt accounted for 2.2 trillion yuan in June, up from 403 billion yuan a year earlier. But while even this fivefold growth is a cause for concern, this sum is “only the tip of the iceberg” according to the Financial Times.’
‘State media report that 33 million new trading accounts were opened from the start of January to the end of May 2015. Spurred by media hype, millions of ordinary Chinese have jumped into the market. There are numerous cases of homeowners selling their houses to get into stocks and even farmers and migrant workers entering the market. A survey from Mizuho Securities Asia says that three out of ten college students are now playing the stock market. These are the classic signs of a pyramid scheme that eventually exhausts itself and implodes, leaving its newest recruits as the biggest losers. The big corporate players have already banked billions from the stock bubble and can afford to be more cautious. They are also privy to information from government sources that is not available to mere ‘mortals’.
‘China’s stock market mania is a further sign of the economic catastrophe being created by the measures of the billionaire-led one-party regime, which can only be answered by mass struggle and socialist policies to reorganise the economy in the public interest.’
‘Deflation, which means falling prices, is tightening its grip on the Chinese economy according to the data of recent months, and this worsens the outlook for company profits, consumer spending and the debt burden. Despite three interest rate cuts by the central bank in seven months and other measures to ease the pressure upon highly indebted companies, the real cost of lending is rising as a result of deflation. The annual debt servicing costs of China’s non-financial companies is now equivalent to 15 percent of GDP, a gigantic burden. The country’s debt-to-GDP ratio, at around 280 percent, is twice as high as Greece.’
“…we just want to pump you up!”
The country’s debt-to-GDP ratio, at around 280 percent, is twice as high as Greece.’
Quite wrong you are comparing apples to oranges. China’s total debt private and public is 280%. Greece has a federal public debt i alone is over 170% compared to around 20% for China.
I was just quoting a passage from a published source.
How do you concoct the disinformation you post here?
Where it is demonstrated that the comparison really is absurd is when you look at the external debt of both countries, Greece has around 218% external debt while China’s is 6.5%. China has 21 trillion dollars in savings while we are deep in debt it is simple as that and why their debt is not a major while our larger debt even when measured in percentage of GDP is killing us. We are well over 300% in debt when you count all debt like the 280% number does.
http://www.usdebtclock.org/world-debt-clock.html
“China has 21 trillion dollars in savings…”
That right there is pretty funny. Just another wrong, danny wrong.
‘Think Housing Is Pricey in America? Be Glad You’re Not in Hong Kong’
Of the top 10 unaffordable major markets on the planet; 4 are said to be in California.
‘The latest statistics released by China’s Ministry of Finance show that debts owed by local governments reached a new record of 16 trillion yuan (US$2.58 trillion), a jump of 6 trillion yuan (US$967 billion) from two years ago. Given that local governments in China often hide the actual amount that they owe and may report just 20%-50% of their liabilities to the ministry, the real figure may be much larger, leaving no room for optimism.’
‘Local governments became further mired in debt because of officials’ pursuit of economic growth figures through ill-conceived infrastructure projects, since their performances were evaluated according to GDP stats.’
‘Beijing’s 4 trillion yuan (US$645 billion) stimulus package launched after the 2008 global financial crisis further fueled the borrowing of local governments, which then turned to shadow banking activities to raise funds at a higher cost.’
‘Problems associated with the local government debts emerged after the growth of the national economy started to slow, which led to tightened credit and local governments posting smaller revenues because of a weak property market.’
‘Nationwide home prices are up by more than 5 percent this year. In Dallas-Fort Worth, median home sales prices are growing at almost twice that rate. “I’m less concerned with Texas because the price compared with the coastal regions is still very affordable,” Yun told members of the National Association of Real Estate Editors meeting Friday in Miami. “Texas, for the first time in a long time, is seeing a double-digit price appreciation.”
‘Yun said that he’s not happy with the strong home price gains in many markets, but that he doesn’t believe there is any price bubble. “The buyers are coming back to the market,” he said. “As a result, prices could touch a new high this year. We need to tone down the price growth, because prices are rising too fast,” Yun said. “House prices nationally are now reaching back to 2006 levels,” before the recession.’
‘Home sales across the country are still about 25 percent below where they were in 2006.’
‘“The single-family market has struggled and is only halfway back,” said David Crowe, chief economist with the National Association of Homebuilders. “There is a gradual rise in new home sales.”
‘Crowe said builders are primarily serving the higher end of the housing market, not their traditional first-time and moderate-income buyers. “We have almost a completed flip in those houses under $200,000 and those houses over $400,000,” he said. “We’ve had this complete reversal in what homes are being sold.”
‘Crowe said a tight supply of land for building sites and labor shortages continue to hold back builders. “Builders are seeing a profit squeeze,” he said. “They are paying higher prices for their land and labor.”
“For the last three years, the inventory for sale has been extraordinarily lean,” said Frank Nothaft, chief economist with CoreLogic Inc. “We are seeing a pickup in housing demand with lean inventory, and that’s what’s pushing up prices.”
‘Home finance costs have so far remained low enough not to affect sales, he said. “With mortgage rates where they are, things should be booming,” Nothaft said. “But they aren’t booming. Home sales are still below the level of 2000, 2001 and 2002.”
