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

[GRG55]

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

And like all good bubbles it goes on much longer and inflates to a much greater extent than anyone could have imagined.

Is it finally the beginning of the end? Maybe. Maybe not...

Hard times return as China bids to bring its economic miracle to an end

Beijing insists slow growth is part of a plan to bring years of explosive expansion under control. But the global slowdown may make it hard to soft-land an economy still hooked on exports

The Observer, Sunday 25 January 2015

China’s president, Xi Jinping, calls it the “new normal” – but strikes are increasing, wages going unpaid and businesses are struggling to survive as the vast economy adjusts to a more sedate pace of growth after more than a decade of explosive expansion.

Official figures published last week showed that China’s GDP expanded by 7.4% in 2014. That was a significant drop from the 7.7% seen in 2013, and the weakest rate of growth since 1990, when the country was grappling with international sanctions in the wake of the Tiananmen Square massacre.

And while the government has spun the downturn as a good thing, as it deliberately shifts from an unsustainable, export-led boom to relying on demand at home to fuel economic growth, people across the country are feeling the heat...

...“From an industry point of view, obviously the hardest hit are the miners and the upstream players – the iron ore industry, steel, refineries, they’re all being really squeezed,” said Andrew Polk, a senior economist at research group

The Conference Board’s China centre for economics and business in Beijing. “China’s consumption has held up relatively well so far, but [the slowdown] looks to be finally feeding through to the consumption side as well.”

And while the downturn is, on one level, intentional, policymakers face a tough challenge in engineering a slowdown while maintaining enough control over the financial system to prevent a crash.

Growth is expected to slow further over the next three years, as officials act to control the sliding property market and rein in excessive borrowing by local government — the International Monetary Fund has projected a 2015 growth rate of 6.8%...

...On Thursday morning, many shoppers at the Huapu Hypermarket in central Beijing were complaining of tough economic times.

“I’m a businessman, so of course this is affecting me,” said a 36-year-old tobacco and wine wholesaler who gave his name as Mr Ji. His income had dropped as much as 30% over the past year, he said, as he dropped spring onions into his trolley. “I’m starting to think about changing careers.”...

...Some regions are likely to adjust better to the new growth model, too. Coastal south-east China, an economically diverse region, may blow through the downturn unscathed, Chen Xiushan said, while inland and industrial provinces would almost inevitably struggle. North-east China “does not stand much chance for economic transition,” as its economy leaned heavily on clunky, anachronistic state-owned enterprises and its population was increasingly migrating south in search of work.

Karen Ward, senior global economist at HSBC, said that, for the time being, the authorities were continuing to underpin economic growth with public building projects. “Consumption is still stable and strong, it’s just not big enough: and while exports are a drag, it’s just not filling the void. That’s why they’re still filling the gap with infrastructure spending.”

Experts are divided about this infrastructural spending spree. Some fear the authorities have squandered money on unnecessary projects, reminiscent of the “bridges to nowhere” that came to characterise the Japanese investment bubble of the 1980s. Investment now accounts for more than half of GDP...

[touchring]

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

It's getting too hectic so I hope to see some slowdown, which I'm not seeing, at least here in Singapore, which is supposed to be influenced by China quicker than the rest of the world.

Real estate is dead for the last 3 years due to loan curbs and 18% stamp duties. But the malls are getting more crowded by the year despite a new mall being built every month. The stock market is picking up following the way of Chinese stocks.

Employment rate now exceeds 100%, believe it or not. Even retirees and housewives are coming out to do part-time work. And yes, only in Singapore, the government pays you to work. A retiree that works part-time and gets paid $500 a month receives another $150 from the authorities automatically.

Commercial rent is still rising, the price of grocery is still going up, unabated, as they had been since 2009. A 10-year car license (the certificate of entitlement) at $60,000 is near record high. The most ridiculous thing is the cost of gasoline, petrol has dropped less than 10% since 2013.

Is there a slowdown? For some sectors perhaps, due to extreme curbs on real estate and some slowdown in related banking services, but a recession? No, at least not this year, or at least not until US interest rates start to rise?

[vt]

Re: San Diego is expensive

Reagan’s OMB head: Wealth inequality is a problem


Alex Rosenberg | @CNBCAlex
3 Hours AgoCNBC.com

ARES

It might be hard to imagine President Ronald Reagan agreeing with President Barack Obama's take on wealth inequality. But Reagan's first director of the Office of Management and Budget, David Stockman, says that the disparity in household wealth is a major problem that ought to be addressed. He just has very different ideas about how to deal with it.
Stockman's specific concern is gains in the stock market, which he say have contributed massively to wealth inequality. Since he maintains that stocks have been propped up by the actions of the Federal Reserve, he has a problem with the money that Americans have made from rising stocks.
Profits off of stocks are "totally ill-gotten gains," Stockman said Thursday on CNBC's "Futures Now."
Read MoreBill Gross: Fed tightening won't be too painful

"This is a massive windfall to the 5 percent or 1 percent" wealthiest American households, he said. "This prosperity we've had in the top 5 percent—and that's where most of the consumption growth has been—is entirely a function of artificially ballooning stock prices and other risk assets."
Meanwhile, "the 'Main Street' households in America are not doing well. Their incomes are not growing."


