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

[GRG55]

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

Difficult to change when there are so many vested interests that have benefited for so long from the system as it is...

Bloomberg News

China’s Shadow Banking Surges as Growth Rebound Adds Risks

By Bloomberg News September 11, 2013

China’s broadest measure of new credit almost doubled in August from the previous month in a sign leaders are committed to meeting economic goals even at the cost of adding financial risks.

Aggregate financing was 1.57 trillion yuan ($257 billion), the People’s Bank of China said in Beijing yesterday, topping the 950 billion yuan median estimate of 10 analysts surveyed by Bloomberg News. New yuan loans from banks accounted for about 45 percent of the total, down from July’s 87 percent, as non-traditional credit played a bigger role.

The first pickup in credit growth after an unprecedented four straight declines, the fastest gain in industrial output in 17 months and above-forecast exports signal better odds that Premier Li Keqiang will achieve his 7.5 percent expansion target this year. The data also mark a resurgence in shadow banking that poses risks for the financial system after a record credit boom in the first quarter...

[GRG55]

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

Difficult to change when there are so many vested interests that have benefited for so long from the system as it is...

Bloomberg News

China’s Shadow Banking Surges as Growth Rebound Adds Risks

By Bloomberg News September 11, 2013

China’s broadest measure of new credit almost doubled in August from the previous month in a sign leaders are committed to meeting economic goals even at the cost of adding financial risks.

...

Either the Chinese authorities are reveling in the riches they themselves are amassing from this insanity, or they fear stepping in front of a speeding train on a downhill grade.

This article from the FT leaves the impression that the Chinese have been trying to take the froth off the property market in the recent past, but that seems overly charitable given the relentless escalation in the speculation underway.

From the FT:

September 18, 2013 4:30 am

China house price surge raises prospect of steps to cool market

By Simon Rabinovitch in Shanghai

Residential prices soared in China’s biggest cities in August, raising the possibility that the government will take fresh measures to cool the market.

Prices for new homes in Beijing, Shanghai and Shenzhen – the country’s three largest cities – surged 18-19 per cent year-on-year and 8.3 per cent nationally.

The sharp increase in prices in the biggest cities is the latest evidence of a full recovery in the Chinese property market after it was smothered by several tightening measures this year. A series of land sales have set record prices since August, with real estate developers ramping up their competition for the best plots in the biggest cities.

Some investors and analysts have started to express concern about whether China’s property market is veering into dangerous bubble territory, but the government has so far taken a much more dovish line.

Liu Jianwei, an analyst with the official statistics bureau, said there were divergent trends across the country. While price increases averaged 18-20 per cent year-on-year in first-tier cities, they were 7-10 per cent in second-tier cities and just 6 per cent in third-tier cities...

...Du Jinsong, an analyst with Credit Suisse, said this statement appeared to indicate that the government was not overly worried about the housing market. “[The] continued effort to paint a picture of still-benign housing price conditions may imply that the central government wants to deal with other issues first before making a very clear stand on the overall housing policies,” he said in a note to clients.

Over the past four years the Chinese government has waged a continuous battle to rein in the housing market, raising mandatory mortgage downpayments, placing restrictions on the number of homes people can buy and levying a tougher capital gains tax on sales.

But since the country’s new leaders – Xi Jinping and Li Keqiang – took office in March, there have been no big new tightening policies enacted on top of the measures already in place. Analysts believe this has given developers and investors the confidence to flood back into the property market...

[coolhand]

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

Either the Chinese authorities are reveling in the riches they themselves are amassing from this insanity, or they fear stepping in front of a speeding train on a downhill grade.

This article from the FT leaves the impression that the Chinese have been trying to take the froth off the property market in the recent past, but that seems overly charitable given the relentless escalation in the speculation underway.

From the FT:

September 18, 2013 4:30 am

China house price surge raises prospect of steps to cool market

By Simon Rabinovitch in Shanghai

Residential prices soared in China’s biggest cities in August, raising the possibility that the government will take fresh measures to cool the market.

Prices for new homes in Beijing, Shanghai and Shenzhen – the country’s three largest cities – surged 18-19 per cent year-on-year and 8.3 per cent nationally.

The sharp increase in prices in the biggest cities is the latest evidence of a full recovery in the Chinese property market after it was smothered by several tightening measures this year. A series of land sales have set record prices since August, with real estate developers ramping up their competition for the best plots in the biggest cities.

