The Dream Of Huge Investment Opportunities
The Star Phoenix reports from Canada. “An oversupply of housing is having a ’severe impact’ on Saskatoon developers big and small, says Ruben Beattie, business manager with Equinox Home Innovations. ‘If you look at the number of sales, they’re not that far off, but you look at supply, it’s ridiculous,’ Beattie said. Developers such as Equinox now aren’t building as many units because they’re already sitting on unused inventory, Beattie said. In that environment, buyers ‘have all the leverage in the world,’ he said.”
“Most of the unused housing is in newer subdivisions, such as Rosewood and Evergreen, with Kensington looking like a ‘ghost town,’ he said. ‘Property is just not moving there.’”
The National on Dubai. “Real estate prices fell in Dubai along with growth rates in business activity and new orders during the second quarter. About half of the 70 property agents in Dubai polled by Emirates NBD and Markit reported a drop in average sale prices during the second quarter. This coincided with fewer new buyer inquiries. It was attributed to the Ramadan period as well as reduced appetite for risk among investors, especially from international buyers.”
“‘There is uncertainty around Greek and Russian economies, and with the volatility in the currency market it is far more expensive to buy properties in Dubai for Indian and European expats than, say, a year or two ago,’ said Matthew Green, the head of research and consultancy at CBRE in Dubai. ‘Moreover, a significant number of units are still being delivered to the market and more are expected to come into the market during the second half, putting pressure on sale prices.’”
AzerNews from Azerbaijan. “Experts in Azerbaijan’s real estate market have good news for those who wish to purchase a house. Real estate expert Rashad Aliyev told local media that prices in the secondary housing market in dollar terms have decreased by more than 30 percent. ‘Real estate prices in Azerbaijan have reduced since the end of last summer. This trend will continue as long as the movement of capital in the real estate market will not recover,’ he said.”
“Nusrat Ibrahimov, the CEO of MBA Consulting Group, believes that the decline in apartment prices is due to the drop of demand for them. Restrictions imposed on mortgage credit played a decisive role in this, according to experts. ‘Cheap apartments were mainly purchased on the expense of mortgage credits. In recent months, banks have introduced restrictions on mortgage credits. As a result, this has led to a drop of demand in the real estate market and as a consequence, a decrease in apartment prices,’ he noted.”
The New Zealand Herald. “It seems everyone in Auckland has a story to tell about Chinese buyers wanting their house. The trend has even alarmed some real estate agents - Barfoot and Thompson’s Ian Thornhill raised concerns in 2013 when a Chinese investor with ’surplus funds’ bought an Epsom house, reportedly for more than $2 million, and then left it empty. ‘I don’t think it’s a good thing at all,’ he told the Herald. ‘Kiwis are getting really upset. They can’t compete with Asians who have the money and they pay more … It’s as plain as the nose on your face, what’s happening in the auction rooms each week.’”
The Australian. “The housing boom that has hit Australia’s two biggest cities has brought more foreign-based buyers who leave the homes vacant and derelict after spending millions of dollars buying them, potentially turning some suburban streets into eyesores. ‘Most of the overseas investors, particularly on the new homes, are buying because they want to invest their money in Australia. That doesn’t mean that they are going to move out of their house if they are Hong Kong-based,’ said Century 21 Australia chairman Charles Tarbey. ‘A lot of them don’t rent out the apartments — they just buy for capital gain.’”
“Buyers’ agent David Morrell alleges that many vacant homes have been bought illegally by non-residents. ‘When you see a 24-year-old girl buying a $4m house you go, please, something’s not right,’ Mr Morrell said.”
The Herald Sun in Australia. “A major bank is demanding homebuyers looking in the Pilbara stump up a 30 per cent deposit before giving them a loan. ANZ’s new rule means the average homebuyer in Port Hedland would need a deposit of about $265,000. But local real estate figures said the decision was not surprising, given plunging prices. ‘The market has completely tanked, buyers are lucky banks are willing to give them 70 per cent loans,’ Pilbara Heart Real Estate agent John Briggs said. ‘It doesn’t matter that the banks want 30 per cent, because there are no people making offers anyway, it’s blood on the streets.’”
“In the 40 years Peter Lynch has lived in Karratha he’s seen booms and busts come and go – but he says nothing compares to the uncertainty of 2015. In the past 18 months Mr Lynch and three of his children have lost their jobs. Now in mortgage distress, if he sells his home – which in 2007 was valued at $880,000 – he’s unsure if he’ll recoup the remaining $200,000 on his mortgage. ‘These are sad times and difficult times for a lot us. The bank has given us a temporary lapse on our repayments, but we’re unsure what the future holds,’ Mr Lynch, who was laid off from a security job with Rio Tinto three months ago, said.”
“Mr Lynch said ANZ’s new policy to increase deposits to 30 per cent would have been helpful during the boom, but will now just make affordability even harder for locals.”
Reuters on China. “About a week after Shanghai’s main stock index broke above 4,000 points in April, the leading newspaper of China’s ruling Communist Party weighed in with patriotic glee. In the longer term, the ‘Chinese Dream’ of rising prosperity and security championed by President Xi Jinping would be reflected in capital markets, creating ‘huge’ investment opportunities. The stock market turmoil in the last month has shattered that particular dream for many small-time players.”
“Zhang Yingyi, a 30-year-old administrative assistant and mother of a three-year-old daughter, works full time at an international exchange programme in Shanghai. She and her husband earn reasonable salaries that put them in China’s emerging middle class. They live in a 2.5 million yuan ($400,000) apartment and recently bought a Mercedes-Benz B180 to shorten his commute. But the couple’s spending power is hobbled by debt for the flat and car, and Shanghai’s high living costs eat away at their monthly income. Zhang says her husband does not drink or smoke and they hardly buy any clothes.”
“Like many Chinese whose investment opportunities have been limited, what equity they do have is tied up in their apartment. ‘I don’t feel like I spend that much but there’s never money left,’ she said.”
“Zhou Sujuan, a 44-year-old manager at a private medical device company in Wenzhou, a coastal city 450 km (280 miles) south of Shanghai, lost 2 million yuan ($322,186) in the selloff. ‘This has caused me a lot of heartache. It will take some time to recover,’ she said. Zhou had hoped to buy a house in a different district to get her daughter into a better school. That dream will have to wait. Zhou concedes she was greedy, but also blames state-run entities for heavy-handed tactics in the market. ‘The government is unreasonable,’ she said. ‘It is forever a planned market, a planned economy.’”
From the Reuters article:
‘Sluggish property, weak consumer spending, factory gate prices falling for over three years and local governments laden with $3 trillion in debt mean the economy is expected to grow at its slowest pace in a quarter of a century this year.’
‘Changzhou Wujin Zhengda Vehicle Industry Co Ltd makes machined metal parts for measuring instruments, and serves major sectors of the economy from cars to homebuilding.’
‘Like many in Chinese manufacturing, Ren has seen costs rise steadily, exports soften and domestic demand growth stall. He has about 100 employees, from up to 200 a few years ago, and profit margins are down from around 25 percent five years ago.’
“If we can guarantee 10 percent now that would be pretty good,” he said. “These last few months, it’s been just enough to pay for our workforce.”
