The Myth That Prices Defy Gravity
A report from Bloomberg on China. “It’s quiet these days on a Sunday afternoon in the streets of Dongguan, where almost every block outside the center is a factory or housing for workers. A red banner advertising for staff above one plant says it has enough orders to keep production lines busy for a year. Locals say the sign has been there at least two years and it’s no longer true. Many, like factory worker Yu, made it their home. Now she is considering moving back to Chongqing in the center of China, which she left 20 years ago. ‘This is the worst time ever,’ said Yu, who saw her earnings almost triple during her time in the province. ‘The factories hurt by the 2008 financial crisis were the smaller ones, but this time the big ones are affected.’”
“Factories in the province continue to close, stirring discontent. The number of strikes and protests in China doubled last year, according to the China Labour Bulletin. Rising discontent has brought a tough response from city officials, according to some workers, who asked not to be identified for fear of retaliation. They said their mobile phones were being monitored by the government. ‘None of us likes this situation we’re in but we didn’t have much choice,’ said Yu, the factory worker. ‘The factory owner was going to run out of cash, and the government should take some responsibility.’”
The Nikkei Asian Review. “China’s real estate binge has left it with a stock of unsold homes so big that their combined floor space is the size of Singapore. How did things get so bad? And how can the housing market’s precarious balance of supply and demand hold? China still has believers in the myth that home prices defy gravity. Thirty-year-old Yu Zhonghuan is one of them. Though confessing to be the type that spends all of his monthly earnings, he says he wants to buy a home.”
“Yu’s 6,000 yuan monthly pay goes mostly toward good times with friends. In a few years, he will have the option to buy the 400-yuan-a-month rented apartment in public housing where lives now. He reckons that reselling the place will give him enough money for a down payment on a home. ‘Everyone around here has become rich buying one or two houses,’ Yu says.”
“Urbanization and the belief that real estate prices cannot fall go a long way toward explaining how China’s housing market staves off collapse. Migration from the countryside to cities will continue for some time, but running down inventories of existing homes will take years. Any attempt by authorities to rev up residential investment in hopes of a rush of economic growth could precipitate a crash. For a glimpse of what a housing market looks like after myth gives way to depressing reality, China need only look to Japan.”
From Investors Business Daily. “Triggered by yuan devaluation fears, the Shanghai composite tumbled more than 25% from the end of 2015 to its Jan. 27 low. Yet the risk of even more major shocks coming out of China, rather than going away, has continued to grow. The reckoning has only been postponed by Chinese government efforts to keep the economy afloat with an unsustainable rise in debt. China’s $1 trillion first-quarter credit surge, equal to an annualized 46.5% of GDP, was ‘one of the highest ratios ever,’ wrote Societe Generale economists Wei Yao and Claire Huang.”
“Unlike China’s debt binge at the end of 2008 that helped lift the global economy out of recession, this latest surge of government-funded infrastructure spending and an easy-credit-fueled spike in property values didn’t buy much growth. China’s GDP expanded just 6.7% in the first quarter, the slowest pace in seven years. Slowing growth amid rapidly escalating debt has troublesome implications. Much of the credit is going to unproductive uses and propping up bad debts. The longer that continues, the bigger the eventual debt implosion may be.”
“From the end of 2007 through mid-2014, China’s government, corporate and household debt surged from 158% of GDP to 282%, McKinsey noted in a 2015 analysis. Nominal debt levels quadrupled from $7 trillion to $28 trillion. A more up-to-date analysis from the Institute of International Finance finds debt-to-GDP rising to 295%.”
“China is ‘walled in’ between two likely fates, Goldman Sachs said. It could try to keep the economy from slowing further, letting bad debts fester and swell, ultimately triggering a financial crisis. Or China heads off a debt meltdown with reforms that aren’t aggressive enough to prevent ‘a prolonged period of slow growth and possibly deflation,’ similar to Japan. ‘Every major country with a rapid increase in debt has experienced either a financial crisis or a prolonged slowdown in GDP growth. History suggests that China will face the same fate,’ Goldman wrote.”
The New York Times. “Mr Chen Furong and his wife bought their home 23 years ago for its proximity to the city centre and for the tree-lined canal just outside. Their dream was to pass it on to their children and grandchildren, a piece of wealth giving their family a share of China’s economic miracle. Then, their neighbour tried to sell her place — and it was all thrown into doubt.”
Like every other homeowner in China, Mr Chen and his neighbour own their homes but not the land underneath them. All land in China is owned by the government, which parcels it out to developers and homeowners through 20- to 70-year leases. When the neighbour — whose surname is Wang — tried to sell her apartment, local officials told her that her lease on the land had expired. To sell her apartment, they told her, she would have to pay them one-third of the sales value.”
“Ms Wang protested in a move that drew national attention. Suddenly millions of Chinese who had socked away billions — and possibly trillions — of dollars were worried as well. If the local authorities in other parts of China did the same thing, they thought, a big chunk of their own wealth could end up with the government as well. Several blocks away, residents of another affected neighbourhood, Shuixin, wondered what would happen when they tried to sell their apartments.”
“‘People don’t know what to do,’ said Mr Ge Qingchuan, a retired real estate agent. ‘No one paid attention to land leases, but now there are problems. For example,’ he added, ‘if you are buying a new apartment and using your current apartment, with a 20-year lease, as collateral to borrow money, you won’t be able to do so. If the banks see your land lease is expiring, they won’t lend you money.’”
The Australian Financial Review. “ME Bank is the latest lender to ban foreign borrowers from taking out mortgages, adding to growing fears about the scale of possible fraud and money laundering under investigation by the nation’s top five banks. It is the second lender partly relying on securitisation and foreign investors to have cut back on mortgage lending in the past week. Major banks banned foreign borrowers after detecting potentially fraudulent applications that included documents with missing pages and income and employment statements from overseas’ employers that could not be located.”
