Yes Virginia...It's a Bubble...

[don]

Re: Yes Virginia...It's a Bubble...

courtesy of Jesse's Cafe

[vt]

Re: Yes Virginia...It's a Bubble...

This is why the corporate executives and up and comers get paid so well; they get better drugs

http://observer.com/2015/04/nootropics/

[GRG55]

Re: Yes Virginia...It's a Bubble...

Looks like they need to hustle up that conversion from investment spending to a consumer economy...and get all those fisherfolks to start spending money on holiday flights from the nice airports.

http://www.reuters.com/video/2015/04...eoChannel=2602

China: Enjoying the warmth from the FIRE


Bankers to China's Rescue

Financial intermediation surge vs real estate weakness

11:22 PM MDT
April 15, 2015

A more granular look at China's slowdown shows its stock market boom and increasing sophistication in financial services helped save the economy's bacon last quarter.

Financial intermediation surged 15.9 percent from a year earlier, the standout performer among the nine industry groups including real estate, transport and farming outlined by the statistics bureau. Construction and 'others' were the only other two to beat the economy's 7 percent expansion pace.

"The outsize contribution of the financial sector to growth underlines the dilemma facing Beijing as it attempts to tamp down a credit bubble without cratering growth,'' said Bloomberg economist Tom Orlik. Booming brokerage fees, banks bringing off-balance sheet lending onto their books, and growth in a more sophisticated financial sector may be behind the surge, Orlik said.




Real estate slowed to 2 percent, deepening its drag on the economy, while farming, forestry and animal husbandry expanded just 3.2 percent from a year earlier. In a worrying sign for domestic demand and the rebalancing thesis, hotels and catering services rose just 5.3 percent.

While Premier Li Keqiang is seeking to spur services and consumption to take over from debt-fueled investment growth, a nation of stock speculators driving brokerage commissions probably isn't what he has in mind.

[touchring]

Re: Yes Virginia...It's a Bubble...

It's difficult for us to understand but too much growth and consumer spending is not always a good thing.

The law of diminishing marginal returns.
It's like when London or NYC banker earns too much, life becomes meaningless.


http://www.reuters.com/article/2015/...0N20H820150411

(Reuters) - China will limit visits by residents of the southern city of Shenzhen to neighboring Hong Kong, local media and politicians said on Sunday, following recent tensions in the former British colony caused by growing numbers of mainland visitors.


Shenzhen authorities would soon restrict its residents to one visit to Hong Kong per week, from an unlimited number of daily trips, said Michael Tien, a Hong Kong member of China's parliament, the National People's Congress.


"It will definitely happen," Tien told Reuters. "I have heard from very reliable government sources." Local media said the travel curbs could come into effect as early as Monday.


The development comes after a groundswell of discontent in Hong Kong toward rampant growth in the numbers of mainland Chinese visiting the already densely populated city.


Shenzhen is just a short train ride from Hong Kong.


Some 47 million mainland Chinese visitors streamed into Hong Kong last year, more than six times the population of the former British territory that returned to Chinese rule in 1997.


While the tide of mainland tourists has powered the local economy, by spending freely in luxury shops, malls, restaurants and hotels, they have also been blamed for pushing up shop rents and property prices, as well as emptying local stores of daily necessities such as baby milk formula and cosmetics.


Travel industry executives say political tensions in Hong Kong including pro-democracy demonstrations last year and recent protests against mainland Chinese shoppers in local malls, when some Chinese were harassed, have discouraged tourists from mainland China. The travel industry had spoken out against the imposition of any curbs on mainland visitors.


The Hong Kong government wouldn't confirm the move, saying any announcement would come from Chinese authorities. But it acknowledged, in a statement, that it had proposed to Beijing concrete measures to adjust visas that currently allow permanent residents of Shenzhen multiple-entry to Hong Kong.


There was no immediate response from the Shenzhen government and no official confirmation of the new travel limits.


While it's not clear to what extent the new travel restrictions will impact Hong Kong, Shenzhen's proximity and affluence has made it a key source of Chinese shoppers in the city for years.


Hong Kong's retail sales fell 2 percent in the first two months of the year, stoking concerns of a more protracted retail slowdown due to a drop in mainland tourists.

[GRG55]

Re: Yes Virginia...It's a Bubble...

If the US$ loses value, commodities priced in that currency will rise.

But I think we may see the opposite happen...commodities down, dollar up (and yuan down as China falters)...

Tick, tick, tick...

If China Sees Capital Outflows Now, What Happens in Crisis?

10:01 AM MDT
April 23, 2015

Here’s another Chinese puzzle. Economic growth, while slowing, is still 7 percent and the stock market is on a tear. Yet money is leaving the country.

