Thursday, January 28, 2010

Schiller's Bubble diagnosis

Shiller’s List: How to Diagnose the Next BubbleJanuary 27, 2010, 7:33 am —
Sharp increases in the price of an asset like real estate or dot-com shares
Great public excitement about said increases
An accompanying media frenzy
Stories of people earning a lot of money, causing envy among people who aren’t
Growing interest in the asset class among the general public“New era” theories to justify unprecedented price increases
A decline in lending standardsIf your asset class is suffering from these symptoms, consult your neighborhood economist or licensed broker, and maybe a good psychotherapist, too.
Here is the link

42 comments:

Anonymous said...

If India is really growing and is doing great, why is the stock market falling everyday. It means India is a part of the global economy now. It gets impacted by world scenario.

Similar is the cae with housing. When RE will fall in China, HK, Singapore etc..India would witness the same.

Venkateswaran K Iyer said...

The next bubble is the dollar.

Every bubble is marked by internet chatter warning about it, usually for years before the bubble bursts.

From 2005 onwards, people were warning about the housing bubble. It finally burst in 2008. I could not believe that Americans could be so stupid about the

From 2008 onwards, people have been warning about the impact of monetary easing. Internet blogs, CNN money, market watch, RE discussion boards - all of have been warning about the coming crash of the dollar, hyperinflation in dollar terms and necessity to markedly raise interest rates to contain inflation.

Every bubble is marked by general public ignoring the warnings, ridiculing the Cassandras and insisting that “everything is going to be all right”.

With warnings starting 2008, I expect 2011 or 2012 for the next major crash and global economic chaos, thanks to fed easing.

— Venkat ND

Anonymous said...

Two more symptoms of bubble -
1. People telling you - "This time its different"
2. People telling you -"Prices will NEVER come down for this xxx(insert the asset class name)"

Anonymous said...

I'm sitting back on cash and waiting for Indian market to burst, stocks markets to go down further all over.

Massive liquidity has been causing this mess and world economies would have to pull the money out to avoid inflation and save their political future.

Anonymous said...

I think a protracted bear market is around the corner for both equity and realty!

Followed by a prolonged bull market in China and India...

Anonymous said...

I think the bear market is here to stay for many years. At least 4-5 years. All the massive steroids of Govt. spending are ending.

The kind of bull market India/China/US etc. say in the past 3-4 years are gone for at least 10 years. That was all fictitious.

All economies are going to return to Organic growth.

Anonymous said...

http://www.marketwatch.com/story/india-shares-losing-sheen-amid-tightening-fears-2010-01-28?siteid=yhoof

Bearish commentary everywhere. Indian markets are headed towards 12000

Anonymous said...

Not 12K but 10K.

SabbalSehu said...

India has too many money hoarders and these guys are unlikely to change their ways in the coming 100 years. I know businessmen in mumbai living in one room apartments with their families though their net worth is in crores. The fashion of these guys is accumulating wealth and pass it on to the next generation. Just last week, I sold two apartments in Raheja's interface in malad for 1.4 crores each to a investor living in masjid bunder in a crappy apartment without a builtin toilet. This guy expects to earn 20-30 lacks profit in a year from the sale of these apartments and usually he is right. He is gambling on demand/supply equation.

The American economic models and what you hear on business channels is crap. These models are based on a non corrupt society . India is different

The tradition of money hoarding has been existing for hundreds of years and don't expect to vanish in our life time.

So, buy now. The prices will never go down

SabbalSeshu said...

The neo rich who comprise a fraction of rich people in India may get affected by the turmoil in the world financial market. This is in no way going to have effect on the real rich people in India. Ambani may go bankrupt but the local money lender/banker still will have his business/profit as he doesn't invest in any risky ventures. This guys also feeds the ruling government so that he doesn't get affected by political system in the country.

Don't be blinded by predictions by IIM economic pundits. Analyse the situation yourself and invest wisely and you won't regret

SabbalSeshu said...

