July 5, 2015

Mid-Year Housing Bubble Predictions

What do you predict for the future? From six months ago. “Interest rates stay in a holding pattern even as the fed ends QE. Treasury rates also stay in a holding pattern. Junk bonds fall as oil prices tank and a mini stock market turmoil develops as losses in junk bonds make some investors sell off their stocks. Some pension funds that carry these bonds fail. This might extend to those homes for rent funds but that may just be wishful thinking.”

“More small time flippers get tired of the work for less than the fancy returns they expected, sell their housing stock at a loss and get a real job. Rents stabilize and house prices stay in a holding pattern overall. More apartments built with wooden framing catch fire in California resulting in the government restoring the old requirement for steel framing for multistory buildings.”

“Wages finally start going up and business owners in suburbs and rural areas start finding major problems in attracting employees. Getting roommates becomes more normal for more people in the Bay Area supporting high rents but allowing individuals to pay less than they had prior to the boom. Los Angeles ‘ silicon beach siphons tech workers from the Bay Area but sf continues to be the main draw with both businesses and housing concentrated in the city proper. The overvaluation/ bubble existing in pre-IPO stocks like uber and lyft stay high but wait for 2016 when the need to start showing a profit becomes real.”

One said, “Link of oil and other commodities prices collapse to China and Eurozone economic slowdowns becomes increasingly irrefutable. Oil doesn’t drop much further, but also fails to quickly rebound as predicted by many economists. Oil patch state economies feel the pain. Price of oil patch housing takes a hit due to sudden weakness in demand. Fracking junk bond carnage comes to light.”

And this, “China’s contribution to global and Asian debt growth still accounts for 27.8 percent and 50 percent respectively, according to estimates of the International Banking Fund. Fake growth based on borrowing is everywhere, but especially concentrated in China. It will have to end like all epoch credit expansions, hard to say when.”

One year ago. “the clogged pipeline of foreclosures will be cleared away by magic (and somehow consequence-free for banks) debt forgiveness and restructuring, which of course will fly under the radar.”

Another said, “Gasoline goes up. Health care cost go up. Taxes go up. Education cost go down. Housing goes up in price were the 1% live down everywhere else.”

And this, “The Fed has no choice but to monetize this Wurlitzer in order to prevent asset price drops, pumping nominal house prices up to generate increased property tax revenues, thereby bailing out municipalities, and upping prices of things in general, to increase sales tax revenue.”

“In the process, amnesty that the Home Builders and Realtors are lobbying for, will be granted. This adds 15-35 million new household formers to the picture. Once legitimacy is established for these millions, Fanny, Freddy, FHA, etc will solicit these new customers to join the ‘Murikan dream, absorbing 14 million vacancies, plus what ever in addition need to be built to accommodate these new ‘citizens,’ and the millions who flood in behind them in anticipation of the next amnesty. (With risk of losing a home by being deported gone, multiple family living arrangements will give in to single family household formation.)”

“Lagging incomes will begin rising as this tsunami of new money, and velocity of same, exponentially increases. The Fed will see to it the money gates remain wide open until inflation is running double digit, and interest rates are up to around 100 basis points behind it. In other words, it’s QE until the old 20’s tune ‘We’re in the Money’ takes a position on the Top 40 again. As Hendry suggested, one trillion didn’t do it. Four trillion didn’t do it. But some trillion, some day, will.”

And finally, “No question the spring market was a disaster, except for the folks who gave property away and took their losses overall it was a standoff, and sellers took it hard on the chin. Reducing of prices still produce little sales, buyers are now seeing lot of houses pulled from the market as sellers say, we will wait till fall to realist or gauge the temp again.”

“Many grossly underwater got out, the folks who can afford to stay and many can now, well it will be intersting, somebody always needs a house and if interest rates move towards 5% look for a flurry of activity in the near future?”

RSS feed


Comment by Ben Jones
2015-07-04 06:13:06

I’ll forward this thread through Monday.

Comment by Senior Housing Analyst
2015-07-04 06:17:49

One Year Ago

“Housing demand lower CHECK

Collapsing demand denied CHECK

HARP/HAMP and re-securitization of junk CHECK

Financial market implosion- 10 steps closer.”





East Hanover, NJ Housing Prices Fall 12%


Comment by Prime_Is_Contained
2015-07-04 18:05:55

East Hanover, NJ price per sq-ft increases 8% YoY

Comment by Senior Housing Analyst
2015-07-04 18:09:04

It’s the falling transaction price that is important here. $/sq ft will fall as demand plummets and transaction prices continue to crater.

Comment by Prime_Is_Contained
2015-07-05 05:48:31

It will be a far more convincing CR8ER! when price per sq-ft is declining as well. With the current transaction-price declines, it looks like it could be adequately explained by mix-shift.

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Comment by Senior Housing Analyst
2015-07-05 06:02:52

P/sq ft is falling in towns and cities in every state.

Comment by Prime_Is_Contained
2015-07-05 07:42:47

Supporting data?

Comment by scdave
2015-07-05 08:16:03

Supporting data ??


Comment by Professor Bear
2015-07-05 08:56:00

Would it be possible for prices to be falling, even if the data to show it was deliberately censored from the MSM?

Comment by Senior Housing Analyst
2015-07-05 09:52:02

The data is there my friends. Do your work.

Comment by Prime_Is_Contained
2015-07-05 10:14:15

I have noticed that a few of your cherry-picked tiny zip codes do in fact show small declines in price-per-sq-ft. But most do not. And the declines are nowhere near the headlines that you dream up (suggesting the declines are largely mix-shift). I do welcome the arrival of larger declines in ppsf, and expect it to be more widespread in the relatively near-term future (based on the rapidly decreasing gains shown by CS).

Comment by Senior Housing Analyst
2015-07-05 11:51:14

CS is an index that excludes foreclosures and defaults. It has little to do with falling prices currently or forecasting.

Do your work.

Comment by Prime_Is_Contained
2015-07-07 10:51:21

CS is an index that excludes foreclosures and defaults.

CS shows how the non-foreclosure-sales segment of the market is being affected by the ENTIRE MARKET (including foreclosures and defaults). Those other non-included sales DO affect the sales prices of the included price-pairs, so their effect is incorporated. You don’t seem to be able to grasp that.

Comment by Senior Housing Analyst
2015-07-29 05:48:55

It’s a rearward looking index that excludes the largest part of the housing market: Foreclosures and defaults.

Comment by Pangolin
2015-07-04 06:44:34

Well the many places showing year over year price declines hasn’t gotten much press. It’s like reporting on Caitlyn but not giving the backstory.

Comment by Adult Diapers
2015-07-04 06:45:35

Denver will continue double digit rent and used house price increases for the next two years

Everybody wants to live in Denver

Comment by Joe smith
2015-07-04 07:55:29

UD is considered a fratty alternative to east coast striver schools now, so I believe this. They even cashed in on stealing a lacrosse icon to coach their squad, winning the NCAA title this year. Sad how much college has become about image conscious boomer parents.

Comment by Combotechie
2015-07-04 08:25:42

“Sad how much college has become about image conscious boomer parents.”

Willy Sutton would understand the reason why.

Comment by scdave
2015-07-04 10:44:19

More apartments built with wooden framing catch fire in California resulting in the government restoring the old requirement for steel framing for multistory buildings ??

Nope….For several years now fire sprinklers are mandatory in all new residential construction in California…Stick frame residential construction up to three stories over parking is still the name of the game…

Comment by Adult Diapers
2015-07-05 05:30:47

Everybody wants to live in Denver

Comment by rms
2015-07-05 10:50:16

“Everybody wants to live in Denver”

This is what Denver looked like back in 2008.

Comment by rms
2015-07-05 11:18:24

This piece captures the mood at the time.

“Mortgage defaults force Denver exodus - 2008″

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Comment by Senior Housing Analyst
2015-07-04 06:48:53

“Australian Bonds Fail To Counterbalance Falling Shares”


End Result: Exacerbate losses. Crush Demand. Destroy economy.

Comment by Senior Housing Analyst
2015-07-04 07:04:08

Just a note: These manias work in reverse and history shows the counter action occurs rather quickly.

The ill-prepared: Those carrying debt.

Comment by taxpers
2015-07-04 07:09:38

Flat after 7/5/2015 in 22151. On last s is central soviet

Comment by taxpers
2015-07-04 07:13:08

Yikes ,
South of central soviet

After Hillary gets in and hires thousands of fed workers prices will go up while yours go down

Comment by Florida Skeptic
2015-07-04 07:15:16

Well, I am no economist, but David Stockman says the great financial crisis of 2015 has now begun. China seems to be imploding faster than most thought.


Comment by Senior Housing Analyst
Comment by Joe smith
2015-07-04 07:57:15

Housing is an expense, not an investment.

This is true even for those paying cash.

Comment by Selfish Hoarder
2015-07-04 17:45:03

Housing is not an investment for sure. It’s a missallocation of one’s emergency spending allocation and significantly restricts someone geographically, and cuts off opportunities.

Comment by Professor Bear
2015-07-04 17:48:46

It’s more of a divestment in personal freedom and portfolio diversification. But it’s for the benefit of the bankers children.

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Comment by Prime_Is_Contained
2015-07-04 18:10:21

The vast majority view the investment incorrectly (including many hear), but housing is definitely an investment. For the annual cost of maintenance and taxes, a paid-off house yields the going market rental rate. Like any investment, that yield may be positive or negative. YMMV.

Comment by Senior Housing Analyst
2015-07-04 18:13:11

Housing is a depreciating asset. The fundamental goal of investments is appreciation. Houses depreciate.

Comment by Prime_Is_Contained
2015-07-04 18:13:15

hear, here.

Comment by Prime_Is_Contained
2015-07-05 05:57:05

Housing is a depreciating asset.

That is entirely true. But if the imputed rental income exceeds the depreciation (which I lumped into “maintenance” above) plus the taxes, it could still have a positive yield.

Comment by Senior Housing Analyst
2015-07-05 06:04:17

There is no positive yield at current asking prices. There hasn’t been in 15 years.

Comment by Prime_Is_Contained
2015-07-05 07:55:43

Ah, so you agree with me, then. Imputed rent minus carrying costs (depreciation/maintenance and taxes) is the rental yield. Great.

The fact that it has been negative for a long time is simply a matter of purchase price: at a bubble-era purchase price, the yield is most likely going to be negative; at a reasonable purchase price, the yield may be positive.

(p.s. Noticing the disconnect is why I sold over a dozen years ago, and continue to rent to this day.)

Comment by Senior Housing Analyst
2015-07-05 09:58:02

Whether you agree with me or not is immaterial to the fact that houses are depreciating assets.

