August 28, 2015

Solving A Debt Crisis With More Debt

It’s Friday desk clearing time for this blogger. “Diana Gonzales’ Wylie home was picture perfect when she put it on the market. Still, she was surprised when it sold in a flash. ‘We had about 12 offers,’ says Gonzales, “and the offers were way over the list price!’ Corporate relocations like Toyota and State Farm have delivered a steady supply of buyers. But, experts have warned:’The inventory is so slow, it’s driving the prices up,’ says Realtor Valerie Kirkpatrick, ‘it’s driving the buyers up, they’re having to pay more and more and more and the houses are not worth what they’re paying.’”

“The Green Line is a bragging point for the builders of a 30-unit condo building — some priced as high as $750,000 — on Washington Street near Union Square, its sales pitch concluding: ‘It’s not just a home, it’s an investment!’ When word came this week that the project is in danger of being scaled back or even canceled because costs could be as much as $1 billion more than expected, it landed like a sucker punch for buyers and investors who bought into the excitement.”

“‘On Tuesday, I got up, saw the news on my phone, and said, ‘oh, [expletive].’ There was just a pit in my stomach,’ said Rob Day, who with his wife bought a condominium near Union Square in December and expected to commute to his job in Boston on the new Green Line.”

“The Fayetteville regional market started the year with too large an inventory of resales. Seven months later, little has changed. The current absorption rate for pre-owned homes is a 9.93-month supply of inventory. ‘We’ve got too many existing homes. We’re slowly trying to fix that,’ said David Evans, a broker who works with Manning Realty. ‘That being said, we’re moving in the right direction. July closed with 525 existing homes. That’s way over average. It has been because people who have existing homes all these years, waiting to sell their house, have been dropping their (market) price.’”

“The boom times are long gone for Owatonna homebuilders. Realtor Matt Gillard with ERA Gillespie said housing booms in Rochester and Mankato give him hope that Owatonna could soon start to see its own resurgence. But a lot of that will depend on people like David Schlobohm of Ace Construction building the homes to sell, and he’s still wary. ‘I got stuck in 2007, I got stuck with a million dollars inventory for a couple years,’ he said. ‘I ended up giving it away just to get rid of it. … That speculation market’s not there unless you like losing money, even though the Realtors are calling for that.’”

“Schlobohm said homebuilders will only get back into the game once they can be confident in selling new homes quickly on the market. ‘If you sit on it for six months and pay interest on it, whatever profit you had on it is gone,’ he said.”

“After a decade labouring on building sites around New Delhi, Akhilesh Kumar lost his scaffolding job last month when his employer halted work on an array of 30 residential towers. He joins more than half a million workers let go from sites around India’s capital in the last 18 months. According to brokerage Ambit Capital, rural wages may now be falling after growing 4 percent in the year to March - a far cry from the double-digit annual rises between 2010 and 2014. ‘Labourers are starving and are ready to work even at lower wages as there are fewer or just no jobs,’ said Navendu Kumar Thakur of the Builders Association of India.”

“But the slowdown around Delhi, where unsold inventory is highest, shows no sign of ending. Around the site where Kumar worked, half-built high-rises dot the skyline. Cranes and diggers stand idle. Real estate association CREDAI’s Rohit Raj Modi estimates more than a million labourers worked in construction at Noida at its peak in 2013, at least double today’s number. ‘From a labour point of view, the peak is over,’ he said.”

“Subdivided units are a feature of Hong Kong’s housing market, Kowloon Developmen said, as it priced mini flats in its Hung Hom project at an average of HK$15,567 per sellable square foot after discounts. Prices of special units can see sharp drops, Far East Consortium Internationa chairman David Chiu Tat-cheong called such units ‘imitation luxury flats.’ Chiu said he wouldn’t be surprised if their prices fell by half. He said as wage hikes among the middle class can’t keep pace with the sharp rise of property prices, developers have no choice but to develop smaller units to satisfy demand. ‘Hong Kong people’s hard work and income, and the size of our homes have the most unfair ratio throughout the world,’ Chiu said.”

“Centaline Property’s Louis Chan Wing-kit said the pricing reflects the impact from recent stock market shock. This marks the start of a trend where developers cut prices on their new projects, Chan said.”

“Share market investors are unlikely to flee in large numbers to the property market — as they did in previous routs — because housing markets are perceived as overheated in Sydney and Melbourne, with entry costs high and rental yields low. But other commentators have suggested no-one really knows how things will pan out, as the global economy is in uncharted territory. Bank of England research shows global interest rates are at their lowest in 5000 years.”

“‘We’ve never experienced a combination of events like this,’ Gareth Hutchens wrote in the Sydney Morning Herald. ‘None of our (economic) models demonstrate how the world works when interest rates are this low.’”

“China was always the Ashley Madison of public money. Finance ministers with an infrastructure problem would sneak off to Beijing for a quickie billion and return with smiles on their faces. The Chinese seemed willing and no one need know. China has been tipping cash into worthless transport and energy projects around the world, or storing it in empty London towers. It encourages reckless governments to get involved with stupid projects that no sane banker would support.”

