---------------------------------------------------
BUBBLES are supposed to burst with an audible pop. But in the snap and crackle of the Chinese housing market, it is hard to hear anything clearly. On June 9th the Wall Street Journal put its ear to the ground and declared that “the great property bubble of China may be popping”. It pointed out that prices had fallen by 4.9% in the year to April in nine big cities tracked by Rosealea Yao of GaveKal Dragonomics, a consultancy. Ms Yao herself thinks a “correction” in the next six months is inevitable. But she argues that it is still “a bit early to say the bubble is bursting”.
Official figures released on June 14th added more noise...
In other countries, such as America, economists can rely on clear signals from credible price indices. In China the National Bureau of Statistics used to publish a price index spanning 70 cities. ...People stopped paying attention to the national index. In December the government ceased publishing it.
In the absence of credible government figures, many analysts have turned to private-sector alternatives. ...
Developers can stay out of the market only for as long as they can stay out of the red. As their cash pile dwindles and liabilities fall due, they will be forced to sell, whatever the market conditions. To give themselves more leeway, bigger developers have turned away from fickle onshore financing to international bond markets. The 30 developers rated by Standard & Poor’s, a rating agency, raised about $8 billion of mostly five-year money in the first five months of this year, compared with $8.8 billion in the whole of 2010, itself a record year. Developers can bring this money back into the country, despite China’s capital controls, provided they show a bit of patience and a commitment to build things in unfancied cities.
Even so, the debts of many smaller developers will fall due next year. Standard & Poor’s expects property prices to fall by about 10% over the next 12 months, but it does not rule out a “price war” if distressed selling by overstretched developers begins to feed on itself. If China’s property market is a bubble, it may end with a squeal as well as a pop. http://media.economist.com/images/im...618_fnc040.gif
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I recognized the housing bubble a bit before the business press did, and as the U.S. crisis developed I noticed the following pattern emerge over time when I looked at the way the "bubble" percolated through the news stories and internet articles:
1. A few people started asking questions about housing and mortages, and pointing out some things that alarmed them. These articles tended to be in rather specialized niche outlets, like real estate agent newsletters and such.
2. These people then seemed to spur some in the business press to write about it and look into it.
3. More business press got into writing articles on it.
4. Right before the whole thing broke, you started seeing mainstream, non-business press articles on it, and this increased markedly in volume. By this time the beginnings of the crisis had begun to take hold.
I have begun to see the same thing for the Chinese real estate bubble. We are at #3 now. I think the progress of awareness of this has been somewhat delayed because of the difficulty in capturing data good enough to call it.
From a quick search of what is available, it seems there is enough data, even if it isn't perfect, to call it. The number of "bet against China" hedge funds shorting China and companies with exposure are the last tell-tale sign to me.
2 years at the outside, by my guess. Exports will cushion it somewhat, but the damage will be made worse by the poor legal system.
Roubini, the economist who called our own bubble, gives it about that long.
The Chinese nationalists will, of course, blame outside "speculators". It will pop the Chinese sense of importance and confidence.
One can only hope that real reforms, openness and transparency will result.
Gold and oil will stay high, until then, and fall off a cliff at that point. Up until now, I had been a bit confused by gold's staying power, but it seems to go hand in hand with other commodities.
Given the derivatives that have been propping up both oil and gold, making the gains a bit larger than underlying demand might sustain, the rapid withdrawal of capital from these will make the downside a lot bigger.
All this is just my opinion.
Luckily for the West, the barriers China has thrown up and the overall difficulties have kept most US companies from really getting too deep into the marsh.
Interesting times, indeed.
06-22-2011
Wild Cobra
Re: China bubble (Economist)
I will reserve judgment on this topic. I will not even consider the linked article. You see, China is a from 3rd world status to 1st very rapidly. there are liable to be ups and downs, but I will leave open the idea that houses are simply getting cheaper due to the changing economy there. I seriously doubt it's similar to what we are experiencing.
06-22-2011
boutons_deux
Re: China bubble (Economist)
"I seriously doubt it's similar to what we are experiencing."
I'm sure China has the same increasing concentration of wealth at the very top, and wealth inequality, and esp in the Communist party leadership team and major Communist party functionnaires, and the businessmen connected to/favored by the Party.
06-22-2011
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by Wild Cobra
I will reserve judgment on this topic. I will not even consider the linked article. You see, China is a from 3rd world status to 1st very rapidly. there are liable to be ups and downs, but I will leave open the idea that houses are simply getting cheaper due to the changing economy there. I seriously doubt it's similar to what we are experiencing.
China Is Not a Bubble: It's the Hindenburg
The Financial Times published the article “China’s Growth Model ‘Unsustainable’” while offering that “Communist party leaders speak openly about the superiority of ‘Socialism with Chinese characteristics’ as evidenced by the country’s apparent resilience in the global financial crisis.” I am convinced that they don’t believe their own hype, and usually when officials say all is well and under control, like in Portugal, my birthplace, it’s time to run for the hills.
This article sources some other fairly credible ones, both official and unofficial.
Mr Hart, who runs Corriente Advisors from Fort Worth Texas, has told potential investors in a presentation that China is in the "late stages of an enormous credit bubble".
When this bursts, the financier said he expects an "economic fall-out" that will be as "extraordinary as China's economic out-performance over the last decade".
Asking for a minimum $1m (£640,000) stake, Corriente said it will use sovereign and corporate credit default swaps, interest rate and foreign exchange options to cash-in on the collapse.
The case against China goes beyond development projects and infrastructure, to also include excess capacity in sectors ranging from residential real estate to bank credit to steel. The drama is bound to unfold as it will, but, with their shirts on the line, an increasing number of fund managers are betting big that the China story will eventually surprise to the downside.
Quote:
Originally Posted by article from march of 2010
Serious industrial overcapacity shadows growth
Take televisions. Domestic sales increased from 1 million units in 2000 to 26 million in 2008. But at the same time, total production grew from 11 milion to about 200 million units. As many as 274 million televisions thus had to be sold abroad.
China has become a victim of serious overcapacity in almost all international industries. More supply than demand causes lower prices and companies are trying to compensate decreasing profit margins by producing even more at a lower cost. They are therefore investing massively in fixed assets like advanced machinery to take over the job of more expensive workers.
This explains why the share of household incomes in China's GDP continues to shrink and why China's economic growth is becoming less labor-intensive. In 2008, China needs almost twice as much GDP to generate the same number of jobs as five years earlier. Nine percent growth generated less than 1% job growth.
“If the situation does not improve, we’ll definitely want to quit (production). The sun is setting on the Christmas product industry (in China) right now.” — Owner of arts and craft factory in ShantouHere is another in a series of at-the-brink, sun-is-setting articles in the China Daily and other Chinese publications. All the familiar hallmarks: rising labor costs, inputs goods inflation, transportation disruption and other Mad Max conditions. The lights could actually go out and factories could be permanently shuttered all over China’s export sector after the Chinese New Year [Labor Shortage as Migrants Quit City].
Industrial overcapacity
high rent to income and value to income ratios for real estate
pollution
ecological mismanagement
aging population
energy inefficient economy
ever more inefficiently-deployed capital
This is all coming to a head.
It isn't just that one article, as noted in the OP.
06-22-2011
CosmicCowboy
Re: China bubble (Economist)
Interesting...thanks for posting...
06-22-2011
Trainwreck2100
Re: China bubble (Economist)
Good fuck those rice eating baby killers
06-22-2011
MannyIsGod
Re: China bubble (Economist)
Is our economy leveraged against this in any major way?
