patrick.net

I think this is a bad thread, because the article quoted here really understands jack about what is going in China's RE business.

First of all, most banks (and certainly the most important ones, called the Big 4) in China are directly own indirectly owned by the government. They are estimated to have a bad loan ratio of over 60% (official number 20+%), but for the government support, they would have been long gone. If the banks are backed by the government, isn't that worse than GSEs? What is the use of GSEs anyway?

Second, almost ALL RE developers in China have government connections one way or another, let me put it this way, you won't be very successful building homes if you don't have insider relation with the local government. Unlike the US, ALL land is owned by the state and you can only lease it for 50 years (commercial and retail) and 70 years (residential). How does the government obtain occupied land in the center of the city for re-development? Well, pretty much whenever and whatever the government wants, the resident need to hand over, sometimes receiving very little compensation. If you don't want to leave, fine, the government-backed land confiscation team will set fire on your properties, or sometimes hire gangs to beat you up. Some residents who refused to move away were brutally murdered in their homes. Such incidents were not only popular in second tier cities, but also happened in supposedly interntional cities like Shanghai and Beijing.

Therefore, I suggest starting a thread that is less misleading.

@Owneroccupier,

Dude, lighten up...
The whole point is, having the Red Chinese critiquing the GSEs for being too dependent on government is so bizarre, ironic and funny all at the same time.

You on the payroll at Fannie or Freddie or something..?

Moreoever, the government officials in China participate in property flipping themselves. The wife of Shanghai's mayor is a famous flipper herself, she bought hundreds of apartments for speculation using government connections. Since RE is a very important part of China's GDP, local officials are extremely motivated to keep the price high, since their career future is tied to GDP growth.

For example, Shanghai government-backed RE transaction was challenged multiple times by local people for forging data. In Shanghai, you record a sale when somebody sign a piece of pre-sale agreement. However, that buyer could back out without penalty, so lots of RE developers were forging transaction records by hiring someone to sign a bunch of pre-sale agreement and cancelling them one or two months later.

Also, RE developers hire "peasant workers" to line up creating crowd effect to get on media for PR. Lots of developments get sold that way, effectively conning the buyers.

Regarding mortgage loans, the frauds there were way more rampant, and the government is well aware of it. In fact, the local government is promoting it as a way to boost GDP. One famous example was, a forged identity was able to borrow someting like 90M USD to buy 200+ apartments.

We may suck in multiple aspects, but please, comparing us to China in RE practice is such an insult.

"RE transaction agency was challenged multiple times by local people for forging data:"

Off thread, but I have a question. Is the U.S. RE Bubble just part of a worldwide super bubble that includes equities markets? Some of the precious metals bulls are saying that the yen carry trade has injected massive liquidity into many markets with the Bank of Japan acting as a surrogate world bank with zero/near zero interest rates. Is this garbage? Is the U.S. stock market forming a bubble (at the same time commodites are soaking up cash) because there is no where else for money to go?

@Owneroccupier,

I am most certainly NOT advocating modelling our RE market on China's. Like I said, the article just struck me as so bizarro and comically ironic. Here I've been criticizing the GSEs for creating systemic risk (and for their "too big to fail" implicit taxpayer guarantees) here for months. And then the LAST country I'd ever expect to agree with me does (indirectly anyway).

Note the comments about Sudan & Saudi Arabia? Comedy/Irony/satire... get it?

Is the U.S. RE Bubble just part of a worldwide super bubble that includes equities markets?

Clearly, yes.

Some of the precious metals bulls are saying that the yen carry trade has injected massive liquidity into many markets with the Bank of Japan acting as a surrogate world bank with zero/near zero interest rates. Is this garbage?

Not at all.

Is the U.S. stock market forming a bubble (at the same time commodites are soaking up cash) because there is no where else for money to go?

Correcto-mundo!

(Ok, now I'll leave it up to the blog international finance rugus to post evidence proving my answers are correct. My work here is done, it's Miller Time! ;-))

If SFWoman modelled for People's Republic of China Bridal Magazine, would the communists ban her image for being too hot? Would her face inspire young men to riot in Tiananmen Square ?

I’ll leave it up to the blog international finance rugus to post evidence proving my answers are correct.

Good one HARM! Just like my Real Analysis book - "blah blah...the proof of which will be left as an exercise."

