You may be aware that Chi-Fed Pres. Evans gave a pro-QE2 speech, He believes that the U. S. is in a liquidity trap. (For more on that phenomenon than most people want to know, click HERE for a link to the New York Fed on that subject.) Now, when they learn about a liquidity trap, most people would think that there's too much money around relative to investment opportunities.
But that's not what Dr. Evans and Dr. Bernanke think. Here is Evans:
If short-term interest rates remain near zero during this adjustment (Ed. that is, during QE2 = lots of money-printing), real interest rates would be between –2 and –3 percent. Perhaps that would be enough to improve labor markets and aggregate demand sufficiently, but I personally put more faith in analyses that suggest the liquidity trap is larger than this.
He is saying that he wants -- soon -- more negative real interest rates than -3%:
A variety of typical linear Taylor rules suggests around –4 percent. In addition, some calculations for optimal monetary policy simulations I have seen indicate that real rates of –3 or –4 percent between now and the end of 2012 would boost aggregate demand enough to deliver substantially lower unemployment by the end of 2012. . .
Over the course of this hypothetical adjustment, inflation is about 3, 4, and 3 percent from 2011 through 2013. Thus, policy can generate –3 and –4 percent real rates: This achieves a substantially higher opportunity cost of holding on to cash-like assets rather than lending and investing excess reserves in productive activities and workforces.
Of course, my concern is not how much interest a company makes on its cash reserves. Evans is saying that the average personal saver should be severely penalized because central planners such as he, and is the Comintern might have been, are unhappy with the business decisions that business people make. And the prudent savers must pay, just like road kill.
The truth, of course, is that higher prices only cause extra consumption in the form of hoarding, which sends the wrong signals to business, which has trouble distinguishing one-time increased demand such as from hoarding from organic increased demand. Also, the more that Fed policy steals real savings from savers, the more they turn to rank speculation, otherwise known as malinvestment. Hey, why not put some money into some friend of a friend's gold mine in the middle of nowhere? We're just going broke slowly with the money in the bank, anyway!
The deeper truth is that Messrs. Evans and all the other Fed bank Presidents work for a bank. Their interest is that the banks make money. So if they give the banks a continued cost of money of about zero, give them a little free money as interest on "reserves" (said reserves created when the Fed took assets off their hands at prices no one else would pay), and then, per Evans, give them the chance to charge higher and higher interest rates due to "inflation", well, then the banks can make more money, their bad loans can diminish in nominal terms, and everyone but savers and workers getting minimal to no wage increases can be happy.
It is a sick policy, but that's the plan.
Anyone who thinks that a 5-year Treasury yielding the grand total of $6 back for every $100 invested is prudent is entitled to his/her own opinion. In my humble opinion, the Fed is knowingly making all savers speculators. Why not at least keep up with Evans' high-inflation scenario with a 4% Treasury bond, with the chance for positive real returns if prices rise at 2% annually afterward, as he says he favors? And if by chance the U. S. goes Japanese anyway and we get true price stability, then one would have done OK with the 5-year note I just denigrated but one would do much better with the long bond.
Treasuries sold off on the long end last week on the above sort of talk, while the 2-year did not budge. Yet Evans and Bernanke are talking about 3+% inflation well within the 2-year time frame, so logically the short end should have sold off big-time, not the long end. Nothing has changed regarding years 11-30, though. We continue to have no idea what the future will look like then, though some of us won't be around to see it!
Thus the sell-off on the long end was speculative and can be bought speculatively. We are approaching the 4.1% intraday low of the 30-year in 2003, which may offer resistance now that we are so far into the next economic cycle.
Of course there are many risks with 30-year securities, but for quite some time I have been suggesting that gold and other hedges such as silver and foreign currency-denominated debt instruments are the best ways to deal with highly inflationary Fed policy in this era of the inherently deflationary credit collapse and its aftermath. I'm still long lots and lots of that sort of stuff, though I just sold the last of my silver yesterday on a timing basis.
