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johnthebear
256 Comments
China: Slowing Economy, Rapid Credit Growth?
Likewise, you mention huge spending on infrastructure, including massive road building projects. In a communist country it may be very easy to take the land (compared with USA), but it still takes a long time to develop plans and actually begin construction. Then, I wonder about the workers on such projects. I would think they would be taken from the farming areas and paid very little (slave wages with long hours). This suggest relatively little impact for the next 3 years on the urban economy.
You mention they consider cutting taxes. I have difficulty in understanding their economy. Do they have an IRS and full financial reporting? And Jail if you don't pay? What are the relative tax rates for rich and poor people and for business? Hard to figure how much of a cut would make a difference, and how it would relate to the government budget. I assume they can print money pretty fast when they want, just as we can!
As for their government spending habits, their government sounds downright democratic! Then when you add in "strike" in a communist country, it really sounds like they are getting ready for much bigger change!
"I expected there to be a burst in securitization taking place as banks shifted loans off balance sheet." Don't tell them how stupid that would be. Let them screw up like our banks. Did you hear that the Swiss and German banks are going to have to raise their capital ratios? Up from 2.5 to 5 percent. Still low in comparison to our banks. The off-balance sheet theme sounds likely to me, because it is sneaky!
Sounds like they have their own subprime problem with securitization much like ours. Unbelievable, that they cannot learn from our mistakes.
FXI was up 4.47% today, following my theme that what is bad for China is good for John!
China: Post Olympic Slowdown
It is my understanding that there is a huge excess capacity in industrial real estate. Do you have any information on current vacancy rates and any projections for next year assuming the economy weakens? What is the range of loan/value ratios that banks in China require?
I also heard that there was a major bank bailout 3 years ago. I wonder how large the NPL problem is and how it would impact FXI?
U.S. Credit Woes Spill Into China
Have you heard much about non-performing commercial and industrial real estate loans in China?
What do you expect to happen to the China economy over the next 6 months?
Wednesday Outlook: Low Volume Storm?
I would appreciate your thoughts.
Thanks for your research and great graphs. John
Looming Financial Catastrophe: A Real Inconvenient Truth
CONGRESS HAS A 9% APPROVAL RATING! THEY ALLOWED THE MESS WE ARE IN TO HAPPEN.
WE NEED A COMPLETELY NEW CONGRESS.
START OVER.
VOTE AGAINST EVERY EXISTING MEMBER AND CHOOSE A MEMBER OF THE OPPOSITE PARTY.
WAKE UP THE BUMS...LET THEM KNOW THAT WE ARE THEIR EMPLOYERS AND WE DO NOT LIKE THE WAY THEY DO OUR BUSINESS!!!
NONE OF THEM DESERVE TO REMAIN IN POWER. ON EITHER SIDE OF THE ISLE.
A NEW BUNCH WILL SAY NO TO THE LOBBIES AND LOOK OVER THEIR SHOULDER WHEN TEMPTED TO BUY VOTES WITH PORK BARREL CRAP THAT FEATHERS THEIR OWN NEST WITHOUT LOOKING OUT TO OUR COUNTRIES FUTURE.
PLEASE GOD, BLESS US WITH A NEW CONGRESS!
Hedge Fund Manager's Notebook: Time to Buy Chinese Stocks, & Lehman's True Value
Amazing that the talking heads are still touting emerging markets in spite of the trends in place for the 12 months. What do the Bulls see that encourage them so much?
So where do you put your money during the long downturn? I suggest TNH and other high yield stocks that have some prospects of maintaining their dividend even with a dead economy for the next 5 years. (I own TNH, SRS and FXP)
Expect a Half-Decade of Weak Growth - Barron's Interview
I think you are wrong.
Your analysis fails to consider that the SIV's, CDO's are a thing of the past. Investment banks will no longer be able to create money out of thin air at a 40:1 ratio to capital.
The treasury has taken in 1 TRILLION OF BAD DEBT TO HELP THE BANKS!
World equity markets have already lost 12 TRILLION DOLLARS OF EQUITY CAPITAL!