06-22-2011
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by MannyIsGod
Is our economy leveraged against this in any major way?
Define "leveraged against".
Not sure what you are asking.
06-22-2011
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by hemann82
damn youre like the prophet isaiah
Who?
06-22-2011
MannyIsGod
Re: China bubble (Economist)
RG what I'm saying is I don't see how this hurts the US.
06-23-2011
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by MannyIsGod
RG what I'm saying is I don't see how this hurts the US.
The US exported $91Bn to China in 2010, or roughly 7% of our exports.
We import far more than that of course, but between the exports and companies over there that are actively doing business and making money, it would impact our economy.
This would be somewhat balanced by the fact that our imports from them would probably get cheaper, although given that they are reaching the limits of their labor pool and have experienced some substantial wage pressures, that may not pan out.
It would collapse commodities markets, so it would affect oil companies, mining companies and so forth.
All in all, I think it would likely be something of a wash for the US economy. Cheaper gas would be something of a boon, but losing the potential growth of China would force a lot of businesses to retriangulate their courses. A lot of US businesses would likely be forced out when the Chinese government appropriates assets of foreigners, as I think would be highly likely.
The big winner would probably be India, as capital seeking growth would turn from China to India.
India has its own problems, but overcapacity is not one of them, and its population is still growing.
06-24-2011
DarkReign
Re: China bubble (Economist)
I have spoken with our steel mills and their affiliate distributors. The one great gain for American industry, should this happen, is the price of steel will drop considerably and availability will shoot through the roof.
China's rapid development exponentially increased the cost of steel and damn near eliminated its short term availability.
When China's development slows, the steel consumers here in the States will benefit immensely. Namely, me.
06-24-2011
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by DarkReign
I have spoken with our steel mills and their affiliate distributors. The one great gain for American industry, should this happen, is the price of steel will drop considerably and availability will shoot through the roof.
China's rapid development exponentially increased the cost of steel and damn near eliminated its short term availability.
When China's development slows, the steel consumers here in the States will benefit immensely. Namely, me.
Given the softness of the US and European economies, China's massive overcapacity, I would say that steel prices will go through the floor.
US car companies will benefit greatly. They will lose out on growth in China, but gain more in lower raw materials costs.
People who build stuff will see not only steel, but other raw materials fall, such as cement and lumber.
06-24-2011
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by MannyIsGod
RG what I'm saying is I don't see how this hurts the US.
Giving a bit more thought to it:
Deflation.
We are teetering on the edge with little room for the Fed to lower interest rates, so that would lead to some rapid shrinking of their balance sheet, I would guess.
Deflation carries with it a big risk for further US recession, and dampener on growth.
06-24-2011
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by hemann82
biblical prophet isaiah
basically it tickled my funnybone that you observed that
1-niche trade publications print industry-specific news first
2-industry-centered publications pick up on the news next
3-mainstream publications pick up the news last, as its effects are becoming evident
how else would it work?
Gotcha.
I wouldn't work any other way. Not an overly earth-shaking observation to be sure, but the point had less to do with how awareness of it developed, than with my feeling that by the time the full business press noticed and picked up on it the trend was fully underway, and picking up steam.
If you want to slow the train down, do it in the phase where the general business press picks up on it or before, because once it hits mainstream awareness, it is likely too late to head off the crisis.
06-24-2011
boutons_deux
Re: China bubble (Economist)
China has what is called an national industrial policy and the dollar-pegged-low currency.
America has VRWC-spewed "free market/globalization/business-knows-best" "faith", and it really is just another bullshit made-up religion, and a floating currency.
Guess which trading partner, esp the lower 98% of the citizenry, is getting screwed?
And guess which economy is exploding and which is stagnating?
07-13-2011
RandomGuy
Re: China bubble (Economist)
China quarterly growth tops forecast, boosts inflation fight
Quote:
BEIJING (Reuters) - China's economy grew faster than expected in the second quarter, easing fears of a hard landing and strengthening Beijing's resolve to fight persistently high inflation.
China's statistics office said on Wednesday that stabilizing prices remained the top priority, even though a "complex and volatile" global economy posed a threat to growth, complicating the policy choices.
Second-quarter gross domestic product rose 9.5 percent from a year earlier, exceeding economists' forecasts for 9.4 percent growth, helped by solid domestic consumption and investment.
But that was still the slowest pace since the third quarter of 2009, when the world economy was pulling out of its worst recession in 80 years.
Some cooling was expected -- and even welcome -- because China has raised interest rates and clamped down on bank lending to try to ease inflation, which hit a three-year high in June. The stronger-than-expected GDP figures suggest Beijing may have more room to tighten without choking off growth.
"These are very good numbers," said Liu Li-Gang, an economist with ANZ in Hong Kong.
"This is perhaps the reason the (central bank) raised interest rates last week. They are showing they are not afraid of a significant slowdown in the economy."
For investors worried that Beijing's tightening campaign might exact too heavy a toll on the fastest-growing major economy in the world, the figures offered some reassurance. Industrial output in June was also stronger than expected, growing at its fastest pace in over a year.
The Chinese government's efforts at reigning in growth may avert the worst of it.
Growth is to be expected from a rapidly industrializing country, so it isn't the growth that one should worry about, it is the inflation.
07-13-2011
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by other relevant part of that article
He signaled in June that the country would struggle to meet its 4 percent average inflation target in 2011. Monthly consumer price figures show inflation averaged 5.4 percent in the first half of the year.
An academic adviser to the People's Bank of China was quoted by state television on Wednesday as saying the inflation rate may have peaked in June, when it hit 6.4 percent.
Li Daokui, a member of the central bank's monetary policy committee, said the full-year inflation rate could be around 4.8 percent.
Last Wednesday, China raised rates by 25 basis points -- the third such increase this year -- which took the one-year bank deposit rate to 3.5 percent.
The central bank has raised benchmark interest rates five times since October and lifted banks' reserve requirement ratio -- its preferred policy tool so far -- nine times.
07-13-2011
boutons_deux
Re: China bubble (Economist)
China facing severe water crisis due to massive food production
China - is is running out of water, according to some experts, which will dramatically affect its ability to feed its 1.3 billion people.
The Asian giant has been warned by one of its own groundwater experts to either cut its food production or else face "dire" water levels, especially in the dry northwest plains. If not, aquifers will sink to "dire" levels not seen in 30 years.
"The government must adopt a new policy to reduce water consumption," said Zheng Chunmiao, director of the Water Research Centre at Peking University
"Swelling numbers of Chinese can now afford piped water, private bathrooms, washing machines, homes with gardens, cars that need washing, and more food, which needs growing. Buying power also has led to a growing number of golf courses, and ski resorts that use man-made snow," CNN reported.
Why is China's water shortage a big deal? Because a nation as powerful as China will find a way to secure enough water for its needs. Beijing is not about to take a step backwards in its development. And in the future, as fresh water becomes more scarce, wars will be fought over it.
I wouldn't know Keynesian economics if it came up and bit me in the ass, and I am too lazy to have my own opinion anyways.
Here is something that I think makes your viewpoint and opions invalid, even though it doesn't really apply. On the upside it does rather strongly reinforce the OP and your opinion concerning the Chinese bubble. Enjoy
Cool, thanks. :toast
07-13-2011
Wild Cobra
Re: China bubble (Economist)
Quote:
Originally Posted by DarrinS
Keynesian economics on steroids
This is all a ruse.
The Chinese have been contacted by extraterrestrial aliens looking for a new home. China is building them one.
