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Realistbear

Chinese Property 14 Times Income -- Bubble About To Pop

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http://www.telegraph.co.uk/finance/economics/7842263/Global-markets-fear-US-Treasuries-sell-off-as-China-ends-currency-freeze.html

Global markets fear US Treasuries sell-off as China ends currency freeze

Global markets are braced for a possible sell-off in US Treasury bonds after China said over the weekend that it will allow the yuan exchange rate to adjust against the dollar, ending a two-year currency freeze that has led to trade clashes with Washington and Brussels.

.../

Beijing is determined to avoid Japan's fate when it let the yen rise too fast, tipping the country into slump. But the policy of holding down the currency is leading to acute price pressures. Factory gate inflation reached 7.1pc last month. Food costs are rising fast, raising the risk of civic unrest among migrant workers.

Rising wages are inflicting similar pain on exporters to a currency rise but with more pernicious effects for the country. As a result, analysts say it no longer makes sense for Beijing to maintain the peg.

Nomura says property has reached frothy levels in Shanghai and Beijing, where prices are 13 to 14 times income. It expects the bubble to pop "very soon".

**************************************

What does all this mean in practical terms to our housing market?

1. If US rates are allowed to rise (as bond fall) it will have a knock on effect in all western bond markets.

2. Chinese good will cost more which may mean rising prices for Chinese goods pushing up RPI--but on the other hand higher IR will have the opposite effect and depress sales and cause the property market to crash making houses cheaper.

3. If the Chinese currency rises to the point that its exports collapse and they fall into the deflationary black hole that Japan did the knock-on effect will be the reverse of what they want to achieve and the Chinese currency will come back down again as they attempt top reverse deflationary forces.

4. The Chinese have an unbalanced economy with too much invested in the West by way of bonds which they cannot afford to have devalued through inflation caused by the rising cost of their exports. Catch 22?

5. They have no alternative than to take the bitter pill Japan took. Deflation is the only answer to inflation--and at 14 times income in the property market along with 7.1 CPI they have a serious inflation problem.

Choo all think?

Edited by Realistbear

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http://www.telegraph.co.uk/finance/economics/7842263/Global-markets-fear-US-Treasuries-sell-off-as-China-ends-currency-freeze.html

Global markets fear US Treasuries sell-off as China ends currency freeze

Global markets are braced for a possible sell-off in US Treasury bonds after China said over the weekend that it will allow the yuan exchange rate to adjust against the dollar, ending a two-year currency freeze that has led to trade clashes with Washington and Brussels.

.../

Beijing is determined to avoid Japan's fate when it let the yen rise too fast, tipping the country into slump. But the policy of holding down the currency is leading to acute price pressures. Factory gate inflation reached 7.1pc last month. Food costs are rising fast, raising the risk of civic unrest among migrant workers.

Rising wages are inflicting similar pain on exporters to a currency rise but with more pernicious effects for the country. As a result, analysts say it no longer makes sense for Beijing to maintain the peg.

Nomura says property has reached frothy levels in Shanghai and Beijing, where prices are 13 to 14 times income. It expects the bubble to pop "very soon".

**************************************

What does all this mean in practical terms to our housing market?

1. If US rates are allowed to rise (as bond fall) it will have a knock on effect in all western bond markets.

2. Chinese good will cost more which may mean rising prices for Chinese goods pushing up RPI--but on the other hand higher IR will have the opposite effect and depress sales and cause the property market to crash making houses cheaper.

3. If the Chinese currency rises to the point that its exports collapse and they fall into the deflationary black hole that Japan did the knock-on effect will be the reverse of what they want to achieve and the Chinese currency will come back down again as they attempt top reverse deflationary forces.

4. The Chinese have an unbalanced economy with too much invested in the West by way of bonds which they cannot afford to have devalued through inflation caused by the rising cost of their exports. Catch 22?

5. They have no alternative than to take the bitter pill Japan took. Deflation is the only answer to inflation--and at 14 times income in the property market along with 7.1 CPI they have a serious inflation problem.

Choo all think?

Being a bit cynical but could this be why the Chinese have decided to drop the dollar peg?

Basically over the last 2 year China has been willing it's banks to lend recklessly with them not letting the authorities down. Now they have engineered a banking system that is not in the same mess as all other large economies levelling the playing field.