Douglas Healey | Bloomberg | Getty Images / Getty Images
David Stockman and President Barack Obama.

In making this point, Stockman sounds a bit like Obama, who criticized low tax rates on capital gains in his recent State of the Union address.
"Let's close the loopholes that lead to inequality by allowing the top 1 percent to avoid paying taxes on their accumulated wealth. ... We need a tax code that truly helps working Americans trying to get a leg up in the new economy," the president said last week.
But Stockman says blame lays not with the tax code (indeed, he pioneered a trickle-down approach to taxes under Reagan) but with the Fed.
Obama "is talking about a symptom, but he's clueless as to the cause. The cause is not capitalism. The cause is not some entrepreneur out there trying to invent something and improve the performance of his business. The problem is in the Eccles building [home to the main office of the Fed] and in the 12 people sitting there and thinking that interest rates are some magic elixir that'll cause this very troubled and difficult economy to revive," Stockman said.
"It's not true," he said. "These people are dangerous and destructive, and they're creating this massive income inequality that, sooner or later, is going to cause a huge political reaction."
That said, because Stockman thinks that stocks are set to plunge, he believes that those who have their money in the market are set to lose a great deal of it.
"We've had two huge bubbles that collapsed already in this century," he said. "When this third bubble collapses—and surely it will—I believe that will be the day of reckoning. The credibility of all this central-bank-dominated, Wall-Street-coddling policy will be totally repudiated, and maybe then we can clean the slate and start over."


Watch "Futures Now" Tuesdays and Thursdays at 1 p.m. ET exclusively on FuturesNow.CNBC.com!

[santafe2]

Re: Let's get back to basics

"We've had two huge bubbles that collapsed already in this century," he said. "When this third bubble collapses—and surely it will—I believe that will be the day of reckoning.

vt, Doomers are doomers you can't save them from themselves. This post feels like folks who have a second coming of Christ economic notion. Let's not send this great thread into the nethers with ideas like this. Thanks.

[vt]

Re: Let's get back to basics

So Stockman who has opinion pieces in the New York Times, appears on Diana Rehm's show, and is against crony capitalism is not relevant? We are talking about bubbles here, so we shouldn't post an article about someone of Stockman's experience?
Just because he may be early and incorrect about the chances for recovery does not mean we shouldn't see what others are being confused by.

http://www.nytimes.com/2013/03/31/op...pagewanted=all

Stockman is worried that this bubble will burst. Who isn't?

EJ is concerned about a "bond, currency, and inflation crisis" a few years down the road. Fortunately EJ understands how this may all play out better than all the others out there, but I can't see the harm in a viewpoint that the New York Times also has given space too.

[jk]

Re: Let's get back to basics

it's been hard for me to listen to anything from stockman since he invented "rosy scenario" back when he was at omb. he was willing to lie for political purposes then. do we have any reason to think that's changed?

[vt]

Re: Let's get back to basics

Maybe he feels guilty

He does have insight to government, and the beginnings of the creation of the FIRE economy. Maybe he wants to set things right. This doesn't mean what he's saying is correct.

[vt]

Re: San Diego is expensive

Hey, it might not matter!

12 ways the world could end:

http://www.ft.com/intl/cms/s/0/260e3...44feab7de.html

As EJ says though: "The end of the world is a bad bet, it only happens once."

[GRG55]

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

The 'brilliant' ploy for some of these Chinese players was to use different receipts as collateral for the same physical commodities for too-eager-to-lend counter parties. Nice way to produce leverage.

Property lending under pressure. Lending for commodity hoarding no longer advisable. What to do, what to do...

Chinese banks back risky stock margin finance in face of regulator crackdown

SHANGHAI Thu Jan 29, 2015 5:47am EST

(Reuters) - Chinese banks seeking to profit from the country's stock market frenzy have bought into the recent surge in margin finance, foiling regulatory efforts to reduce debt-fueled speculation and amplifying the risk if the rally turns into a rout.

Although regulators are cracking down on credit flows into the stock market, financial industry insiders say they still have not closed loopholes that allow banks to channel credit into the stock market via brokerages...