Comment by Prime_Is_Contained
2015-07-05 10:24:39

And you, of course, fail to get the point again: it is the purchase price that determines whether the yield is positive or negative, but neither case prevents it from being viewed as an investment.

Comment by Mafia Blocks
2015-07-05 11:46:42

And the point is houses are depreciating assets that never pay you back.

Comment by Rental Watch
2015-07-05 12:43:11

PIC, if what you are talking about is the rental yield, then it’s actually not the purchase price that determines whether the yield is positive or negative. It’s the rent minus all expenses.

If the rent minus the expenses is positive, then the yield is positive. What you paid simply increases the denominator (lowers the yield).

If a property generates $10k per year in net rental income, and you paid $100k, then your yield is 10%.

If you paid $1MM, the yield is 1%.

If you paid $10MM, then the yield is 0.1%.

All positive.

Just because you paid too much doesn’t change the maintenance cost for the asset.

Comment by Mafia Blocks
2015-07-05 14:30:38

And there goes another Dingbat story. 1million for a depreciating asset like a house?

The reality is if you paid more than input costs ($55/sqft for lot labor materials and profit), you got bamboozled.

Comment by Senior Housing Analyst
2015-07-04 07:20:06

Asheville, NC Housing Prices Fall 6%


Comment by Professor Bear
2015-07-04 07:43:28

“China’s contribution to global and Asian debt growth still accounts for 27.8 percent and 50 percent respectively, according to estimates of the International Banking Fund. Fake growth based on borrowing is everywhere, but especially concentrated in China. It will have to end like all epoch credit expansions, hard to say when.”

Judging from the about 30% stock-market slide in China over the past three weeks, I’d guess sooner than later.

Comment by Professor Bear
2015-07-04 07:48:57

“Link of oil and other commodities prices collapse to China and Eurozone economic slowdowns becomes increasingly irrefutable.”

Looking ahead, devolution of China and Eurozone economic slowdowns into panic becomes increasingly irrefutable.

Comment by Blue Skye
2015-07-04 09:08:45

China’s trade surplus has been reaching new highs in the first half of 2015, lately around $600 billion (per year based on the month). That sounds pretty impressive until you take a peak at the actual import/export numbers. Exports are flat, growing at less than 1%. Imports are collapsing.

The Chinese are raising cash and they are taking it out of the country a the net rate of $800 billion/yr. Zero growth, drawing down the inventory and running off with the money.

Comment by Joe smith
2015-07-04 07:51:53

Spring was very slow here. I bought a rental house after offering (low ball) on nearly a dozen houses. The shopping was sad, people don’t realize how much of their 2000-era “remodeling” is crap. Also saw a lot of “aging in place”. People who want to sell and live near kids or a 55 plus community, but can’t accept their 1950s row house won’t pay for it by itself. I’m guessing for most of these people, the house is nearly all their ” savings “.

Also, before RAL asks, row house we bought was $60/sq ft. $85,000 for 1500. 3 be, 2 ba. Old house, so small bedrooms, obvi.

Summer and fall will be slow as well. I met a lot of people my age and younger who aren’t even the slightest bit interested in owning. Few are married. In a lot of settings full of 25-35 year olds, I’m the only married guy. And I will be 32 this fall. Not really young anymore. With so much student debt out there, this will continue for decades. It’s a different world these days.

Comment by aNYCdj
2015-07-04 08:26:21

joe that’s why gay marriage will be a boon to the wedding business and they spend money like water on entertainment, and lawyers talk about hissy fits backed with money.. jobs man think of the jobs……

Comment by In Colorado
2015-07-05 11:02:10


First of all, only 2-3% of the population is gay.

Secondly, not all gays are loaded. I’m sure many have menial, lucky ducky jobs.

I also doubt that they will all rush out and get married, I suspect that the majority will never tie the knot. There might be a short term bump because of the “pent up” demand, but after that has been processed gay weddings will be at most 2-3% of all weddings. So I don’t see how this could seriously impact the wedding biz, except perhaps in key locales like San Francisco.

Comment by aNYCdj
2015-07-04 08:32:49

people were not supposed to live in their bedrooms i remember my grandmothers house huge open kitchen with a big dining table and yes small bedrooms, my parents house was the same but we had a nice yard screened in back porch and a full basement to play in…..no way you could have fit a king size bed in it.

Old house, so small bedrooms, obvi.

Comment by In Colorado
2015-07-05 11:07:06

no way you could have fit a king size bed in it

It depends on where you live. My parents’1960 house had large bedrooms and they did have a king size bed in their room. Also, the kitchen was on the small side, much smaller than the kitchens in newer homes. This of course was a single story Ranch in Orange County, and it had no basement; like all SoCal houses it was built on a slab.

Comment by Mafia Blocks
2015-07-04 08:51:57


Comment by Joe smith
2015-07-04 09:37:47

What’s up RAL?

Comment by Mafia Blocks
2015-07-04 10:03:04

Data my friend.

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Comment by aNYCdj
2015-07-04 08:21:17

the more i read about greece, the more i think of GM the legacy costs pensions, that were fine when GM had a growing workforce, and needed more workers, but they were very excessive/expensive when robotics came in.

paying people to do nothing has always been the bane of politics. likewise times change but the contracts didn’t.

now everyone is stuck, they should have raises SS to age 70 for full payouts likewise the 20 years and out is obsolete, and i will keep saying this, i think everyone vastly underestimated the costs to the system of the tens of millions who stopped smoking.

Comment by Jeff upstate SC
2015-07-05 09:27:50

In our part of the USA many many working people no longer have a goal to look for a job,they want to ,and often do get on “Disability” .That has got to corrupt us in the long run,make a big Greece out of us…

Comment by rosie from the north
2015-07-04 08:29:41

This guy is quite knowledgeable up here. Canada has no other source of real estate information except the heavily filtered version from the various real estate boards. No government stats, no zillow or the like, nada. This is as good as it gets in the great white.


Comment by Ben Jones
2015-07-04 09:22:16

‘How many Calgarians have been told that during the first 6 months of 2015 only 46% of Sellers could find a buyer for their home and the percentage is still dropping. Last year at this time a staggering 81% of Sellers were successful, so you may wonder why when Sellers are under this pressure prices have not been falling? This is the problem when you look at a real estate market through the lens of organized real estate and it’s stake holders, instead of through a window of unbiased and rational interpretation.’

Comment by Muggy
2015-07-04 09:08:17

At this point I don’t know what to predict anymore. Bubble 2.0 + BILA’s posts have me reconsidering many things.

In ten years my son will be off to college, which means living in a 2/2 is not that far off… which means with each passing day the concept of “buying” a house becomes less and less pencil-outable.

We’re willing to move, but we’re having a hard time finding a location that:

1. Is affordable
2. Values education
3. Is worth living in

In my neighborhood it’s as schizo as it’s ever been. Plenty of abandoned homes and plenty of fresh NE retirees plunking down lots of loot for their little dreamy beach house.

Comment by Ol'Bubba
2015-07-04 17:37:47

Are you still in Pinellas County?

Comment by Muggy
2015-07-04 19:55:31


St. Pete Beach, Seminole, Belleair Bluffs, now Madeira Beach area… 10 years and counting. It’s been a time warp.

We just got back from NYC/Hudson Valley/Adirondacks. It was amazing. If we could wave a magic wand I think we’d live somewhere on the Metro North lines outside NYC.

I’m investigating working for a textbook publisher in NYC. The problem is… drumroll… the cost of… housing.

Comment by taxpers
2015-07-05 04:31:30

Textbooks are dying
The tablet is the replacement

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Comment by Muggy
2015-07-05 19:18:05

The content is still controlled by publishers.

Comment by In Colorado
2015-07-05 11:12:34

In my neighborhood it’s as schizo as it’s ever been. Plenty of abandoned homes

That must be weird. AFAIK there isn’t a single empty house in my neighborhood. Looked on zillow and found no foreclosures (out of 300 homes); unlike say back in 2008 when there were 3-4. Also, very few for sale, maybe ten in the whole neighborhood.

Comment by Senior Housing Analyst
2015-07-05 12:54:36

There are plenty of excess empty in default of houses then Metro Denver. Hundred thousand? 1 million?

Comment by Muggy
2015-07-05 19:19:08

“That must be weird.”

Most of them are zombie homes from Bubble 1.0

Comment by Professor Bear
2015-07-04 10:19:22

I predict an increase over the next few weeks in news stories about Chinese investor suicides.

Comment by Professor Bear
2015-07-04 10:22:24

China gripped by fears that markets are taking lives as well as life savings
Yesterday’s slump of almost 6 per cent capped a dreadful week for panicky investors
ChinaFotoPress/Getty Images
Calum MacLeod Beijing
Published at 12:01AM, July 4 2015

As China’s markets fell further yesterday, one desperate investor stepped onto the roof of a tall building in Beijing’s Finance Street, marketed as China’s Wall Street, and jumped to his death.

Or so claimed an online news report, later proved bogus, that spread quickly on social media. It came after two similar unconfirmed suicide stories in recent days that Chinese media suggested were caused by the dramatic share price slumps in the past fortnight.

Comment by Professor Bear
2015-07-04 10:25:36

Note this story precedes the most recent week of Chinese equity price declines.

China sell off hits worst since 2008 as investors warn of burst bubble
By David Campbell
23 Jun, 2015

The sell-off in Chinese equities has hit its fastest pace since 2008 with the Shanghai SE Composite Exchange down almost 13% over the past week, following a 150% rally which topped out in mid-June.

After a market holiday on Monday the market only attempted to reverse some of its precipitous decline late in the day yesterday.

Chinese regulators have stepped up their warnings to private investors about the potential dangers of over exuberance, with state media publicising the suicide said to be linked to equity losses.

While markets have steadily slipped over the past week as a run of 25 IPOs drew investor attention away from the main market, the falls sharply gathered pace on Friday following the news that trading leverage had fallen for the first time in a month.

Comment by Professor Bear
2015-07-04 10:30:38

Woman jumps to her death in Shanghai’s IAPM mall after stock market dive
By Shanghaiist in News on Jul 2, 2015 11:59 PM

A woman jumped to her death inside Shanghai’s IAPM mall this morning, and while the case is still under investigation, it’s been speculated that the apparent suicide was related to China’s volatile stock market taking another dive.

Shanghai Composite, China’s biggest stock, dropped five percent within just an hour and reached a three month low earlier today.

Click link for uncensored photo.

Comment by rms
2015-07-05 11:44:15

“Click link for uncensored photo.”

And the other shoppers are preoccupied with the sales? Wow!