“Any bubble stock market is a danger to all. As Shanghai’s prices more than doubled it was clearly going to burst. When the regime is as dirigiste as China’s, that doubles the risk to others. China’s sovereign wealth can be withdrawn as quickly as it was splurged. Whether the Chinese market crash can single-handedly return the west to deflation is doubtful, but that is the risk.”

“The nosedive reveals just how addicted markets have become to the flow of central bank stimulus and the faith that cheap money remains the path to economic deliverance. A recent working paper by the VP of the St. Louis Federal Reserve Bank finds that after six years of quantitative easing that swelled the Fed’s balance sheet to $4.5 trillion, ‘casual evidence suggests that QE has been ineffective in increasing inflation’ and only seems to have boosted stock prices.”

“Complaints once in the realm of conspiracy theorists wearing tin foil hats are now being embraced by the Wall Street establishment. In a note to clients, Deutsche Bank analysts warned that ‘the fragility of this artificially manipulated financial system was exposed’ and that ‘the only thing preventing another financial crisis has been extraordinary central bank liquidity and general interventions from the global authorities.’”

“They argue that ‘the genesis of this recent sell-off has been the threat of the Fed raising rates next month, but China’s confrontational move two weeks ago and the subsequent knock-on through [emerging markets] have accelerated us towards something more serious.’”

“Alberto Gallo, head of credit research at RBS, is more direct: ‘Policymakers responded to the financial crisis with easy monetary policy and low interest rates. The critics — including us — argued against ’solving a debt crisis with more debt.’ Put differently, we said that QE was necessary, but not sufficient for a recovery. We are now coming to the moment of reckoning: central bankers look naked, and markets have nothing else to believe in.’”

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Comment by Ben Jones
2015-08-28 04:05:39

‘The reality is the 2008 economic crisis devastated places that never recovered, compounding the essential trouble of a city like Trenton that has precious little taxable property. “There are an astronomical number of vacant properties in Trenton,” said Arnold Cohen, the Senior Policy Coordinator for the Housing and Community Development Network of New Jersey.’

Comment by Ben Jones
2015-08-28 04:39:16

‘The home of Trenton Chief of Staff Francis Blanco is listed in a sheriff’s sale later this year. The foreclosure sale is scheduled for Nov. 18 at the Mercer County Courthouse, according to a county listing. The original sale date was July 30, but was postponed.’

‘Wells Fargo Bank is seeking judgment in the amount of $146,907.61. In addition to Blanco, Bank of America and Palisades Medical Center are also listed as defendants.’

‘Tax records show that Blanco purchased the home in November 2002 for $145,000. Blanco has not returned calls for comment.’

Comment by rms
2015-08-28 12:16:43

“The chief of staff was brought on last August and was the first Latina to be appointed to the position.

She was also the executive director of the Living Hope Empowerment Center, a nonprofit that works to empower Trenton residents to improve the quality of life in the city.

Blanco previously served as the recreation director for the city under former Mayor Douglas Palmer. She has also previously served as the director of the state Division of Minority and Women Business Development, and as executive director of MECHA, a local nonprofit focused on the needs of the Latino community in Mercer County.”

Another professional victim.

Comment by 2banana
2015-08-28 05:58:48

Long term democrat rule + public union goons + FSA = bankruptcy, misery and ruin.

The irony in Trenton can be seen by just looking across the Delaware River to prosperous Bucks County, PA.

There must be something magically about that river…

Comment by WPA
2015-08-28 08:30:59

Right-wing “free market” “trickle down” = Fail

Kansas: Debt to GDP ratio 20.01% and INCREASING

California: Debt to GDP ratio 18.19% and FALLING

Comment by AmazingRuss
2015-08-28 09:01:50

Our choice this election cycle is clear: Fail, or Fail.

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Comment by rj chicago
2015-08-28 10:06:26

You don’t know ILLANNOY there WPA - head over here and see what debt does to one’s balance sheet.

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Comment by Ol'Bubba
2015-08-29 04:43:32

rj - you might be interested in this short article:

from the article:

“Most dubiously, the city actually is borrowing the money to pay the first two years of interest payments on these bonds. In true Chicago style, the proposal passed the City Council on a 45-3 vote. Hey, at least the city is getting out of the swaps business.”

Comment by CHE
2015-08-28 12:49:21

All it takes is a stock market crash and California will be back in the red.

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Comment by Steadykat
2015-08-28 15:15:39

Here’s a way to fill up those vacant homes.

Make home ownership “less exclusive” and deal with the home ownership “gap” between white people and minorities.

Minority ownership, check.
Three percent down, check.
Don’t have the money to cover the loan, just count the income of some “inter-generational live in relatives” or a renter to cover the difference.


Didn’t we try this idea out once before?

Comment by Ben Jones
2015-08-28 04:08:17

‘During the past couple of years, homebuilders have lamented the lack of affordable lots in the Austin market, but Wilson said there’s some street smarts involved in nabbing a premium parcel like the tract dubbed “Nance Ranch” near Kyle.’

