INFOGRAPHIC: Carbs Are Killing You. GMO: Something's Fishy in China. GMO: Something's Fishy in China By Robert Huebscher January 17, 2012 A wide gulf separates the two most prominent views regarding China’s future. Faced with slowing economic growth, one side says its leaders will deftly navigate a soft landing, while the other claims it will face an implosion similar to those that befell Japan 20 years ago and the US in 2008. Count GMO, a firm that has built its reputation on its ability to identify a bubble about to pop, in the latter camp. Edward Chancellor, who focuses on capital market research as a member of Grantham, Mayo, Van Otterloo’s asset allocation team, laid out that negative forecast last week when he spoke in London at a research symposium hosted by Societe Generale.
Accusing the soft-landing camp of “uncritically accepting” China’s growth story and placing an “overblown belief” in the authorities in Beijing, Chancellor listed 10 tell-tale traits of an economy on the verge of collapse. Ten signs you know you are in a bubble. The Big China Fraud Is About To Become Apparent To Everyone. I wanted to share with you my interview with my friend Bob Huebscher who runs a terrific website Advisor Perspectives. I am very excited about this interview because in a very unconstrained format we had a chance to discuss Paul Krugman’s latest bearish article on China, the linkage between the European crisis and Chinese and Japanese bubbles. We revisited sideways markets, profit margins (I picked a bone with Apple’s high margins), and concluded with Microsoft. Here are some pictures (I took close to 1,300 only a dozen or so are worth sharing) from my November trip to Spain (Barcelona and Madrid/Toledo) and South Africa (requires facebook login).
On our way to Madrid, my brother Alex and I had a (intentionally long) layover in Atlanta. My friend Aaron Edelheit picked us up from the airport and took us to one of my favorite places in the world – Stone Mountain park (here are some pics, facebook login required). Funny thing happened. Vitaliy Katsenelson on Krugman’s Missed Call Yes. Beijing May Need A Gigantic Bailout To Defuse Ticking Local Debt Bombs. By EconMatters In the previous post, we briefly mentioned that "....there could be some hidden debt bombs as a recent Bloomberg finding suggests that China's banks may be understating their exposure to runaway local borrowing by possibly billions of dollars that is raising fears of a government bailout. " Here are more details.
It appears that based on a Bloomberg News survey, the construction boom by many local governments as part of China's stimulus program that started in November 2008 have now become too big to complete and may require a bailout even bigger than the Euro debt crisis. From Bloomberg and chart below [emphasis ours]: "Provinces and cities are going deeper into the red to finish projects....With prices dropping in China’s real estate market, economists warn that local authorities won’t be able to repay their debt because of poor cash flow and falling revenue from land sales they rely on for much of their income.
Will this lead to a crisis or hard landing to sink China? 5 money moves one China bubble-buster is making - Money Talks. By Laura Mandaro, MarketWatch SAN FRANCISCO (MarketWatch) -- Investing’s holy grail, spotting a bubble before it busts, may be two parts science, one part art and a large dose of luck. In the brew concocted by Vikram Mansharamani, a former private-equity investor and current Yale University lecturer who recently penned a book on the subject, a range of hard and soft indicators from ballooning credit to record art prices have been raising Chinese bubble flags for the past year. Bachrach Vikram Mansharamani. But he has some ideas on where to find refuge if the Chinese growth engine slows from around 9% to 4% -- his projection for the country’s average growth rate over the next decade.
“I’m not optimistic on commodities, commodity countries, and anyone supporting the investment boom in China,” he said. “Emerging markets will continue to grow. Peaks and panic /quotes/zigman/241211/delayed/quotes/nls/bid BID 39.98, +0.66, +1.68% Sotheby's stock price 1. The industry is already suffering. Market Cap. Shanghai Breaks 200-day, Commodites Next to Roll? During the 1990’s when the emerging markets were still emerging a friend of ours wrote a research report on pre-restructured busted Russian debt titled, No Rush to Buy, No Russians Buying. The point was the Russians knew the prospects for the debt much better given the country’s lack of transparency and the general relative ignorance of foreigners. Back then the market also traded Nigerian debt and Brady Bonds based on whether or not the country’s generals were actively buying the debt as the military was the ultimate insider as to whether the next coupon would be paid.
The same concept – insiders know best — applies for those who closely follow the buying and selling of stocks by company insiders or management. Given our confessed lack of ignorance on what is really happening in China’s economy, we look at visible indicators to get a sense of what it truly going on, such as the stock market. This leads to our next concern. Doesn’t this sound a little familiar? Like this: Like Loading... China's Housing Bust: A Potentially Devastating Blind Side In 2012. As the world’s attention focuses on the death of Kim Jong Il and shorts keep piling up in the Euro, China’s real estate bubble appears to have finally burst.
This is the one macro swan that could really smack developed markets in 2012 as few are focused even though the Shanghai composite and Hang Seng are down over 25 percent from their highs earlier in the year. Both are down 21 percent for 2011with Shanghai closing at its lowest weekly close for the year on Friday. Foreign Affairs has just posted a must read piece, China’s Real Estate Bubble May Have Just Popped, which will sound very familiar to Global Macro Monitor readers.