The overvaluation of Treasuries-- i. e. the "bubble"-- is in the short end with 0.36% two year notes and 0.59% 3-year notes. Most bubbles go to greater extremes than to end with a rather boring 4% long bond. Let's see if we get 3-3.25%%. If it occurs at any time in the next 5 years, a buyer Monday at 4% will do just fine.
Copyright (C) Long Lake LLC 2010
Showing posts with label bubble. Show all posts
Showing posts with label bubble. Show all posts
Saturday, October 16, 2010
Monday, August 30, 2010
Stock Post on The Daily Capitalist; and Treasury Bonds Have Begun to Bubble
The Daily Capitalist has posted an article I wrote with the very kind assistance of Econophile, the proprietor of said website.
While I discuss in that article why I have begun buying some stocks with the goal of holding them for the long term,the stock market as a whole may well be overpriced and may well prove to be, in the aggregate, poor investments. But such is the nature of investing. Stocks are far from their bubble phase. Perhaps they will enter a sustained period of historical undervaluation. In contrast . . .
The evidence is now that Treasury bonds have entered a bubble and left a standard, mature bull market behind. The economist David Rosenberg is calling for a 2% 30-year Treasury bond. He recently shrugged off the fiscal problems that the U. S. Gov't has, saying that Canada had similar problems in the 1990s. I don't know about Canada's problems, but I would assume, having lived through the 1990s, that no investors were rewarding the federal government of Canada with ultra-low and falling borrowing costs. What is happening in the U. S. is characteristic of bubbles. Those who are short the asset (i. e. have bet against it) are forced, as the price rises enough, to buy it to cover their bets against it, and momentum players jump in who have no interest in the investment merits of the asset. These momentum players are especially dangerous when they leverage their capital many times and thus purchase many more Treasuries than they can truly afford. The combination of short covering and leveraged Treasury purchases are key parts of the development of a bubble in Treasuries.
Another aspect of bubbles is the creation of misguided public enthusiasm late in the game.
In a piece running today, Bloomberg.com continues the pattern of promoting Treasuries. This piece is given a political wrapper but serves the bubble story well. It is titled Deficit Cost Drop Gives Obama Stimulus Clinton Missed. Here are some quotes from it:
While the government has increased the amount of marketable Treasuries by 70 percent to $8.18 trillion the past two years, rising demand has driven yields so low that interest to service the debt has fallen 17 percent so far in fiscal 2010 ending Sept. 30 from all of 2008.
Instead of punishing the Obama administration for running up a budget deficit the Congressional Budget Office said will total $1.34 trillion this year, bond investors are pouring money into fixed-income assets as inflation slows and equity markets stumble. . .
“The deficit concerns are on the back burner,” said Andy Richman, who oversees $10 billion as a strategist in Palm Beach, Florida for SunTrust Bank’s private wealth management division. “The bigger concerns are on the deflationary mode and seeing growth slowing in the second half of the year.”
Deficit concerns are on the back burner? Really? Perhaps in a parallel universe. Not among anyone I know.
Suddenly, people see the merits of Treasuries at these yields? I doubt it. More likely in my view is that the authorities are trying to scare people enough about the economy that they buy bonds to keep the statist, deficit-finance game going. Will the U. S. actually go Japanese, interest rate-wise? I don't know, but I wouldn't bet big money on it happening.
Here is one example of just how risky long Treasuries are at this level. In July 2007, the 30-year bond traded above 5.25%. Now let's say it is at 3.7% (up from as low as about 3.50% last week). To eliminate reinvestment considerations, I am going to give you the purest type of bond, known as a zero-coupon bond. All the interest accrues to the price of the security rather than coming back to the owner regularly (twice-yearly for Treasuries).
If one purchased a 30-year zero coupon bond at a 3.7% annual yield, the price would be $33.62. This excludes commission. Assume that five years from the now the yield finally gets back to 5.25%. What would this security then be worth? Well, one would now own a 5-year bond yielding 5.25% annually. The price calculates to $27.83 for a bond that will mature at $100 thirty years later.
