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Lloydie

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  • Westpac Is Overvalued By Around 30% Making It A Solid Short Candidate [View article]
    31% downside is conservative if China rebalances. I believe momentum is against WBC as foreign investors are selling Aussie banks.
    Jun 12 02:51 AM | 1 Like Like |Link to Comment
  • Fed Says U.S. Stocks Are Cheap [View article]
    Hard to agree when job creation is falling away as it has done over the last three years around this time of year.

    M2 is basically flat and base money expansion is tapering down. I see deflation more than inflation.
    May 14 01:37 AM | Likes Like |Link to Comment
  • What To Make Of The Fed's Planned Exit Strategy [View article]
    Due to leverage - if the market isn't rising, it should be falling.
    May 13 09:25 PM | Likes Like |Link to Comment
  • China Crash 2012/2013 - Overcapacity And Bubbles (Part One) [View article]
    The problem is that china is incurring debts in the process. As the cost of debt exceeds the return on assets, china is setting itself up for debt defaults and decades of bad debts. Have you guys learnt nothing?
    May 9 06:11 AM | Likes Like |Link to Comment
  • The Federal Reserve: Banks 'Experienced Stronger Demand' For Loans In April [View article]
    I thought non-revolving credit growth slowed in April?
    May 8 12:51 AM | Likes Like |Link to Comment
  • Risks Of The Chinese Financial System: Subprime With Chinese Characteristics [View article]
    I believe this is an accurate reflection of what is happening.
    Jan 10 03:49 AM | Likes Like |Link to Comment
  • Risks Of The Chinese Financial System: Subprime With Chinese Characteristics [View article]
    Not likely to occur as credit growth is near limits. Steel profits are non existent. Bad debts are accumulating. There is no happy ending here. The Chinese mills are just stubborn.
    Jan 10 03:44 AM | Likes Like |Link to Comment
  • The Great Australian Housing Bubble [View article]
    Responses to your responses:

    (1. Australian mortgagor household cashflows are very sensitive to interest rates. If rates fall home affordability increases quickly. This is dramatically different to the US where household mortgage rates generally don't fall during a recession. Un and underemployment are the main likely causes of house price falls as the RBA is highly unlikely to keep rates high if housing distress emerges widely.)

    Aust banks are dependent on wholesale rates and competition for local deposits. RBA settings have limited effect on interest rates in the long run. It's all an illusion I'm afraid.

    (2. There is no sign of an external shock that will significantly reduce Australian income and capital inflows or cause significantly higher un/underemployment. Even a double dip in the US would likely be offset by continued growth in China and India.)

    China is slowing down. India is experiencing massive bouts of inflation. Cause for concern as construction as a percentage of GDP in China is 50%+. In any event, slowing loan growth (Jan 2011 figures) will cause house prices to fall. Therefore, external shock is not the cause of loan and house price decline but will only accelerate it.

    (3. The Australian government has huge capacity to borrow or to guarantee new/rollover on/offshore debt raisings by Australian banks. Net foreign debt is in the order of only 13% of GDP. Many public sector jobs no longer have defined benefit superannuation/retirement benefits, so unfunded liabilities are less of a problem than in some other countries.)

    True. But like the Irish situation, potential Government bank guarantees will deplete Government balance sheet. Pray HARD, the Aust govt does not guarantee bank debts and will let them fail. Hope they set up some new healthy banks instead. Bond holders should take a haircut for their stupidity in lending to Aust banks. BTW, I note that Ken Henry, the architect and prime adviser of the GFC stimulus measures and housing grant boost, is quitting early. Probably doesn't want to be around when the proverbial hits the fan.

    (4. Strategic default is not an option for Australian households - borrowers are personally liable and often/generally pursued to bankruptcy by banks.)

    So, they eat bake beans for longer and then default. House prices are sustained a bit longer then reverts as income limits are reached. It is arguably better that they do strategically default and get on with their lives.

    (5. While government could dramatically increase the supply of land for housing or high density development, government realises that causing house prices to fall significantly would be political suicide.)

