thehousingbubble@gmail.com
Blog

There’s Only Bush Turkeys That Live There Now

A report from the Wall Street Journal on China. “Chinese regulators made fresh attempts to calm frayed nerves in the country’s financial sector, as bank liquidity remained tight by some measures three weeks after authorities took over a struggling city lender. On Sunday, securities regulators summoned a group of large Chinese brokerages and asset-management firms to a closed-door meeting in Beijing and asked them not to cut off trading and other dealings with smaller banks and financial institutions, according to a meeting summary circulated among industry participants Monday.”

“The memo said there had been some defaults in the repo—or repurchase agreement—market, where banks, brokers and other financial firms borrow cash for short periods by pledging securities against short-term loans. ‘If such mistrust is allowed to continue to spread, it will eventually become systemic financial risk,’ the memo said.”

“On Sunday, the People’s Bank of China said that even though a small percentage of Baoshang’s clients didn’t receive a full guarantee on what they are owed, the takeover has helped prevent systemic financial risks and maintain social stability. If regulators had provided a 100% guarantee on all the bank’s liabilities, that would have used up a lot of public funds, the central bank said. That could lead to a moral hazard problem, it said, which could ‘encourage the market to act aggressively.'”

The Hong Kong Standard. “A tough road lies ahead for the young, new CEOs of Bank of East Asia (0023). BEA’s stock in particular, which fell over 9 percent last Friday, faces a tough test. The sharp fall in the local bank’s shares resulted from a profit warning it issued last week, due to problems over its loan assets in the mainland. It’s profit downgrade shows that the cracks in the mainland’s real estate-driven economy are becoming more and more apparent.”

“Guo Shuqing, the chairman of the China Banking and Insurance Regulatory Commission, warned about the ‘over-financialization’ of the mainland property industry and high household debt ratio. He said some citizens had invested half of their funds into real estate, but history has shown that people have always paid the price of being too heavily invested in the property market.”

“I suspect the ‘over-financialization’ problem he spoke about refers to a housing bubble – similar to the Japanese asset price bubble in the early 1990s – though he did not make it too obvious. According to my observations there are serious oversupply problems in commercial properties, especially office buildings and hotels, in some tier-three and tier-four mainland cities, and the red-hot residential property market is now showing signs of cooling down.”

The Malaysian Star. “The amount of housing loans given to some buyers during the hot property years starting from 2009/2010 are more than the current prevailing price, a source from a bank says. The difference between the loan disbursed versus current house prices is further amplified when the borrower defaults and foreclosure proceedings are initiated, the source says.”

“‘We expect the number of foreclosures to rise going forward,’ the source says.”

From ABC News in Australia. “Situations like Epping, about 20 kilometres north-west of Sydney’s CBD, are unfolding in several parts of the city as Australia’s property market slows. According to Steve Mann, the Urban Development Institute of Australia NSW chief executive, the number of ‘deferred and abandoned’ apartment projects in Sydney has increased 110 per cent in the past year.”

“‘That’s 40,000 to 50,000 apartments,’ he said.”

“In Cronulla, another Sydney locale that has seen significant development, apartment prices have dropped by 12 per cent over the past year. Developments in areas more than 10km from city centres are seen as the most vulnerable, experts say, with many finding it more difficult to attain financial closure as investors are constrained and prices fall.“

“‘The market is very challenging for new developments,’ Mr Mann said. ‘We’ve also seen nearly two years now of price declines, record price declines, and that’s very challenging in terms of jobs and supply of new construction.'”

“Terry Lewis, who has been living in the neighbourhood for 20 years, said it was a double-edged sword. ‘Thousands of units have been built, too many I think,’ he said. But he said it felt like ‘a breather’ to have no development on the site. ‘As you can see, it’s abandoned. Have a look. There’s only bush turkeys [that live there] now.'”

Related Posts

Time To Change the Stress Test?

https://www.youtube.com/watch?v=XrMNlcmep6M https://www.youtube.com/watch?v=zLfSycEjHI8 https://www.youtube.com/watch?v=39rUooeDTCY https://www.youtube.com/watch?v=wZ7hQbOeevY

This Post Has 53 Comments

  1. ‘If regulators had provided a 100% guarantee on all the bank’s liabilities, that would have used up a lot of public funds, the central bank said. That could lead to a moral hazard problem’

    Hmmm, this “moral hazard” term is vaguely familiar. Is it Chinese? Cuz I haven’t heard our central bankers say anything like that in 15 years.

    1. I believe the term “moral hazard” was last seen in the Dead Sea scrolls. It has been eliminated in the latest version of Newspeak (although thinking the words are not technically a thought crime)

  2. Like Dan, I have a question, and I’m interested in readers opinions. Do you have too many airboxes when bush turkeys have taken over?