‘Ren’s experience is typical of thousands of small manufacturers, who have become less competitive as a stronger yuan currency hit exports and rising labour and other input costs eroded profit margins.’
‘Many of China’s brightest young people, however, are struggling to find work. The number of college graduates in China reached a record high of 7.49 million this year, an increase of 220,000 from 2014. Hu Xiao is one of them.’
‘A 21-year-old from the southern province of Yunnan, Hu majored in accounting at Dongbei University of Finance and Economics in the northeastern port city of Dalian. This year’s job hunting season, from April to June, was “one of the toughest in history”, Xinhua said, and Hu joined the growing mass of educated youth who don’t have work, despite applying for more than 150 positions.’
“I think I should be able to find a job, it’s just that it may not be a very good job,” she said.’
“Zhou Sujuan, a 44-year-old manager at a private medical device company in Wenzhou, a coastal city 450 km (280 miles) south of Shanghai, lost 2 million yuan ($322,186) in the selloff.
…
‘The government is unreasonable,’ she said. ‘It is forever a planned market, a planned economy.’”
Is Ms. Zhou suggesting the Chinese government is directly responsible for planning the stock market crash that led to her 2 million yuan loss?
I’m also guessing that not only was her loss on paper, unrealized, but that it was also against unrealized gains. Of course, she now feels “poor” so she will no doubt cut back on her spending.
The real question is where did that money come from in the first place?
‘China’s GDP growth likely slowed further in the second quarter, an AFP survey has found, as a slowdown in investment and trade weighed on the world’s second-largest economy.’
“The economy is still under quite big downward pressure,” said Li Ruoyu, an analyst at the State Information Centre, a government think-tank in Beijing, also citing weak investment.’
‘New restrictions on local government debt and finance vehicles have limited lower-level authorities’ ability to fund infrastructure projects, she said. “The implicit guarantees of the local governments are gone, hurting their borrowing abilities.”
Is China GDP growth still “about” 7 percent?
Despite the 30% collapse in stock prices over the past month, China’s economy somehow managed to nail 7.0000000% GDP growth right on the head.
Go figure!
P.S. “.0000000%”
“That’s a joke, son. A flag waver!”
‘Regina home builders started 300 housing units in June, up nearly 70 per cent from the 177 starts posted in June 2014, due to the surge in multiple-unit residential building construction.’
“Despite this increase in pace, total housing starts in Regina are expected to be lower in 2015 than in the previous year as weaker economic conditions and elevated new home inventory slow down new construction over the remaining months,” said Goodson Mwale, CMHC’s senior market analyst for Saskatchewan.’
And oil crashed last yr,if you’re in canaduhh what else would you need to know
Their is massive excess housing inventory there. Just like here.
‘VietNamNet Bridge – Some economic experts and officials have expressed concerns over the possible return of a real estate bubble in the coming years. Nguyen Van Duc, vice chairman of the HCMC Real Estate Association, discussed the matter in a talk with The Saigon Times Daily. Excerpts: What do you comment on concerns over a possible real estate bubble as the market has just recovered after many years of stagnation?’
‘A - I think a real estate bubble will not return in the next several years. However, there is reason to worry about recent developments of the local property market though the market has recovered since late 2013. The worrying signs are an upscale apartment oversupply, virtual property fever and price manipulation tricks of property investors.’
‘It is clear that the supply of luxury housing projects outpaces that of medium- and low-income buyers. The number of luxury units at housing projects under construction in HCMC alone amounts to 40,000 and it is a worry that these projects will be completed in 2017. This means there will be a huge supply of high-end apartments on the market in the next two years. Meanwhile, the market is in dire need of many more low-cost apartments.’
‘But investors of the luxury property projects say their products are selling well. Is the prediction of an upscale apartment oversupply in the next two years correct?’
‘A - Of course, investors have carefully surveyed the market before investing in high-class products but there are concerns out there for some reasons. In addition to planned completion in the same year 2017, these apartments cost more than VND2 billion (some US$91,600) a unit, which is beyond the reach of a majority of home seekers, and these property projects are up and running in a radius of 3-4 kilometers. The volume of already sold apartments announced by investors is just for reference and does not reflect the reality of the market. Investors boast they have sold out their products or most apartments at their projects but they do not unveil who the buyers are. The big question is who their customers are: property exchanges, speculators or people who purchase homes to live.’
‘The property market began to recover more than one year ago, backed by products for medium-income buyers, not luxury units, and the demand in the first segment remains huge today. However, it is unfortunate that a number of property developers who weathered tough times in the past by their medium-class products have rushed to invest in products with higher prices.’
‘Home-rental start-up Xiaozhu.com has raised US$60 million from four private equity firms, valuing the company at more than US$300 million for the Chinese flat-sharing service, The Wall Street Journal reported, citing a statement from the company. A glut of vacant homes in China has fueled interest among homeowners to sign up with companies that can help them rent out their homes for short-term stays. “‘
So much for keeping these investment “homes” brand new to keep their value up.
And I said that would eventually change. It was not rational unless you intended to flip in a very short timeframe. BTW, from China Daily:
Real estate agents in Australia, Britain and Canada are bracing for a surge of new interest in their already hot property markets, with early signs that wealthy Chinese investors are seeking a safe haven from the turmoil in Shanghai’s equity markets.
Sydney agent Michael Pallier said that in the past week alone he has sold two new apartments and shown a $10.3 million house in the harborside city to Chinese buyers looking for an alternative to stocks.
“A lot of high net worth individuals had already taken money out of the stock market because it was getting just too hot,” said Pallier, the principal of Sydney Sotheby’s International Realty. “There’s a huge amount of cash sitting in China, and I think you’ll find a lot of that comes to the Australian property market.”
Around 20 percent has been knocked off the value of Chinese shares since mid-June, although attempts by the government to stem the bleeding are having some effect.
Many wealthy investors had already cashed out. Major shareholders sold 360 billion yuan ($58 billion) in the first five months of the year, compared with 190 billion yuan in the whole of last year, according to Bank of America Merrill Lynch.
In London, Alex Newall, managing director of super prime residential agent Hanover Private Office, said he had seen an increase in interest from Chinese investors at the top of the market, although no transactions yet.
Australia and Canada are also gaining popularity and have an edge because of their weakening currencies.
However, there are also concerns that Chinese investors who did not bail out of stocks quickly enough will be a dragon international property markets, particularly after Beijing on Thursday banned shareholders with large stakes in listed firms from selling for six months.
In London, Naomi Heaton, the CEO of London Central Portfolio, said she had heard of investors pulling out of new-build purchases because they no longer had the capital.
“It was not rational unless you intended to flip in a very short timeframe.”
Hard to do that and make an investment gain on underwater property.
‘The demand for luxury homes in Vancouver soared in the first half of the year as the number of residences with million-dollar price tags rose by nearly 50 per cent from the same time last year, according to a new study by Sotheby’s International Realty.’
“I think that people are starting to realize that there is no bubble here,” Cordwell said. “Plus there are just so many people buying and I think that the more people see that, the more confidence there is in the market. I mean the sales are going crazy. When other people see that they get caught up in it too.”
