China’s Big Ball of Money Isn’t Going Anywhere Near Stocks

This year is seen going down as the worst since 2011 for China’s stock investors as the memory of last summer’s rout lingers and speculative buying switches to the housing market.
The Shanghai Composite Index will end the year at 3,075, according to the median forecast in a Bloomberg poll of 10 strategists and fund managers. That implies a 13 percent drop over the 12-month period, the steepest in five years, and a gain of 2.9 percent from Wednesday’s close. Fading prospects for monetary easing, a slowing economy and the risk of higher U. S. borrowing costs spurring yuan weakness were among factors weighing on the nation’s shares, the survey showed.
Turnover on the world’s second-largest stock market has collapsed to a two-year low as China’s army of investors, unnerved by 2015′s plunge in equity values, charged into other assets. After a frenzied bet on commodities futures soured, they have set their sights on a bigger target – property. With new home prices now jumping the most in six years, analysts are scaling back projections for interest-rate cuts.
‘The property market and the stock market are like a seesaw,’ said Li Lifeng, a strategist at Sinolink Securities Co. in Shanghai. ‘If the ‘fever’ in the property market doesn’t cool down, funds will flow from equities into real estate.’
Small-cap technology stocks are the least preferred by analysts in the survey because of stretched valuations, while building companies are favored thanks to government efforts to boost infrastructure investment.

This post was published at David Stockmans Contra Corner on September 29, 2016.

China’s Runaway Housing Market Poses Latest Challenge for Yuan

Here’s the latest uncertainty facing China’s currency: sky high house prices.
A runaway boom in the largest cities will push investors to look for cheaper alternatives overseas, draining money out of China and putting downward pressure on the yuan in the process, according to analysis by Harrison Hu, Chief Greater China Economist at Royal Bank of Scotland Group Plc. in Singapore.
An ‘enlarged differential between domestic and foreign asset prices will lead to capital outflows and depreciation, until parity is restored,’ Hu wrote in a note. He said that the 30 percent year-on-year price gain in Tier 1 and leading Tier 2 cities implies a 25 percent rise in dollar terms, which far outpaces the 5 percent gain in major U. S. cities. That ratio is here in red:

This post was published at David Stockmans Contra Corner on September 26, 2016.

The Banking Model from Hell Has Now Killed the IPO Market

The horror stories that continue to spill out about what Wall Street banks are doing behind their cloistered walls have blurred the actual function of Wall Street: to efficiently allocate capital so that new industries can be born and thrive in America, creating new jobs and a rising standard of living for all of our fellow citizens.
In the same week that the U. S. Senate Banking committee was taking testimony that one of the biggest Wall Street banks, Wells Fargo, was opening two million unauthorized customer accounts over at least a four-year span in order to generate fees and meet daily sales quotas, the Wall Street Journal reported yesterday that just 68 new companies had been listed for public trading this year, a drop of 51 percent from the 138 companies that had gone public by this time last year.
Let’s recap what the public has learned over the past eight years about the Wall Street banking model from hell. (1) The greatest housing collapse since the Great Depression resulted from Wall Street banks muzzling their internal whistleblowers who wrote memos to management and shouted from the rafters that the banks’ mortgage loan departments were ignoring their own compliance rules and buying up tens of thousands of mortgages with wildly overstated incomes by the mortgage holder. (2) The banks then knowingly bundled these toxic mortgages into pools and paid the ratings agencies, Standard & Poor’s and Moody’s, to assign triple-A ratings to the offerings (called securitizations). (3) The banks knew these toxic mortgages would fail but they sold them to their customers as sound investments. (4) The banks also used their insider knowledge that the mortgages were going to fail to place bets (short sales) and reap billions of dollars in profits as the U. S. housing market collapsed and families were thrown into the streets.
Last December, ‘The Big Short’ movie began to play in theatres across America, allowing millions of people to see how the unchecked, insidious greed of Wall Street had destroyed the nation’s economy along with the reputation of Wall Street, the ratings agencies and the revolving door regulators. (See video below.) The movie was based on real-life people on Wall Street and adapted from the book by the same title by author Michael Lewis, an authoritative source through his previous career on Wall Street.

