Yes Virginia...It's a Bubble...

[jk]

Re: Let's get back to basics

it's been hard for me to listen to anything from stockman since he invented "rosy scenario" back when he was at omb. he was willing to lie for political purposes then. do we have any reason to think that's changed?

[vt]

Re: Let's get back to basics

So Stockman who has opinion pieces in the New York Times, appears on Diana Rehm's show, and is against crony capitalism is not relevant? We are talking about bubbles here, so we shouldn't post an article about someone of Stockman's experience?
Just because he may be early and incorrect about the chances for recovery does not mean we shouldn't see what others are being confused by.

http://www.nytimes.com/2013/03/31/op...pagewanted=all

Stockman is worried that this bubble will burst. Who isn't?

EJ is concerned about a "bond, currency, and inflation crisis" a few years down the road. Fortunately EJ understands how this may all play out better than all the others out there, but I can't see the harm in a viewpoint that the New York Times also has given space too.

[santafe2]

Re: Let's get back to basics

"We've had two huge bubbles that collapsed already in this century," he said. "When this third bubble collapses—and surely it will—I believe that will be the day of reckoning.

vt, Doomers are doomers you can't save them from themselves. This post feels like folks who have a second coming of Christ economic notion. Let's not send this great thread into the nethers with ideas like this. Thanks.

[vt]

Re: San Diego is expensive

Reagan’s OMB head: Wealth inequality is a problem


Alex Rosenberg | @CNBCAlex
3 Hours AgoCNBC.com

ARES

It might be hard to imagine President Ronald Reagan agreeing with President Barack Obama's take on wealth inequality. But Reagan's first director of the Office of Management and Budget, David Stockman, says that the disparity in household wealth is a major problem that ought to be addressed. He just has very different ideas about how to deal with it.
Stockman's specific concern is gains in the stock market, which he say have contributed massively to wealth inequality. Since he maintains that stocks have been propped up by the actions of the Federal Reserve, he has a problem with the money that Americans have made from rising stocks.
Profits off of stocks are "totally ill-gotten gains," Stockman said Thursday on CNBC's "Futures Now."
Read MoreBill Gross: Fed tightening won't be too painful

"This is a massive windfall to the 5 percent or 1 percent" wealthiest American households, he said. "This prosperity we've had in the top 5 percent—and that's where most of the consumption growth has been—is entirely a function of artificially ballooning stock prices and other risk assets."
Meanwhile, "the 'Main Street' households in America are not doing well. Their incomes are not growing."


Douglas Healey | Bloomberg | Getty Images / Getty Images
David Stockman and President Barack Obama.

In making this point, Stockman sounds a bit like Obama, who criticized low tax rates on capital gains in his recent State of the Union address.
"Let's close the loopholes that lead to inequality by allowing the top 1 percent to avoid paying taxes on their accumulated wealth. ... We need a tax code that truly helps working Americans trying to get a leg up in the new economy," the president said last week.
But Stockman says blame lays not with the tax code (indeed, he pioneered a trickle-down approach to taxes under Reagan) but with the Fed.
Obama "is talking about a symptom, but he's clueless as to the cause. The cause is not capitalism. The cause is not some entrepreneur out there trying to invent something and improve the performance of his business. The problem is in the Eccles building [home to the main office of the Fed] and in the 12 people sitting there and thinking that interest rates are some magic elixir that'll cause this very troubled and difficult economy to revive," Stockman said.
"It's not true," he said. "These people are dangerous and destructive, and they're creating this massive income inequality that, sooner or later, is going to cause a huge political reaction."
That said, because Stockman thinks that stocks are set to plunge, he believes that those who have their money in the market are set to lose a great deal of it.
"We've had two huge bubbles that collapsed already in this century," he said. "When this third bubble collapses—and surely it will—I believe that will be the day of reckoning. The credibility of all this central-bank-dominated, Wall-Street-coddling policy will be totally repudiated, and maybe then we can clean the slate and start over."