Comment by Professor Bear
2015-07-05 12:48:07

Chinese shoppers seem quite adept at minding their own business!

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Comment by rms
2015-07-05 15:03:11

Yep, conditioning.

Comment by Professor Bear
2015-07-04 10:33:17

首页 > 资讯速递
男子从证券公司坠楼 “天台见”一语成谶
发表时间:2015-06-30 22:12:54
关键字: 男子从证券公司坠楼男子证券公司坠楼证券公司坠楼坠楼证券公司一男子坠楼


Comment by Professor Bear
2015-07-04 10:43:45

For those of us who don’t read Chinese, a picture will have to substitute for 1000 words.

Comment by Professor Bear
2015-07-04 10:42:47

This is another article which predates last week’s additional punishing barrage of Chinese stock market losses.

Nikkei Asian Review
June 20, 2015 1:46 am JST
Boom turns bust
Shanghai stock market posts sharpest 1-week plunge since 2008
NORIYUKI DOI, Nikkei staff writer
The Shanghai market sustained the biggest weekly plunge in seven years. © Kyodo

SHANGHAI — The once-booming Shanghai stock market is turning volatile as concern about overheating spreads, with the benchmark index retreating about 13% this week alone to mark its sharpest weekly fall since 2008.

The Shanghai Composite went down 6.4% to close at 4478 Friday, the lowest in about a month, as the decline picked up pace near the end of the day.

Investors wary of skyrocketing prices turned to selling to lock in profits. An improving real estate market was also a negative for the market as it dimmed prospects of additional monetary easing.

China’s stock market is prone to volatile movements. Since the country lags in pension systems and other safety nets, individual investors are drawn to stocks, accounting for 60-80% of players.

They tend to focus more on price movements than economic indicators and corporate earnings, often blindly following overall market trends to cause wild swings.

The high percentage of margin trading also erodes market stability. On Friday, selling led to even more selling as investors facing margin calls unloaded their holdings.

The Shanghai market used to be a driving force of the private stock investment boom in China. But recent reports about the suicide of a highly leveraged investor have cooled sentiment, and market regulators have been calling for tighter rules on margin trading.

But the Chinese government is not quite ready to let the stock market boom subside as it helps boosts personal spending. If the slide continues next week, Beijing could step in to prop up the market, as it is not likely to tolerate an excessive plunge.

Comment by Professor Bear
2015-07-04 10:45:11


Stock market bubbles are tremendous fun until people start jumping off high buildings to erase the memory of their losses.

Comment by Professor Bear
2015-07-05 00:23:45

Top News
China arrests man for suicide ‘rumors’ amid stock market rout: state TV
BEIJING | Sun Jul 5, 2015 2:13am EDT

BEIJING (Reuters) - Chinese authorities have arrested a man who allegedly spread rumors about people in Beijing jumping off buildings in response to a stock market crash, state television reported on Sunday.

The 29-year-old man, surnamed Tian, was detained for “disorderly behavior”, China Central Television said.

He alleged wrote on social media on July 3 that “there are people, because of the stock market crash, who have jumped off buildings in Beijing’s Financial Street,” a commercial development in downtown that houses many financial institutions.

The post in question could not be found on Sunday, and may have already been deleted by censors, who strictly control what can be said on Chinese social media.

China’s Shanghai Composite Index has lost around 30 percent of its value over the past three weeks, a dramatic end to an equally breathtaking rally that saw it more than double in just seven months, fueled by official interest-rate cuts.

The government, regulators and financial institutions are now waging a concerted campaign to prop up the nation’s two main share markets, amid fears that a meltdown would rock the financial system and inflict heavy losses across an economy where annual growth is already running at a 24-year low.

On Saturday, China froze new share offers and set up a market-stabilization fund.

Comment by Professor Bear
2015-07-05 09:00:49

Is a news article reporting a suicide, along with a photo providing documentation, considered a rumor? (Perhaps one of the resident attorneys could weigh in on this question. )

Comment by Ben Jones
2015-07-04 11:06:40

‘China’s aim to lift the fortunes of a sinking stock market is throwing up some interesting results. From this week, Chinese margin traders will be able to purchase stocks by putting up their homes as collateral.’

‘If that strikes you as desperate, you wouldn’t be alone.’

‘The rules governing stock trading are being relaxed because Chinese markets are taking a battering. Since mid-June, a staggering $3.16 billion has been wiped off Chinese markets. The 24% fall amounts to double the entire ASX market cap.’

‘It bears asking: what would happen if the stock market continued its freefall? Chinese traders, using their house as collateral, may find themselves homeless in due course. Granted, the new guidelines will only apply to margin traders — bypassing investors that trade using cash accounts.’


Comment by Ben Jones
2015-07-04 11:14:15

‘The pending arrival of casinos in Massachusetts is bringing concerns about problem gambling among Asians, especially Chinese Americans, to the forefront. Just 26 miles away from Quincy, the 24-hour a day Plainridge Park Casino in Plainville is opening this Wednesday.’

‘There are places for gambling addicts to get help but just about none for people who speak only Asian languages like Cantonese Chinese. People familiar with Chinese immigrant communities say a lack of activities for elders, the stress of immigrant life, and the stigma of admitting to an addiction all play a role in making gambling a problem among some Asians.’

‘Cindy Liu, the Asian Marketing coordinator at Mohegan Sun, said for a given day, Asian Americans constitute about 16% of gamblers at the Connecticut casino. They are mostly from the Boston area and New York.’

‘A few years ago, the Massachusetts Council on Compulsive Gambling developed an educational video on compulsive gambling in partnership with Sunshine Travel and Mohegan Sun that played on the casino buses that departed from Quincy and Boston. Echo Lei, a supervisor with Quincy’s Sunshine Travel officer, said the video stopped playing on their buses.’

‘Lei said the buses usually carried around 80 people during weekdays and 130 people over the weekends. She said they draw mostly seniors who don’t have much else to do. “Some people go every day. Eighty per cent are seniors but we don’t have specific numbers,” said Lei. Lei said she didn’t think Asian Americans gamble too much. “Seniors go and have some fun. We have free meals, free buffets. Most of them are elderly Chinese immigrants,” she said.’

‘Efforts to further understand gambling among Asians are currently underway. Paul Watanabe, director of the Asian American Studies program at University of Massachusetts, Boston said he was well aware of the issue of problem gambling among Asian Americans.’

‘Sharon Cheng, 21, was selling bubble tea at the Kam Man supermarket. Cheng said she had an uncle from China who had a compulsive gambling problem. “There’s a lot of things that happen around casinos attached to gambling. People tend to gamble away their savings and jobs, borrowing money from other people,” she said.’

‘Don Sun, shopping inside at Kam Man, said gambling is popular among Asian people. He said he knew an Asian American friend who was addicted and kept losing her savings. “We should do whatever we can do to stop it,” he said.’


Comment by Professor Bear
2015-07-04 11:30:01

‘China’s aim to lift the fortunes of a sinking stock market is throwing up some interesting results. From this week, Chinese margin traders will be able to purchase stocks by putting up their homes as collateral.’


Mr. Banker, would you care to weigh in on this approach?

Comment by Professor Bear
2015-07-04 11:33:16

A fool and his house are soon parted.

Comment by rms
2015-07-05 12:07:57


Comment by Professor Bear
2015-07-04 11:44:26

‘Since mid-June, a staggering $3.16 billion has been wiped off Chinese markets. The 24% fall amounts to double the entire ASX market cap.’

Just today I have read loss estimates ranging from $2.4 trillion to $2.8 trillion to $3.16 trillion. And the latter figure is based on losses of only 24% — i.e. not reflecting the most recent crushing losses which pushed the total to about thirty percent.

Wherein lies the truth?

Comment by Ben Jones
2015-07-04 11:55:21

As the Chinese bubble could take the whole thing down, is this the big one?


Fred Sanford - This is the big one!

Comment by Professor Bear
2015-07-04 12:03:59

Is it safe to assume Wall Street profit declines lie in store, which nobody could have foreseen?

Comment by Professor Bear
2015-07-04 12:05:28

Ft dot com
Wall Street braced for profit declines
Kadhim Shubber

Wall Street is bracing itself for the first year-on-year decline in profits in almost three years with S&P 500 companies forecast to report a 4.5 per cent drop in second-quarter earnings.

The fall ends 10 consecutive quarters of growth and accompanies a 0.23 per cent second quarter fall in equities, the S&P 500’s first quarterly decline since the end of 2012 and a sign that the bull market may have peaked in May.

Falling energy prices, the relative strength of the dollar and the downturn in the commodities market have all hit international US corporates, in contrast to the healthier performance of domestic-facing companies, which have risen on the back of the recovery in the US economy.

The Russell 2000, an index of small-cap US companies, is up 3.6 per cent year-to-date, while the S&P 500, weighed down by exporters and energy stocks, is up just 0.9 per cent.

“Weak global growth and a relatively strong dollar are expected to conspire to undercut international players especially [in the second quarter],” said Jack Ablin, chief investment officer at BMO Private Bank.

Comment by Professor Bear
2015-07-04 12:19:24

I predict Chinese financial authorities will attempt to shift blame for the Chinese stock market collapse elsewhere, rather than accept responsibility for policies which made a crash a virtual certainty.

Comment by Professor Bear
2015-07-04 14:18:25

The Independent
China’s financial watchdog has begun an inquiry into suspected illegal stock market manipulation
China targets market abusers as stock price collapse continues
By Jamie Dunkley
Saturday 04 July 2015

Chinese stock markets tumbled again on Friday as the country’s financial watchdog began an inquiry into suspected illegal stock market manipulation.

The market sell-off came as the World Bank removed a critical chapter from a report on China’s economy, calling for the country to reform its “distorted” financial markets. The redaction was widely assumed to be a consequence of political pressure applied by Beijing.

Chinese stocks have fallen by around 30 per cent since mid-June after experiencing one of the biggest booms in history in the first half of the year.

The China Securities Regulatory Commission (CSRC) announced yesterday that it is looking for “clues of illegal manipulation across markets”. The investigation is expected to focus on short selling after reports emerged that futures exchanges had been urging traders not to short the market.

The CSI 300 index of the largest listed companies in Shanghai and Shenzhen fell 5.4 per cent to 3885.92 on Friday, while the Shanghai index surrendered 5.8 per cent to 3686.92 points.

“I think it is wishful thinking by the regulator that the decline is solely the fault of short selling, more a reflection of an overvalued stock market that has been fuelled by debt and speculation,” said Jake Robbins, a fund manager at Premier Asset Management.