If SFWoman modelled for People’s Republic of China Bridal Magazine, would the communists ban her image for being too hot? Would her face inspire young men to riot in Tiananmen Square ?

@Unalloyed,

I don't know the answer to your question, but there's only one way to find out: Take her (and Linda in LA LA Land's) pictures --including some tasteful nudes, of course-- then publish them in the PRCBM!

Fyi: If you need some help with that, I'm a pretty fair photographer myself.

Hey! Leave me outta this!

@Linda
.:cry:

:-)

You guys are the experts. I know nothing about China except that it's kina scary to think that our financial system is being sneered at by a government that is clearly not an ideal one. Yes, I agree with Harm, it should be funny that I AGREE WITH CHINA on this...but to me it's frightening. After all, what will I do with my Hahas???

Will they be safe in a bank?
Safe in a tank?
Safe in a boat?
How can they float?Safe in the kettle?
Or in precious metals?

I want to keep my Hahas safe until this crash has fully crashed. The fact that My hahas could devalue significantly because of the abuses of Fannie and Freddie are extremely disconcerting.
BTW

Lots of typos. I should read my posts before submitting.(sorry) Also dropped part of my post...
BTW, I know how much a Haha is, but how much is a Haha-Tata?

After all, what will I do with my Hahas???

Didn't someone suggest HaHa hedging instruments in the previous thread?

Peter P
Yes, lots of ideas for Hahas in the previous thread. It seems, however, that everyone has different ideas about Hahas. Since I recently sold a house, the Hahas are either in the bank and 2 Hahas are in CDs. Banks only insure up to 2/3 Haha so I may need to move some around...I guess what I'm saying is...I don't want to risk my Hahas. I also want a return on my Hahas. I also want most of my Hahas fairly liquid....But enough about me and my Hahas....

Yeah Peter P What do you think?

Ok, so who went and elected Peter P Grand Financial Vizier of the Blogosphere?? Must be my fault, I keep hyping him as some kind of cross between Warren Buffet & Nostradamus.

Well, if you're all really that interested in reading Peter P's opinions on metals n' hedging 'n sushi 'n stuff, I recommend checking out some recent threads on this exact subject:

Not investment advice!
Death of inflation?

well, what do you think HARM

Oh, I get it... since Peter P & Randy H have already turned in for the night, now you're interested in what I have too say. Shoot, I feel like the fat girl with braces at a school dance, after all the pretty ones are all taken. :-(

Well, finance is really not my bag, hate to rent, but personally, I'm trying to keep my stash well diversified between equities (domestic & international) & bonds. I prefer low-cost ratio indexed mutual funds, like Vanguard for this reason. Having about 5-10% in metals as an inflation hedge seems to be the advice of many finance rugus out there, but any more than that --I just don't know. The metals markets are so speculative, I'd be a bit wary unless you really know what you're doing there.*

The main thing you need to watch out for in ANY bond fund, though is direct and indirect exposure to nasty MBS/CDO mortgage-derived debt. A lot of this shit is really toxic, and the fund company is not exactly going out of its way to tell you they're holding paper backed by Joe & Jill McDebtors' NAAVLPs. Look for FNM & FRE in the prospectus, plus any references to REITs (private label MBS).

*NIA

I am not sure how China can stand there and critique our system when in fact, they are experiencing something of a housing meltdown of their own. Condos in Bejing were selling for 110-150k, which given that the average resident there makes 2-3k a year means they were almost 100 times overpriced, as compared to our measly 3 times overpriced. One report shows that there will be vacant condo complexes in Bejing for years as a result.

@ hate to rent

Careful there on the precious metals. I recommend buying a few gold eagles and a few silver eagles, just to hold and ogle them. However, as an investment metals are very, very speculative and very, very volatile. By way of personal experience, I took capital losses two years running by speculating in gold. Perhaps all that proves is my own ignorance/bad luck, but as Aleksandr Solzhenitzyn said during his Nobel acceptance speech, there's an old Russian saying that translates "You'll catch on when you're tumbling down the hill."

From 'Monty Python's Contractual Obligation Album'

The world today seems absolutely crackers,
With nuclear bombs to blow us all sky high.
There's fools and idiots sitting on the trigger.
It's depressing and it's senseless, and that's why...