‘This month someone stuck handmade signs around the west side of Vancouver offering to buy old houses on 33-foot lots for $2-million. The signs went viral.’
‘Judging by the comments on social media, many residents found the signs a tasteless money grab at the expense of the city’s history. They illustrated the new commodification of houses: Money trumps all the things that used to make a house a home. An old house had been deemed so inherently worthless in today’s turbo-charged market that it could be purchased sight unseen, like an old wedding band to be melted for its gold.’
‘The real estate agent behind the signs, Tony Savino, said they were all removed by the city, but because they went viral they proved highly effective. “I thought it would be a good thing to do because it’s a hot market, with a lot of money coming in from offshore, and a lot of speculation. People are investing. There’s a lot of Asian inflow, from China, Korea.”
‘Not everybody who phoned Mr. Savino was looking to sell. “I did have one fellow call me a parasite and say I’m ruining the neighbourhood, and he hung up on me,” Mr. Savino says. “But it’s not me that’s doing it. It’s the buyers that are doing it. I’m sorry that people who have lived here all their lives can’t buy a home in that neighbourhood. But I’m just facilitating the sale. … I’m just trying to make a living.”
‘And not all the houses coming down are old. A big 11-year-old house at 2991 W. 27th Avenue was torn down in June. Olga Betts, a neighbour, remembers when the house was built. “I was totally amazed when they tore it down,” Ms. Betts says. “I think something should be done about giving a demo permit for a new house.”
‘She has lived in Mackenzie Heights for 28 years, and today her formerly quiet neighbourhood feels more like a construction zone. She’s seen newly remodelled houses with granite kitchen countertops get demolished. One house near hers has been empty for 12 years.’
“They could have been raising children in that house all this time,” she says.’
“I think that people are starting to realize that there is no bubble here,” Cordwell said.
Famous last words.
‘Heavier debt loads are contributing to greater numbers of Canadians with bruised debt looking in the alternative space – but one lender isn’t pointing the finger of blame at rising home prices.’
“Bruised credit is definitely growing in this country,” says Gino Tieri, vice president of sales and marketing at Equity Financial Trust Company. “People are stretching themselves financially, we see it.”
‘According to a survey commissioned by Manulife Bank of Canada, Canadian homeowners are carrying an average of $190,000 in mortgage debt as home prices reach dizzying new heights in the nation’s large urban centres.’
‘In Alberta – a province that has been hardest hit by the fall in oil prices – homeowners there carrying the largest burden of mortgage debt at $242,300.’
‘Contributing to the problem is the perception that consumers can borrow more as their home equity increases, says Tieri. “People are buying on their equity – whether it is for the right or the wrong reasons – that is a personal judgment call that you make individually,” he says. “As homes appreciate, people believe they have access to more funds. But you don’t see incomes increasing.”
‘Regina Malina, senior director of decision insights at Equifax Canada, believes that the full impact of lower oil prices is not fully reflected in the first quarter numbers.’
“We’re starting to see delinquency rate increases in Alberta, and even more so in Saskatchewan,” observed Malina. “Oil prices and future economic outcomes are still being debated, but the average debt and consumer appetite for new credit are still on the rise.”
Don’t dis Singapore
Low crime
1# for biz
Low unemployment due to no unemployment scheme
Symbol Ews home gamers
And wholesale financial fraud and financial crime. No thanks.
From what I have read, things aren’t all that rosy in Singapore. Wages are very low for non-elite types and the cost of living is sky high.
sounds like Ft Collins
‘Lu Tao can’t sleep. He gets bouts of panic at night. And he’s too afraid to tell his parents why.’
‘The 23-year-old university student in Hangzhou, a city on China’s eastern seaboard, has a stock-market problem. He borrowed 200,000 yuan ($32,215) from mom and dad, piled the money into mainland shares without their permission, and got caught in the biggest sell-off in two decades.’
‘At first, Lu considered liquidating his holdings and owning up to the losses. But now that China’s government has arrived to rescue the market, he’s decided to bear the sleepless nights, keep his parents in the dark and stay invested.’
“I won’t exit,” he says. “I still see value and I believe government policies will safeguard it.”
‘Lu’s unwavering faith in Chinese policy makers illustrates the growing risk of moral hazard in the world’s second-largest stock market, an unintended side effect of government efforts to halt a $3.9 trillion selloff.’
‘The moral hazard problem is particularly acute in China because authorities stepped in at a time when stock valuations were still expensive, said Francis Cheung, a strategist at CLSA Ltd. in Hong Kong. At 60, the median price-to-earnings ratio on mainland bourses is higher than in any of the world’s 10 largest markets. The ratio was 68 at the peak of China’s equity bubble in 2007, data compiled by Bloomberg show.’
‘The Shanghai Composite dropped 1.2 percent on Tuesday. “The government is in a dilemma,” Cheung said. “They promoted the market on its way up, and now that it has crashed, there are investor expectations that the government will rescue them.”
Stay away from high buildings with access to outside ledges!
He’ll kill himself because he owes mom and dad 30 grand? That’s not even the price of an Audi. That’s the average student loan burden in the USA.
Study up on Chinese culture. It’s a lot different than ours is.
Just saying he should be able to pay it back over time.
Yeah, I know all about “saving face” and such. That’s why you keep it quiet and within the family.
I dunno. The inability to sleep sounds symptomatic of a pretty severe psychological state.
“I won’t exit,” he says. “I still see value and I believe government policies will safeguard it.”
____________________________/
It’s the Chinese version of the “Bernanke put.”
“I still see value and I believe government policies will safeguard it.”
Smells sorta like confirmation bias.
Dang, they turned into the U.S. FAST!
Hey Lu-ey, it’s called “Irrational Exuberance”.
‘Canada’s housing boom is increasingly driving homebuyers to seek mortgages from private lenders, who demand rates that can be more than five times higher than those charged by the nation’s banks.’
‘Canadian banks have become more conservative and regulators are making it harder to lend, giving rise to an alternative market, including Canadians who refinance their own homes at low rates and then use the money to become mortgage lenders themselves.’
‘Mortgage broker Lou Perrotta said that in terms of volume, 20 percent to 30 percent of the mortgages he puts together are now privately financed, typically because borrowers are declined for a bank loan for reasons like a low credit rating or unsteady income.’
“Business is brisk, without question. (It has) probably tripled in the past three years,” said Perrotta, president of Domus Financial Corp in Toronto, where house prices have increased by 55 percent in the last six years.’
‘One private lender, who asked not to be named because she is close to the real estate market and fears hurting her business, took out a C$400,000 mortgage on her paid-off home at 2.49 percent and then gave that money to a broker that lent it to a borrower at a higher rate, for a fee. “Who the hell is going to give me 9 percent return?” said the lender, who said she has recourse to the borrower’s assets if he defaults.’
‘CIBC senior economist Benjamin Tal said the shadow lending market represents about 4 to 5 percent of Canada’s overall mortgage market. “This is something that is growing very fast, because many borrowers are not having access to banks because the banks are highly regulated,” said Tal.’
‘Traditional lenders also send business to alternative lenders, feeding the pipeline. Royal Bank of Canada, the country’s biggest bank, said when a client does not qualify for a mortgage, the bank will recommend an alternate lender, which may include a trust company, a mortgage broker or a private mortgage corporation, an RBC spokesman said in a statement.’
