In this article, I want to present the status of the real estate and commodity market in Asia, with its implications on the global economy.
On "The Money and Wealth Show," Marc Faber has been talking about movements in the real estate and commodity markets. He talks about similarities between the Great Depression and the current crisis.
Marc Faber said that "eventually the financial system will cease to exist," suggesting we will at some point go to a barter system. This barter system has already showed up in Greece at this moment. He also mentions that Australia's housing market is in the process of deteriorating (Chart 1).
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As the Australian housing market deteriorates, I expect a decline in the Australian dollar against the other currencies. Lately, the Australian dollar has been weak against the U.S. dollar, showing signs of a top formation (Chart 2).
Australian financial institutions have been booking losses, indicating a worsening real estate environment in Australia. On April 18, 2012, Genworth Financial (GNW) reported that it will delay for six months delay a planned minority Initial Public Offering (IPO) of the Australian mortgage insurance business. Investors immediately sold out of Genworth Financial, taking a 20% loss. The company is already posting net losses in its earnings and I suspect it will continue this trend in the future.
This looming housing bubble in Australia is a forewarning of the hard landing in China. China has been slowing down, as reported in my previous article about the Chinese PMI. Indicative of China slowing down, we noted weaknesses in the commodities market. The CRB index, which tracks 19 commodities (aluminum, cocoa, coffee, copper, corn, cotton, crude oil, gold, heating oil, lean hogs, live cattle, natural gas, nickel, orange juice, silver, soybeans, sugar, unleaded gas, and wheat), has been starting a downtrend since May 2011 (Chart 3). As a result, mining companies have been very weak since May 2011 (Chart 4).
Although China's collapse is almost certain to happen, the short-term technical trend for Chinese real estate has been very positive. The Shanghai property index has been showing an upward trend since 2012 (Chart 5).
Hong Kong real estate has been noting new highs in the Centa City Leading Hong Kong property index (Chart 6).
I think these trends (Chart 5, Chart 6) cannot go on for long without support of governments around the world. That's why governments have been acting. Brazil and India cut their interest rates, and I am sure that the U.S. Federal Reserve will announce QE3 (directly or indirectly) in the following months (possibly before the election period). This will eventually continue to support the precious metals sector and base metals in general.