China to blow up this year...

[DanielG]

http://www.bloomberg.com/apps/news?pid=20601109&sid=an0ehK2dtdXg&pos=11

There are more and more reports every week about china's bubble about to explode...

China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

Now I know Ive posted my fears many times about this, and this is not scare but a real inquiry as to what everyone believes will happen to the Aussie RE market should this occur. I just bought my 3rd ip so I am concerned.

I read the market ticker that is run by Karl Denninger (don't know how many of you guys know about him; but he's spot on in all his analysis) and he sent me a personal email today telling me that in his estimation China will "definitely" explode towards the end of this year and advised me to sell.

I am 100% convinced that China will not make it past this year without incident, how big the impact will be I'm not sure...

Read this...

http://globaleconomicanalysis.blogspot.com/2010/04/email-from-chinese-on-chinas-real.html

So I guess my question is, if this scenario plays out as expected by these analysts, whats the impact to our RE market? Will china still honor the resource contracts they have with Australia? Without china, our GDP falls through the floor.

 

[Ausprop]

without China we are all doomed. the only good news is that as prices drop the % magnitude of such reduces its toll. i.e. for a property tthat drop 40% from $1.5m to $900k last year, next drop of 40% will only see $360k wiped off not $600k.

 

[Bill.L]

Hi all,

All over the place there are signs that the Yuan must be revalued, yet in this informative piece we have....

If the money lent cannot be paid back, the central bank will just print money to clean the balance sheets of the state-owned banks. China did that in the 90s, and they will do it again.

This would tend to lead to inflation and currency devaluation. There is a problem here, whos currency will the yuan devalue against?? The $US which is going to crash according to some??

Scaremongering D&G stuff Daniel G.

bye

 

[Ausprop]

in practice how does a vault of green paper be used to wipe clean local based bad debts?

 

[alexlee]

in practice how does a vault of green paper be used to wipe clean local based bad debts?

Not much different from how the yanks did it. Just inject capital into the banks by buying shares in them to offset the losses from the banks writing off bad loans, together with loans to maintain liquidity and loan guarantees to shore up confidence.

Thing is, though, in order to convert t-bills into CNY, they'll have to sell it into the market, putting pressure on the CNY upwards. However, money will also be 'destroyed', so to speak, when loans are written off, so it goes both ways.

 

[DanielG]

Not much different from how the yanks did it. Just inject capital into the banks by buying shares in them to offset the losses from the banks writing off bad loans, together with loans to maintain liquidity and loan guarantees to shore up confidence.

Thing is, though, in order to convert t-bills into CNY, they'll have to sell it into the market, putting pressure on the CNY upwards. However, money will also be 'destroyed', so to speak, when loans are written off, so it goes both ways.

Sorry alex did not understand your post at all. Can you explain in simple terms?

When you say inject capital...with what money? USA is 1.6 trillion in debt...can they afford more bailouts?

 

[devo76]

Bloody hell. About are year ago I ran with some good advice
quit my job
dumped the wife
told the bank to stuff there mortgage
shot the dog
then I headed to the hills.

Only to have to come back
find another wife
suck up to the bank
find another job
buy another dog

I really don't need to here this...again.....

I love this dog and I don't have a gun anyway.

 

[Ausprop]

Not much different from how the yanks did it. Just inject capital into the banks by buying shares in them to offset the losses from the banks writing off bad loans, together with loans to maintain liquidity and loan guarantees to shore up confidence.

Thing is, though, in order to convert t-bills into CNY, they'll have to sell it into the market, putting pressure on the CNY upwards. However, money will also be 'destroyed', so to speak, when loans are written off, so it goes both ways.

right so as Bill said, it would be a devaluation of the CNY but also the USD would devalue from all that selling. the race to devalue.

there are so many reasons why the AUD could go way above parity

 

[alexlee]

right so as Bill said, it would be a devaluation of the CNY but also the USD would devalue from all that selling. the race to devalue.

there are so many reasons why the AUD could go way above parity

Exchange rates are still based on supply and demand. The Chinese selling t-bills will increase supply of USD, likely causing the USD to fall. Against what? AUD would be one possibility. Devaluation can also result from inflation, of course.

 

[Ausprop]

Exchange rates are still based on supply and demand. The Chinese selling t-bills will increase supply of USD, likely causing the USD to fall. Against what? AUD would be one possibility. Devaluation can also result from inflation, of course.

hmm, raw materials going up in price for the chinese in their currency and a massive bail out. goes back to post 1 again. perhaps there is no way out for the global economy

 

[Ausprop]

it's so hard to know when to act on this sort of info. I wish I had taken more hedance to the warnings of the GFC that were posted on here years back

 

[alexlee]

Sorry alex did not understand your post at all. Can you explain in simple terms?

When you say inject capital...with what money? USA is 1.6 trillion in debt...can they afford more bailouts?

Ausprop asked how the Chinese would bail out its banking sector with the USD it has in its vaults. It would be similar to how the US did it. Chinese banks take huge losses on writeoffs of bad loans, then issues shares to the chinese government to shore up their capital base.

As for whether the US being able to afford more bailouts? Depends on whether they can find someone to lend them money. Being a reserve currency suspends a lot of the rules, allowing the US to borrow (from the Chinese and Middle East buying t-bills, for example) way beyond what they 'should' be able to. Mind you, Japan has govt debt at around 200% of GDP. That shouldn't be possible either, but there you are.