That’s a turnaround for an economy that’s been a magnet for foreign capital during the boom years of the past decade. Why the outflow? A property bust, squeezed corporate profits and the end of a multi-year currency upswing are giving investors fewer reasons to pile in. At the same time, President Xi Jinping’s crackdown on corruption gives more reasons for the nation’s rich to squirrel some of their wealth abroad.

All of this is happening as China moves ahead with initiatives making it easier to move money in and out of the country. While far from levels seen most recently in countries such as Russia, the trickle of cash now exiting China raises a warning flag for what could happen during any domestic financial crisis, as China works to deleverage its economy.

“We have both a booming stock market and capital outflows, which is counterintuitive,” said Jean-Charles Sambor, Asia-Pacific Director at the Institute of International Finance in Singapore. “The downside risk would be to have broad-based outflows if the macro story deteriorates further or the stock exchange collapses, which would create a confidence crisis.”...

...One measure released by SAFE on Thursday showed that a net $23.8 billion left the country in March, the most in at least a year. Foreign-exchange reserves slid the most on record in the last three months, fueling speculation the central bank was forced to sell some of its dollar holdings to support China’s currency, the yuan. In the final quarter of last year, the capital account posted its widest deficit since at least 1998.

One trigger to accelerate the outflow could be a steep correction in stock prices that spurs domestic investors to seek safety in overseas assets. The Shanghai Composite Index has soared about 90 percent over the past six months as the central bank cut interest rates and took steps to revive lending growth...

...Then there’s the currency risk. In the case -- unlikely for now -- that the yuan is allowed to weaken substantially to boost exports, that could trigger the unraveling of carry trades estimated at $1 trillion...

...“If there is an economic crisis, my guess is that the fear-driven outflows could rise sharply, putting immense pressures on the PBOC’s foreign reserves,” said Stephen Jen, co-founder of SLJ Macro Partners LLP in London and a former IMF economist. “But the foreign reserves are there for a reason, precisely to meet this contingency.”

While regulators like SAFE keep a tight grip on how money can leave the country, investors cook up methods to sidestep the rules. One favorite option has been the use of fake invoicing for overseas trade or services that were never transacted. Collier of Orient Capital Research estimates that the deficit for outward over inward services almost doubled to $198 billion in 2014...

[santafe2]

Re: Yes Virginia...It's a Bubble...

I've come across some interesting analysis in The Economist over the last week or so with regard to the cost of real estate in China. The first article talked about the fall in real estate values over the last year in China, (about 5%), and capital outflows to Hong Kong. Yuan held in Hong Kong banks has grown from ~$13B US equivalent in 2010 to ~$150B. The Hang Seng index is also up almost 20% over the last 6 weeks. This may or may not be directly related to mainland outflows but it's certainly coincident.

What I found most revealing in these articles is the relative value of real estate. When looking at Chinese real estate through different value filters it offers starkly different views. To keep the chart clean I've narrowed the comparisons to China, Australia, Canada and the US. There's a link at the bottom of the post if anyone wants to look at other markets. When viewed through the lens of growth, China and Australia are clearly moving up much faster than the US or Canada. It almost makes the Canadian housing bubble look provincial.



But if you change the filter to focus on the cost of real estate vs. local income, we see a completely different outcome. When viewed through the lens of income growth in China, Chinese real estate is very inexpensive compared to Australia or Canada.



And if we take a 3rd view of real estate cost, the competitive view, we begin to see why real estate costs in China have begun to fall. As any real estate investor knows, the local value of real estate is always compared to rents. If the monthly cost of owning real estate is a lot more than renting, one of two things will happen, rents will move up or real estate values will fall. When viewed through this filter it can be seen that the Chinese market is somewhat over valued but the Australian market is very problematic and the Canadian market is in deep trouble over the next few years.



There are several economic levers that may be pulled over the next few years in China and depending on which ones you believe will be thrown, you can argue that Chinese real estate is a bargain or that it is over valued. It looks to me like the over supply of product is causing the contraction in prices more than a raw over valuation.

http://www.economist.com/blogs/daily...l-house-prices

[GRG55]

Re: Yes Virginia...It's a Bubble...

...There are several economic levers that may be pulled over the next few years in China and depending on which ones you believe will be thrown, you can argue that Chinese real estate is a bargain or that it is over valued. It looks to me like the over supply of product is causing the contraction in prices more than a raw over valuation.

http://www.economist.com/blogs/daily...l-house-prices

China suffers from the same thing I saw in the Middle East when I lived there. The parallels are much closer than one might guess on casual observation.