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http://www.telegraph.co.uk/finance/economics/7842263/Global-markets-fear-US-Treasuries-sell-off-as-China-ends-currency-freeze.html

Global markets fear US Treasuries sell-off as China ends currency freeze

Global markets are braced for a possible sell-off in US Treasury bonds after China said over the weekend that it will allow the yuan exchange rate to adjust against the dollar, ending a two-year currency freeze that has led to trade clashes with Washington and Brussels.

.../

Beijing is determined to avoid Japan's fate when it let the yen rise too fast, tipping the country into slump. But the policy of holding down the currency is leading to acute price pressures. Factory gate inflation reached 7.1pc last month. Food costs are rising fast, raising the risk of civic unrest among migrant workers.

Rising wages are inflicting similar pain on exporters to a currency rise but with more pernicious effects for the country. As a result, analysts say it no longer makes sense for Beijing to maintain the peg.

Nomura says property has reached frothy levels in Shanghai and Beijing, where prices are 13 to 14 times income. It expects the bubble to pop "very soon".

**************************************

What does all this mean in practical terms to our housing market?

1. If US rates are allowed to rise (as bond fall) it will have a knock on effect in all western bond markets.

2. Chinese good will cost more which may mean rising prices for Chinese goods pushing up RPI--but on the other hand higher IR will have the opposite effect and depress sales and cause the property market to crash making houses cheaper.

3. If the Chinese currency rises to the point that its exports collapse and they fall into the deflationary black hole that Japan did the knock-on effect will be the reverse of what they want to achieve and the Chinese currency will come back down again as they attempt top reverse deflationary forces.

4. The Chinese have an unbalanced economy with too much invested in the West by way of bonds which they cannot afford to have devalued through inflation caused by the rising cost of their exports. Catch 22?

5. They have no alternative than to take the bitter pill Japan took. Deflation is the only answer to inflation--and at 14 times income in the property market along with 7.1 CPI they have a serious inflation problem.

Choo all think?

I think history is repeating itself. China's economy is overheating on the back of massive stimulus and reckless lending. With such rampant credit growth deflation is the only possible outcome. When the yen was let go to appreciate soon after that we had 2 decades of deflation. I China Debt deflation bomb will take the world with it as it will export its deflation.

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Being a bit cynical but could this be why the Chinese have decided to drop the dollar peg?

Basically over the last 2 year China has been willing it's banks to lend recklessly with them not letting the authorities down. Now they have engineered a banking system that is not in the same mess as all other large economies levelling the playing field.

China have had a heavy drag on the crack pipe and are going back to Plan A and look like they are handing the pipe back to the US.

Gambling is big in Chinese culture - possibly an even more bubble prone environment than the US/UK - see Chinese HPI.

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China have had a heavy drag on the crack pipe and are going back to Plan A and look like they are handing the pipe back to the US.

Gambling is big in Chinese culture - possibly an even more bubble prone environment than the US/UK - see Chinese HPI.

Gambling on leverage, doesn't this include the stock market?

Still history never repeats, it's different this time.

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Being a bit cynical but could this be why the Chinese have decided to drop the dollar peg?

exactly. See ParticleMans 'forever blowing bubbles' thread for the thinking behind this move.

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I did a contract for a company in HK a few years back and I was amazed at how willing they were to compromise their principles to do business in China. The suppliers I was dealing with in China were minted - earning multiple times more than the average worker. I guess it can't go on forever.

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I think history is repeating itself. China's economy is overheating on the back of massive stimulus and reckless lending. With such rampant credit growth deflation is the only possible outcome. When the yen was let go to appreciate soon after that we had 2 decades of deflation. I China Debt deflation bomb will take the world with it as it will export its deflation.

I think you nailed it. When a bubble the size of China's bursts prices will tumble and all that excess will have northern to go except in the black hole of deflation.

Overproduction, excess capacity, lower demand seem to characterise the post Brown bubble world. China and the UK have yet to see the HPC, but happen it will. China may burst first leaving us totally alone among the industrialised nations to be sustaining a property bubble.

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Guest sillybear2

I'm not sure average wages are a useful measure in China, given the huge wealth disparity, it's like saying properties in Knightsbridge are due to crash because they're 50 times average incomes.

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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