This post was published at Wall Street On Parade By Pam Martens and Russ Marte.

The ‘Wealth Effect’ Didn’t Die, It Was Never A Valid Concept No Matter How High Stocks Go

Over the years, the ‘wealth effect’ has been taken as a core component of monetary policy. Central bankers will not admit it, of course, but particularly stock prices are a central element of their strategy. It almost has to be that way given that the modern version of econometrics applies rational expectations theory as a literal condition. Since expectations form the basis of orthodox understanding about how an economy works and why it changes, the biggest effects, economists believe, of any policy are achieved when they impact consumer, financial, or business expectations the most.
So it is with record stock prices. By the nature of the Great Recession in terms of its depth (not that it was actually a recession), monetary policy was hugely constrained in how it might respond. As then-former Chairman Ben Bernanke wrote in November 2010 explaining why QE2 was in his viewnecessary:
This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ September 20, 2016.

China’s Housing Bubble Goes Hyperbolic – Shanghai Up 31% Y/Y

China’s attempts to slow runaway home-price growth in major cities are showing little sign of success, stoking the threat of a housing bubble that could destabilize the economy.
New home prices rose the most in six years in August, jumping 1.2 percent from July, according to Bloomberg calculations based on government data. Home prices rose in 64 of 70 cities tracked by the government, up from 51 the previous month. Shanghai prices surged a record 4.4 percent for a year-on-year gain of 31 percent, while Beijing’s climbed 24 percent from a year earlier.
The gains suggest moves by city governments to cool surging home prices over the past six months are doing little to damp demand from investors looking for alternatives to stocks and overseas property. That may prove to be a challenge for central government policy makers on how to respond without choking off growth in the world’s second-largest economy by squeezing credit.
‘The more immediate risk of a sudden and steep downturn in the economy comes from the threatened bursting of the property market bubble,’ Pauline Loong, managing director at research firm Asia-analytica in Hong Kong, wrote in a Sept. 14 report. ‘And bubble it is. The real question for investors is when and what will pop the bubble?’

This post was published at David Stockmans Contra Corner on September 20, 2016.

Tulip Fever In China’s Housing Markets

Housing in major cities in China has seen price hikes over the last year that resemble the famous Dutch ‘Tulip Fever’ bubble of 1637, according to new research by economic consultancy firm Longview Economics.
‘I think what’s going on in China is troubling … some of the valuations there are really quite extraordinary,’ Chris Watling, the CEO of Longview Economics, told CNBC Thursday. ‘We’ve double checked these numbers about seven times, because I found them quite hard to believe.’ The firm’s research found that only San Jose in the Silicon Valley is more expensive than Shenzhen. The Chinese city has seen prices rise 76 percent since the start of 2015, with the acceleration beginning in April 2015 as the country’s stock market was nearing its peak. The situation in Beijing and Shanghai is similar, albeit less extreme, the company states.

This post was published at David Stockmans Contra Corner By Matt Clinch, CNBC ‘ September 19, 2016.

China’s New ‘Reform’ Plan – – Throw Money At The Problem Until The Music Finally Stops

China’s surging credit in August boosted property sales while barely moving the dial on private investment, underscoring the challenge for policy makers striving to support growth while reining in debt risks.
Aggregate financing jumped to 1.47 trillion yuan in August ($220 billion), helping fuel a 39 percent jump in property sales by value in the first eight months. Medium and long-term new loans, mostly mortgages, climbed 528.6 billion yuan. Private investment in fixed assets, meanwhile, stalled at 2.1 percent for a second straight month in the January through August period, matching a record low.
Months after an unidentified ‘authoritative person’ told the Communist Party’s People’s Daily newspaper that China must face up to risks associated with soaring debt levels, policy makers are grappling with how to do that without growth slipping below a target of at least 6.5 percent. At the same time, there’s scant evidence of progress on pledges to rein in excess capacity in industries from steel to cement that are at the center of President Xi Jinping’s efforts to restructure the economy.

