patrick.net

skibum,

the Shanghai stock market crash has several underlying reasons behind
1) everybody expects a crash post-O, because of the power of built-in expectation, the crash happens earlier
2) the P/E is too unreasonable. It is not only about the P/E ratio, but about how E comes about. Over 80% of companies on the stock exchange derive their E from trading profit of cross holding and stock speculation, so the real P/E in the sense of operating E is much higher.
3) the lack of direction provided by the government

Chinese just emerged from the planned economy mentality about somewhat 10 years ago, people over 30 are still very much ingrained with fear and worship for the government, which is supposed to set the tone for everything. As the market went down, investors were expecting signals from the government (either lower stamp duty tax or disallowing companies to issue new stocks) to provide support, however, so far the government has done nothing, and as a result, the market went into a free fall.

But I have heard an interesting theory from a friend who has some connections within the Chinese government. He told me that there was this thought within the Chinese powers that the stock market crash would be a good way to wipe out inflation, because stock market and housing bubble were feeding into each other, and it was very hard to tackle the housing bubble due to local intervention (local government dependent on sale of land to obtain operating revenue). Therefore, if you take down the stock market, you take down the purchasing power of real estate.

DennisN Says:
Is there anyway to chemically compound AU into a non-metallic substance?

Convert it to USD. :-)

[not good advice]

BAI,

it is not that easy. Sourcing relationship takes years to build. I interacted extensively with sourcing businesses when I was working over there. You can't just go to another factory and have them ramp up order. You don't know whether they are consistent with their quality, they don't know if their new suppliers are consistent with quality, and it takes time to groom a base of experienced workers. Then there is the infrastructure problem of roads, electricity, telecom, and people who are familiar with local import export procedures or even bribing processes. These knowhow takes at least a few years to accumulate.

Many brands already started migration about 1-2 years ago, but such migration involves many ancillary industries, and these factory owners of such ancillary industries need to move along as well.

Even if they complete the migration successfully, if food inflation takes hold, which I think it will, you will see the same pressure on labor cost which will translate into more expensive goods for us anyway. Food cost is particularly vital in developing countries because it takes up a much much bigger share of their monthly income, so their demand on wage hike is much more sensitive to increase in food cost than us.

Perhaps the Chinese government is more willing to let Free Market reign. I bet they are less commie than Kalifornia.

skibum Says:
What I don’t understand is why this PPT-like phenomenon would be orchestrated on a day with such bearish news.

Because it is April 1...???

OO

thanks. I understand you analysis. That's why I wondered where the assembly line would move to next. If everyone's has inflation, perhaps (some elements) need to move back to the US?

Regardless, if China is abandoned, what happens to it? What's your insight there?

BAI,

honestly if I were the Chinese government, I would just use the massive USD reserve they have to establish a nationwide health insurance plan (which they don't have), and a heavily subsidized tertiary education program (which they don't have either). These are the two main reasons why Chinese domestic demand remains suppressed, because Chinese have to obsessively aggressively save for the rainy days. One hospital bill can wipe out the entirely family.

They are stuck in some kind of a conceptual block, thinking that only tapped out American consumer (now European consumers) can consume the vast quantity of stuff they produce.

China will not be abandoned unless it abandons itself. It is a shame that 1.3B warm bodies cannot become the largest consumer market in the world. They are just grossly misguided in their plans and visions.

People are liabilities... Having 1.3B warm bodies is a gift or a curse?

It is easy to remove the obsession to save... massive inflation should do the job.

What I don’t understand is why this PPT-like phenomenon would be orchestrated on a day with such bearish news.
Better than losing all confidence in the market. This was the "kitchen sink" quarter for UBS. Next quarter it will be the stainless steel fridge, next the Viking range...

It is easy to remove the obsession to save… massive inflation should do the job.

I don't think so, people would buy food and speculate on real estate and commodities.

I think consumption could increase if people feel more secure about their future, that would be stable growth and less inflation.

OO says

Chinese have to obsessively aggressively save for the rainy days. One hospital bill can wipe out the entirely family.

I don't mean to be facetious with a serious issue affecting so many. But that second sentence above holds true for many Americans as well. Strangely (?) it doesn't induce the same savings oriented behavior. Why is that I wonder...

What's really tragic is for poor parents to do a HELOC to fund tuition so their son can attend Stanford to study a highly-paid specialty like .... sociology.

www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/03/31/BAIMVHBG9.DTL&hw=stanford&sn=004&sc=762

By the way I believe you are correct that China is too big to be abandoned by anybody. The potential upside is so gigantic, China will have to "abandon itself" first, as you correctly point out.