‘He’s watched a variety of volume homebuilders pay premium fees for sites across the metro area. “I think a lot of the high prices were created by a lot of hype,” Wilson said.’

Comment by Rental Watch
2015-08-28 09:10:53

If you look just north of Austin (Round Rock), there is a huge amount of land. We declined to invest there despite the supposedly insatiable demand.

There is too much land, too many builders building on it, and too few restrictions for more land to become approved. The counter-arguments to the concerns I voiced had a very 2005 feel to them–namely that regardless of the very large supply, the demand was even greater.

Comment by Ben Jones
2015-08-28 09:23:44

I was listening to a Las Vegas RE radio show recently. This lady was describing a new housing development, she said “you drive to the last exit.” There’s a last exit for every town or city. But if you really want to get ahead of the pack, start buying in Waco.

Comment by Rental Watch
2015-08-28 10:07:32

“Drive till you qualify”

We own a property in the City limits of Austin (a commercial property). It’s in a pretty central part of town…not a lot of vacant lots nearby. One thing we liked about Austin is that it is difficult to get additional property approved for development.

HOWEVER, once you leave the city limits, the slower-growth attitude of Austin goes away.

And so when Austin home prices boomed, it pushed developers to neighboring cities–because they could get the land to develop into homes, AND the pricing looked much better compared to Austin. And they did so in droves.

I wouldn’t want to be one of the last guys starting out there when demand weakens.

It’s akin to trying to race across the tracks before the oncoming train hits you…when you don’t know how close the train is, or how fast it’s going.

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Comment by ibbots
2015-08-28 10:21:18

When we go down to the North Padre Island Sea Shore, we take the 130 toll road from Georgetown to San Antonio. It bypasses Austin / San Marcos / I 35 to the east. There’s a whole lotta nothing out there. Great toll road, we do 90+ all the way and make great time. Not much to see other than cows and the occasional buzzard. There aren’t even gas stations….

Comment by Ben Jones
2015-08-28 10:38:04

I thought that was built for semi’s only.

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Comment by ibbots
2015-08-28 10:53:31

Not sure why it was built. I remember reading something that the private / public partnership that built it is taking a bath since hardly anyone uses it and projected revenues were way overstated.

I told my wife they should just put up 8 ft walls with bumpers / rollers on them and let people get on there, set the cruise control at 90 mph and take a nap because we are literally the only car on the road when we use it.

Comment by Ben Jones
2015-08-28 16:36:15

They built it (I remember the planning but was gone before it was done) because NAFTA had choked I-35 and there wasn’t a good way to expand with it going right through every thing. I suppose if you drove it the original idea of just using it for freight trucks got updated.

Comment by Jingle Male
2015-08-29 04:30:15

Completed infrastructure with no real purpose. The Ordos Highway to nowhere. Is this in China?

Comment by Mafia Blocks
2015-08-29 12:58:14

Right here in the US in every single state Jingle_Fraud.

Comment by Ben Jones
2015-08-28 04:15:33

‘Advocates for affordable housing and the revitalization of Stockton’s older and long-struggling neighborhoods voiced strong reservations and succeeded Tuesday night in slowing the progress of a proposal pushed by Mayor Anthony Silva to slash building fees on single-family homes.’

‘In the end, Silva himself put the brakes on, barely 24 hours after saying passage of the plan would “send a message to the rest of the country that we are a healthy city once again.”

‘Silva had been sponsoring a proposal to reduce the fees by $17,000 on 1,000 homes over the next three years. The same reduction also would be extended to 50 homes in each of the six council districts. At $17,000 a home, the total fee reduction would be $22.1 million for 1,300 homes.’

‘A spectrum of speakers found fault with the idea.’

‘But former City Councilman Ralph Lee White said the plan should have specifically aimed at the part of Stockton that is south of Harding Way, which he said includes 1,000 vacant lots.’

Comment by taxpayers
2015-08-28 05:13:30

was wpa at the rally?
affordable- = taxpayer fund
crisi= future taxpayer funded

Comment by WPA
2015-08-28 08:38:46

LOL, no I wasn’t there. Stockton is a mess. Half of the problem is of Stockton’s own making, they thought the 2005 housing boom’s revenues were going to last forever and they over-committed themselves in large municipal projects. The other problem was caused by the mortgage lenders — predatory lending was common. They sold mortgages to non-English speakers saying, sign here, you can have this house for only $1000/mo. The victims had no clue they just signed off on negative amort or balloon ARMs. Foreclosures soared.

Comment by salinasron
2015-08-28 09:13:45

“The victims had no clue they just signed off on negative amort or balloon ARMs. Foreclosures soared.”

It didn’t matter! The only thing that a segment of this population understands is the ‘how-mucha-month-it-agonna-cost’.

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Comment by WPA
2015-08-28 09:28:35

It’s a crime. Predatory lending is taking advantage of financial ignorance among the undereducated, and not fully disclosing or explaining what negative amortization or balloon ARMs are.