Some investors and analysts have started to express concern about whether China’s property market is veering into dangerous bubble territory, but the government has so far taken a much more dovish line.

Liu Jianwei, an analyst with the official statistics bureau, said there were divergent trends across the country. While price increases averaged 18-20 per cent year-on-year in first-tier cities, they were 7-10 per cent in second-tier cities and just 6 per cent in third-tier cities...

...Du Jinsong, an analyst with Credit Suisse, said this statement appeared to indicate that the government was not overly worried about the housing market. “[The] continued effort to paint a picture of still-benign housing price conditions may imply that the central government wants to deal with other issues first before making a very clear stand on the overall housing policies,” he said in a note to clients.

Over the past four years the Chinese government has waged a continuous battle to rein in the housing market, raising mandatory mortgage downpayments, placing restrictions on the number of homes people can buy and levying a tougher capital gains tax on sales.

But since the country’s new leaders – Xi Jinping and Li Keqiang – took office in March, there have been no big new tightening policies enacted on top of the measures already in place. Analysts believe this has given developers and investors the confidence to flood back into the property market...

On a day where the Fed just effectively admitted that they cannot even taper QE a little bit? Perhaps rather than being irrational, the Chinese are being inherently rational, buying hard assets b/c they understand what they are watching, having had a little more recent historical experience with the overprinting of paper money?

Even our Canadian neighbors get it - watch self-made billionaire Ned Goodman's 7-minute speech from 9/12/13 here. He asserts in no uncertain terms that the US dollar will soon be dethroned as a reserve currency (in which case what the Chinese are doing with houses is completely logical) & in the speech, Goodman notes two startling facts:

1. The 1st thing the new Chinese Premier did last year was travel to Russia & sign a large oil agreement with Russia SETTLED IN YUAN, NOT DOLLARS.

2. The Israelis have bombed Syria 4x in the last 24 months, attacking several chemical warehouses & a nuclear power facility.

Enjoy: http://m.youtube.com/watch?t=10s&v=n...u.be%26t%3D10s

[touchring]

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

China is now a internal consumer driven paradise....consumer of "real estate".

Remember all the chatter that Beijing was going to wave its magical central planning wand and with a sprinkling of pixie dust instantly transform the mercantile, high savings rate, overdependent-on-capital-investment Chinese economy into a virtuous internal consumer driven paradise?

WSJ ASIA BUSINESS
Updated September 4, 2013, 2:12 a.m. ET

In China, Veil Begins to Lift on High Consumer Prices

Resistance to Prices Grows Amid New Ways to Comparison Shop

BEIJING—In China, consumers pay nearly $1 more for a latte at StarbucksSBUX -0.54% than their U.S. counterparts. A Cadillac Escalade Hybrid Base 6.0 costs $229,000 in China, compared to just over $73,000 in the U.S.

Welcome to China's modern retail world, where the price of many goods is far higher than in many other countries, a disparity that is all the more stark considering the income differences. A basic iPad 2 is priced at $488 in China, where average per capita income is around $7,500. The same tablet is $399 in the U.S., where average per capita personal income totals $42,693.

Clothing and other apparel is on average 70% more expensive for consumers in China than in the U.S., according to data from SmithStreet, which compared the prices of 500 items of 50 brands in both countries.

Government taxes and import tariffs are to blame for a lot of the price discrepancy, but for years the burgeoning Chinese middle class also seemed willing to pay more for products with consumer cachet, particularly imported goods. And companies happily charged what the market would bear, even finding high prices could help provide a quality halo effect, winning customers psychologically. In many cases, when foreign manufacturers charged more, Chinese producers followed suit.

But today more Chinese consumers are pushing back, weary of sticker shock—and enlightened by the ability to compare prices elsewhere, thanks to the Internet and increased travel abroad.

Disgruntled shoppers like Guan Honglei, a 30-year-old finance worker who will shop only on overseas websites or in Hong Kong, have big implications for retailers that have raced to expand brick-and-mortar stores in mainland China.
"It's not worth shopping in China," said Mr. Guan, adding, "If you can wait, do it elsewhere."

With increased travel and e-commerce, consumers are comparing overseas prices with what they see in China-based stores and are waiting to buy goods when abroad, said James Button, a senior manager at Shanghai-based consultancy SmithStreet. This year Chinese shoppers made global headlines by clearing out U.K. and Hong Kong grocery shelves of baby formula, which wasn't only less-expensive than formula found inside China, but was also widely perceived by Chinese consumers as safer.

