Walking Out Of The Casino Empty-Handed
KPIX 5 reports from California. “Chinese money has been helping power the local real estate market for years. But even some of the most bullish local realtors have been flinching as markets on both sides of the Pacific have plunged in recent days. Ken DeLeon of DeLeon Realty in Palo Alto is one of them. ‘We’re definitely closely monitoring the stock market,’ DeLeon told KPIX. ‘Both the earlier drop in the Chinese equity market coupled with the most recent drops in the U.S. stock market is a bit of cause for concern.’”
“DeLeon says that 20 percent of his buyers are Chinese, with many of them paying top prices. And they often pay in cash. ‘What we’ve noticed, with our Chinese buyers, there’s still a strong desire to buy in America but maybe they’re not coming in with quite as strong offers,’ DeLeon said.”
Impact Magazine on the UK. “Growing domestic bubbles and buckling emerging markets are the makings of an economic firestorm for the West. Preparation is tenuous at best. With historically low interest rates and immense levels of debt overhang, the West is ill prepared. We used to look at the BRICs (Brazil, Russia, India and China) in envy. Not anymore. All are showing signs of weakness, and that weakness is contagious.”
“Combined with surrounding international weakness, the West also face their own domestic problems. The 2008 real estate bubble helped to create the financial turmoil that was coined The Great Recession. But despite this, ballooning property prices are being overlooked by central bankers and politicians alike. Yesterday the Royal Institution of Chartered Surveyors (Rics) warned of sizeable house price inflation in the future. But despite this, both government and independent central banks continue to push ahead with cheap credit.”
News Limited in Australia. “LF Economics’s Lindsay David said ‘too much money was printed by too many central banks,’ creating an artificial demand for stocks and inflating the value of global assets. ‘The hangover from this party will definitely require a lot more than a Panadol,’ he said. Mr David argues out of all countries, Australia was the nation that made the biggest bet on never-ending Chinese growth. ‘Unfortunately, as every day passes, its looking like the Australian economy eventually will walk out of the casino empty-handed,’ he said.”
CBS Money Watch. “For decades now, the world could bank on China pulling along global economic growth with year after year of double-digit growth. Now that the world’s profit machine is sputtering, the shock waves are being felt around the planet. Consider that well over a year before the latest Chinese market gyrations, reports of a large migration of China’s wealthiest residents out of the country starting popping up in the world financial press. ‘When the people that have been successful and pulled together these kinds of assets are leaving in droves, that is problematic on a number of levels,’ said Michael Santoro, a professor at Rutgers Business School. ‘It signals the economy is in trouble.’”
“Yongding Yu, one of China’s leading economists, warns that without capital controls in China, ‘an unforeseen shock could trigger large scale capital flight, leading to currency devaluation, skyrocketing interest rates, bursting asset bubbles, bankruptcy, and default for financial and non-financial enterprises, and, ultimately the collapse of China’s financial system.’”
The International Business Times. “The flow into emerging economies that QE provoked was unlikely to have been intended. It was instead collateral damage of desperate Federal Reserve efforts to revive the US economy. But now as emerging markets reel, the unfortunate and dangerous global side effect of the QE binge can be seen. Emerging economies’ assets are beached. And yet the lesson of the tide in and out of emerging economies and commodities is that pumping markets up with QE is liable to create asset bubbles and too expensive commodities, not stable economic growth.”
“It might also be asked who these bubbles are good for? Hedge funds and other fast-moving investors can profit from the volatility QE has created, surfing the tides up and profiting too from the outward tides by donning shorts: positions that profit from falling markets. Killing off the bubbles, however, will ultimately have benefits for the bulk of the world’s citizens: Main Street, rather than Wall Street.”
The Washington Post. “Giant skyscrapers tower unfinished and abandoned around a lake that forms the centerpiece of this new town. The wind blows through the empty hulk of what was supposed to be a multi-story hotel and restaurant complex. A salesman insists that people have moved into one of the few housing complexes to be completed around the shore, but as dusk falls only a handful of lights blink on. He offers to throw in a free car with every apartment purchased.”
“This is Shenfu New Town in the northeastern province of Liaoning, built to handle the overflow from the once-booming industrial cities of Shenyang and Fushun. ‘Build it and they will come,’ the saying goes, but here, in China’s industrial heartland, people are leaving instead of coming.”
“The Tiexi district of Shenyang is nicknamed the ‘Ruhr of the East,’ after the German district that forms the backbone of that nation’s industrial might. Yet here, the backbone of China’s economy appears to be wilting. At state-owned companies, workers say fewer shifts means their monthly pay has fallen from up to 5,000 yuan ($780) two years ago to more like 2,000 now.”