‘Canada’s financial system regulator, the Office of the Superintendent of Financial Institutions, said it monitors the alternative mortgage market but would not comment on its size, whether it was growing or whether OSFI had any concerns.’
‘Anthony Croll, vice president of Individual Investment Corporation, a Montreal-based private lender that has been in business since 1958, said he’s seen a rise in the number of small private lenders over the last few years competing with the 10 percent to 12 percent interest his company would charge.’
‘He also thinks inexperienced lenders may be underestimating the risks associated with non-payment of a loan.’
“Occasionally an accountant or someone else has said - after hearing about our rates, or what the deal is - ‘I can do that myself,’” Croll said. “But you know everything is easy and fine to do until you have a problem.”
‘One private lender, who asked not to be named because she is close to the real estate market and fears hurting her business, took out a C$400,000 mortgage on her paid-off home at 2.49 percent and then gave that money to a broker that lent it to a borrower at a higher rate, for a fee. “Who the hell is going to give me 9 percent return?” said the lender, who said she has recourse to the borrower’s assets if he defaults.’
_____________________________/
She could have been satisfied with living in a paid-off house, but she got greedy.
‘A property investor says Kiwis asking for inflated prices are to blame for the overheated housing market - not foreign buyers. Former president of the Auckland Regional Ethnic Council, Ron Hoy Fong, describes himself as “Chinese and a third-generation New Zealander” and he owns more than 30 properties.’
‘Yesterday he was at an open home in Pt Chevalier, where he was accompanied by half a dozen of his “investment students”.
“I know how Kiwis think: ‘Who the hell are you coming to buy my quarter-acre section of land’,” Hoy Fong told the Herald on Sunday. “That’s the Kiwi mentality - but at the same time, they’ll welcome the same buyer when it comes to selling. They’re saying the Chinese are pushing the prices up, but who is it that owns the house and is asking for more than they should?”
‘A poll at nzherald.co.nz found readers overwhelmingly backed New Zealand following Australia and banning foreigners from buying unless they build a new house or already live here. Hoy Fong, a Queen’s Service Medal recipient who runs investment coaching firm Ronovationz, said “any restriction policy cannot be racist, it can only be across the board. There has to be the same rules, not just because someone is Chinese.”
If Kiwi homeowners are smart,they’ll sell their overpriced shacks to Chinese suckers, and rent while they wait for the crash, then buy back into the market at a heavy discount.
We are in the midst of the second Great Asian Real Estate Fleecing.
‘As of this writing, almost half of Chinese companies on the exchange have halted trading of their stocks. Who knew they could even do this? Doesn’t this just set in more panic? What kind of a stock exchange allows companies to stop trading?’
‘On Wednesday, the Chinese government announced that company bosses and senior management, along with investors who own more than 5% of a business, are prohibited from selling shares on the secondary market for the next six months. I thought this was a parody when I first read it.’
‘This sounds like something coming out of a third-world dictatorship — something you would hear from Zimbabwe or Venezuela.’
‘Unfortunately, now that times are getting tough, the communist roots are showing a bit. The last week in China is showing the utter corruption and fraudulent nature of not just the markets but also the entire economic system there.’
‘The Chinese are going to experience their first modern-day recession, and it is going to be a doozy. Let’s hope they can get through it without becoming more totalitarian.’
‘I am waiting to hear the pundits say nobody could have expected it to be this bad. There wasn’t anybody who was warning of a major financial bust like this. Of course, this was easily predictable because this is what happens when central banks and politicians try to centrally plan an economy on a grand scale. This is an artificial business cycle, set up by loose money, low interest rates, and massive government spending.’
‘Some of the wealth that the Chinese have now is real wealth. They are certainly better off than they were a couple of decades ago, when the majority of the population was living in extreme poverty.’
‘But some of the wealth is illusory. There appeared to be greater wealth because of the distorted markets. The illusion is now coming to light, and it is going to hit hard.’
‘The U.S. economy has its own distortions, thanks to the reckless monetary policy of the Fed for the last seven years. Thankfully, the misallocation of resources is probably not nearly as great as what there is in China.’
The Chinese Communists have taken capitalism hostage!
‘Some of the wealth that the Chinese have now is real wealth. But some of the wealth is illusory.’
The illusion is being spread across the globe. Who can say what anything is “worth”?
“Who can say what anything is “worth”?”
This is deliberate and contrived. And it takes real effort to ignore the balderdash and analyze the risk associated paying a price and you only get to the truthful price by bringing your own money to the proposed transaction regardless of what the item is.
For buyers using borrowed money, there is only the appearance of minimum risk. The reality is borrowed money brings the highest risk.
“There appeared to be greater wealth because…”
Because of the massive debt hiding behind the façade.
Latest data I saw it is about 27% of the stocks not trading.
ONLY 27%… a truly miraculous application of capitalism!
‘Demand for luxury homes in Vancouver is so high that shoppers are willing to pay a premium for residences that already have buyers, spurring people with deals in place to flip the properties.’
‘Rising demand has led to an increase in bidding wars, more sales over asking price and a greater number of “contract assignments,” where buyers sell their rights to a home before completing their purchases, Sotheby’s International Realty Canada said Thursday. In the first half of 2015, 2,465 Vancouver homes sold for C$1 million (€720,000) or more, up 48pc from a year earlier, the brokerage said in a midyear report on luxury real estate.’
“The person who wins the bid says, ‘Listen, there are two other people here who desperately want that home and will pay C$500,000 more,’” Ross McCredie, chief executive officer of Sotheby’s International Realty Canada, said from Vancouver. Losing bidders often offer 20pc more than the list price, and the buyer flips it for even more, he said. “We’re seeing it more and more.”
We have transcended the Greater Fool, and are seeing the rise of the majestic MegaFool!
TeraFool.
‘As I wrote this on Sunday in England, the new graduates of Tsinghua University were set to gather in their smartest attire to celebrate degrees from one of China’s most prestigious institutions.’
‘Just after the ceremony starts, according to a written agenda—the graduates must “follow the instruction and shout loudly the slogan, ‘revive the A shares, benefit the people; revive the A shares, benefit the people’”.
‘This probably tops the list of many scarcely believable things they have done in the last few months to try to shore up a stock market bubble. As much as they are entertaining, they have educational value too, far beyond what analysts have come up with.’
‘China’s reaction to the bursting of the stock market bubble confirms, if a confirmation were needed, that the bubble was not spontaneous to begin with.’
‘It started late in the summer of 2014 precisely at a time when the economy was going into a deeper slowdown. Bubbles de-couple the stock market from economic fundamentals eventually. In the case of China, the de-coupling was a reality at the bubble inception.’
‘China’s response to the drop in its stock indices has exceeded all limits of reason. Space constraint precludes my cataloguing them here. I will just add one more to the “gold medal winner” above. The silver medal goes to the decision to allow households to pledge their real estate as collateral for their stock margin accounts.’
‘No prizes for guessing as to what the stock bubble has done to China. There could not have been a more brilliant demonstration of all their hidden vulnerabilities than their response to the stock market collapse. At the core, China is deeply insecure. That underwrites their eventual failure at the global hegemonic sweepstakes.’