Here are a few money quotes, For years analysts have warned of a looming real estate bubble in China, but the predicted downturn, the bursting of that bubble, never occurred — that is, until now. This should put the Wukan protests in the Guangdong province in better context, Finally, this should sound familiar as the author, Patrick Chovanec, writes, 16 Facts About China That Will Make Your Mind Melt. The Chanos Equilibrium Will Tell You When China's Financial Meltdown Begins. At an October seminar of the Chicago Council on Global Affairs (CCGA), carnival economist Niall Ferguson promoted his new book, Civilization: The West and the Rest. He revealed the blindingly obvious as if it were a divine revelation: the U.S. has serious problems. He preached that the U.S. corrupted its six Ferguson-defined "killer apps": competition, science, rule of law, medicine, the consumer society, and a strong work ethic. Ferguson claims India and China have downloaded these killer apps and compares the West with a virus infected PC and the East with a fast Mac.
Never mind that competition, science, medicine, trade, and industrious workers have been in evidence in India and China for centuries. Ferguson claims that in 1978 citizens of the U.S. were on average 20 times richer than the citizens of China. Ferguson projects that China will have closed the material goods gap by 2016. Bailouts, Railroading, Cover-ups, and the Chinese "Miracle" Tens of Millions of Mate-less Men. Harbin Pharmaceuticals Plant Looks Like European Palace. From QQ: Harbin Pharmaceuticals Sixth Pharmaceuticals Plant’s luxurious palace explodes online, gold foil inlaid hallways and corridors Recently, the official website of the Harbin Pharmaceuticals Group’s Sixth Pharmaceuticals Plant published a set of photographs showing the internal environment [at the plant] with the photographs showing that its building is decorated in the style of Versailles, with fully carved wood corridors, gold foil inlays, and every angel lifelike and unique.
CCTV anchor Li Xiaoming said on his weibo: Initial reaction, Harbin Pharmaceuticals Six is a state-owned enterprise. According to Ministry of Finance data, state-owned enterprises made profits of nearly 2 trillion yuan, but only turned over about 5% as “bonuses/dividends”. It is said that state-owned enterprises are the people’s enterprises, so the people should know how the enterprises’ money is used. This “palace”, would the people be delighted to see it? Also on Xinhua, China.com, & Sohu. From QQ: 腾讯内蒙古网友 老虎: SBS Dateline | China s Ghost Cities. Home Prices Crash 62.5% Since September In Chinese 'Ghost Town' Ordos. Erdos is an inner-Mongolia city with rich natural resources. However, it's a ghost town with many buildings but few people.
Home prices just crashed 62% in a few months. Let's take this story starting from the beginning. 2011-07-11 China Times reports Housing bubble in Inner Mongolian city bursts A property boom in the Chinese city of Ordos started in 2006, but became stagnant this year after banks tightened credit and coal enterprises in the region have consolidated.Ordos, a city in central-west Inner Mongolia, has deposits of coal and oil. A recent report by China's Ministry of Housing and Urban-Rural Development showed that the GDP per capita of Ordos surpassed that of Hong Kong.The number of the rich people with more than 100 million yuan (US$15.468 million) is over 7,000.
One out of every 15 people in Ordos has more than 10 million yuan (US$1.546 million). 2011-11-24 China Financial Daily reports Erdos "Ghost Town" property market crash, ten thousand yuan housing price drop by 70% China Loan Shark Market Crashes; Scores of Chinese Business Owners Unable to Pay Black Market Loans Commit Suicide or Disappear. Here is an interesting email from reader "Kevin" regarding the crashing loan-shark market in China.
Loan Shark Credit Crisis Brewing Courtesy of Google Translate please consider Gray Chinese-style financial credit crisis brewing area "Economic Information Daily" correspondent from the multi-confirmed the day before and then there were two causes of Wenzhou City, inability to repay loan sharks and jumping events. According to informed sources, the two business owners are the local shoe factory owner, debt of millions.Since April this year, Wenzhou, missing more than 80 business owners, the company closed, the event staff pay talks, since September alone, there are up to 25 cases. A local lender told reporters, "At present, only the flight of capital Longwan area estimated to have 100 million or more, many SMEs liabilities, the banks accounted for 30%, accounting for 70% civil usury. " Financial Earthquake Triggered by Loan Shark Business $SSEC - Shanghai Exchange -Daily Chart.
Bubble Watching: My Trip To The 'Hawaii Of China' Over the Chinese New Year, I went to one of the rather more bubbly spots in China (mainly for holiday, but also to watch some ludicrous pace of property development). Hainan province, a south-most province of China, known probably for its hot weather (among others that I know and don’t know), is dubbed as the Hawaii of China.
And as the matter of fact, this is not the first property bubble for Hainan (as explained previously). Most of these new properties are built and sold around the theme that a warm weather makes Hainan a popular location for northerners to have their winter holiday, as they hate the cold weather in the north but can’t stand the hot weather of Hainan’s summer. Local people called these northerners “seasonal birds” as they only appears in winter months. To start with a bit of a joke, we came across with a development with a huge banner welcoming homeowners to their homes. “Welcome Home” Walking inside, this is what could be seen. Anyone here? Source: Google Maps In Sanya: In China, Winter Is Coming. Last week, I appeared at The Economist China Summit in Beijing, on a “bulls vs. bears” panel, alongside Professor Li Daokui (a Tsinghua colleague and advisor to China’s central bank), Arthur Kroeber (founder of Dragonomics and highly respected China bull), and Huang Yiping (Peking University professor and economist at Barclays Capital).
You can read a quick English summary of the panel discussion here, courtesy of Dezan Shira & Associates. The folks at Sina prepared a full transcript in Chinese, which you can check out here (or run the link through Google translator to read it in fairly decent English). Although Arthur gamely agreed to play along as a “bear” for the morning, I don’t think his heart was really in it — which is totally understandably, given that he recently authored this thoughtful and well-argued presentation on “Why China bears are wrong.” The main theme of my comments were “Winter is Coming.” But the real estate downturn has only just begun, Mr.