Euro is going to get screwed shortly that will leave dollar as only reliable currency in the world. All the rumors about dollar are generated by vested interests who have been and will be screwing the common man

Anonymous said...

SabbalSeshu:
You are a big idiot and need to take some lessons in Econ101.

If you are so sure, why don't you keep buying and why are you selling.

Why are you fooling people.

Anonymous said...

anon@6:51

You are absolutely right. This moron Sabbal claims that western economic theories do not work in India. Yet the RBI is doing quantitative easing and injecting massive doses of liquidity into the system else the realty bubble would have popped about a year back..the builders balance sheets are loaded with debt. Revenue figures for builders have declined drastically, which means people have stopped buying...

Anonymous said...

Folks,
My analysis says that RE is overpriced by at least 40-50% in India. It will take a lot of time for it to correct though as the masses in India are blinded by this sudden wealth on paper. They claim different ways to convince them like India is different, or there is enough black money, or India is growing etc..etc..

Indians are in massive denial mode. The next phase is going to be anger mode when the prices start to correct as people are not investing thinking that the prices could ever go down. Then after a year of anger mode, people would start to accept reality. i think if someone wants to buy in India, they should wait at least until 2012 to invest. Right now it is a fools market. Same is with China and other Asian economies.

The fools fail to realise that it is time to sell and not buy.

Mantra is: Buy low and sell high. Masses are doing the opposite, buying high and would be forced to sell low unlike the fools in USA.

Venkateswaran K Iyer said...

During recession, builder will sell 1200 sf flat with 950 sf carpet area (at say 5000 psf) Price 60L. In boom, he will change the plan slightly, call the same flat as 1500sf flat and sell for 6000 psf (Price=90L)



Both will get almost the same flat, maybe 1000sf carpet area for second scenario. Builder will pocket another 30L for nothing extra.



I have personally seen this happen with Ramprastha Atrium/View and Tulip Orange/White (in Gurgaon NCR).



Caveat Emptor.

Venkateswaran K Iyer said...

Actual rates of Ramprastha and Tulip were lower by half in previous post.

5000 rate was given as example only.

Anonymous said...

CANADA BUBBLE UNWINDING SOON:

Call it what you want, but economists at Scotia Capital think the Canadian housing market is a bubble that faces downsides into next year – and the numbers continue to prove it.

Teranet’s measure of Canadian housing prices, the closest equivalent to the U.S. S&P/Cash Shiller Home Price Index, was just 0.1% off its all-time record high in November 2009.

“The gains are accelerating in recent months, and the December print is likely to firmly set a nationwide all-time record high,” Derek Holt and Karen Cordes said Wednesday.

While Canadian house prices went down like most other countries, they didn’t stay there. In fact, Teranet’s measure of house prices is up 92% nationwide since the beginning of 2000, blowing most other asset classes out of the water.

The economists compared this with U.S. home prices, which climbed 105% from the start of the decade until they peaked in 2006.

Regionally, Calgary is up 120% in the decade, Vancouver 116%, Montreal 110%, Ottawa 90%, Halifax 85% and Toronto 66%. But Scotia does not buy the assertion that only select markets are in frothy territory.

“All regions of the country have participated with hefty price gains over the past decade on the march to record nationwide prices,” the economists said.

Anonymous said...

There is no fundamental reason for the average house price in Canada to be twice what it is in the US.

Australia is going to have the same fate soon.

Anonymous said...

Canada always lags the U.S. in economic terms. However this bubble is gonna blow and when it does, I’m thinking the fall, it’s going to be big, by Canadian standards.

What about India? India is only 10% of US GDP and home prices in major cities are more than NY and Tokyo. Major bubble in India.

Anonymous said...

Why Indians deny bubble:

Just goes to show that a bubble is most difficult to see when you’re inside of it.