Watch "Futures Now" Tuesdays and Thursdays at 1 p.m. ET exclusively on FuturesNow.CNBC.com!

[touchring]

Re: Yes Virginia...It's a Bubble...

It's getting too hectic so I hope to see some slowdown, which I'm not seeing, at least here in Singapore, which is supposed to be influenced by China quicker than the rest of the world.

Real estate is dead for the last 3 years due to loan curbs and 18% stamp duties. But the malls are getting more crowded by the year despite a new mall being built every month. The stock market is picking up following the way of Chinese stocks.

Employment rate now exceeds 100%, believe it or not. Even retirees and housewives are coming out to do part-time work. And yes, only in Singapore, the government pays you to work. A retiree that works part-time and gets paid $500 a month receives another $150 from the authorities automatically.

Commercial rent is still rising, the price of grocery is still going up, unabated, as they had been since 2009. A 10-year car license (the certificate of entitlement) at $60,000 is near record high. The most ridiculous thing is the cost of gasoline, petrol has dropped less than 10% since 2013.

Is there a slowdown? For some sectors perhaps, due to extreme curbs on real estate and some slowdown in related banking services, but a recession? No, at least not this year, or at least not until US interest rates start to rise?

[GRG55]

Re: Yes Virginia...It's a Bubble...

And like all good bubbles it goes on much longer and inflates to a much greater extent than anyone could have imagined.

Is it finally the beginning of the end? Maybe. Maybe not...

Hard times return as China bids to bring its economic miracle to an end

Beijing insists slow growth is part of a plan to bring years of explosive expansion under control. But the global slowdown may make it hard to soft-land an economy still hooked on exports

The Observer, Sunday 25 January 2015

China’s president, Xi Jinping, calls it the “new normal” – but strikes are increasing, wages going unpaid and businesses are struggling to survive as the vast economy adjusts to a more sedate pace of growth after more than a decade of explosive expansion.

Official figures published last week showed that China’s GDP expanded by 7.4% in 2014. That was a significant drop from the 7.7% seen in 2013, and the weakest rate of growth since 1990, when the country was grappling with international sanctions in the wake of the Tiananmen Square massacre.

And while the government has spun the downturn as a good thing, as it deliberately shifts from an unsustainable, export-led boom to relying on demand at home to fuel economic growth, people across the country are feeling the heat...

...“From an industry point of view, obviously the hardest hit are the miners and the upstream players – the iron ore industry, steel, refineries, they’re all being really squeezed,” said Andrew Polk, a senior economist at research group

The Conference Board’s China centre for economics and business in Beijing. “China’s consumption has held up relatively well so far, but [the slowdown] looks to be finally feeding through to the consumption side as well.”

And while the downturn is, on one level, intentional, policymakers face a tough challenge in engineering a slowdown while maintaining enough control over the financial system to prevent a crash.

Growth is expected to slow further over the next three years, as officials act to control the sliding property market and rein in excessive borrowing by local government — the International Monetary Fund has projected a 2015 growth rate of 6.8%...

...On Thursday morning, many shoppers at the Huapu Hypermarket in central Beijing were complaining of tough economic times.

“I’m a businessman, so of course this is affecting me,” said a 36-year-old tobacco and wine wholesaler who gave his name as Mr Ji. His income had dropped as much as 30% over the past year, he said, as he dropped spring onions into his trolley. “I’m starting to think about changing careers.”...

...Some regions are likely to adjust better to the new growth model, too. Coastal south-east China, an economically diverse region, may blow through the downturn unscathed, Chen Xiushan said, while inland and industrial provinces would almost inevitably struggle. North-east China “does not stand much chance for economic transition,” as its economy leaned heavily on clunky, anachronistic state-owned enterprises and its population was increasingly migrating south in search of work.

Karen Ward, senior global economist at HSBC, said that, for the time being, the authorities were continuing to underpin economic growth with public building projects. “Consumption is still stable and strong, it’s just not big enough: and while exports are a drag, it’s just not filling the void. That’s why they’re still filling the gap with infrastructure spending.”

