Monday, August 09, 2010

Observations On China's Bubble, Or The "Lose-Lose" Reality Of A Financial Cocaine Addiction

Not from India, but we are not very far behind in speculation....

Jim Quinn's has penned a good post on the "mother of all bubbles" in which he analyzes the impact of cheap credit and surging money supply on Chinese real estate, hot on the heels of recent Zero Hedge disclosure that nearly 65 million homes in China lie vacant. Using data from The Casey Report depicting the explosion in monetary aggregates, it is rather easy to see just where all the "excess" credit and easy money has gone. In many, if not all ways, the experience China is about to undergo with respect to its real estate bubble is comparable to that of the US, and simply the lack of an overlap of bubble peaks in 2007/8 is what helped China experience an all out economic rout, which due to how its socio-political structure is intertwined, may have well led to a domestic revolution and/or civil war. Yet the longer China avoids looking in the mirror, and continues to "feed the monkey" the worse off it will be when no amount of incremental cheap money can forestall the collapse. Which in itself is a very comparable predicament faced by our own administration and central bank. But before we present the Quinn article, we will take a brief detour into Michael Pettis' recent observations on the pitfalls association with a monetary heroin addiction.

Article Link


Anonymous said...

China did everything out of books, they do not have checks and balances like democratic nation. They build huge factories and large towns in the name of development. It all has to come down one day.

shailesh said...

Well, I think at least China could build huge factories and large towns. India on the other hand did not do anything. China at least provided employment to millions, in India we have no such thing. All folks who benefited is skilled workers in IT etc...

Today we have Mumbai with population of 15 million living with density of 30,000 per sq km. We did not develop any infrastructure. Traveling 10km takes more than 1 hour. That is one of the biggest culprit in high home prices. No new land supply has come in, while demand increased exponentially due to increase in credit supply.

With even little credit becoming available, the demand supply gap became huge, and prices went to sky. Just imagine if India had stimulus of $600 billion, we would be highest priced place on earth.

Anonymous said...

Shailesh, Totally agree with you, the increase in price in India is due to everyone trying to outbit the tiny development in central business district. China has build ghost town and that is a very big bubble. They wanted economy too march in military style.

Desi Batman said...

No asset bubble cycle in India: Christopher Wood

Snippet from above article:

Doesn’t also more foreign money flowing into India raise concerns of an asset price bubble?

My view is that the risk of asset bubble is greater in markets like Hong Kong, Singapore and China. And in India, there is a fundamental way in which the liquidity can be deployed, and that is the infrastructure story. In Singapore and Hong Kong, they don’t need to build lots of infrastructure. In India, there is a fundamental need for infrastructure. So, you could have an infrastructure-led investment cycle for the next 10 years, and you would not be worrying about excess investment. So personally, I am less worried about an asset bubble cycle in India.

Bindas Bhai said...

Ever met crorepatis in slums? Go to Bandra-Kurla Complex
Published: Tuesday, Aug 10, 2010, 2:02 IST
By Baljeet Parmar | Place: Mumbai | Agency: DNA

This is pure gambling especially at the backdrop of the following reports.

Fed Will Meet With Concerns on Deflation Rising

Economic Pessimists Gain Cachet

India story is really strong but US and Europe especially PIIGS in trouble it is just matter of three to four Qtrs things will change in India and will take minimum 12Qtrs to bounce back.

Inflation is likely to reach 15% in near term especially with recent hike in Petrol and diesel prices. RBI has predicted inflation will come down to 6% by March and I am sure this will also happen but not because of good rains and monetary policy but because of Global slowdown.

Today US and some Euro countries are on ventilator and will need some hi-tech jobs to be created to really come out of this situation. This is very difficult for some time now. Market is beautiful it will always correct on its own , any amount of artificial support can only delay the pain but not eradicate it.

Polar bears have started their jurney from Artic to US and Europe it will take couple of qtrs before they reach Manhattan.

All the best guys!!!

Bindas Bhai

Bindas Bhai said...

America Goes Dark

Desi Batman said...

@ Bindas Bhai
Ever met crorepatis in slums? Go to Bandra-Kurla Complex

WTF!! This makes me so so angry. Slum dewellers had never acquired land by legal means and now these lands are legal and paid in crores !!

So looks like people like me and you play by rules and pay for everything we have acquired are fools.

This is pure gambling especially at the backdrop of the following reports.

In prosperity the jobs were outsourced to China and India. In deflation too same is happening as to cut down on cost in USA and UK. Where does this nonsense stop.

Also USA has shitty pension schemes. Google on 'city of bell in CA' and read on the mayor's salary and pension.

Chors are all over the world, and every man has to stand for himself.

Anonymous said...

forget about buying home, its now impossible, just rent the house.

Anonymous said...

kuch dino mein rent bhi inflate ho jayega bhai.

Already rent in Bombay 30-40,000 for a 1BHK!!!!!

Thats more than my salary

Ravi K said...

@Anonymous 921 AM

You must be checking in premium areas like pali hill bandra, shivaji park, khar west etc. The rents have always high in those areas.

One can rent a reasonably priced flat from andheri - borivali. The price is from 12000 ~20000 per month depending on facilities etc This is a very reasonable amount . Other factors may come into play like religion, race etc but these things have nothing to do with the rent. They are mainly used for eligibility, security etc.

I am renting a 2 b/r flat in borivali in a very decent clean neighbourhood and i am paying 14,ooo per month. This includes par park.

There are lots of places in mumbai where rents are affordable

Thambi said...

Desi Batman anne,
It hurts to see people get large compensation for illegally occupied land whereas me and you work 60 hours a week and cant even afford to buy a decent place. What is this telling us ? - Be part of the game or else stand outside and suffer. In this case, the name of the game is corruption. I work for railways and have been observing some of my fellow officers slowly succumbing to the order of the day and i too sadly admit joining the league. There is no other way in this country. If you are not in the team, there are good chances that you are framed on false charges and kicked out. My senior colleque tell me that i will acquire immunity from guilt once i see big time.

If you are in private or corporate sector, this is possible too. I don't know how, but i have a living example. A relative of mine holding a senior post in a big company has acquired 4 flats besides the one which he is living and has rented the 4 flats to large companies and getting a regular income. It is just a matter of finding out how to screw the system, i guess

Don't worry. you too will see your day


samix said...

Thambi, if you are doing it just for the sake of not getting framed or transferred or kicked out, then in all honest assessment, you should donate every single penny that you make via this route.

Please don't feel bad, its just a suggestion and I am not trying to pick on you.

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Anonymous said...

okay, now we get it, vik is changing his tune; changed from "don't buy" to "if you want to buy, buy from investors", good progress!

Vishal Patel said...

It is a bubble. Housing prices are going to be reduced over night. many People having 2-3 apartments as a investment. every where construction activity is going on. suddenly it will be known that there are no occupants. then price will come down.

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