(3 mths ago)
Property mogul: “The biggest bubble in history.”
By Harry Dent, Senior Editor, Economy & Markets:
No question about it. China definitely takes the cake when it comes to bubble creation. The government encouraged everyday people to speculate in stocks in late 2014 and 2015 to help offset the slowdown in its gargantuan real estate bubble. The stock market bubbled 160% in one year and then crashed 50% (and you can be sure there’ll be more losses to come after a year of propping up a market that has merely gone sideways…)
Then to cushion that 2015 stock crash, the government made loans easier for real estate again. Bank loans surged by 7.5 trillion renminbi (RMB) in 2015 and are on track to surpass 15 trillion RMB by the end of this year. About half of these loans are in mortgages.
So what happened?
After flattening for three years, real estate prices went totally bananas again. They’re up 59% in the hottest large city, Shenzhen, since February 2015. They’re up 35% in Shanghai.
Just look at this bubble in Tier 1 cities. Real estate is up 48% since just February 2015! Since early 2010, it’s up 107%. That’s clearly the orgasmic phase of this bubble.
A Bubble Looking for a Pin
For more evidence of how bubbly China’s real estate is, look at this next chart from HSBC. It shows the total value of residential housing as a multiple of GDP, as is possibly the best measure of the situation over there.
China’s ratio (the red line) is currently 3.27 times GDP, and forecast to hit 3.72 times by year-end!
Japan’s great bubble (the black line) peaked in 1990 at 3.7 times GDP. Shortly after, property prices fell through the floor, losing 67%!
Hong Kong’s 1997 bubble peak (green line) was at 3.04 times.
The U.S. bubble peak (the blue line) in early 2006 was at 1.75 times.
Hong Kong still holds the honors for the greatest bubble of all thanks to affluent Chinese laundering their money there, just like they are laundering it into other major English speaking cities around the world. Hong Kong’s housing value to GDP is now at 5.0 times and projected to go to around 5.5 by year-end.
(3 mths ago)
Meanwhile.... China stimulus roars to new heights...
What is more troubling is just how little of China's fiscal stimulus has made it to either the US or the rest of the globe.
The reason for that is the collapse in global trade and commerce, something we have also flagged over the past 5 years as a direct consequence of monetary policies targeting the cost of money, and encouraging stock buybacks and dividends instead of capital investment, R&D spending and generally focusing on growth instead of return to (loud, vocal, activist) shareholders.
We leave it up to readers to decide what happens once this latest Chinese unprecedented fiscal stimulus comes to a screeching halt.