“At private factories like the Shenyang Heavy Machinery Huayang Mechanical Co., the situation is bleaker. Here, just 30 workers man old-fashioned lathes making machinery for the coal industry in a factory that once employed 400. Yao Guanghe, 22, started working here in May after his previous employer went bankrupt but fears for his future. ‘It’s very difficult to find jobs in this industry,’ he said. ‘You consider yourself lucky just to be working at all.’”
‘The Chinese government needs to rein in the expansion of thermal power plants, which have 200,000 megawatts (MW) of excess generating capacity, according to Zhang Boting, deputy secretary-general of the China Society for Hydropower Engineering.’
‘In 2014, the new installed capacity of thermal power generation grew 8.7%, more than double the pace of growth in the country’s electricity consumption, Zhang said.’
‘Yet despite the excess capacity, the country continues to add more thermal power capacity. Of the total 171,030 MW in new generating capacity under construction in China as of the end of June, thermal power plants accounted for 76,860 MW, Zhang said.’
‘The massive buildup of thermal power is also squeezing the development of hydropower and other clean and sustainable power sources, including wind and solar, Zhang added.’
‘Thermal power plants, as well as hydro and wind power facilities, are not being used to capacity, and very little electricity generated by solar power facilities is linked to the grid, Zhang said.’
‘The fact that China, which accounts for one-fifth of the global population, uses over half of the coal consumed in the world demonstrates the country’s excessive use of thermal power, Zhang added.’
‘China has more than 90,000 dams, the most of any country in the world, but it has only made use of 39% of its hydropower resources to date, Zhang said.’
‘Resistance to the idea that China has an excess of generating capacity has come from grid operators, which prefer to have more generators in their network to keep their options flexible.’
‘Some local authorities and companies involved in investing in thermal power plants also reject the notion that excess capacity exists and government officials are reluctant to admit it because doing so would indicate poor management, Zhang said.’
‘Giant skyscrapers tower unfinished and abandoned around a lake that forms the centerpiece of this new town. The wind blows through the empty hulk of what was supposed to be a multi-story hotel and restaurant complex.’
And the media is just waking up to the idea these people aren’t going to take over the world.
It’s obvious what’s happening here. These things are built because of something other than need. I’d bet it’s corruption; trying to hit a GDP target or get a bonus. And once it’s built, more corruption and hiding the whole deal.
Just one empty city should have told us all we need to know about the Chinese government. How many are there now? How many useless energy plants?
One story I heard was about how these cities got their revenue…through land sales to developers. So, when things started to get dicey, there was an incentive to find a way to help the developers buy land from the city (regardless of market demand)…and so they helped arrange loans for the developers to buy their land.
Um, yeah.
And that’s where there is fraud Rental_Fraud.
–shades drawn, fetal position, strange keening noise—
I remember reading an article back in 2000 that said the Chinese were building out a city the size of Philadephia every MONTH. That’s 15 years ago. Imagine the scope.
“The flow into emerging economies that QE provoked was unlikely to have been intended.”
The Fed was going to re-inflate bubbles no matter what it took and damn the consequences. It will not be any different this time as long as a private consortium of banks is allowed to control the world’s money supply.
“It will not be any different this time as long as a private consortium of banks is allowed to control the world’s money supply.”
Not necessarily. They could try it, but it doesn’t mean the results will be the same.
E4 could be a disaster. The straw that breaks the camel’s back. Imagine further unwarranted inflation of assets. Will today’s gamblers be willing to risk more at higher multiples?
“The Fed was going to re-inflate bubbles no matter what it took and damn the consequences.”
In a Price Equals Value world inflating bubbles creates wealth. So, in such a world, what’s not to like?
the fed caught a huge break as all the free-er hc SJW, etc countries cracked before US.
Easy to print and win when your competitors are FUBAR
“Easy to print and win when your competitors are FUBAR.”
Easy to print and win when much of the globe’s dumbed-down population equates debt with wealth.
“It was instead collateral damage of desperate Federal Reserve efforts to revive the US economy. ”
So the Fed’s charter is to revive the US economy? Really?
I say there’s been too much emphasis on fiscal policy, and not enough on other factors (like, duh, when the government make it expensive to hire employees, companies hire fewer people)
I say there’s been too much emphasis on fiscal policy ??
Huh ?? There has been no fiscal policy for 7 years…Republicans voting 100% lockstep have made sure of that…All Hoping to drag the economy down in time for the 2016 election so they can hang the economy in recession around Obama’s and all the Dem’s neck and win the election thereby having 100% control of the goverment…
I assume you were suggesting FED monetary policy…
LOL! Those gol-darned evil republicans! They’ve caused every problem ever known. The democrats are completely blameless! Thanks for teaching me.
Yeah, scdave is apparently somewhere to the left of the moon.
Fed policy is fiscal policy, and those wonderful Democrats had control of the House from 2006->2010, and the Senate until 2014 (and the great Harry Reid never introduced a budget).