“Fraudulent applications using Bank of China letterhead and bank statements are being sold for $250, according to industry sources. Last week Firstmac, a Brisbane-based non-bank lender, withdrew lending to purchasers of high-rise apartments because of concerns about over-supply and falling demand. The lender, which also raises most of its funds from overseas investors, warned about growing investor concern about a local property market bubble.”
“CBRE managing director of residential projects, David Milton said problems loomed for Chinese buyers, who have invested into a Foreign Investment Review Board-approved development as ‘Australian banks specifically want to see an onshore source of income to service the loans.’ ‘Many Chinese buyers don’t have this,’ Mr Milton said in comments reported in a research note from broker CLSA. CBRE markets more than 60 per cent of Sydney’s new apartment projects. ‘In the near term, for projects settling in the next 3-6 months, it’s going to create a potential problem for FIRB buyers, who were banking on the mortgage from an Australian bank to settle their purchase.’”
The Independent Financial Advisor. “Research house BIS Shrapnel offers some insight into how the end of the mining boom and the plateauing property market will affect the Australian economy. Frank Gelber, chief economist and director, BIS Shrapnel: ‘The mining boom, or the investment part of it, is over and we’ve known that for a long time. Now, with the collapse in commodity prices – well, you wouldn’t expect a really big rebound in commodity prices because now there are plenty of producers that the Chinese can screw down on price at around about current price levels. And so all of the little producers, the high-cost ones, they’re dead. They will gradually go broke – well, maybe not so gradually.”
“‘So, we all know the mining investment phase is over. We speak as though [the decline is] finished, but it’s only just beginning. We’re 12 per cent into a 60 per cent decline in mining investment. The housing boom has been a big contributor to growth, but we’re looking at effectively the next stages of plateauing of house building or residential building, followed by a moderate decline. At the end of the day, in terms of the macro effect, the housing cycle is just running its course, and we’re all waiting for non-mining business investment.”
“Audience question: ‘You mentioned that mining is dead for a long time and that people shouldn’t be waiting for the next mining boom. What does that mean for property investors out in those regions?’ FG: ‘The technical term is they’re stuffed for a long time, but you always knew that they would be. The point is, in those mining regions, you need a lot less people to run production phase than the construction phase and so everyone came in for the period of construction and investment, and they’ve all gone. They’re all going or gone.’”
“Audience question: ‘So if you made a lot of money out there in the boom times what is next for those people?’ FG: ‘It’s also a case of buyer beware – they should’ve been more careful when they went in. They went in with dollars in their eyes and now they have sand in their eyes.’”
“Richard Robinson, associate director, economics, BIS Shrapnel: ‘The fly-in and fly-out is not good for the local communities, and all of the state governments know this. FG: ‘They’ve priced the locals out of the market, they couldn’t live there anymore. Cut your losses and run – it’s not going to come back real quick, there’s nothing they can do. Some of the housing is demountable and to the extent that they can get rid of it that takes away the oversupply, but just wander around NSW to some of the old gold towns. There’s an awful lot of houses there.’”
“RR: ‘With one of those they tried to put a nuclear waste dump on it.’ FG: ‘Well, they might as well – there’s nobody there.’”
‘Suddenly millions of Chinese who had socked away billions — and possibly trillions — of dollars were worried as well…’if you are buying a new apartment and using your current apartment, with a 20-year lease, as collateral to borrow money, you won’t be able to do so. If the banks see your land lease is expiring, they won’t lend you money’
‘Fraudulent applications using Bank of China letterhead and bank statements are being sold for $250. ..‘Australian banks specifically want to see an onshore source of income to service the loans.’ ‘Many Chinese buyers don’t have this’
Credit drying up for Chinese buyers. Who could have seen it coming?
Who could have even seen them needing to use credit to begin with? A few years ago, the commonly accepted myth was that an army of wealthy all-cash Chinese investors were driving up prices in foreign real estate markets, but there was no need to worry about them cashing out en masse because the purchases weren’t leveraged.
Guess again!
In the Seattle area it wasn’t and isn’t a myth. Ask any local real estate agent or escrow company. The level of all-cash purchases is at an all-time high.
It may look like all cash on the Seattle side but you have no access to knowing whether that was truly cash or is borrowed against some collateral on the China side.
You’d have to see both sides of the transaction to be sure.
I seriously doubt it’s cash.
OK, I’m beginning to see the big picture here; thanks for the explanation.
One Chinese trend that muddies the waters however, is the there are a LOT of inter-family lending/borrowing relationships.
If you borrowed from your parents to buy your house, that shouldn’t be seen as a traditional loan (subject to the whims of financial markets). However, if your parents borrowed against their house to lend you the money…well, that changes things.
You know it’s dumb.borrowed.money. just like everyone else.
OK, I’m beginning to see the big picture here; thanks for the explanation.
There’s a secondary point here.
It may totally be worth it for some corrupt Chinese to take a 20% or even 50% haircut on the ill-gotten cash. They are price-insensitive on the purchase of the house . The goal is to get the money to a safer spot.
Whether or not you should be competing against it is completely and utterly obvious.
If you borrowed from your parents to buy your house, that shouldn’t be seen as a traditional loan
What nonsense.
It behaves exactly as a traditional loan — it may be informal but it follows the same risks of default, inflation, etc.
If the borrower dies, you can rest assured that the money is going poof.
The only difference is that it comes with extra drama and makes boozy Thanksgiving’s a LOT more interesting.
Don’t see Mr. Banker competing with that particular dynamic.
It’s not nonsense, it’s spot on. What is a loan today becomes an inheritance tomorrow. All the money I “loaned” my daughter is never coming back and I knew that when I gave her the money.
Irrelevant considering all of it is borrowed from lenders.
“It’s not nonsense, it’s spot on. What is a loan today becomes an inheritance tomorrow. All the money I “loaned” my daughter is never coming back and I knew that when I gave her the money.”
Especially when you only have one child, and helping that one child buy a house is a big part of that child’s ability to “obtain” a wife, and potentially produce a grandchild.
All the money I “loaned” my daughter is never coming back and I knew that when I gave her the money.
