krogias

The Visible Fist of government that is. The Visible Fist is about to crush the property market in China, exploding one of the most egregious bubbles on the face of the planet. The specific blow will take the form of imposing a property tax nationwide - in guidelines recently approved by the State Council. It was reported earlier this week in China Daily . Although the measures have been considered for some time, the recent push has been given urgency by the dangerous levels that China's property bubble has reached. One of the key contributing factors has been the number of speculators buying property and then holding it off the market to profit from the price run up. Morgan Stanley's Andy Xie estimates that such properties number in the 10-20 million unit range. Some of his other comments portray a China going through the same stages of economic madness that the US has over the last 20 years. But China is passing through each stage much faster as the (well-deserved) lack...

Much is made of the rebound in China's 2nd quarter GDP and the drivers certainly merit a closer look. We are going to focus on just one key metric today - credit. In an effort to reach escape velocity from the global collapse, China has ordered its banks to make lots of loans and the banks have complied. So just how much lending has occurred and what is the scale of the likely impact. Let's look at the numbers, shall we? Various sources have reported the lending numbers and this article from the Globe and Mail is typical: Chinese banks lent 1.5 trillion yuan ($220-billion U.S.) in June, the central bank reported on its Web site Wednesday. That exceeded forecasts and was up from May's 665 billion yuan ($97-billion) in lending and April's 590 billion yuan ($86-billion). Keep in mind that the entire Chinese economy was approximately 30 trillion yuan in 2008. Another way to look at things is that China's economic output is roughly 2.5 trillion yuan per month and in Jun...

Faking Bank First let's be clear that prices for the majority of asset classes around the world are unsustainably high. This is an obvious corollary to the very inflated state of the global financial system and economy due to the excessive leverage that we have commented upon many times. It bears repeating that central banks ( CBs ) have little actual power, they merely serve as rallying points and fetish-totems for optimistic, true-believing speculators. The evidence is quite clear that CBs often fail to accomplish their goals, in recent cases despite extraordinary actions to "inspire confidence" - i.e. reignite speculation. If the CBs were as powerful as most think, they could not possibly fail to accomplish their goals. Like voodoo, it is the BELIEF of the victim that causes the damage - a negative application of the well-documented placebo effect. While they have succeeded in restarting speculation to some extent in equities and commodities, they have utterly faile...

In the past few days we have received confirmation that our thesis regarding Asia is playing out rapidly. The data come from Japan and Korea - both heavily industrialized exporters and relatively open societies. While we have been very bearish on Asian economies here at Financial Jenga, the rapid pace of the implosion even surprises us. Japan will soon report 4th quarter GDP and the estimates are moving fast - an in a really frightening manner. Bloomberg reports that Barclays now is estimating that Japan's economy contracted at over 12% annualized in Q4. This would be the worst result since the Arab oil embargo of 1974. Korea reported a similarly disastrous result for November industrial production. The YoY decline of 14.1% was the worst on record - with data going back to 1970. Understand that the textbook definition of depression is a 10% fall in GDP - and both Japan and Korea are already on pace to do so in a year or less. We do not yet have any numbers this bad from China bu...

note: This post was begun some time ago and the date-time stamp reflects the initial draft. The bulk of the data has been added since then. China: The Collapse Begins Chinese exports are collapsing and industrial activity with it. Recent reports suggest that they are experiencing mass factory shutdowns with owners and manager absconding. According to the BBC , migrant workers from rural areas are returning to their homes in the countryside en masse . Those watching the media would think that an shocking collapse came out of nowhere in the last few weeks. Readers of Financial Jenga have known that this was not just possible but virtually inevitable for many months. China could spend some of their dollars but they need to keep at least $1 trillion so the Yuan doesn't completely crash and burn. The interesting problem is the currency mismatch and "sterilization" issues. China's money supply growth is going to fall quickly as there will be fewer incoming dollars against ...

The most important question facing us today, both in the US and around the world is just how much of our supposed wealth is real and how much was part of the illusion generated by bubble-mania and the UDB. Most of the actions of various governments and CBs seem aimed at preventing us from answering this question accurately. In The Limits of Optimism we outlined the various elements of the capital structure and it should be immediately apparent why the stock market is the chosen instrument for conjuring chimeras. By coercing a larger and larger percentage of accumulated capital into stocks, Wall Street ensured a large pool of buyers to continue pushing prices higher in complete defiance of fundamentals. By allowing so much of our wealth accumulation to be attached to something so insubstantial, we have collectively ensured the destruction of much of that wealth. Something that falls as soon as anyone wants to sell isn't much of an investment. Now we see some of the real world impac...

We have often spoken of the UDB (Universal Debt Bubble) and how it had permeated nearly every asset class and geography. It's existence is the reason that we have often chided believers in economic "decoupling" as fantasists. We wrote about the structural weaknesses of the Asian economies in China Syndrome and Silent Scream . The trend has been quite clear lately as India teeters on the edge of recession and Japan's trade surplus collapses. Today we receive additional confirmation (as if any were needed). The last bastion of the "decoupling" fantasy is China. Yes OPEC and Russia can remain strong as long as oil prices stay high but that scenario rests on the further assumption of nearly unlimited demand growth out of Asia (especially China). Chinese growth had continued to be high even as it trended down for 5 consecutive quarters. Now we see a report that the industrial sector is SHRINKING outright over there. Bloomberg reports that Chinese PMI f...

Today we turn our attention to China - certainly the most celebrated economy in the world today and possibly the most celebrated ever. Yet China's contemporary economy may be the most unbalanced in the history of the planet. The Problem Though it is hard to find reliable numbers, most sources agree that capital investment in China accounts for over 40% of GDP . Frankly, this is a terrifying and unprecedented number. For reference, Japan during their boom years was typically around 30% of GDP and never exceeded 35% for long. During the Roaring Twenties, fixed investment in the US economy averaged less than 20% . Looked at a bit differently, about 42% of China's economy is based on ------ the expansion of the economy. This creates tremendous momentum but also huge potential for disaster. Essentially, everything will be fine as long as everyone there believes the economy will continue to expand at a breakneck pace and invests accordingly. This is virtually the definition o...