Getting back to planet Earth, this emphasis on trying to create growth via fiscal policy such as interest rates is not just a US problem — China is doing the same thing (instead of the harder work of reforming their economy) and Europe is similar (more concerned about wonderful job protections for existing employees than creating jobs, so youth unemployment is countries like Spain is 30-50%).
And China is heading in a European direction of jobs — IF you follow the rules, the employers have to pony up a lot of extra money for social insurance (retirement, etc) AND after initial contract period (2 years max), employment is basically for life (it’s very hard to fire people).
Republicans had no control for the first 2 of those 7.
And at the beginning of the first 2, the administration made it clear that Republican opinions didn’t matter. The poor relationship between the right and the left is at least in some part due to political posturing during that first 2 years.
And when Simpson Bowles came about in 2010, despite there being interest in reform from people like Paul Ryan, there was NO interest from this president in making those sets of reforms–the medicine would be too politically unpopular…and he was too focused on polling numbers for his second term.
And passing a mammoth financial reform package in 2010 was a TERRIBLE idea on the heels of a major financial calamity. All the rules STILL haven’t been written (5 years later), capital investment was negatively impacted, and community banks (source of capital for small businesses) are at the fewest since the Great Depression. Dodd Frank successfully converted “too big to fail” into “too small to succeed”. But of course, that has nothing to do with the piss poor recovery either.
Also, I’d add that the Central Bank measures seem to have only lead to the growth of bubbles, not the real economy. So it’s great if you’re in the 1% and can surf the bubbles (and know when to get off the wave), but not so great for the rest of us.
‘an unforeseen shock could trigger large scale capital flight, leading to currency devaluation, skyrocketing interest rates, bursting asset bubbles, bankruptcy, and default for financial and non-financial enterprises, and, ultimately the collapse of China’s financial system.’
Would a 42 percent drop in stock prices meet this description? But I’m missing the interest rate increases in his scenario, as China just announced a rate cut. Can’t help but wonder how this will mesh with the timing of Fed interest rate liftoff?
I’ve never been a believer that rates will be raised. Do JP Morgan Chase, Goldman Sachs, etc., want rates to be raised? I think negative interest rates are more likely. I see the latest rumor is that the Fed will move by 1/8th of a point, which is like an alcoholic cutting his daily intake by one drink.
I’ll admit to thinking that QE never would end, and it did, at least for the time being.
“I see the latest rumor is that the Fed will move by 1/8th of a point”
I wrote this on a colleague’s white board about a month ago. They are definitely not going to force higher rates “cold turkey”.
From the IBT link:
‘Emerging economies became too popular for their own good – as some of them warned at the time. It was Guido Mantega, a Brazilian finance minister, who in 2010 first used the term “currency war” to complain bitterly that a devaluing dollar was driving up Brazil’s currency, the Real, as well as equities, bonds and property prices.’
We forget these things sometimes. There was alarm raised that the global QE was driving bubbles in the emerging markets. Now that’s unwinding. I’m not that interested in what the central banks do now. It’s what they’ve already done. This is the second week in a row that I’ve found Chinese workers mention that it’s hard to get a job.
Somewhere along the way, policy makers and counterfeiters have convinced themselves that recessions can be eliminated. I’d like to know what school of thought that comes from because it sure isn’t economics.
‘Panicked investors in Africa joined those in Asia, Europe and the U.S. in a global sell-off Monday, as fears of a Chinese economic slowdown reached commodity-linked African currencies. While the concerns rattled markets around the world, sub-Saharan Africa looked particularly vulnerable.’
“It’s a difficult day all over. I doubt that Africa can escape the impact,” said Amadou Sy, senior fellow and director of Africa Growth Initiative at the Brookings Institution. “To me, it’s really important to separate the short-term impact from the real question: Is China really slowing down?”
‘Amid concern over simultaneous drops in stock prices around the world triggered by the plunge in Chinese markets, unrest is spreading among individual investors in China, who had reveled in their nation’s domestic stock bubble.’
‘So-called stock farm villages, where many farmers traded stocks in the belief that the bull market would continue, have abruptly lost their vigor. The Chinese government is aggressively implementing measures to support stock prices, but university students and other young investors have a dim view of their effectiveness.’
“No one comes here anymore since the big crash in June,” muttered the wife of the general secretary of the Communist Party’s local branch in Nanliu village, located near the ancient capital of Xi’an in western China. When trading was active, more than 10 farmers would gather every day in front of the stock price board set up in her parlor and talk about stocks. Now the board is turned off and the screen is dark.’
‘Part of Xingping city in Shaanxi Province, Nanliu has a population of about 4,300 people. Chinese media reported on it as a “stock farm village” where many farmers were obsessed with stock trading.’
‘A 45-year-old resident who has been trading for eight years said, “People used to come here from other provinces to ask about how to trade stocks, but there’s nothing left since the crash.” Most of the farmers are said to have suffered large losses.’