As China aims to build a more balanced economy that is consumption-driven, regulators have begun cracking down on companies they believe have unfairly swayed pricing in the market.

Authorities recently fined five local jewelry retailers a combined 10.6 million yuan for price manipulation. And in August economic planners launched pricing investigations of the auto, pharmaceutical and baby-formula sectors, looking for prices that were higher in China compared to other locations.

They fined foreign infant-formula makers such as Danone SA and Mead Johnson Nutrition Co., claiming they violated competition laws.

The baby-formula companies responded to scrutiny by slashing prices of products sold in China.
The auto and pharmaceutical investigations are continuing.

Beijing is attempting to ensure that profit margins don't come at the expense of the people, said Rocky Lee, head of the Asia corporate practice at law firm Cadwalader Wickersham & Taft in Beijing.

On luxury goods, authorities have had few qualms about causing sticker shock, boosting prices of import and luxury products like the Escalade, which is slapped with a consumption tax totaling around 386,000 yuan ($63,000).

General Motors Co. GM +0.57% said imported cars make up a small segment of their business in China. A China-built Buick Encore costs Chinese consumers $24,477, while it costs U.S. counterparts $24,160, according to a spokeswoman.
Many companies that have for years earned higher profits in China by selling to consumers who wanted premium products and status symbols, said Yuval Atsmon, a principal at consultancy McKinsey & Co.

Apple Inc. AAPL +2.12% declined to comment on iPad pricing disparities.

Experts say that price tags often also reflect the inefficiencies companies face in the Chinese market. "It can take months upon months—passing tests and getting licenses—to open a retail store in China. Permits and bureaucracy cost; all of that is passed on to the consumer," Mr. Lee said.

Brands such as Starbucks and Häagen-Dazs have set higher prices for Chinese consumers to cast an image of higher quality and create "snob appeal," Mr. Atsmon said.

A scoop of rum raisin ice cream costs $5.40 at a Haagen-Dazs shop in Beijing. In a Chinatown Häagen-Dazs location in Washington, D.C., it goes for $4.68, including tax.

A spokeswoman for Starbucks Corp. said that prices vary by market and in China, customers like larger stores with more seats, which accounts for higher real estate costs built into the price.

A General Mills Inc. GIS -0.20% spokeswoman said the company can't comment on the comparison of the Häagen-Dazs strategy in China versus the U.S. because the ice cream brand is marketed by General Mills in China, while in the U.S. it is run byNestlé NESN.VX -0.49% SA.

Not all goods in China are more expensive than elsewhere in the world. In the keenly competitive beverage market, where volume sales and market share are a top priority, a can of Coca-Cola in a Chinese convenience store is about 2.8 yuan, or $0.46, while in the U.S. it costs more than $1.

[GRG55]

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

On a day where the Fed just effectively admitted that they cannot even taper QE a little bit? Perhaps rather than being irrational, the Chinese are being inherently rational, buying hard assets b/c they understand what they are watching, having had a little more recent historical experience with the overprinting of paper money?

Even our Canadian neighbors get it - watch self-made billionaire Ned Goodman's 7-minute speech from 9/12/13 here. He asserts in no uncertain terms that the US dollar will soon be dethroned as a reserve currency (in which case what the Chinese are doing with houses is completely logical) & in the speech, Goodman notes two startling facts:

1. The 1st thing the new Chinese Premier did last year was travel to Russia & sign a large oil agreement with Russia SETTLED IN YUAN, NOT DOLLARS.

2. The Israelis have bombed Syria 4x in the last 24 months, attacking several chemical warehouses & a nuclear power facility.

Enjoy: http://m.youtube.com/watch?t=10s&v=n...u.be%26t%3D10s

Have a look at China's debt/GDP absolute ratio and rate of change since 2009. You might reconsider your comment about "the Chinese are being inherently rational". You might...but somehow I doubt it...

[coolhand]

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

Have a look at China's debt/GDP absolute ratio and rate of change since 2009. You might reconsider your comment about "the Chinese are being inherently rational". You might...but somehow I doubt it...

I would never argue that there is a debt bubble in China - of course there is. But is their debt worse than the US? No way, not even close.