07-13-2011
spursncowboys
Re: China bubble (Economist)
They are going to make Japan's 90's bubble burst look like an economic hiccup.
I still don't understand what Keynesian economics actually says. Since I don't I will root around using some key words and give you this blog post that seems to agree with me, but doesn't really.
If I had any reading comprehension and understood economics better I would realize how dumb what I'm saying is, but since I don't I will keep hammering away with this limp noodle.
You go with your bad self, and the honesty is quite refreshing. :tu
Are you sure you are the real DarrinS?
At this point, I'm not even sure I want to bother explaining to you why your posts not only do not refute or debunk Keynesian economics, they rather strongly support it.
You are so bad at critical thinking and reading comprehension, it would be like trying to explain fluid dynamics equations to a 3rd grader.
If you can give me a good reason to bother, I would love to hear it.
What specifically did the Chinese Keynesian spending target?
oops, the anti-Keynsian writer exposes his bias and straw man:
"they are quickly learning the failings of the Keynesian belief that government can solve all problems via spending."
no, govt counter-cyclical spending (capitalism being unstable, and capitalists want the instabililty since they can bet on it) is meant to lessen the depth/length of capitalisms' troughs, NOT "solve all problems".
07-14-2011
DarrinS
Re: China bubble (Economist)
Quote:
Originally Posted by Fareed Zakaria
Now, we got into this mess because Americans borrowed and spent too much and now, we're trying to get out of it by borrowing and spending more. The Republican Party has come to power in the recent election by denouncing Keynesian economics, that is the government's effort to stimulate the economy, but it turns out they are actually as committed to Keynesian economics as the Democrats.
You see, John Maynard Keynes simply said that when businesses and consumers stop spending, the government has to step in. He advocated two kinds of government actions, public spending or tax cuts. The Republicans simply prefer the latter. In fact, the cost of their Keynesian bill is about the same as the cost of the Democrat's stimulus bill of 2009, $900 billion.
What no one is talking about as we add to the deficit by encouraging consumer spending is that the only path to long-term growth is to have consumers borrow less, get their balance sheets in order and for the economy to focus more on investments for the future in industries of the future.
And while we shy away from that kind of thinking about government funding, the fastest growing country in the world, China, has uses precisely this approach to achieve its extraordinary growth rates and now, China is moving to a whole new level. Reuters reports this week on a plan by the Chinese government to invest $1.5 trillion over the next five years in strategic industries.
10-25-2011
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by spursncowboys
They are going to make Japan's 90's bubble burst look like an economic hiccup.
China's hidden debt problem
Quote:
Thanks to successive years of fast economic growth and even faster government revenue growth, the official debt-to-GDP ratio was 17.7% at the end of last year, far lower than almost any other major economy.
The trouble is that excludes local government borrowing, the current surge in loans backstopped by Beijing and bad assets cleared from the banking system but still floating about.
When all are thrown into the pot, analysts estimate that China's debt may be closer to 60% of GDP, putting it in virtually the same league as the United States, which was at 70% at the end of 2008 before it launched its massive economic stimulus program.
To be sure, Washington is now set on a path of exploding debt that Beijing will largely avoid. The United States budgeted for a federal deficit of 12.9% of GDP this year, whereas China is aiming for just 2.9%.
But China's finances are deteriorating more quickly than the government expected, fueling a rise in the stock of both explicit and disguised debt that will constrict its wriggle room.
Beijing Lawmaker: China Has $1.5 Trillion 'Hidden' Debt
Quote:
Billions of dollars of debt racked up by local Chinese governments during their investment sprees are likely to sour as the projects they finance near completion, Yin Zhongqing, a prominent Chinese lawmaker, said this week.
In an interview with Reuters Insider, Yin said local governments had incurred at least 10 trillion yuan ($1.5 trillion) of "hidden" debt, which they have concealed by creating thousands of investment vehicles that serve as borrowers.
Yin said it is not yet clear which loans will sour because they do not have to be repaid until the projects are completed.
"The large amount of debt that local governments took on since the end of 2008 to battle the impact of the global financial crisis will become a heavy burden for our development going forward," said Yin, who is a member of the finance and economic affairs committee in China's parliament.
He highlighted the high risk of default in the low-level county governments, which Yin said have little financial resources.
Those two previous articles were indicators that there is stuff going on behind the curtain. Here is the first evidence of the cracks in the dam, so to speak.
Boom In Shadow Financing Exacts High Toll In China
Quote:
In recent weeks, at least 80 business owners have fled Wenzhou in eastern China and gone into hiding because they can't pay crushing debts to the city's empire of underground lending firms and loan sharks.
Chinese Premier Wen Jiabao became so concerned that he flew to Wenzhou earlier in October to try to keep the problem from spreading.
The city's credit crisis highlights some of the flaws — and potential risks — of the banking system in the world's second-largest economy....
The premier called for state banks to lend more to small firms and accept higher debt levels. He also called for a crackdown on high-interest loans.
Need To Break State Banking Monopoly
China's state media says the problem has been contained, but some worry that credit crises could emerge elsewhere.
Ye Tan, an economist based in Shanghai, notes that underground banking isn't unique to Wenzhou.
"It exists in many other parts of China, including Inner Mongolia and Guangdong province. This is definitely not just a Wenzhou phenomenon," she says.
[Private firms] know underground lending is very risky because of the high interest rates, but they have no choice.- Gary Liu, China-Europe International Business School
The monopoly on China's banking system should be broken, says Gary Liu, who runs the financial research center at the China-Europe International Business School campus in Shanghai.
He says the problem is that China's banks are state-run and prefer to lend to state companies.
Consequently, many private firms — which produce most of the jobs in China — must hunt for loans elsewhere.
"They know underground lending is very risky because of the high interest rates, but they have no choice," he says.
Underground lending isn't just risky for borrowers. Liu says much of the money actually comes from state banks.
"For instance, you are bank staff, you have a friend. The friend can use his house to borrow a bank loan. And then you can lend money to underground borrowers," he explains.
And then they can lend the money to someone else. So, it can be hard for banks to keep track of where the money actually goes.
The rest of funding for underground lending comes from ordinary families, which can put entire communities at risk.
Underground Lending Out Of Control
Liu says despite these problems, the Chinese government has refused to reform the system.
"Many top leaders don't really understand the market economy. And actually, they don't want to give up their power. When there is a problem, the first thing that comes into their mind is to control," he says.
In China, shadow financing has grown dramatically in recent years. This summer, it stood at $2.6 trillion — nearly one-third of all lending in China, according to GaveKal, a global financial research firm based in Hong Kong.
Underground lending solves a huge problem for private companies. But no one knows exactly where all that credit is really going — and nobody seems able to control it.
Still, most analysts agree that shadow financing is not big enough to pose a risk to the economy. Lu Ting, an economist with Bank of America Merrill Lynch, wrote after a recent visit to the city that Wenzhou’s grey lending market could prove to be “a storm in a teacup for China as a whole.”
10-25-2011
RandomGuy
Re: China bubble (Economist)
China Puts Light on Shadow Loans .
With the new government crackdown on underground lending, analysts say there is now a risk that this source of credit could dry up, bringing down even thriving companies, with ripple effects on the formal banking system.
Shadow finance in China has been around for years, but the recent surge in such lending is unprecedented, analysts say. The lightly regulated underground lenders pool money from property developers, coal miners or other cash-rich individuals hunting for higher returns.