Then it’s not a loan. It’s a gift.
You’re comparing apples to elephants.
You’d have to see both sides of the transaction to be sure.
You’d also have to see all _future_ transactions. Just because the original purchase was made with all cash does not necessarily mean that they don’t “refinance” into a mortgage at a future date, and maybe roll that cash into another transaction.
You really would need to monitor the recorded liens against these all-cash purchases to know for sure.
but there was no need to worry about them cashing out en masse because the purchases weren’t leveraged.
I think the worry isn’t about them cashing out en masse, per se, but about them walking away en masse; if the debt is in a foreign country, and your only asset in that same country and thus subject to those courts is also underwater—why would any sane investor continue to pay?
’if you are buying a new apartment and using your current apartment, with a 20-year lease, as collateral to borrow money, you won’t be able to do so. If the banks see your land lease is expiring, they won’t lend you money’
So what happens to your Beijing apartment when the lease the land it’s built on expires? Will the Communist government automatically renew it? And if they do, at what cost? And what if they don’t? Do they confiscate your apartment?
I read articles that casually mention this Chinese apartment construction isn’t expected to be useful past 20 to 25 years. I don’t even know how you could be more shoddy. That would have to factor into every aspect of the building. Does anyone remember that photo of the apartment block that fell over? They had used pipes for the support that rusted out at ground level and snapped. And all around it were dozens of identical structures.
It is mind boggling that they build stuff out of bricks and mortar that lasts LESS than a house made of 2×4’s and plywood. Bricks and mortar construction ought to last for centuries, not decades.
Why ought it? The reality is single wythe construction begins falling apart after 30 years without attention.
So what is different about over here?
I still stand there and just stare at these five-story commercial buildings made entirely out of wood fiber strand products. I’ve seen a lot of them lately. I figure 25-30 years maximum before they either rot away or get condemned/demolished, whichever happens first.
‘Fitch Ratings issued a new warning on China housing…suggesting that Chinese developers latest strategy to head into less-developed cities will only exacerbate their credit problems.’
‘The People’s Bank of China has been adding liquidity to banks. Credit, again, has begun to accelerate. Despite what is widely seen as the mistake of 2009 — a credit-driven buildup in manufacturing capacity that caused a dramatic increase in the ratio of debt to gross domestic product — China is moving down a similar path to reignite growth, say Ivy Investments portfolio managers led by Michael Avery in a report published June 1.’
‘China’s net debt is $25 trillion, significantly greater than other emerging market countries and 50% higher than one year ago.’
“The market appears torn over both the magnitude and duration of this latest stimulus push,” the Ivy Investment team say. “We are torn as well.”
The Chinese ruling class is in “keep them busy, or they will eat us” mode.
‘Fitch Ratings issued a new warning on China housing…suggesting that Chinese developers latest strategy to head into less-developed cities will only exacerbate their credit problems.’
China, huh. Well luckily for Australia Fitch gives Australia some economic “A”s - three of them …
“In March of this year Fitch took out their big rating agency stamp and hammered a AAA rating on Australia:
“Australia’s ‘AAA’ rating is underpinned by the economy’s high income, strong institutions and effective governance. The free-floating exchange rate, credible monetary policy framework, low public debt and growing recognition of the Australian dollar as a reserve currency allow the economy to adjust to changing economic conditions.”
If the Fitch guys say it is so then it must be so. I’m going all in!
But wait; What have we here? A differing opinion? Let’s see what these guys have to say …
“Say What
“Reading rating agency reports is like being immersed in a warm bath, with a glass of hot milk, while being read Winnie The Pooh and Peter Rabbit. You feel all warm and fuzzy inside but it’s one big fairy tale.
“Let me take a necessary sledgehammer to the above statement.
“’The economy is underpinned by high income, strong institutions and effective governance.’”
“Actually there are 4 pillars underpinning Aussie economic growth:
The investment bubble in mining. Many of the high incomes have been tied to the mining boom. This is now over.
Sales of exports to China which, while still there, have been falling steadily thanks to a hollowing out of the manufacturing sector.
Government spending, which they keep promising to cut back on. Ha!
Rising mortgage debt.
“Of the 4 pillars above the only one still rising is mortgage debt. Pillars should be built of concrete. This one is built from polystyrene and it’s holding up the economy.
“I’m struggling to understand how an economy increasingly running on the over consumption of real estate financed by mortgage debt is anything but insane?
For those who care and for those who dare there is more and a link that contains more is soon to follow.
Link …
“5 Reasons This Country Is In For Big Trouble”
http://www.zerohedge.com/news/2016-06-05/5-reasons-country-big-trouble
If the economic wonder that is Australia is closely attached to the economic wonder of China then how can Fitch keep an AAA rating attached to the Australian wonder at the same time its rating on the China’s wonder goes south?
‘China’s net debt is $25 trillion, significantly greater than other emerging market countries and 50% higher than one year ago.’
50% higher national debt, 45% lower stock prices, broke back industrial commodities markets, collapsed high volume maritime shipping, millions of unoccupied housing units, entire cities of newly constructed buildings sitting empty…
SUM TING WONG!
One a positive note, they got 6% GDP growth out of it. Of course, that was going to happen as it’s just numbers on a page.
‘Despite what is widely seen as the mistake of 2009′
‘US presses China over industrial glut at strategic dialogue’
‘The Chinese finance minister defended Beijing’s response, saying China needs time to allow market forces to reduce surplus production capacity. “China is no longer a centrally planed economy. We can’t instruct businesses to do something,” Lou Jiwei said at a news conference. “We will reduce excess capacity through market forces.”
Cue the square dancers!
