The Asian Crisis

[Aman A.K.A. Ahamburger]

The big media reports yesterday were that China averted their "Lehmann" moment. However, as usual, economist and analysts who make the big bucks to "keep us informed" aren't representing the whole truth. This wasn't a Lehmann moment, it was the exact same thing that happened in August of 2007.

Banks bailout billionaires, Wall Street investors
On Aug. 9, Aug. 10 and then again on Aug. 13, the central banks of many of the world’s largest economies simultaneously came to the rescue of a handful of billionaire investment bankers and hedge fund tycoons who are enmeshed in the U.S. sub prime mortgage crisis. The United States Federal Reserve, the European Central Bank, and central banks in nearly a dozen Asian countries poured hundreds of billions of dollars into the financial system, in a concerted attempt to stem the tide of the growing global credit crisis.

The bailout plans came mostly in the form of massive central bank purchases of collateralized debt obligations, commonly referred to as CDOs. CDOs are securities backed by mortgages and other types of loans. In the last decade CDOs have been packaged and sold in bulk to investors, generating trillions of dollars in profits for investment banks and hedge fund tycoons across the globe.

CDOs were the primary investment tool used to underwrite the predatory sub prime mortgage loans in the U.S. that sparked the current meltdown. Investors and financial institutions in the U.S., Europe, and Asia hold these CDOs in large quantities.

Now that a large number of the mortgages and loans that these investments are tied to are in default, many of the CDOs are, in effect, worthless. The realization that these CDOs are worthless is the underlying reason for the wild swings in global stock markets over the past few weeks.

So to try and calm the market jitters...

In the U.S, the Federal Reserve injected nearly $60 billion worth of bailout funds on Aug. 9 and 10 followed by at least an additional $2 billion on Aug. 13. In Europe, the European Central Bank injected some $200 billion on the 10th, followed by an additional $63.5 billion on the 13th. The central bank of Japan injected $8 billion into the money markets on Aug. 10, with the central banks of Indonesia, Malaysia, Taiwan, the Philippines and Australia all following suit.

Oh, and I'm sure most know this, but China isn't the US... Stay

Chinese lawyers warn Communist Party will target legal teams Chinese lawyers setting up mutual defence pacts as Communist Party targets dissidents' representatives

[Aman A.K.A. Ahamburger]

Remember how much fun the contagion was in Europe?

European banks have $3 trillion of exposure to emerging markets

[bimetalaupt]

Feb 4, 2014 23:54:31 GMT -5 Aman A.K.A. Ahamburger said:

Remember how much fun the contagion was in Europe?

European banks have $3 trillion of exposure to emerging markets

A+++,
Question..Will the EU pull off a recovery with all  Euro money being printed.  Bet Weber is not happy with the thoughts of  hyperinflation.  But 2% inflation would make the banks solvent?

LOOKS!!!!Like Japan all over again...Negative price action due to no growth economy!!!!

as before!!!Kash is King!!

BiMetalAuPt

[Aman A.K.A. Ahamburger]

B the brain,

Now that is the 1 million dollar question. Retail sales dropped in Dec, the German economy was weak, very weak last year. Yes they will have to stimulate... Hmm seems like it's about time to update the New EU thread, since it's still intact, Greece and all.

Back to Asia now, wanna hear something freeky?

China Savers' Penchant for Property Magnifies Bust Dangers

Some 66.1 percent of family assets were in housing in 2013, a national survey of about 28,000 households shows. Mortgage debt as a share of disposable income rose to 30 percent from 18 percent in 2008, according to estimates by Nicholas Lardy at the Peterson Institute for International Economics in Washington.

If Kash is King the amount of debt that the recently rich in China have is fitting.

God bless,

[Aman A.K.A. Ahamburger]

How much has it slowed down in China?

-Australia's Unemployment rate hits 10 year high

Echos of the past... But they have already spent trillions...

-Japan Core Machinery Orders Fall Most Since ’98 in Abe Challenge

And the debt they have created for themselves.

-China Trust Assets Surge to $1.8 Trillion Amid Default Risks

China’s trust assets surged 46 percent in 2013 to a record 10.9 trillion yuan ($1.8 trillion), underscoring investor interest in products that pay more than bank deposits even as default risks mount.