Even if it took 8 1/2 years for yields to get back to 5.25%, the price of the hypothetical zero coupon bond would still not be back to its starting value of $33.62.
A bond that pays interest semi-annually, which most people are more familiar with, is mathematically similar, though the nature of its pricing and periodic payouts makes it less volatile. Nonetheless, a calculation of this sort of "par" bond would also show how risky a simple reversion to a "normal" yield of 5.25% would be at any time within the next 5 years.
I have begun to tack against the wind. Just as I sold out of stocks almost completely in 2000 and again in 2007, which both times was against the prevailing zeitgeist of growth forever, I am now seeing cash and Treasuries (not stocks) as unduly likely to provide negative returns after accounting for consumer price changes (which I unhappily anticipate to move up and to have more upside than downside risk). I am hearing more stories of people who can welll afford the risk of stocks but who want nothing to do with them, and of brokers who are responding by pushing bonds rather than stocks.
People fleeing into Treasuries because they held stocks too long should know that bonds can disappoint simultaneously with stocks. The idea that people are tying up capital for long periods of time at historically very low interest rates lending to a borrower with no coherent plan to repay its obligations simply because the stock market was vastly overpriced a decade ago strikes me as strange. What a brilliant investment strategy: own a hugely overpriced asset (stocks) in 2000, or simply be afraid of it now when their valuation is much more reasonable, and instead avoid that asset to instead buy another one after it has had an amazing three decade run of outperformance (Treasuries, of course).
The Japan scenario of even lower Treasury rates is a possibility, but not likely here in my view. Time will tell; is there a rush to make that call? One example in a different country proves nothing about the future in America. When it is in government's interest to sell massive amounts of bonds for little more than routine operating expenses (wars in Asia and the Mideast and economic stagnation both having become routine), and the media starts telling you about "rising demand" for bonds at the same time that the Federal Reserve has been a huge part of that demand, caveat emptor.
I now view 7-30 year Treasuries as trading vehicles only, just as I treated Internet stocks back in their bubble heyday. Once again, I am suspicious of situations in which the mainstream media push a story after valuations already are at historical extremes, trying to make the public believe that there is legitimate demand despite the extreme valuations. That to me is part and parcel of the pre-popping phase of a bubble. We are not seeing mainstream media hype for either stocks or precious metals. We saw it in tech stocks in the late '90s and homes 3-5 years ago, and it has begun in Treasury notes and bonds today.
Copyright (C) Long Lake LLC 2010
While I discuss in that article why I have begun buying some stocks with the goal of holding them for the long term,the stock market as a whole may well be overpriced and may well prove to be, in the aggregate, poor investments. But such is the nature of investing. Stocks are far from their bubble phase. Perhaps they will enter a sustained period of historical undervaluation. In contrast . . .
The evidence is now that Treasury bonds have entered a bubble and left a standard, mature bull market behind. The economist David Rosenberg is calling for a 2% 30-year Treasury bond. He recently shrugged off the fiscal problems that the U. S. Gov't has, saying that Canada had similar problems in the 1990s. I don't know about Canada's problems, but I would assume, having lived through the 1990s, that no investors were rewarding the federal government of Canada with ultra-low and falling borrowing costs. What is happening in the U. S. is characteristic of bubbles. Those who are short the asset (i. e. have bet against it) are forced, as the price rises enough, to buy it to cover their bets against it, and momentum players jump in who have no interest in the investment merits of the asset. These momentum players are especially dangerous when they leverage their capital many times and thus purchase many more Treasuries than they can truly afford. The combination of short covering and leveraged Treasury purchases are key parts of the development of a bubble in Treasuries.
Another aspect of bubbles is the creation of misguided public enthusiasm late in the game.