The Treasury is about to bail out Fannie and Freddie, a $12 trillion obligation... and
Nothing has been said about the huge losses in COMMERCIAL REAL ESTATE THAT ARE COMING AS UNEMPLOYMENT INCREASES!
WHERE IS THE FUNDING COMING FROM TO REBUILD THE WORLDS CAPITAL MARKETS?
The above facts have not been considered by the Bull on the Street, so how can July 15 hold as a bottom? Simply not reasonable in my opinion.
Double Short ProShares ETFs
PLEASE HELP ME OUT HERE.
Interview with Jim Rogers, Part II: China as World’s Best Long-Term Profit Play
I agree with "strangewalk"... Best to keep your powder dry for a while till the commercial real estate bubble is finished all over the world. No one is talking about it, but with higher inflation comes higher interest rates, rising cap rates and lower net income. With the loss of 12 trillion in equities all over the world and growing, we can expect many commercial real estate foreclosures world wide. Got to impact China regardless of how the government seeks to hide the truth and prop up the economy.
I understand that factories are closing, exports slowing and unemployment is growing. The news in China is probably so controlled that the public does not yet understand that they will be a part of the growing global crisis.
By October, I expect to see FXI down another 50%.
They have huge over capacity and I just read that their biggest bank was last bailed out only 3 years ago and is now selling subordinated bonds to raise capital. They say the sale is to have capital available to take advantage of opportunities in our fallen markets, but I suspect that they have loan losses they are trying to cover, rather than mark to market like our banks have done. It looks to me like Mr. Rogers is trying to jawbone the economy into feeling good, regardless of the facts.
China's Looming Hangover?
I understand that factories are closing, exports slowing and unemployment is growing. The news in China is probably so controlled that the public does not yet understand that they will be a part of the growing global crisis. The excitement of the games has put the country in a trance, ignoring what is happening in the big picture.
By October, I expect to see SSEC and FXI down another 50%.
China has huge over capacity and I just read that their biggest bank was last bailed out only 3 years ago, and is now selling subordinated bonds to raise capital. They say the sale is to have capital available to take advantage of opportunities in our fallen markets, but I suspect that they have loan losses they are trying to cover to their political buddies. Rather than mark-to-market like our banks have done, they can hide their loses very easily with no voters to worry about. Obama would fit in real well there.
Value Investing vs. Value Pretending
How true. We have a long way to go before seeing a bottom. You have yet to see any mention of the coming wave of foreclosures on the extremely overvalued "prime" commercial real estate in our best locations. You don't lose 75,000 jobs in NYC, with Wall Street banks no longer adding to the tax revenues of the city without having major fallout.
Just how will NYC and state replace the tax receipts lost by Wall Street? Look around folks, it is you and me in cities all over the world that are the eventual losers. I heard that ML will not be paying taxes for 60 years! Bet that drives the Democrats crazy!
Recession? Different Method, Same Answer
The entire world is slowing down. Markets all over the world have lost $12 trillion dollars in equity that is not won by a group of winners... only losers... not a zero sum game!
Just how do you suppose the banks around the world will re-capitalize sufficiently to go back to making loans needed for future economic expansion? Governments can print lots of cash, called "inflation fuel" but how does that help in the long run?
Looks like we will have to be very patient for a very long time and think about survival, just as our grandparents did in the 1930's.
I think it time to give "Big Oil" big financial incentives to bring "New Production" on line in 24 months, giving them a big tax break. That means drilling off shore, Alaska and in the West. Make a case by case determination with the benefit of the doubt going to the Oil Companies.
Think about it, almost all high tech companies make a higher return on equity than the Oil Companies, they sell at higher PE ratios and the dividends by the oil companies are modest by anyone's standards.
Four Reasons We Can't Call It a Recession - Yet
The entire world is slowing down. Markets all over the world have lost $12 trillion dollars in equity that is not won by a group of winners... only losers... not a zero sum game!
Just how do you suppose the banks around the world will re-capitalize sufficiently to go back to making loans needed for future economic expansion? Governments can print lots of cash, called "inflation fuel" but how does that help in the long run?
Looks like we will have to be very patient for a very long time and think about survival, just as our grandparents did in the 1930's.