The sell-off has raised fears that UK investors – including pension funds – could be hit. But Julian Mayo at Charlemagne Capital said: “Whilst Shanghai’s market is taking a bit of a hammering, foreign participation in this market remains very low due to foreign ownership restrictions and its volatility has very little direct impact on UK investors.”

He said there has been a spill-over effect into China shares listed in Hong Kong which are owned by foreigners and have also been sold off recently, “but these should not be as vulnerable to further volatility”.

The World Bank’s report in China, released on Wednesday, had made some stinging criticisms of the Chinese financial system. “Financial reform will only prove effective if it removes the distorted incentives and poor governance structures that have affected how financial resources are mobilised and allocated” it wrote.

“A fundamentally reconfigured role of the state in the financial system is essential.”

But according to the World Bank’s website the critical chapter was removed yesterday “because it had not gone through the World Bank’s usual internal review and clearance procedures”.

Comment by Professor Bear
2015-07-04 14:26:27

London Evening Standard
Chinese watchdog investigates manipulation as stocks crash
Slide: China’s stock market has suffered a torrid few weeks (Picture: AFP/Getty Images)
Jamie Dunkley
Friday 03 July 2015

Chinese stocks have tumbled again as the country’s financial watchdog began an inquiry into suspected illegal stock market manipulation.

The benchmark Shanghai Composite Index has fallen by 30% since mid-June after a huge boom in the first half of the year.

The China Securities Regulatory Commission is thought to be investigating investors who have shorted the market, or bet on prices falling.

The China Financial Futures Exchange is understood to have suspended 19 accounts from short-selling for a month.

Today the CSI 300 index of the largest listed companies in Shanghai and Shenzhen fell 5.4% to 3885.92, while the Shanghai Composite Index fell 5.8% to 3686.92 points.

The sell-off has raised fears that UK investors — including pension funds — could be hit. But Julian Mayo at Charlemagne Capital said: “Whilst Shanghai’s market is taking a bit of a hammering, foreign participation in this market remains very low due to foreign ownership restrictions and its volatility has very little direct impact on UK investors.”

He said there has been some spillover effect into China shares listed in Hong Kong which are owned by foreigners and have also been sold off recently, “but these should not be as vulnerable to further volatility”.

Comment by Professor Bear
2015-07-05 19:53:31

Craig Stephen’s This Week in China
Opinion: Why Beijing cannot let its bull market die
By Craig Stephen
Published: July 5, 2015 10:22 p.m. ET

HONG KONG (MarketWatch) — It promises to be another fraught week for Chinese shares after Beijing intensified efforts over the weekend to try to shore up confidence with a frenzy of new support measures. In a little over three weeks, roughly $2.8 trillion has been wiped off Chinese shares.

Rather than calming nerves, however, Beijing’s actions have not only been mostly ineffective, but they’ve also focused attention on why China is so fearful of an equity correction.

The latest salvos to boost the market came in the form of a new stock-stabilization fund, a moratorium on new issues and a liquidity pledge from the central bank.

According to a statement by the Securities Association of China, 21 brokerages will invest some 15% of their net assets in the new 120 billion yuan ($19.3 billion) fund.

This always looked too small to have much impact beyond a few hours, as stock turnover in Shanghai regularly exceeds 1 trillion yuan. The Peoples Bank of China will also provide liquidity to the state-backed margin lender, China Securities Finance, that can be used to lend to brokerages.

There are precedents for state-backed stock support schemes in Asia, although the experiences of South Korea and Japan in this regard are not good, as markets there continued to slide.

In another move to help protect the market, it was also reported that 28 companies had agreed to withdraw their initial public offerings. And all this comes after other unorthodox measures introduced last week, such as allowing the roll-over of margin loans and letting property be used as collateral.

This flurry of panicky-looking measures is causing some head-scratching.

Bull markets are obviously more popular than bear markets, yet after a 150% rise in Shanghai shares SHCOMP, +3.74% over the previous 12 months, Beijing should have been able to see a correction coming. Indeed, some analysts say the impact on the real economy from a share slide should not be too significant.

According to the Chinese Household Finance survey in 2013, quoted by Société Générale, stocks accounted for less than 10% of household assets. SocGen also notes that there has been little evidence of a positive wealth effect on the way up, according to retail figures, suggesting stocks aren’t that big a factor.

But perhaps there is a simpler explanation for Beijing’s extraordinary efforts to support equities: It created this bull market. Keeping it going is now seen as a test of the Communist Party’s strength, and possibly even its legitimacy.

If you created the boom, arguably that also puts you on the hook for the bust. For the government, this means the fallout will not just be economic, but could also be political and social too.

Since last year, stocks had been cajoled higher through a mixture of cheerleading from state media and accommodative policy measures. As the People’s Daily, the official mouthpiece of the party, declared earlier: “4,000 points is just the beginning of China’s bullish market.”

The very visible hand of the state was involved in the systematic underpricing of IPOs and in steering margin financing towards equities for the first time. All this prompted the opening of 30 million new trading accounts this year by novice investors — many on margin — promised easy riches by their government.

So this takes us to the current point where controlling the market has been elevated to a test of strength for Beijing and its state-led model.

In China, it shouldn’t be too much of a stretch to believe that the government has the ability to control stock prices through force of will. Beijing has a long history of being able to bend market forces to meet its ends — from interest rates, currency values and the movement of capital in its captive financial system.

But as shares continue to slide regardless of government action, investors are increasingly not buying the government line and, more ominously for President Xi Jinping, they are less willing to believe that he and the party are indeed all-powerful.

To get a sense of what the wider fallout from a correction could be, it helps to compare China now to its previous equity boom-and-bust in 2007.

Back then, margin financing did not exist, the country did not have debt at 280% of GDP, did not have its economic growth on a sustained downtrend, and did not have three years of industrial deflation and an overinflated property market.

The unknown is what the impact will be on wider confidence. Today, China looks much more vulnerable to a deflationary shock and capital destruction from an equity bust.

Little wonder that Beijing feels it cannot afford to lose its battle to keep its equity bull market alive.

Comment by Professor Bear
2015-07-04 13:33:21

I predict an all-out effort by the CCP to reflate the stock market, even if it means throwing the IPO boom under the bus.

Comment by Professor Bear
2015-07-04 13:36:33

Wsj dot com
China to Suspend New Stock Sales to Preserve Liquidity
World’s second-largest economy also plans to establish fund to stabilize markets
A Chinese investor looks at his mobile phone in front of a screen showing stock-market movements in a Beijing securities brokerage house. Photo: European Pressphoto Agency
By Lingling Wei
Updated July 4, 2015 12:44 p.m. ET

BEIJING—China decided to suspend new stock sales and, in a first, establish a fund to stabilize the country’s share markets, making clear the increasing concern among China’s leadership that the stock panic could spread to other parts of the world’s second-largest economy.

Senior officials from the State Council, China’s cabinet, the central bank, its top securities regulatory agency and other financial agencies held a meeting Saturday to discuss another round of measures to help arrest the stock slide, according to people with knowledge of the matter.

The discussions occurred as the benchmark Shanghai Composite Index has lost more than a quarter of its value since a high set June 12. Previous steps including an interest-rate cut by the central bank have failed to impress investors, many of whom have been forced to unwind their leveraged bets as stocks continue to drop.

Chief among the decisions made is to halt new initial public offerings in a bid to preserve liquidity in an increasingly volatile market, the people said. Officials also discussed the setup of a market-stabilization fund.

Beijing has shut the door on new share offerings before. The latest such move was in 2012, in a bid to prop up the stock market ahead of a Communist Party leadership transition.

Comment by Blue Skye
2015-07-04 14:36:43

So much for transforming China business’ staggering debt load to cold hard cash. They will just have to get their money the old fashioned way, by borrowing more.

Comment by Professor Bear
2015-07-04 15:45:16

Good point. Shutting down the IPO pipeline doesn’t preclude corporations from issuing junk bond debt.

Of course, this is another potential drain on moneys that might otherwise flow into purchasing Chinese stocks.

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Comment by Selfish Hoarder
2015-07-04 17:35:20

I don’t remember what I predicted.

Whatever it was, I prolly was wrong.

So I will go out on a limb:

Stock indices will finish 2015 around 5% higher than in January (S&P, Dow, Nasdaq).

House prices in the popular areas will still go up and price out more people.

Salaries for people older than 50 still stagnant, forcing many boomers to return to how they lived in their 20s: co-renting houses with other boomers in the 1970s/1980s.

Toyota will announce they will come out with the Matrix once again, after stopping production of the model for 3 years.

Comment by Professor Bear
2015-07-04 17:50:26

Wild card: Possible crisis spillover effects from Greece and China.

Comment by hllnwlz
2015-07-09 21:01:15


Comment by Professor Bear
2015-07-04 18:06:00

Germany to Greece: Drop Dead

Comment by Professor Bear
2015-07-04 18:09:24

The week that Germany turned its back on Greece
After trust between the two broke at a key moment, the Telegraph travels to Frankfurt and Berlin to ask those in the know what will – or should – happen next
Things are hotting up in Berlin – quite literally. Inside Jakob-Kaiser-Haus, which houses the offices of around 60pc of Germany’s MPs, staff are sweltering
German Chancellor Angela Merkel, right, and the Greek prime minister Alexis Tsipras brief the media during a bilateral meeting at the chancellery in Berlin
By Szu Ping Chan
7:23PM BST 04 Jul 2015

Its modern walls contrast with the Reichstag – Germany’s parliament building – just a few hundred yards away. The gigantic glass roof that fills the building with natural light throughout the year has turned it into a greenhouse on this summer’s day.

Parliament is due to stop sitting, and policymakers should be thinking about their holidays. Instead, many are preoccupied with Greece, and not because it’s their holiday destination.

Michael Fuchs is no exception. The deputy chairman of the ruling CDU-CSU coalition is in the middle of a two-hour debate in the Reichstag about events in Athens.

“He’ll be about 10 minutes,” says his press secretary, who orders an assistant to get Fuchs some water. There are already half a dozen bottles placed on the table. “Get the ice-cold one,” he says. “It’s hot out there”.

He’s right. When Fuchs finally strides into his office, his face is flushed, and not just because of the heat.

The debate has exposed short tempers and hardened stances within the Bundestag. Patience is in short supply.

The minister takes his jacket off, sits down and lets out a sigh. “OK,” he says. “What do you want to want to know?”

Moment of change

The message from last Wednesday’s session was clear. Germany would not consider the Greek government’s 11th-hour request for another bail-out before the country held its referendum on creditor demands.

Angela Merkel repeated that there could be no further aid before today’s referendum. Hours later, the eurogroup of finance ministers released a statement singing from the same hymn sheet.

In a noisy Bundestag debate, the German chancellor suggested that the game had changed. She declared that Europe could not compromise at any cost. The bloc would be “lost” if it did so.