‘According to Chinese authorities, transactions by individual investors accounted for 80 percent of the 41 trillion yuan (about ¥780 trillion) trading volume from January to March this year. Many engaged in credit transactions, allowing them to invest more money than they actually had on hand and accelerating the inflation of the stock bubble.’
Markets
In Shanghai, Investors Bemoan Stocks Rout
As declines mount, Chinese participants in market feel gloom and confusion over whether Beijing will help prop up shares
Tong Genshen, an 80-year-old retiree from a state-owned tobacco firm in Shanghai, has seen his shares lose much of their value with the recent declines.
Photo: Stella Xie/The Wall Street Journal
By Shen Hong
Updated Aug. 25, 2015 7:50 a.m. ET
SHANGHAI—Faced with a brutal stock-market decline, the mood among many Chinese investors has shifted from anger to despair.
“Things are getting really complicated now,” said Tong Genshen, an 80-year-old retiree from a state-owned tobacco firm in Shanghai, who was trading stocks at a dimly-lit but crowded local-brokerage here. He said Monday’s stock-market decline was triggered by Wall Street on Friday, but by Tuesday he said, “we don’t even know who to blame now.”
Mr. Tong spoke after Chinese stocks tumbled 7.6% on Tuesday, bringing six-day losses to 26% during the past six trading days and adding to a volatile year that has shaken investors’ confidence in China’s stock market. After the market’s close on Tuesday, China’s central bank moved to stanch the market turmoil by cutting interest rates, reducing bank-reserve requirements and eliminating the ceiling on most bank deposits.
Still, like many investors, Gu Yuan, an employee of an Internet firm in Shanghai, said he was increasingly skeptical of the government’s ability to handle the market rout.
“I was terrified by how messy government interventions have been,” Mr. Gu said, calling Shanghai “not a normal market environment.” He added: “I’d rather be a spectator of China’s stock market than a participant from now on.”
…
Tong Genshen is the Chinese equivalent of retirees sitting transfixed in front of slot machines in a casino, which is one of the saddest sights I’ve ever seen.
How are the square dancers handling the market plunge?
‘This sudden loss of confidence in the anchor economy of East Asia has struck before the West is fully back on its feet after its own debacle seven years ago. Interest rates are still near zero in the US, the eurozone, Britain and Japan. Fiscal deficits are at unsafe levels. Debt is 30 percentage points of GDP higher than it was at the onset of the Lehman crisis. The safety buffers are largely exhausted.’
“This could be the early stage of a very serious situation,” said Larry Summers, the former US Treasury Secretary. He compared it to the two spasms of the Asian crisis in the summer of 1997 and again in August 1998.’
‘Ominously, he also compared it to the “heart attack” of August 2007, when credit markets seized up on both sides of the Atlantic and three-month US Treasury yields plummeted to zero. That proved to be a false alarm, but it was an early warning of the accumulating stress that would bring down Western finance a year later.’
‘Professor Christopher Balding from Peking University wrote on FT Alphaville that China is lurching from one incoherent policy to another, shedding credibility and its aura of omnipotence at every stage. “There is a very real risk that Beijing is losing control of the story,” he said.’
‘What is clear is that the world is no longer willing to give the economic benefit of the doubt to Chinese leaders. The pretensions of market Leninism have been shattered by one policy blunder after another over the past year. Global markets have swung almost overnight from a mystical faith in the competence of the Communist Party to near revulsion.’
‘market Leninism’
Something about that concept doesn’t smell right.
SSE Composite Index (000001.SS)
-Shanghai 2,964.97 Down 244.94(7.63%)
http://finance.yahoo.com/q?s=000001.ss
If yesterday was Black Monday, why isn’t this Blacker Tuesday?
‘its aura of omnipotence at every stage’
I’ve been pointing this out. Where did this “aura” come from? The media never shows the Chinese leaders in anything but a red carpet scenario. Meeting with some tin-pot African dictator, doling out money to build a dam or houses. You know where I think this “aura” comes from? Worshiping globalism. Because if China isn’t all-powerful, the globalist “story” breaks down. I read, “not many Chinese have their money in stocks”. Where is most of their money? Real estate.
I’m still unclear on who, exactly, ascribed faith, competence, and omnipotence to Chinese leaders.
AlbqDan did, for one.
I would like for Dan to come back. Everyone is wrong at times. And being wrong on a blog is not the same as being wrong when you influence or make policy.
It gets quite boring to have an argument with nobody to take the losing side!
P.S. As anyone who has ever witnessed a courtroom trial knows, the great thing about attorneys is that they are trained to make the losing side of an argument sound as convincing as possible — damn the facts!
Everyone is wrong at times ??
He wasn’t just wrong he suggested that many were grossly wrong and was very condescending which attorney’s can be…
He built a plate of crow “so large” that his ego will not allow him to return and deal with it…
Poor, poor Danny boy.