Experts are divided about this infrastructural spending spree. Some fear the authorities have squandered money on unnecessary projects, reminiscent of the “bridges to nowhere” that came to characterise the Japanese investment bubble of the 1980s. Investment now accounts for more than half of GDP...

[touchring]

Re: Kaisa on Brink of Dollar Default Spooks World’s Money Managers

The real estate bubble in China is already extended (just like every other real estate bubble we've witnessed in recent times).

Not exactly, the luxury segment of the Singapore real estate market has been bear for almost 3 years due to severe curb measures such as 18% stamp duty tax on foreign buyers. There's another 16% stamp duty tax for selling within 1 year, and 12% within 2 years and so forth.

So a buyer of a $1 million property would have paid $300k tax in total if he buys and sells within 2 years.

http://www.straitstimes.com/news/bus...among-33-citie

And yes, there are

Given the dearth of alternatives for private investment by Chinese citizens within China (property, the stock market or a small family business pretty well covers the entire spectrum for all but the few well connected) it is entirely conceivable that the property bubble could continue to inflate for some time to come. These things never end until they exhaust themselves. Who knows how much longer and how much bigger this monster will become before that happens. However, the idea that there will be some sort of minimally-disruptive end to this mass insanity, courtesy of the mandarins in Beijing, seems improbable.

It appears that they want to delay it for as long as possible, perhaps in hope that the rise in income catches up with the cost of mortgages.

While at the same time reduce interest rates - http://www.bloombergview.com/article...-mortgage-bomb

As for eCommerce there's many factors that support that outcome. Just one example, like the USA, China is a vast country. But it is more difficult to move about in China for a variety of reasons, including the fact that the government still deliberately restricts the movement of citizens...probably more than it restricts the movement of goods.

When the USA was at the stage of comparative development as China today it gave rise to the catalog retailers and deliver of goods by the then rapidly developing railroad network. One could even order an entire home in prepackaged kit form for "flatpack" delivery, ready to be assembled (I am not joking). That was the precursor to today's ecommerce.

This is news to me.

[GRG55]

Re: Kaisa on Brink of Dollar Default Spooks World’s Money Managers

I agree that official statistics are not reliable. I would examine data from the private sector.

Have you considered that China's internal consumption may actually be growing fast enough to extend the real estate bubble?

Just to show an example. According to data from e-commerce companies, China's ecommerce market is already larger, if not, twice the size of the US ecommerce market.

How could this be possible if the World Bank says that US GDP (nominal) is almost twice of China? Which one is true?

The real estate bubble in China is already extended (just like every other real estate bubble we've witnessed in recent times). Given the dearth of alternatives for private investment by Chinese citizens within China (property, the stock market or a small family business pretty well covers the entire spectrum for all but the few well connected) it is entirely conceivable that the property bubble could continue to inflate for some time to come. These things never end until they exhaust themselves. Who knows how much longer and how much bigger this monster will become before that happens. However, the idea that there will be some sort of minimally-disruptive end to this mass insanity, courtesy of the mandarins in Beijing, seems improbable.

As for eCommerce there's many factors that support that outcome. Just one example, like the USA, China is a vast country. But it is more difficult to move about in China for a variety of reasons, including the fact that the government still deliberately restricts the movement of citizens...probably more than it restricts the movement of goods.

When the USA was at the stage of comparative development as China today it gave rise to the catalog retailers and deliver of goods by the then rapidly developing railroad network. One could even order an entire home in prepackaged kit form for "flatpack" delivery, ready to be assembled (I am not joking). That was the precursor to today's ecommerce.

[santafe2]

Re: Kaisa on Brink of Dollar Default Spooks World’s Money Managers

Just to show an example. According to data from e-commerce companies, China's ecommerce market is already larger, if not, twice the size of the US ecommerce market.

How could this be possible if the World Bank says that US GDP (nominal) is almost twice of China? Which one is true?