A significant portion of shadow lenders' funds comes from the banks themselves. Shadow lending has become sizable enough to challenge the government's tight control of credit and interest rates, two critical tools for steering the world's No. 2 economy.
...
The woes of the private sector also raise fresh doubts about China's ability to use bank lending to pump up the economy, as it did during the global financial crisis two years ago. "We think the bigger risks are credit withdrawal in both the formal and informal lending market and contagion," Wang Tao, China economist at UBS, said in a recent note.
As a result of the increase in shadow lending, China has an "unusually high level" of gross debt compared with other developing economies, according to a recent International Monetary Fund report on global financial stability. The IMF calculates that the stock of domestic loans, including those both on and off banks' books, reached 173% of China's gross domestic product as of the end of June.
In an indication of how much lending isn't reflected on banks' books, credit extended through banks, but moved off their balance sheets, stands at roughly 12 trillion yuan ($1.9 trillion), UBS economists say. Total loans outstanding , both on and off banks' balances sheets, stood at 55.7 trillion yuan as of August.
Dragonomics, a Beijing-based research and advisory firm, estimates that shadow finance accounted for more than 40% of new loans issued in the first half of this year. Much of this kind of informal lending actually is conducted by, or through, the major state banks.
According to analysts and banking executives, it has been a common practice among Chinese banks to move parts of their loan portfolios off their books by repackaging those loans into so-called wealth-management products that often promise rates of return higher than buyers can get from savings deposits.
..I'm concerned with what's possibly a massive bubble in China.
The real estate market is signaling alarms and may eventually fall into a worse situation than we had in the U.S. Hedge fund manager Jim Chanos, popular for being all over the Enron scandal, has been pushing his China real estate bear case to anyone willing to listen. And while there hasn't been a collapse (Chanos started his crusade in 2009), the real estate market has been slowly, but surely, getting worse.
Chanos points out that construction represents nearly 70% of China's economy. And with China on pace to build nearly 25 million new homes in 2011, the value of real estate to GDP is approaching levels witnessed during crisis situations in Japan in 1989 and Ireland in 2007. Consumers can't afford or keep up with the rampant oversupply, as speculation and corruption have overtaken the market.
You may have seen pictures of the so-called ghost cities in China. This video from SBS Dateline provides an overview of some of the concerns in the market.
Related Articles
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•Cramer: 8 Stocks for Your Buy List
I highly respect Chanos and, after reading that he was short McGraw-Hill (MHP) -- a Dividend Stars Portfolio holding -- I took notice. His argument is that S&P (which affirmed its long-term rating on China's sovereign debt at AA-minus) is missing the boat. I tend to agree. Based on what I've read from Chanos and other experts, it seems that some sort of economic disruption, fueled by a collapse in the real estate market, is almost inevitable. In fact, the renminbi has slumped to the bottom of its official trading band for six straight days through Dec. 7 against the dollar.
I still like the prospects of McGraw-Hill but am looking to hedge the portfolio with some short China exposure. If they get the call on China completely wrong, the result could be an even worse blow to their already damaged reputation. The hedge will also help alleviate some other China-related concerns in the portfolio. While Norfolk Southern (NSC) (another Dividend Stars holding) is still a high-conviction pick, I'm concerned with what might happen to its coal exports to China if construction in the region starts to tail off.
Today I'm adding the ProShares FTSE China 25 Ultrashort ETF (FXP) to the portfolio. While the Dividend Stars portfolio is meant to provide investors with a blue-chip dividend yielding portfolio, a hedge on China will help reduce overall risk. Unfortunately, this will cut the yield too. The FXP is supposed to mimic (200%) the inverse of the daily performance of the FTSE China 25 Index. I don't love inverse ETFs, but this seems to be the easiest way to get short exposure in a somewhat liquid instrument. (The ETF averages 640,000 shares a day.)
--Chris Stuart, director of research at TheStreet Ratings
At the time of publication, the author was long FXP.
I have spoken with our steel mills and their affiliate distributors. The one great gain for American industry, should this happen, is the price of steel will drop considerably and availability will shoot through the roof.
China's rapid development exponentially increased the cost of steel and damn near eliminated its short term availability.
When China's development slows, the steel consumers here in the States will benefit immensely. Namely, me.
70% of the Chinese economy is related to construction, it would seem from the article I just posted.
That means when the real estate bubble pops, the price of steel will fall through the floor.
I heard recently that someone was, for the first time in a LOONG time, building a new steel mill in the US. Ouch.
12-09-2011
boutons_deux
Re: China bubble (Economist)
"the price of steel will fall through the floor"
and US steel makers will be asking for taxpayers bailouts, or go bankrupt. They absolutely love the high prices constricted supply gives them.
02-13-2012
Winehole23
Re: China bubble (Economist)
China orders banks to roll over $1.7trillion in debt that otherwise would mature this year:
china aint using a single yuan to buy shit, all of that purchasing power comes from you yanks payin stupid interest on ur foreign debt which they owe most of...
plus whatever report comes out of china is untrustworthy....lol disclosure of financial reports...they dont believe in that shit
02-13-2012
boutons_deux
Re: China bubble (Economist)
"foreign debt which they owe most of"
China owns less that 50% of US debt. The biggest holders are Americans.
FED owning US debt dont mean shit, all its doing is printing more phony money and can afford to write it down bad debts with no affect on its books, just like how the IMF/ECB is doing with Greece writing down 50% of debt a few months ago.....its just numbers with no significant value cause that shit aint circulating in the market
02-13-2012
Agloco
Re: China bubble (Economist)
Quote:
Originally Posted by TDMVPDPOY
FED owning US debt dont mean shit, all its doing is printing more phony money and can afford to write it down bad debts with no affect on its books, just like how the IMF/ECB is doing with Greece writing down 50% of debt a few months ago.....its just numbers with no significant value cause that shit aint circulating in the market
Perhaps, but it's still different than China holding it.
02-13-2012
ElNono
Re: China bubble (Economist)
Quote:
Originally Posted by TDMVPDPOY
FED owning US debt dont mean shit, all its doing is printing more phony money and can afford to write it down bad debts with no affect on its books, just like how the IMF/ECB is doing with Greece writing down 50% of debt a few months ago.....its just numbers with no significant value cause that shit aint circulating in the market
China's holding in US Treasuries isn't circulating in the market either.
02-13-2012
johnsmith
Re: China bubble (Economist)
Quote:
Originally Posted by RandomGuy
70% of the Chinese economy is related to construction, it would seem from the article I just posted.
That means when the real estate bubble pops, the price of steel will fall through the floor.
I heard recently that someone was, for the first time in a LOONG time, building a new steel mill in the US. Ouch.
When steel prices fall, the steel suppliers make a shit ton of profit. Most contracts are awarded on a set price for the duration of the project (at least in construction), and when the price goes down, profit goes up...... a lot.
In 2008, price for rebar for instance shot up to .75 cents per pound.....two months later, it was at 30 cents.........go look at record profitability numbers for the major steel companies in the United States........they all say 2008-2009.....big time money.
SInce then however, all of the companies have struggled. Steel has went up, it's went down, it's went up, it's went down.....and the entire time, manufactures just kept stockpiling because they were worried about the next "boom".
If the China bubble pops, it will be nothing but profit for American steel companies.
02-13-2012
NewcastleKEG
Re: China bubble (Economist)
Ultimately I'll trust a European & Asian business over American
02-13-2012
boutons_deux
Re: China bubble (Economist)
$100Bs, $Ts?, of US bonds are held by wealthy Americans and US investmen funds. US monetary mgmt doesn't want to upset those bond holders.