    1. First, I’m glad the bush turkeys have a roof over their heads. They have rights too.
      I think the extent of the oversupply will only be fully apparent when speculators start hurting and the supply that has been withheld comes back into the market. Might not be as dramatic as “Silver Thursday” when the Hunt brothers went broke but with around 200K homes in large investor hands, might be more interesting than 2009-11

      1. Can’t wait for those rich investors who went long on luxury airboxes to get wiped out, only to learn the Trump administration doesn’t do Obama bailouts.

        1. “…administration doesn’t do Obama bailouts.”

          After the 2008 crisis, I’m certain that the fed and treasury decided on the “essential entities” similar to the passenger list in the movie, “When Worlds Collide.”

        2. The Bailouts were signed into law by George W. Bush.

          The Emergency Economic Stabilization Act of 2008, often called the “bank bailout of 2008,” was proposed by Treasury Secretary Henry Paulson, passed by the 110th United States Congress, and signed into law by President George W. Bush. The act became law as part of Public Law 110-343 on October 3, 2008, in the midst of the financial crisis of 2007–2008. The law created the Troubled Asset Relief Program to purchase distressed assets from financial institutions

          1. George W. Bush…Obama. Seamless, and it was supposed to be seamless to Hillary. Our Presidents have been figureheads of a system.

    2. The last crash was caused by a Bush turkey, a Fed turkey and a Frank turkey and too many other turkeys to name so it seems to fit.

    3. The 9th Ave and Colorado Blvd building that I worked on has less than half of its 275 luxury rental units rented 14 months after Saunders Construction turned it over to Continuum Partners in April 2018.

      Ben Jones I can’t tell you what kind of wild birds are occupying the site, but Continuum is going full steam ahead on the rest of this project:

      https://continuumpartners.com/project/9th-colorado/

      1. Rumor has it a North American red-headed double-breasted mattress thrasher has taken up residence in the building.

    6. Bush turkeys are pretty harmless, but they are considered pests. We have them in our neighbourhood here in Brisbane. Ironically, we have a half-unfinished 4-story apartment building right down the street and, sure enough, it’s inhabited by a bush turkey or two. A few weeks ago, we walked down there to take a look at the, uh, progress. We looked up and sighted a beautiful rosella bird perched on the scaffolding.

      2. It’s normal equilibrium adjustment for domestic production to recess following a negative demand shock.

  7. Uggghhh. Every time you guys say “bush turkey” I think of African bushmeat. Which for some reason I also associate with Chinese gutter oil (cooking oil recycled from grease balls harvested from the sewer system).

    2. Ok no Chinese buffet tonight. I hear that the government came down hard on the sellers in 2013 and it is now used for biodiesel but I hoped to never hear about it again. Hard to eat Chinese food and think that people were willing to do such a thing.

    4. The nice restaurants don’t do it. You just gotta accept the chance of it if you eat the street food.

  9. ‘If such mistrust is allowed to continue to spread, it will eventually become systemic financial risk,’ the memo said.”

    Looks like lenders who refuse to lend might end up being involuntary organ donors.

    1. “This is far and away the strongest global economy I’ve seen in my business lifetime.” — United States Treasury Secretary Henry Paulson, July 2007

  10. Trump Drives Down Price Of F-35 Fighter 25% From Obama Level
    Forbes-11 hours ago
    It was the pressure exerted by Trump and his subordinates in the negotiations that drove the rapid price reduction. So now we have a new “handshake …

      1. Yes good point. This is exactly what they do to win the contract in the first place — offer an unrealistically low price. Then after they are 6 months into the project the price creep starts. Why wouldn’t they do that to keep the contract as well? But I do hope the price reduction sticks, or that we just stop buying tons of military crap period.

  11. The Hong Kong Standard. “I suspect the ‘over-financialization’ problem he spoke about refers to a housing bubble – similar to the Japanese asset price bubble in the early 1990s – though he did not make it too obvious.”

    – “We financialized some folks.”

    From ABC News in Australia. ‘The market is very challenging for new developments,…’

    – This gross understatement reflects either compete ignorance of asset bubbles, business/credit cycles, moral hazard, or simply the first stage of grief (denial).

    ‘Thousands of units have been built, too many I think,’

    – Why would anyone do that? And globally to boot…

    Finally, inquiring minds want to know…

    http://www.birdsinbackyards.net/birds/featured/Birds-behaving-badly
    Birds behaving badly
    It is difficult not to notice birds when they are directly interacting with humans. There are a number of bird species that have adapted well to human habitats and are creating problems, either to humans or to other animals.

    http://www.birdsinbackyards.net/species/Alectura-lathami
    Australian Brush-turkey
    Scientific Name: Alectura lathami
    Featured bird groups: Birds behaving badly

    From the article it sounds like the Australian Brush-turkey isn’t the only one behaving badly, but at least they can walk away from all of those abandoned units. Crikey!

