Tag: finance

The topic of China's real estate bubble, its ghost cities, and its emerging middle class – who now have enough money to invest and have piled into houses not stocks – and have been dubbed "fang nu" or housing slaves (a reference to the lifetime of work needed to pay off their debts); is not a new one here but, as Bloomberg reports, the latest report from economist Gan Li shows China’s households are massively exposed to an oversupplied property market.

The Chinese have piled their savings into real estate…

not stocks (like Americans)…

But the inevitable bursting of the bubble is a problem the PBOC can't run from forever…

Via Bloomberg's Tom Orlik,

China’s households are massively exposed to an oversupplied property market according to a new survey by economist Gan Li, professor at Southwestern University of Finance and Economics in Chengdu, Sichuan and at Texas A&M University in College Station, Texas.

A 2013 survey of 28,000 households and 100,000 individuals provides striking insights on the level and distribution of household income and wealth, with far reaching implications for the economy. About 65 percent of China’s household wealth is invested in real estate, said Gan. Ninety percent of households already own homes, and 42 percent of demand in the first half of 2012 came from buyers who already owned at least one property.

“The Chinese housing market is clearly oversupplied,” said Gan. “Existing housing stock is sufficient for every household to own one home, and we are supplying about 15 million new units a year. The housing bubble has to burst. No one knows when.” When it does, the hit to household wealth will have a long term negative impact on consumption, he said.

China’s household income is significantly higher than the official data suggest. Average urban disposable income was 30,600 yuan in 2012, according to the survey. That’s 24 percent higher than in the National Bureau of Statistics’ data. These results suggest official statistics may overstate China’s structural imbalances, which shows household income as an extremely low share of GDP.

Many wealthy households understate their income in the official data. China’s richest 10 percent of urban households enjoy an average disposable income of 128,000 yuan per capita a year, according to Gan’s survey. That’s twice as high as the same measure in the NBS report. The poorest 20 percent get by on about 3,000 yuan, pointing to significantly greater wealth inequality than in the U.S. or other OECD countries.

The wealth disparity helps explain China’s imbalance between high savings and investment and low consumption. Rich households have a significantly higher savings rate than poor households. The wealthiest 5 percent save 72 percent of their income, compared with the national average of 36 percent and 40 percent of households with no savings at all in 2012.

“The solution to boosting consumption is income redistribution,” said Gan. “Compared to the U.S. and other OECD countries, China has done very little in this area.” The survey also provides insights into China’s widespread informal lending. A third of households are involved in peer-to-peer lending, according to Gan.

Zero-interest loans between friends make up the majority. Interest, when charged, is typically high, averaging a 34 percent annual rate. That underscores the usurious cost of credit for businesses and households excluded from the formal banking sector.

And yet the bailout of one trust product has the world declaring that China is fixed again!??

via Zero Hedge http://ift.tt/MbhKpp Tyler Durden

The topic of China's real estate bubble, its ghost cities, and its emerging middle class – who now have enough money to invest and have piled into houses not stocks – and have been dubbed "fang nu" or housing slaves (a reference to the lifetime of work needed to pay off their debts); is not a new one here but, as Bloomberg reports, the latest report from economist Gan Li shows China’s households are massively exposed to an oversupplied property market.

The Chinese have piled their savings into real estate…

not stocks (like Americans)…

But the inevitable bursting of the bubble is a problem the PBOC can't run from forever…

Via Bloomberg's Tom Orlik,

China’s households are massively exposed to an oversupplied property market according to a new survey by economist Gan Li, professor at Southwestern University of Finance and Economics in Chengdu, Sichuan and at Texas A&M University in College Station, Texas.

A 2013 survey of 28,000 households and 100,000 individuals provides striking insights on the level and distribution of household income and wealth, with far reaching implications for the economy. About 65 percent of China’s household wealth is invested in real estate, said Gan. Ninety percent of households already own homes, and 42 percent of demand in the first half of 2012 came from buyers who already owned at least one property.

“The Chinese housing market is clearly oversupplied,” said Gan. “Existing housing stock is sufficient for every household to own one home, and we are supplying about 15 million new units a year. The housing bubble has to burst. No one knows when.” When it does, the hit to household wealth will have a long term negative impact on consumption, he said.

China’s household income is significantly higher than the official data suggest. Average urban disposable income was 30,600 yuan in 2012, according to the survey. That’s 24 percent higher than in the National Bureau of Statistics’ data. These results suggest official statistics may overstate China’s structural imbalances, which shows household income as an extremely low share of GDP.

Many wealthy households understate their income in the official data. China’s richest 10 percent of urban households enjoy an average disposable income of 128,000 yuan per capita a year, according to Gan’s survey. That’s twice as high as the same measure in the NBS report. The poorest 20 percent get by on about 3,000 yuan, pointing to significantly greater wealth inequality than in the U.S. or other OECD countries.

