PRAGMATIC CAPITALISM Mon 2010-09-20 09:57 EDT

WHITHER CHINA?

Simon Hunt

In all likelihood, China has entered the most critical and taxing period since the country was reopened to the outside world in the 1970s. Domestically, there are a slew of issues, any one of which could create instability...Few can know the full story of what goes on within the State Council, but there appears to be a battle royal being fought over the real estate sector. There are those within the leadership who are concerned that average home prices have gotten too high for most first-time buyers (see our previous visit report). They want to see average prices fall by 10-20% across the country. Against this group are not just real estate developers but local governments and many others within Beijing...In effect, what is being seen is a battle between central and local governments. In our view, this is a fight that central government cannot afford to lose...against a background of cheap money and plenty of credit, house prices across the country have become unaffordable to most first-time buyers...if these price developments continued unchecked the leadership would risk encountering social instability...we doubt there will be any easing of policy until average house prices fall into the 10-20% range. China is transiting into a very difficult period as focus shifts towards sustainable domestic growth and away from short-term measures to defend the 8% GDP mantra. This transition is occurring when the existing leadership is preparing to give way to the new set in 2012, when social stability could be threatened if there are policy mistakes...

China; PRAGMATIC CAPITALISM.

PRAGMATIC CAPITALISM Thu 2010-09-16 16:15 EDT

CREDIT SUISSE: 6 BULLISH FACTS ABOUT HOUSING

TPC

Here's a contrarian view for you. Credit Suisse says the fears about housing are well overdone. In their analysis they cite 6 different bullish factors that should help to bolster house prices in the USA...The government now owns or guarantees about 70% of US mortgage debt...Valuation is extremely cheap on all measures...Delinquency ratios, charge-off and foreclosure rates seem to have peaked...Housing starts are about 1m below trend demand of housing units -- based on household formation and replacement demand... * Distressed sales (short-sales, foreclosures and REO sales) are less than a third of the total, after peaking at almost half in 2009...Housing as a proportion of GDP is now just 2.2%, compared with a long-run average of 4.5%...

6 BULLISH FACTS; Credit Suisse; Housing; PRAGMATIC CAPITALISM.

The Baseline Scenario Wed 2010-09-08 10:36 EDT

Irish Worries For The Global Economy

Peter Boone and Simon Johnson

...Ireland's difficulties arose because of a massive property boom financed by cheap credit from Irish banks. Ireland's three main banks built up loans and investments by 2008 that were three times the size of the national economy; these big banks (relative to the economy) pushed the frontier in terms of reckless lending. The banks got the upside, and then came the global crash...Today roughly one-third of the loans on the balance sheets of major banks are nonperforming...The government responded to this with what are currently regarded as ``standard'' policies in Europe and America. It guaranteed all the liabilities of banks and began injecting government funds to keep these financial institutions afloat. It bought the most worthless assets from banks, paying them government bonds in return. Ministers have promised to recapitalize banks that need more capital. Despite or perhaps because of this therapy, financial markets are beginning to see Ireland as Europe's next Greece...Until very recently, Ireland was seen as Europe's poster child of prudent reforms...The ultimate result of Ireland's bank bailout exercise is obvious: one way or another, the government will have converted the liabilities of private banks into debts of the sovereign (that is, Irish taxpayers), yet the nation probably cannot afford these debts...The idea that Ireland, Greece or Portugal can cut spending and grow out of overvalued exchange rates with still large budget deficits, while servicing all their debts and building more debt, is proving -- not surprisingly -- wrong...

Baseline Scenario; global economy; Irish worries.

Mon 2010-08-16 13:54 EDT

Could The US Become Another Ireland? >> The Baseline Scenario

Peter Boone and Simon Johnson

As Greece acts in an intransigent manner, refusing to act decisively despite deep fiscal difficulties, the financial markets look on Ireland all the more favorably. Ireland is seen as the poster child for prudent fiscal adjustment among the weaker eurozone countries...Ireland's perceived ``success'' is partly due to its draconian fiscal cuts...Ireland's difficulties arose because of a massive property boom financed by cheap credit from Irish banks...Today roughly 1/3 of the loans on the balance sheets of banks are non-performing or ``under surveillance''...The government...guaranteed all the liabilities of banks and then began injecting government funds...it is planning to buy the most worthless assets from banks and pay them government bonds in return. Ministers have also promised to recapitalize banks than need more capital. The ultimate result of this exercise is obvious: one way or another, the government will have converted the liabilities of private banks into debts of the sovereign (i.e., Irish taxpayers)...The government is gambling that GDP growth will recover to over 4% per year starting 2012 -- and they still plan further major expenditure cutting and revenue increasing measures each year until 2013...The latest round of bank bailouts (swapping bad debts for government bonds) dramatically exacerbates the fiscal problem...