‘China follows the same policies that the West does and does worse than them. Here is how the thought process must have gone on in China: We have lots of debt than equity. So, how do we bring the ratio back in balance? Reduce debt? Painful. Pump in more equity? Well, the government’s fiscal position will deteriorate and government revenues are not growing fast now. So, let us create a stock market bubble. Equity levels improve just like that. Magic! Bubbles will do it.’
‘Well, it is not original.’
‘The US has been at it in more than two decades with the brazenness rising each time a new bubble is formed. Surely, the West has fallen a long way. Instant gratification is pervasive.’
‘The housing bubble in the UK, Australia and Canada prove that not too many lessons have been learnt from the crisis of 2008. Stock buybacks and accounting gimmicks underpin the American stock market bubble. No political leader is able to articulate the long, patient and waiting game that usually is required for sound policies to work their way through with lags. However, Asians are not learning from their mistakes. They repeat the mistakes with Asian layers of corruption and inefficiency superimposed on them.’
‘As for India, I will desist from drawing the usual triumphalist conclusion about the checks and balances of its democratic governance, in contrast to China’s. The real lessons are two: the global hegemonic order is not about to be re-arranged anytime soon, if at all. Second, China can be panicked and it does.’
I’m surprised the Communist Party hasn’t published an “updated” version of the “little red book”, one that sings the praises of the glorious stock market and that if you don’t have an Audi, you’re a loser.
Agree completely. The difference between ideology and reality in China has reached the point that the two only could be reconciled by an insane person. We’re not there yet, but we’re on the way ourselves.
‘Former Federal Reserve Chairman Alan Greenspan admits he is “quite” worried about a bond market bubble. And he’s not so proud of the American economy, but as shaky as it may appear, it’s the best in the world.’
“The United States, strangely enough, as badly as we are doing – is still the best of the worst. Nobody is doing well,” he told Fox Business Network. “And that still doesn’t make us any better.”
“The Federal Reserve is doing the best it can. It’s a very tough position they’re in and they’re very smart and I know because I’ve dealt with all these people for a number of years,” he said. “What people are not focusing on is we have a bond market bubble and when that decides to work its way off we’re in trouble.”
‘The world’s biggest bond investor says a sharp fall in house prices poses a risk to the economy because mortgaged to the hilt Australians could dramatically reduce their debt levels and cut back spending. In a new study, PIMCO said Australian households assume that property prices will continue to rise and mortgage rates will stay low prompting them to take on more debt, unlike US consumers.’
‘Portfolio manager at PIMCO in Australia, Aaditya Thakur, said the hope of getting rich from housing was blinding Australians to the risks of investing in property.’
“People are taking on more debt because they are chasing, seeing prior house price increases and assuming those house price increases will continue into the future,” Mr Thakur told PM. “Given the historically low levels of mortgage rates they are factoring that into the future as well. This kind of response is somewhat concerning and puts us in a slightly more vulnerable position.”
http://www.abc.net.au/news/2015-07-14/pimco-warns-of-consumer-and-economic-risks-if-house-prices-fall/6620006
‘Economic troubles for China will not be a great news for India which cannot be in ’sweet spot’ as there would be more negatives than positives from the ripples of a Dragon dragging the shaky world economy, an ASSOCHAM paper has said.’
‘The so-called de-coupling for India had proved to be an illusion. We as an economy are not at all de-coupled with close to USD one trillion of our global engagement in goods, services and investments, the chamber Secretary Mr D S Rawat said.’
‘The ASSOCHAM paper said in none of these industries, the space vacated possibly by the Chinese companies can be occupied by India which has not so far invested seriously in these sectors and several other manufacturing verticals. The Indian enterprise, as of today, has its own problems of large debts, aggravated by high interest rates, slow demand, inability to pass on the costs and a big pressure on profit margins.’
‘The Make in India types of initiatives are a long haul and any disruption in essential imports from China can hit the Indian supply chain as well. Moreover, because of pre-dominance of the services sector in our GDP, it is the trade which drives the Indian economy. Trade, in turn, has become China-centric, which for right or wrong reasons, cannot be given a shake-out, the ASSOCHAM document noted.’
‘The Indian IT sector which is fast reaching the crucial USD 100 billion mark in exports in the near future, would also be impacted by the jerks in China . Bulk of the revenue for the Indian IT companies comes from the US which is so closely linked to the Chinese economy.’
‘World’s top two economies have goods trade engagement alone of over USD 600 billion with the American imports far-exceeding the exports. A huge level of US investment has been made in China , which would also get hit building a kind of domino impact.’
‘Fund managers have warned the Chinese government’s latest intervention to halt a stock market rout will not be enough to prevent a noticeable slowdown for the world’s second largest economy, with huge repercussions for global growth.’
‘Gary Greenberg, head of emerging markets at Hermes Investment Managers, said: “Creating money was a great thing but it was not managed well. If they had managed to do it over five years it would have worked.’
“The bubble inflated too quickly and now has deflated very quickly. I think we are approaching a period of time when China will see a slowed down economy for two to three years. The stockmarket boom lever has broken and the interest rate lever was not the preferred choice, but I expect to see further rate cuts quite a bit in the near future.”
“However, this is like methadone; it is not a cure.”
‘Heather Manners, CIO at Asian specialist Prusik, agreed: “Stock market intervention has never really worked before.” She said investors have already seen sharp movements in Chinese share prices spill over into other nearby markets “on the upside and the downside”, but Greenberg warned this fall-out could extend a lot further.’
“China’s more dramatic slowdown will further depress demand for commodities, affecting commodity-exporting countries such as Chile, Brazil, Russia and South Africa.”
‘The UK equity market, which appears to have shrugged off the escalation of the Greek debt crisis, has been affected by the recent Chinese market sell-off, with shares in mining companies in particular taking a hit in recent weeks.’
‘Malcolm McPartlin, investment manager for the UK equity team at Kames Capital, said: “The unwinding of an exuberant China bubble has already driven down share prices of the miners in the UK equity sector. “It depends how much of the sell-off feeds back into the real economy but this is the second largest economy in the world – there will be repercussions for global growth.”
‘Fund managers have warned the Chinese government’s latest intervention to halt a stock market rout will not be enough to prevent a noticeable slowdown for the world’s second largest economy, with huge repercussions for global growth.’
One of our most prolific posters will likely back me up if I suggest these fears are overblown, as evidenced by China’s just-released 7% GDP growth figure.
‘Don’t bet more than you can afford. Don’t borrow to play. Don’t chase your losses. Quit while you’re ahead.’
‘If only Chinese stock market investors had followed these basic gambling rules. Seduced by dreams of getting rich quick, millions of inexperienced Chinese investors have lately been treating China’s stock market like a casino. With the help of social media, the optimistic sentiment spread quickly, pulling more in.’
‘The index for the main board of the Shanghai Stock Exchange almost doubled in the past year. The index of small cap stocks has tripled or better. It became a classic asset bubble. Then it all came crashing down.’