In a piece running today, Bloomberg.com continues the pattern of promoting Treasuries. This piece is given a political wrapper but serves the bubble story well. It is titled Deficit Cost Drop Gives Obama Stimulus Clinton Missed. Here are some quotes from it:
While the government has increased the amount of marketable Treasuries by 70 percent to $8.18 trillion the past two years, rising demand has driven yields so low that interest to service the debt has fallen 17 percent so far in fiscal 2010 ending Sept. 30 from all of 2008.
Instead of punishing the Obama administration for running up a budget deficit the Congressional Budget Office said will total $1.34 trillion this year, bond investors are pouring money into fixed-income assets as inflation slows and equity markets stumble. . .
“The deficit concerns are on the back burner,” said Andy Richman, who oversees $10 billion as a strategist in Palm Beach, Florida for SunTrust Bank’s private wealth management division. “The bigger concerns are on the deflationary mode and seeing growth slowing in the second half of the year.”
Deficit concerns are on the back burner? Really? Perhaps in a parallel universe. Not among anyone I know.
Suddenly, people see the merits of Treasuries at these yields? I doubt it. More likely in my view is that the authorities are trying to scare people enough about the economy that they buy bonds to keep the statist, deficit-finance game going. Will the U. S. actually go Japanese, interest rate-wise? I don't know, but I wouldn't bet big money on it happening.
Here is one example of just how risky long Treasuries are at this level. In July 2007, the 30-year bond traded above 5.25%. Now let's say it is at 3.7% (up from as low as about 3.50% last week). To eliminate reinvestment considerations, I am going to give you the purest type of bond, known as a zero-coupon bond. All the interest accrues to the price of the security rather than coming back to the owner regularly (twice-yearly for Treasuries).
If one purchased a 30-year zero coupon bond at a 3.7% annual yield, the price would be $33.62. This excludes commission. Assume that five years from the now the yield finally gets back to 5.25%. What would this security then be worth? Well, one would now own a 5-year bond yielding 5.25% annually. The price calculates to $27.83 for a bond that will mature at $100 thirty years later.
Even if it took 8 1/2 years for yields to get back to 5.25%, the price of the hypothetical zero coupon bond would still not be back to its starting value of $33.62.
A bond that pays interest semi-annually, which most people are more familiar with, is mathematically similar, though the nature of its pricing and periodic payouts makes it less volatile. Nonetheless, a calculation of this sort of "par" bond would also show how risky a simple reversion to a "normal" yield of 5.25% would be at any time within the next 5 years.
I have begun to tack against the wind. Just as I sold out of stocks almost completely in 2000 and again in 2007, which both times was against the prevailing zeitgeist of growth forever, I am now seeing cash and Treasuries (not stocks) as unduly likely to provide negative returns after accounting for consumer price changes (which I unhappily anticipate to move up and to have more upside than downside risk). I am hearing more stories of people who can welll afford the risk of stocks but who want nothing to do with them, and of brokers who are responding by pushing bonds rather than stocks.
People fleeing into Treasuries because they held stocks too long should know that bonds can disappoint simultaneously with stocks. The idea that people are tying up capital for long periods of time at historically very low interest rates lending to a borrower with no coherent plan to repay its obligations simply because the stock market was vastly overpriced a decade ago strikes me as strange. What a brilliant investment strategy: own a hugely overpriced asset (stocks) in 2000, or simply be afraid of it now when their valuation is much more reasonable, and instead avoid that asset to instead buy another one after it has had an amazing three decade run of outperformance (Treasuries, of course).
The Japan scenario of even lower Treasury rates is a possibility, but not likely here in my view. Time will tell; is there a rush to make that call? One example in a different country proves nothing about the future in America. When it is in government's interest to sell massive amounts of bonds for little more than routine operating expenses (wars in Asia and the Mideast and economic stagnation both having become routine), and the media starts telling you about "rising demand" for bonds at the same time that the Federal Reserve has been a huge part of that demand, caveat emptor.