“Many commentators now believe that understanding the damas’ craze for square dancing is crucial to grasping the pulse of the Chinese economy.”
http://www.scmp.com/news/china/article/1663571/chinas-square-dancers-take-society-storm-their-loud-music-and
Oil companies in Houston are flooding the commerical real estate market with superfluous, no-longer-needed office space snapped up with unlimited cheap credit during the boom years.
http://wolfstreet.com/2016/06/05/houston-office-market-meltdown-conoco-phillips-see-through-building-sublease/
‘Befuddled with optimism, oil and gas companies fought each other over leasing empty office space they might never need, and this created huge fake demand, price spikes, and a boom in development that created a flood of supply of office towers, particularly for the energy sector.’
‘They were all “warehousing” office space. With lease rates going up forever, it was hyped as the smart thing to do. But warehoused office space is the “shadow inventory” that appears on the market overnight, without warning, on top of a growing mountain of available space.’
‘Shell, Marathon, BHP Billiton, Apache, and other companies in the energy sector already dumped warehoused office space on the sublease market in Q1. Sublease space soared 19%, to 9.16 msf, up 124% from Q3 2014.’
‘Leasing activity in Q1 plunged 25% from a year ago, to 1.56 million square feet (msf), worse even than during the Financial Crisis, and is down 59% from Q4 2014! The availability rate jumped to 24.5% or 47.4 msf for Greater Houston, according to commercial real estate services firm Savills Studley. The availability rate for Class A buildings hit 26.5%, also worse than during the Financial Crisis.’
‘In the Katy Freeway sub-market, where about 90% of the office space is occupied by energy firms, availability hit 33.6% in Q1. In the Greenspoint sub-market, it hit 48%.’
Coming soon to a San Francisco near you.
Tech companies have been “warehousing” space for a while now.
(Remember Ben posting an article here about it.)
I think I’ve shared this before, but a well-informed commercial RE broker in the Bay Area noted that the “official” vacancy rate for office is approximately 5%. HOWEVER, if you add all the “warehoused” space, it grows to 20%…and developers continue to build more and more and more.
even in the DC area office is 16% vacant, but I think that’s a number like the unemployment rate
There is a lot of pretty ghetto looking office space in DC. Vancancies are not surprising.
In spite of UK Establishment scaremongering, popular support for BREXIT is growing and the “Leave” forces now have a majority.
http://www.telegraph.co.uk/business/2016/06/06/sterling-volatility-hits-crisis-levels-as-two-polls-show-britons/
imagine of the UK took on the euro - might as well treat the EU like SWZ or Norway does- open trade w/o the welfare BS
‘A huge replica sphinx has been built in China, the latest in a series of copies of the ancient Egyptian monument in the Middle Kingdom. As well as the knockoff Great Sphinx of Giza, the Lanzhou Silk Road Cultural Relics Park has built replicas of the Greek Parthenon and other world wonders.’
‘Lanzhou, in northwest China, is hoping the famous fakes will draw tourists, as well as the film and gaming industries, reported China Daily. The town was once a major trading hub on the Silk Road, which China is trying to revive. It is just the latest of many copies of world famous monuments, and sometimes entire towns, to appear in the country.’
‘France is a not just popular with Chinese tourists leaving the country. Copycat Eiffel Towers can be found all over, with this one in a luxury real estate development in Hangzhou, eastern China, standing at an impressive 108m (350ft).’
‘The builders of this housing development in Hefei, eastern China, were doubtless grateful they had slightly more modern tools to hand than did the creators of the original Stonehenge in the UK.’
I’ve never understood this drive in China to create replicas of other cultures’ landmarks and cities, and would like to hear an explanation from someone who has lived there. Is it insecurity?
The nation has more than three thousand years of existence and doesn’t need to emulate anyone. Maybe all that history has been left behind, and nothing coherent has arisen in its place.
Could it be that half a century of stultifying communist rule has left them devoid of original creative capacity? Copying creators in less repressed cultures may be their best option.
Some of this stuff is being built using corn. Yes, corn! Let’s invest in corn futures, the sky is the limit building useless sphinxes out of corn!
Sounds like another way to keep people who might otherwise mount protests busy.
I agree with you about China’s history, their art and artifacts were/are amazing.
However, Mao really did a number and they got beat with the ugly stick.
I think what’s being described here is something called a cargo cult.
https://en.wikipedia.org/wiki/Cargo_cult
This is so wrong. They should look to their past, pre-Mao, and in it will find their own excellence.
The nation has more than three thousand years of existence and doesn’t need to emulate anyone. Maybe all that history has been left behind
I used to think along those lines until I took several semesters of Mandarin from native born teachers, no doubt approved by the new Mandarins back in the Middle Kingdom. Their work ethic, curiosity about other nations (not a ‘need to emulate’ by any means), and pride in their nation’s history impressed me deeply. Building replicas of world landmarks in China is on the same level as building Disneyland was, fun for the kids.
‘Michael Schuman is a journalist based in Beijing and author of Confucius: And the World He Created.’
‘China is arguably the valedictorian of Asia’s MBA program. When Deng Xiaoping ditched the radical economics of Mao and steered China into the global economy beginning in the early 1980s, he borrowed liberally from programs and policies that had earlier ignited rapid growth in Japan, South Korea, Taiwan, Hong Kong and Singapore. The student quickly outshone the teachers, riding an export-led, investment-heavy strategy to years of double-digit growth.’
‘Now, however, China’s President Xi Jinping appears to have misplaced his textbooks. Rather than continuing to heed the experiences of Asia’s tiger economies, he’s ignoring critical lessons at his — and China’s — peril.’
‘Xi has pushed economic reform too far down his to-do list. Instead, he’s devoted much of his attention and energy to an anti-corruption campaign, a drive for ideological purity within the Communist Party, greater control over social media and civil society, and squabbling with neighbors over territorial issues. Rather than separating economic and political agendas, he appears to have placed the former at the service of the latter.’
‘A corollary of this is that leaders need to trust their technocrats. Even the strongest of strongmen, from Korea’s Park to Indonesia’s Suharto, relied on experienced, talented economists and other experts to devise and direct economic policy. In Indonesia, Suharto eagerly took notes while his “Berkeley Mafia” of U.S.-trained economic advisors lectured on sound policy. Singapore’s Lee Kuan Yew was blessed with a crack team of professional policy wonks, most notably Goh Keng Swee, one of the economy’s main architects. During Japan’s go-go years, the economy was effectively run by talented bureaucrats, not by elected politicians.’