‘The government-engineered bull market was meant to help resolve China’s real estate bubble and over-leveraged local governments, incentivise innovation and facilitate reform of state-owned enterprises. Instead, it was hijacked by highly-leveraged greedy individual investors. As the government became concerned and began to deleverage margin trading, it set off a stampede, with everyone rushing to the blocked exit doors because of the 10% price limit trading rule.’
‘Investors in emerging markets tend to overestimate growth which leads to overvaluation. In China 85% of investors are individuals, unlike in developed markets where they are institutions. The turnover rate of these Chinese investors is more than 900%, the highest in the world. The account balance of 84.1% of these investors is less than 100,000 RMB, and 10.39% have a balance between 100,000 and 500,000 RMB. Only 6% have a college degree.’
‘Some insiders believe that a significant portion of the capital that was used for margin trading actually came from the asset management products that were issued by the banks. If the banking sector is impacted, then the negative sentiment could spill over to consumers’ willingness to spend, which would then impact the overall economy. There have also been reports that some entrepreneurs have speculated in the stock market using their company’s operating capital.’
‘Any stock market is built on confidence and the expected value of future cash flow. The objective of the government should be to mitigate the systemic risk rather than managing the stock index. The government is over-protecting retail investors. The function of the capital market is to charge different prices or risk premium on firms relative to their risk levels. Everyone should understand the rule of the market: higher returns mean higher risk.’
‘The second-largest provider of U.S. mortgages through brokers is bringing back a debt type that’s almost disappeared since the financial crisis: Interest-only loans.’
‘United Wholesale Mortgage plans next month to expand access to the mortgages to borrowers beyond the wealthiest Americans who use so-called jumbo loans. Interest-only mortgages carry higher risks because they can leave homeowners facing a jump in their bills down the road.’
‘The move by the family-owned lender, which grew more than 40-fold after the crash by working with brokers as banks such as JPMorgan Chase & Co. abandoned them, is the latest sign of how lending standards are expanding in the wake of the crisis.’
‘Mat Ishbia, the Troy, Michigan-based company’s chief executive officer, said he isn’t embracing a return to misguided practices. “It’s for a savvy borrower who can afford the higher payment but chooses the lower payment,” said Ishbia, whose firm lost business before the slump by failing to offer risky loans such as subprime mortgages. “People that don’t know the industry are just so focused on what happened — and bad things definitely happened. But we’re doing things the right way.”
‘Several community banks also offer interest-only mortgages outside the jumbo market, said David Lykken, a partner at consultant Mortgage Banking Solutions. And EverBank Financial Corp. offers home-equity lines of credit of as little as $250,000 for property purchases that require just interest-only payments during periods in which more funds can be drawn, said Kipin Alexander, a spokeswoman for the lender.’
‘A group of 15 of the top originators of interest-only mortgages produced $27.7 billion last year.’
‘United, which expects to originate about $14 billion of mortgages this year, sees interest-only loans helping borrowers who would rather invest or save some of the money that they could be putting toward their loans, Ishbia said.’
‘His firm has lined up two companies to buy the loans that it makes through its network of 5,000 brokers, including one “Wall Street” firm, he said. Ishbia isn’t interested in creating other types of loans that buyers are starting to seek.’
‘Unlike some rivals, it won’t be offering loans to borrowers who are just a day out of foreclosures, he said.’
“United Wholesale Mortgage”…. a wholly owned subsidiary of the FederalReserve/JPMChase.
‘The same sector of the economy that created the Great Recession is back in full force, creating what could be the world’s next financial crisis through their use of single product, derivatives.’
‘According to the most recent quarterly report from the Office of the Comptroller of the Currency (OCC), a total of 1427 insured U.S. commercial banks and savings associations reported derivatives activities at the end of the first quarter of 2015. The use of derivatives by the American banking system is dominated by the four largest commercial banks which represent 91.3 percent of the total nominal value of derivatives issued. By far, the largest volume of derivative contracts are related to interest rates followed by foreign exchange and credit derivative products.’
‘A whopping 78.9 percent of all derivatives held by the banking system are interest rate contracts followed by foreign exchange derivatives at 15.1 percent and credit derivatives at 4.3 percent.’
‘In the fourth quarter of 2014, there were $157.728 trillion worth of interest rate derivatives. While this is down from the third quarter of 2014, it is up $103.198 trillion or 122.08 percent from a decade earlier.’
‘The top four derivative holders include JPMorgan Chase, Citibank, Goldman Sachs and Bank of America which hold a combined total of $202.649 trillion worth of derivatives. Total assets held by these four banks is $14.156 trillion. In other words, the four “too big to fail” banks have exposure to derivatives that is more than 14 times the total value of their assets.’
‘According to a recent statement by Thomas Hoenig, Vice Chairman at the Federal Deposit Insurance Corporation, the largest United States banks have an average tangible equity capital ratio (aka leverage ratio or the funds available to absorb loss against the total balance sheet and some off-balance sheet assets) of 4.97 percent. This means that each dollar of bank assets is funded with 95 cents of borrowed money.’
‘Mr. Hoenig goes on to note that: “The Global Capital Index illustrates how financial resiliency is still sorely lacking. The sector of the financial industry with the greatest concentration of assets is the least well capitalized. Plainly put, it operates with the largest amount of borrowed, or as we say, leveraged funding, and thus it is the least well prepared to absorb loss. Yet the primary measure of capital – the risk weighted measure — makes the largest firms appear relatively more stable than they really are. The reality is that with too little owner equity funding individual firms, the industry as a whole also is undercapitalized and should one firm fail, the industry continues to be vulnerable to contagion and systemic crisis. It follows that the lack of adequate tangible capital remains among the greatest impediments to successful bankruptcy and resolution.”
‘ As shown in this letter to shareholders from JPMorgan Chairman Jamie Dimon, even he admits that there will be another financial crisis: “Some things never change — there will be another crisis, and its impact will be felt by the financial markets. The trigger to the next crisis will not be the same as the trigger to the last one – but there will be another crisis. Triggering events could be geopolitical (the 1973 Middle East crisis), a recession where the Fed rapidly increases interest rates (the 1980-1982 recession , a commodities price collapse (oil in the late 1980s), the commercial real estate crisis (in the early 1990s), the Asian crisis (in 1997), so-called “bubbles” (the 2000 Internet bubble and the 2008 mortgage/housing bubble) etc. While the past crises had different roots (you could spend a lot of time arguing the degree to which geopolitical, economic or purely financial factors caused each crisis), they generally had a strong effect across the financial markets.”
http://www.oyetimes.com/business/markets/84233-derivatives-the-economy-s-achille-s-heel
Every 7 years give or take. This one is going to be gargantuan.
This is deceptive. Going to the source - the OCC, you see that derivatives are down from their peak and trending downward . While I agree that much more needs to be done, citing references that are running around like a chicken with its head cut off do not help keep people informed.
April 2, 2015
‘The tangible leverage ratio measures funds available to absorb loss against total balance sheet and some off-balance sheet assets. It does not attempt to predict or assign relative risk weights among asset classes. “It is more difficult to game, and it provides the most clear and complete picture of a banking firm’s ability to absorb loss regardless of source,” Vice Chairman Hoenig said.’