I now view 7-30 year Treasuries as trading vehicles only, just as I treated Internet stocks back in their bubble heyday. Once again, I am suspicious of situations in which the mainstream media push a story after valuations already are at historical extremes, trying to make the public believe that there is legitimate demand despite the extreme valuations. That to me is part and parcel of the pre-popping phase of a bubble. We are not seeing mainstream media hype for either stocks or precious metals. We saw it in tech stocks in the late '90s and homes 3-5 years ago, and it has begun in Treasury notes and bonds today.
Copyright (C) Long Lake LLC 2010
Sunday, September 20, 2009
Double Bubble Does Not Double the Fun
I never expected to see this anytime soon, if ever (from a local real estate ad):
Let us open the door to your dreams with an FHA Mortgage Loan. . .
As little as 3.5% down
Up to $729,750 loans
96.5% loan-to-value
Entire down payment can be a gift
Up to 6% seller paid closing costs
To misquote Shakespeare,
Double bubble
Toil and trouble . . .
This is worse than the first time round, because the FHA is the Federal Government. For an inscrutable reason, the Federal Government is not saving its pennies for healthcare reform or simply to meet its trillions of dollars of obligations to current and future retirees, and certainly not to support industries that would export goods and services to foreigners, but instead is putting the taxpayer on the hook to support a particular level of home prices.
Trying to invest sanely in an insane world is not easy.
Think gold.
Copyright (C) Long Lake LLC 2009
Let us open the door to your dreams with an FHA Mortgage Loan. . .
As little as 3.5% down
Up to $729,750 loans
96.5% loan-to-value
Entire down payment can be a gift
Up to 6% seller paid closing costs
To misquote Shakespeare,
Double bubble
Toil and trouble . . .
This is worse than the first time round, because the FHA is the Federal Government. For an inscrutable reason, the Federal Government is not saving its pennies for healthcare reform or simply to meet its trillions of dollars of obligations to current and future retirees, and certainly not to support industries that would export goods and services to foreigners, but instead is putting the taxpayer on the hook to support a particular level of home prices.
Trying to invest sanely in an insane world is not easy.
Think gold.
Copyright (C) Long Lake LLC 2009
Monday, June 22, 2009
China's Real Estate Market Explained
Courtesy of a long Zero Hedge post, a seemingly credible article was referred to about Chinese residential real estate markets, the mindset of buyers/investors there, and the like, in China's Real Estate Riddle. It's not long and worth a read in its entirety. Here are the opening two paragraphs:
"The end is near!” That was the message top government expert Cao Jianhai delivered in April when he predicted that residential property prices in China will plunge by half in the next two years. He reasons that China’s recent run-up in housing—average prices have tripled over the past five years—is unsustainable given the huge volume of new apartments sitting empty throughout the country.
Mr. Cao’s forecast is pretty scary, and not just for homeowners. China’s banks may not have invested in risky mortgage securities like CDOs, but they make most of their business loans based on collateral in companies’ real estate assets, which frequently are pegged to the going price of nearby residential developments. If that collateral were suddenly cut in half, China could face a banking meltdown that makes the West’s financial crisis look like a walk in the park.
Given the L. A. Times article of several months ago detailing immense overbuilding in commercial real estate in Beijing, and suspicions that China has been speculating in the commodities markets, a coherent narrative has emerged that describes a major bubble in China.
Add bursting of a possible Chinese bubble or twin bubbles to the list of possible bits of bad things that could happen to roil either markets and/or real economies in future months.
Copyright (C) Long Lake LLC 2009
"The end is near!” That was the message top government expert Cao Jianhai delivered in April when he predicted that residential property prices in China will plunge by half in the next two years. He reasons that China’s recent run-up in housing—average prices have tripled over the past five years—is unsustainable given the huge volume of new apartments sitting empty throughout the country.
Mr. Cao’s forecast is pretty scary, and not just for homeowners. China’s banks may not have invested in risky mortgage securities like CDOs, but they make most of their business loans based on collateral in companies’ real estate assets, which frequently are pegged to the going price of nearby residential developments. If that collateral were suddenly cut in half, China could face a banking meltdown that makes the West’s financial crisis look like a walk in the park.
Given the L. A. Times article of several months ago detailing immense overbuilding in commercial real estate in Beijing, and suspicions that China has been speculating in the commodities markets, a coherent narrative has emerged that describes a major bubble in China.
Add bursting of a possible Chinese bubble or twin bubbles to the list of possible bits of bad things that could happen to roil either markets and/or real economies in future months.
Copyright (C) Long Lake LLC 2009
Saturday, February 21, 2009
China: Decoupled, or a Potemkin Economy?
The easy thinking about future global economic growth is that China, with its massive population and growth-oriented government, will take over the mantle of economic leadership from the West in general and the U.S. in specific.
Lately, a variety of economic statistics out of China have cast doubt upon this. Electricity production is down. Exports are down. Even the government is having problems:
February 17 – China Knowledge: “China saw its fiscal revenue fall 17.1% year on year to RMB 613.16 billion (US$89.72 billion) in January, according to…the Chinese Ministry of Finance…”.
17%? That does not happen in a growing economy.
Similar and worse statistics are emanating from all over Asia and environs, as reported by "Credit Bubble Bulletin":
February 16 – UPI: “Japan’s economy shrank in the fourth quarter at the worst annual rate since the first quarter of 1974, government officials said. The Japanese economy, the second-largest in the world, was particularly hard hit by plummeting exports and a downturn in domestic consumer spending… The real gross domestic product declined at an annual rate of 12.7% from October to December…”
February 16 – Bloomberg (Tom Kohn): “The cost of protecting Japanese corporate bonds from default rose to a record after the economy shrank the most since the 1974 oil shock last quarter.”
February 16 – Bloomberg (Michio Nakayama and Shigeru Sato): “Japan’s electricity generation dropped for a sixth straight month in January, falling 6.4% from a year earlier as factories and businesses cut production because of the deepening recession.”
February 18 – Bloomberg (Janet Ong and Yu-huay Sun): “Taiwan’s economy shrank at the fastest pace on record last quarter… Gross domestic product fell 8.36% from a year earlier…”
February 18 – Bloomberg (Janet Ong and Yu-huay Sun): “Taiwan’s central bank cut interest rates to a record low... Governor Perng Fai-nan and his board pared the discount rate on 10-day loans to banks to 1.25% from 1.5%...”
February 16 – Bloomberg (Seyoon Kim and William Sim): “South Korea faces a ‘deeper and longer’ recession than during the 1997-1998 Asian financial crisis as the global slump pummels exports and indebted consumers and companies cut spending, Nomura Holdings Inc. said. ‘The biggest difference this time around is the country’s exports won’t provide a cushion for a drop in local demand,’ Nomura’s… Kwon Young Sun said.”
February 16 – Bloomberg (Sangim Han and Kim Kyoungwha): “South Korea failed to meet its target at an auction of 10-year bonds for a second consecutive month on concern that the nation will increase debt sales to fund stimulus spending.”
February 17 – Bloomberg (Shamim Adam): “Singapore’s exports fell the most in at least 22 years in January… Non-oil domestic exports dropped 34.8% from a year earlier, after contracting 20.8% in December…”
Back to China. Numbers are only numbers. However, please click on and read the following report from a man who claims to be on the ground in China, as reported by Mish in "Inside China". Here is a sample of this man's report:
I've been to China a lot Mish, spent many months at a time there for the last eight years. China is already in a massive overcapacity real estate bubble. They are building three apartments for everyone that is lived in. Most apartments are empty and those that are rented do not come close to paying the interest on the loan.
There are huge department stores with products loaded on the shelves and staff everywhere and no one is shopping! Staff outnumbers customers five to one. It's surreal. They are ready, waiting for a great wave of shopping to come, but no wave is coming.
Eventually this "borrow and build" economy will be a pop heard round the world. China runs on construction, build build build, but there is no reason for that many places and spaces and big mall businesses with no consumers.
Is it possible that the corruption and overbuilding were worse in China than in the U.S. and U.K.?
If so, the implications would be horrible for China but perversely could be good for us, as the Chinese would then be forced to stop building/over-building roads and other infrastructure, and could then keep buying our debt at expensive prices (low interest rates).
Another wrinkle in a wild and crazy time.
Copyright (C) Long Lake LLC 2009
Lately, a variety of economic statistics out of China have cast doubt upon this. Electricity production is down. Exports are down. Even the government is having problems:
February 17 – China Knowledge: “China saw its fiscal revenue fall 17.1% year on year to RMB 613.16 billion (US$89.72 billion) in January, according to…the Chinese Ministry of Finance…”.
17%? That does not happen in a growing economy.
Similar and worse statistics are emanating from all over Asia and environs, as reported by "Credit Bubble Bulletin":
February 16 – UPI: “Japan’s economy shrank in the fourth quarter at the worst annual rate since the first quarter of 1974, government officials said. The Japanese economy, the second-largest in the world, was particularly hard hit by plummeting exports and a downturn in domestic consumer spending… The real gross domestic product declined at an annual rate of 12.7% from October to December…”
February 16 – Bloomberg (Tom Kohn): “The cost of protecting Japanese corporate bonds from default rose to a record after the economy shrank the most since the 1974 oil shock last quarter.”
February 16 – Bloomberg (Michio Nakayama and Shigeru Sato): “Japan’s electricity generation dropped for a sixth straight month in January, falling 6.4% from a year earlier as factories and businesses cut production because of the deepening recession.”
February 18 – Bloomberg (Janet Ong and Yu-huay Sun): “Taiwan’s economy shrank at the fastest pace on record last quarter… Gross domestic product fell 8.36% from a year earlier…”
February 18 – Bloomberg (Janet Ong and Yu-huay Sun): “Taiwan’s central bank cut interest rates to a record low... Governor Perng Fai-nan and his board pared the discount rate on 10-day loans to banks to 1.25% from 1.5%...”
February 16 – Bloomberg (Seyoon Kim and William Sim): “South Korea faces a ‘deeper and longer’ recession than during the 1997-1998 Asian financial crisis as the global slump pummels exports and indebted consumers and companies cut spending, Nomura Holdings Inc. said. ‘The biggest difference this time around is the country’s exports won’t provide a cushion for a drop in local demand,’ Nomura’s… Kwon Young Sun said.”
February 16 – Bloomberg (Sangim Han and Kim Kyoungwha): “South Korea failed to meet its target at an auction of 10-year bonds for a second consecutive month on concern that the nation will increase debt sales to fund stimulus spending.”
February 17 – Bloomberg (Shamim Adam): “Singapore’s exports fell the most in at least 22 years in January… Non-oil domestic exports dropped 34.8% from a year earlier, after contracting 20.8% in December…”
Back to China. Numbers are only numbers. However, please click on and read the following report from a man who claims to be on the ground in China, as reported by Mish in "Inside China". Here is a sample of this man's report:
I've been to China a lot Mish, spent many months at a time there for the last eight years. China is already in a massive overcapacity real estate bubble. They are building three apartments for everyone that is lived in. Most apartments are empty and those that are rented do not come close to paying the interest on the loan.
There are huge department stores with products loaded on the shelves and staff everywhere and no one is shopping! Staff outnumbers customers five to one. It's surreal. They are ready, waiting for a great wave of shopping to come, but no wave is coming.
Eventually this "borrow and build" economy will be a pop heard round the world. China runs on construction, build build build, but there is no reason for that many places and spaces and big mall businesses with no consumers.
Is it possible that the corruption and overbuilding were worse in China than in the U.S. and U.K.?
If so, the implications would be horrible for China but perversely could be good for us, as the Chinese would then be forced to stop building/over-building roads and other infrastructure, and could then keep buying our debt at expensive prices (low interest rates).
Another wrinkle in a wild and crazy time.
Copyright (C) Long Lake LLC 2009
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