..."I estimate that around 18 to 20 percent of margin finance loans end up with banks, but it varies from brokerage to brokerage," said a senior brokerage auditor at one of the big-four accounting firms in China. "It is definitely growing."

The easiest way banks get into margin financing is by treating margin loans made by brokerages to investors as collateral for loans to the brokerages themselves. This creates a quick profit for banks and frees up brokerages to lend more...

...Despite a 40 percent jump since November, the current rally has still not returned indexes to their 2009 peaks.

The broader impact of the 2009 implosion was limited because most of the speculation was done with cash, not credit. But China has lifted restrictions on margin financing since then...

...There are many variations on the theme, however.

Some banks accepting margin finance loans as collateral are repackaging them as wealth management products (WMP), which are sold to retail customers. Major banks including Agricultural Bank of China have gotten into the act along with smaller ones like Dongguan Bank, which if offering a WMP with an annualized rate of return of 5.5 percent and a guarantee on principal...

[touchring]

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

Property lending under pressure. Lending for commodity hoarding no longer advisable. What to do, what to do...

I hope you're correct, as I'm waiting to scoop my Alibaba and Chinese reits for cheap, but judging from the stock market right now, I don't know how long I need to wait.

The new President Xi ordered government officials not to spend money in parties, cars, luxury goods and conventions, some kind of self-impose austerity. Can you imagine if the US government forbids federal and state government officials not to spend money, not to hold conventions in hotels, only travel by economy class, not to buy cars, stay in cheap motels, not to send christmas presents?

[GRG55]

Re: Broken China?

Where Will It End?

...It is fast running out of effective responses to the iron law of diminishing returns.

China economic data weaker than expected, fuels policy easing bets

BEIJINGWed Mar 11, 2015 3:03am EDT

(Reuters) - Growth in China's investment, retail sales and factory output all missed forecasts in January and February and fell to multi-year lows, leaving investors with little doubt that the economy is still losing steam and in need of further support measures.

The figures came a day after data showed deflationary pressures intensified in the factory sector in February, reinforcing expectations of more interest rate cuts and other policy loosening to avert a sharper slowdown in the world's second-largest economy.

"Activity data surprised the market on the downside by a large margin, suggesting that China’s first quarter GDP growth could likely fall to below 7 percent," ANZ economist Li-Gang Liu said in a research note.

"In our view, the extremely weak data at the beginning of the year suggest that China needs to engage in more aggressive policy easing, and we see that a reserve requirement ratio (RRR) cut will be imminent," he said, adding that stimulus measures rolled out since last year seem to have had limited effect.

Industrial output grew 6.8 percent in the first two months of the year compared with the same period a year ago, the National Bureau of Statistics said on Wednesday, the weakest expansion since the global financial crisis in late 2008...

...Retail sales rose 10.7 percent, the lowest pace in a decade and missing expectations for a 11.7 percent rise.

Fixed-asset investment, a crucial driver of the Chinese economy, rose 13.9 percent, the weakest expansion since 2001 and compared with estimates for a 15 percent gain.

"Fixed asset investment will likely face even more challenges," economists at Credit Suisse said in a note this week...

...The Chinese economy has had a rough ride in the last 15 months as a property downturn compounded slackening growth in foreign and domestic demand and persistent industrial overcapacity. A widening corruption crackdown also has weighed on everything from investment to retail sales.

Policymakers have cut interest rates twice since November, and in early February reduced the amount of cash that banks must hold as reserves (RRR), freeing up fresh liquidity to flow into the economy to offset rising outflows of capital...

...With consumer inflation hovering near the government's "vigilance level" of around 1 percent, analysts expect the central bank to lower reserve requirements and interest rates again to head off a potential deflationary cycle, in what would be its biggest easing campaign since the global crisis...

..."Double-digit industrial production levels will be a thing of the past," said Chester Liaw, an economist at Forecast Pte in Singapore. "It is highly unlikely that retail sales will hold out for long above the 10 percent mark as well."

[touchring]

Re: Broken China?

repeat

[touchring]

Re: Broken China?

China economic data weaker than expected, fuels policy easing bets

BEIJINGWed Mar 11, 2015 3:03am EDT

(Reuters) - Growth in China's investment, retail sales and factory output all missed forecasts in January and February and fell to multi-year lows, leaving investors with little doubt that the economy is still losing steam and in need of further support measures.

The figures came a day after data showed deflationary pressures intensified in the factory sector in February, reinforcing expectations of more interest rate cuts and other policy loosening to avert a sharper slowdown in the world's second-largest economy.

"Activity data surprised the market on the downside by a large margin, suggesting that China’s first quarter GDP growth could likely fall to below 7 percent," ANZ economist Li-Gang Liu said in a research note.