‘Technocrats certainly populate all rungs of the Chinese leadership and central bank; Premier Li Keqiang himself has a Ph.D. in economics. But President Xi has grasped more and more authority over policymaking in his own hands, effectively sidelining his deputy. The experts seem to have been reduced to writing papers laying out worthy reform proposals, only some of which are eventually heeded.’
‘After a certain point, money can’t cover up for other mistakes. Much like China is doing today, policymakers in Japan flooded their economy with cash in the late 1980s in an attempt to avoid structural reform; the strategy only further inflated the bubble that led to the country’s years of stagnation. Nor have other Asian countries been all that successful in employing state-directed money to spur innovation, as Xi is attempting.’
‘Eventually, governments have to get out of the way. South Korea tumbled into a financial crisis in 1997 in part due to continued state manipulation of the financial sector; the gradual government pullback that followed has helped spur an explosion of entrepreneurship and innovation. In Japan, on the other hand, where bureaucrats have resisted letting go their grip on the economy, a lack of deregulation continues to crimp the economy’s potential.’
‘Even though Xi has pledged to undertake a sweeping liberalization program, progress has been slow, especially in the reform of critical areas such as the financial sector and capital flows. Even more, Xi has made it clear that the government intends to retain the “commanding heights” of the economy, merging and bolstering state enterprises, for instance, rather than letting them die a natural death.’
‘No doubt Xi is hoping to avoid the fate of leaders in places like South Korea and Taiwan, who yielded to demands for democracy as their economies grew richer and more advanced. Unfortunately for China, he’s likely to miss out on their success, too.’
This may be the first piece I’ve ever read that compliments Suharto in any manner. By one estimate, he stole $35 billion. Does this sound like someone who “trusted his technocrats”?
“Through a system that his political opponents called KKN, the Indonesian acronym for ‘corruption, collusion, nepotism.’ Suharto handed control of state-run monopolies to family members and friends, who in turn kicked back millions in tribute payments. Those payments were usually cloaked as charitable donations to the dozens of foundations overseen by Suharto. Known as yayasans, these organizations were supposed to assist with the constructions of rural schools and hospitals but instead functioned as Suharto’s personal piggy banks. Doling out millions to one of the foundations was simply part of the cost of doing business in Indonesia during much of Suharto’s 32-year reign.”
http://tinyurl.com/zmn3vbn
The long history of China has many episodes of misfeasance, malfeasance, nonfeasance and just plain dumb-feasance on the part of its highest leaders. See Wiki’s brief outline of the An Lushan rebellion, which resulted in the largest death toll in any war-torn country until WWII. At the time the emperor gave the highest military command to a barbarian, who later took advantage of economic difficulties and natural disasters to revolt against the emperor. More bad decisions at the highest imperial level (from various palace intrigues) then resulted in outstandingly stupid military decisions that led to the fall of the capital. Chinese history has many episodes of going from excellent conditions to horrible ones in just a few years. Kay’s fantasy novel “Under Heaven” is a very entertaining account of those times and does match my limited education in Chinese language/culture.
‘Faced with an increasingly tangled system of financing and a money supply measure that doesn’t fully encapsulate new credit creation, the Goldman analysts opt to take a slightly different approach to gauge the strength of China’s recent credit boom. They look at the (adjusted) flow of money emanating from households and companies and going into various financial investments.’
‘On that basis, China’s credit creation came in at 24.6 trillion yuan ($3.7 trillion) last year — far outstripping the 16 trillion yuan increase in money supply and the 19 trillion yuan of total social financing.’
“Such a scale of deterioration [in China's leverage] certainly increases our concerns about China’s underlying credit problems and sustainability risk,” the Goldman analysts conclude. “The possibility that there is such a large amount of shadow lending going on in the system that is not captured in official statistics also points to [a] regulatory gap, and underscores the lack of visibility on where potential financial stress points may lie and how a possible contagion may play out.”
in 22151 realtors calling looking for listings-inventory tight w minimal price moves
hitlery coming
Hitlery, my butt. NOBODY has done more for 22151 house prices than Bush and his neocon cabal.
Springfield,
Virginia (VA). 22151
Number of Defense Contractors in this Zip Code: 80
Dollar Amount of Defense Contracts Awarded to Contractors in this Zip Code from 2000 to 2015: $1,328,399,120
Number of Defense Contracts Awarded to Contractors in this Zip Code from 2000 to 2015: 3,267
http://www.governmentcontractswon.com/department/defense/springfield_va_22151.asp
And that’s just tiny Springfield. Here’s Fairfax country:
County & State Fairfax County, Virginia (VA)
Number of Defense Contractors in this County 4,303
Dollar Amount of Defense Contracts Awarded to Contractors in this County from 2000 to 2015 $346,278,228,692
Number of Defense Contracts Awarded to Contractors in this County from 2000 to 2015 208,587
I see you’re on the med side MD
you little commissar
“Overall we now have a fiscal stimulus in the global economy,” writes Global Chief Economist Janet Henry. “It is not large, but it is getting bigger and, for the first time since 2010, we estimate that global government spending will grow more quickly than global GDP.”
‘The reasons for the pick-up in spending are manifold: Chinese authorities are pulling fiscal levers to buoy activity, state-level spending has increased in the U.S., Germany has been forced to expand spending in light of the refugee crisis, France’s leaders have cut corporate taxes in a pre-election year, and in Canada, a new government is increasing investments in infrastructure.’
‘With central banks around the world resorting to unconventional policy like the introduction of negative interest rates to kick-start their economies, this fiscal boost potentially allows them to ease up on the monetary accelerator and reduces the odds of reaching their effective lower bounds.’
