Posts Tagged ‘Global Financial Markets’
Chanos Could Lose Big On China Bubble Bets
Sunday, February 21st, 2010
By Dian L. Chu, Economic Forecasts & Opinions
Amid growing fears of a real estate bubble, Chinese officials moved to restrain bank lending and rein in inflation by raising its bank reserve requirements twice in one month. Global financial markets reacted with risk aversion driving up both the U.S. dollar and Treasuries because of concerns that the leading recovery growth engine of the world could be slowing.
High Price & High Vacancy
In Beijing, the amount of residential floor space sold in 2009 skyrocketed 82% from the year before. Bloomberg reported that Beijing’s office vacancy rate of 22.4% in the third quarter of 2009. Those figures don’t include many new buildings about to open, such as the city’s tallest, the $966 million 74-story China World Tower 3.
In a separate Bloomberg report, an executive from a property advisory firm estimated that roughly 50% of Beijing’s commercial space is vacant today. Meanwhile, according to data from the National Bureau of Statistics, housing prices in China saw a 24% growth spike in 2009.
In January, property prices in 70 cities across China rose 9.5% year-on-year, the eighth consecutive year-on-year rise. Standard Chartered also noted in early February that at least seven cities saw land prices triple in 2009.
Dubai x 1,000?
What happened is that the liquidity bubble went towards the Chinese property market as developers with access to the $1.4 trillion in new loans last year built skyscrapers and luxury housing.
The surge in lending and strong house prices underscores the concern that the economy is at risk of overheating, and reminiscent of the U.S. housing bubble. Famous short seller Jim Chanos characterized China as “Dubai times 1,000, or worse,” suggesting that Beijing is cooking its books, manipulating both financial and growth numbers, among other accounting gimmicks.
Bubble Call Premature
Most analysts, however, agree that whatever real estate downturn occurs in China, it won’t equal the crisis experienced in the U.S.
The issue with bubbles is the lack of an accepted scientific means to properly identify and measure. One way to look at it is to compare the China housing price inflation level with a known housing bubble – the U.S.
At the height of the U.S. housing boom in mid2006, prices peaked as much as 90% higher than at the start of their six-year climb. Based on the data from the National Bureau of Statistics, the average home price in China had shot up roughly the same percentage in the period from 2004 to 2009.
Nevertheless, China’s pricing point started at a much lower level than in the U.S. So, the seemingly equal 90% appreciation does not necessarily translate into the same bubble story.
Koyo Ozeki, head of the Asian credit research group for PIMCO, made a strong case for China’s real estate market in a recent research report that:
“Given China’s potential growth, its real estate market has plenty of room for enlargement over the long term…”
Ozeki’s view is based on a comparison of the amount of credit that was extended to the Chinese property sector from 2003 to 2009 equaling 40% of China’s gross domestic product. In the U.S., the figure was 80% from 2000 to 2007.
No U.S.-Style Bubble
Furthermore, the Chinese aren’t exposed to the low-to-no-down-payment loans once popular in the U.S. as down payments in China average 40% to 60% of the sales price. In other words, the amount of buyer leverage is much lower in China as compared with the U.S., and is less likely leading to a U.S.-style bubble.
In addition, the U.S. financial crisis was mostly a result of the securitization of mortgages, and the offloading from banks to the markets. This is not part of China’s market structure, which means the impact of a bursting Chinese real estate bubble would likely be much more muted.
Overblown By Short Sellers Agenda
Harvard University financial historian Niall Ferguson points out that:
“Excessively loose monetary policy causes asset bubbles and excessively loose monetary policy is what we have now, it’s a little early to start pointing fingers and calling things ‘bubbles,’ however.”
Essentially, The global fear perception of “a sharp new rise of asset prices = bubble” is stoked by the U.S. housing crisis, which ultimately lead to the Great Depression, and is used to further Short Sellers Agenda by the likes of James Chanos and others “talking their book” on short positions regarding Chinese investments.