When you’re inside, no matter what direction you look, a bubble reflects your own image. See any trouble on the horizon? Nope. All I see is me in all my glory.

Anonymous said...

Bank closures in US:
140 banks were closed last year, and the 15 shuttered this month by the FDIC . If this pace of closures continues some 180 more banks could disappear by the end of 2010.

India will also see small banks eaten up by big ones soon or just disappear. There has been major lending done to commercial folks who can't repay and all would be NPA.

Anonymous said...

High unemployment is US. If high unemployment continues in US, it will definitely impact outsourcing to China and India.

‘Underemployment’ tops 20 pct in 3 states in US.
‘Underemployment’ near or above 20 pct in 9 US states as part-timers, discouraged workers grow.

Anonymous said...

Roubini Calls U.S. Growth ‘Dismal and Poor,’ Predicts Slowing

By Simon Kennedy

Jan. 30 (Bloomberg) — New York University Professor Nouriel Roubini, who anticipated the financial crisis, called the fourth quarter surge in U.S. economic growth “very dismal and poor” because it relied on temporary factors.

Roubini said more than half of the 5.7 percent expansion reported yesterday by the government was related to a replenishing of inventories and that consumption depended on monetary and fiscal stimulus. As these forces ebb, growth will slow to just 1.5 percent in the second half of 2010, he said.

“The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” Roubini told Bloomberg Television in an interview at the World Economic Forum’s annual meeting in Davos, Switzerland. “I think we are in trouble.”

Roubini said while the world’s largest economy won’t relapse into recession, unemployment will rise from the current 10 percent, posing social and political challenges.

“It’s going to feel like a recession even if technically we’re not going to be in a recession,” he said.

Anonymous said...

The Obama administration announced the sale Friday of $6 billion worth of Patriot anti-missile systems, helicopters, mine-sweeping ships and communications equipment to Taiwan in a long-expected move that sparked an angry protest from China.

The sale, formally announced by the Defense Security Cooperation Agency, is expected to prompt China to slow or even break military relations with the United States and cancel a visit by President Hu Jintao to Washington in April. Chinese officials have threatened other actions, including sanctions on the U.S. companies supplying the equipment or on businesses in the districts of congressional lawmakers known to be backers of Taiwan.

Anonymous said...

consequences of a ticked off china would more likely be Higher interst rates( if indeed they cut back on the purchase of US treasuries) making the US Dollar MORE attractive.
Any stewing trade war/sanctions will more likely cause a slowing of chinese growth, something they appear to want already.
copper prices have been tanking faster than precious metals, fertilizer makers have no pricing power.
score a couple more for the deflationistas!

Anonymous said...

READ THIS:

We are in a radical real estate depression hidden from us by massive government fixes.

The government has made an enormous assumption in crafting its policy on housing: It assumes that maintaining values is of the utmost importance. It’s a tragic mistake.

Anonymous said...

Beware! Bank frauds are on the rise
31 Jan 2010, 0135 hrs IST, Aman Dhall, ET Bureau

Save Print EMail Share Comment Text:
NEW DELHI: If you are one of those who like playing it safe with hard-earned money and would rather stick to bank deposits, watch out. No lesser authority than the Reserve Bank of India says that bank frauds are on the rise. What's more, public sector banks, perceived to be safer bets than private banks, beat the latter in the swindling game.

Crores of rupees are disappearing from bank accounts or are being used deceitfully everyday. Recently, a bank branch manager recklessly sanctioned housing loans for the purpose of flats. On spot verification by the Central Bureau of Investigation (CBI), on the behest of the bank's chief vigilance officer, it transpired that the three storeyed building was constructed as a hotel.

Further investigation revealed that the branch manager had sanctioned many other housing loans against fabricated agreements of sale in fictitious names. By the time, the investigation was completed the bank had been duped of Rs 25 cr.