Why, the Chinese leaders of course! Why else would they demand so much control of the media?
Is Megyn Kelly running for president?
If no, then how come she is a political target for one of the major candidates?
Seems like Mr. Living Hairpiece ought to work harder to keep his powder dry if he is serious about a run for the WH!
The New York Post
Donald Trump is back to bashing Megyn Kelly
Published: Aug 25, 2015 8:59 a.m. ET
…
Because the wimmens are getting uppity and threatening the masculinity of the computer chair commandos. This causes their moobs to get itchy, and demands a response.
‘U.S. home rents jumped in July as house prices showed signs of flagging. Real estate data firm Zillow said Tuesday that rents rose a seasonally adjusted 4.2 percent from a year ago. The higher rents suggest that demand for apartments is continuing to grow as the share of Americans owning homes has dropped. The share of the U.S. population who own homes has fallen to 63.4 percent, a 48-year low, according to the Census Bureau.’
‘Several metro areas showed a split in the rental and ownership markets in July. On a month-to-month basis, rents increased in Baltimore, Boston, Minneapolis, Phoenix and Washington, D.C. By contrast, home values in those markets declined.’
‘The trend is most pronounced around Washington, where home values slipped on an annual as well as on a monthly basis.’
What average rent gets you……city by city….
http://www.theburningplatform.com/2015/08/25/what-does-the-average-rent-get-you/
About 13,000 people on public assistance tumble into homelessness every month in Los Angeles County, according to a new study that experts say provides the clearest picture yet of extreme poverty in the region.
Although many quickly find work or rely on family to get off the streets, the number experiencing “continuous, unremitting, chronic homelessness” continues to grow, even after 10,000 people were housed over the last three years, according to the report being released Tuesday by the Economic Roundtable, a nonprofit research group in Los Angeles.
The report recommended that the welfare system intervene to help children and young adults who become homeless before their condition becomes chronic.
http://www.latimes.com/local/california/la-me-homeless-pathways-20150825-story.html
‘Build it and they will come,’ the saying goes, but here, in China’s industrial heartland, people are leaving instead of coming.”
___________________________/
Did Chinese political leaders come up with that slogan after watching “Field of Dreams”? Stranger things have happened. We read here a few weeks ago that China’s elites like Chateau Lafite because the name is easy for Mandarin speakers to pronounce.
Curiously, I couldn’t find any photos of the ghost Shenfu New Town on the internet. A lot of architectural renderings, which make the area, which is in polluted industrial northeastern China, look like a combination of San Diego and St. Louis — clear, sunny skies; boats; luxury condo towers, and an enormous, 515-foot-tall landmark, lit by LED lights, called the “Ring of Life.” Talk about a sales job.
‘Chinese money has been helping power the local real estate market for years. But even some of the most bullish local realtors have been flinching as markets on both sides of the Pacific have plunged in recent days. Ken DeLeon of DeLeon Realty in Palo Alto is one of them.’
Don’t worry Ken, the Chinese bubble won’t work against you.
‘So why are they called unicorns? Because when American venture capitalist Aileen Lee coined the term two years ago, she could find only 39 in the US. Since she reckoned 60,000 software and internet companies had been “seeded” in the previous decade, that meant only 0.07 had grown into billion-dollar companies – hence they were as rare as unicorns.’
‘And are they still? Apparently not. At the last count, there were 131, and they are growing by at least 50 a year. “Unicorns are becoming so common, maybe we should just call them horses,” is one Silicon Valley joke.’
‘There is even a new terminology springing up to describe the market: “narwhals” are companies valued at more than $500m; “decacorns” are companies valued at more than $10bn. No one has yet come up with a word for Uber, which is valued at more than $50bn.’
‘Who cares? This is boring. True, but it matters because it could have the makings of another dotcom bubble. “We may be nearing the end of a cycle where growth is valued more than profitability,” investment guru Bill Gurley tweeted last week. “It could be at an inflection point.”
‘An inflection point? I think it means everything is about to go belly-up. Maybe the stock market collapse in China could be another indicator. I see you’ve been reading the FT after all.’
‘What is this growth v profitability thing? Unicorns usually pursue market share rather than profit – for a digital startup, dominating your sector is everything. As a result, you can be valued at billions without ever making a cent. But eventually, investors might start fretting about the bottom line.’
‘And then? Gurley reckons there are going to be lots of “dead unicorns” and “zombie unicorns” – and quite a few burnt investors.’
Read this carefully:
‘you can be valued at billions without ever making a cent’
‘Silicon Valley joke’
‘Silicon Valley joke’ ??
I think its big money making big risky bets…They are looking to hit the roulette wheel one time…If you are worth billions of dollars and you lose 250-mil does your quality of life change at all ??
They can use their Billions to buy profitable companies , not that they can run them after they are bought but share holders make out for awhile.
I think big software is buying hardware so they can build their own cloud computing racks. without the optical splitters I hope.