No Walmart on every corner in China + 4 times as many people. Check out cell phones, same issue.

http://en.wikipedia.org/wiki/List_of..._phones_in_use

[touchring]

Re: Kaisa on Brink of Dollar Default Spooks World’s Money Managers

Yes indeed. That is why I prefer to try to track these themes on a single thread or I will sometime resurrect an old, dormant thread and update. Whether it is China, the crisis in Europe, housing in California or, now, Canada, or most other macro economic situations, they all tend to last longer and inflate much larger than any of us could have imagined. It's useful to be able to look back at the discussions and see what we can learn that will help us profit from greater understanding and investing appropriately.

As for China growing >7% at this moment...I have my doubts, and there is some evidence that number too is now inflated.

I agree that official statistics are not reliable. I would examine data from the private sector.

Have you considered that China's internal consumption may actually be growing fast enough to extend the real estate bubble?

Just to show an example. According to data from e-commerce companies, China's ecommerce market is already larger, if not, twice the size of the US ecommerce market.

How could this be possible if the World Bank says that US GDP (nominal) is almost twice of China? Which one is true?


http://www.slate.com/blogs/moneybox/...rfs_black.html

[GRG55]

Re: Kaisa on Brink of Dollar Default Spooks World’s Money Managers

"Given the current state of our economy, the only thing worse than a new bubble would be its absence."

Eric Janszen, "The Next Bubble"; Harper's Magazine, February 2008.

I would venture that statement can now fairly safely be extended to a good portion of the rest of the world's national economies, including Europe, North Asia, SE Asia including China, Latin America, South America, Australia...

[don]

Re: Kaisa on Brink of Dollar Default Spooks World’s Money Managers

Who Benefits When Bubbles Burst? (January 19, 2015)


Blowing speculative bubbles cannot possibly lead to organic growth because speculative bubbles fatally undermine the real economy.An astute reader recently posed an insightful question: we all know who benefits from asset bubbles in stocks, bonds and real estate--owners of assets, banks, the government (all those luscious capital gains and rising property taxes), pension funds, brokers and so on. But who benefits from the inevitable collapse of these asset bubbles?

If asset bubbles end badly for virtually every participant, then why does the system go to extremes to inflate them? This is an excellent question, as it goes right to the heart of our dysfunctional Status Quo.

Broadly speaking, there are three possible answers:

1. The system has no choice left but to blow serial bubbles.

2. Bubbles are domestic opportunities for Shock Doctrine-type crises that enable further consolidation of power.

3. Those in charge of the Status Quo believe the fantasy that the next bubble will usher in the long-awaited return to organic growth, i.e. expansion that isn't dependent on central bank stimulus, enormous fiscal deficit spending, ginned-up statistics, etc.
Let's consider each possible answer more closely.

1. The system has no choice left but to blow serial bubbles. The financial/fiscal Powers That Be have reluctantly accepted that the era of organic expansion driven by rising public/private debt is over for structural reasons, but they have no alternative to maintaining the current power arrangement (i.e. vested interests operate the system to their own benefit) other than serial bubbles.

In other words, it's not that the vested interests benefit so much from the collapse of the bubble-du-jour; blowing speculative bubbles is the only tool left for maintaining the illusion that the current arrangement is permanent and sustainable.

In this scenario, the Status Quo has no Plan B should the next speculative bubble fail to inflate.

2. Bubbles are domestic opportunities for Shock Doctrine-type crises that enable further consolidation of power. Naomi Klein's landmark study of how manufactured crises are used to justify further consolidation of power in the hands of the few, The Shock Doctrine: The Rise of Disaster Capitalism, provides a blueprint for how the easily predictable crises of financial bubbles popping can be used to extend the power of central and private banks and various government agencies.

In this scenario, the state (government) and the vested interests that control the state are largely immune to the losses generated by the deflation of speculative bubbles, thanks to the state's ability to borrow essentially unlimited sums of money to cover the losses incurred by private speculators.

Profits are privatized, losses are socialized. Banks and other financier speculators reap outsized gains during the bubble's inflation, and the state covers their losses when the bubble pops.