‘In contrast, the ratios of Tier I capital to risk-weighted assets for all banks (column 3), largest to smallest, are above 10 percent and some of the largest have ratios of more than 15 percent. “This higher capital ratio is achieved by reducing on-balance sheet assets by a pre-assigned risk weight and excluding off-balance sheet assets, such as derivatives. This measure is misleading and overstates the strength of these firms’ balance sheets. No other industry is allowed to make these kinds of adjustments,” Vice Chairman Hoenig said.’
https://fdic.gov/about/learn/board/hoenig/statement4-2-2015.html
You were saying?
‘Bank of England Governor Mark Carney signaled the Bank of England is now moving closer to an interest rate hike. “The point at which interest rates may begin to rise is moving closer with the performance of the economy, consistent growth above trend, a firming in domestic costs, counterbalanced somewhat by disinflation imported from abroad,” Carney told the Treasury committee.’
‘Mark Carneys remarks to the Treasury select committee had an immediate impact on the foreign exchange markets with the Pound Vs Euro exchange rate gaining sharply from 1.4050 to peak at 1.4140. The momentum with the British Pound has picked up pace and we could see this present a buying opportunity at 1.41+ for Euro buyers.’
‘Gains were also seen with the Pound Vs the Canadian Dollar, which today touched the highest level since 2009, gaining from a daily low at 1.9692 to reach a daily high at 1.9960 but has since retraced back to currently trade at 1.9812. The Pound remains bullish against the Canadian dollar, primarily driven by declining Oil prices and a housing bubble in Canada, with many suggesting the Pound Vs Canadian Dollar could potentially test the psychological 2.00 level in the coming days.’
http://www.exchangerates.org.uk/news/13260/todays-eur-cad-aud-nzd-usd-currency-market-roundup.html
‘Mortgage originators can expect to cash in on a number of refinance opportunities, according to Black Knight Financial Services. The survey also found that 4.96 percent of American loans are delinquent, an increase of 3.95 percent, month-over-month.’
“Today, the principle and interest payment on a median-priced home is equivalent to 21 percent of median gross monthly income nationally,” Graboske said. “In the years before the housing bubble that ratio was closer to 25-26 percent, and at the height of the market in 2006, it peaked as high as 33 percent.”
‘According to Blackrock, a mere one percent increase in interest rates could have as big an effect on housing affordability as a 13 percent home price gain – meaning clients may want to refinance now before rates tick up.’
“The monthly payment on a median-priced home is $400 less today than it was in 2006. But, if we look at an example scenario where interest rates rise by 75 basis points a year and home prices appreciate by three percent annually, the payment-to-income ratio would be at 27 percent by 2017,” he continued.’
http://www.mpamag.com/news/a-lucrative-business-segment-23203.aspx
I clicked on an ad here and it said this:
‘The content of this website is intended for licensed third party originators or brokers only and may not be duplicated or disseminated to the public.’
‘The top four derivative holders include JPMorgan Chase, Citibank, Goldman Sachs and Bank of America which hold a combined total of $202.649 trillion worth of derivatives. Total assets held by these four banks is $14.156 trillion. In other words, the four “too big to fail” banks have exposure to derivatives that is more than 14 times the total value of their assets.’
Sounds like a great recipe for future bailouts, as the collapse of any of these systemically important banks could wipe out the entire global financial economy.
add 3% down and stir
can I buy a floating condo hotel w that loan?
All brought to you by Mel Watt, Julian Castro, Otrauma, Bush, and other moron politicians who have no business commenting on the economy nor meddling in the affairs of the mortgage market.
Once again - I reiterate my life meme - I am a man without a country and an exile in my own land!!!
Wake me up when this f….ingy nightmare is over. Until that time - MOAR WHISKEY!!!
Riverside, CA Housing Inventory Balloons 90%; Prices Fall
http://www.movoto.com/riverside-ca/market-trends/
“Zhou concedes she was greedy, but also blames state-run entities for heavy-handed tactics in the market. ‘The government is unreasonable,’ she said. ‘It is forever a planned market, a planned economy.’”
Sounds just like the US economy. Don’t get ShangHai’ed.
‘Forget about all the shoes, toys and other exports. China may soon have another thing to offer the world: a recession. That is the prediction from Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, who says a continuation of China’s slowdown in the next years may drag global economic growth below 2 percent, a threshold he views as equivalent to a world recession.’
“The next global recession will be made by China,” Sharma, who manages more than $25 billion, said in an interview at Bloomberg’s headquarters in New York. “Over the next couple of years, China is likely to be the biggest source of vulnerability for the global economy.”
“What happened in China last week was so significant in that for the first time, you’ve got this sign that something is out of control,” Sharma said.’
http://finance.yahoo.com/news/china-may-tip-world-recession-121756812.html
“you’ve got this sign that something is out of control,”
No, no, no! Revive the A shares, benefit the people; revive the A shares, benefit the people!
I’m glad there was someone else who thought that chant was as funny and absurd as I did.
Simply states the obvious - and people get paid to do this kind of ‘research’? Yikes.
http://www.ritholtz.com/blog/2015/07/how-sensitive-is-housing-demand-to-down-payment-requirements-and-mortgage-rates/
Ritholz? Lololol.
Yes, just about as ‘Lololol’ as movoto and zillow!
Data my friend…
Kirkland, WA Housing Prices Fall 19%
http://www.movoto.com/kirkland-wa/market-trends/
Denver, CO Housing Prices Fall 9%
http://www.movoto.com/denver-co/market-trends/
looks like gravity is taking hold…..nice start
Zillow calls Orlando up 10% ¿¿¿
It’s like a sweaty ,hostile kansas
How far have prices fallen in Orlando YoY?
‘Low oil prices and a slowing Canadian economy are expected to lead to “deteriorating” asset quality for the country’s biggest banks, Moody’s Investors Service says in a report to be issued Tuesday.’
‘Loan loss provisions – a bank’s best estimate of future losses — are expected to grow over the next 12 to 18 months from record lows, said David Beattie, senior vice-president of the debt rating agency’s financial institutions group.’
“The trend would appear to be unsustainable,” given the economic outlook for GDP growth and jobs, particularly in oil-producing provinces, Beattie said.’
‘Non-mortgage consumer loans, such as those associated with credit cards and car financing, are prone to “quick deterioration” due to high household indebtedness, the Moody’s report says. Banks have actively sought growth in theses areas, the report notes, adding that rising interest rates would increase the debt-service burden of consumers.’
http://business.financialpost.com/news/fp-street/canadas-banks-face-deteriorating-assets-amid-low-oil-prices-slowing-economy-moodys
http://www.shanghaidaily.com/business/real-estate/Real-estate-recovers-as-sales-improve/shdaily.shtml
Las Vegas, NV Housing Inventory Balloons 71%; Prices Fall
http://www.movoto.com/las-vegas-nv/market-trends/
‘Chinese developers last month snapped up most of the 15 sites in and around Melbourne sold by CBRE Group Inc. — five times the property broker’s usual monthly tally. The bulk of the deals were sealed after the Shanghai Composite Index started tumbling. “It would seem that they’re actually doubling down,” said Mark Wizel, a senior director for CBRE in the city. “There’s been a genuine acceleration for the past three weeks.”