Early Intervention Is Key
In the case of any bubble, the sooner the government takes measures, the less damage the bubble can cause to the economy. And Chinese authorities have already taken a series of measures including a nationwide property sales tax, and raising bank reserve requirements to slow the red-hot market.
The message coming out of Beijing right now is that policymakers are becoming more concerned about containing inflation and managing the risk of asset price bubbles. Some analysts also expect more monetary tightening from Beijing in the second quarter.
Long Term Challenges Abound
This is not to say all’s well in China. For instance, high property prices and dim career prospects for the young college graduates (aka ‘ant tribe’) will continue to pose a social economic challenge for Beijing. And economic stagnation would certainly exacerbate this imbalance.
But most of these challenges are long term in nature. If it took almost 20 years for the U.S. subprime mortgage bubble to pop, China conceivably should have plenty of time to still expand while implementing proper policies and measures to prevent a US style asset bubble collapse.
California & Greece Before China
So, Jim Chanos` view of China appears to have some premature conclusions based solely upon flawed analogies with the US real estate market without taking into consideration the different cultural and market factors.
Meanwhile, in light of a Bloomberg report (h/t Mark Turok) indicating many “money-is-no-object” Chinese investors are traveling half way across the globe to buy up distressed properties in Los Angeles, California at an average price tag of $3 million, the following should serve as a timely advice:
The likelihood of California (and/or Greece) becoming a vassal state of China seems far more imminent than a bubble burst in the East. Place your shorts wisely.
“Reputation is a bubble which man bursts when he tries to blow it for himself.” ~ Unknown
Disclosure: No Positions
Tags: Bloomberg Report, Bureau Of Statistics, China, China World, chinese officials, Chinese Property, Economic Forecasts, Eighth Consecutive Year, Emerging Markets, Global Financial Markets, Growth Numbers, Housing Bubble, Jim Chanos, National Bureau Of Statistics, Real Estate Bubble, Real Estate Downturn, Residential Floor, Risk Aversion, Seven Cities, Tower 3, Vacancy Rate, World Tower
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Gerald Celente: “There is no economic recovery- it’s a cover-up”
Monday, October 26th, 2009
In this video clip, James Corbert of thecorbertreport.com interviews Gerald Clemete of TrendsReseach.com on the lie of the US economic landscape. “There is no economic recovery - it’s a cover-up,” says Celente.
The following on Celente via Wikipipedia:
Gerald Celente (born November 29, 1946) is a United States trend forecaster, publisher of the Trends Journal, business consultant and author who makes predictions about the global financial markets and other events of historical importance. Celente has described himself as a “political atheist” and “citizen of the world.”
An article in the Washington Times has claimed “Celente’s accurate forecasts include the 1987 stock market crash, the collapse of the Soviet Union in 1991, the 1997 Asian currency crash” and “the 2007 subprime mortgage scandal.” His forecasts since 1993 have included predictions about terrorism, economic collapses and war. More recent forecasts involve fascism in the United States, food riots and tax revolts. Celente has long predicted global anti-Americanism, a failing economy and immigration woes in the US. In December 2007 Celente wrote, “Failing banks, busted brokerages, toppled corporate giants, bankrupt cities, states in default, foreign creditors cashing out of US securities … whatever the spark, the stage is set for panic in the streets” and “Just as the Twin Towers collapsed from the top down, so too will the US economy … when the giant firms fall, they’ll crush the man on the street.” He has also predicted tax revolts. In November 2008 Celente appeared on Fox Business Network and predicted economic depression, tax rebellions and food riots in the United States by 2012. Celente also predicted an “economic 9/11″ and a “panic of 2008.”
In 2009 Celente predicted turmoil which he described as “Obamageddon” and he was a popular guest on conservative cable-TV shows such as Fox News Sunday and Glenn Beck’s tv program. In April 2009 Celente wrote, “Wall Street controls our financial lives; the media manipulates our minds. These systems cannot be changed from within. There is no alternative. Without a revolution, these institutions will bankrupt the country, keep fighting failed wars, start new ones, and hold us in perpetual intellectual subjugation.” He appeared on the Fox/Glenn Beck show and criticized the US stimulus plan, calling government controlled capitalism “fascism” and saying shopping malls in the US would become “ghost malls.” Celente has said, “smaller communities, the smaller groups, the smaller states, the more self-sustaining communities, will ‘weather the crisis in style’ as big cities and hypertrophic suburbias descend into misery and conflict,” and forecasts “a downsizing of America.”