"This is an alarming scenario. Afterall, it is people's hard earned money. Banks the worldover keep a tight vigil as any slip will bring them down and even impact the economy," says Mayur Joshi, chair-man of Indiaforensic Research Foundation, a Pune-based consultancy which conducts fraud examination and forensic accounting in India.

Information collated by the CBI which SundayET is in possession of, bank frauds—the central investigation body tracks frauds valuing only a crore or above—amount doubled in 2008-09 from Rs 659 cr in 2007-08 to Rs 1,404 cr.

The number of such frauds also rose from 177 to 212. "The focus is on expeditious completion of investigation, close follow up of under-trial cases to conclude them without delay," says a CBI spokesperson. The CBI conducts its investigations through differ-ent wings--the Anti-Corruption Bureau, Bank Securities & Fraud Cell and the Economic Offences Wing.

The rising number of frauds has also got the central bank concerned. "It's high time banks strengthen their fraud management practices. In their bid to quickly expand and grow, they are losing focus on risk control," a senior official of the bank, who did not want to be named, says.

Not that the RBI isn't aware of the rising trend. In September last year, it had blamed senior management at banks for their failure to have proper risk management mechanism. It had then advised the banks to form a special committee chaired by their CEOs, who could oversee fraud investigation and make monitoring centralised rather than leaving it to the regional centres.

Anonymous said...

IANS
Syndicate Bank net plunges 42 percent in Q3 2010-01-30 21:30:00
State-run Syndicate Bank reported net profit of Rs.206 crore for the third quarter of fiscal 2009-10 against Rs.356 crore in the same period last year, a dip of 42 percent over the last 12 months.

In a regulatory filing Saturday, the Manipal-based bank said its total income for the quarter under review also declined marginally by three percent year-on-year (YoY) to Rs.2,677 crore from Rs.2,759 crore in the same period a year ago.


Around 13 percent (Rs.377 crore) decline YoY in combined interest earned during the quarter (Rs.2,456 crore) from advances and discount on bills, other income and balances with the Reserve Bank of India against Rs.2,833 crore year ago affected the total income.


Net interest fell by 5.15 percent YoY to Rs.718 crore from Rs.757 crore.


Steep provisioning of Rs.207 crore towards bad loans and contingencies for the quarter as against Rs.23 crore made in the same period of last fiscal also impacted the bottomline.


In spite of higher provisioning, the gross non-performing assets (NPA) shot up to Rs.2,018 crore (2.43 percent) from Rs.1,762 crore (2.39 percent) YoY.


Similarly, the net NPA increased to Rs.836 crore (1.02 percent) from Rs.622 crore (0.86 percent) YoY.

Anonymous said...

IOB net drops 74%

BS Reporter / Chennai January 30, 2010, 0:12 IST



Indian Overseas Bank (IOB) reported a 73.81 per cent drop in net profit for the quarter ended December 31, 2009, to Rs 101.7 crore as compared with Rs 388.44 crore during the same period last year.


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Total income dropped 11.74 per cent during the third quarter to Rs 2,828.65 crore from Rs 3,204.90 crore, a year ago.

The bank attributed the drop to increase in non performing assets, provisions for wage arrears and decline in treasury income.

“The treasury income came down by Rs 365 crore to Rs 17 crore during the third quarter from Rs 382 crore, a year ago,” said SA Bhat, chairman and managing director .

It made a provision of around Rs 130 crore towards arrears and wages. Net NPA increased to Rs 1,690 crore from Rs 920 crore as on December 31, 2008.

Anonymous said...

BL Research Bureau

The overall asset quality of banks deteriorated with gross non-performing assets (GNPA) as of December 2009 increasing 27 per cent over the same time last year, an analysis of the results declared by banks recently reveals. The net NPA (NPAs after provisioning) increased 31.7 per cent.

Anonymous said...