“Given weak nominal global growth and excess savings monetary easing and fiscal stimulus need to work closely together,” adds Henry. “We suspect they will. Full-blown helicopter money is not imminent but ‘paper’ helicopters ([quantitative easing] which allows the government to spend freely without being reprimanded by the market), are already airborne.”
‘However, this pick-up in government spending may prove insufficient to offset sluggish investment and trade, the economist warned.’
“The U.S. cannot single-handedly lift the global economy out of this weak spot, any more than China alone was capable of being the global economy’s only real growth engine and absorber of the rest of the world’s disinflationary pressures for more than a few years,” writes Henry. “The world needs more than one engine.”
‘The People’s Bank of China has been adding liquidity to banks. Credit, again, has begun to accelerate. Despite what is widely seen as the mistake of 2009′
‘It’s also a case of buyer beware – they should’ve been more careful when they went in. They went in with dollars in their eyes and now they have sand in their eyes.’
‘The technical term is they’re stuffed for a long time, but you always knew that they would be.’
But should they lock in these 3% interest rates? Zillow says yes.
‘Yu’s 6,000 yuan monthly pay goes mostly toward good times with friends. In a few years, he will have the option to buy the 400-yuan-a-month rented apartment in public housing where lives now. He reckons that reselling the place will give him enough money for a down payment on a home. ‘Everyone around here has become rich buying one or two houses,’ Yu says.’
This logic is impeccable. We should recreate it on a mass scale.
‘Almost 80 percent of Swiss voters rejected a guaranteed monthly income Sunday. Under the proposal, Swiss adults would receive a government check of 2,500 Swiss francs ($2,563) each month, and children under the age of 18 would receive a check worth 625 francs. Although the proposal had almost no political support, it gathered more than 100,000 signatures, so it was put to a public vote under Switzerland’s popular initiative political system.’
‘A the idea of providing a basic income guarantee, or BIG, has held currency on the political left for decades.’
“Wouldn’t it be better just to scrap the whole system and write the poor a check?” Matt Zwolinski, an associate professor of philosophy at the University of San Diego, writes in an essay for the Cato Institute. “Unlike other welfare programs which encourage or require recipients to consume certain specific kinds of good – such as medical care, housing, or food – a BIG simply gives people cash, and leaves them free to spend it, or save it, in whatever way they choose.”
‘Proponents also say a BIG would ensure a passionate workforce, innovation, and suitable working conditions.’
“An entrepreneur can now be sure that people will come to her because they actually want to work with her. Motivation will become a prerequisite for a job application,” write Enno Schmidt and Che Wagner, co-designers of the Swiss referendum initiative for an unconditional basic income, on their site Basic Income 2016. “The applicant can also say no to unappealing job offers more easily. The threat of taking away a person’s livelihood can no longer be used as a means to force employees to work under bad conditions.”
‘Compared to its European counterparts, Switzerland’s economy is faring well. Switzerland had an unemployment rate of 3.5 percent as of April, far below the Eurozone average of 10.2 percent. Finland and the Netherlands, with current unemployment rates of 9.8 and 6.4 percent respectively, are launching similar trial programs in the near future. Switzerland is the first country to put the concept up for popular vote.’
‘The Finnish experiment will take place in 2017, with 180,000 Fins receiving a basic income of 500 to 700 euros a month. This may seem like a generous right for Finnish citizens to assume, but it is actually far less than the current average income of 2,700 euros in Finland. And under the Netherlands’ experiment set to take place starting January 1, 2017, four varieties of a basic income system will be tested among thousands of citizens and later compared to the current system.’
‘But campaigners of Switzerland’s basic income system said they anticipated defeat. “For centuries this has been considered a utopia, but today it has not only become possible, but indispensable,” Ralph Kundig, a lead campaigner, told AFP. And while the initiatives slim chances were obvious, “just getting a broad public debate started on this important issue is a victory.”
‘For centuries this has been considered a utopia, but today it has not only become possible, but indispensable’
You know Ralph, I’m going to go with Yu’s plan. To heck with waiting around for some government check. He’s gonna party away all his money, buy the government apartment and get rich! No vote required, it’s a lump sum baby.
Why have we been fooling around with all this capitalism and getting up, going to work, for centuries? All we needed was a perpetual housing bubble - utopia!
“‘Everyone around here has become rich buying one or two houses,’ Yu says.’
This logic is impeccable. We should recreate it on a mass scale.”
Welcome to California!
they just need to sell NOW.
timing is everything.
There is no buyer at a fraction of that price.
MarketWatch
June’s out for a Fed rate hike and July’s on life support, analysts say
By Greg Robb
Published: June 3, 2016 2:20 p.m. ET
Down to a 4% chance of a rate hike in June, according to futures contracts
…
“Wen the neighbour — whose surname is Wang — tried to sell her apartment, local officials told her that her lease on the land had expired. To sell her apartment, they told her, she would have to pay them one-third of the sales value.
Ms Wang protested in a move that drew national attention. Suddenly millions of Chinese who had socked away billions — and possibly trillions — of dollars were worried as well. If the local authorities in other parts of China did the same thing, they thought, a big chunk of their own wealth could end up with the government as well.”
________________________________/
LOL. The hits just keep coming. The corruption opportunities here beggar belief.
Wen the neighbour — whose surname is Wang — tried to sell her apartment, local officials told her that her lease on the land had expired. To sell her apartment, they told her, she would have to pay them one-third of the sales value.
And there is the answer to my question near the top of today’s blog.
“Ms Wang protested in a move that drew national attention. Suddenly millions of Chinese who had socked away billions — and possibly trillions — of dollars were worried as well. If the local authorities in other parts of China did the same thing, they thought, a big chunk of their own wealth could end up with the government as well. Several blocks away, residents of another affected neighbourhood, Shuixin, wondered what would happen when they tried to sell their apartments.”
Sounds like they didn’t understand the contract, and failed to understand the implications of not owning the land to the value of the property.
There are land-lease buildings in the five boroughs of New York.
Not a whole lot - a few hundreds - but they do exist.