I wonder if these guys pen their tales themselves? There is little-to-no truth in that post.
‘Euphoric reaction to superstar tech businesses is rampant — so much so that the tech industry is in denial about looming threats. The tech industry is in a bubble, and there are sufficient indicators for those willing to open their eyes. Rearing unicorns, however, is a distracting fascination.’
‘Raising funding for tech startups has never been so easy. Some of this flood of money has been because of mutual funds and hedge funds, including Fidelity, T. Rowe Price and Tiger Global Management. This is altering not only the funding landscape for tech startups, but also valuation expectations.’
‘There are many concerns that valuations for businesses are confounding rationale. Entrepreneurs and their investors are deviating from more traditional valuation and performance metrics to more unconventional ones. Another cause cited for increasing valuations is the trend of protections for late investors that cause valuations to inflate further. The combination of a number of these factors has put the sector into a state of artificial valuations.’
‘Meanwhile, the companies themselves are burning through cash like there is no tomorrow. Throwing money at marketing, overheads and, in particular, remuneration has become the accepted investment strategy for startup growth. All this does is perpetuate the vicious cycle of raising more money and spending more money. For the amounts that some of these businesses have raised, the jury is still out on actual profitability.’
‘A number of high-profile investors have come out and said what their peers all secretly must know. Responding to concerns raised by Bill Gurley (Benchmark Capital) and Fred Wilson (Union Square Ventures), Marc Andreessen of Andreessen Horowitz expressed his thoughts in an 18-tweet tirade. Andreessen agrees with Gurley and Wilson in that high cash burn in startups is the cause of spiralling valuations and underperformance; the availability of capital is hampering common sense.’
‘As Wilson emphasizes, “At some point you have to build a real business, generate real profits, sustain the company without the largess of investor’s capital, and start producing value the old fashioned way.” Gurley, a stalwart investor, puts the discussion into context by saying “We’re in a risk bubble … we’re taking on … a level of risk that we’ve never taken on before in the history of Silicon Valley startups.”
‘The fact that we are in a tech bubble is in no doubt. The fact that the bubble is about to burst, however, is not something the sector wants to wake up to. The good times the sector is enjoying are becoming increasingly artificial. The tech startup space at the moment resembles the story of the emperor with no clothes. It remains for a few established, reasoned voices to persist with their concerns so the majority will finally listen.’
Dang, there’s a bunch of possible bubbles all at the same time. Where’s Janet?
What’s worse, the possible bubbles are scattered all over the planet. All of humanity is floating on a sea of financial froth!
‘A slowdown in rental growth is adding to strains in the housing market, prompting warnings that Sydney’s residential property boom is unsustainable. Landlord buyers have driven skyrocketing prices, especially in Sydney, but the rents they can charge to pay off their investments are not keeping up with the rapid price growth.’
‘SQM Research managing director Louis Christopher said that the low yields on property needed to be seen in the context of very cheap borrowing costs, and that returns on other assets such as shares had also been depressed by investors bidding up prices.’
“The fall in yields is not just a residential real estate phenomenon, it’s a global phenomenon covering all asset classes,” he said.’
Leverage! Borrowed money!
“Some mainland investors have borrowed money against their US real estate assets in order to invest in China’s red-hot stock market.”
And these US real estate assets are held up by …
Leverage! Borrowed money!
So we are looking at the value of leveraged assets from one side of the globe being used as collateral in order to support the value of leveraged assets on the other side of the globe and the values of all these leveraged assets is ultimately determined by …
The PRICE! And the price is ultimately determined by …
OPINIONS! Opinions of buyers and sellers who may or may not be swept up in a frenzy that is driven by …
RISING PRICES! Rising prices that translate into …
RISING DEMAND! Rising demand that will suddenly end when the rising prices stop rising which will then make prices go into reverse and when prices go into reverse then the value of the priced-based collateral that backed all the loans will decline which means enormous quantities of equity from both sides of the globe will suddenly go POOOOOOF and after the equity goes pooooof the only thing that will be left will be …
Leverage! Borrowed money!
A full circle.
It’s turtles all the way down!
It’s dumb borrowed money stacked on dumb borrowed money.
Jut and” cooling condo prices” then the cities name
Last up, first to tank
Boston
New York
Markets
China Stocks Are Battered Anew
Shanghai Composite Index is on the verge of bear-market territory
By Lingling Wei, Chao Deng and Shen Hong
Updated June 26, 2015 5:36 p.m. ET
SHANGHAI—China’s stock-market slump deepened, as Beijing seeks to cool a yearlong debt-fueled rally without sparking a prolonged downturn that could spill over into the broader economy.
As China’s economic growth slowed last year, policy makers allowed brokers to lend billions of dollars to mom-and-pop investors, helping to set off a bull market. Now, fearing investors are taking on too much risk, authorities are trying to let some of the air out of the bubble.
The Shanghai Composite Index fell 7.4% Friday and is off 19% since hitting a 52-week high on June 12, a decline that has wiped away $1.25 trillion in market capitalization, an amount roughly equal to the size of Mexico’s economy.
Two smaller indexes entered bear-market territory, defined as a 20% fall from a recent high. The Shenzhen Composite Index fell 7.9%, now down 20% from June 12. The ChiNext Price Index declined 8.9%, tumbling 27% from a record close on June 3.