    1. Related excerpt.

      “Guo Shuqing, the chairman of the China Banking and Insurance Regulatory Commission, warned about the ‘over-financialization’ of the mainland property industry and high household debt ratio. He said some citizens had invested half of their funds into real estate, but history has shown that people have always paid the price of being too heavily invested in the property market.”

    1. FWIW, it wasn’t easy living through the 70’s and early 80’s recessions, which felt like one long recession to the working-class. Plenty of late boomers got their start in life cut-off at the ankles.

  13. It’s crash and burn time.

    The Financial Times
    FT Series Peak property: Building a bubble
    The Big Read
    Global property
    Real estate: post-crisis boom draws to a close
    After several years of cheap money and soaring prices, there are growing signs of problems in property markets
    © FT montage/Charlie Bibby
    Judith Evans in London yesterday

    When China’s Greenland Group launched its Spire project near Canary Wharf in east London in 2016, it promised the 67-storey residential skyscraper would be “a new iconic landmark on the London skyline”.

    The £800m curved glass tower was set to include almost 800 luxury apartments, a 35th-floor spa, a cocktail bar, dancing fountains and lifts that would travel at six metres a second. But after piling works were completed a year ago, the Spire building site fell silent.

    The project is undergoing a “review” after “the residential sector in London . . . changed significantly since Spire London was conceived in 2014”, the developer said. The changes in prime London real estate have indeed been stark: prices have since fallen more than 20 per cent.

    The developer insists the building will go ahead, though possibly in an altered form. But the stalled site has brought back memories of the financial crisis, when from Ireland to Dubai, half-finished construction projects conceived at the peak were stopped in their tracks by collapsing markets, a lack of funding or insolvent developers.

    Property chart

    The troubled development is one of many signs that the global real estate boom is drawing to a close after a decade of cheap money that followed the financial crisis. Stores are shuttering on New York’s Fifth Avenue as the retail sector suffers in the face of the relentless rise of ecommerce. In China, a frenzy of real estate speculation has led to millions of empty new-build apartments and to street protests over price drops. Listed real estate securities worldwide are trading at steep discounts to the book value of their assets, a phenomenon that in the past has heralded downturns.
    …

    1. Need…mo…stimulus…

      The Dow Is Rising Because Treasury Yields Are Tumbling
      By Ben Levisohn
      June 18, 2019 9:36 a.m. ET
      Illustration by Michael George Haddad

      9:30 a.m. The Dow Jones Industrial Average is heading higher Tuesday morning, but it is the 10-year Treasury yield that has the market’s attention.

      The 10-year yield has slipped 0.052 percentage point to 2.03% as the Federal Reserve begins its two-day meeting. The Fed is widely expected to signal rate cuts in the U.S. later this year, and that seems likely given the continued string of weak economic data. U.S. housing starts, for instance, dropped 0.9% in May, worse than the 0.4% decline predicted by economists, while construction permits rose just 0.3%, below the 0.5% forecast.
      …

    1. Any thoughts on how low central bankers will take yields before this is over?

      Global Markets: ‘Super Mario’ shock – euro slides, yields hit new lows
      By Thyagaraju Adinarayan
      Reuters
      June 17, 2019, 5:43 PM PDT
      FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Britain
      By Thyagaraju Adinarayan

      LONDON (Reuters) – The euro took a beating and German bond yields hit a fresh record low on Tuesday in reaction to European Central Bank President Mario Draghi’s comments indicating a possibility of new rate cuts or asset purchases.

      Draghi said the ECB would need to ease policy again, if inflation did not head back to its targets, and that there was still “considerable headroom” to do so. Inflation in the euro zone slowed to 1.2% in May, the lowest in more than a year.
      …

      1. I’d guess -1 or -2% NIRP.
        ECB can’t do MMT/helicopter money like US can, so their choices are constrained to bond buying & interest rates policy

    3. Nope, its not the Central Bank agitating for lower rates. This one belongs solidly with trump.

      As of March 2019: President Trump wants the Federal Reserve to cut interest rates immediately, his top economic adviser Larry Kudlow said Friday, making it clear that the president is still angry with the central bank.
      U.S. interest rates are sitting just shy of 2.5 percent, the highest in over a decade although low by historical standards. Trump and Kudlow want them to be about 2 percent.
      “I’m am echoing the president’s view. He’s not been bashful about that view,” Kudlow said on CNBC Friday. “We don’t want to threaten this great recovery.”
      Later Friday, Trump wrote on Twitter that the Fed had made a mistake when it raised interest rates, saying low inflation demonstrates the central bank’s actions were unwarranted. Had the Fed left rates lower, Trump asserted, the U.S. and global economies would be stronger.

      2. This one belongs solidly with trump.

        Are you saying that bank rates are set by Presidential tweets?

Comments are closed.