It’s always a mess when less than 30 years are left on the lease. Some of the best ones have an option embedded to buy the land which gets passed on as a “special assessment”.
a friend is retiring and I suggested the 4% depletion rule might be more like 2.5% or 3% at best
deep thoughts?
“Deep thoughts”
There are so many unknown variables, but here’s my shot:
If the return rate and the inflation rate are equal then the actual inflation-adjusted return rate will be zero.
If the actual return rate is zero and if one expects to live 25 more years then he can withdraw 4% of his stash each for 25 years; At the 25th year his stash will be gone.
If his return (after taxes) is higher than the inflation rate then he can withdraw more than 4% a year. If his after-tax return is lower than the inflation rate then he will have to withdraw less than 4%.
If the rules regarding Social Security change then his withdraw plans will have to change. Same goes for a pension; if his pension annuity changes then his withdraw rate will have to change.
If his life expectancy changes then this will/may force changes in his withdraw rate.
As I said, many unknown variables. However, IMO it is best to go with caution than otherwise which means one should lean toward a less-than-4%-withdraw rate.
Overdrawing can be compensated for with a single shotgun shell.
I’m trying to set myself up with my great uncle’s view.
Invest in a diversified group of strong dividend paying stocks. Spend the income…never sell anything.
This strategy only works though if you start the investment portion of the show ASAP, so you can amass enough in assets before retirement.
This is the standard “rich person’s” strategy as old as time.
Selling principal is for the hoi polloi.
You only ever spend a fraction of the income!
Naturally, most humans don’t get it. Hence, the “shirtsleeves to shirtsleeves in three generations” quote. (There are similar quotes in Hindi, Chinese, Japanese, etc. It seems quite universal.)
When I was little, we heard stories of “rich” people who did just that. They’d have $500K put away, which would make $50K income, and live on the $50K.
And yes, that was the general figure that I remember to this day — TEN PERCENT.
Today it’s ZIRP and NIRP. At those (lack of) rates, the most you can buy is a bullet or an ice floe.
The 10% I’m guessing wasn’t bank interest, but something with a bit more risk?
Yes. The math is much different today. You can’t get 10% without taking some risk. In some cases a lot of risk.
However, if your plan is to hold the assets more or less indefinitely (ie. you don’t need to sell), then you can buy a well-diversified dividend paying ETF at a 3-4% yield.
And that’s the low hanging fruit.
There should be some growth in those coupons over time, and if you add in a preferred equity ETF, that yield can be close to 6% (PFF is a ticker to look at). Less capital appreciateion, but more income.
You can also try your hand at private RE investing–however, that takes exactly what I would want to avoid in my retirement…work.
Effectively, it takes 2x as much principal to get the same cash flow as before, and probably taking more risk today with less potential for income growth–and more potential for capital loss (especially if you utilize a lot of the preferred stock to get your current yield).
And so, we can all cry about it, or:
Start early
Save often
Max tax advantaged accounts
Build cash when times are good
Buy assets when times are bad
had to peel off some shares
p/e of S&P almost at 25 w a .8% gdp print ????
this qe 2,3,4 shure does work !
“Market Cap to GDP: An updated Look at the Buffett Valuation Indicator”
June 3, 2016
http://www.advisorperspectives.com/dshort/updates/Market-Cap-to-GDP
Lots of charts and stuff, too much stuff to post. Needs to be given a good, close read.
‘For Bilderberg, as for Goldman Sachs, the idea that there might be any kind of push-back against globalisation is a horrific one. I suspect we’ll glimpse some frowning faces behind the tinted glass as the limousines start rolling up on Thursday.’
‘An integrated EU, with the City at its centre, is a key building block in a globalised world, and its potential loss is a huge concern for “the high priests of globalisation”, as Will Hutton called the members of Bilderberg. The prospect of Brexit “frightens me”, admit Ken Jacobs, the head of Lazard, and another member of Bilderberg’s inner circle. Not much frightens these people. Only two things: sunlight and Brexit.’
I was forced to read “The World Is Flat” by Thomas Friedman in an undergraduate Political Science elective class.
National sovereignty is just a pesky nuisance to these globalist cockroaches.
I don’t know if it appeared in that book, but Friedman was fond of recounting, in support of his position, the inane point that no two countries with a McDonald’s had ever gone to war with each other. In WWI, the monarchs of Germany, Russia, and Great Britain were related. If that couldn’t prevent a conflagration, the mutual ability to order a Happy Meal won’t either.
I’d forgotten just how vapid and self-serving the political theorizing of the 1990s was. “The end of history” indeed.
http://www.nytimes.com/1996/12/08/opinion/foreign-affairs-big-mac-i.html
they still teach poly sci?
Nice to see this morning my GDXJ holdings which I bought in 2014 are up a total average 32%. I bought several bunches of shares back then when PB was posting anti gold articles on an almost daily basis. AUY is a Cham, as well.
Here’s a gold price chart that goes back to 2011 …
http://finviz.com/futures_charts.ashx?t=GC&p=w1
Yup. Gold is close to breaking out of its long time trend. The problem of trend line analysis is that by the time the asset (stock or commodity or whatever) breaks the downtrend, a big part of the potential gain is gone. So you have to buy early, and predict the inflection point. The reverse is also true. You have to sell before the trend shows the sell point.
I like the 50 day MA and 200 day MA trend analysis. Haven’t used it for gold but I used it for my former company stock. It goes like: as long as the 50 day MA is above the 200 day MA you should continue to hold.
Did a search on CL for a dog-friendly house in LA today (want more room and to be closer than the city than my current condo). Prices were still crazy high, but I was surprised at how many listings began with “Price Change” (down, of course). Rent normalization may be hitting LA:
http://losangeles.craigslist.org/search/apa?pets_dog=1&housing_type=6
It finally occurred to me that as long as there is widespread sentiment among the American Public for bloodshed by the U.S. military, the stocks and houses will go up.