“It’s a bloodbath today,” said Li Yu, a 49-year-old business executive in Shanghai. Mr. Li said he invested more than one million yuan ($161,000) in the stock market this year. “The losses I suffered today were enough to buy a luxury car.”
The People’s Bank of China, the central bank, is attempting a tricky balancing act.
Beijing wants to show the world its stock market is built on solid foundations and is well-regulated, part of an effort to attract long-term foreign capital to fund a new era of growth that relies less on lending from state-owned banks.
A decision this month by index provider MSCI Inc. not to include China’s mainland-listed shares in its global benchmarks, citing market-access issues, was a blow. An inclusion this year would have paved the way for U.S. and European index funds to invest more in China.
To take the heat out of the stock market, the central bank last week withdrew some 300 billion yuan in short-term funds from the financial system, a move aimed at squeezing commercial-bank lending to brokerages. The Shanghai index began to lose ground June 15, and Friday marked the year’s second-biggest percentage drop.
The market regulator made rare public comments Friday that appeared to show authorities were comfortable with the declines. “The relative big drop is a correction by the market itself,” said Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission. “The market had gone up too fast.” At the same time, the nation’s leaders realize the stock rally has been a bright spot in China’s struggling economy, where growth has slowed and housing prices are stagnating after years of gains.
Domestic investors have poured into the market, opening 33 million new brokerage accounts from the start of January to the end of May. Foreign investors, by comparison, play a much smaller role, holding roughly 2% of China’s mainland shares.
A stock-market collapse would hurt investors’ confidence and hamper Beijing’s efforts to revamp its financial system as China struggles with high debt levels and tries to navigate a difficult transition to an economy driven by private business and consumer spending, rather than infrastructure outlays and exports.
“We need a bull market to finance our economy, but they have to control the speculators,” said Leo Gao, a fund manager with Shanghai-based Greenwoods Asset Management.
…
All those fools who appeared to have it all together and confidently paid a grossly inflated price for what we all know is a rapidly depreciating asset from 1999-2014?
Here they are….
“Mortgage Woes: More Older Americans Being Buried by Housing Debt”
http://www.theledger.com/article/20150602/news/150609889
How can cheghetto be perky w the taxman coining on hard?
17% raise for teachers= bk +
‘A 20 percent fall in Chinese stocks over the past two weeks, mainly blamed on a flood of initial public offerings, highlights the risks that regulators face as they try to use the stock market to support the slowing economy.’
‘The central bank cut interest rates and bank reserve requirements on Saturday, which analysts say is mainly aimed at restoring investor confidence in the market after key indexes fall over 7 percent on Friday, the biggest one-day fall since the global financial crisis. “The government appears eager to maintain a bull market to expand the capital market and reduce reliance on bank lending,” analysts at Standard Chartered said.’
‘The stock market, which has seen indexes gain as much as 150 percent since November, has been one of China’s few bright spots as economic growth has flagged and property prices have slid, and regulators have tried to take advantage of it to support the wider economy.’
‘By allowing companies to raise fresh funds with high valuations, either via IPOs or secondary issuances, China can attack two goals at once, supporting growth and draining excess speculative liquidity flowing into the market through a surge in margin financing.’
“Regulators have tried to guide the market, encouraging investment at the levels they believe are low and pouring cold water at the high levels,” said a domestic fund manager, who spoke on condition of anonymity because he is not allowed to speak to media.’
http://finance.yahoo.com/news/china-regulators-juggle-ipos-growth-043640345.html
It’s hard to believe what I’m reading here. So these guys are waving their wand around in the air, “this stock go down, that stock go up, you house, stay same”. Is this an alternate reality? Does the media now think the Chinese government has a magic power not available to anyone else?
‘Shanghai Finance University associate professor Qin Huanmei blamed the plunge on “way too fast” previous gains, but added that she believed the government wanted the positive trend to continue. “The leadership also wants a slow and sustainable bullish market, so this won’t be the end of it,” she told AFP on the sidelines of a financial forum in Shanghai ahead of the interest rate cut.’
‘And ordinary investors do not want to give up on the prospect of profit. “The overall market may run out of steam but some individual stocks may still have chance despite today’s fall,” Wan Qingyao, a university teacher in her 30s, told AFP. “I will not clear out my stocks, not while I have lost money on them.”
http://www.thejakartapost.com/news/2015/06/28/fear-or-greed-china-share-plunge-splits-bulls-and-bears.html
‘The most dangerous idea gaining traction in the Chinese stock market is the naïve consensus among ordinary investors that no matter how bad the market gets, the Communist Party will eventually rescue everyone. The central bank surprised everyone with its announcement on Saturday that it will cut its benchmark deposit and lending rates by 25 basis points - the fourth reduction since November.’
‘Meanwhile, it also decided to reduce the reserve requirement ratio at selected banks to further ease liquidity in the banking system.’
‘The unusual “double cut” move came just 24 hours after more than US$760 billion was wiped off the value of mainland stocks - equivalent to the market capitalisation of US technology giant Apple.’
‘China has been through the planned economy model for decades. This is especially ingrained in the generation of my parents, who make up the bulk of individual investors. Just as everything once belonged to the government, many of these people believe the stock market should also belong to the government. So it’s the job of the government - in other words, the Communist Party - to rescue the market.’