This post was published at David Stockmans Contra Corner on September 15, 2016.

Luxury-Home Sales in Vancouver Plunge by 50% on Foreign-Buyer Surcharge

A tax on foreign homebuyers in Vancouver cut luxury purchases in Canada’s priciest housing market by more than half last month, according to a brokerage report. Meanwhile, high-end sales in Toronto surged.
Transactions in Vancouver of at least C$1 million ($759,000) slid 65 percent from a year earlier to 95 units in August, the month that a 15 percent transfer tax on deals by non-Canadian homebuyers took effect, according to Sotheby’s International Realty Canada. At the same time, luxury-home sales in Toronto and its suburbs doubled to 1,459 units, the high-end brokerage said.
The housing markets in Toronto and Vancouver are heading in separate directions after at least a decade of similar growth. Vancouver’s tax, which took effect Aug. 2, was implemented by the British Columbia government to cool prices in the city after they doubled in the past 10 years.

This post was published at David Stockmans Contra Corner By Katia Dmitrieva via Bloomberg Business ‘ September 14, 2016.

Economic Slowing – – Jobs Now, Autos Next

If the labor market were slowing as the wider perspective of the payroll reports suggest, then it would make sense to find increasing difficulties even among the few bright spots in this otherwise anemic economy. Yesterday and earlier it was reported increasing signs of slowing in real estate, bothconstruction and resales of homes (particularly dwindling inventory). In the past few months, that possible consumer strain was also observed in auto sales, the one part of the manufacturing economy that had appeared immune from depressionary forces plaguing much of the rest.
The word ‘plateau’ has been used recently in describing predictions for consumer spending on autos the rest of this year, given to us by Ford officials who remain in their position that sideways is the worst we can expect – at least for now. August auto sales further raise the possible that the plateau may instead be the best case.
U. S. auto sales fell 4.2 percent in August as some major automakers said a long-expected decline due to softer consumer demand had begun, possibly sparking a shift to juicer customer incentives and slower production.
Still, Ford’s management manages to use that word:

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ September 4, 2016.

Luxury Manhattan Housing Market Plunges 21% YTD

Prospective buyers at one Upper East Side condo project are quietly being offered a 5 percent discount. At an almost-completed Midtown building, five-bedroom homes will be divided into smaller units. Brokers whose clients sign deals at a downtown tower before Labor Day are getting $5,000 gift cards.
Such tactics have become more common in Manhattan, where developers are coping with a luxury-condo glut and adjusting to a new reality after years of building to meet seemingly insatiable demand. With the market now sputtering, they’re altering sales plans and making behind-the-scenes deals in an attempt to create momentum at their projects before an onslaught of even more competition.
‘Right now, time is your enemy,’ said Jacky Teplitzky, a luxury broker with Douglas Elliman Real Estate. ‘The first question that people ask is how long has an apartment been on the market?’
Global economic turmoil, slumping oil prices and the uncertainty of this year’s presidential election are weighing on luxury-home buyers’ decision-making across the U. S. In New York, where more than 3,500 new apartments are hitting the market this year, developers have to work even harder for a sale. It’s a turnabout from the boom days just a few years ago, when investors quickly plunked down record-shattering sums for homes still in the planning stages. Wealthy buyers now are taking time to browse multiple options and negotiate before committing to a purchase – if they make one at all.

This post was published at David Stockmans Contra Corner By Oshrat Carmiel via Bloomberg Business ‘ September 2, 2016.