The wealth disparity helps explain China’s imbalance between high savings and investment and low consumption. Rich households have a significantly higher savings rate than poor households. The wealthiest 5 percent save 72 percent of their income, compared with the national average of 36 percent and 40 percent of households with no savings at all in 2012.

“The solution to boosting consumption is income redistribution,” said Gan. “Compared to the U.S. and other OECD countries, China has done very little in this area.” The survey also provides insights into China’s widespread informal lending. A third of households are involved in peer-to-peer lending, according to Gan.

Zero-interest loans between friends make up the majority. Interest, when charged, is typically high, averaging a 34 percent annual rate. That underscores the usurious cost of credit for businesses and households excluded from the formal banking sector.

And yet the bailout of one trust product has the world declaring that China is fixed again!??

via Zero Hedge http://ift.tt/MbhKpp Tyler Durden

President Obama will proclaim that all is well but more is to be done tonight (we suspect) and lay out his agenda for fixing it all now (which we are sure will be different from the fixes of the last 5 years). However, as The WSJ reports, he faces a nation increasingly worried about his abilities, dissatisfied with the economy and fearful of the economy’s future. Since the rise of modern polling in the 1930s, only George W. Bush has begun his sixth year in the White House on rockier ground than Mr. Obama. 59% are uncertain, worried, or pessimistic about the rest of Obama’s term; 63% believe the US in on the wrong track; and, despite record high stock prices and ‘wealth’, 71% expressed some level of dissatisfaction with the broader economy.

Via WSJ,

Concerns abound…

The survey found that just over half of Americans disapprove of the president’s job performance, with 43% approving, a trough that remains little changed since the early summer. Nearly six in 10 say they are uncertain, worried or pessimistic about what he will do with the remainder of his presidency. Disapproval for Congress, too, is near its all-time high.

Americans are generally satisfied with their own personal economic situation, and gauges of consumer confidence remain strong. But that optimism hasn’t translated into strong confidence in the broader economy or the president. In the Journal poll, 61% of respondents said they were satisfied with their own financial situation, but 71% expressed some level of dissatisfaction with the broader economy.

Mr. Obama’s low approval numbers spell trouble for congressional Democrats heading into midterm elections this November. Such contests are historically challenging to the party of incumbent presidents.

via Zero Hedge http://ift.tt/MqJAi6 Tyler Durden

President Obama will proclaim that all is well but more is to be done tonight (we suspect) and lay out his agenda for fixing it all now (which we are sure will be different from the fixes of the last 5 years). However, as The WSJ reports, he faces a nation increasingly worried about his abilities, dissatisfied with the economy and fearful of the economy’s future. Since the rise of modern polling in the 1930s, only George W. Bush has begun his sixth year in the White House on rockier ground than Mr. Obama. 59% are uncertain, worried, or pessimistic about the rest of Obama’s term; 63% believe the US in on the wrong track; and, despite record high stock prices and ‘wealth’, 71% expressed some level of dissatisfaction with the broader economy.

Via WSJ,

Concerns abound…

The survey found that just over half of Americans disapprove of the president’s job performance, with 43% approving, a trough that remains little changed since the early summer. Nearly six in 10 say they are uncertain, worried or pessimistic about what he will do with the remainder of his presidency. Disapproval for Congress, too, is near its all-time high.

Americans are generally satisfied with their own personal economic situation, and gauges of consumer confidence remain strong. But that optimism hasn’t translated into strong confidence in the broader economy or the president. In the Journal poll, 61% of respondents said they were satisfied with their own financial situation, but 71% expressed some level of dissatisfaction with the broader economy.

Mr. Obama’s low approval numbers spell trouble for congressional Democrats heading into midterm elections this November. Such contests are historically challenging to the party of incumbent presidents.

via Zero Hedge http://ift.tt/MqJAi6 Tyler Durden

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via Zero Hedge http://ift.tt/MqJnLK williambanzai7

Submitted by Per Bylund via The Circle Bastiat Mises Economic blog,

People have a strange habit of ridiculing economics for its assumptions and [benchmark] models of optimality. While modern mathematical economics (i.e., professional mathturbation) admittedly rely on sometimes outrageous assumptions that make most of the resulting predictions irrelevant, there is nothing ridiculous or unscientific about economic reasoning. In order to study the social world we need to consider and analyze what’s observed empirically from the point of view of the theory-derived counterfactual. Economic science necessarily begins with theory.

As Mises noted, in the social world there are no constant relations. Consequently, inductive number crunching based on (the seemingly irrefutable phenomenon) data cannot tell us much about the world. So we must rely on what we logically find to be necessarily true, and from it derive specific truths that help us understand observed phenomena in the real world. We thus create counterfactuals that help us assess and perceive what is actually going on, rather than blindly observe.

Interestingly, while economic reasoning is laughed at and ridiculed, people tend to place great faith in applied fields such as medicine as though it were a real science. So perhaps if economics were more like medicine, it would earn the respect as a science (side-effects aside)?

While simplified, what is considered “normal” in medicine are simple averages or mode values arrived at by inductive (though sometimes voluminous) data sifting. Recommendations are hence based on what is rather than what should be (should, by the way, is considered unscientific). Granted, present average values may eventually be balanced (perhaps even corrected) by what has been learned about the functions of specific organs and the body as a whole, and about the impact of disease, malfunctions, etc. Yet these pieces of knowledge are also ultimately arrived at inductively, which means medicine suffers from a fundamental inability to identify e.g. harmful imbalances throughout populations (such that are due to long-lasting suboptimal cultural or eating habits, for instance).

The present revolution in how we view carbohydrates and fats is a case in point: medicine is of course able to measure the improved health values due to e.g. a “primal” diet (as one example), but is utterly unable to envision this result and, even less, make such predictions before the empirical observation has already been made. Instead, and based on the “normal” (average/mode) values of the population, we’ve been recommended to indulge in harmful sugars and grains and stay away from healthy fats. This is the problem of relying on induction, and while it might work well in the natural sciences, and is less reliable but likely more beneficial than not in applied natural science (such as medicine), it is impossible in the social sciences.

Imagine an economics relying on this type of approach. This field would have recognized poverty, starvation, and perhaps even slavery as the average state or mode of people in society, both at the inception of economic analysis and throughout history. We would then call this miserable state “equilibrium,” and base our explanations and policy recommendations on this empirically sound identification. Strange, uncommon, and “disequilibrating” phenomena such as prosperity, health, etc. would be statistical anomalies that could ultimately cause disruption of the established equilibrium; we might even choose to exclude them from our statistical analyses.

Economic models would show how societies successfully maximizing such misery (the mode, remember?) have little entrepreneurship, no property rights, and a despotic monarch (among other things). We would therefore conclude that a despot appears necessary to ensure the optimal state of misery, since the lack of a misery-enabling monarch would set radical processes of entrepreneurship, decentralization, and order in motion. These processes could undermine the state of misery and create pockets of prosperity, and perhaps – if no countermeasure is taken – overtake society and subject everyone to this disease.

Our policy recommendations would then be for a society to grant a single monarch absolute power, with the task and duty to stifle entrepreneurship and undermine property rights.

Had economics relied on similar methods as those employed in medicine, it would have been a worthless and dismal science indeed. Fortunately, economics is nothing of the kind. Instead, based on the undeniable truth that people want what they value and that getting more of it therefore makes them better off, we can construct theoretical counterfactuals to serve as “optimal” benchmarks when analyzing society. This is why economists can say that “yes, we are well of – but could be better off if…” This is also why economists can identify where and how suggested policies can or will go wrong. We can identify that waste, destruction, and suboptimalities will ensue, but not exactly when or exactly how much.

This is hardly ridiculous.

via Zero Hedge http://ift.tt/1nehPXP Tyler Durden

Wondering who will take over the mantle of Treasury bond buyer now that the Fed is stepping away? Curious of the government's next steps towards repression and control of wealth? Wait no longer. As the AP reports, President Obama will unveil a new retirement savings plan tonight that allows first-time savers to buy US Treasury bonds tax-deferred for retirement. Of course, this is not the mandatory IRA that remains somewhat inevitable (as the muddle-through fails) but is certainly a step in the direction we alerted readers to a year ago by which the government generously offers to help manage your retirement savings. Two words spring to mind… remember Poland.

Via AP,

Eager not to be limited by legislative gridlock, Obama is also expected to announce executive actions on job training, retirement security and help for the long-term unemployed in finding work.

 

Among those actions is a new retirement savings plan geared toward workers whose employers don't currently offer such plans.

 

The program would allow first-time savers to start building up savings in Treasury bonds that eventually could be converted into a traditional IRAs, according to two people who have discussed the proposal with the administration. Those people weren't authorized to discuss it ahead of the announcement and insisted on anonymity.

Of course, this is not what the CFPB suggested a year ago… We're sure the government is just trying to protect your retirement account from terrorists. From Bloomberg:

The U.S. Consumer Financial Protection Bureau is weighing whether it should take on a role in helping Americans manage the $19.4 trillion they have put into retirement savings, a move that would be the agency’s first foray into consumer investments.

 

That’s one of the things we’ve been exploring and are interested in in terms of whether and what authority we have,” bureau director Richard Cordray said in an interview. He didn’t provide additional details.

 

The bureau’s core concern is that many Americans, notably those from the retiring Baby Boom generation, may fall prey to financial scams, according to three people briefed on the CFPB’s deliberations who asked not to be named because the matter is still under discussion.

But it's getting close.

Though Poland remains the strawman…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-R-l7DP5J2A/story01.htm Tyler Durden

Submitted by Lance Roberts of STA Wealth Management,

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/zQt5eyISfMQ/story01.htm Tyler Durden

Submitted by Lance Roberts of STA Wealth Management,

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/zQt5eyISfMQ/story01.htm Tyler Durden