‘Unfortunately, many Chinese experts and professors are also promoting this naïve view of the relationship between domestic investors and the government.’
‘Suddenly, investors who felt that Friday was the end of the world - with more than 2,000 stocks sinking - began to talk about what stocks they should buy on Monday morning.’
“You still don’t get it? It’s now like the government policy that the stock market must go up. Otherwise, why bother asking the central bank to rescue the market?” said one investor in a post on Weibo. Many others echoed his views on the social media network.’
http://www.scmp.com/business/markets/article/1828182/will-beijing-really-be-last-rescuer-everyone-stock-market
“The most dangerous idea gaining traction in the Chinese stock market is the naïve consensus among ordinary investors that no matter how bad the market gets, the Communist Party will eventually rescue everyone.”
This idea has even taken control of the mind of one of the HBB’s most prolific posters!
It seems amazing to see top finance ministers of leading economies once again in a panic so soon after the Panic of 2008.
Top News
China stocks open up sharply after policy easing
Mon, Jun 29 02:35 AM BST
SHANGHAI, June 29 (Reuters) - China stocks jumped more than 2 percent on Monday after a surprise weekend cut in interest rates and bank reserve ratios by the People’s Bank of China.
The CSI300 index was up 2.6 percent at 4,446.84 points by 0126 GMT, while the Shanghai Composite Index gained 2.3 percent to 4,289.77 points.
China CSI300 stock index futures for July rose 1.7 percent, to 4,319.2, still 127.64 points below the current value of the underlying index.
Hong Kong’s Hang Seng index dropped 0.4 percent, to 26,560.13, while the Hong Kong China Enterprises Index lost 0.3 percent, to 13,044.09.
China’s central bank at the weekend cut lending rates for the fourth time since November and trimmed the amount of cash that some banks must hold as reserves, stepping up efforts to support an economy that is headed for its poorest performance in a quarter century.
The last time the central bank simultaneously cut interest rates and reserve requirements was at the height of the global financial crisis in late 2008.
The latest move could also be aimed at comforting investors following a 20 percent plunge in the country’s stock markets over the last two weeks, some analysts said. (Reporting by Pete Sweeney; Editing by Kim Coghill)
…
‘When historians write the definitive accounts of the great Chinese stock bubble of 2015, this weekend’s rate move may deserve its own chapter. By cutting borrowing costs to a record low, Governor Zhou Xiaochuan told a hundred million mainland day traders to keep on buying.’
‘Great intrigue surrounded the silence of the official media last week amid the biggest two-week plunge in stocks since 1996. Xinhua had been the loudest cheerleader, churning out countless stories on the wisdom and patriotism of buying shares. So when Xinhua, long considered the “throat and tongue” of China’s government, suddenly went quiet, punters figured the rally was over.’
‘Zhou stepped up Saturday to disavow that notion with a three-pronged easing. The People’s Bank of China cut the benchmark lending rate by 25 basis points to 4.85 percent, reduced the deposit rate by a quarter percentage point to 2 percent and lowered the required reserve ratios for some lenders. The clear message: Don’t worry stock-buying comrades, we’ve got your back.’
‘Surging stocks are now Beijing’s favored stimulus tool. All those ghost cities, massive factory overcapacity and excessive debt have Xi’s men looking to boost confidence via share prices. Beijing is loosening fiscal policy, too, to prevent a hard landing. It doubled the size of a debt swap program, offering local governments cheaper financing to alleviate a credit crunch. But China’s other giant bubble — debt — limits its ability to support growth conventionally. It hopes rising shares will help companies raise capital to pay down debt, while enlivening consumers to spend more.’
http://www.bloombergview.com/articles/2015-06-28/china-finds-a-new-pump-to-keep-stocks-aloft
‘Surging stocks are now Beijing’s favored stimulus tool. All those ghost cities, massive factory overcapacity and excessive debt have Xi’s men looking to boost confidence via share prices. Beijing is loosening fiscal policy, too, to prevent a hard landing. It doubled the size of a debt swap program, offering local governments cheaper financing to alleviate a credit crunch. But China’s other giant bubble — debt — limits its ability to support growth conventionally. It hopes rising shares will help companies raise capital to pay down debt, while enlivening consumers to spend more.’
So the remedy for massive overcapacity and a ginormous debt overload is low-interest lending to pile on more debt?
This sounds vaguely familiar…
All the new debt is going to pay the old debt.
and to shift it from local governments to grandmothers.
Seems a lot like check kiting…
Are there any other countries besides Greece and China currently engulfed in a state of financial panic?
World Affairs
6/28/2015 @ 3:57PM
Panic Property Buying In China’s Shenzhen
In Shenzhen, sellers of homes are defaulting on their obligations to turn over deeds. They would rather pay buyers penalties equaling 20% of purchase prices than go through with sales.
Buyers don’t want the cash, however, and are suing to get title to their apartments and houses. “We have not seen such large numbers of legal disputes between individual buyers and vendors since the last peak in 2007,” said a spokeswoman at Guangdong Xinrong Law Firm to the South China Morning Post.
So what’s going on? Home prices have jumped so much recently that vendors can make more money by cancelling sales, paying penalties, and finding new purchasers at today’s higher prices. As Andy Lee Yiu-chi of Centaline China, a property agency, said in the middle of this month, “Now people are panic buying and not panic selling.”