"In our view, the extremely weak data at the beginning of the year suggest that China needs to engage in more aggressive policy easing, and we see that a reserve requirement ratio (RRR) cut will be imminent," he said, adding that stimulus measures rolled out since last year seem to have had limited effect.

Industrial output grew 6.8 percent in the first two months of the year compared with the same period a year ago, the National Bureau of Statistics said on Wednesday, the weakest expansion since the global financial crisis in late 2008...

...Retail sales rose 10.7 percent, the lowest pace in a decade and missing expectations for a 11.7 percent rise.

Fixed-asset investment, a crucial driver of the Chinese economy, rose 13.9 percent, the weakest expansion since 2001 and compared with estimates for a 15 percent gain.

"Fixed asset investment will likely face even more challenges," economists at Credit Suisse said in a note this week...

...The Chinese economy has had a rough ride in the last 15 months as a property downturn compounded slackening growth in foreign and domestic demand and persistent industrial overcapacity. A widening corruption crackdown also has weighed on everything from investment to retail sales.

Policymakers have cut interest rates twice since November, and in early February reduced the amount of cash that banks must hold as reserves (RRR), freeing up fresh liquidity to flow into the economy to offset rising outflows of capital...

...With consumer inflation hovering near the government's "vigilance level" of around 1 percent, analysts expect the central bank to lower reserve requirements and interest rates again to head off a potential deflationary cycle, in what would be its biggest easing campaign since the global crisis...

..."Double-digit industrial production levels will be a thing of the past," said Chester Liaw, an economist at Forecast Pte in Singapore. "It is highly unlikely that retail sales will hold out for long above the 10 percent mark as well."

I just came back from a trip to Western China.

The trains and coaches are packed. The roads are packed with new cars. The only old cars you can see on the roads are cabs. Traffic is very bad. A quarter of people own an iPhone or a phone that looks like a iPhone (there are plenty of Chinese brands that appear like iPhones). Something that may surprise some of you, in the city, almost everyone uses some kind of smartphone with touchscreen display.

There are hordes of domestic tourists and shoppers spending money, very few Westerners or Japanese tourists, at least the places I went. I don't know if there's a slowdown but it's definitely not a Japan - I went to Japan 10 years ago and shopping malls are dead - really dead.

There are giant construction sites everywhere. Some projects appeared to have stalled but the majority (90% or so) are ongoing.

Unlike many places in Asia like Indonesia, I don't see people hanging out on the streets. Everyone is either shopper or commuter going to work or at the job, e.g. plenty of police on the streets, or manning a stall/business.

Conclusion: There maybe a slowdown, but at least for "backward" Western China, this slowdown looks like a boom town in other countries, at least for now....

[ProdigyofZen]

Re: Broken China?

I just came back from a trip to Western China.

The trains and coaches are packed. The roads are packed with new cars. The only old cars you can see on the roads are cabs. Traffic is very bad. A quarter of people own an iPhone or a phone that looks like a iPhone (there are plenty of Chinese brands that appear like iPhones). Something that may surprise some of you, in the city, almost everyone uses some kind of smartphone with touchscreen display.

There are hordes of domestic tourists and shoppers spending money, very few Westerners or Japanese tourists, at least the places I went. I don't know if there's a slowdown but it's definitely not a Japan - I went to Japan 10 years ago and shopping malls are dead - really dead.

There are giant construction sites everywhere. Some projects appeared to have stalled but the majority (90% or so) are ongoing.

Unlike many places in Asia like Indonesia, I don't see people hanging out on the streets. Everyone is either shopper or commuter going to work or at the job, e.g. plenty of police on the streets, or manning a stall/business.

Conclusion: There maybe a slowdown, but at least for "backward" Western China, this slowdown looks like a boom town in other countries, at least for now....

The slowdown seems to be the shift from massive construction investments/housing etc into environmental investments. The majority of the Chinese, and I hate to say this, that are considered 'worthy" or are "upper elite" have made their money and are in a good place. The governments job now is to make sure that the environment in terms of pollution is secure and not dangerous.

I think this is part of the shift we are seeing. It's a good time to invest in environmental companies or start one in China.

[touchring]

Re: Broken China?

The slowdown seems to be the shift from massive construction investments/housing etc into environmental investments. The majority of the Chinese, and I hate to say this, that are considered 'worthy" or are "upper elite" have made their money and are in a good place. The governments job now is to make sure that the environment in terms of pollution is secure and not dangerous.

I think this is part of the shift we are seeing. It's a good time to invest in environmental companies or start one in China.

It depends on what the elites are doing. If they run their own business, they'll have to move back to China or somewhere else in Asia eventually because that's where the opportunity is.

Not sure about environment companies, but Western China is relatively pollution free, at least the pollution I can see or smell. The air in Chengdu when I was there, is better than Singapore.