I like Chinese.
I like Chinese.
They only come up to your knees,
Yet they're always friendly, and they're ready to please.

I like Chinese.
I like Chinese.
There's nine hundred million of them in the world today.
You'd better learn to like them; that's what I say.

I like Chinese.
I like Chinese.
They come from a long way overseas,
But they're cute and they're cuddly, and they're ready to please.

I like Chinese food.
The waiters never are rude.
Think of the many things they've done to impress.
There's Maoism, Taoism, I Ching, and Chess.

So I like Chinese.
I like Chinese.
I like their tiny little trees,
Their Zen, their ping-pong, their yin, and yang-ese.

I like Chinese thought,
The wisdom that Confucious taught.
If Darwin is anything to shout about,
The Chinese will survive us all without any doubt.

So, I like Chinese.
I like Chinese.
They only come up to your knees,
Yet they're wise and they're witty, and they're ready to please.

All together.

[verse in Chinese]
Wo ai zhongguo ren. (I like Chinese.)
Wo ai zhongguo ren. (I like Chinese.)
Wo ai zhongguo ren. (I like Chinese.)
Ni hao ma; ni hao ma; ni hao ma; zaijien! (How are you; how are you; how are you; goodbye!)

I like Chinese.
I like Chinese.
Their food is guaranteed to please,
A fourteen, a seven, a nine, and lychees.

I like Chinese.
I like Chinese.
I like their tiny little trees,
Their Zen, their ping-pong, their yin, and yang-ese.

I like Chinese.
I like Chinese.
They only come up to your knees...

Totally off topic here,
But I had written a letter to my local paper about their real estate section and the dominence of articles written by real esate agents. Anyhow, the editor gets back to me, says he agrees that there was a little too much biase, and he published my comments about the general ramshackle state of the local housing boom and the effects on younger families. Kudos to him, and perhaps a few people flipping open the paper today will get a new insight. Score one for the underdog.

nomadtoons2,

Outstanding! Now this is what I call proactive! As much as I love this blog it just can't end here. I mentioned earlier about running an ad on C/L offering to "ease" the suffering of flippers/specuvestors pain. (For the record I have NO interest at these pricing levels). It might be interesting to see just how much of a response I get. Again, I never let what someone else paid for a property color my opinion of what I might pay. We need to completely re-write and re-think the way we make offers. There shouldn't be any question that the tables have turned and while I'm reluctant to call this a "buyer's market" fighting the perception that bidding wars are the standard is the first step. Good on ya!

HARM,

This is actually an EXCELLENT thread. I'll put this under "He who develops last, develops best". The Chineese are already elbow deep in MBS and to replicate what we have elected to do on their scale could have disastrous effects. In short, they have seen how NOT to do it.

You guys are the experts. I know nothing about China except that it’s kina scary to think that our financial system is being sneered at by a government that is clearly not an ideal one.

Note**. China has no grounds upon which to base credible criticisms of other governments open market functions. China utilizes not only trade barriers, punitive tariffs, and selective access to their markets, but they also practice capital sterilization. It works like this. If China were to unleash the USD reserves they have built up into their economy directly, even if they controlled the rate of conversion, they would suffer intense inflation and erosion of their competitive advantage in exports. But, they need to cycle all those USDs somehow. So they make very complicated "loans" through syndicates, of which a large amount are expected and encourage to result in defaults. But these defaults carry other quid pro quo, namely in the interest of labor stability and domestic industry protection. It's a terribly inefficient way to use their reserves, but it is less costly than inflation and loss of exports.

So if they're going to bitch about GSEs, then I say go ahead an open up a free capital market there. The worst thing that will happen here is Wal-mart will take it on the nose as they suddenly have to charge much higher prices for their products, and probably use more domestic suppliers. CSR minded consumers will be happier. Just people who have their standard of living based upon access to low cost goods will be upset.***

** I am by no means an expert
*** OK, there are lots more effects, but I'm stylizing my comments for effect. One effect would be a dramatic evaluation of the USD.

I just love that the media has moved from spin to outright lies.

The National Association of Realtors reported existing homes sold at an annual rate of 6.91 million in February, up from a revised 6.57 million pace in January. The 5.2 percent rise was the biggest gain since a 5.9 percent jump in February 2004.