Vijaya Bank net down 20.65%

BS Reporter / Chennai/ Bangalore January 27, 2010, 0:46 IST



Bangalore-based public-sector lender Vijaya Bank reported a 20.65 per cent decline in net profit to Rs 124.57 crore for the third quarter-ended on December 31, 2009, compared with Rs 156.99 crore in the corresponding quarter last year. The bank has attributed the dip to low earnings from treasury and provision of Rs 113.17 crore for a non-performing asset.

shailesh said...

SabbalSeshu: Get your head examined. I grew up in such business family you mention.

The guy who bought 1.4 crore flat, has probably taken 1.2 crore in black market on loan. He is levered upto tilt. When price drops to 60L, he has no equity left, not only that he has lost money of all investors. Very easy for him to declare BK. What are the creditors going to do? He only lives in crappy 1 room home in Masjid bunder, which most likely is Rental. There is no easy way to recover money by these investors who were gullied by this speculator.

India has huge black market where money is invested and people speculated. You are going to see large number of so called business go BK with massive corrections coming down the line.

Anonymous said...

One more evidence is that every large RE Company is booking flats etc. with a meagre amount of 2 - 3 lacs alluring the general public to provide affordable price. They are just trapping these persons and the fact is that the companies would never be able to handover flats because these funds are going for repayment of huge debts and not for completion of projects.

SabbalSeshu said...

Whilst thanking for the positive/negative comments, I'd like to reiterate that it is not my intention to spread optimistic/pessimistic rumors. I' m a sort of semi retired Realtor and I have stopped investing in volatile real estate market as I find it to be a sort of head ache. The commission I make from my part time business is enough for a comfortable living.
It is amusing to note the theories floated in this blog in regard to banking/real estate that are false. True development that benefit the common man is an indicator of healthy economy and unfortunately Our corrupt country may achieve it only on paper. It is amazing to see people take pride corporations that float shares thereby taking your money and feeding the corrupt and rich.

Mark my words, there is no real estate bubble. Prices are not going down, at least in Mumbai

Anonymous said...

Sabb..

You said it yourself.
You are a Realt-Whore.

You can't help yourself.

Anonymous said...

SabbalSeshu, majority of these guys writing on this blog are frustrated guys wanting desperately to buy house, to their dismay RE is not moving in the way they would like to go. I totally agree with you that RE in Mumbai will not fall in near future.

Don't waste your time educating these guys, I am really glad that BB has stopped writing on this blog. He will be reading this blog with a cheeky smile :-)

Don't waste your time not worth. BB had predicted a lot of stuff including Vulture disappearing.Where is Vulture hiding now?

Anonymous said...

Vulture is right here.
And BB you always come back with Anon or other names.

If you think RE is a good investment nowdays, why do you read this blog. You should use your time in investing and let the rest of us share our ideas about the economic bubbles being caused by the Governments. I wish people like you had a sense to understand what economics is and what money printing can do to the economy.

Anonymous said...

wish you had understood what money printing does maybe guys like you will never sit on cash!! :-)

Shrini said...

Not all here are frustrated would be buyers. I just got my house in August-September 09 and my parents even moved there (after following this blog since 2006). However I have not bet all my money on RE, nor am I looking to invest any more. Necessity drives demand. To be extremely honest, in good developed localities, I dont see prices coming down but not going up either at least for half of this decade.

If you buy now or in 2013-14, it really makes little difference. As it is your bank savings interest is eaten up by the perpetual inflation in Indian market. People who are buying 1st time, go ahead, people who have already a house and want to buy for investment, please think twice.

And of course stay away from the Big guys like DLF, Unitech, Omaxe, Sobha, etc Look for established local builders and bargain hard

Anonymous said...

Shrini

I guess that was the time only BB was requesting people to buy. I wish i had also taken his advice seriously.

Anonymous said...

Bindas Bhai will be THE victim of above paid news

rajni sharma said...

Hey this is really very nice post...
Nd one of your best post...Thanks
Flats in kolkata