‘Nigel Stapledon, head of real estate research at the University of New South Wales Business School and former chief economist at Westpac Banking Corp., warned against viewing Australian property as a safe haven. “Past returns are where someone else made money,” he said. “You don’t want to be the last man in.”
http://www.bloomberg.com/news/articles/2015-07-14/china-doubles-down-on-aussie-property-after-shanghai-stock-rout
‘Singapore’s gross domestic product plunged 4.6 percent last quarter, a downturn almost certainly triggered by China. Singapore’s plight may mark a dangerous inflection point not just for Asia, but for the entire global economy. Shanghai’s day traders celebrated this week’s news that Chinese exports rose 2.1 percent in June. The more interesting figure, though, was the 6.7 percent decline in Chinese imports. That helps explain the stunning 14 percent drop in Singaporean manufacturing from the previous three months. The same goes for Singapore’s non-oil exports to China, which fell 4.3 percent in May, 5.1 percent in April and plunged 22.7 percent in February.’
“The global outlook remains challenging and far less positive than the picture” four months ago, says economist Hak Bin Chua of Bank of America Merrill Lynch. “China’s slowdown, the Greece crisis and weaker growth in the immediate neighborhood of southeast Asia, including Indonesia, Thailand and Malaysia, will likely dampen growth.”
‘For now, many investors in the region are still bullish about Beijing’s efforts to gin up both GDP and stocks. But even the good news on China these days is worrisome. Take its surge in credit growth in June ($300 billion), the most since January. While it’s helping to stabilize the economy in the short run, it’s also inflating China’s debt bubble in sync with its asset bubbles in Shanghai and Shenzhen.’
‘China is facing another problem: diminishing returns. Its stimulus efforts have grown exponentially in size, scope and frequency since the 2008 global crisis. The more China strains to keep GDP growth above the 5 percent range, the more it’s putting the global financial system at risk. China’s bailouts, after all, are beginning to overlap in surreal ways. This year’s massive stock rally was meant to ease the fallout from a seven-year borrowing binge. Now, as Beijing puts a floor under plunging shares, it’s effectively bailing out its previous bailout.’
http://www.bloombergview.com/articles/2015-07-14/china-s-economic-troubles-start-to-spread
‘What the Communist Party in China fears most is angry masses. When the global financial meltdown started to spread in 2008, the Communist party pumped 4 trillion yuan into the economy to artificially bump up investment, spending and demand. That profligacy has ended in excessive investment and debt that have significantly slowed the economy down.’
‘What the Chinese authorities are doing is pulling out all stops to mobilize public funds to keep up the buying. A propaganda campaign has also been activated. Chinese law enforcement has embarked on a massive crackdown, labeling short selling, spreading of rumors and price manipulation as serious crimes. Anyone who cashes out could suddenly be branded a criminal. Scapegoats will also be needed. Rumors are rampant that Xio Gang, the chairman of the China Securities Regulatory Commission, could be sacked.’
‘Thanks to the all-out measures, the Shanghai composite index has rebounded over the last four days, recovering to 3,970, although that’s still a long way from the June high of 5,178. Experts are feeling skeptical of this bull run having any kind of legs.’
‘The scenes in China could bring back some bitter memories for the older generation in Korea. During the local stock market crash in late 1989, when the leading index sank to 840 from 1,007, people who lost their savings committed suicide. President Roh Tae-woo panicked and had the central bank prompt buying by institutional investors. The Korean Composite Stock Price index, however, rebounded only slightly. By 1992, the Kospi went as low as 480. When the hemorrhaging was done, millions of investors were broke and three investment institutions went bust.’
‘Will the Chinese authorities fare any better? From our experience, the answer is no. Prime Minister Li Keqiang assured everyone that economic fundamentals were solid. But China’s economy is expected to not reach its growth target of 7 percent this year. Shares on the Shanghai bourse are still dangerously inflated, their value doubled from last year. The price-to-earnings ratio of Chinese listed companies, which was around 10 last year, is now 25, a sign that they are in the bubble zone. The balance of outstanding margin loans lent by brokerage houses to retail customers to buy stocks has reached $300 billion. About 10 percent of the Chinese market is based on debt.’
‘The onus in this roller-coaster ride falls entirely on the Communist Party. It bred greed in the masses and then pulled the plug by restricting margin loans. It used the stock market to help companies get richer through the equity market rather than by borrowing. But what it ended up doing was transferring corporate debt to individuals. If its stock exchange experiment blows up in its face, individual debt could translate into public debt. The Chinese bourses have become a contest between market capitalism and state-controlled communism. Their dizzying swings have worn down the market. The authorities must learn not to underestimate the power of the market.’
http://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3006637&cloc=etc|jad|googlenews
‘Facts point to a rather gory state of affairs in the Chinese stock market. Evaporation of $3.5 trillion of market value—an amount almost double that of India’s nominal GDP—is a shocking revelation of the erosion in investor wealth. There’s considerable speculation over whether the damage will be more in the weeks and months to come. To many, though, more than the wealth wiped out, what has been more intriguing is the way China has gone about mending the market. These include measures ranging from the CSRC (China Securities Regulatory Commission) prohibiting shareholders with more than 5% stake from selling stocks for 6 months resulting in more than 1,000 companies announcing trading halts; and more than 20 securities houses being told to invest 15% of their net assets thereby mobilising around $20 billion liquidity for the market.’
‘There is no surprise in the Chinese authorities stepping in to stem the bloodbath. What is surprising is end they wish to achieve. All the measures taken are aimed at ensuring the bubble created in the Chinese equity market since early 2014 remains as full blown as it was.’
‘The stock market frenzy over the last one year and a little more has seen an enormous number of new ‘rookie’ accounts getting registered for trading. A significant part of the new investor households opening trading accounts have only elementary school education. As it is, even among earlier existing investor households, the proportion of graduates was only 8.4%. It is clear that Chinese household investors with limited education and skills have been turning to the stock market for income.’
‘Compared with other emerging markets, particularly India, the Chinese stock market is conspicuous by limited presence of domestic and foreign institutional investors in building market size. These two categories account for just over 15% of the equity market in China, while—on an average—in other emerging markets, they represent around 65% of the market cap. This peculiar character of the Chinese market is a result of the limited financial sophistication in the Chinese economy allowing households practically no long-term institutional savings options.’
‘There is little wonder then that Chinese authorities have pulled out all stops. The amount of damage suffered by household investor wealth following the wipeout of $3.5 trillion from a market of around $6.5 trillion is understandable. Any further damage to household wealth is non-negotiable for the Chinese authorities. But the larger question is how long would Chinese households be able to draw oxygen from a stock market running on artificial life support.’
http://www.financialexpress.com/article/fe-columnist/canvassing-china-chinese-stocks-on-artificial-life-support/101142/
Dan? Dan? Bueller?
‘Any further damage to household wealth is non-negotiable for the Chinese authorities. But the larger question is how long would Chinese households be able to draw oxygen from a stock market running on artificial life support.’
I dunno. Wasn’t Terri Schiavo kept alive for many years on artifical life support?
‘… A propaganda campaign has also been activated. Chinese law enforcement has embarked on a massive crackdown, labeling short selling, spreading of rumors and price manipulation as serious crimes.
…’
No way!