Baseline Scenario; Becomes; Ireland.

zero hedge Thu 2009-12-31 11:52 EST

Shadowstats' John Williams: Prepare For The Hyperinflationary Great Depression

John Williams, who runs the popular counter government data manipulation site Shadowstats, has thrown down the gauntlet to deflationists, and in an extensive report concludes that the probability of a hyperinflationary episode in America over the next year has reached critical levels. While the debate between deflationists and (hyper)inflationists has been a long and painful one, numerous events set off in motion by the Bernanke Fed (as a direct legacy of the Greenspan multi-decade period of cheap and boundless credit) may have well cast America as the unwilling protagonist in the sequel of the failed monetary policy economic experiment better known as Zimbabwe.

Hyperinflationary Great Depression; John Williams; prepared; ShadowStats; Zero Hedge.

zero hedge Fri 2009-12-18 13:20 EST

Focusing On (And Profiting From) The Upcoming Chinese Financial Crisis

Today's piece of contrarian economic insight comes once again from the strategists at SocGen, this time Dylan Grice, whose piece entitled "Popular Delusions: China's looming financial crisis will provide the next buying opportunity" is somewhat self explanatory. Not surprisingly, Dylan, who quotes the NBER, focuses on the overabundance of cheap credit as the catalyst that will ultimately topple the economy. Mr. Grice's conclusion: buy if you must, but wait for the credit bubble pop.

focused; profits; Upcoming Chinese Financial Crisis; Zero Hedge.

zero hedge Fri 2009-10-23 19:30 EDT

A Stern Opponent Of Funding The FDIC's Depleted Deposit Insurance Fund, And Monetization Is... Alan Greenspan?

What a difference twenty years makes. The man whose actions basically lead to the eradication of the American middle class in its aspirational pursuit of buying massive SUVs, Prada bags, and 3rd investment properties, compliments of cheap credit, in order to appear ever so much like the upper class yet ultimately drowning itself in debt, Alan Greenspan, is probably the most critical reason why America's debt service will be nearly 90% of GDP within several decades. The adoption of his actions by the current deranged operator of the reserve currency printing press, is merely a continuation of a multiple decade long process of keeping inflation contained at the expense of devaluing the US currency, as the global liquidity pyramid recently hit one quadrillion, and continues to grow exponentially, yet...

Alan Greenspan; FDIC's Depleted Deposit Insurance Fund; funds; monetize; Stern Opponent; Zero Hedge.

zero hedge Sun 2009-10-11 16:45 EDT

Interview With A Mad Hedge Fund Trader

...Mad Hedge: Stay away from natural gas. The volatility will kill you. If you are a masochist, then buy it only when it's cheap, on big dips, in the $3/MBTU range. In the last three years, thanks to the new ``fracting'' technology used in oil shales, we have discovered a 100 year supply of natural gas sitting under the US, and the producers have not been able to cut back fast enough. So now we have a supply glut, and we are almost out of storage. This is what took us down from $13 to $2.40 in 18 months. The lack of hurricanes has not helped demand either. Producers have been cutting back like crazy, trying to balance supply and demand, with a breakeven point of $2. They need a cold winter to help bring things back into balance. If the industry gets organized, then gas can become the 20 year bridge we need, until energy alternatives kick in. That makes me a big supporter of the ``Pickens Plan.''

interview; Mad Hedge Fund Trader; Zero Hedge.

Mon 2009-10-05 11:23 EDT

New Bubble Threatens a V-Shaped Rebound

Andy Xie

...What we are seeing now in the global economy is a pure liquidity bubble. It's been manifested in several asset classes. The most prominent are commodities, stocks and government bonds. The story that supports this bubble is that fiscal stimulus would lead to quick economic recovery, and the output gap could keep inflation down. Hence, central banks can keep interest rates low for a couple more years...I think the market is being misled. The driving forces for the current bounce are inventory cycle and government stimulus. The follow-through from corporate capex and consumption are severely constrained by structural challenges. These challenges have origins in the bubble that led to a misallocation of resources. After the bubble burst, a mismatch of supply and demand limited the effectiveness of either stimulus or a bubble in creating demand...he structural challenges arise from global imbalance and industries that over-expanded due to exaggerated demand supported in the past by cheap credit and high asset prices. At the global level, the imbalance is between deficit-bound Anglo-Saxon economies (Australia, Britain and the United States) and surplus emerging economies (mainly China and oil exporters)...The old equilibrium cannot be restored, and many structural barriers stand in the way of a new equilibrium. The current recovery is based on a temporary and unstable equilibrium in which the United States slows the rise of its national savings rate by increasing the fiscal deficit, and China lowers its savings surplus by boosting government spending and inflating an assets bubble.