In both cases the governments own and control an overwhelming share of the economy. This leaves private investment few alternatives but to be funneled and concentrated - residential property and retail (apartments, family restaurants and mobile phone accessory stores for the masses, luxury villas, shopping malls and auto dealerships for the wealthy and well connected) or the stock markets. As private incomes and savings rise in greater Asia this inevitably leads to some pretty spectacular results. The post 9/11 concentration of building cranes in Dubai between 2002 and 2009 is one example. Another, the insane Gulf stock markets which culminated in a frenzy of IPOs of minority interests in family held construction and property firms circa 2006 (at the time I was resident in that region and posted on this forum describing those markets as "Arabs with little understanding of markets borrowing heavily to buy poor quality stocks at astronomical prices").

The mainland China and Hong Kong markets today are similar to the Gulf markets back then. They are not about capital investment in sound, productive enterprises. They are forums for pure speculation. To a degree that far exceeds the much maligned present day USA stock markets.

Edit added: The exodus of capital from China also has a parallel in the Middle East. Much of it is rushing to purchase overvalued property in Singapore, Australia, Vancouver and Toronto. The value of a safe haven escape alternative outweighs the cost of property in those markets to someone of means in mainland China. It is the same with the Arabs who have revived the Dubai property market in spectacular fashion since the start of the Arab Spring, and have moved their families there seeking a safe haven from the turmoil in Egypt, Syria, Palestine and Iraq.

[GRG55]

Re: Yes Virginia...It's a Bubble...

I doubt this is as binary as we might imagine.

First, there may be explicit approval and some relaxation of funds transfer capability out of China for the well connected wealthy, as part of an effort to find ways to vent the excess private savings into something other than internal property speculation and shadow banking system investment products, both of which are causing concern with the authorities. Buying gold and various luxury goods inside China can only absorb so much...foreign real estate and perhaps other private investment abroad might be carefully encouraged.

But monitoring and controlling the outflows, once started, might also be problematic in a nation as large, populous, complex and corrupt as China. So it is entirely likely that some, shall we say, "unscrupulous and ill gotten gains" are also finding their way out of China, along with their representative owners, through the same conduits?

It's just another cycle repeating...well perhaps rhyming in a new variation might be a better description?

The lesson of Bo Xilai is probably not lost on anyone with some wealth in China:

Bo Xilai found guilty on all charges, sentenced to life in prison

updated 7:11 AM EDT, Mon September 23, 2013

Beijing (CNN) -- A court in eastern China sentenced Bo Xilai -- the former rising star of the ruling Communist Party who fell from power amid a scandal involving murder, betrayal and financial skullduggery -- to life in prison Sunday.

...

Many of China's Most-Wanted Graft Suspects Have Taken Refuge in the U.S.

10:28 PM MDT
April 22, 2015

From “Lord Ringtone” to a banker accused of authorizing $1.6 billion in illegal loans, China’s list of most-wanted fugitives offers an illustrated guide to the Communist Party’s breathtaking variety of official graft.

The online rogue’s gallery of 100 top overseas corruption suspects was released by Chinese authorities to pressure the U.S. and other governments to help track down and return them. The list includes Li Xiangdong, who’s accused of taking bribes while running China Mobile Ltd.’s regional digital music and ringtone business in Sichuan and absconding to Canada.

There’s also Liu Changming, a former governor of the Bank of Communications’ Guangzhou branch, accused of approving illegal loans of more than 9.8 billion yuan ($1.6 billion) between 2005 and 2007, according to the Legal Evening News. Liu vanished in 2008 before traveling to either Singapore or the U.S., according to the government’s list.

The list spans China’s industries, from finance and property to oil and car manufacturing. There are former representatives of the state-controlled news media and one ex-history professor. The campaign to repatriate financial fugitives -- dubbed “Sky Net” -- is key to President Xi Jinping’s nationwide corruption crackdown, with some 40 people on the list released Wednesday thought to be in the U.S...

...Nine suspects on the list hail from the banking industry, with a former president of Bank of China Ltd’s Hainan provincial branch being the highest ranking...

...Almost one-quarter of people on the list are believed to have multiple identities, with two possessing at least five passports. Among those with two passports was Qiao Jianjun, a former director of China Grain Reserves Corp., who’s suspected of illegally transferring 300 million yuan to the U.S., the official China Daily reported last month.

In March, the U.S. Justice Department indicted Qiao and his ex-wife, accusing them of channeling stolen funds into the country and fraudulently obtaining U.S. visas.

Canada, with 26 former officials, was the second-most popular destination for fugitives on the list, which was released by the Ministry of Public Security and the Central Commission for Discipline Inspection, the Communist Party’s graft-busting agency. New Zealand was third, with as many as 20...

...Among the better-known cases cited was that of Yang Xiuzhu, a former Zhejiang province property official, who fled to the U.S. in 2003 with estimated assets of 253 million yuan, the official Xinhua News Agency reported. Her family bought a five-story Manhattan building as early as 1996 for $5 million, the report said.

[santafe2]

Re: Yes Virginia...It's a Bubble...