Welcome to the southern Chinese metropolis across from Hong Kong, the hottest property market in the biggest country in the world. In the 70 cities monitored by the official National Bureau of Statistics, Shenzhen in May showed the largest month-on-month price increase, a stunning 6.6%. That figure is generally in line with other survey results. The SCMP/Creda Index, a collaboration of the South China Morning Post and China Real Estate Data Academy, shows new homes prices in the city climbed 6.7% last month.
Analysts are now worried about the city “overheating.” No wonder Shenzhen sellers are breaking contracts.
The housing sector recovery started in Shenzhen and is now spreading across China. The country’s other three Tier 1 cities also did well in May on a month-on-month basis According to NBS, Beijing prices were up 1.1%, Guangzhou 1.4%, and Shanghai 2.2%.
Elsewhere, residential real estate is still headed down. According to NBS’s official figures, only one of the 70 surveyed cities showed a year-on-year increase in home prices. Across the nation, prices last month fell 5.7% year-on-year.
The decline last month, however, was better than the 6.1% drop in April, so markets could be near the bottom. Moreover, in May month-on-month prices in 29 cities either stabilized or went up. The comparable figure in April was 21. Reuters calculations, based on NBS data, show home prices in the 70 cities rose 0.2% in May from the month before. That was the first increase since May of last year.
…
Peak margin debt timed just ahead of the scariest month for stock trading, October? How good can it get!?
China’s $370 Billion Margin Call
By EconMatters, June 28, 2015, 11:13:07 AM EDT
China’s stock markets tumbled on Friday to near bear territory further deepening the sell-off that started two weeks ago. The Shanghai Composite, down 7.4% on the day, has fallen 19% from its June 12 high wiping out $1.25 trillion in market cap. The smaller Shenzhen and ChiNet indices also has plunged 20% from its recent peak.
Margin Lending Blessed by Beijing
Even with recent declines, the Shanghai Composite Index has surged nearly 30% year-to-date. Authorities have allowed local investors to borrow tons of money from brokers to speculate in the stock market (i.e., Margin Lending), while the central bank PBOC has cut interest rates three times since November. Beijing also introduced new easing measures in the past couple of days: a proposal to remove a cap on banks’ loan-to-deposit ratio and injecting cash into the financial system.
Margin Debt Soared to $370 Billion
Investors have poured into the market, opening 33 million new brokerage accounts between the start of January and the end of May. According to Macquarie Research, Chinese margin debt has risen 123% year-to-date, reaching a new record of 2.3 trillion yuan ($370 billion) on June 18.
Margin debt in China has reached 8.5% of the value of China’s tradable shares (For comparison purpose, that ratio was only at 4.6% during the peak of the Taiwan Stock Market Bubble back in the late 80’s).
Margin Debt Could Get Even Worse
It gets even better from there. Macquarie believed that the brokers should have enough capital available to push margin lending higher from here as reported by Bloomberg:
Analysts Cutting Price Target
Investors have started to pull out of the market on concerns the government could be looking to rein in this debt-fueled rally. Meanwhile, more and more analysts are also sounding louder alarms about the over-heated China market. For example, citing concerns like valuations and high margin debt, Morgan Stanley just lowered its price target for the Shanghai benchmark in a report Thursday.
Plunge Leaves State Media Speechless
The usually quick-tongued state media like Xinhua are staying unusually quiet not giving out clues about the government’s view on the current market sell-off.
Reuters quoted Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission on Friday:
Chinese authorities are already trying to discourage speculative bets on the highest-flying stocks. So these rare public comments from the Regulatory Commission seem to suggest authorities are ‘comfortable’ with the declines.
$370 Billion in Margin Trades
A stock market collapse would be devastating to China with slowing economy and during a difficult transition from a manufacturing-based economy to private-business-and-consumer-supported.
People are already freaking out that Greece is just days away from defaulting on a $1.72 billion loan payment. Just wait for the margin call on the $370 billion margin debt in China’s stock markets should Beijing decide to take a page from Saudi Arabia’s oil book.
…
‘Murika to the rescue?
Europe
Greece will close banks Monday as panic spreads
What you need to know about the Greek debt crisis
Greece may default on its debts if a deal for more funding in exchange for fiscal reforms is not made. Here’s why that matters. (Jorge Ribas/The Washington Post)
By Michael Birnbaum June 28 at 6:19 PM
ATHENS — Greek leaders planned to shutter their banks on Monday amid last-ditch discussions about their nation’s economic future, as panicked citizens tried to pull their money from their accounts while they still were able.
Sunday’s decision to declare a bank holiday was a signal that Greece’s five-year battle to stay in the shared euro currency may swiftly be coming to an end. ATMs in Athens were running out of money, and tensions were running high as Greeks stood in line for hours to scrape together petty cash for basic supplies. Lines mounted at gas stations as worried residents topped off their tanks for what could be a period of time in a cashless nation.
“The decision not to prolong financial aid to Greece is offensive, and it’s a disgrace for Europe in general,” Prime Minister Alexis Tsipras said in a brief Sunday evening address broadcast across Greek television networks. He said he was seeking an extended and enlarged bailout from European lenders that would carry the country past Tuesday, when it will otherwise face default.