The central banks are able to extend their already vast powers with ease during the financial crisis of a bubble popping, and this expansion of financial power is symptomatic of the general dominance of financialization over the economy's productive assets.

The problem with this scenario is there are limits on the system's ability to inflate speculative bubbles. Eventually the economy is so hollowed out by debt and speculative excess that bubbles can no longer be inflated. The end result is power has been fully consolidated in the hands of a few, who are then responsible for fixing the post-bubble economy they created to further their own power and wealth.

Post-bubble economies cannot be fixed if the current power structure remains intact, so the Powers That Be face an impossible task.

3. Those in charge of the Status Quo believe the fantasy that the next bubble will usher in the long-awaited return to organic growth. As absurd as this may seem, I don't think we should discount the naivete, real-world inexperience and credulity of those in power--not just in the state, but in think-tanks, academia and central banks.

Keep in mind that these organizations ruthlessly select out dissenters and those with real-world experience. Those who question the Status Quo arrangement in academia, think-tanks, state agencies, central banks, etc., are weeded out: passed over for advancement, sent to Siberia, marginalized or fired. Those left in charge have little real-world experience outside the cloistered halls of power, and little willingness to risk their own rise to power by questioning the Keynesian Cargo Cult's serial bubble-blowing as the magic that will spark organic growth.

This quasi-religious faith cannot be questioned, for the simple reason there is no Plan B. There is no official policy alternative to the Keynesian Cargo Cult's serial bubble-blowing, because any alternative would necessarily disrupt the existing power structure.

It doesn't really matter which answer we choose; blowing speculative bubbles cannot possibly lead to organic growth because speculative bubbles fatally undermine the real economy.

http://www.oftwominds.com/blogjan15/bubbles1-15.html

tiny? don't we wish . . .

(and yes, those are true believers joining in)

[GRG55]

Re: Kaisa on Brink of Dollar Default Spooks World’s Money Managers

"The liquidity environment, however, is likely to turn against the bubble soon. The killer is inflation driven by a surge in money printing. The average lag between currency creation and inflation is 18 months in the United States. China's lag could be two years since the government uses subsidies to suppress inflation. By 2012, China could experience 1990s-like inflation. And that's when the property bubble will probably burst."
That's from an article by Andy Xie in 2010. Intersting read in the first page of this long thread...
So far China is growing at >7% clip. No bursting of real estate bubble.
But maybe sometime economists shall be right. Just as the famous not running clock.

Yes indeed. That is why I prefer to try to track these themes on a single thread or I will sometime resurrect an old, dormant thread and update. Whether it is China, the crisis in Europe, housing in California or, now, Canada, or most other macro economic situations, they all tend to last longer and inflate much larger than any of us could have imagined. It's useful to be able to look back at the discussions and see what we can learn that will help us profit from greater understanding and investing appropriately.

As for China growing >7% at this moment...I have my doubts, and there is some evidence that number too is now inflated.

[Southernguy]

Re: Kaisa on Brink of Dollar Default Spooks World’s Money Managers

"The liquidity environment, however, is likely to turn against the bubble soon. The killer is inflation driven by a surge in money printing. The average lag between currency creation and inflation is 18 months in the United States. China's lag could be two years since the government uses subsidies to suppress inflation. By 2012, China could experience 1990s-like inflation. And that's when the property bubble will probably burst."
That's from an article by Andy Xie in 2010. Intersting read in the first page of this long thread...
So far China is growing at >7% clip. No bursting of real estate bubble.
But maybe sometime economists shall be right. Just as the famous not running clock.

[LazyBoy]

Kaisa on Brink of Dollar Default Spooks World’s Money Managers

http://www.bloomberg.com/news/2015-0...-managers.html

A missed $23 million interest payment by Kaisa Group Holdings Ltd. (1638) earlier this month puts it at risk of being the first Chinese real estate company to default on its dollar-denominated bonds. That may signal deeper risks for China’s already fragile and corruption-prone property market, ...