I think it time to give "Big Oil" big financial incentives to bring "New Production" on line in 24 months, giving them a big tax break. That means drilling off shore, Alaska and in the West. Make a case by case determination with the benefit of the doubt going to the Oil Companies.
Think about it, almost all high tech companies make a higher return on equity than the Oil Companies, they sell at higher PE ratios and the dividends by the oil companies are modest by anyone's standards.
Six Reasons To Buy China Soon
In my view, China may be down a couple of years, just like the rest of the world. Then it would be the time to buy China, but not now.
China's Negative Economic Outlook
by: Kevin O'Brien posted on: July 02, 2008 |
Certain recent developments in conjunction with prevailing global economic trends appear sufficiently serious to warrant a current economic assessment of the People’s Republic of China [PRC] and a review of China’s sovereign credit risk.
U.S. ECONOMIC TRENDS
The U.S. economy is experiencing a significant contraction as U.S. consumer spending continues to decline. Housing prices have plummeted as the rate of both residential and commercial mortgage delinquencies continues to increase. At the end of the first quarter of this year, nearly nine million borrowers held mortgages exceeding the value of their homes, and this number is expected to increase significantly. The U.S. economy shed 80,000 jobs in March according to the U.S. Department of Labor, the largest loss in five years. Average U.S. household debt is 85% higher than in 2001, and continues to increase as consumers take on greater levels of debt in response to rising commodity prices, particularly food and energy costs. Delinquency and default rates for credit card debt, automobile loans and student loans continue to rise rapidly, as delinquencies have increased from less than $300 billion in 2005, to $715 billion in 2008; representing an increase of nearly 150% within 36 months. The present economic stress will likely be compounded by an expected record number of bank failures. U.S. consumer spending is predicted to continue to decline as consumers experience increasing commodity price inflation and credit contraction.
In a report dated May 19th, Oppenheimer analyst Meredith Whitney warned:
The real harrowing days of the credit crisis are still ahead of us and will prove more widespread in effect than anything yet seen. Just as strained liquidity pushed so many small and mid-sized specialty finance companies to the brink, we believe it will do the same to the U.S. consumer. We believe losses will only accelerate further and far worse than the most draconian estimates.
Ms. Whitney also estimates about $2 trillion of credit card lines will be removed by 2010, cutting the credit available to U.S. consumers by nearly half.
CHINA’S ECONOMY DEPENDENT ON U.S. CONSUMER SPENDING
The significance of the negative short- and mid-term U.S. economic outlook is especially troubling to China’s export sector, which is the primary hard currency earnings producer for the Chinese government. As U.S. consumer spending continues to retreat, the economic effect is anticipated to produce severe structural pressures on China’s export-driven domestic economy due to significantly decreasing external demand.
PERVASIVE INFLATION IN CHINA’S DOMESTIC MARKET
China’s economy continues to experience pervasive inflation which is particularly manifest in such consumer sensitive sectors as energy (e.g., petroleum prices which have more than doubled over the past twelve months) and food staples (e.g., the price of food, which increased 23% just during the month of February). Chinese consumers have benefitted from the state control of energy prices, which has also resulted in the loss of over 50% of the value of Sinopec shares within the last six months as the government continues it attempt to control fuel costs for consumers. Such trends are unsustainable for a country with a population in excess of 1.3 billion and which imports approximately 78% of its petroleum. Data published by the U.S. Energy Information Administration indicates that China’s increase in oil demand represents a majority of the total global increase in demand. With increasing demand and relatively flat domestic production since 1986, China’s reliance on petroleum imports is expected to continue, subjecting the government to additional economic stress.
In its semi-annual Economic Outlook published this month, the Paris-based Organisation for Economic Co-operation and Development [OECD] expressed concern regarding the threat posed by persistent inflationary pressures manifest in China’s domestic market. China’s consumer price index was officially reported at 7.7% in May and 8.5% during April, and remains above its January level of 7.1%. Taking into account China’s industrial consumption of commodities and that China produces very few commodities domestically and is therefore reliant on global sourcing at prevailing prices to procure raw materials for its manufacturing industry, the OECD expects wage and price inflation to erode China's export competitiveness.