There are long stretches where Venture Capital is a net money loser (i.e. returns are negative), with the occasional giant hit that makes the investment strategy as a whole look worthwhile.
The stat that I heard (more than once) was the 10-years prior to the Facebook IPO was one such stretch of time (investment in Google was more than 10-years prior).
I for one think venture is great…not necessarily to invest in, unless you can get into the top few funds (Benchmark, Sequioa, etc.), but for all the spins of the roulette wheel with other people’s money, we occasionally get something of great value, which creates jobs and GDP growth and improved quality of life generally.
And before you mock the quality of life portion (using examples like Candy Crush and Twitter and Groupon), consider the microchip, biotechnology, energy efficiency technologies, etc. Not all ventures are intended to make money due to a fad.
One of my favorite pieces on venture is a piece written by a former partner at Founder’s Fund titled “What Happened to the Future”. It’s still on their website…and worth a read.
Oh, everybody knew it was coming, where have I heard that before?
‘Q&A: Why the Chinese slowdown everybody knew was coming is causing a freak-out’
‘Erratic efforts of Chinese leadership to stabilize the plunging stock market have set off new questions about the wisdom of the Communist Party. Put that together — slowing growth and doubts about suits pulling the strings — and you have the makings of global chaos. Here are a few basic questions and answers about how to understand these events.’
‘It’s worth starting by emphasizing just how essential China has become to the global economy. It is the world’s largest manufacturer, largest merchandise trader and largest holder of foreign reserves. Over two-and-a-half decades, China’s economy averaged nearly 10 percent annual growth — and it continued to surge in recent years, as other developed economies stagnated. On a heavy diet of oil, coal and steel, China consumed more and more of the global pie.’
‘But, of course, the Chinese economy has always been an experiment — a market that is not-quite-free and is dominated by state-owned enterprises. That economy, too, is also guided by a party that views growth as an essential political tool: Nobody will get too frustrated with the leaders, the thinking goes, when the growth rate is the best in the world.’
‘Only now, there are questions about whether China’s growth has been underpinned by a lot of unhealthy — and ultimately corrosive — practices. China’s rise was powered by heavy construction carried out by companies that operated free of competition. As my colleague Simon Denyer has pointed out, a lot of that construction — particularly as it pushed out into newer cities, on the promise of ever-expanding riches — now looks unwise.’
“…everybody knew it was coming, where have I heard that before?”
I thought the saying was, ‘Nobody could have seen it coming!’
There was a UHS I knew back in the day who always told me “there’s no bubble”. A few years later, I over heard him telling a guy, “everybody knew those prices weren’t real.”
Realtors Are Liars And Appraisers Are Frauds.
‘China stock markets slumped again on Monday, giving up all their gains for the year on a massive selloff that dragged down regional markets, with even some state media saying the government rescue attempt had now failed.’
‘Chinese markets were down more than 9 percent during the day and had only slightly recovered by the close of trade, the worst daily performance since 2007 and a hair’s breadth from the worst day since 1996, with traders blaming regulators’ failure to act over the weekend after markets lost 11 percent last week.’
‘The downside was limited mostly by rules preventing any given stock from losing more than 10 percent a day, and by the fact that many company shares are still under trading halts.’
‘As much as 80 percent of China’s tradable stocks hit the downside limit during the day, and ominously all index futures contracts, for the CSI300, CSI500 and SSE50 indexes were down the maximum 10 percent.’
‘At the beginning of the stock market crash the central bank cut rates and explicitly said it was supporting the stock market. Beijing has invested much capital, both financial and political, in propping up markets, and many assumed it would be forced to continue to buy up shares to maintain its credibility.’
‘But no easing came at the weekend, and in the past two weeks the “national team” of brokerages, mutual funds and other state-owned institutional investors have stood aside while markets fell.’
‘While the national team originally said it would keep buying shares until the SSEC returned to 4,500 points, two weeks ago the CSRC said it would let market forces play a greater role in the stock market, which investors took to imply that government was backing off on its attempt to restore a bull market through brute force, contributing heavily to last week’s selloff.’
‘If that implication is correct, Beijing is kissing goodbye to the 900 billion yuan ($141 billion) Goldman Sachs estimated it has spent trying to prop up the market so far.’
‘Many retail investors had been encouraged to return to the market after the crash in June, with company executives leading employees to buy back company stocks, and others being encouraged by patriotic appeals to buy shares to “defend the stock market” against a shadowy cohort of investors “maliciously” shorting the market.’
‘Persuading them to do so again will be a much harder task. “I regret not having fled the market last week,” said a retail investor who identified herself only by her surname, Zhang. “With the market falling like this, there’s no hope at all. It’s already a bear market and the government is responsible,” she said.’
‘China stock markets slumped again on Monday, giving up all their gains for the year on a massive selloff that dragged down regional markets, with even some state media saying the government rescue attempt had now failed.’