Question: How do you make a million dollars following this expert?
....start with two million.

Yup, the market should be just right by then...er....now.

[GRG55]

Re: Yes Virginia...It's a Bubble...

Question: How do you make a million dollars following this expert?
....start with two million.

Yup, the market should be just right by then...er....now.

Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.
Will Rogers

[GRG55]

Re: Yes Virginia...It's a Bubble...

"... any significant reverse for China’s corporate sector could quickly spread to other countries."

My theory is that the eventual collapse of the Great Wall of Money will cause:

1. A global finished goods supply crash as tens of thousands of businesses in China shut down (inflationary)
2. Global recession and output gap (deflationary)
3. An explosion in unemployment and political unrest in China and an attendant need to externalize the crisis (inflationary)
4. A collapse in demand for UST from China that results from trade (USD-negative and inflationary)
5. Elimination of "America's IMF" as China loses its ability to finance the U.S. federal budget deficit that will explode during the resulting global economic crisis as outlays rise and tax receipts decline (USD-negative and inflationary)

The ultimate "Ka" event that leads to "Poom" via a failed reflation of the reflation of the reflation of the original 1995 to 2000 asset bubble.

Sun May 10, 2015 9:21am EDT

China cuts interest rates for third time in six months as economy sputters

China cut interest rates for the third time in six months on Sunday in a bid to lower companies' borrowing costs and stoke a sputtering economy that is headed for its worst year in a quarter of a century...

...The People's Bank of China (PBOC) said on its website it was lowering its benchmark, one-year lending rate by 25 basis points to 5.1 percent from May 11. It cut the benchmark deposit rate by the same amount to 2.25 percent."China's economy is still facing relatively big downward pressure," the PBOC said.

"At the same time, the overall level of domestic prices remains low, and real interest rates are still higher than the historical average," it said.

Sunday's rate cut came just days after weaker-than-expected April trade and inflation data, highlighting that China's economy is under persistent pressure from soft demand at home and abroad.

While the PBOC acknowledged the difficulties facing China's economy, it said in its statement accompanying the announcement that it wants to strike a balance between supporting growth and deepening structural reforms...

...Economists had said it was a matter of when, not if, China eased policy again after economic growth in the first quarter cooled to 7 percent, a level not seen since the depths of the 2008/09 global financial crisis...

...With China set to publish more key economic data on Wednesday, including industrial output and investment, the timing of the rate cut could add to worries that figures may disappoint across the board again, as they did in March...

...A cooling property market and slackening growth in manufacturing and investment have weighed on the Chinese economy. Annual growth is widely forecast to sag to 7 percent this year, down from 7.4 percent in 2014.

In an attempt to energize activity, the PBOC has now lowered interest rates and relaxed the reserve requirement ratio (RRR) five times in six months, and many economists believe more policy loosening is in store.

This is partly because despite the steady drum roll of policy easing, there are indications it has not benefited the real economy. Some data suggests banks are not passing on lower interest rates to borrowers, and credit is still not flowing to the sectors in most need of the funds...

...Banks are also struggling as the economy founders. Lending has slowed, bad loans are piling up, and profits margins are getting squeezed as China liberalizes its interest rate market. Banks' earnings reports last month showed profit growth hit a six-year low in the first quarter...

...And with the prospect that borrowing costs may stay stubbornly elevated, government economists told Reuters earlier this month authorities may ramp up state spending to shore up growth, in the hope that fiscal policy would work where monetary policy hasn't.

But Li Huiyong, an economist at Shenwan Hongyuan Securities, cautioned against thinking that lower borrowing costs would not trickle down to businesses and consumers at some point.

"Don't underestimate the cumulative effect of the cuts in interest rates and RRR," Li said. "This won't be the last cut. "The rate could be lowered to 2 percent at least, and we expect the economy to gradually stabilize in the coming two quarters."

[don]

Re: Yes Virginia...It's a Bubble...

Is the Sino Schadenfreude moment at hand?

[don]

Re: Yes Virginia...It's a Bubble...

a brown bubble . . . .

While we have written before about both the epic bubble in private valuations as well as how tech company valuations are "completely made up", one has to see the following table showing Uber's current, past and future valuations in context, just to get a sense of the furious valuation scramble currently taking place in the tech sector which has long since put the dot com bubble to shame.

[jk]

Re: Yes Virginia...It's a Bubble...

reminds me of when priceline's valuation was higher than that of all the u.s. airlines combined.

[santafe2]

Re: Yes Virginia...It's a Bubble...

reminds me of when priceline's valuation was higher than that of all the u.s. airlines combined.

I worked in the search engine business in those days and my personal favorite was inktomi, valuation $25B or about $240 a share. And if I remember correctly, sold to Yahoo a few years later for around 25 cents a share.