02-13-2012
johnsmith
Re: China bubble (Economist)
Quote:
Originally Posted by NewcastleKEG
Ultimately I'll trust a European & Asian business over American
Well....... Good thing that you're just a pissed off 16 year old with an Internet connection......or it seems that way anyway....lol
03-19-2012
RandomGuy
Re: China bubble (Economist)
China ran a massive trade deficit in February. What does it say about the economy?
The other novelty arrived a few days earlier when China’s customs bureau reported something rarer than europium: a Chinese trade deficit. At $31.5 billion in February, the imbalance was bigger than any deficit on record—it was bigger even than many of China’s monthly surpluses.
...
The deficit has fuelled one fear and one hope. The fear is that China’s economy will slow sharply, hobbled by declining exports to crisis-racked Europe and a rising bill for commodities like oil. The hope is that China is rebalancing, moving away from an economic model reliant on foreign demand. Neither the hope nor the fear is wholly justified by this month’s figures.
Quote:
In Hong Kong’s currency-derivatives market people no longer bet that the yuan will only strengthen. That suggests the yuan is close to its “equilibrium” level, said Wen Jiabao, China’s prime minister.
03-19-2012
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by johnsmith
When steel prices fall, the steel suppliers make a shit ton of profit. Most contracts are awarded on a set price for the duration of the project (at least in construction), and when the price goes down, profit goes up...... a lot.
In 2008, price for rebar for instance shot up to .75 cents per pound.....two months later, it was at 30 cents.........go look at record profitability numbers for the major steel companies in the United States........they all say 2008-2009.....big time money.
SInce then however, all of the companies have struggled. Steel has went up, it's went down, it's went up, it's went down.....and the entire time, manufactures just kept stockpiling because they were worried about the next "boom".
If the China bubble pops, it will be nothing but profit for American steel companies.
Quote:
Efforts to rationalise heavy industries and remove excess capacity should help prevent a repeat of the big external surpluses of yesteryear. That should, in turn, placate China’s irritable trading partners.
Quote:
An investment boom from 2001-04, for example, paved the way for the ballooning surplus of 2004-07, according to Jonathan Anderson, formerly of UBS. That investment poured into heavy industries, such as aluminium, machine tools, cement, chemicals and steel. This domestic supply displaced imports of the same products. And when a slowdown in China’s construction industry subsequently depressed domestic demand for these items, China sold abroad what it could no longer sell at home. Big surpluses were the result.
08-10-2012
Winehole23
Re: China bubble (Economist)
Quote:
“Severe deflation pressures are rippling across the country,” said Alistair Thornton and Xianfeng Ren from IHS Global Insight. “Deflation, not inflation, is the greatest short-term threat to the Chinese economy.”
“The hard landing has happened,” said Charles Dumas from Lombard Street Research. “We don’t believe official data. We think GDP slowed to a 1pc rate in the second quarter.”
A blizzard of weak data has caught policy-makers off guard, though shares rallied in Shanghai on hopes for monetary loosening from China’s central bank after consumer price inflation (CPI) fell to 1.8pc.
New property starts fell 27pc in July. Industrial output growth fell to 9.2pc for a year ago but has been flat over recent months.
“This was the moment when stimulus was supposed to bite. It didn’t,” said Global Insight. Critics say Beijing let the property boom go too far and then hit the brakes too hard last year. Monetary tightening led to a contraction in real M1 money. The delayed effects kicked in this year just as Europe fell back into recession and the US slowed abruptly.
The Chinese will revolt against their 1% long before the greasebag, TV-watching, diseased Americans revolt against their 1%.
I read where the the lawyers in the trial of the 1% lady who murdered an English businessman absolutely refused to touch the subject of she and her husband using the Engliish guy to move $Ms, Gecko-like, offshore, since it's known that the Chinese 1% does it.
Some Communists Are More Equal Than Other Communists.
08-10-2012
Homeland Security
Re: China bubble (Economist)
Quote:
Originally Posted by boutons_deux
The Chinese will revolt against their 1% long before the greasebag, TV-watching, diseased Americans revolt against their 1%.
I read where the the lawyers in the trial of the 1% lady who murdered an English businessman absolutely refused to touch the subject of she and her husband using the Engliish guy to move $Ms, Gecko-like, offshore, since it's known that the Chinese 1% does it.
Some Communists Are More Equal Than Other Communists.
No, we'll revolt, but you'll just be surprised who ends up being in the 1% killed.
Why did he buy so much stock, or does the Chines Government say he must?
08-23-2012
CosmicCowboy
Re: China bubble (Economist)
I read somewhere that China's GDP needs to grow 8% a year just to provide jobs for new workers entering the workforce.
08-23-2012
ElNono
Re: China bubble (Economist)
Their crash would be relatively good news for the US I guess, at least from the competitive side...
05-29-2013
Th'Pusher
Re: China bubble (Economist)
Quote:
Originally Posted by DarrinS
Keynesian economics on steroids
A poor understanding of Keynesian economics tbh.
05-29-2013
DUNCANownsKOBE
Re: China bubble (Economist)
The stat that tells the story is new construction was 16% of America's GDP at the peak of our real estate bubble while it's 50% of China's GDP right now. Idk how the fuck construction ever becomes 50% of a country's GDP.
05-30-2013
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by DUNCANownsKOBE
The stat that tells the story is new construction was 16% of America's GDP at the peak of our real estate bubble while it's 50% of China's GDP right now. Idk how the fuck construction ever becomes 50% of a country's GDP.
The largest human migration in our species' history.
Approximately 250,000,000+ human beings are moving from rural China to the cities to find work. Imagine having to build housing from scratch for every single person in the United States.
Even with construction at 50% of the economy many are living in what we would think of as closets, so they are not keeping up with demand yet.
Further making the problem worse is that no small part of the building they are doing is stupid and not economical.
Give it another 5-10 years and they will probably catch up, especially given how fast their population is aging, i.e. negative birth rate.
At some point, even with the bad investments, they will build enough housing in the cities. The problem is that they will continue to build and cause a massive collapse if they don't put on the brakes a bit before then.
Anybody who assumes the Chinese economy will continue to grow at 7-12% per year for the next 20 years is making a very tenuous assumption, IMO.
06-20-2013
RandomGuy
Re: China bubble (Economist)
EEK!
So it begins?????
Cash crunch... short-term lending costs are soaring. (banks fear short term lending to each other, beacuse they are worried about loan defaults)
This is the credit crunch that accompanied our 2009 brew-ha-ha.
China’s one-year interest-rate swap rose by the most in 22 months as the central bank refrained from adding funds to the financial system to ease a cash squeeze, causing demand to fall at a government debt auction.
“The cash shortage may get even worse before the quarter-end because banks will have to hoard cash to meet loan-to-deposit ratio requirements,” said Chen Qi, a strategist at UBS Securities Co. in Shanghai. “The central bank probably won’t come out to intervene unless there is a sharp decline in economic growth and large capital outflows.”
“The market is disappointed by the lack of reverse repos from the PBOC,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “The liquidity squeeze stems from less inflows and policy makers’ own policy to crack down on shadow banking, so the PBOC may be reluctant to use short-term tools to help.”
Quote:
In the 1980s the west watched the Japanese “miracle” with wonder and tried to figure out how to copy its success. Britain still believed in the Japanese model in 1990 when Shirayama Shokusan bid for London’s County Hall, to create a luxury hotel over the river from the Houses of Parliament. The Chinese economic model has supplanted Japan (and the US of the 2000s) as the latest favourite – even as growth slows and problems build. Now China’s Wanda plans its own luxury hotel and apartment complex on the Thames.