The OECD report states:
Coupled with ongoing weakness in external demand, exports and the pace of market share gains are projected to slow markedly.
Such an outcome raises the risk of political instability resulting from increases in urban unemployment and other factors as discussed in this assessment.
ACTION
The following trends and events are identified as material to an assessment of China’s near- and mid-term economic outlook:
The extent of dependency of the Chinese government on hard currency earnings derived from manufactured exports supported largely by U.S. consumer spending.
The depth of the retreat in U.S. consumer spending and the high probability of a prolonged contraction of the U.S. economy.
The fundamental dynamics responsible for China’s domestic wage and price inflation and the increased risk of political instability attributable to the rising cost of imported consumer and industrial commodities, reduced demand for export products, and a significant increase in urban unemployment.
The rate of increase of China’s petroleum consumption and the dependency of China’s export manufacturing sector on petroleum imports.
China’s ability to maintain the global competitiveness of Chinese manufactured goods in the face of rapidly increasing transportation costs.
Government debt statistics evidencing an unsustainable overreliance on debt financing, particularly short-term debt, to sustain economic growth.
Repudiation by the Government of China of $260 billion of its sovereign debt and the pending reclassification of the Chinese government’s sovereign credit rating into ‘Selective Default’.
Upon an evaluation of the foregoing, Sovereign Advisers issues a Negative Outlook for the domestic economic prospects of the People’s Republic of China and a Negative Outlook for the safety and performance of government bonds issued by the People’s Republic of China.
Will the Recent Pullback in REITs Create a Buying Opportunity?
U.K. Commercial Real Estate Returns Drop By Record
By Peter Woodifield
Dec. 14 (Bloomberg) -- U.K. commercial real estate returns fell by a record amount last month as higher interest rates and a drop in bank lending pushed prices down, according to Investment Property Databank Ltd., a London-based research firm.
The total return on investments, after taking rental income and growth into account, slumped 3.6 percent in November. That's twice the size of the last record decline, a 1.8 percent fall in returns in May 1990, IPD said in an e-mailed statement today. The value of shops, offices and warehouses plunged 4 percent in November after a 1.9 percent decline in October.
Four straight monthly falls in property returns have cost investors 1.8 percent of their money this year. Commercial property is set to break its streak of being the only U.K. asset to have made money for investors every year since 1992 as appraisers mark down prices in the wake of the credit squeeze.
``This is a price correction rather than a significant prolonged downturn,'' Andrew Jackson, property investment director at Standard Life Plc's fund unit in Edinburgh said in an interview. The unit oversees 15 billion pounds of real estate assets.
So far this year commercial property values have fallen by 7.8 percent, compared with a 27 percent fall between 1989 and 1993, IPD said in the statement. Unlike the early 1990's, demand for space remains strong and rents are growing in all sectors, the research firm said.
Improvement Ahead
``We should be through this quicker than'' previous market declines, said Jackson. ``It's better than having a 1 percent fall every month for the next 12 months to 14 months. We should see a little bit more light towards the end of the first quarter of next year.''
Returns fell 0.3 percent over the past 12 months, the first time annualized returns have been negative since February 1993, said IPD.
The price of shops and malls plunged 4.3 percent last month, compared with a 4 percent drop in the value of offices and 3.2 percent in the value of industrial properties. Those declines were offset by a rise of 0.4 percent in rental income return.
The capital value of commercial property in Britain has fallen back to the level of May last year following November's drop, said IPD.
The monthly IPD index is based on figures supplied by real estate investors owning 4,209 properties worth 53.8 billion pounds ($108.8 billion). IPD started its monthly index in December 1986.
To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg....
***********
As you will note, things did not go as expected when the writer stated:
``We should be through this quicker than'' previous market declines, said Jackson. ``It's better than having a 1 percent fall every month for the next 12 months to 14 months. We should see a little bit more light towards the end of the first quarter of next year.''
Clearly, both residential and commercial markets in the UK are worse now than in December and they show no signs of recovery.
The market outlook for commercial property is certainly not much better in the US than in the UK.