Source: The Corbett Report, thecorbettreport.com
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Tags: Anti Americanism, Asian Currency, Citizen Of The World, Collapse Of The Soviet Union, Corbert, Corporate Giants, Currency Crash, Economic Depression, Economic Landscape, Food Riots, Fox News, Fox News Sunday, Gerald Celente, Giant Firms, Global Financial Markets, Immigration Woes, oil, Stock Market Crash, Subprime Mortgage, Tax Revolts, Trend Forecaster, Trends Journal
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Breakingviews: Sovereign Wealth Funds Risk Index
Friday, January 25th, 2008
Jan. 25, 2008 - Today, we received this piece about Breakingviews.com’s new SWF Risk Index:
Breakingviews sovereign wealth fund risk index
By Una Galani AND Simon Nixon
To see the full index with detailed rankings, click on the link below
Sovereign Wealth Fund Index: Sovereign wealth funds were hardly talked about twelve months ago. Now they are one of the hottest topics in global financial markets. Over the last year, these state-owned entities have spent over $75bn snapping up stakes in some of the world’s biggest banks, taken big positions in stock exchanges on both sides of the Atlantic and even attempted a takeover of one of Britain’s leading supermarkets.
Such funds have existed for decades, but the shift in global economic power and the current weakness in western markets has given SWFs – forecast to grow assets fivefold to $13.4tr by 2017 – new influence and raised new fears about their motives. Critics such as President Sarkozy of France and some US politicians worry that SWFs tend to be secretive, target political as well as financial returns, and operate at the whim of governments not always sympathetic to western economic and political interests…
Tags: Banks, Biggest Banks, Brazil, Breakingviews, BRICs, China, Economic Power, Emerging Markets, France, Fund Index, Fund Risk, Galani, Global Financial Markets, Markets, Miscellaneous, Motives, Nixon, Political Interests, risk, Risk Index, Russia, Sarkozy, Stock Exchanges, Supermarkets, Swf, SWFs, Takeover, Target, Twelve Months, Western Markets, Whim
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BCA: Emerging Market Decoupling To Persist Into 2008
Thursday, January 3rd, 2008
BCA Research confirms its outlook on decoupling of emerging markets and the U.S. in its January 3, 2008 Bulletin:
January 3, 2008
Emerging markets have weathered the U.S. credit market calamity very well and the bull run will continue in 2008.
The economic decoupling between emerging economies and the U.S. is attributable to underlying fundamentals and is therefore sustainable. Unlike in the 1990s when emerging economies relied on foreign capital to finance their expansion, many of these countries are now net creditors in global financial markets and are not vulnerable to a withdrawal of financing by G7 banks.
Domestic interest rates are still very stimulative thanks to their strong currencies and vast savings, which will continue to underpin domestic demand growth. While exports to the U.S. have been slowing, trade among developing economies is booming.
As a result, overall emerging market growth will not slow considerably, even if the U.S. economic slump continues. Bottom line: Our Emerging Markets Strategy service recommends that investors continue to overweight emerging equity markets within a global portfolio.
Tags: 1990s, Banks, Bottom Line, Brazil, BRIC, BRICs, Bull Run, Calamity, China, Credit, Credit Market, Creditors, Currencies, de-coupling, Decoupling, Developing Economies, Domestic Interest Rates, Economic Slump, Emerging Economies, Emerging Market, Emerging Markets, Global Financial Markets, Global Portfolio, India, interest rates, Investment, Investors, Market Research, Markets, Miscellaneous, Overweight, risk, Russia, Strategy Service
Posted in Credit Markets, Emerging Markets, Markets, Outlook | 1 Comment »