    True. As supply is price inelastic, the run up in house prices already reflects deficiency in supply. When it reverts, the price falls will be sharper precisely because supply is inelastic. In any event, the cause of house price decline will be a decrease in loan volume. January 2011 loan volumes are the worst figures since 2004.
    Feb 7 09:11 PM | 1 Like Like |Link to Comment
  • Biggest Story for 2011? China, Its Looming Real Estate Bubble and Neo-Mercantilism [View article]
    You guys need to see m2 growth before criticizing Chanos. He doesn't need to go to China to understand 60% GDP spend on buildings and infrastructure. The three things people are missing in their analysis appear to be informal community lending, bank securitization of loans and hot money flows into speculative assets from abroad. The rate of property price increases in 35 major cities is not possible without leverage. Due to the inefficiencies of local governments, many of the formal loans previously extended are likely to be non performing. With local govts dependent on land sales to maintain revenue, this appears to me a recipe for disaster. Falling asset prices, depressing revenue causing non performing loans to pile up.
    Dec 26 05:26 PM | 2 Likes Like |Link to Comment
  • China: The Bear Case [View article]
    I believe crash is imminent for two reasons. Excessive lending in 09 and 10 has caused core inflation to rise. Beijing will be forced to reduce M2 growth. Studies show the impact of a mere credit slowdown is recessionary. Second reason is that net export earnings is only 5% of GDP and shrinking. The rest of the world will not allow china to power out via export earnings. As domestic consumption is low due to low incomes there will be insufficient demand to support GDP growth.

    Prediction is for bad loans to overwhelm banking system, which will of course be bailed out by government. The cost of the bail out will be borne by local depositors further suppressing domestic consumption. Foreign reserves are useless in such situations as they cannot help boost local consumption or increase external demand. In any event foreign reserves are 50% of GDP, whilst local debt is likely to be around 90% of GDP, probably more.

    2011 lending at 7 trillion yuan represents credit shrinkage as banks are forced to bring about 2 trillion of off balance loans lent in 09 and 10 back onto balance sheets. Interest rates on shadow banking will likely jump as m2 shrinks. Watch out for non performing loans and falling asset values.

    Personally, I'm expecting iron ore price capitulation. Miners were wondering why the Chinese kept buying. I don't think they will need to wonder for much longer.
    Dec 17 09:29 PM | 1 Like Like |Link to Comment
  • China: The Bear Case [View article]
    Yeah, but the problem is income. At ratio of 7 that is still high with no potential for upside.

    Income growth is not going to appear soon. Inflation will erode the poor base whilst the rich protect themselves.

    This appears to me a recipe for social unrest.
    Dec 14 08:32 PM | 2 Likes Like |Link to Comment
  • China: The Bear Case [View article]
    Yield calculations are only relevant for short term calcs. For longer term calcs you need to take into account macroeconomic factors.

    Macro tells me that current credit growth is unsustainable as it exceeds both gdp and income growth. Inflation is appearing precisely because of this as M2 is growing faster than the supply of goods and services.

    To understand why Government money printing is ineffectual, you need to understand how credit works in an economy. The collapse of a credit bubble indicates that debt has hit income limits. What this means is that there are insufficient numbers of new borrowers able to take on a bigger debt burden to support asset prices. Further money printing will only raise goods inflation. Asset price inflation is not possible after this period.

    For proof see Japan in the 90s, US today and read Richard Koo's book. Galbraith says the same thing. Self sustaining growth is not possible once debt burdens hit income limits.
    Dec 14 08:26 PM | 2 Likes Like |Link to Comment
  • China: The Bear Case [View article]
    Actually it is the other way around. Without an analysis of asset prices, long term yield calculations are completely meaningless.

    Risk factors that should be considered is a revaluation of asset prices in the region of 30% to 50%, which would completely throw out above calculations.

    Main issue to take into consideration is credit growth. Asset price increase and inflation is not sustainable as credit growth exceeds GDP and income growth. Continued credit expansion will reach income limits, making housing unaffordable for the majority. This is the definition of non performing assets.

    Property prices will rise until it can do so no longer. Then a reduction in asset prices is then likely to affect incomes, leading to a rise in bad debts. This will result in an increase in non performing loans.

    The ability of banks to extend new credit will be crimped by rising bad debts. There will be nothing that the Government can do about falling asset prices. They can employ people but they will have no power to push asset prices up.
    Dec 14 02:47 AM | 3 Likes Like |Link to Comment
  • Is Jim Chanos Right About China? [View article]
    Uptick in inflation means that Chanos is pretty close to getting it right. Either the Gov't lets inflation tick up or they do something to rein it in. So, the end game is close.
    Dec 14 02:33 AM | Likes Like |Link to Comment
  • Is Jim Chanos Right About China? [View article]
    No, China is building everything with debt, not steel and concrete. China is manufacturing everything you can think of but the world has had enough of China's goods and low yuan.
    Dec 14 02:29 AM | Likes Like |Link to Comment
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