It certainly didn’t matter to the predatory mortgage brokers because in one hot minute after the pigeon signed the papers that mortgage got sold on the open market, probably as sub-prime. Then our fine, upstanding big banks repackaged those as AAA paper inside of CDOs. The rest is history.

Comment by CHE
2015-08-28 12:56:12

If they are financially ignorant, they have no business getting involved in transactions of that size to begin with.

There are plenty of resources readily available to explain the different types of mortgages.

If they don’t avail themselves of said resources, then they need to suffer the consequences.

Comment by Mafia Blocks
2015-08-28 13:27:27

And the federal government stuffing millions more suckers into subprime for shanties at grotesquely inflated prices is somehow different than the previous subprime?

Lola, Lola, Lola…….

Comment by redmondjp
2015-08-28 09:23:25

My wife has relatives there and we visited about 9 years ago. I never, ever have seen so many used tire ’stores’, in the front yards in residental neighborhoods, in my entire life.

Stockton: where used tires go to die.

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Comment by WPA
2015-08-28 09:30:18

Yup. Stockton is the northern armpit of Calif. San Bernardino is the southern armpit.

Comment by Mafia Blocks
2015-08-28 12:17:38

Californica. The poverty stricken armpit of the US.

Comment by rms
2015-08-28 12:43:13

“Stockton is the northern armpit of Calif. San Bernardino is the southern armpit.”

And Modesto is where you insert the enema nozzle.

Comment by Ben Jones
2015-08-28 16:39:22

’so many used tire ’stores’

Llantas Usada

Comment by Karen
2015-08-28 12:44:29

Pretty bizzare that people who claim to be affordable housing advocates oppose slashing fees.

Comment by Rental Watch
2015-08-28 13:10:40

A big part of Stockton’s BK plan relies on permit fees as revenue.

They can’t cut the fees too much…or else their BK plan doesn’t work.

Comment by Ben Jones
2015-08-28 04:23:11

‘Given the real estate sector’s importance to the economy—it amounts to $4 trillion of Canadians’ wealth, is equal to roughly seven per cent of GDP and dominates 99 per cent of dinner-party conversations—you might have thought the housing market would be a significant point of debate in the federal election campaign. Remember, this was supposed to be an election about the economy. So much for that.’

‘By now, it should be clear what’s at stake. Real estate has been a primary driver of Canadian economic growth for several years. It single-handedly lifted us out of the Great Recession, while soaring home prices made homeowners feel richer, spurring them to borrow and spend at a time when other parts of the economy, such as manufacturing and exports, have stagnated. With the collapse of the energy sector, housing is now the only game in town. And yet our pumped-up housing market and household debt levels are the greatest threats we face.’

‘That the Conservatives might want to juice the market isn’t really surprising. Harper’s core of support is those home-owning Boomers and seniors who would benefit. If higher prices anger younger Canadians, well, they were unlikely to vote for him anyway.’

‘Yet, during the campaign, even NDP Leader Thomas Mulcair has done little but warn that “there could be a bubble created there, and we could be in for a terrible surprise.”

‘The reality is that whoever wins the next election will be hoping beyond hope that prices continue to rise. Nor is he about to do anything that might jeopardize that ascent.’

‘There are several issues that should be up for debate. How about tackling the moral hazard at the heart of the boom? After all, the protection from losses that CMHC provides to Canada’s banks inherently reduces their need to be cautious about how much, and to whom, they lend. What about the threat from mortgage fraud, which is far more widespread than regulators and the industry want to admit? And where do the leaders stand on the mounting danger from shadow lenders, the non-bank lenders tapping ultra-low interest rates to extend mortgages to subprime borrowers even the banks won’t touch? Don’t expect to hear any of that discussed in the coming weeks, however. The parties simply have too much to gain from the bubble.’

Comment by taxpayers
2015-08-28 04:36:58

3.7% gdp?
anyone agree
local gov is HIRING again using increase re taxes and Gov is part of the equation

S&P PE of 19
when you sell a local biz the average pe is 2.4

Comment by AmazingRuss
2015-08-28 09:03:45

Taxes, smaxes, the fed will buy all the bonds they can print.

Comment by Ben Jones
2015-08-28 04:41:47

‘Real estate sales are up all over the Catskills, according to realtors across the region who say that rustic, country and move-in-ready homes are attracting buyers. But while the number of sales are up, the price of what’s selling is going down.’

‘Realtors say that is because the most interest is coming from savvy bargain hunters from New York City who are searching for an upstate escape where they can relax and maybe even earn a few bucks.’

‘But Jean Orr, a broker with Keller Williams Upstate New York Properties in Margaretville, sees a pick-up in volume, not sales. “Sellers dumped a large inventory on the market recently,” Orr said.

Comment by Mafia Blocks
2015-08-28 04:50:47

” But while the number of sales are up, the price of what’s selling is going down.’‘Realtors say that is because the most interest is coming from savvy bargain hunters from New York City”

How can this be? Everyone who is anyone in NYC is loaded with cash. Right?