Some in Germany have given up on this Greek government. Most of their vitriol is directed at Yanis Varoufakis, Greece’s finance minister. “Crazy” and “offensive” are just two of the words one official uses to describe him. Varoufakis, meanwhile, was insisting that he would rather cut off his arm than sign another deal that left Greece with an unsustainable debt pile.

For many, the plebiscite was the straw that broke the camel’s back. The move blindsided most in Brussels and Berlin.

Comment by Professor Bear
2015-07-04 18:10:59
Comment by Professor Bear
2015-07-04 20:44:15

Greek Official: ‘Grexit’ Would Cost Europe A Trillion Euros
July 04, 2015 8:30 AM ET
Scott Neuman
Greek Finance Minister Yanis Varoufakis speaks to the assembled media as he leaves his office in Athens.
Daniel Ochoa de Olza/AP

Greece’s finance minister has accused his nation’s creditors of “terrorism” for trying to “instill fear in people” ahead of a referendum on whether to accept the harsh terms of an international bailout designed to keep Athens in the eurozone.

Yanis Varoufakis, in an interview with the Spanish daily El Mundo, said that there was too much at stake for his country to be kicked out of Europe’s common currency — “as much for Greece as for Europe, I’m sure.”

The Greek government, led by a leftist anti-austerity party that swept to power in January on a platform against making concessions to the country’s creditors, has urged the Greek people to vote no in Sunday’s referendum. But a flurry of opinion polls conducted in recent days have signaled a virtually even split among ordinary Greeks.

“If Greece crashes, a trillion euros (the equivalent of Spain’s GDP) will be lost. It’s too much money and I don’t believe Europe could allow it,” he told El Mundo, according to Reuters.

“Why have they forced us to close the banks? To frighten people. And when it’s about spreading terror, that is known as terrorism,” he added.

The tough talk comes after a weeklong bank holiday in Greece and the imposition of capital controls designed to prevent a collapse of the country’s economy as citizens rush to withdraw euros.

Meanwhile, German Finance Minister Wolfgang Schaeuble appeared to suggest that a no vote would not necessarily trigger a permanent “Grexit” from the common currency regime.

“Greece is a member of the eurozone. There’s no doubt about that,” Schaeuble told Bild in an interview, according to Reuters. “Whether with the euro or temporarily without it: Only the Greeks can answer this question. And it is clear that we will not leave the people in the lurch.”

But a yes vote is likely to spell the end of Prime Minister Alexis Tsipras’ government.

Comment by Professor Bear
2015-07-04 21:55:05

What is the potential advantage for Greece to remain in the EU versus to leave?

Comment by Professor Bear
2015-07-04 22:02:17

CNN Money
Greece Crisis 101: No way out
By Rich Barbieri
Greek pensioners fear for their future

On Sunday, Greece will vote on a landmark referendum: “Yes” or “No” to another bailout and more austerity? In Greek, that’s “Nai” or “Oxi?”

Polls show a contest too close to call. But this much is known: The result could cost Prime Minister Alexis Tsipras his job and force an abrupt change in government. And no matter how it goes down, it won’t solve the urgent crisis facing Greece.

Years of recession and austerity, compounded by failed political brinksmanship, have left Greece dead broke.

Without another rescue, economic calamity is likely: Banks will run out of money, seniors may not get their pensions, and unemployment — already an unimaginably high 25% — will worsen. Here’s how Greece got to this point.

What’s at the root of Greece’s problem?

Debt. Greece has way too much of it. Greece is not a big country. It has about 11 million people and an economy the size of Oregon’s. Tourism represents around 16% of Greece’s economic output.

Greece has so much debt that regular investors stopped buying its bonds — ie. lending it money.

All healthy countries — and even some unhealthy ones — borrow money by selling bonds to investors big and small. The point is to use the money to make the country stronger by doing things like building better transportation and infrastructure and making education better. The U.S. has a lot of debt, but it has a giant economy and can afford to pay it back.

But countries get into trouble when they borrow beyond their means. That’s what happened to Greece.

When did Greece’s debt trouble begin?

There’s a debate about just how deep the roots of Greece’s overspending go. But this much is clear: Like a lot of countries in Europe, Greece wasn’t in a crisis until after the global economy melted down in 2007 and 2008 and financial “contagion” spread all over the world.

As things got worse, governments spent more money. The spending put money in people’s pockets and paid for a safety net for the most vulnerable, but it also added to governments’ debts.

Most countries were able to keep their heads above water. But some European countries nearly drowned. Greece was in the worst spot of all.

When was the first Greek bailout?

2010. Europe’s leaders, along with the International Monetary Fund, gave hundreds of billions of euros to Greece and several other countries so they could pay their debts.

These bailouts involved a tradeoff: The crisis countries got emergency money, and in turn agreed to cut spending and make make their economies more efficient. The austerity was harsh.

Greece was forced to make deep cuts in government salaries, hike taxes, freeze state pensions, and ban early retirement. Many economists warned that austerity would make things worse; others said Greece had no choice.

Sure enough, Greece reduced its new debt, but it hasn’t made progress in paying down its bailout loans or reforming its economy like other countries have. And austerity added to the country’s economic suffering.

This past January, fed up voters elected a party called Syriza that promised to end the austerity. Alexis Tsipras, who led Syriza, became prime minister.

Tsipras knew bailout loans were coming due and that Greece didn’t have enough money to pay them. He needed to negotiate with Europe to roll over the loans into new bailouts.

But Tsipras took a hard line, insisting that the bailout lenders loosen austerity. It was a high-stakes game of chicken. The lenders didn’t blink, and last week Greece defaulted on a loan to the IMF, becoming the first developed country to do so.

Comment by Professor Bear
2015-07-05 00:16:40

ft dot com
Greece and Europe must recognise stakes
Jacques Delors

The fraught and ill-tempered negotiations between Greece and its EU partners have reached boiling point with Sunday’s referendum. It is a process that has spawned much political posturing and tactical games which — while understandable from the viewpoint of the players involved — have led to a breakdown in trust. It is now crucial that both sides put this behind them and recognise the importance of what is at stake for both Greece and Europe.

Greece is in a dramatic condition and the situation would only deteriorate further if the country ends up defaulting on its debt, or even leaving the euro area altogether — a so-called Grexit. If Greece is to be spared this fate and escape the current crisis there must first and foremost be a complete change of outlook within the country itself. There must be a clear commitment to break with the habits of the past 40 years, and resist the temptation to blame other for Greece’s woes. The government in Athens must also accept that its democratic legitimacy cannot, by its very nature, take precedence over the democratic legitimacy enjoyed by its European partners.

Those are the two conditions which will allow the Greek authorities to make credible commitments that can then be followed by their practical implementation on the basis of a programme agreed with their partners. We understand the impatience and concern of those partners, who are sick and tired of feeling that they are forever pouring their aid into a bottomless pit, reminiscent of the perforated Danaids water but of classical mythology.

But this Greek tragedy is not merely a national issue. It is having, and will continue to have, an impact on the whole of Europe, of which Greece is an integral part in both historical and geographical terms. Thus we should not simply confine ourselves to gauging the more or less extensive economic and financial consequences of Grexit. We need to also understand Greece’s situation from a geopolitical standpoint. We must not look at Greece only through the detail-focused microscopes of the International Momentary Fund’s but also through the binoculars of the UN. In other words, we must see Greece as a country set in the Balkans, an area whose instability hardly needs further fuelling at a time of open warfare in Ukraine and in Syria and of a growing terrorist threat — not to mention the migrant crisis.

Comment by taxpers
2015-07-05 09:45:59

Roll Panzers , now leopards
Hope our navy clips off an island to cover imf losses

Comment by Professor Bear
2015-07-04 19:12:10

Are you worried a Grexit will hammer your bonds?

Comment by Professor Bear
2015-07-04 19:15:29

Subscriber Article Preview
Feature July 4, 2015
How a Greek Default Could Hammer Bonds
By Carl B. Weinberg

Greece is on the verge of defaulting on 490 billion euros ($540 billion) in loans, bond obligations, central-bank liquidity assistance, and interbank balances. Who will bear those losses? Greece’s creditors, which are all public entities across the euro zone, and that are on the hook for some €335 billion in loan guarantees. How will those losses be covered? Bonds will have to be sold that will roughly equal the increase in annual debt purchases by the European Central Bank announced last January.

Comment by Professor Bear
2015-07-05 12:02:53

What now!?

Comment by Professor Bear
2015-07-05 12:52:01

Here is an easy prediction:

Market turmoil, dead ahead…

Comment by Professor Bear
2015-07-05 13:13:00

Market Extra
Greek ETF set up for another high-volume Monday if referendum vote goes ‘no’
Published: July 3, 2015 3:27 p.m. ET
Bloomberg News/Landov
A road in Athens displays an “OXI” or “No” campaign sign ahead of Sunday’s referendum.
By Carla Mozee
Markets Reporter

Another manic Monday may be in store for the exchange-traded fund “GREK,” which tracks 20 publicly traded Greek companies.

GREK (GREK, +1.88%) — also known as the Global X FTSE Greece 20 ETF — is poised to be thrust back into the spotlight when investors respond to the result of Sunday’s bailout referendum in Greece.

It was just last Monday that the NYSE-listed ETF notched its busiest day on record. Volume rocketed up to more than five times its daily average, with 6.2 million shares changing hands, after talks between Greece and its creditors rapidly disintegrated over the previous weekend. European equity markets were slammed ahead of Wall Street’s open that Monday morning, as Greek banks were closed and trading in Greek stocks (GD, +2.03%) was suspended in Athens.

“You tend to see more volume on bigger down days than on bigger up days,” said Mohit Bajaj, director of ETF trading solutions at WallachBeth Capital.

Given that, activity in the ETF after the referendum will come down to whether the markets like the outcome — but it may still be hard to top last Monday’s surge, Bajaj added. Analysts generally say a “yes” result should provide a boost to stock prices as well as open the door for the European Central Bank to increase liquidity for Greece’s parched banks.

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Comment by Professor Bear
2015-07-05 17:07:16

Business Insider
Stocks nosedive after Greece says ‘no’
Sam Ro
Jul. 5, 2015, 6:12 PM

US stock market futures just started trading after the long weekend, and it’s ugly.

S&P 500 futures are down by 31 points or 1.5% in the first few minutes of trading. Dow futures are down 246 points or 1.4%.

This comes after Greece’s referendum. Greek voters surprised the world by voting “No.” In other words, “No” the Greek people do not want to accept strict fiscal-austerity measures in exchange for desperately needed bailout money.

