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  1. #1
    Breaker of Derps RandomGuy's Avatar
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    It will be ugly.

    ---------------------------------------------------
    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.


    --------------------------------------

    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.

  2. #2
    Veteran Wild Cobra's Avatar
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    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.

  3. #3
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    "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.

  4. #4
    Breaker of Derps RandomGuy's Avatar
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    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.
    Take your pick:
    http://www.google.com/#hl=en&sugexp=...q=china+bubble

    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.
    Hedge fund manager Mark Hart bets on China as the next 'enormous credit bubble' to burst

    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.
    These guys are the real number crunchers.


    The Daily Reckoning
    Is China's bubble close to popping?


    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.
    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 China Bubble Bursts

    “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.
    Last edited by RandomGuy; 06-22-2011 at 01:46 PM.

  5. #5
    Mr. John Wayne CosmicCowboy's Avatar
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    Interesting...thanks for posting...

  6. #6
    A neverending cycle Trainwreck2100's Avatar
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    Good those rice eating baby killers

  7. #7
    e^(i*pi) + 1 = 0 MannyIsGod's Avatar
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    Is our economy leveraged against this in any major way?

  8. #8
    Breaker of Derps RandomGuy's Avatar
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    Is our economy leveraged against this in any major way?
    Define "leveraged against".

    Not sure what you are asking.

  9. #9
    Breaker of Derps RandomGuy's Avatar
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    damn youre like the prophet isaiah
    Who?

  10. #10
    e^(i*pi) + 1 = 0 MannyIsGod's Avatar
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    RG what I'm saying is I don't see how this hurts the US.

  11. #11
    Breaker of Derps RandomGuy's Avatar
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    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.

  12. #12
    Live by what you Speak. DarkReign's Avatar
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    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.

  13. #13
    Breaker of Derps RandomGuy's Avatar
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    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.
    Checked steel prices and yikes. Prices up 33-50% in two years.
    http://www.steelonthenet.com/price_info.html
    http://www.worldsteelprices.com/

    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.

  14. #14
    Breaker of Derps RandomGuy's Avatar
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    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.

  15. #15
    Breaker of Derps RandomGuy's Avatar
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    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.

  16. #16
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    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 bull 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?
    Last edited by boutons_deux; 06-24-2011 at 11:15 AM.

  17. #17
    Breaker of Derps RandomGuy's Avatar
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    China quarterly growth tops forecast, boosts inflation fight

    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.

    ...
    (rest of the long article omitted)
    http://news.yahoo.com/china-growth-t...043744058.html

    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.

  18. #18
    Breaker of Derps RandomGuy's Avatar
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    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.

  19. #19
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    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.

    http://www.naturalnews.com/z032986_f..._shortage.html

  20. #20
    Veteran DarrinS's Avatar
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    Keynesian economics on steroids


  21. #21
    Breaker of Derps RandomGuy's Avatar
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    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.
    Last edited by RandomGuy; 07-13-2011 at 03:28 PM. Reason: cut out a lot of diatribe. It wasn't nice.

  22. #22
    Veteran Wild Cobra's Avatar
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    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.

  23. #23
    Rising above the Fray spursncowboys's Avatar
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    They are going to make Japan's 90's bubble burst look like an economic hiccup.

  24. #24
    Veteran DarrinS's Avatar
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  25. #25
    Breaker of Derps RandomGuy's Avatar
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    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.

    http://www.businessinsider.com/china...ard-way-2010-4

    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.

    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.

    (edit)
    In other words:

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