From MSNBC

Sales of new homes plunged by in February, while the median price of a new home dropped for the fourth straight month, providing fresh evidence that after five years of record setting sales, the nation’s once-booming housing market is cooling off.

The Commerce Department reported that sales of new single-family homes dropped by 10.5 percent last month -- the largest amount in nearly nine years and the second straight monthly drop.

So which is it? Sales up or sales down? Prices up or prices down?

Correct me if I'm wrong, but one was new homes and the other was existing homes. The only reason for the jump is that the rate of sales was so LOW in Jan. So, yes, they are playing the game of psychological sttistics...literally twisting the data to fit their scenario.

Linda in La La Land,

I think X was referring to the WAY it was "portrayed". I actually had to toggle back and forth between a couple of different articles to make sure I had read it correctly (due in large part to cold medications). As SQT said, the avg. joe sixpack probably won't go to those pains.

what is your take on precious metal. do you think that there is already a bubble in metal. I know nothing about metal. it just seem like real inflation is going to kill cash and there is no other places..

Honestly, I have no idea. Precious metal is only a belief system, just like fiat currency is a belief system. It is all about mass psychology. However, if and when the credit/housing bubble goes bust, will people go for something with more _perceived_ safety?

Note to Randy H, Robert Cote, etc.,

Let me repeat:

IN NO WAY DO I FEEL THAT RED CHINA WITH ALL ITS ANTI-COMPETITIVE, ANTI-FREE MARKET CORRUPTION, GOVERNMENT MONOPOLIES, PROTECTIONISM, LACK OF RESPECT FOR HUMAN AND PROPERTY RIGHTS, ETC., ETC. IS IN ANY POSITION TO BE CRITICIZING THE U.S. NOR AM I ADVOCATING MODELING OUR HOUSING OR FINANCIAL MARKETS AFTER CHINA'S.

Like I already said to Owneroccupier,

"This is why I was so shocked by this article and thought it deserved notice. Like I said, the article just struck me as so bizarro and comically ironic. Here I’ve been criticizing the GSEs for creating systemic risk (and for their “too big to fail” implicit taxpayer guarantees) here for months. And then the LAST country I’d ever expect to agree with me does (indirectly anyway).

Note the comments about Sudan & Saudi Arabia? Comedy/irony/satire… get it?"

SFWoman,

I have heard more than a few similar observations from those in the know regarding China. I know that the IBs, PEs, and VCs are all recruiting heavily for financial talent to work in Shanghai often with a large SF component. I also know that the pay is astronomical. They are extremely selective about who they put into such roles though. Fluency in Mandarin and English, command of Chinese business culture, and usually Chinese ethnicity are usually required and non-negotiable. I love reading the open positions on glocap.com where they try to artfully signal that they will only consider ethnic Chinese for these positions. Usually it's veiled as something like (on the questionnaire you have to fill out to apply) "What are your specific family ties to mainland China?"

Shit, has everyone here lost his sense of irony/humor??

HARM,

It's all good. I was just trying to spout my typical "don't worry about China too much" diatribe before people launched into the typical doomsday predictions for the US economy. I do find great tragic comedy in China's posturing. However, it is probably timed to coincide with Congress' annual "beat up the RMB peg" theatre.

her irony/humor

@newsfreak,

Ahh... the old "which gender do I use" pronoun issue. That's the problem with English --there's no truly gender neutral singular pronoun, aside from the awkward (and inappropriate) "its", or "their", his/her, s/he. The rule when I was in grammar school was to always use the male pronoun, but that was back during prehistory/pre-PC.

Oops --forgot "one's".

Freddie Mac CFO resigns, shares fall
Wed Mar 22, 2006 11:26 AM ET

By Ed Leefeldt
NEW YORK (Reuters) - Martin Baumann, the respected chief financial officer of Freddie Mac (FRE.N: Quote, Profile, Research), has resigned less than three years after taking the job at the second-largest U.S. mortgage funding company, which is still recovering from an accounting scandal.

On March 10 Freddie Mac said it would delay until May the release of its quarterly and full-year financial results in order to implement an accounting change. It said it would hold a conference call with investors on March 30 to discuss this.

Japan is certainly doing some interesting things, and politically they are unaligned with either India or China. They also have an interesting relationship to Israel, as having almost no muslim demographic.

Best beef in the world too! Their seafoods are also top notch.