About 20 billion yuan of trust products had repayment difficulties in 2012, accounting for 0.27 percent of the industry’s assets at that time, the China Trustee Association said in a statement on its website today. Asset quality is “quite sound and systemic risks are impossible” with 9.06 billion yuan of reserves set aside, the association said.---------->(I'M PRETTY SURE 9 IS LESS THAN 20 )

China averted its first trust default in at least a decade last month as investors in a 3 billion-yuan high-yield product issued by China Credit Trust Co. were bailed out days before it matured. About 5.3 trillion yuan of trust products will be due this year, up from 3.5 trillion yuan in 2013, Haitong Securities Co. estimated last month, warning that firms can no longer shoulder all the risks tied to offering implicit guarantees.

So how many trillion will come due when these record amounts from the last two years matures??

To top it off the real "black swans that are facing China's economy right now; tensions with Japan, social unrest, and the FLU!

Many more reasons why some have been saying around here for years that King Dollars reign isn't over yet..

[Aman A.K.A. Ahamburger]

Feb 4, 2014 23:54:31 GMT -5 Aman A.K.A. Ahamburger said:

Remember how much fun the contagion was in Europe?

European banks have $3 trillion of exposure to emerging markets

I remember when I first started posting on these boards all a few of us talked about is the following. Now that it's happening I think their is a certain amount of complacency because we have been expecting it...

China Faces Lost Decade as Stocks Echo Japan: Chart of the Day

China’s lending surge over the past five years has evoked comparisons to the debt growth in Japan before its lost decade. Credit in the biggest emerging economy rose to 187 percent of gross domestic product in 2012 from 105 percent in 2000, compared with Japan’s increase to 176 percent in 1990 from 127 percent in 1980, according to JPMorgan Chase & Co.

So not only were we right, it's also a bigger problem than Japan was.. Just sayin'.

[Aman A.K.A. Ahamburger]

This writer in the article below articulates China's situation perfectly. It's essentially a third wave of a past problem, that has created a new economic reality for China. Their banking system is bigger than the one in the US, with an economy half the size. It took the US a century to build a banking system that size, it took China 10 years. What was it that your Grandfather said about 10% in the bank Bruce? China is broke. It's hard to imagine how this transition goes smoothly... On the other hand like we have been talking about B, there will be lots need for Chinese's troops.

Will China shake the world again?

[Aman A.K.A. Ahamburger]

Notice the spread on rates after the first default?? Timing is everything in this world.... 

Zombies Spreading Shows Chaori Default Just Start: China Credit

Publicly traded non-financial companies with debt-to-equity ratios exceeding 200 percent have jumped 57 percent to 256 from 163 in 2007, according to data compiled by Bloomberg on 4,111 corporates. The yield on five-year AA- notes leapt 13 basis points in two days to 7.82 percent on March 6, the most in almost four months, after Shanghai Chaori Solar Energy Science & Technology Co. said it won’t be able to fully pay a coupon due today on its March 2017 bonds.....

Total debt of publicly traded non-financial companies in China and Hong Kong has surged to $1.98 trillion from $607 billion at the end of 2007. Some 63 companies have a debt-to-equity ratio exceeding 400 percent, compared to the average of 73 percent. In latest filings, 351 have negative ratios of earnings before interest, taxes, depreciation and amortization to interest expenses, while 409 have coverage of less than 1. Renewable energy, materials, household appliances and software companies dominate the rankings.

China exports drop unexpectedly, create deficit

[Aman A.K.A. Ahamburger]

I think the true health of China's real estate market can be judged by how the situation with its ghost cities is evolving.

Ghost Cities Spreading in China

Apart from Erdos in Inner Mongolia, more places in Jiangsu, Henan, Hubei, Liaoning and Yunnan provinces were dubbed as “ghost cities” – cities littered with empty houses. In 2013 alone, another 12 cities in China became known as the so-called “ghost cities”, with housing vacancy rate extremely high.

There's where that 220% of GDP went.

[Aman A.K.A. Ahamburger]

As the ghost cities grow, the ones who put them up start to go down. Gravity is.