Before Sunday’s vote, early surveys and forecasts showed the “Yes” vote was likely to win as it seemed to mean less financial and economic turmoil in the near term.

A “No” vote, however, pushes Greece closer to exiting the eurozone currency union, which could mean many more years of economic pain.

“Grexit is no longer a tail risk,” Pantheon Macroeconomics’ Claus Vistesen said. “This is not a good outcome for the market, and volatility will likely increase substantially today.”

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Comment by Professor Bear
2015-07-05 12:53:01

Early results show Greece votes “no” to Europe’s bailout offer
By Mark Thompson and Ivana Kottasova
‘No’ vote leads in Greece referendum

Greeks have voted by a big margin against Europe’s latest bailout offer, according to preliminary results.

With about half the votes counted, more than 60% had voted “no,” backing Prime Minister Alexis Tsipras’ hardline rejection of austerity.

The result — if confirmed — will set Greece on a very uncertain path that could force it to abandon the euro and print its own currency.

Greece urgently needs more money to reopen its banks, which have been shut for a week, and to pay pensions and wages.

Tsipras urged people to vote “no” because he hopes to strike a better deal. He now plans to ask Greece’s creditors for more loans, on easier terms.

Comment by Professor Bear
2015-07-05 13:09:53

Euro falls vs. counterparts as Greek majority rejects creditors’ terms
Published: July 5, 2015 3:45 p.m. ET
By Carla Mozee
Markets Reporter

The euro fell against its rivals in early trade Sunday as the first official projection from Greece’s referendum showed 61% of voters rejected terms set forth by the country’s creditors.

The euro (EURUSD, +0.2616%) was down 1.2% against the dollar at $1.0979, according to FactSet, after opening slightly above $1.10.

Against the yen, the shared currency (EURJPY, +0.04%) was off 2% at ¥133.80. The euro was buying 1.0360 Swiss francs (EURCHF, -0.1052%) down 0.9%.

If confirmed, the referendum’s result will indicate there was a larger-than-expected backing for the Greek government’s position in its stance against other European entities, as well as underscore questions about Greece’s future in the euro.

Comment by Professor Bear
2015-07-05 13:05:05

It seems like the Greek leaders believe they hold the strong hand.

Comment by Professor Bear
2015-07-05 13:07:23

Not to mention the Greek people…

The Wall Street Journal
First official projection says at least 61% of Greeks voted ‘no’ in referendum
Published: July 5, 2015 2:35 p.m. ET
By Nektaria Stamouli and Stelios Bouras

ATHENS—A first official projection of Greece’s referendum outcome, based on early counting, said that at least 61% of Greeks voted “no” to creditors’ demands on Sunday, an outcome that—if confirmed—would set the country on a collision course with the rest of the eurozone.

The projection, announced by the company Singular Logic, the official partner of Greece’s interior ministry in carrying out the referendum, was announced after some 20% of the vote had been counted.

“The estimate from Singular Logic is that the result in favor of ‘no’ will exceed 61%,” a spokesman for the organizing company said.

Comment by Professor Bear
2015-07-05 14:39:48

The Latest: Euro Falls Sharply on Greece Referendum Results

JULY 5, 2015, 5:32 P.M. E.D.T.

ATHENS, Greece — The latest from the bailout referendum in Greece (all times local):
12:30 a.m.

The euro has fallen sharply as investors get a chance to react to the results of the Greek referendum.

The European currency slumped to $1.0993 late Sunday, when spot trading resumed, from $1.1110 late Friday.

Greeks have voted overwhelmingly against a proposal of economic reforms that Greece’s creditors had offered in exchange for loans.

The win of the “no” vote puts Greece in uncharted waters and markedly increases the risks of the country falling out of the 19-country euro currency union.

Greece and its creditors are expected to try to restart negotiations on a financial rescue package for the country, but it is unclear what scope there is for compromise.

Comment by Professor Bear
2015-07-06 00:22:52

Market Pulse
Varoufakis resigns as Greek finance minister over ‘creditors’ loathing’
By Karen Friar
Published: July 6, 2015 2:33 a.m. ET

Yanis Varoufakis said Monday he is stepping down as Greece’s finance minister, saying the move is related to “creditors’ loathing”. His resignation came after Greek voters on Sunday rejected the terms put forward by the country’s international lenders to unlock further bailout aid. “Soon after the announcement of the referendum results, I was made aware of a certain ‘preference’ by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister [Alexis Tsipras] judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today,” he said in a post to his blog.

Comment by rms
2015-07-06 01:08:07

“…I was made aware of a certain ‘preference’ by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings…”

Time to fall on the sword for your boss. Bon voyage!

Comment by Ben Jones
2015-07-05 08:48:26

I have decided to be glad that the Chinese are going to attempt to prop up their stock markets in a few hours. For it underscores many of the delusions we labor under in what could be described as Orwellian economics. What is the purpose of a stock market? So that companies can raise capital, and that those who invest capital may have access to liquidity. The Chinese government has only borrowed a page from the west that instead of these functions, a stock market can be a get rich quick scheme.

Ah, but why do such a thing? As we have seen, it is to cover up for economic failings, many of which are driven by similar Orwellian economic principles. Like the get rich quick scheme of real estate bubbles. Just as a stock becomes detached from it’s purpose of corporate ownership, a house is no longer something to live in and maintain. It becomes a lottery ticket. A casino chip.

We’ve long suffered similar madness. How may decades ago were we told there was an economic benefit to digging holes and filling them in? Why doesn’t the Chinese government simply declare that stocks can only go up? Why doesn’t every country make a law that dirt is valued like gold and clay like silver? That would be preposterous, you might say. I can assure you that if you had told people 20 or 30 years ago that our central bank would monetize debt, or that interest rates would be negative in much of the world, it would have been considered preposterous. But now it’s standard procedure.

But war isn’t peace. And the growing absurdity exposes the lie at it’s root, no matter how widely believed or the longevity of belief. Here’s an easy prediction; if some notion of the economy is untrue, it will be held to be so. And when efforts are made perpetuate this false notion, the more obvious is its frailty.

Comment by Professor Bear
2015-07-05 09:17:35

“Why doesn’t the Chinese government simply declare that stocks can only go up?”

Logical consequences:
1. Extreme volatility
2. Short term stock price increases to unsustainable levels
3. Crash
4. Many small investors are financially ruined
5. Bailouts and financial rule changes to make well-connected insiders richer
6. Repeat steps 1. through 5. ad infinitum

Comment by Professor Bear
2015-07-05 13:37:44

Sentinel Republic
China arrests man for suicide ‘rumours’ amid stock market rout
July 5, 2015 2:36 pm
A stock investor checks prices in a brokerage house in Shanghai last month. Strategists at BlackRock Inc., Credit Suisse Group AG and Bank of America all said in June that Chinese equities were in a bubble.

The Communist Party newspaper, The People’s Daily, also warned people not to “lose their minds” and “bury themselves in horror and anxiety” as the “positive measures will take time to produce results”. The post, which is said to have gone viral, “provoked emotional responses among stock investors who suffered losses over the past weeks”, Mr Xinhua said.

This comes on the heels of 25 different publically-traded funds also promising a buyback of their shares, promising to hold them for at least a year.

IPOs or Initial Public Offerings or Stock Market Launch is a type of public offering in which shares of stock in a company usually are sold to institutional investors that in turn sell to the general public, on a securities exchange, for the first time.

The association did not specify whether the fund would be allowed to use its initial purchases of shares as collateral to borrow money, probably from the government, and buy more shares. It tried, and tried some more, and the market kept doing what it wanted.

Twenty one Chinese securities companies, in a statement released Saturday, said they would pledge no less than 120 billion yuan ($19.33 billion) to invest in Chinese stocks.

Analysts said recent stock declines in China reflect investors’ unease about new margin-trading restrictions. The funds should be available by 11 a.m. on Monday, Caijing said in a separate report.

BEIJING/SHANGHAI, July 5 (Reuters) – China’s stock markets face a make-or-break week after officials rolled out an unprecedented series of steps at the weekend to prevent a full-blown stock market crash that would threaten the world’s second-largest economy. Hong Kong was No. 2 with 31 deals that raised $16 billion. A government investment vehicle made it known that it was buying ETFs. Shanghai had swelled by 150 percent in the last twelve months and experts had expected a sharp correction.

The benchmark Shanghai index has lost about 30 percent in three weeks. Many Chinese individual investors borrowed heavily to buy stocks – taking out so-called margin loans.

The downturn continued on Friday, with the index plunging as much as 7 percent to 3,664, after the China Securities Regulatory Commission said it had launched a probe into alleged market manipulation. Listed brokers will actively buy back outstanding shares, while encouraging their parent companies to increase holdings, according to the statement. However, the Chinese stock market remains largely isolated.

If the government is honest with itself, it must admit that it failed to control the market.

Comment by Professor Bear
2015-07-05 13:43:46

ft dot com > Comment >
July 5, 2015 7:22 pm
Calling time on China’s credit and stock market party
George Magnus
Debt growth has fallen but is still rising at twice the rate of nominal GDP, writes George Magnus
An investor walks past as information displayed on an electronic screen at a brokerage house in Shanghai, China, July 3, 2015. China stocks slumped again on Friday, taking their three-week tumble to nearly 30 percent and wiping out most of this year’s gains. REUTERS/Aly Song

Last week the Shanghai Composite index dropped by 12 per cent, bringing the fall since its June peak to almost 30 per cent. The decline — which was not prompted by any major news — was accompanied by a rush of volatility, yet both were largely overshadowed by European developments. But is it time to pay more attention?

The doubling in China’s equity market since June 2014 has been not so much a market phenomenon as the Communist party’s party. Facing a protracted economic slowdown, rising debt and credit misallocation, the government has sought to give the economy an asset price boost, partly to encourage indebted state owned enterprises (SOEs) to trade expensive loans for equity financing. This equity boom has been fuelled by leverage, in the form of an explosion in margin debt, where investors borrow to finance a set proportion of equity purchases. Margin debt outstanding has grown sevenfold since the start of 2014 and June to stand at Rmb1,400bn ($226m).

The government has been active on many fronts. The Shanghai-Hong Kong Connect scheme launched in November facilitated flows into Chinese shares. Beijing has doubled the size of local government bank loans that can be swapped for debt to assuage fears about local government debt. The People’s Bank of China has cut interest rates four times since the end of last year, lowered reserve requirements regularly and used a new tool called Pledged Supplementary Lending to give banks cheap funding against the collateral of local government bonds. Its balance sheet has continued to expand through lending to domestic banks. As elsewhere, this has had markets salivating.