Realtors and their media mouthpieces can’t keep their lies straight.

Comment by 2banana
2015-08-28 06:01:42

The irony is that a dump on an acre in nowhereville, upstate NY will still have $10,000/year property taxes.

Good luck making that profit…

Comment by Mafia Blocks
2015-08-28 07:20:33

Yup. losses to depreciation, losses to taxes, losses to financing, losses to insurance.

Housing is a horrific loss.

Comment by Ben Jones
2015-08-28 04:44:13

‘Business is booming for the Lowcountry’s real estate industry. For 2015, real estate deals are up almost 18 percent, meaning this year could be the busiest since 2006 and the third busiest year in Charleston’s history. “Charleston has a lot going on. We have a lot of positives in this city and it’s just nice that things are going so well,” said realtor Doug Holmes.’

‘Hawkins, who works for Jeff Cook Real Estate, finds it challenging to find enough homes for those people looking to buy. For him, it’s common to see multiple offers for one listing. “It’s all about winning the bid right now because there’s so many people moving here. We’ve got 43 people moving here everyday to the Charleston area.”

Comment by Ben Jones
2015-08-28 04:47:52

‘Forget talks of a bubble in one market, argues one industry professional who can count a major economist in his corner. Is LA in another real estate bubble? That’s the question recently asked by the Los Angeles Times, and now one industry player is offering fellow originators his answer.’

“We’re seeing price reduction and pullbacks in the number of multiple offers, but there are some people out there who are still pushing prices (up),” Mario Pineda, senior loan officer with Banc Home Loans told Mortgage Professional America. “It’s a healthy market; we’ve seen a 3-5% price pullback and that’s no big deal at all because we have had some decent appreciation.”

‘And in a recent Op-Ed for the LA Times, William Yu, economist at the UCLA Anderson School of Management, attempted to lay the bubble discussion to rest. At least for now.’

“As home prices rise ever higher in Los Angeles, some are beginning to wonder if the region is in another housing bubble, one that’s ready to burst,” Yu writes. “Real estate blogs add to the hysteria by pointing to the most ridiculous listings, the million-dollar bungalows in need of a complete renovation, the $3-million teardowns. But the data suggest that the market is not, in fact, on the brink of collapse.”

‘According to Yu, the city is currently in a bull market, where prices have increased 27% over 11 quarters. “If history is any guide, the L.A. housing price cycle seems to last about 12 years on average, of which seven years is spent in the bull market with at least 65% real price appreciation, and five years is spent in the bear market,” Yu writes. “We are three years into the housing recovery that started in 2012, with 27% appreciation so far. On average, there will be four more years or 38% more price growth before we reach the turning point.”

Comment by Rental Watch
2015-08-28 13:14:18

I wonder how much of his own money he is willing to bet on his proposed timing of 4 years?

Comment by Ben Jones
2015-08-28 16:44:36

That is an odd way of looking at it.

“When should I buy a house Professor?”

“Let me look at the calendar.”

Comment by Ben Jones
2015-08-28 04:51:44

‘Surging Auckland house prices pose an increased risk to New Zealand’s financial stability but the central bank can’t raise interest rates to curb demand, Deputy Governor Grant Spencer said.’

“When something keeps you awake at night, it is good to do something about it,” Spencer said in a speech published on the Reserve Bank’s website Monday. The response must be multi-faceted because “the current weakness in export prices, economic activity and CPI inflation means that interest-rate increases are likely to be off the table for some time,” he said.’

‘The median house price in Auckland, home to a third of New Zealand’s 4.5 million population, surged 21 percent in the year to July to NZ$735,000 ($485,000) amid a housing shortage and record immigration. The RBNZ has nevertheless cut the official cash rate twice in the past two months to stimulate the slowing economy and boost inflation from near zero.’

‘The RBNZ recognizes that low interest rates are contributing to housing demand pressures and this is a factor it takes into consideration when setting monetary policy, Spencer said today. The resurgence in Auckland house prices has increased the bank’s concern about financial stability, he said.’

“Investors are now accounting for 41 percent of Auckland house purchases, up 8 percentage points since late 2013,” Spencer said.’

This is really stupid. Just make interest rates for house loans separate from the rest of loans.

Comment by Ben Jones
2015-08-28 04:55:21

‘With the ASEAN Economic Community (AEC) set to commence at the end of this year, promising deeper cross-market potential for property investment, the region as a whole is experiencing a cooling effect—with the exception of Cambodia, which shows strong growth numbers according to property consultancy Knight Frank’s latest Asia Development Index.’

‘Cambodia’s land prices, however, have surged by 14.1 per cent for residential, and 9.7 per cent for commercial land respectively, marking the biggest land price hike of all countries analysed.’

‘Knight Frank’s Cambodian country manager Ross Wheble explained that the regional cooling “has benefited [Cambodia with] an influx of both foreign developers and investors seeking to take advantage of the comparatively low property prices and the relative ease at which foreign buyers can acquire freehold property (above ground floor level).”

‘Nevertheless, the report added that growth in Cambodia has decelerated in the second quarter of this year, suggesting prices may have reached their peak and will likely level off leading up to the AEC.’

‘As to why prices are appearing to peak, Wheble explained the sales rates of newly launched condominium projects for the first half of 2015 compared to 2014 “have eased.” “Which we believe is partly attributable to the increasing selling prices of newly launched developments suggesting that market prices in prime locations are reaching their peak.”

Comment by Ben Jones
2015-08-28 04:58:50

‘China is sliding into recession and the leadership will not act quickly enough to avoid a major slowdown by implementing large-scale fiscal policies to stimulate demand, Citigroup Inc.’s top economist Willem Buiter said.’

“Despite the economy crying out for it, the Chinese leadership is not ready for this,” Buiter, chief economist at Citigroup, said in a media call hosted Thursday by the Council on Foreign Relations in New York. “It’s an economy that’s sliding into recession.”

This is what I’ve been pointing out; economists now think recessions can be eliminated. They no longer know what a recession is and why recessions exist. It’s like saying “drink all you want and hangovers can be prevented.”

Comment by scdave
2015-08-28 05:30:24

China is sliding into recession ??

Yep…Its appears that is now consensus…poor adan…

Comment by AmazingRuss
2015-08-28 09:06:43

I wish he had stuck to his guns… once he got beyond all reason and sense, his assertions got really interesting. Imagine how the argument would go today!

We lost a great man.

Comment by Ben Jones
2015-08-28 05:11:03

‘Investors pulled a record amount of money out of global equity funds in the week to Aug. 26, according to Bank of America Merrill Lynch, a measure of the alarm that China’s markets and economy have aroused around the world.’

‘The $29.5 billion outflow, including $19 billion in just one day, was the largest since the series began in 2002, surpassing any weekly outflow engendered by the collapse of Lehman Brothers in 2008.’

‘The $19 billion outflow on Aug. 25 was the second largest daily outflow since 2007 when comparable daily flow data became available, BAML said in a note on Friday titled: “The Total Risk Surrender”.

Comment by Professor Bear
2015-08-28 06:29:32

Seems like another wealth transfer from weak hands to strong hands is underway, replete with stealth interventions to restore share prices after the Muppets panicked and dumped their holdings.

Comment by Ben Jones
2015-08-28 05:16:25

‘The biggest threat to U.S. stocks right now may not be China, currencies or commodities prices. It might be American companies’ own merger appetite.’

‘Acquirers worldwide have already spent $2.2 trillion on transactions in 2015, putting the year on track for a record. The buying spree has been particularly audacious in the U.S., where acquirers are offering record prices relative to the revenue and profit they’re gaining from the deals.’

‘The result: Goodwill is surging. It jumped substantially this quarter, to $2.5 trillion for members of the Standard & Poor’s 500 Index, according to data compiled by Bloomberg. That’s a new record, and a sign that dealmakers are increasingly overpaying.’

‘Need more proof? American publicly traded companies are selling for 3 1/2 times their book value. In dollar terms, that’s $700 billion paid for assets that are worth only about $200 billion on paper.’

“I’m amazed at what people are paying for companies,” Mandeep Trivedi, a principal in the valuation practice at Citrin Cooperman, said in a phone interview. “I don’t know of an industry where I’m not taken aback by what people are willing to pay.”

‘The problem is how quickly this intangible asset is accumulating, as many companies overpay for acquisitions. When that happens, the buyer eventually has to write down the purchase, thereby reducing net income.’

‘Take Endo International Plc. The company, one of the many drugmakers seen as needing to hunt or be hunted, agreed in May to buy Par Pharmaceutical Holdings Inc. for about $8 billion. That’s 55 times what Par earned before interest, taxes, depreciation and amortization in 2014, according to data compiled by Bloomberg.’

‘Chipmakers Avago Technologies Ltd. and Broadcom Corp. also agreed to a costly merger in May. The $37 billion offer is the equivalent of about 24 times Broadcom’s Ebitda. St. Jude Medical Inc., the medical-device company, is acquiring Thoratec Corp. for 42 times Ebitda, or $3.3 billion. And just last week, Liberty Interactive Corp.’s QVC business agreed to buy online retailer Zulily Inc. for about $2 billion, or 72 times Ebitda.’

‘The irony is that an ubiquitous need for earnings growth is driving many of the large transactions that were struck this year. But if acquirers are paying too much, profit will instead take a punch.’

‘Just ask Microsoft Corp. (Nokia writedown), Hewlett-Packard Co. (Autonomy and Palm), mining-related companies such as Rio Tinto Group and Caterpillar Inc. that bought at the commodities top and a slew of other corporations tarnished by deal decisions.’

Comment by Ben Jones
2015-08-28 05:19:49

‘The Chinese government’s heavy handed efforts to contain recent stock market volatility – the latest move prohibits short-selling and sales by major shareholders – have seriously damaged its credibility. But China’s policy failures should come as no surprise. Policymakers there are far from the first to mismanage financial markets, currencies, and trade. Many European governments, for example, suffered humiliating losses defending currencies that were misaligned in the early 1990s.’

‘But rapid growth obscured many problems. For example, officials, seeking to secure promotions by achieving short-term economic targets, misallocated resources; basic industries such as steel and cement built up vast excess capacity; and bad loans accumulated on the balance sheets of banks and local governments. ‘

‘Nowhere are the problems with this approach more apparent than in the attempt to plan urbanisation, which entailed the construction of large new cities – complete with modern infrastructure and plentiful housing – that have yet to be occupied.’

‘In a sense, these ghost cities resemble the Russian empire’s Potemkin villages, built to create an impressive illusion for the passing tsarina; but China’s ghost cities are real and were presumably meant to do more than flatter the country’s leaders.’

‘Given China’s systemic importance to the global economy, instability there could pose major risks far beyond its borders. China is the largest foreign holder of US treasury securities, a major trade partner for the US, Europe, Latin America, and Australia, and a key facilitator of intra-Asian trade, owing partly to the scale of its processing trade.’

Comment by Ben Jones
2015-08-28 05:23:32

‘Investors have been agonizing over how big a threat China poses to the global economy, but they may be looking in the wrong place. China’s stock market has tumbled following stratospheric gains that peaked in June, while economic data indicate that the nation is likely to fall short of its 7 percent growth expectation.’

‘What matters more than either metric, though, is China’s plan for retooling its economy, from one focused on industrial and housing growth atop piles of debt to consumer-based gains in consumption and investments in the stock market.’

“There is a strong case to be made that it is neither the selloff in Chinese stocks nor weakness in the currency that matters the most,” George Saravelos, forex strategist at Deutsche Bank, said in a note to clients. “Instead, it is what is happening to China’s FX reserves and what this means for global liquidity.”

‘China has devalued its currency, triggering capital outflows of $200 billion in August alone, according to one estimate Saravelos cited, and concerns of instability. China responded by subsequently defending the yuan, in part by selling its foreign currency reserves and, importantly, “reducing its ownership of global fixed income assets,” Saravelos said.’

“The (People’s Bank of China’s) actions are equivalent to an unwind of QE, or in other words quantitative tightening,” he said. Saravelos said the world’s biggest worry is “that QT has much more to go.”

Comment by Professor Bear
2015-08-28 06:36:10

“that QT has much more to go.”

It sure is hard to find the evidence of China dumping Treasurys in long-term yields, which are near their all-time lows.

Comment by Ben Jones
2015-08-28 05:29:58

‘The valuations of privately funded Indian startups have come under scrutiny, after a sharp drop in market capitalization of similar new-age ventures in the US and China over the past few months.’

‘Restaurant search and review venture Yelp is currently valued at about $1.7 billion, a significant drop from close to $6 billion a year ago.’

‘That’s raising questions about the valuation of restaurant search and review website Zomato, Yelp’s Indian counterpart. Zomato, with barely $25 million in revenue, was valued at over $700 million, some say $1 billion, in its last round of funding. However, going by Yelp’s latest valuation and the difference in revenue between the two companies, analysts say Zomato’s valuation cannot hold.’

‘Similarly, Chinese e-commerce giant Alibaba has a market capitalization of about $172 billion currently, down from $231 billion, when it went public in September. Alibaba was also hurt by tepid revenue growth.’

‘Such numbers suggest that Flipkart’s valuation of $15 billion, with revenue at an estimated $800 million, and Snapdeal’s valuation of $4.8 billion in their last rounds may be excessive. Mobile payment processor Paytm is valued at about $2 billion, with annual revenue of about $50 million, while its closest global counterpart, Paypal, has a market cap of $41 billion with revenue of $8 billion annually. In all these cases, the valuation differences are significantly narrower than the revenue differences.’

“This is definitely a bubble and this kind of valuation is happening because of the assumption that the Indian market will be similar to China in terms of size,” Sharad Sharma, co-founder of software product association iSpirt, told TOI.’

“People are assuming perfect execution for many quarters consistently. But in India, perfect execution is not at all common. One adverse incident can upset all calculations. But it is easy to sell perfect execution stories to certain global funds,” said an investor who spoke on condition that he would not be named.’

‘However, Sanjay Swamy, managing partner of seed stage venture capital fund Prime Ventures, said valuations are not based on fundamentals for early stage investments. “The investors look for potential, the rate of growth and the headroom for growth. So the Indian ventures cannot be compared with global companies that have gone public,” he said.’

‘Swamy added that the valuations of Indian companies tend to be higher also because India is the last big market. And with its stable democracy, the country, he says, makes for an ideal location among other emerging market competitors. “Sure, there is a land-grabbing exuberance, but then the investors are looking to help the startups gain that escape velocity,” he said.’

‘it is easy to sell perfect execution stories to certain global funds’

Heck of a job Janet.