Fear Spreads of a Housing Crash in Canada

More Canadians sour on their Magnificent Housing Bubble.
Canadians have been gung-ho about their magnificent housing bubble, feeding it with an endless willingness to pay every higher prices, even as regulators and international institutions issued warnings, as short sellers began circling, as subprime liar-loan scandals made their reappearance, and as a generation was getting priced out of the hottest housing markets in Canada, the metros of Toronto and Vancouver, and as locals came up with an acronym to describe what has fired up the market: HAM – Hot Asian Money.
But the Vancouver housing bubble, the hottest even in Canada, hit rough waters in early summer. By July the first serious troubles appeared. Even as apartment prices soared 27% year-over-year and detached house prices 38%, overall sales plunged 19%, while sales of detached homes plummeted 31% [Vancouver Housing Bubble, Meet Pin].
Then on August 2, British Columbia’s notorious 15% transfer tax on home purchases involving foreign investors took effect. Preliminary data indicatethat sales over the first two weeks in August plunged 51% year-over-year, with sales of detached homes down 66%.

This post was published at Wolf Street on August 29, 2016.

Don’t Think Armageddon, Think “A Thousand Balls Of Flame… And Then Crickets!”

A whiff of World War III hangs in the air. In the US, Cold War 2.0 is on, and the anti-Russian rhetoric emanating from the Clinton campaign, echoed by the mass media, hearkens back to McCarthyism and the red scare. In response, many people are starting to think that Armageddon might be nigh – an all-out nuclear exchange, followed by nuclear winter and human extinction. It seems that many people in the US like to think that way. Goodness gracious!
But, you know, this is hardly unreasonable of them. The US is spiraling down into financial, economic and political collapse, losing its standing in the world and turning into a continent-sized ghetto full of drug abuse, violence and decaying infrastructure, its population vice-ridden, poisoned with genetically modified food, morbidly obese, exploited by predatory police departments and city halls, plus a wide assortment of rackets, from medicine to education to real estate… That we know.
We also know how painful it is to realize that the US is damaged beyond repair, or to acquiesce to the fact that most of the damage is self-inflicted: the endless, useless wars, the limitless corruption of money politics, the toxic culture and gender wars, and the imperial hubris and willful ignorance that underlies it all… This level of disconnect between the expected and the observed certainly hurts, but the pain can be avoided, for a time, through mass delusion.
This sort of downward spiral does not automatically spell ‘Apocalypse,’ but the specifics of the state cult of the US – an old-time religiosity overlaid with the secular religion of progress – are such that there can be no other options: either we are on our way up to build colonies on Mars, or we perish in a ball of flame. Since the humiliation of having to ask the Russians for permission to fly the Soyuz to the International Space Station makes the prospect of American space colonies seem dubious, it’s Plan B: balls of flame here we come!

This post was published at Zero Hedge on Aug 28, 2016.

Comrade Capitalism – – How Washington Nationalized The Mortgage market

THE most dramatic moment of the global financial crisis of the late 2000s was the collapse of Lehman Brothers on September 15th 2008. The point at which the drama became inevitable, though – the crossroads on the way to Thebes – came two years earlier, in the summer of 2006. That August house prices in America, which had been rising almost without interruption for as long as anyone could remember, began to fall – a fall that went on for 31 months (see chart 1). In early 2007 mortgage defaults spiked and a mounting panic gripped Wall Street. The money markets dried up as banks became too scared to lend to each other. The lenders with the largest losses and smallest capital buffers began to topple. Thebes fell to the plague.
Ten years on, and America’s banks have been remade to withstand such disasters. When Jamie Dimon, the boss of JPMorgan Chase, talks of its ‘fortress’ balance-sheet, he has a point. The banking industry’s core capital is now $1.2 trillion, more than double its pre-crisis level. In order to grind out enough profits to satisfy their shareholders, banks have slashed costs and increased prices; their return on equity has edged back towards 10%. America’s lenders are still widely despised, but they are now in reasonable shape: highly capitalised, fairly profitable, in private hands and subject to market discipline.
The trouble is that, in America, the banks are only part of the picture. There is a huge, parallel structure that exists outside the banks and which creates almost as much credit as they do: the mortgage system. In stark contrast to the banks it is very badly capitalised (see chart 2). It is also barely profitable, largely nationalised and subject to administrative control.