It’s amazing that Chinese stock market investors don’t lose faith!
Oh wait…
If wall street sells off near the close it will mean ugly things.
Oh dear…
Apple Inc. (AAPL) -Nasdaq
103.74 Up 0.62(0.60%) 4:00PM EDT
After Hours : 103.44 Down 0.30 (0.29%) 4:43PM EDT
Day’s Range: 103.50 - 111.16
http://finance.yahoo.com/q?s=aapl
(rotten)Apple is a $25 stock at best.
Nobel Laureate Robert Shiller says human nature, not China, explains market volatility
‘What happened to U.S. stocks in the past week?’
‘I would say that we saw the bursting of a speculative bubble, as it has been defined in much discourse and which has happened many times in history. But one must remember that the word “bubble,” if taken as a metaphor, can be misleading. A speculative bubble does not burst irrevocably or all at once as a soap bubble does. It may go on in a number of steps down, interrupted by upswings. I would say that a speculative bubble rises upon investor enthusiasm, and when it becomes too big, many people begin to have their doubts and contemplate selling, but don’t have clarity enough to actually do it. But when they see the market dropping, they begin to fear that others have the same doubts, and so many of them hurry up, trying to sell before the others do. So, the downswing can be surprisingly fast, recalling the bursting of a bubble, even if it is not quite as sudden as that.’
‘Is this a reaction to what’s happening in China? If so, why?’
‘I cannot imagine the news from China could provide a rational explanation for the drop in world markets. The news from China is too subtle, not that dramatic and sudden. But the story has been put forth by the news media as if it were suddenly extremely important, as part of a general pattern of news media and investor advice hype. In our new book “Phishing for Phools: The Economics of Manipulation and Deception,” George Akerlof and I use the word phishing more broadly than usual to describe such behavior. A phool is someone, who may be highly intelligent, but who does not see that he or she is a phish. A lot of people who bid up stock prices to such high levels were phools.’
http://www.pbs.org/newshour/making-sense/nobel-laureate-robert-shiller-human-nature-china-explains-stock-market-volatility/
‘Mostly more abstract worries are cited—China, gas prices and so on. Maybe so. The current crash seems bubble-flavored. During the worst of the recession, when plenty of investors still heavy with cash, they hunted (and found) stock bargains. Investor interest in the markets revived, and the economy did passably well, and pretty soon the early investing momentum morphed into the sustained gains. Under a bubble scenario, sustained gains often take on a life of their own, and it’s a party for investors because of fat returns. That is, until there’s a crash.’
‘What does it mean for the various kinds of real estate? No answer to that yet. But the data are coming in, just like for the wider markets. This is one bit: REITs as an investment vehicle has already been a little sluggish this year. Even before August, the Bloomberg index that tracks REITs had lost 2.6 percent. As of Monday, the gauge was down 5.6 percent for August (for comparison, for the last month, the Dow has lost about 9.6 percent). Real estate stocks, at least, are feeling the heat as well.’
http://www.multihousingnews.com/news/economy-watch-garden-variety-crash-or-the-popping-of-stock-bubble/1004126437.html
‘For economists worrying that home prices were rising too far, too fast – here’s some good news. Real estate market site Zillow reports that the average home went down in value last month for the first time since the market began its recovery in 2011.’
‘U.S. homes lost 0.1% of their value in July, falling to a Zillow Home Value Index of $179,900. But on a year-over-year basis, homes still went up in value by 3.0%, down from 3.4% in June.’
‘Zillow covers 517 metros in its housing index and 204 metros saw a slowdown in July. Strong markets like Washington, DC and Cincinnati gave some ground last month. Markets like Denver, San Francisco, San Jose, and Dallas slowed from double-digit growth to the single digits.’
“This slight dip in home values is a sign of the times. Many people didn’t think it was happening, but it is: we’re going negative,” said Zillow Chief Economist Svenja Gudell. “We’ve been expecting to see a monthly decline as markets return to normal.”
‘Gudell says recent homebuyers shouldn’t panic. This is not a bursting of a bubble and 10% declines are on no one’s radar.’
http://www.consumeraffairs.com/news/zillow-home-values-slip-first-time-in-four-years-082515.html
Ahem.
‘10% declines are on no one’s radar’
‘Overseas investors cash in £3.4bn of London property … as investors try to sell unbuilt properties amid fears the capital faces a glut of expensive homes.’
http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=newssearch&cd=10&cad=rja&uact=8&ved=0CDgQqQIoADAJahUKEwiKm6WEncXHAhUMoogKHekiD7E&url=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F828ec3dc-44f0-11e5-af2f-4d6e0e5eda22.html&ei=sOTcVYqDK4zEogTpxbyICw&usg=AFQjCNGX832242HCHUZuY-pkJoQmeP9bWA&sig2=XbnAjPR88nRZr127J3AWMQ
Take home message:
DON’T BECOME A PHISHED PHOOL!
