Wednesday, January 27, 2010

85% of Chinese Cannot Afford Real Estate

Housing Bubble Fears, And Prices, Soar In China

Bubble or no bubble, official figures show 85 percent of Chinese can no longer afford to buy properties.

And Chinese authorities are worried the situation will create social instability.

That much is clear from the fate of a popular television soap opera, Dwelling Narrowness, which was pulled from the airwaves. The show charted two sisters' struggles to buy an apartment, with one of them eventually becoming the mistress of a corrupt official.

The show coined a saying: "To buy a place in Shanghai means you are digging a grave for yourself, and burying your love."

So what does this mean to us?

It should play out much like our housing bubble's aftermath. It's only a question of timing.
  1. Expect Chinese stocks to fall.
  2. Expect global stocks to fall.
  3. Expect global commodities to fall.
  4. Expect diversification strategies to suffer.
  5. Expect deflation.
I don't think gold will be much of a safe haven this time around. I think it is at least partially tied to the China story. Further, I don't think it can keep going up if other commodities fall.

Soros warns of double-dip recession

The speculator and philanthropist George Soros warned today that growing political resistance to fresh state borrowing risks pushing the global economy into a double-dip recession next year.

Think about that for a minute. If we the people are fed up with bailing out banks (which we clearly are) and Congress bends to the will of the people even just a little bit (which they have recently shown interest in doing), then what will stop the deflationary forces from playing out?

I think the only things propping up this economy are the bailouts and the stimulus. Without that, hello deflation.

It's kind of like antibiotics. You can't just take a few pills and then stop once you start feeling a bit better. The deflation bug has not been cured yet. The cause still exists even if the symptoms are not as noticeable. The toxic assets are still in the system.

I could be wrong but this does not seem to be an ideal time to be taking "sure thing" inflationary based risks. I don't mind sitting in cash right now. I've been doing it two months so far. No complaints.

For what it is worth, my
$80 oil ceiling prediction continues to hold.


mab said...


85 percent of Chinese can no longer afford to buy properties.

The 85% that can't "afford" to overpay are the lucky ones.

I still think the system is more unstable now than ever before. As I've said for years, the Bush "recovery" was not a recovery at all. It was only advertised as a recovery while the shills on Wall St. were getting filthy rich impoverishing Americans with unpayable debt.

The debts not only remain, but have acutally increased. Moreover, the ability to service the debt has been diminished and the value of the collateral has declined dramatically! No way is THAT a more stable situation.

Just thoughts.

G.H. said...

Stag, from the Soros link:

"Governments around the world have allowed their budget deficits to balloon since the financial crisis broke in 2007, but Soros said more spending was needed. "I think that since the adjustment process to the recession is incomplete, there is a need for additional stimulus. The political resistance to it increases the chances of a double dip in the economy in 2011 and after that.""

Soros is a Democrat, peddling this claptrap about more spending. Where his statement makes the most sense is the last. Hopefully there will be enough "resistance" to stop the stimulus nonsense and allow us to recess futher to where we need to be all along.

On to other eyes are adoring this chart:

At this rate a position in UUP appears imminent. Will the world run back to the dollar in 2010? Or will Mr. Market send me into a whipsaw?

watchtower said...

I wonder what what the requirements are to purchase a home in China?

Zero down?

20% down?

Stagflationary Mark said...


This is the weekly chart I'm looking at.$XEU

The euro's sure thing died. That said, I don't know how much anti-sure thing is left. It's certainly closer to fair value than it once was.

FOREX-Dollar hits 6-1/2-month high vs euro; yen gains

"If the euro is getting punished because of the problems with Greece, the U.S. dollar should be getting punished because of the problems in California. California is the eighth largest economy in the world," he said.

The difference in my opinion is that although California may be allowed to default, we won't kick it out of America more than likely, lol.

Financial markets are gripped by the fear Athens will not be able to service its heavy debt, putting pressure on the euro and even raising speculation as to whether Greece could be forced out of the currency bloc.

Stagflationary Mark said...


"I wonder what what the requirements are to purchase a home in China?"

Whether required or not, there have been big down payments. That has been used as a reason by the bulls to justify the pricing.

My personal take is that bubbles can exist without any leverage.

When it comes to housing, the most important bubble indicator in my opinion would be the cost to create a home vs. the cost to buy a home. If people spend too much then massive new inventory will continually appear. Supply will eventually swamp demand.

The bandwagon effect arises when people's preference for a commodity increases as the number of people buying it increases. This interaction potentially disturbs the normal results of the theory of supply and demand, which assumes that consumers make buying decisions solely based on price and their own personal preference.

Stagflationary Mark said...


"I still think the system is more unstable now than ever before."

For what it is worth, I do think the global system is more unstable.

I'm not sure if our own situation is more or less stable though. I think maximum instability was probably reached at DJIA 14,000 and few thought there was a balancing act going on.

We might actually do better than most people expect over the long-term if the price of oil crashes and China's story is more of a fairy tale.

That said, no way I'm going to invest in ground zero. The sure things of the world are slowly being ground to zero.

Perhaps the Fed secretly attached one of these to the output of their monetary printing presses.

Without such a mixer unit, the additives must be mixed into the meat after grinding it, which adversely affects the taste and appearance of most products.

mab said...


I'm not sure if our own situation is more or less stable though. I think maximum instability was probably reached at DJIA 14,000 and few thought there was a balancing act going on.

You might be right. Maybe I'm too pessimistic.

But I look at all that debt out there against a backdrop of higher unemployment and diminished private wages and I think we are in worse shape. I just don't see employment or wages improving enough to service the debts. There's a strong possibility that creditors are going to have to take losses, something Bernanke prevented on the first leg down.

I'm of the opinion that any enrichment of Wall St. at the expense of Main St. will bring temporary stability at best. And that temporary stability will come at a high future cost.

Stagflationary Mark said...


"You might be right. Maybe I'm too pessimistic."

I'm probably just needlessly debating the terms.

Let's say someone falls off a skyscraper.

I think the point of maximum instability was just before the fall.

Some might argue that maximum instability is during the fall, as the arms flail and the screaming begins.

Who am I to really argue?

The government sees all this of course. That's why they are digging a giant hole where he's falling. It isn't so much to save him, but to postpone his death a few seconds.

Now we just need to translate those "few seconds" into the real world.

I've been bearish for 5 1/2 years. I figure that's good for half a second in skyscraper terms. I'm hoping the hole is deep enough to last me the rest of my life.