This post was published at David Stockmans Contra Corner on August 25, 2016.

Is it Time for Revolution in Greece?

The Greek government is calling for full disclosure of ALL household wealth. The Greeks are to disclose everything they own – cash worldwide, jewelry, real estate, paintings, and furniture. The Greek government is totally insane and intends to exploit its population simply to remain in the euro without the simplest shred of evidence that such a measure would even benefit the country.
They are preparing to impose a compulsory levy to reduce debt owed to Brussels and Germany. This will send the Greek economy into a Fourth World order and destroy one of the most beautiful countries in Europe. There is zero chance of altering the future since the corruption of the Greek government – not the people – created this nightmare to begin with. Now the Greek population will have to pay for the fraud their government carried out with the aid of Goldman Sachs.

This post was published at Armstrong Economics on Aug 22, 2016.

Irrational Exuberance Redux

Markets are extravagantly confident that brokers are too bearish, and that their profit forecasts for US companies are too low. The multiple of 18 times next year’s projected earnings at which the S&P 500 currently trades, according to Bloomberg data, allows little other interpretation. It is at its highest since 2002, outstripping any level it reached during the credit bubble, or when the Federal Reserve was pumping up asset prices with QE bond purchases.
***
There are other signs that optimism on earnings is taking hold. For a while, the S&P has been dominated by high dividend-yielding stocks. This is a sensible strategy when you do not have faith in corporate profitability or growth. In the past few weeks, however, the S&P 500 Dividend Aristocrats index has started to lag behind the market. Classic income-producing sectors, such as utilities and real estate investment trusts, have also ceded leadership.

This post was published at David Stockmans Contra Corner on August 19, 2016.

The Road to Stagflation – – The Case Of Norway

We have all heard the incredible stories of housing riches in commodity producing hotspots such as Western Australia and Canada. People have become millionaires simply by leveraging up and holding on to properties. These are the beneficiaries of a global money-printing spree that pre-dates the financial crisis by decades. The road toward such outsized gains in property is not paved with some global savings glut concocted by theoretical economists, but have rather been a process whereby the US leveraged up its economy-wide asset base allowing the Chinese to print ‘dollars’ with abandon. China, being a top-down system favoured fix asset investments as a means to grow their economy; the newly minted ‘dollars’ were thus used to bid on international commodities. That this increased the nominal values of tangibles, especially commodities with a direct Chinese bid, should come as no surprise. However, now that the Chinese economy is trying to move away from a system based on slave labour, foreign direct investment and exports to an overleveraged world, fixed asset investment growth is slowing down. That this has negatively affected Perth and Calgary is clearly visible in property data. However, one stalwart bubble remain resolute in all of this. A bubble like few before it and which will inevitably burst spectacularly with dire consequences for the small community. If you look to the prosperous fringe of northern Europe, you will note a small resource-based economy that has gone completely haywire. A population befuddled by surging commodity prices in a world where monetary policy is a foreign import. Remember the Impossible Trinity; a country cannot have free capital flows, a fixed exchange rate and a sovereign monetary policy all at the same time. While exchange rates were supposedly freely floating, they were in practice partly managed because a too strong exchange rate would crowd out the non-commodity export based part of the economy. Capital was certainly free to flow across the border, but to dampen the effect on the exchange rate the central bank set its monetary policy with diktat from the Eccles Building in Washington DC via Frankfurt. The result of such folly? We present exhibit A, a gargantuan housing bubble equal to none before it.

This post was published at David Stockmans Contra Corner on August 19, 2016.

Housing Starting To Suggest Where Autos Already Are?

In yet another data point that identifies depression rather than a Great Recession, the Wall Street Journal reported last week what most people outside the economics profession had realized a long time ago. Janet Yellen likes to say that the housing market is recovering, highlighting the economic sector as one of the few bright spots left. The FOMC regularly and officially makes mention of it, largely for the same reason.
As with everything else in this economy, however, that something is not getting worse does not immediately indicate that it is getting better. The housing market has been out of its crash for five years, but that is not at all the same as a housing recovery. Monetary policy interference is still interference, even if it is done with the best of intentions.
The housing recovery that began in 2012 has lifted the overall market but left behind a broad swath of the middle class, threatening to create a generation of permanent renters and sowing economic anxiety and frustration for millions of Americans…

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider – August 16, 2016.