It did sell off at the close, BIG TIME.
Seems like the muppets are rapidly racing out the exits, rather than sticking around inside the burning theater to get scorched as they did in 2008-2009!
Update: Dow Average Craters 200+
http://www.marketwatch.com/investing/index/DJIA
‘In the chart above, the blue line shows oil prices, while the red line shows total assets held by the Federal Reserve. Note that from 2009 – 2012, the blue line (oil prices) seemed to rise with the QE1 and QE2 bursts of asset purchases.’
‘Now it’s true, oil prices traded within a $25 band during the huge increase in Fed assets known as QE3 starting in late 2012, but it’s clear that the crash in oil happened just as the Fed completed its so-called “taper” and stopped injecting new money into the financial system.’
‘The Fed can affect oil prices through three primary mechanisms. First, by influencing the value of the dollar against other currencies, the Fed influences the dollar-price of crude oil (which is a fungible commodity traded on global markets of course). Indeed, a chart of the US dollar index shows the mirror movements of oil prices, vis-à-vis the Fed’s assets.’
‘Finally, the Fed can fuel oil prices by stimulating economic growth, whether that growth is sustainable or not. Many economists are blaming China’s slow-down on U.S. monetary policy, for example.’
‘In sum, the boom and now crash in oil prices can at least partly be attributed to the Fed’s policy shifts from 2009 – 2014. This is similar to the general boom and then bust in asset prices during the housing bubble years, which many analysts have also attributed to initially loose monetary policy that was eventually tightened. Time will tell whether the fall in oil this time around goes hand in hand with crashes in other assets, as it did in 2008.’
http://canadafreepress.com/article/74753
‘Commodity prices are tanking and they’re bringing Canadian markets down with them, but experts say some provinces will be feeling the pinch more than others. “It’ll feel like a recession depending on where you live in the country,” said John Stephenson, chief executive of hedge fund Stephenson & Co. Capital Management.’
‘He said everything from oil to metals to lean hog prices are dropping as weaker growth globally weighs on demand. “Virtually everything is down in price, and significantly down, not just a little bit,” said Stephenson.’
‘The recent drop in oil prices has Todd Hirsch, ATB Financial’s chief economist, predicting a mild recession for Alberta this year and a sluggish recovery next year after forecasting in June that the province would avoid such an economic decline. “Since that time, the situation has changed pretty dramatically,” said Hirsch.’
‘He said the fall in oil prices earlier in the year was just an oversupply issue, but crude is now also being hit with a potential drop in demand as cracks start to show in China’s growth.’
‘Stephenson said commodities will drop further as investors realize how slow the Chinese economy is actually growing. He estimates the country is growing at three per cent, compared with the government figure of seven per cent. “Its weakness is really problematic to the global markets,” said Stephenson.’
http://thechronicleherald.ca/business/1307032-commodity-prices-bring-canadian-markets-down
‘The prolonged slowdown is weighing down the balance sheets of these companies despite asset sales. “The debt levels for some of these companies are unsustainably high. Companies kept borrowing and banks continued to lend to them, and interest continued to accumulate, cash flows did not fructify because projects got stuck which is leading to high debt-to-equity ratio,” said Deep Mukherjee, senior director at India Ratings and Research.’
‘Infrastructure companies are doing everything they can to cut debt, selling non-core assets and, in some cases, even core and quality assets.’
‘But the pace of asset sales is slow. The reason is simple. There are no structural changes on the ground. The power sector is still in deep trouble. The roads sector is yet to see revival, although there is some activity happening in EPC (engineering, procurement and construction) projects helped by government funding.’
‘This is a buyers’ market for assets, with too many people trying to sell non-core assets and therefore prices are getting dragged down, added Mukherjee. The fall in the capital markets will add to their woes.’
http://www.livemint.com/Money/Lw6KhawekLJ5I7352bT0hO/Debtladen-companies-sink-in-the-turmoil.html
Here’s one for you to check into, Ben - related to Chinese investment in US real estate, a Seattle-area businessman accused of misusing Chinese investors’ EB-5 funds:
http://www.kirklandreporter.com/news/322818731.html
This is only one guy - it makes you wonder how many other people are doing the same. Somebody (probably more than a few who didn’t get their visas) ratted on this guy . . .
Renton-Newcastle, WA Housing Prices Fall 13% YoY
http://www.zillow.com/newcastle-wa-98059/home-values/
Housing markets on the West Coast have been constantly bullied by Chinese buyers, which will hopefully come to an end very soon. I prefer lower housing prices over the current ones, since Chinese clients artificially pump the prices up, making it harder for normal citizens to enter into the housing market.
Given the fact that housing demand is at 28 year lows on the west coast, it doesn’t make a lot of sense. It’s more realtor pimping and media hype than anything else.