Chinese Developer With 3.5 Billion Yuan in Debt Said to Collapse

[Aman A.K.A. Ahamburger]

Mar 17, 2014 10:11:43 GMT -5 Aman A.K.A. Ahamburger said:

As the ghost cities grow, the ones who put them up start to go down. Gravity is.

China facing fresh 'ghost town' crisis after developer collapse

China faces the biggest property default on record as credit curbs threaten to break the housing boom, leaving a string of "ghost towns" across the country.

The Chinese newspaper Economic Daily News said Xingrun Properties, in the coastal city of Ningbo, is on the brink of collapse with debts of $US570 million ($627.3 million), mostly owed to banks. The local government has set up a working group to contain the crisis.

"As far as we know, this is the largest property developer in recent years at risk of bankruptcy," said Zhiwei Zhang, from Nomura....

...... Yu Xuejun, the Jiangsu banking regulator, said developers are running out of cash. This risks undermining land sales needed to fund local government entities. "Credit defaults will definitely happen. It's just a matter of timing, scale and how big the impact is," he said....

...Li Kashing, Hong Kong's top developer and Asia's richest man, has been selling his property holdings in China, including the Duhui Palace in Guangzhou and the Oriental Financial Centre in Shanghai.

Nomura said residential construction has jumped fivefold from 497m square metres in new floor space to 2.596 billion last year. Floor space per capita has reached 30 square metres, surpassing the level in Japan in 1988 just before the Tokyo market collapsed

A new study by the International Monetary Fund said the ratio of residential investment to GDP reached 9.5per cent in 2012, higher than the peaks in Japan and Korea, and much higher than in the US during the subprime bubble. It also warned that China is running a budget deficit of 10per cent of GDP, once the land sales are stripped out, and has "considerably less" fiscal leeway than assumed.

There have long been warnings of a property bust in China. These reached fever-pitch in mid-2012 when a bout of monetary tightening caused house prices to fall briefly.

Prices have since roared back in the tier 1 cites such as Shanghai and Beijing but while these places capture the headlines, they account for just 5per cent of total building in China. Prices are falling in 43per cent of the tier 3 and 4 cities.....

....Optimists hope that the country's urbanisation drive will stoke demand for years to come, but this too is in doubt. China's workforce contracted by 3.45m in 2012 and another 2.27m in 2013 as the demographic crisis began to bite. The number of fresh rural migrants to the cities each year has already halved from 12.5m to 6.3m since 2010. Nomura said there could be net outflows by 2016...

[Aman A.K.A. Ahamburger]

Man do I ever love talking to people that are out of the loop. Really gives you a sense of things to come.

The Chinese property collapse and the ensuing social unrest is going to catch many off guard. Black swan event without a doubt.

[tyfighter3]

The fence line is always hard to tread. lol

[Aman A.K.A. Ahamburger]

Haha, especially when it's nothing but a rope. Gravity is.

[Aman A.K.A. Ahamburger]

Wobble, wobble, wobble...

You know it's getting close to coming undone when...Chinese developers seek alternative financing as investors grow wary

[Aman A.K.A. Ahamburger]

Further confirmation that China's bigggest developer is pulling out of the Chinese real estate market, comes on the heels of the news that the gambling mecca of China has become the most expensive place to buy a home in the country. With home sales off 40% in the first quarter of the year compared to last, I agree with Li Ka-shing, the exits are clearly marked.

[Aman A.K.A. Ahamburger]

I think one of the biggest misconceptions out there right now about China is that they will "save" their economy from a housing bust. I would say this clears that up.

-China rules out planned stimulus despite slump in exports[/b

“We will not take, in response to momentary fluctuations in economic growth, short-term and forceful stimulus measures,” Mr Li said in a speech. “We will instead focus more on medium- to long-term healthy development.”

His comments are among the clearest yet on the government’s plans for the economy,.....

[Aman A.K.A. Ahamburger]

Should be interesting to see the GDP number that comes out of China this week, for the time being I was reading an interesting article on the Forbes website. The title is a little sensationalized, which is to be expected, but the data is very telling.