There were signs that Greece’s creditors — the International Monetary Fund and euro-zone governments — were leaving the door open to negotiations. But it remained deeply unclear ahead of Tuesday’s IMF repayment deadline how Greece would be able to satisfactorily arrange its finances.
Tsipras said that the threat by European Union leaders to hold Greece to the deadline and not extend further assistance amounts to “blackmail.” But he gave no concrete indications that he had made any concessions that would cause them to change their minds.
Negotiations over Greece’s future have been dragging for months. The disagreements are about the extent of the painful reforms it must make to continue receiving the rescue funds that keep the nation’s finances afloat. But talks came to a sudden halt Saturday after Tsipras announced he would hold a referendum on July 5 to ask Greeks whether they would accede to the austerity demands of the nation’s creditors. Greek leaders have urged their citizens to vote “no.”
In a measure of deepening American concern about the consequences for global stability if Greece is kicked out of the euro, President Obama and Treasury Secretary Jack Lew worked phones over the weekend to urge European leaders to take every possible measure to keep Greece within the currency union.
The White House said that Obama and German Chancellor Angela Merkel spoke and “agreed that it was critically important to make every effort to return to a path that will allow Greece to resume reforms and growth within the euro zone.”
And the Treasury Department said Sunday that Lew had spoken a day earlier to key European officials, urging them to maintain financial stability in the coming days — and to consider “potential debt relief.”
…
Are there any documented cases where the financial sector made mankind better off? Most of what I read suggests the main consequences of modern centrally planned monetary policy are wasted resources, increases in unemployment and suicide, and other negative impacts.
At an impasse with creditors, Greece teeters on the edge
By Robert Hennelly
Money Watch
June 28, 2015, 1:54 PM
Greek Prime Minister Alexis Tsipras delivers a speech during a parliamentary session in Athens on June 28, 2015.
ANGELOS TZORTZINIS/AFP/Getty Images
With few options left and a $1.7 billion loan payment due to the International Monetary Fund on Tuesday, Greek Prime Minister Alexis Tsipras is taking the bold step to call for a July 5 national referendum on the eurozone’s latest bailout offer.
The move comes as Greeks race to withdraw money from banks for fear that Athens imposes capital controls, spurring talk that some financial institutions could stay closed on Monday. With negotiations with the country’s creditors halted, Tsipras planned to hold a cabinet meeting tonight to discuss the crisis.
His gambit is aimed at shoring up Tsipras’s left-wing political base, putting his domestic opponents on the spot and buying him a few precious days in hopes of thrashing out a deal with the country’s creditors. On the line is 15.5 billion euros in aid Brussels refuses to release unless Greece makes further cuts to its pension system, including for the country’s poorest retirees.
While here in the U.S. we celebrate our Independence Day with a shorter trading week, the world’s oldest democracy remains in a pitched battle for self-determination. At issue is whether the citizens that call the birth place of democracy home are so in debt to outsiders that they have lost their sovereign right to shape their own destiny.
More broadly, the outcome of the bailout talks has potentially enormous implications for Europe’s more six-decade experiment in political and economic integration, as well as for the global economy at large.
Peter Kenny, chief market strategist with trading firm Clearpool Group, says the risk of a Greek default casts a cloud of uncertainty over the long-term viability of the European Union.
“Greece’s impact on global and U.S. markets remains undefined, though most analysts would agree that failure to reach an agreement on a deal will have a decidedly negative impact on near-term economic performance [and] interest rates, and lead to the potential for further erosion in the union,” he said.
While German Chancellor Angela Merkel called Brussels’s last bailout offer “extraordinarily generous,” Tsipras described it to a national broadcast audience as a “humiliation” that would exact an “unbearable” toll on Greeks already battered by years of austerity.
According to The Economist, Greece, with a population of just 11 million, carries a debt load of $263 billion, or $23,000 per person. For now it is this debt overhang — a by-product of corruption, epic tax evasion and multinational fiscal manipulation — that is casting a shadow over Greece.
Greece’s protracted economic crisis has resulted in a jobless rate of more than 25 percent, while more than half of its youngest workers remain unemployed. This month a University of Thessaly public health study pointed to a 35 percent rise in the country’s suicide rate from 2003 through 2012, with researchers linking the spike to the economic downturn.
“We found a clear increase in suicides among persons of working age, coinciding with austerity measures. These findings corroborate concerns that increased suicide risk in Greece is a health hazard associated with austerity measures,” the researchers concluded.
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Europe
Greek debt crisis: Banks to stay shut, capital controls imposed
2 hours ago
From the section Europe
Greeks are queuing for cash, but only 40% of ATMs have money in them, the BBC’s Gavin Hewitt reports
Greek banks are to remain closed and capital controls will be imposed, Prime Minister Alexis Tsipras says.
Speaking after the European Central Bank (ECB) said it was not increasing emergency funding to Greek banks, Mr Tsipras said Greek deposits were safe.
Greece is due to make a €1.6bn (£1.1bn) payment to the International Monetary Fund (IMF) on Tuesday - the same day that its current bailout expires.
Greece risks default and moving closer to a possible exit from the eurozone.
Greeks have been queuing to withdraw money from cash machines over the weekend, and the Bank of Greece said it was making “huge efforts” to keep the machines stocked.