If you just look at Federal debt, yes it is. But then factor in the state/muni debt. Factor in the $3T in public & private pension underfunding (China doesn't have those I believe). Factor in the $200T in Medicare/Medicaid/Soc Security obligations the US has that China doesn't have. You quickly get the US total debt ratio to something 800-1000% of GDP, by far the worst in the world - worse than Japan, Greece, anyone.

American media has done a great job such as in stories above that "China has a problem, America doesn't", but only b/c they separate the "kinds of debt" from the debt calculation. If my mom gets a check with her interest payment from her US Treasury bond portfolio, that's counted as a debt. If she gets a check from social security for $3,000 every month, that is only counted as a cash expense...not debt, & the fact that she (and her 78m Boomer generational cohorts) are owed $3,000 a month every month till the day they die is completely ignored. Why? That is debt too. Ditto the $60-80T Medicare/Medicaid obligation.

It's fun to debate whose debt bubble is bigger than someone else's, but really this is just what the world looks like in the waning days in of a global fiat currency bubble (that has never ever happened before). As far as who is dealing rationally with how this ends, I would contrast what the Fed is doing with the fact that China has been buying ~100% of global gold mine supplies for much of 2013, & that emerging market media (like Canadians) are openly talking about that China will de-peg from the dollar & peg instead to gold, when the time is right:

http://www.nationmultimedia.com/opinion/Prepare-for-a-new-gold-standard-30212197.html

http://m.rbth.asia/business/2013/07/17/china_reportedly_planning_to_back_the_yuan_with_go ld_47997.html

http://koosjansen.blogspot.nl/2013/09/sge-physical-delivery-equals-chinese_19.html


I'm not a US basher or a China supporter...I'm a proud US national, I love this country...but what has been going on in the US at an accelerating rate - the plundering of the working & middle classes to support an unsustainable currency system & banking class is NOT what America was founded on. The wanton corporatism & domestic espionage going on in the US has a lot more in common with the Nazis my grandfather's generation fought than it does with the principles of what America is supposed to be about. They would be rolling over in their collective graves at what is going on here.

(As a side note, the way the Nazis actually conducted most of the economic plundering of Europe was not with force but rather with the currency system they instituted after they controlled a country...it was exactly the same system as the petrodollar is today - everyone else is given "the gold or the lead" choice to use the dollar for oil, & the US can print it. This is what the Nazis did in Europe...)

Ironically, the preponderance of the evidence (above, etc.) suggests China understands that if they break the petrodollar, they will end this unsustainable system & improve standards of living for most people in the world except for the banking classes in the US & UK, & that the easiest way to break the petrodollar system without World War III is by breaking the UK LBMA &/or US COMEX gold exchanges by buying up all the physical gold at prices never meant to transact physical volumes in size at.

Whoever controls the price of gold controls the price of oil. Whoever controls the price of oil controls the world. And also ironically, the US needs higher oil prices to harvest its shale reserves. Breaking the petrodollar will be a win/win for many...but the losers will be US consumers & consumer debt merchants & Chinese export mfrs.

PS: i am not throwing stones at the dying petrodollar system out of bitterness...i have benefited greatly from this system, but since 2008 I have come to see what we are doing in the name of sustaining the unsustainable. I criticize this system b/c I have 3 sons & will not sacrifice them in World War III to defend an unsustainable currency system that only benefits a select number of people...

[c1ue]

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

But today more Chinese consumers are pushing back, weary of sticker shock—and enlightened by the ability to compare prices elsewhere, thanks to the Internet and increased travel abroad.

That's pretty easily fixed.

As GRG55 should know - Canada is one of the more intrusive nations regarding customs and import duties.

[GRG55]

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

That's pretty easily fixed.

As GRG55 should know - Canada is one of the more intrusive nations regarding customs and import duties.

Only for eggs, chicken and cheeze...

[touchring]

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

Of course, social security checks don't exist in China or Asia for that matter (except Japan) because everyone needs to work and there's a job for everyone.

I don't have statistics but I believe human labor is still cheaper than machine or even farm animals, how much do you think the bosses of these people need to spend to keep their workers alive and fit enough to work?

I would never argue that there is a debt bubble in China - of course there is. But is their debt worse than the US? No way, not even close.

If you just look at Federal debt, yes it is. But then factor in the state/muni debt. Factor in the $3T in public & private pension underfunding (China doesn't have those I believe). Factor in the $200T in Medicare/Medicaid/Soc Security obligations the US has that China doesn't have. You quickly get the US total debt ratio to something 800-1000% of GDP, by far the worst in the world - worse than Japan, Greece, anyone.