One counterintuitive idea is that a China problem might result in a flight to quality, increasing demand for the US dollar (and commodities). But isn't the US also in trouble, you ask? Well yes, but regardless, it's still considered the strongest power in the world. To put it another way, if the US actually defaulted, the world comes to an end. So people bet on that not happening and will buy USD, thereby support the US so it doesn't default.

So paradoxically, the AUD (and other commodity heavy currencies like the CAD and BRL) might do well if there is just a moderate crisis. However, in a true 'crap everything is melting down' situation, people might just pile into the one currency they expect to default last: the USD.

 

[Sunfish]

Nothing goes up in a straight line including China Inc.

But I've got a couple of hundred grand says no big bust this year.

If they did POP, I'd rather be in gold shares than Aussie property.

 

[bene313]

You've got to be in the game. What's it going to be?

a) Hold cash
b) Take a position in the game, subject to risk, subject to gains

 

[Sunfish]

You've got to be in the game. What's it going to be?

a) Hold cash
b) Take a position in the game, subject to risk, subject to gains

"B" Plus a bit to be accepted.

 

[Wibbly Pig]

Not long to go now....

 

[BV]

Bloody hell. About are year ago I ran with some good advice
quit my job, dumped the wife, told the bank to stuff their mortgage, shot the dog, then I headed to the hills.
............................
I really don't need to hear this...again.....
I love this dog and I don't have a gun anyway.

Devo

Relax mate, China have good control of their finances and they also have their own printing machines. They'll print more money to bail out their banks and none will notice.

IMO we should be more worried about the wasteful spending of our government.
I can't believe they are raiding the future fund which was set aside for future generations....
http://www.theaustralian.com.au/politics/kevin-rudd-raids-future-funds/story-e6frgczf-1225851598579

 

[pete_w]

http://www.bloomberg.com/apps/news?pid=20601109&sid=an0ehK2dtdXg&pos=11

There are more and more reports every week about china's bubble about to explode...

China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

Now I know Ive posted my fears many times about this, and this is not scare but a real inquiry as to what everyone believes will happen to the Aussie RE market should this occur. I just bought my 3rd ip so I am concerned.

I read the market ticker that is run by Karl Denninger (don't know how many of you guys know about him; but he's spot on in all his analysis) and he sent me a personal email today telling me that in his estimation China will "definitely" explode towards the end of this year and advised me to sell.

I am 100% convinced that China will not make it past this year without incident, how big the impact will be I'm not sure...

Read this...

http://globaleconomicanalysis.blogspot.com/2010/04/email-from-chinese-on-chinas-real.html

So I guess my question is, if this scenario plays out as expected by these analysts, whats the impact to our RE market? Will china still honor the resource contracts they have with Australia? Without china, our GDP falls through the floor.

Lets look at russia. In 1998 it collapsed and the government was overthrown. The world didnt decend into anarchy, nor did everything fall apart when the US collapsed, which was really still very recently.

There are other companies that want to buy resources, but Chinese companies want them the most so are willing to pay more.

If you are trying to make speculative gains based on China's impact on Australian GDP, residential property is not the best instrument for it.

Yes, China's impact could work out well for Australia. The rest of the world needs resources as well, and long term demand is likely to increase rather than decrease.

China's impact could be a bad thing if it results in a 2-3 year boom with high interest rates constraining the rest of Australias economy and a long flat period post boom. I would rather consistent 7% p.a. every year with moderate interest rates than 30% over 2 years then 0% for the next 5 with rates all over the place.

What were your fundamental assumptions for buying these properties, and do they still hold? How does property fit in to your long term financial plans? You should find answers to these before jumping around based on what some talking head is saying this week.

 

[Fudge]

I read the market ticker that is run by Karl Denninger (don't know how many of you guys know about him; but he's spot on in all his analysis) and he sent me a personal email today telling me that in his estimation China will "definitely" explode towards the end of this year and advised me to sell.

I am 100% convinced that China will not make it past this year without incident, how big the impact will be I'm not sure...

Well, what are you going to do about it? Since he is always right and sent you a personal email???????

With all the D & G, I come to the conclusion that..........you are doomed if you do and you are doomed if you don't.

It is better to go down trying than to take it on the chin and do nothing!

If things go pear shaped, just sell a few properties?? As one poster's signature suggests.......Get knocked down 4 times, but if you get up the 5th time, it'l all be fine.

F

 

[willair]

http://www.bloomberg.com/apps/news?pid=20601109&sid=an0ehK2dtdXg&pos=11

There are more and more reports every week about china's bubble about to explode...

China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

Now I know Ive posted my fears many times about this, and this is not scare but a real inquiry as to what everyone believes will happen to the Aussie RE market should this occur. I just bought my 3rd ip so I am concerned.

I read the market ticker that is run by Karl Denninger (don't know how many of you guys know about him; but he's spot on in all his analysis) and he sent me a personal email today telling me that in his estimation China will "definitely" explode towards the end of this year and advised me to sell.

I am 100% convinced that China will not make it past this year without incident, how big the impact will be I'm not sure...

Read this...

http://globaleconomicanalysis.blogspot.com/2010/04/email-from-chinese-on-chinas-real.html

So I guess my question is, if this scenario plays out as expected by these analysts, whats the impact to our RE market? Will china still honor the resource contracts they have with Australia? Without china, our GDP falls through the floor.

You would have too ask yourself the question who would suffer the most China or the rest of the world???,and i don't think for one second that they want a trade or currency war with any country,but the US is already threatening new tariffs against all Chinese imports,but then again they can do what ever they want with the renminbi up or down against the US dollar..willair..