China Property Collapse Has Begun

Nothing is going right for Hangzhou at this moment. Walmart will be closing its Zhaohui store in that city on April 23 as a part of its overall plan to marginal locations—about 9% of the total—in China.

Thanks to the world’s largest retailer, another large block of space in Hangzhou, the capital of Zhejiang province, will go on the market at a time when there is generally too much supply. The problem is especially pronounced in the city’s premium office market. Hangzhou’s Grade A office buildings at the end of 2013 had, according to Jones Lang LaSalle, an average occupancy rate of 30%.

The real weakness, however, is Hangzhou’s residential sector. The cause is simple: massive overbuilding. Sara Hsu of the State University of New York at New Paltz writes that Hangzhou faces “burgeoning swaths of empty apartment units.”

Hangzhou’s market has not yet collapsed. There are still secondary sales, for instance. Singapore’s Straits Times reports Allen Zhao, a businessman, has been looking to sell his two-bedroom flat in Hangzhou for 2 million yuan. His neighbor just let go a similar unit for 1.7 million. If Zhao also sells for that amount, he will make a profit, but he will be disappointed. “That is not much more than the price I paid in 2012,” Zhao told the paper. “Now I’m regretting not selling earlier—more bad news about the property market keeps coming in every day.”

New homes also face price pressure. Developers in Hangzhou are now offering deep discounts, and investors and owners are noticing. And not just in that city. “It seems that the 30% price cut in Hangzhou really changed the way Chinese people think about real estate,” writes Anne Stevenson-Yang of J Capital Research, “and I doubt there is any turning back from here.”

[Aman A.K.A. Ahamburger]

As suspected, China is now backed right into a corner. Do the keep propping up their black hole economy, or start over from scratch? I'm sure they have run the numbers on their reservers, and the ghost cities are more than likely not worth it. Plus they most likely have the sneeking suspicion they will need an army... Stay .

China's Economic Growth Slows to Six-Quarter Low After Credit Reined In

[Aman A.K.A. Ahamburger]

Don't want to forget this one..China First-Quarter Home Sales Post Decline on Tight Credit

[dothedd]

AHAM ... 

Your posts are far more informative than the NATIONAL NEWS/International News ... !!! 

Thanks for sharing your perspective!  




DTDD

[Aman A.K.A. Ahamburger]

Thanks DTDD! Same to you! If it wasn't for you I wouldn't have kept this flu issue on my radar.



It's funny that you bring this up because as you know I was considering going to school this fall to become an analyst. After reading about how you are kept on a leash and a muzzle, I have decided to focus on micro biology. Worms and land reclamation, FTW!!

[Aman A.K.A. Ahamburger]

Even though China's economy is showing cracks, they keep spending money on their military. Must really be something to this Sino-American military cooperation after all. Stay

[Aman A.K.A. Ahamburger]

I wonder what it must feel like to be a China bull right now? I mean, all of the biggest developers... And the empty cities...

Leaked Recordings From Top Chinese Real Estate Developer Sound Pretty Bearish

China’s looming debt bomb: Shadow banking and the threat to growth

When former Chinese president Hu Jintao came here in 2006, he called it a “treasure of a location” and likened it to “a piece of white paper, and the best and newest pictures ought to be drawn on it.”

What he likely did not envision: a giant money pit, half of whose debt seems unlikely to be paid back.

Caofeidian was to be home to a million-person eco-city, a massive steel factory, a power plant, an oil refinery and a panoply of apartments, bus makers, warehouses, lumber plants, a Sino-Japanese business park, even an “exhibition centre of strategic new industries.” A decade of spending poured $100-billion into the soil here, the equivalent of the annual budgets of British Columbia, Alberta, Manitoba and Saskatchewan combined.

But the loans that allowed all that spending have just 50 per cent odds of being paid back, says an independent research group that has spent years studying Caofeidian. The stakes are enormous. Caofeidian was a project of national importance for China, a “flagship,” according to Jon Chan Kung, chief researcher at Anbound, a Beijing think tank.

“If this project fails, it proves that the major model driving China’s development has also failed,” he says.

[Aman A.K.A. Ahamburger]

.... even further evidence of a slowdown.. This is while US manufacturing is growing I might add.