[shiny!]

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

Ironically, the preponderance of the evidence (above, etc.) suggests China understands that if they break the petrodollar, they will end this unsustainable system & improve standards of living for most people in the world except for the banking classes in the US & UK, & that the easiest way to break the petrodollar system without World War III is by breaking the UK LBMA &/or US COMEX gold exchanges by buying up all the physical gold at prices never meant to transact physical volumes in size at.

coolhand, can you please explain your reasoning on this point? I don't see the Chinese gov't caring about anyone's standard of living. Or are you saying that improved living standards would simply be an inevitable consequence of breaking the petrodollar?

[coolhand]

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

coolhand, can you please explain your reasoning on this point? I don't see the Chinese gov't caring about anyone's standard of living. Or are you saying that improved living standards would simply be an inevitable consequence of breaking the petrodollar?

Shiny!-

Sure. I don't think China is doing this out of some sense of obligation to the world...i think it is extreme self-interest at the heart of it.

Basically, under the petrodollar system, there are two groups of people. The people that can print money for their oil (the USA), & the people who can't (everyone else on the planet.)

Vastly oversimplified, that means that the US' oil (& by extension, food) is cheaper than it should be ("exorbitant privilege"), & everyone's else's oil & food are more expensive than it otherwise would be (as everyone else must engage in trade via underpricing US-made goods to earn dollars to acquire oil (& by extension food.))

The Chinese are interested in breaking the COMEX & LBMA b/c that whoever controls the pricing of gold controls the pricing of oil...people will only take the dollar for oil under the petrodollar b/c of the GAGFO concept EJ has laid out, under which it is critical to maintain the pretense that gold isn't as valuable as dollars...they do this by managing gold prices using massively levered COMEX & LBMA...levered as much as 100-1.

If either/both of those break, the pretense will be gone, physical gold will be much, much higher in price & GAGFO will break. Only gold will be good for oil, not dollars anymore. Everyone will have to earn gold through trade to pay for their oil.

If everyone suddenly has to earn gold through trade to pay for their oil, then that is nothing new for everyone in the world...but the one nation that could formerly print dollars for its oil will no longer be able to do so. I suspect at that point, the USA's ~10m b/d imported oil habit will dry up fairly quickly, freeing up massive quantities of oil on the global export markets, which will cheapen imported oil prices for the 2nd biggest oil importer in the world...China...and as a side benefit, anyone else who benefits from cheaper oil.

Greater consumption of cheaper oil = higher living standards (for China & everyone else globally that imports oil under the petrodollar.)

Lower consumption of much more expensive oil = lower living standards (for USA).

[shiny!]

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

Thanks, coolhand!

[Polish_Silver]

Partial agreement with Coolhand

Ironically, the preponderance of the evidence (above, etc.) suggests China understands that if they break the petrodollar, they will end this unsustainable system & improve standards of living for most people in the world except for the banking classes in the US & UK,..

Here's where I agree:

1) China may be moving towards some kind of gold standard, at least for international transactions. Why else all the gold hoarding? This behavior also acknowleged repeatedly by EJ.


2) China may want to destroy the petro dollar system.


Here's where I disagree:

1) China's debt may be comparable to the US. They do have lots of municipal, regional, and private sector debt. Their accounting is so opaque, nobody knows for sure. And the opaque accounting is itself an important signal.

Opposite of Singapore---totally transparent accounting and low debt levels.

2) China's motivation is probably not "to raise standards of living", but to increase their national power.

3) More than just the banking class benefited from the PD system. The benefits spilled over into the military industrial complex, USA as a whole, etc. (of course, the USA had many losers, such as gulf war casualties) . The system is so hard to break because the beneficiaries are so numerous and influential.

[touchring]

Re: Partial agreement with Coolhand

2) China's motivation is probably not "to raise standards of living", but to increase their national power.

I would like to add to this - And also to increase personal wealth. This being a priority to the former.

[Southernguy]

Re: Partial agreement with Coolhand

There is an old say in my country: "chinito sabe" (the China boy knows)


http://www.nytimes.com/2013/09/24/bu...-for-china.htm

http://www.nytimes.com/2013/09/24/bu...it_th_20130924

http://www.nytimes.com/2013/09/24/wo...it_th_20130924