Greek banks are expected to stay shut until 7 July, two days after Greece’s planned referendum on the terms it had been offered by international creditors for receiving fresh bailout money.
The Athens stock exchange will also be closed on Monday.
Greece’s capital controls
* A maximum of €60 (£42; $66) can be withdrawn from an account in one day
* Overseas transfers of cash prohibited, except for vital, pre-approved commercial transactions.
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Currency Crisis
The Next Few Days Have the Potential to Transform Greece and Europe
JUNE 28, 2015
Neil Irwin
As it turns out, the Greek crisis ends not with a bang, but with a referendum.
It has been easy to ignore the doings in Greece for the last few years, with the perpetual series of summits in Brussels that never seem to resolve anything. But it’s time to pay attention. These next few days are shaping up to become a transformational moment in the 60-year project of building a unified Europe. We just don’t yet know what sort of transformation it will be.
The immediate headlines that got us to this point are these: After an intractable series of negotiations over a bailout extension with Greece’s creditors, the nation’s left-wing government left the table Friday and said it would hold a referendum on July 5. Greek leaders think the offer on the table from European governments and the International Monetary Fund is lousy, requiring still more pension cuts and tax increases in a depressed economy, and intend to throw to voters the question of whether to accept it.
Whatever the exact phrasing of the question (and assuming the referendum goes forward as planned), it really boils down to this simple choice:
A “Yes” vote means that Greece will continue the grinding era of austerity that has caused so much pain to its citizens over the last five years, in exchange for keeping the euro currency and the monetary stability it provides.
A “No” vote almost certainly means that the country will walk away from the euro and create its own currency (which will surely devalue sharply), bringing financial chaos in the near term but creating the possibility of a rebound in the medium term as the country becomes more competitive with its devalued currency.
The Greek government, led by Alexis Tsipras, disputes this framing, and argues that Greece could in fact reject the creditors’ offer to extend the bailout program while sticking with the euro. Events over the weekend show how untenable that is. Thousands of Greeks lined up to withdraw euros from money machines, and the European Central Bank said it would not increase the size of the emergency lending program that Greek banks have been using to secure euros.
Ergo, the Greek banks are, or will soon be, out of money, and the E.C.B. will be disinclined to open the floodgates again in the absence of a bailout deal. That’s why the Greek government has effectively frozen its financial system, closing banks and the stock market on Monday.
Capital controls that limit people’s ability to withdraw and move money out of the country are, it is safe to say, not a sign of a healthy currency union. It would be hard to call the dollar the national currency of the United States if laws prevented me from taking Maryland dollars and depositing them in a Virginia bank.
The developments show how little power Mr. Tsipras and the Greek government really have if they want to keep using the euro currency, as their campaign platform called for and as is widely popular in Greek polls. European leaders in Brussels and Frankfurt and Berlin may not be fair, or democratic, and there’s a good case that the economic policy they are advancing is not very sound. But they hold all the power in this situation, and are leaving Greeks to decide between two bad options.
But if you zoom out a little further from the brinkmanship, this standoff goes from remarkable and shocking to inevitable and even overdue.
For years Greece has muddled along with a depressed economy and an endless series of bailouts and austerity. It’s fine to play the blame game over how public debt got out of control in the country, but by the time 2010 came around what was done was done, and the human consequences of austerity have been grave.
The Greek government apparently agrees that the definition of insanity is doing the same thing over and over again.
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Marketwatch dot com
Market Extra
Greece sets stage for chaotic Monday, week
By Mark DeCambre
Published: June 28, 2015 9:14 p.m. ET
Getty
Protesters hold an EU flag during a pro-European demonstration in front of the Greek parliament in Athens earlier this month.
Greece’s debt odyssey is on the brink of a tragic end to its prolonged-debt negotiations after a tumultuous weekend of surprising twists and turns and failed last-ditch negotiations.
It was the sort of drama-filled weekend that even Homer would find a bit melodramatic. Officials led by anti-austerity-backed Prime Minister Alexis Tsipras have been playing hardball with the nation’s international creditors for months as Greece attempts to restructure a crisis-era bailout agreement struck back in 2012.
Perhaps what’s most stunning about this latest turn of events is that global markets, as recently as early last week, had been waxing optimistic about the possibility of an agreement between Greece and its creditors — the International Monetary Fund, the European Central Bank and the European Union.
Now the small, southern European country with a population of about 11 million (just slightly more than the New York City metro area) is on the brink of a historic fiscal collapse that threatens to roil global markets Monday and for the remainder of a what will be a shortened-trading week in the U.S. due to the observance of Independence Day on Friday.
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It strikes me as curious that Australia stocks would be impacted by news out of Greece on failed bailout negotiations. Oz and Greece can’t possibly be major trading partners, can they?
MarketWatch dot com
Market Pulse
Australian stocks follow region down sharply on Greek turmoil
By Michael Kitchen
Published: June 28, 2015 8:48 p.m. ET
Australian stocks took a slap to the face Monday morning from news of a Greek referendum on the country’s bailout terms raising the odds of a sovereign default.
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Am I alone in the perception that the Chinese government is setting up its economy for a two-decades long Lost Generation like Japan recently experienced (1990-2010)?