Yet things have not worked out as the authorities might have hoped. The market has shrugged off looser monetary policies, an easing of rules governing margin debt, the use of real estate as collateral, and an announcement that state pension funds will be allowed to buy up to Rmb600bn of equities. Last week, regulators said they would probe market manipulation to target short-sellers.

Comment by Professor Bear
2015-07-05 14:47:44

I can’t explain why I find it so entertaining to see communistic oligarch control freaks panic.

Comment by Professor Bear
2015-07-05 14:50:57

China Blames Rout on Short Sellers Who Bought as Stocks Tumbled
July 5, 2015 — 9:00 AM PDT

Rumor-spreading short sellers and foreign investors with a hidden agenda.

If you believe China’s state-run media, those are some of the key culprits for a stock-market rout that erased $3.2 trillion of value in three weeks — or almost $1 million for each minute of trading on mainland exchanges. The underlying message, that market manipulation is fueling the selloff, was reinforced by securities regulators last week as they pledged to crack down on “vicious” short selling.

The problem with that narrative, though, is that the numbers tell a different story. Short positions on the Shanghai Stock Exchange totaled just 1.95 billion yuan ($314 million) on Thursday, or less than 0.03 percent of the country’s market capitalization, as bears closed out more than half their bets since June 12. Foreign money managers own fewer than 3 percent of Chinese shares, and they’ve been adding to holdings in Shanghai as prices tumble.

The more likely reason for the rout, according to analysts in and outside China, is simply that the nation’s longest-ever bull market pushed valuations to unsustainable levels. Local investors, who borrowed record amounts of money to amplify their bets, lost faith that share prices would keep rising and now they’re heading for the exits.

Wrong Way

Instead of looking for scapegoats when share prices sink, authorities should push forward on pledges to reduce the government’s role in markets, according to Teng Bingsheng, associate dean at the Cheung Kong Graduate School of Business in Beijing. Stocks kept sliding last week even as policy makers cut interest rates, relaxed rules on margin trading and reduced transaction costs in an attempt to revive investor confidence.

They are trying to stop the plunge, but this is clearly the wrong way to do it,” Teng said in a phone interview on Friday. “The Chinese stock market is already the most manipulated in the world. It’s an overheated market and you can’t stop people from selling.

A faxed request for comment to the CSRC after regular business hours on Friday wasn’t returned.

The Shanghai Composite has tumbled 29 percent since June 12, following a 150 percent surge in the preceding 12 months that sent its median stock’s valuation to 108 times earnings. The gauge sank 5.8 percent on Friday despite the CSRC’s announcements that it will investigate short sellers and “strictly” punish market manipulation.

After markets closed, China’s financial futures exchange made it more expensive to speculate on stock-index contracts and said it will inspect traders to prevent “deliberate shorting.” Chinese brokers set up a fund to support share prices, while companies suspended plans for initial public offerings to help reduce the supply of new equity.
Short Selling

Even if there is some unlawful trading by short sellers in China, Galaxy Securities Co. says the bearish bets wouldn’t be big enough to take down the whole market. Short interest on the Shanghai Stock Exchange is the lowest since July 2014, while the China Financial Futures Exchange said last week it didn’t find “large scale” short selling when it checked stock-index futures trading by foreign money managers.

Under China’s quota-based programs for overseas investors, their maximum potential holdings come in around $166 billion, or about half the market value of PetroChina Co., the nation’s biggest company. International investors bought a net $2.7 billion of shares through the Shanghai-Hong Kong exchange link over the past three weeks.

The core reason for the slump was that the market has gone up too much and valuations of many stocks were extremely high,” said Qin Xiaobin, a Beijing-based strategist at Galaxy Securities. “There’s not enough evidence to convince me that short-sellers are to blame, and how could you tell apart a short-seller who has ’vicious’ purpose from those who haven’t?

Hidden Agenda

That hasn’t stopped state-run media, who helped spark the bull market by advocating equity investment toward the end of last year, from assigning blame. Financial News, backed by Chinese authorities including the central bank, ran an opinion piece on Friday that asked if Morgan Stanley had a “hidden agenda” connected with the stock market.

The author, whose title and expertise weren’t specified, questioned Morgan Stanley estimates on the outlook for Chinese shares and alleged that it had been among global short sellers trying to talk down the market. The article was shared on Twitter by China’s official Xinhua News Agency.

Nick Footitt, a Hong Kong-based spokesman for Morgan Stanley, declined to comment.
Margin Bets

On Thursday, five Beijing finance professors issued a statement that was picked up by news services across the country, saying that wealthy and sophisticated short sellers from overseas were robbing small Chinese investors and ignoring risks of market instability. The group of academics didn’t cite any evidence.

In China’s Securities Daily on Wednesday, the publication’s deputy editor-in-chief wrote that losses in Chinese stocks were caused by a short-seller “attack.”

Of course, many of China’s 90 million individual investors have their own ideas about what’s causing the retreat. Shi Jianqing, a 38-year-old accountant at an auto-parts manufacturer in Shanghai, says the most plausible reason is that speculators are unwinding leveraged bets.

Margin traders, who boosted wagers nine-fold to about 2 trillion yuan ($322 billion) in the past two years, have been closing out those positions for a record 10 straight days.
Market Economy

“There are lots of arguments about this rout, including the conspiracy theory that some people want to viciously short,” said Shi, who’s sitting on a loss of about 30 percent on his stock investments. “But I think margin trading should be the main culprit. The regulator underestimates the amount and the power of margin lending.”

So far, there’s no sign that Chinese authorities will slow down efforts to reform the stock market by opening up to foreign investors, said Sandy Mehta, the chief executive officer of Hong Kong-based Value Investment Principals. Regulators have said they’ll replicate the Shanghai-Hong Kong exchange link for Shenzhen’s bourse by year-end.

The authorities appear “committed to a market driven economy, including the stock market, but they clearly want to do this in an orderly fashion without causing too much turbulence in the process,” said Gerry Alfonso, a director at Shenwan Hongyuan Group Co. in Shanghai.

As the role of stock markets in China increases, authorities should worry less about finding someone to blame for swings in securities prices because they’re an inevitable part of an evolving economic outlook, according to Hu Xingdou, an economics professor at the School of Humanities and Social Sciences at Beijing Institute of Technology. He says shares are falling now in part because China’s growth is slowing.

The decline is more about the fundamentals of the economy,” Hu said. “Investors are getting nervous.”

Comment by Professor Bear
2015-07-05 15:13:11

‘The underlying message, that market manipulation is fueling the selloff, was reinforced by securities regulators last week as they pledged to crack down on “vicious” short selling.’

Funny thing is, I can recall Wall Street investment banking executives making similar outlandish efforts to shift the blame to short sellers in the wake of the fall 2008 financial collapse.

Which brings to mind an interesting question: Will the bear market that has so far only mauled the Chinese stock market over the past three weeks usher in a similar crisis to the fall 2008 global financial meltdown?

Comment by Professor Bear
2015-07-05 18:43:57

China Stock Plunge Leaves Market More Leveraged Than Ever Before
by Richard Frost
July 5, 2015 — 9:00 AM PDT

Leveraged bets on Chinese stocks have increased to a record versus the size of the market as prices fall faster than margin traders cut positions.

Margin Debt as Percentage of Market Value

The outstanding balance of margin loans on the Shanghai and Shenzhen bourses climbed to 4.4 percent of overall market capitalization on July 2 from 3.6 percent on June 12, before the rout began, as the attached chart shows. The data doesn’t include unregulated borrowing, which Bocom International Holdings Co. estimates at around $322 billion. That would increase the debt to market cap ratio to more than 9 percent.

Higher leverage may undermine government measures to stem the steepest three-week rout in the nation’s equities in a quarter-century. Margin traders reduced positions for nine days through Thursday, the longest stretch of declines on record, even as the central bank cut interest rates and the securities regulator eased margin-trading rules.
Margin Debt Versus Market Cap

The outstanding balance of margin loans on the Shanghai and Shenzhen bourses has fallen by $46.1 billion to $319 billion through Thursday from the peak on June 18, according to the latest exchange data. The 13 percent drop compares with a 31 percent, $3.2 trillion plunge in the value of Chinese equities through Friday, as the attached chart shows.

A five-fold surge in leveraged wagers had helped propel the Shanghai Composite Index index to a more than 150 percent gain in the 12 months through June 12.

Unofficial margin accounts have “significantly” higher leverage than those opened through brokerages and can invest in any stock, not just those mandated by the regulator, Bocom said in a note on June 29.

Comment by Neuromance
2015-07-06 17:02:43

This is an interesting thing: The utterly opaque, black-box central bank printing money to buy stocks from the public. Investors get out with some profit or minimal losses and it’s a broad based injection of money into the economy. If prices don’t rise, so what if the central bank black-box is now the owner of all those stocks?

This will arrest the drop in the market but spark an echo bubble as investors feel more confident and continue to again pile into the market. At the next major correction, the central bank does the same thing.

The only thing to do in such a case is watch price levels - inflation - and see if it starts rising. If it starts going up beyond desirable levels, then draw back on the stock buying. The market will drop further than it would have with out the intervention.

What’s the longer term consequence of a “nationalized stock market” where the buyer of last resort is the central bank? It encourages a higher price level and larger booms/bubbles. Will it ever cause a large earthquake where a lot of people get wiped out due to a bubble occurring in a period of high inflation where the central bank buyer of last resort decides that one ill is worse than the other?

That seems to be a reasonable scenario.

Central bank interventions arrest downward slides and create echo booms. The consequences are different for different markets. The central bank did it here with the debt/housing market (“So I think if we spent enough money, got enough of a hit right now, it would look like a floor on house prices, and we might have something every bit as good as a floor on house prices.” — Fed meeting transcript)

But house prices are directly tied to household debt levels, and it seems people are comfortable with this “peak debt” level as debt levels are going up again. So the effect of arresting the slide in this market would be different than arresting a slide in stocks, it seems to me.

It seems though, that debt is deflationary as it arrests spending on items other than debt service. Unless the central bank/government REALLY decides to spark inflation by mailing every household a 50 or 100 or 200K check and says “Merry Christmas in July.”

But that has political and economic consequences which would probably not be beneficial to Wall Street and politicians. Inflation is the thing that cleans out Congress (at least the Senate (1 of 100), who are more influential than mere Congresscritters (1 of 435)).

Comment by Ella58
2015-07-05 11:33:22

I made the “foreclosures cleared away by magic” prediction. Out of context, it sounds almost pollyanna-ish, but given the secrecy and lack of statistics, it could be going on right under our noses right now, with banks writing down hundreds of thousands of dollars of debt on a case by case basis. I also predicted:

“Forgiveness and restructuring will also apply to home equity loan resets… and most will be rolled over to another 10 year interest-only period.”