Reasoning: Every 1% increment in interest rate increase means $170 billion HAS TO be paid out in interest to creditors. That $170 billion has to come from somewhere. Either blatant and obvious tax increases or cut spending elsewhere, like in war.
Cutting war and imperialism is political suicide these days. So the pressure is to keep rates low. Yellen the felon is playing the game right.
Therefore buy houses - but better yet, buy stocks. The rates will stay low for the foreseeable future.
When you start seeing marches against war in every major city and with mostly white people protesting, you know you should not be in stocks or RE.
‘Merica’s first female president will have us in a boots on the ground preemptive Middle East war in the spring of 2019, to show how tough she is in the “War on Terra” precipitated by some false flag event, conveniently timed with the announcements of next election’s male R candidates.
I’d bet money it. Neocons gonna neocon.
“Not all contractors in the warzone are base guards, laundry workers or chefs. The CIA and other intelligence agencies still use contractors like the former Blackwater or $2.2 billion firm DynCorp and other for paramilitary services. The number of those contractors, some who are closer to the battlefield than the military advisors, is classified and unknown to the public.”
It’s open knowledge that government contractors (civilian and military) cost the taxpayers half a trillion dollars a year.
See oxide’s post about Fairfax County, VA above.
True that. Contractors do the work the government wants done but can’t/won’t do, which is everything government does. And the leaders of the contracting companies are typically ex-military that milk their connections to keep the gravy train rolling. Whole economy, lock stock and barrel is a cargo cult.
It’s been a huge scam for decades. I knew a kid in high school who was smart, popular, upwardly mobile, became a congressional page for a local corrupt Democrat, went up the food chain, and became a lobbyist for the airlines. Leftist voters always seem shocked when the “progressive” candidates get caught with kickbacks once elected.
It works the same across both aisles. The American gullible public is always shown how the “right” and “left” are at each other’s throats. It is multi purposeful. Keeps the low brains occupied with their battles and draws attention away from the scams going on in Washington on a daily basis.
Same thing happens at the state level.
As long as there isn’t a draft, there won’t be any protests. And there are more than enough poors to negate the need for a draft.
Miss California is a dog.
Maybe she’s a retriever and can retrieve me a sammich.
Fetch me a bag of Cheetos woman!
“Miss California is a dog.”
The rankings didn’t include the peter meter.
When I think of Trump I think of the Floyd’s “Another Brick in the Wall”.
https://www.youtube.com/watch?v=YR5ApYxkU-U
Remember Murika - you voted for this. And remember ILLANNOY - you foisted this dumb a$$ and his minions (Jarrett, Rahm, Axelrod et. al.)on the nation!!!
Way to go….
http://www.chicagotribune.com/business/ct-blue-cross-obamacare-premiums-0605-biz-20160603-story.html
Why would the fed raise rates with $20 Tril owed? interest pd per year would go up by the billions.
ISTR a former Fed economist state at a conference that secretly the Fed would really like to see inflation of 4%ish for a number of years.
I don’t see the Fed being very aggressive with their interest rate hikes until inflation substantially breaks from the 2%ish level.
Same reason the story that confiscation of 401k/IRAs gets floated every so often. Get the sheep off their asses and into a taxable event. Just overheard some firemen at the local gym talking housing market, one was eager to refi - raising rates a little here and there gets that going. He was mad he was paying pmi - due to low down payment. Dude should have spent less on tattoos, and I didn’t see but would bet he has a crazy truck to drive. Gotta rep.
Flower Mound(Dallas/FTW), TX Affordability Improves As Housing Prices Crater 15% YoY
http://www.zillow.com/flower-mound-tx/home-values/
Kr8or
Is it time to ramp up the rage again?
Absolutely!!!
This probably isn’t the best thread for this since we no longer have the daily open, but this story needs to be seen - people camping out in Seattle to buy a condo that hasn’t even been built yet:
http://komonews.com/news/local/seattle-for-sale-condo-buyers-camp-out-line-up-for-project-three-years-out
How close are we to the end? I remember when this was happening in Florida during HB 1.0.
“I remember when this was happening in Florida during HB 1.0.”
It’s different this time.
Jupiter, FL Affordability Surges As Housing Prices Plummet 6% YoY
http://www.zillow.com/jupiter-fl/home-values/
From street protests and collapsing governments to eleventh-hour deals and financial lifelines, Greece has gotten used to lurching from crisis to crisis during its endless economic meltdown.
Prime Minister Alexis Tsipras is relying on it being different this time after finance ministers in the euro region agreed to disburse more funds and the European Central Bank on Thursday said it would be willing to let banks increase their access to its cheaper credit. Even Eurogroup head Jeroen Dijsselbloem, the face of Europe’s standoff with Tsipras last year, said “an important corner” had been turned.
For sure, more businesses in Greece say they have hit the bottom. There’s also more political impetus to get the job done after Tsipras, 41, turned from anti-austerity firebrand to submissive leader of a stricken nation. But similar talk has turned into false dawns during the six-year experiment in austerity. The cash injection into the economy will need to offset the latest round of tax increases.
“European partners are reassured by the fact that this government decided to bite the bullet and are signing pretty much what they are being offered,” said George Papaconstantinou, who was finance minister when Greece blew up in 2010 and it was forced to seek a rescue. “All fine and well, but it is not enough for the country, and it is not a turning point. I wish it were, but it’s not.”
Greeks are about to feel another squeeze while their economy has done nothing to make up for its 25 percent contraction. Unemployment still sits well above 20 percent and labor market reforms will form part of the next bailout review.
Extra taxes on incomes and pay TV kicked in on June 1, with more to follow on coffee and Internet usage while pensions are being cut again. In the same week, a statistical office report showed that the economy shrank another 0.5 percent in the first quarter and retail sales slumped 4.3 percent in March. Reaching for a consolation beer also is more expensive after the government doubled a special consumption levy.
http://www.bloomberg.com/news/articles/2016-06-06/in-greece-s-economic-war-of-attrition-tsipras-counts-on-peace
From firebrand to gimp in one easy lesson.