China’s Fading Animal Spirits And The Red Ponzi In Real Estate

The July wobble in China’s economy – like its multi-year slowdown – has much to do with the waning ‘animal spirits’ of Chinese businesses caused by an historic shift in housing.
That’s according to Chi Lo, greater China senior economist at BNP Paribas Investment Partners in Hong Kong. A property-led pick up in the first half lost momentum in July, suggesting the market is struggling to digest an overhang in supply of apartments.
‘In the past, the economic players expanded supply first and created jobs so as to create demand, but that is gone now,’ Lo said in a telephone interview after Friday’s disappointing data. ‘It has to clean out the excess capacity, which means the supply-expansion model has to change.’
Another way of putting it: China’s build-it-and-they-will-come strategy needs to shift to one where demand, not supply, is in the drivers’ seat. It’s a change companies are struggling to come to terms with, leaving private investment in the doldrums.

This post was published at David Stockmans Contra Corner on August 16, 2016.

Signs Everywhere of a High-End Real Estate Slowdown

According to real-estate website StreetEasy, 12 of the condos in Manhattan currently listed at over $20 million have had their prices cut by 5 percent or more in recent months, while only 2 of them have seen any increase in their listing price. Among the cuts is a condo at 1 Central Park South. It’s been on the market for more than 250 days, and is now on sale at $45.5 million, $6.45 million less than its price a few weeks ago.
That’s just one of the indications that the market may be slowing down. Here are some others:
Turning one apartment into two
One developer recent chopped a $45 million listing at 10 Sullivan into 2 separate apartments. The 8,400 square feet property is now split into a 3,000 square foot listing for $11 million, and a 5,400 square foot listing at $29.5 million.
Waiting it out
Some sellers are acting cautious amid a perceived glut in supply. One developer had all the approvals he needed to start listing luxury units at 111 W. 57th St., but he has decided to hold off, saying ‘if you have a market where you think marketing would be ineffective for now, why would you launch and spend the money?’

This post was published at David Stockmans Contra Corner by Julie Verhage, Bloomberg Business – August 11, 2016.

Shrinking Imports And Exports – A Far More Meaningful Counterpoint To Payroll Friday

In early 2005, the US Senate began debating a bill seeking to impose a broad 27.5% tariff on Chinese exports to the United States. Congress was emotionally moved by the supposed problem of pegging the yuan to the dollar, then at about 8.28 CNY for every USD. In reality, the problem wasn’t so much dollars as ‘dollars’, meaning that because of the flow of finance across borders the flow of goods could be, though for only a short while longer, a one-way trade. In other words, even the government started to notice that so much of the stuff Americans were buying during the housing bubble was stamped ‘Made in China.’
The Chinese, for all the bluster on both sides, did listen. Symbolically, the PBOC in late July 2005 finally let CNY appreciate by a whole 2.1%. The official central bank statement declared that it was done ‘with a view to establish and improve the socialist market economic system.’ The Chinese could afford it because they had already dominated the American market and were by then starting to do the same in Europe and elsewhere.
In 2004, the Chinese had managed a merchandise trade surplus of about $33 billion. This was a dramatic change from fifteen years or so prior where an agrarian China imported almost every industrial product, from cars to microwaves and anything in between. ‘Something’ came along in the late 1990′s that completely changed the global trade paradigm.
If we take out the US trade surplus from China’s 2004 figures, however, the trade terms flip to a $47 billion deficit. It wasn’t until early 2005 that the rest of the world began to buy what America already had been for many years. American ‘demand’ was the primary basis and core of that which built China, all financed by eurodollar explosion in both directions.

This post was published at David Stockmans Contra Corner on August 6, 2016.