New Bubble Threatens; Shaped Rebound.

The Realignment Project Tue 2009-09-22 12:31 EDT

Making the Public (Transit) Beautiful

One of the rhetorical strategies of the economic right's cultural politics is to associate the free market with individual pleasure, aesthetic beauty, and technological progress, while associating the public sector with the oppression of the crowd, the spartan ugliness of ``civil service issue,'' and general associations with low-quality, outmoded, cheap machinery...the car, a luxury commodity associated with wealth and prestige, is an extension of your (now much cooler) person, it's fast and futuristic, and it's well-designed and new...By contrast, the dominant media image of mass transit plays up its worst qualities as a social nightmare: it's crowded, claustrophobic, there's no privacy and people and bumping into you, it's noisy and smells terrible, maybe it's dangerous, you're getting delayed again, this is what you take to get where you have to go, not where you want to go. And part of the cultural work of the left in championing the cause of the public must be to counter-act this kind of imagery. Because the public can and should be beautiful.

beauty; makes; public; Realignment Project; transition.

Asia Times Online Sun 2009-09-13 10:25 EDT

THE BEAR'S LAIR : Possible October surprises

Martin Hutchinson

The inflation that might be expected in the United States from unprecedented expansionary monetary policies has failed to appear, while huge budget deficits have yet to produce higher interest rates. Far from being signs of a new economic paradigm, this merely means new bubbles are forming...Commodities and gold therefore are the destination of this year's hot money and are forming the new bubble...a fair-sized bubble has developed in the T-bond market...however...a modest resurgence in US inflation or difficulty in a long dated T-bond auction could cause confidence to flee the Treasury bond market and yields to leap uncontrollably upwards...the long-term costs of excessively cheap money are beginning to be seen in the US economy itself. By allowing money to remain so cheap for so long, and by running incessant payments deficits, the United States has surrendered the advantage of its superior long-established capital base, narrowing its capital cost advantage over emerging markets and exporting that capital to countries with less profligate approaches. Huge budget deficits, themselves worsening the trade deficit, merely export yet more US capital to the surplus nations. That makes it inevitable that the years ahead, in which the United States will no longer enjoy a capital advantage over its lower-wage competitors, will see highly unpleasant declines in US living standards.

Asia Times Online; BEAR'S LAIR; Possible October surprises.

Minyanville Sun 2009-08-30 15:08 EDT

How China Will Handle the Yuan

Ryan Krueger, Lance Lewis: Something is up with China and the yuan...What if it were close to revaluing against the dollar? We know it's fed up with funding US debt, but it can't stop funding it as long as it continues to peg to the dollar and is forced to buy dollars every day in order to hold down the yuan. The US isn't even its largest export market anymore. The EU is. The US consumer is broke. Why does China need to keep exporting cheap goods to the US if the US consumer can't buy them anyway?

China; handles; Minyanville; Yuan.

Wed 2009-02-11 00:00 EST

Mish's Global Economic Trend Analysis: Are TIPS or the Market Irresistibly Cheap?

Market Irresistibly Cheap; Mish's Global Economic Trend Analysis; tip.

Fri 2009-01-16 00:00 EST

Mish's Global Economic Trend Analysis: Is The Stock Market Cheap?

Mish's Global Economic Trend Analysis; Stock Market Cheap.

Fri 2008-06-13 00:00 EDT

Gas Prices - DO SOMETHING! | The Economic Populist

telecommuting, cheap efficient cars, biodiesel, public transport

economic populist; gas price.

Wed 2008-06-04 00:00 EDT

The Yellow Brick Road > How to price ABX.HE credit default swaps

The Yellow Brick Road > How to price ABX.HE credit default swaps; shady banks using CDS insurance deals for cheap credit? "creditors are about to be duped twice"

Credit Default Swap; price ABX; Yellow-brick road.

Wed 2008-05-14 00:00 EDT

Mish's Global Economic Trend Analysis: Tax Assessors Nightmare

Atlanta housing markets offers cheap choices

Mish's Global Economic Trend Analysis; Tax Assessors Nightmare.

Fri 2008-04-11 00:00 EDT

naked capitalism: China's Foreign Reserve Increases Accelerate Despite Yuan Appreciation

"Having become a service economy and sent so much manufacturing overseas, a cheap dollar may not produce the benefits the US hoped to achieve."

China's Foreign Reserve Increases Accelerate; naked capitalism; Yuan Appreciation.

Fri 2008-01-18 00:00 EST

Money Matters: Cheap Money Extracts A Terrible Price In The End

by Elaine Meinel Supkis; "Eventually the Chinese and the Muslims just might unite forces and force a gold standard again."

Cheap Money Extracts; ending; money matters; terrible price.