This prediction could be right or it could be wrong - how would we know? But for this: where are all the sob stories about people’s Heloc payments resetting to 3x higher? We’ve all seen the graph showing how many c 2005 helocs should be resetting right now - a lot. So where are the press reports?

Comment by Mafia Blocks
2015-07-05 14:35:06

25 million excess empty and defaulted housing units don’t disappear. Magically or otherwise.

Comment by Professor Bear
2015-07-05 12:49:59

Does China have some kind of stake in the resolution of the Greek drama? If no, then was it just coincidental that the Chinese stock market dropped by about 30 percent in the run-up to Greece’s IMF default?

Comment by Professor Bear
2015-07-05 13:17:53

Markets 7/05/2015 @ 10:55AM
A Scary Similarity Between The Greek And Chinese Economy
Panos Mourdoukoutas

China is the world’s second largest economy, still growing by leaps and bounds and plenty of foreign currency reserves. Greece is a tiny economy floundering in the swamp of depression, barely holding in the Eurozone.

But the two economies have one thing in common: From the late 1970s to this day, they shared a semi-Soviet economic model whereby a large part of the economy has been under the direct or indirect control of central and local government.

In both countries government has been present in “key sectors,” telecom, utilities, transportation, and energy — as regulator, owner, financier, entrepreneur, manager. This has helped keep inefficient enterprises afloat, though more in China, where the government is the outright owner of State Owned Enterprises (SOEs), Town Village Enterprises (TVEs) — producing goods as varied as steel, laundry powder, aluminum and toilet paper.

Government has also been present in the banking industry of both countries — controlling almost every major bank, and rationing credit by political fiat rather than by market forces.

The extensive presence of government in the economy — and most notably the simultaneous government ownership of banks, pension funds, and common corporations – has produced an odd state whereby the creditor and the borrower are both government units.

And that’s a state, which multiplies risks and uncertainties across the economy — in two ways:

First, government ownership of banks turns bankers into “abacus bankers,” — routine monitors of money flow into and out banks merely rather than true bankers, evaluators and managers of banking risks.

The result? Banks end up with piles of non-performing loans — as I discussed in my book, The Rise And Fall Of Abacus Banking In Japan and China.

Second, simultaneous government ownership of both the creditors and the borrowers concentrates rather than disperses credit risks, creating the potential of a systemic collapse, as the Greek crisis so vividly confirmed.

That’s what makes this common feature between the two economies scary.

The reason why the “haircut” of Greek debt had such a widespread impact on the Greek economy is that government-controlled banks and pension funds were the creditors of the general government and governmentally-owned corporations. And the haircut shifted losses from one government unit to another.

Simply put, one arm of the government lends funds to another arm of the government, and everyone is happy, until someone must pay the bill. Then the situation turns ugly.

That’s what happened in Greece in 2011, when the country’s semi-Soviet model collapsed, taking down a large and corrupt government that lacked the resources to finance its multiple roles in the economy.

That’s how Greek pensioners ended up in long lines outside ATM machines these days.

Things are even worse than Greece in China when it comes to the potential of a systemic risk crisis. Government-owned banks lend money directly to government owned corporations, which usually perform a great deal of welfare activities; and to land developers, who are behind the country’s property bubble, and the robust economic growth accompanying it.

Comment by In Colorado
2015-07-05 14:24:03

There is one big difference: Greece is not “the world’s factory”. Other than maybe a jar of kalamata olives, you won’t find anything made in Greece at WalMart. The Greek economy was hollow from the get go.

Comment by Mafia Blocks
2015-07-05 15:05:45

So is the US and China economies.

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Comment by Rental Watch
2015-07-05 12:52:57

Home starts continue to rise.

Home prices nationally go up, but nowhere close to 10% (a few percent maybe).

Delinquencies continue to fall.

People on the HBB continue to predict a crash that doesn’t happen.

Credit loosens futher, first time homebuyers somewhat return.

Before you call me a cheerleader, this is all leading up to the inevitable overbuilding (more than 1.5MM housing units per year), lending to people who shouldn’t be allowed to borrow, and next housing correction. But it’s not going to happen in the next 12 months. Probably not in the next 24.

Comment by Professor Bear
2015-07-05 13:19:50

“People on the HBB continue to predict a crash that doesn’t happen.”

People who work for the real estate industrial complex continue to deny the possibility of a future crash right up until the moment it happens, at which point they are heard to chant in unison, ‘Noone could have seen it coming!’

Comment by Ben Jones
2015-07-05 14:12:34

Like we haven’t already had one.

Comment by Professor Bear
2015-07-05 14:33:15

I’m looking forward to what will be said when the Housing Bubble is finally behind us.

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Comment by Senior Housing Analyst
2015-07-05 14:42:04

Are you sure?

Alameda, CA Housing Prices Fall 12%


Comment by Professor Bear
2015-07-05 13:21:15

I predict oil prices will crash in sympathy with the Greek “NO!” vote.

Comment by Professor Bear
2015-07-05 13:22:15
Comment by Professor Bear
2015-07-05 14:34:15


There will be a whole lot of intervention this coming week to prop up stock markets all over the planet.

Comment by Professor Bear
2015-07-05 14:36:11

Markets | Sun Jul 5, 2015 5:16pm EDT
Euro markets set for major jolt after Greek ‘No’, look to ECB for calm
LONDON | By Carmel Crimmins and Nigel Stephenson
A one Euro coin with a Greek owl is seen burning in this picture illustration taken in Hanau, Germany July 3, 2015.
Reuters/Kai Pfaffenbach

European stock and bond markets are set to take a sharp hit on Monday after Greece voted ‘No’ to harsh bailout conditions, and bankers said the European Central Bank’s response was now key to the extent of contagion.

Many economists, including those at U.S. banking giant JPMorgan, reckon the outcome of Sunday’s referendum will probably hasten Greece’s exit from the euro.

“Although the situation is fluid, at this point Greek exit from the euro appears more likely than not,” JPMorgan’s Malcolm Barr told clients on Sunday evening, adding ‘Grexit’ was now the bank’s “base case”.

“‘No’ most likely means EMU exit,” Barclays told its clients.

Comment by Professor Bear
2015-07-05 14:37:41

Markets | Sun Jul 5, 2015 5:00pm EDT
Related: Stocks, Regulatory News, Markets, Financials
RPT-UPDATE 2-China rolls out emergency measures to prevent stock market crash

* Brokerages agree to make massive stock purchases

* Officials freeze new share sales

* Investors see short-term bounce, but sustainability in doubt

By Pete Sweeney and Samuel Shen

BEIJING/SHANGHAI, July 5 (Reuters) - China’s stock markets face a make-or-break week after officials rolled out an unprecedented series of steps at the weekend to prevent a full-blown stock market crash that would threaten the world’s second-largest economy.

The government is anxiously awaiting the market opening on Monday to see if the new measures will halt a 30 percent plunge in the last three weeks, or if panicky investors who borrowed heavily to speculate on stocks will continue to sell.

In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China’s state-backed margin finance company which in turn would be aided by a direct line of liquidity from the central bank.

China has also orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.

“After the 28 companies suspended their IPOs, there will be no new IPOs in the near term,” the China Securities Regulatory Commission (CSRC) said in a statement on Sunday night.

An online survey by fund distributor eastmoney.com over the weekend, which polled over 100,000 individuals, said investors believed stock indexes would rise more than 5 percent on Monday.

But many of those polled didn’t think the bounce will last long

Comment by rms
2015-07-05 15:14:46

“There will be a whole lot of intervention this coming week to prop up stock markets all over the planet.”

Lemme guess… another closed-door seance?

Comment by Senior Housing Analyst
2015-07-05 14:55:03

“Facts Don’t Support Houston Area Realtor’s Claims Of Rising Home Sales”


Not in Houston. Not in Dallas. Not in NY, Vegas, San Francisco, LA, Seattle or anywhere else.

Housing Demand Plunges To 20 Year Low


Comment by Professor Bear
2015-07-05 18:33:56

Rule one of surviving a panic:

Don’t panic.

Comment by Professor Bear
2015-07-05 18:35:27

Brett Arends’s ROI
Opinion: Greece debt crisis: Your market-panic survival guide
By Brett Arends
Published: July 5, 2015 7:37 p.m. ET
Getty Images/ Christopher Furlong
Demonstrators celebrate in front of the Greek parliament as early opinion polls predict a win for the “No” campaign in the Greek referendum over whether to accept the terms of its current international rescue deal.

Don’t panic!

OK, so the Greeks just voted in a landslide to reject further austerity. (Good for them!)

And ok, so nobody knows what’s going to happen next.

There’s nothing like a financial crisis to get the adrenaline pumping.

But if you want to skip the next 36 hours’ panic, hysteria and nonsense, here’s a quick 10-point Greek Crisis Survival Guide:

Comment by Neuromance
2015-07-06 16:41:16

1) There’s a high level of debt and it’s increasing again: http://www.newyorkfed.org/microeconomics/hhdc.html#/2014/q4

2) The economy seems to be improving, which puts upward pressure on interest rates. But that increases the cost of debt, putting a brake on the economy.

That feedback loop is pretty important it seems to me.

Also, the recovery seems highly stratified, with people at the upper ends of the income spectrum doing quite well, but the younger, and lower paid types not doing so well.

Average household income in the US: https://research.stlouisfed.org/fred2/series/MEHOINUSA672N

Labor force participation by age: http://www.bls.gov/emp/ep_table_303.htm

I see more of the same in the housing market for the next six months with an eventual flattening in house prices.

The longer term problem is the whole food chain issue - plankton (lower income buyers) buy cheaper houses, allowing move up buyers to move up. Right now, it seems like a lot of wealthy players driving the housing market, at least from media reports. And not so many plankton.

I think there will be without question a generational change in the attitude towards real estate as a path to riches. Peak debt was reached, the mortgage finance market was nationalized, and this seems to be the system going forward. But it was with the run up in debt that also sparked the runup in house prices. So, in the future, the experience of homeowners will be more “meh, it’s a lifestyle choice, better to raise kids in, but wait till you can afford it” rather than the older generation telling their kids, “OMG you have to buy RIGHT NOW and AS MUCH AS YOU CAN because it’s only going to go up in price and inflation’s going to make it affordable eventually” and that was exactly their experience. Plus they had affordable mortgages, before the evolution of the debt markets to their current go-go form.

I think there’s going to be a big voter dichotomy going forward, with large divides between younger have-nots, and older, wealthier asset- and job-holers. That labor force participation change for younger people, from previous years to now is a significant indicator.

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