The parallels between China now and Japan’s credit-driven boom of the 1980s are scary. Credit rating agency Fitch thinks Chinese credit has expanded far faster relative to economic growth in the past four years than during the heyday of Japanese lending at the end of the 1980s, or in South Korea in the four years leading up to its 1998 crisis.
This may be my confirmation bias seeking out information that confirms my hypothosis.
I think China's goverment has enough at its disposal to head off a total collapse, but I would note that their actions to prevent the bubble from getting bigger are what is causing this.
We'll see. Investors are beginnign to think that the emerging markets that have been so attractive are now a bit overpriced for the risk. A market correction would appear to be in the offing, not just for China, but for a lot of other developing economies.
Hang on to your hats.
06-20-2013
angrydude
Re: China bubble (Economist)
Worst case scenario. Everyone knows Abenomics works and that Japan is going to be an economic powerhouse for the forseeable future. I don't see what the big deal is.
11-19-2013
RandomGuy
Re: China bubble (Economist)
Haunted housing
Even big developers and state-owned newspapers are beginning to express fears of a property bubble
Quote:
IN CHINA, property prices can keep going up forever. At least, that is what optimists seem to think. They point out that the country is undergoing the largest urbanisation in history. The throngs of migrants from the countryside all need homes, the argument runs. China’s swelling middle classes, many of whom live in shoddy 1980s housing, are also eagerly moving to fancier flats or McMansions. The result has been a spectacular property boom over the past decade.
I
At first glance, it seems the good times are still rolling (see chart). During the first three quarters of this year residential sales shot up by 35% versus the same period a year ago. Prices for new homes rose year-on-year in September in 69 of the 70 biggest cities. In Shanghai, Shenzhen and Beijing prices jumped by more than 20%; in slightly smaller cities, such as Nanjing and Xiamen, they rose by around 15%.
Follow the money
Despite these signs of rude health, even some of China’s biggest property moguls appear to be growing uneasy. Wang Shi, the chairman of China Vanke, the country’s largest residential-property firm by volume, has called the market a bubble. Wang Jianlin, the country’s richest man and the chairman of Dalian Wanda, a property giant turned entertainment firm, acknowledges that parts of the country may be experiencing a property bubble, though he thinks it “controllable”. Li Ka-Shing, a Hong Kong tycoon who has long been bullish on China, has started to sell his mainland holdings.
The problem is not the wealthiest cities with the most vertiginous valuations. Indeed, in those markets prices may yet go higher. People from all over China buy trophy apartments in Shanghai and Beijing, making their markets as resilient as those of Manhattan and central London. In fact, policies aimed at squelching speculation may be artificially suppressing demand in those places.
Prices are rising faster than demand, essentially.
They cured their short-term cash crunch to keep things going, and pumped more money in.
There is still a lot of demand, but that is finite, and there is still more plans to build even more new "towns" on the edge of their cities (see article)
11-19-2013
hater
Re: China bubble (Economist)
China will be fine no matter what happens.
ppl forget Chinese are not americans. They can easily go back to getting rations of rice and water a day. And whoever doesn't like it will dissapear from the map. And if they need to do some population cleansing here and there it won't be a problem at all.
think of China as a colony of bugs. as long as the colony and queen survive it won't matter what happens to tens of millions of mere worker bugs.
11-19-2013
boutons_deux
Re: China bubble (Economist)
Quote:
Originally Posted by hater
think of China as a colony of bugs.
more prosaically, think of it as a barnyard, Some Animals Are More Equal Than Others.
11-19-2013
hater
Re: China bubble (Economist)
Quote:
Originally Posted by boutons_deux
more prosaically, think of it as a barnyard, Some Animals Are More Equal Than Others.
yes and no. Communist ruling party can make rich ppl dissapear too as easily as poor.
Watch the movie Antz. That is a prophecy of China in few years. The ruling ant class decided to cleanse the colony and makes them dig a tunnel from the bottom in an upwards direction all the way to a pond :lmao
11-19-2013
ErnestLynch
Re: China bubble (Economist)
Well hell they've built entire cities...that have no people.
One has to wonder how much longer they can keep it up...
06-02-2014
boutons_deux
Re: China bubble (Economist)
As Ties With China Unravel, U.S. Companies Head to Mexico
Revenues at its Mexican plant have grown by 80 percent since 2010, according to company records, prompting a search for a second location near Mexico City. And in the past year, a dozen corporations have come to Flambeau and requested bids on projects worth tens of millions of dollars for things like smartphone cases and car parts.
“They’re all looking for a new model,” said Mr. Sauey at his offices in Middlefield, Ohio. “It’s not just about cost; it’s about speed of response and quality.”
With labor costs rising rapidly in China, American manufacturers of all sizes are looking south to Mexico with what economists describe as an eagerness not seen since the early years of the North American Free Trade Agreement in the 1990s. From border cities like Tijuana to the central plains where new factories are filling farmland, Mexican workers are increasingly in demand.
American trade with Mexico has grown by nearly 30 percent since 2010, to $507 billion annually, and foreign direct investment in Mexico last year hit a record $35 billion. Over the past few years, manufactured goods from Mexico have claimed a larger share of the American import market, reaching a high of about 14 percent,according to the International Monetary Fund, while China’s share has declined.
“When you have the wages in China doubling every few years, it changes the whole calculus,” said Christopher Wilson, an economics scholar at the Mexico Institute of the Woodrow Wilson International Center for Scholars in Washington. “Mexico has become the most competitive place to manufacture goods for the North American market, for sure, and it’s also become the most cost-competitive place to manufacture some goods for all over the world.” http://mobile.nytimes.com/2014/06/01...?from=homepage
06-02-2014
mercos
Re: China bubble (Economist)
Quote:
Originally Posted by boutons_deux
As Ties With China Unravel, U.S. Companies Head to Mexico
Revenues at its Mexican plant have grown by 80 percent since 2010, according to company records, prompting a search for a second location near Mexico City. And in the past year, a dozen corporations have come to Flambeau and requested bids on projects worth tens of millions of dollars for things like smartphone cases and car parts.
“They’re all looking for a new model,” said Mr. Sauey at his offices in Middlefield, Ohio. “It’s not just about cost; it’s about speed of response and quality.”
With labor costs rising rapidly in China, American manufacturers of all sizes are looking south to Mexico with what economists describe as an eagerness not seen since the early years of the North American Free Trade Agreement in the 1990s. From border cities like Tijuana to the central plains where new factories are filling farmland, Mexican workers are increasingly in demand.
American trade with Mexico has grown by nearly 30 percent since 2010, to $507 billion annually, and foreign direct investment in Mexico last year hit a record $35 billion. Over the past few years, manufactured goods from Mexico have claimed a larger share of the American import market, reaching a high of about 14 percent,according to the International Monetary Fund, while China’s share has declined.
“When you have the wages in China doubling every few years, it changes the whole calculus,” said Christopher Wilson, an economics scholar at the Mexico Institute of the Woodrow Wilson International Center for Scholars in Washington. “Mexico has become the most competitive place to manufacture goods for the North American market, for sure, and it’s also become the most cost-competitive place to manufacture some goods for all over the world.” http://mobile.nytimes.com/2014/06/01...?from=homepage
I read about that yesterday and had to laugh. In a few years, Americans will be illegally migrating to Mexico looking for work...