Comment by Ben Jones
2015-08-28 05:35:18

‘The Chinese market is not a normal one. Even more than most markets, this is a casino in which each player hopes to find a “greater fool” on whom to offload overpriced chips before it is too late. Such a market is bound to be extremely volatile. But its vagaries should tell one little about the wider Chinese economy.’

‘Nevertheless, events in the Chinese market are of wider significance in two related ways. One is that the Chinese authorities decided to stake substantial resources and even their political authority on their effort to stop the bubble’s collapse. The other is that they must have been driven to do so by concern over the economy. If they are worried enough to bet on such a forlorn hope, the rest of us should worry too.’

‘The Chinese authorities want room to slash interest rates, as happened this Tuesday. Again, that underlines their concerns about the health of the economy. Another possible implication is that Beijing might seek a revival of export-led growth. I find this hard to believe, as the global consequences would be devastating. But it is reasonable at least to worry about this possibility.’

‘A last possible implication is that the Chinese authorities are preparing to tolerate capital flight. If so, the US would be hoist by its own petard. Washington has sought capital account liberalisation by China. It might then have to tolerate a destabilising short-term consequence: a weakening renminbi.’

‘According to official figures, gross fixed investment was 44% of gross domestic product (GDP) last year. Figures for investment are more likely to be correct than those for GDP. But does it make economic sense for an economy to invest 44% of GDP and yet grow at only 5%? No. These data suggest ultralow if not negative marginal returns. If so, investment could fall sharply. That might not lower potential growth, provided wasteful investment were cut first. But it would cause a collapse in demand. Everything China has been doing suggests it is worried about just that.’

‘This worry is not new. It has been a big concern ever since the West’s financial crisis, which devastated demand for China’s exports. This is why China embarked on its own credit-fuelled investment boom. Remarkably, the share of investment in GDP rose just as the growth of potential output declined. That was not a sustainable combination in the longer term.’

‘Recent events matter because they suggest the Chinese authorities have not yet worked out a way of pulling this off. Worse, the expedients they have tried over the past seven years have made the predicament even worse.’

Comment by Mr. Banker
2015-08-28 06:58:41

“Bank of England research shows global interest rates are at their lowest in 5000 years.”

Five-thousand years! Global interest rates have not been this low in five thousand years!

Bahahahaha … If you don’t have the numbers (and these pukes could not possibly have the global numbers for the past five thousand years) then just make ‘em up.

Actually, I kinda like it.

Comment by Professor Bear
2015-08-28 07:51:59

I’d love to see the data they used.

Comment by taxpayers
2015-08-28 08:22:58

luv to see the fed sell just 1 billion of their sludge
why don’t congress(people) ask anymore?

Comment by Ben Jones
2015-08-28 08:31:37

I found this in a couple seconds:

‘Main articles: History of banking and History of pawnbroking’

‘Banking during Roman times was different from modern banking. During the Principate, most banking activities were conducted by private individuals, not by such large banking firms as exist today. Since almost all moneylenders in the Empire were private individuals, anybody that had any additional capital and wished to lend it out could easily do so.[9]‘

‘The rate of interest on loans varied in the range of 4–12 percent; but when the interest rate was higher, it typically was not 15–16 percent but either 24 percent or 48 percent. The apparent absence of intermediary rates suggests that the Romans may have had difficulty calculating the interest due on anything other than mathematically convenient rates. They quoted them on a monthly basis, and the most common rates were multiples of twelve. Monthly rates tended to range from simple fractions to 3–4 percent, perhaps because lenders used Roman numerals.[10]‘

Comment by rj chicago
2015-08-28 14:15:50

Solving a debt crisis with more debt - THAT is music to the ILLANNOY Gen Assembly’s ears.
I am hear finishing up my week at work - ran across this all the while listening to Ten Years After Live at Filmore East in NYC 1970 in my earphones as loud as I can stand it - cause I just don’t want to deal with my co-workers right now.
Enjoy your weekend!!!

Reuters 8/28/2015 3:23 PM ET
Print Article
CHICAGO, Aug 28 (Reuters) - Illinois’ cash-flow problem makes it impossible to meet specific payment deadlines for services provided to developmentally disabled residents, according to a state filing on Friday in U.S. District Court.

In an attempt to avoid being held in contempt of an Aug. 18 federal court order, Illinois said it paid all July and August bills for community-based services for the disabled. It also argued it was doing all it can to pay bills mandated by courts along with obligations required under state law in the absence of a fiscal 2016 budget.

The state’s filing listed $786.4 million in “priority” payments made since Aug. 18 for payroll, debt service on bonds, pensions, schools, child and foster care, and other services covered by court orders.

“(State officials) have engaged in diligent efforts to make all payments required by this court in the face of extraordinarily difficult circumstances posed by the state’s current budget crisis and cash-flow problems,” the filing stated.

Comment by Senior Housing Analyst
2015-08-28 18:20:11

Austin, TX Housing Prices Crater 5% YoY

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