China Manufacturing Gauge Signals Risk of Deeper Slowdown

[Aman A.K.A. Ahamburger]

Sales keep trending down, while people and builders/developers lose confidence in the market.

E-House China Falls as Property Value Concern Deepens

Sales of new homes in 54 cities during the May 1 to May 3 holiday fell 47 percent from the same period in 2013 to the lowest level in four years, Centaline Group, parent of China’s biggest real-estate brokerage, said May 4. The report comes two weeks after the National Bureau of Statistics said the value of residential sales slumped 7.7 percent in the first quarter.

[Aman A.K.A. Ahamburger]

Nomura has made the call that the Chinese property bubble has popped... Not a single reason to be bearish on the global economy at this point. Nope, none at all.

There is a HUGE difference between gloom and doom and reality. Gloom and doom is a constant. Being bearish means you are looking at the truth of the situation.

Chinese developers pull back as property downturn hits economy

China's efforts to cool its property sector look to have been more effective than intended, as a sharp drop in construction activity and falling prices threaten what had been one of few firing engines of the world's second-largest economy.

Developers know the market is struggling -- their inventory is rising and prices are falling -- but expect that authorities will relax their tight grip on the sector in coming months.

The government has long made it clear that economic growth would moderate as it tries to reform the economy. But by keeping the pressure on property too long, analysts fear the fallout will be more severe than anyone had expected.

"To us, it is no longer a question of 'if' but rather 'how severe' the property market correction will be," Nomura analysts said in a report.

New housing starts in the first quarter fell 25.2 percent compared to a year ago, Nomura calculated, as tighter credit conditions, oversupply and falling prices undermined the market.

They estimated the property slump could take a full percentage point off China's economic growth this year, knocking it below 7 percent for the first time since 1990. The government is targeting growth of about 7.5 percent.

The downturn really gained traction in late 2013 after more than four years of government efforts to tame record home prices and avoid an asset price bubble. Authorities also wanted to channel money towards consumption and productive investments.......

....

OVERSUPPLY

Even Beijing has a problem with excess supply. Figures from data provider China Real Estate Information Corporation (CRIC) show more than 13 months supply of unsold housing in the capital, an increase of 80 percent from a year ago.

"Due to the impact of oversupply, it will be difficult for the market to come out from the correction in the first half of the year; the extent of price cuts may further expand under the pressure to sell inventories," CRIC said.

Last week, media reported developer Gold Tai Yuen Group cut prices by 30 percent on a high-end project still being built in Shanghai, as only seven apartments out of 113 had been sold since it went on the market last October. The company was unavailable for comment when contacted by Reuters.

CRIC said large developers had joined followed smaller firms in cutting prices in the eastern city of Hangzhou, one of the bigger cities to experience a steep property correction.

[Aman A.K.A. Ahamburger]

It looks like the market has spoken this time..

Hangzhou offers window on to China’s property woes

When New Century Real Estate cut its housing prices by 15 per cent two months ago, the Chinese developer, far from panicking, was in a triumphant mood. It believed the discount was a deft move to get ahead of the market and sell its unsold backlog of apartments......

....Yet by the first week of May, the initial excitement had subsided. Other developers around the city of Hangzhou had also lowered their asking prices and New Century’s offer was no longer so unique....

....Observers could be forgiven for thinking that China has been here before. The housing market briefly wobbled in 2008 and 2011, only to rebound with great vigour. But on both those occasions, the slowdowns occurred because the government had deployed a battery of tightening measures to try to rein in runaway prices. This time, it is market forces leading the way. “This downturn is almost entirely because of the oversupply,” Mr Du says.....

...the headwinds are now also reaching China’s biggest cities. Housing sales in the country’s four massive metropolises – Beijing, Shanghai, Shenzhen and Guangzhou – fell 20 per cent on average in April from a month earlier, a steeper decline than in most smaller cities.

[tyfighter3]

Supply and Demand. You can allways count on the price being somewhere that demands a responce. I guees that's why they call it a Market.

[Aman A.K.A. Ahamburger]

Yep, and China has officially destroyed theirs... I guess building empty city after empty city wasn't a sound plan after all..