06-02-2014
CosmicCowboy
Re: China bubble (Economist)
This has been huge for the San Antonio economy. The owners/managers are moving their families to San Antonio to avoid the kidnappers and flying down every week to work. Watch the airport on Friday afternoons and it's a parade of private jets coming home for the weekend.
06-02-2014
pgardn
Re: China bubble (Economist)
Quote:
Originally Posted by CosmicCowboy
This has been huge for the San Antonio economy. The owners/managers are moving their families to San Antonio to avoid the kidnappers and flying down every week to work. Watch the airport on Friday afternoons and it's a parade of private jets coming home for the weekend.
Yet I can't get a direct flight anywhere...
06-03-2014
CosmicCowboy
Re: China bubble (Economist)
Quote:
Originally Posted by pgardn
Yet I can't get a direct flight anywhere...
Yeah, agree it sucks. American, United, and Southwest that own all the gates hub out of Dallas/Houston. I've been driving to Austin to fly JetBlue.
06-05-2014
pgardn
Re: China bubble (Economist)
An aside:
China banned the word today, yesterday, on all of its search engines.
Yeah, figure that one out.
06-05-2014
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by CosmicCowboy
This has been huge for the San Antonio economy. The owners/managers are moving their families to San Antonio to avoid the kidnappers and flying down every week to work. Watch the airport on Friday afternoons and it's a parade of private jets coming home for the weekend.
See how long that lasts when the costs of corruption catch up.
03-05-2015
Winehole23
Re: China bubble (Economist)
Quote:
China is not the only country in Asia facing a hangover. Nomura's Rob Subbaraman says housing booms in India, Hong Kong and Taiwan all match or exceed the US bubble in 2008, with Malaysia not far behind. "Asia is setting itself up for a major credit crunch," he said.
Nomura warned that markets are relying too much on a "China policy put", betting that Beijing will always come to the rescue with more stimulus if need be. "We believe there is creeping investor complacency. We assign a one-in-three chance of a hard landing – growth averaging 5pc or less over four quarters – starting within the next two years."
Premier Li appears determined to grasp the nettle, openly acknowledging that China has exhausted the low-hanging fruit of catch-up growth and reached the safe limits of credit expansion.
Exhausted the low hanging fruit is one way to put it. They have started talking about the new norm, i.e.about 7% per year.
They have been mis-allocating capital on a huge scale, and the pollution isn't helping. Dunno, started this thread years ago now, so can't really claim any kind of precognition if anything bad happens.
03-08-2015
CosmicCowboy
Re: China bubble (Economist)
I remember reading somewhere that china requires 8% growth just to provide enough jobs for those coming out of school and into the workforce.
03-08-2015
angrydude
Re: China bubble (Economist)
Not to mention all the non-performing loans still hanging around in China. And there are lotssssssss of them. They just transferred them to subsidiaries and passed a law saying they don't have to be repaid for 20 years so they aren't technically on the banks books.
But they don't do that anymore. They've changed their ways. They promise.
03-08-2015
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by CosmicCowboy
I remember reading somewhere that china requires 8% growth just to provide enough jobs for those coming out of school and into the workforce.
Given their demographic implosion, they don't have to keep it up for too long.
History might not have to repeat itself, but sure does it. For the last 25 years, the global economy has lurched from one big housing bubble to the next. First it was Japan, then it was the U.S. and Europe, and now it's the rest of Asia.
You can see that in the chart above from Nomura. Since the end of 2008, housing prices across Asia have, for the most part, tracked those in the United States during its bubble years. That's because money poured into those countries in search of better—or really, any—returns right after the crisis, and, more often than not, it found its way into the property market. Now some of them, like Korea's, barely went up at all. But that was an outlier. China, Taiwan, and Malaysia's housing markets have all risen, and now started to fall, in not quite perfect, but still close sync with the U.S. market circa 2005. And Hong Kong and India's prices have galloped a lot higher than even that.
Now a bubble isn't a bubble unless it bursts. Until then, it's just a boom. So the question is which these will be. Hong Kong's housing market has such limited supply that it seems like it could go up indefinitely. But the others, well, they're looking a little more wobbly. The problem isn't just that they're probably overbuilt, but also that the Federal Reserve is getting ready to tighten policy. Higher rates in the U.S. will suction up a lot of the money that had gone overseas looking for higher returns, because now it'll be able to get them here. That'll put even more pressure on Asian economies that were already starting to slow down as housing prices did, with the result that prices might fall even more. There's a real risk that could turn into a vicious circle of lower prices and more defaults that even zero interest rates wouldn't be able to turn around. Sound familiar?
But it's even worse in China because of their dollar peg. It's hard to believe, but after decades of manipulating its currency down against the dollar, China now has to prop it up. That's because so much money is leaving the country that the yuan "wants" to weaken. That means China not only has an overvalued currency that's hurting exports, but it also has to shrink its money supply—right when it needs a bigger one—that's hurting the rest of its economy, all so it can keep it overvalued. That sound you hear is the air rushing out of its property market.
THe problem with calling China is that they have had to build housing for 300M people in their cities. Trying to actively or quantitatively compare a mature economy like the US to one that is undergoing a lot of systemic change is a fools errand, IMO.
04-29-2015
RandomGuy
Re: China bubble (Economist)
Skyward march
Efforts to stimulate the economy risk stoking an already blazing stockmarket
Quote:
JUDGING by its stockmarket, China is awash in cash. Trading is so frenetic that on April 20th, volumes surpassed the limits of the software that tracks transactions. More than 1.1 trillion yuan ($180 billion) of shares swapped hands that day, but the Shanghai Stock Exchange’s counter remained stuck at 999.99 billion. It is only a matter of time before this happens again. Investors are opening more than a million new trading accounts every week, chasing returns on a market that has doubled over the past year.
Despite this frenzy, the central bank acted this week to pump money into the financial system. By cutting the portion of deposits that banks must hold as reserves, it freed some 1.3 trillion yuan for new lending. Why inject cash when the stockmarket suggests China is not short of capital?
Ish. I just wonder how sustainable some of the things they do really are. Going to give up calling it, but there just seem to be a lot of risks running around that their government is either encouraging, ignorant of, or looking the other way at.
(edit) a bit more perspective:
Quote:
It is also worth remembering that the stockmarket in China marches to the beat of its own drummer more than in most countries. From 2009 to 2013, when China was the world’s fastest-growing big economy, its shares languished among the world’s worst performers. Its stockmarket is still relatively small: even with the bull run, its total value is still barely 50% of China’s banking assets, compared with 150% in America. This means that a big drop would have a less severe impact on the health of the economy. And the manic rally partly reflects a massive portfolio reallocation as savers shift money away from bank deposits and property into stocks.
Nevertheless, it would be unwise for regulators to turn a blind eye to the excesses. With a big jump in borrowing to buy shares, the stockmarket is beginning to affect broader financial stability. China needs to develop more mature capital markets so that firms can raise more money directly from investors, taking some of the burden away from banks. A wild stock rally followed by a crash, as happened in 2006-07, would be a grave setback
04-29-2015
boutons_deux
Re: China bubble (Economist)
"With a big jump in borrowing to buy shares, the stockmarket is beginning to affect broader financial stability"
sounds EXACTLY like the USA, with the Fed ZIR pushing the cost of borrowing (to buy stocks on margin) way down while screwing bond buyers, savers.
QE has caused a stock market bubble, just as the banks that run the Fed wanted all along.
04-29-2015
CosmicCowboy
Re: China bubble (Economist)
China keeps pumping even with 7% annual growth because they have to keep hitting 8% to have enough jobs generated to employ the new entrants to the labor force out of high school and college. They understand that a pissed off unemployed general population is bad for what is essentially still a dictatorship.