Of course if any black swans are lurking.....who knows?

But that second sentence above holds true for many Americans as well.

It is not the same...

Here, even illegal aliens cannot be denied treatment. So NINJA people effectively have free health care. This actually discourages saving.

What’s really tragic is for poor parents to do a HELOC to fund tuition so their son can attend Stanford to study a highly-paid specialty like …. sociology.

It is still better than drama. ;)

I think higher education may help mediocre people to get above the average. However, it is still up to the person to engage opportunities.

Of course if any black swans are lurking…..who knows?

Black swans are always lurking. The worst case scenario is always yet to be discovered. ;)

It is not the same…

Here, even illegal aliens cannot be denied treatment.

I was referring to Americans not illegals.

I was referring to Americans not illegals.

American NINJAs have the same effective free health care.

The worst case scenario is always yet to be discovered

True in the long run. But didn't somebody say that in the long run we're all dead?
;-)

By the way, I hear the earth's magnetic field is fixing to reverse. To me that seems a much much greater threat than global warming. HOw come Gore is spending 300 million to advertise for global warming (which is survivable even if true) and nobody cares about the mag field reversing? Were it to happen, it would probably cook us all.

American NINJAs have the same effective free health care.

but if they're NINJAs how're they supposed to save? It's the ones with some money who are bankrupted by illness. Why don't we save more for that possibility?

but if they’re NINJAs how’re they supposed to save?

Answer: NINJA loans :lol:

NINJA loans

touche!

Strangely (?) it doesn’t induce the same savings oriented behavior. Why is that I wonder…

Because America suffers from Chronic Excessive Optimism. Consume today, tomorrow will take care of itself. If a rainy day actually arrives, just put it on the credit card / HELOC and everything will be fine.

On the other hand, people from developing countries have seen the worst in their lifetime, have no easy access to credit, cannot easily file bankruptcy and get on with life when the rainy day comes. So they prepare for it as much as they can.

Long time ago, America also saved, but till an entire generation feels the pain, America won't start saving again.

Being optimist is definitely better than being a pessimist. But the cheap access to credit (and related laws) has turned optimism into recklessness. That's what is frightening about bursting of this bubble. It was the credit bubble and access to cheap credit is no longer easy to come by. So it will get very ugly before people come to their senses.

"American Ninja" was a terrible movie. On the other hand, "Beverly Hills Ninja" was AWESOME. Chris Farley was one of the funniest people I've ever seen.

So it will get very ugly before people come to their senses.

People are nothing but a block of swing votes. Remember that.

What’s really tragic is for poor parents to do a HELOC to fund tuition so their son can attend Stanford to study a highly-paid specialty like …. sociology.
Come on Dennis, cut him some slack. :-)
Admissions officers say the problem is that low-income students don't understand how little the university charges them, so they don't apply. Scott, for instance, has had to pay roughly $2,500 a year, which he did by working and taking out a small loan. The university covered the remaining $44,700.

Admissions officers say the problem is that low-income students don’t understand how little the university charges them, so they don’t apply.

But the HELOC parents are probably not low-income by any measure.

Higher education should be optional. I do not support any idea of subsidizing college education. (University researches should be subsidized for strategic purposes.)

High schools should give each student enough skills to be productive. They should teach more vocational skills and less fluff.

Peter P,

How about subsidizing sushi, for "strategic purposes"?

>>People are nothing but a block of swing votes. Remember that.

True, as long as we have an undemocratic election system.

How about subsidizing sushi, for “strategic purposes”?

No. Sushi is a luxury.

True, as long as we have an undemocratic election system.

Huh?

StuckInBA,

Chronic Excessive Optimism has been a very profitable strategy for a very long time (since 1776 or so).

Now that the pyramid is cracking, this may change permanently.

BAI,

honestly I am constantly baffled by the unbridled financial optimism of Americans in general. Although first generation immigrant like myself still retain our undesirable habit of financial prudence, most of the second generations I know get rid of such a habit real fast.

But with the Fed and Treasury stepping up to assume risk for all financial gamblers, what can I say?

What do you say we start a new bank called 1st National Chance!

Every week we take all the deposits and buy Lotto tickets. Some weeks are good and some bad. If we hit it big the bank is dissolved and all depositors get there deposits back and we take the winnings. If we crap out, the FDIC or soon to be the Federal Reserve Bank takes all our losses and we walk with our nice large salaries.

Anyone in for the for the startup?

REDC auctions are all undisclosed reserve auctions. This is a huge ripoff. Save your money and wait for absolute auctions.

READ TERMS AND CONDITIONS, found here:
http://www.mylandhome.com/uploaded_files/29-pav-terms.pdf

Below are some snips from the Terms and Conditions:

"All Properties have a Reserve Price, meaning the Seller of each Property has established an unpublished, minimum selling price. The starting bid is not the Reserve Price."

My comment: Why attend an auction where you don't know the minimum price? Reserve auctions are OK, assuming the reserve is disclosed. Absolute (i.e. no reserve) auctions are best. With an unpublished reserve, you are shooting in the dark.

"the Auctioneer may open bidding on any Property by placing a bid on behalf of the Seller and may further bid on behalf of the Seller, up to the amount of the Reserve Price, by placing successive or consecutive bids for a Property, or by placing bids in response to other bidders."

My comment: The auction house bids against you? So not only are you up against other bidders, but you are bidding against an auction house, up to a price you don't know.

"Winning Bidder’s purchase is subject to, and contingent upon, the REO management of Seller approving the purchase, which shall be given or denied at their sole and absolute discretion within fifteen (15) business days"

My comment:
So even if you manage to outbid everyone else, and the auction house, the bank has 2 weeks to reject your offer.

"Auctioneer is not acting as an agent for any Bidder in any capacity, and is acting exclusively as the Seller’s agent."
"The total purchase price will include a buyer’s premium equal to five percent (5%) of the winning bid amount"
"The buyer's premium is the fee the Auctioneer charges the bidders to bring the Property"

My comment:
5% is a steep fee to pay as a buyer. Normally a the seller takes the hit for the 6% agent commission.

Folks, there is no way you'll get a bargain here. Hold out for absolute auctions. There is a tidal wave of foreclosures about to hit the market, and you'll get a much better deal.

I went to one of these auctions in San Mateo, CA a few weeks ago for
about one and half hours. I don't have my notes with me, but here's my
memories. There were several thousand people at the auction, vast
majority without bidding cards. The seating was spread across half a
dozen rooms in a convention center.

Each auction had only a few people bidding. There were auction staff
dressed in tuxedo's bouncing around to drum up excitement. Many
properties (around 20%) were reauctioned a within 15 minutes after
the first auction closed, then between 5-10% were reauctioned twice!
Most reauctioned houses sold for slightly less than the original
auction.

The auctioneer's voice is positively blasted into the halls (very loud),
and even when there is no interest in the property he rapidly drones
out two numbers (last bid and amount of next allowed bid). It is
surprisingly hard to understand what he's saying... given that the whole
point is to hear him.

Some houses were for sale in "cash-only" status, which means the inside
lender had inspected the property and was unwilling to issue a loan
to any buyer for any amount. These houses seemed to sell for much
closer to the normal houses than I expected.

Given the format, high sales fee (5%), high "re-auction" rate, etc...
I would not recommend buying anything from this auction
company... something seemed very wrong.

I do intend to go back to a followup auction, to see how many of the
"sold" houses from the first auction are back on the block and to
inspect some of the local properties before the auction to understand
what condition the "cash only" homes are in.

Given the current foreclosure situation in south bay, I have started seeing Banks literally dumping properties, at below market price(-100K), below what original buyer payed to builder, four years ago. He bought it for $950K in 2004 from builder. It's in great condition and in good school district. Now, thats too enticing - is it spur market activity or fair deal? I am sure in these turbulent times, there would be opportunities to be had, but it needs some way to detect it. How?

desibaba,

some more details (final price, location) would be useful.

I see some of these bank owned listings with stipulations such as "buyer pays closing costs", "sold as-is", and "no offers less than asking price acceipted." Also, the auctions seem odd as well. This, to me, is just more evidence that there is a still a large downside to the real estate market, before capitulation. All of the manipulation by the Fed is also postponing the enevitable, and prolonging the agony.

Perma,

I also attended one of the auctions in February. Much the same as what you described. Many re-auctions, over and over again. Not sure if it was because the buyer balked afterwards or because the reserve price was not met. In many cases, the price was indeed lower upon re-auction.

I think it's a couple of years too early to consider the auctions. I noticed that they are starting to have housing auction shows on TV. I expect this to gain in popularity. I'm expecting homes in East San jose in the 95127 area to dip under $200k in the next 3 years. I'm talking about the built in 1955, 3 bd 1 bath 996 sq ft house. This house would be under $100k almost anywhere else in the country. I figure double that for being in the Silly con valley. I read somewhere that there are currently 22 homes like that selling for under $400k right now. $400k is still a lot of money and a person with 20% to put down would probably not want to find themselves in that hood during this upcoming recession/depression.