Is there any way to post in red? I’d love to show a color-coded version of the chaotic stock price fluctuations today in China.
Click on the link to see all the red numbers (any preceded by a negative sign show up in red)!
Market Pulse
China stocks swing wildly after cut to rates, reserve ratio
Published: June 28, 2015 10:30 p.m. ET
By Laura He
Asia markets reporter
HONG KONG (MarketWatch) — Chinese stocks posted wild swings in the first half-hour of Monday morning trade, as the Chinese central bank’s latest interest-rate cuts weighed against a regional selloff amid concerns about a possible Greek default. The Shanghai Composite Index SHCOMP, -3.75% opened 2.5% higher, then fell to a 2.1% loss, and then swung back to a 1.8% gain. The index sank a combined 10.6% on Thursday and Friday of last week, followed by a rare move Saturday by the People’s Bank of China to cut both interest rates and the amount of cash certain banks must hold as reserves in order to bolster bank lending and boost economic growth. In Hong Kong, the Hang Seng Index HSI, -2.68% widened opening losses to drop 1.7%, as the Greek financial crisis worsened, with odds of a default increasing after the country announced plans for a referendum on its bailout conditions. Meanwhile, the mainland-China-tracking Hang Seng China Enterprises Index HSCEI, -3.59% was down 1.5%. Among the major underperformers, Haitong Securities Co. 6837, -6.29% 600837, -5.55% fell 3%, Citic Securities Co. 6030, -5.52% CIIHF, -0.27% declined 2.8%, Industrial & Commercial Bank of China Ltd. 1398, -8.48% IDCBF, +4.17% 601398, -0.20% lost 2.1%, and index heavyweight Tencent Holdings Ltd. 0700, -4.19% TCEHY, -2.04% sagged 2%. Macau casino operator Melco Crown Entertainment Ltd. 6883, -7.27% MPEL, -2.95% slid 6.4% on the last trading day before its de-listing from the Hong Kong stock exchange. Its rivals also posted sharp losses, with Wynn Macau Ltd. 1128, -7.18% WYNMF, -1.69% down 4.7%, Galaxy Entertainment Group Ltd. 0027, -5.18% GXYEF, +1.39% off 4%, and Sands China Ltd. 1928, -5.72% lower by 3.9%.
Don’t look now, but despite massive desperation weekend stimulus, China’s stock market passed into bear market territory in early trading today, off the recent high by more than 20%.
Bloomberg
Asian Stocks Fall as Greece Fears Spur Flight to Safer Assets
by Adam Haigh
June 28, 2015 — 5:09 PM PDT Updated on June 28, 2015 — 8:55 PM PDT
Asian stocks tumbled as investors sought shelter in haven assets while they weighed a possible Greek exit from the euro zone. Shares in Shanghai sank even after the central bank cut interest rates.
Japan’s Topix index dropped 1.7 percent as the yen jumped 0.8 percent against the dollar and 2.1 percent versus the euro. The MSCI Asia Pacific Index lost 1.6 percent to 145.43 as of 11:37 a.m. in Hong Kong, as more than 20 shares fell for each that rose. The Shanghai Composite Index slumped 3.8 percent after earlier rising 2.5 percent.
“Markets clearly were not ready” for this, said Evan Lucas, market strategist at IG Ltd. “It will be a sea of red all day today. Risk mitigation will be everything.”
Greece will shut lenders and impose capital controls on Monday after Prime Minister Alexis Tsipras’ decision to call a July 5 referendum on the proposed bailout package spurred savers to start withdrawing money at the weekend. The European Central Bank froze the level of emergency aid available to Greek lenders Sunday. Mainland Chinese investors focused on local stimulus efforts, with policy makers reducing the benchmark lending rate for the fourth time since November after the steepest two-week stock selloff since 1996.
“Chinese policy makers must be quite aware that cutting in response to short-term moves in markets is a dangerous game, but I do think they’ve eased because of underlying fundamental concerns,” Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong, told Bloomberg TV. “We’ve already seen the earlier rate cuts not really gaining the traction we wanted and the economic data hasn’t really improved all that much.”
Broad Decline
Losses across Asia were broad-based on Monday, with all 10 industry groups on the regional measure retreating. Financial and technology shares led declines. Industrial & Commercial Bank of China Ltd., Tencent Holdings Ltd. and Toyota Motor Corp. were the biggest drags on gauge.
Australia’s S&P/ASX 200 Index dropped 2 percent. Slater & Gordon Ltd. tumbled 26 percent, the most on record, after the world’s first publicly-listed law firm said it identified a historical error in its U.K. reporting.
The Hang Seng Index slid 2.3 percent, on course for the biggest loss since December. New Zealand’s NZX 50 Index fell 0.9 percent. South Korea’s Kospi index retreated 1.4 percent, while Singapore’s Straits Times Index lost 1.3 percent.
Greece will probably have to exit the euro zone, according to Mohamed El-Erian, the former chief executive at Pacific Investment Management Co.
“There’s an 85 percent probability that Greece will be forced to leave the euro zone” in the next few weeks, El-Erian said in an interview from New York. “What we are seeing here is what economists call the sudden stop, when the payment system stops. The logic of a sudden stop is a massive economic contraction, social unrest and it’s going to make continued membership of the euro zone very difficult for Greece.”
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