05-03-2015
TDMVPDPOY
Re: China bubble (Economist)
china puts out fake stats man, even if they build 300m new houses, whose going to buy them?
look at the ghost cities/towns....
05-03-2015
TeyshaBlue
Re: China bubble (Economist)
Quote:
Originally Posted by TDMVPDPOY
china puts out fake stats man, even if they build 300m new houses, whose going to buy them?
look at the ghost cities/towns....
Exactly. Those are bizarre.
05-03-2015
CosmicCowboy
Re: China bubble (Economist)
Funny, those houses/condos were bought as investments. Prices were rising fast and many middle class investors chose real estate instead of stocks. In retrospect probably a bad decision but it was a boom just like the dot com and real estate bubbles in our economy.
05-03-2015
CosmicCowboy
Re: China bubble (Economist)
Funny, those houses/condos were bought as investments. Prices were rising fast and many middle class investors chose real estate instead of stocks. In retrospect probably a bad decision but it was a boom just like the dot com and real estate bubbles in our economy.
As Americans we have a hard time wrapping out heads around the Chinese population numbers. They have more than a BILLION more people than we do, many millions who still want the "good life" of urban manufacturing jobs.
05-03-2015
TDMVPDPOY
Re: China bubble (Economist)
now those same chinese turds are propping up other well established middle/upper class suburbs where property prices have sky rocketer out of a normal persons reach of that dream of owning a house...
even if you raise stamp duty taxes on the purchases, still wont put a dent into their purchasing power.....there are more millionaires in china then the population of australia :( .....just like all commie countries, those middle/upper class people who have assets/wealth are always looking at investing their money into westernize countries to protect their assets, cause nobody trusts a commie
05-04-2015
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by TDMVPDPOY
china puts out fake stats man, even if they build 300m new houses, whose going to buy them?
look at the ghost cities/towns....
The people moving from the country to the cities. Just like what happened in every other industrialized country. Nothing magic. :)
10-02-2015
Winehole23
Re: China bubble (Economist)
Quote:
According to data assembled by visual capitalist, China consumes 54 percent of the world’s aluminum production, 48 percent of all copper, 50 percent of nickel, 45 percent of steel and 60 percent of concrete. It has “consumed more concrete in the last three years than the United States did in all of the 20th century.”
In terms of energy, China uses 49 percent of the world’s coal, 13 percent of the uranium and 12 percent of oil. It’s the same with food: 30 percent of the world’s rice, 22 percent of its corn and 17 percent of wheat.
China was one of the big reasons for the commodity surge in the 2000s. The country's growth has now been cut in half, and that's why prices are now back to the levels of the 1990s.
Baltic Dry Index at all time low. Bumpy transition to consumer economy in China:
Quote:
Private equity clearly has more money than it can deploy sensibly.
One sign was its enthusiasm for energy plays. It’s hard to imagine an investment more out of synch with the classic private equity formula of steady cash flows and solid customer franchises. Fracking, one of PE’s recent targets, is highly capital intensive, and the sellers are at the mercy of price swings in a highly volatile end market.
Apparently the private equity crowd fell for the sales pitch of the oil & gas crowd, and convinced themselves that energy prices had nowhere to go but up. Oops.
Similarly, some private equity firms seem to have believed the China hype, that the emerging superpower’s trajectory was inevitable Yet as we’ve stressed, no major economy has made a smooth transition from being export-led to consumer-driven. And for those who were watching China, there were signs in addition to the commodity price declines that all was not well. For instance, about 24 months ago, imports of almonds, a favorite of the emerging middle classes in China, fell abruptly, a sign of consumer retrenchment.
The Financial Times discuses today how tanker charter prices have collapsed, and the Baltic Dry index is at the lowest level since it started to be published, in 1985. Needless to say, the news of the day, that manufacturing indexes in China have weakened for the 10th straight months. Stock prices fell over 7%, enough to trigger a trading halt for the balance of the day under new circuit breaker rules.
Mind you, even by the standards of the highly cyclical shipping business, the current state of affairs is dire. From the Financial Times:
China’s slowing growth and a glut of ships have hit earnings for vessels carrying coal and other dry bulk commodities so hard that owners face forced sales, emergency capital raisings and possible bankruptcy.
Charter fees are not covering vessels’ operating costs, let alone their financing, in the latest bad news for the many private equity firms that have invested in the sector.
Short-term charter rates for Capesize ships — the largest kind — were as low as $4,897 a day on December 23, down from more than $20,000 a day in August. Vessels typically cost around $13,000 a day to operate and finance.
And private equity made this debacle even worse than it had to be by adding to capacity at the peak:
The slide partly reflected growth in the dry bulk fleet as vessels ordered in late 2013 and early 2014, many with private equity funding, were delivered. The net capacity of the world dry bulk fleet grew 3 per cent in the first 10 months of 2015, despite a spike in the number of older vessels being scrapped following the slump in rates.
And it was not as if this problem was not foreseeable. The Financial Times warned early last year that the private equity strategy was wrongheaded, that if it were to invest in tankers at all, investing in older ones rather than new capacity would have been sounder. Since the shipping industry is not a major beat for the pink paper, it’s not hard to imagine that insiders had been giving warnings privately even earlier. From the 2015 story:
One of Greece’s highest-profile shipowners has warned private equity firms they risk “destroying” markets if they continue to finance new vessels, after excessive deliveries have driven down cargo rates.
Private equity, which until the past few years was only a minor contributor to shipping finance, has invested at least $5bn in shipping every year since 2010 and funded about 10 per cent of deals.
The cash rescued many companies after the collapse in rates and banks’ growing caution towards shipping lending after the financial crisis.
However, much of the new capital was used to order new vessels at cut rates from desperate shipyards, rather than buying existing vessels from other shipowners.
And as the new story details, low oil prices have further whacked charter rates by reducing transit times and hence lease terms:
The crisis has been made worse by the low oil price. As the price of fuel has fallen, charterers have ordered many shipowners to speed ships up instead of operating them slowly to save fuel. Michael Bodouroglou, chief executive of Paragon Shipping, an Athens-based, New York-listed dry bulk shipowner, said the increased speed was making the oversupply problem worse by increasing the fleet’s carrying capacity.
Conditions are so lousy that major players, including public companies, are selling ships at distressed prices to raise cash. Monarch Alternative Capital and Oak Tree Capital have large stakes in two of the public companies that are under duress. And given that these deals were levered, you can expect the related debt, which probably at least in part wound up in private equity credit funds, will also show losses.
Funny, those houses/condos were bought as investments. Prices were rising fast and many middle class investors chose real estate instead of stocks. In retrospect probably a bad decision but it was a boom just like the dot com and real estate bubbles in our economy.
As Americans we have a hard time wrapping out heads around the Chinese population numbers. They have more than a BILLION more people than we do, many millions who still want the "good life" of urban manufacturing jobs.
Eyup.
China is going to have to fill those apartments and condos now.
They have been reluctant to drop prices due to oversupply and therefore have to take a paper loss, but at some point the borrowed money will have to be repaid back.
Their stock market is still not as large relative to other things, but recent government moves have really undermined investor confidence in China's investment environment. The governments instincts are proving to be their undoing.
02-24-2016
RandomGuy
Re: China bubble (Economist)
Quote:
Originally Posted by Winehole23
Baltic Dry Index at all time low. Bumpy transition to consumer economy in China:
