Liu Lang, a Chinese migrant worker, left his rural hometown in Sichuan Province two decades ago to work in the factories of the southern province of Guangdong, China’s manufacturing powerhouse. Now, he is moving back. “I worked my way up from a basic worker to a department head. And my career basically ended today,” Mr. Liu said on the train leaving Guangdong. Factories in Guangdong have been hit hard by the slowing economy, and many of them have closed, including the shoe factory where Mr. Liu worked.
Today's batch of housing data, namely the December update of housing starts and permits, which as a reminder has a quite substantial "confidence interval" was relatively uneventful.
While prices in China's Tier 1 cities are soaring, let's put the country's vacant housing problem in context: China has some 13 million homes vacant - enough to house the families of several small countries . Actually, it's worse: Zhu Min, deputy managing director at the International Monetary Fund, recently admitted that China’s real estate bubble now manifests itself in 10. 7 billion square feet (1 billion square meters) of unused housing! Min added that many housing stock go unused, and the market may see a significant price correction in the future, wiping out vast household wealth.
"... there is presently an enormous chasm between the point where self-reinforcing selling pressure by speculators is likely to emerge, and the much lower point where balancing buying pressure by value-conscious investors is likely to support the market. Because every seller necessarily requires a buyer, the enormous gap between the two represents substantial crash risk."
The world’s grand experiment with debt has come to an end. And it’s now unraveling.
"Japan’s deflation didn’t begin until the mid-1990s, a half-decade after the collapse of Japanese real estate and equity prices. Furthermore, during the early years of deflation, Japanese long-run inflation expectations remained well anchored, averaging about 1½ percent as measured by consensus forecasts. So, unfortunately, a Japan-style deflation remains a relevant worst-case scenario for us going forward."
Following a comprehensive review of China's housing market, we now realize it's much worse than the consensus understands.
Norway is in trouble. As we have detailed previously (here, here, here, and here), the world's largest sovereign wealth fund has begun liquidating assets (after its largest quarterly loss) as the nation faces recessionary fears (key data deterioration as oil stays lower for longer) with expectations building (despite denials by the central bank) that ZIRP (or even NIRP) is coming. Why? Simple - as the following real-time map shows - every one of Norway's oil fields are currently underwater!
On Tuesday, it was announced that over seventeen million new vehicles were sold in 2015, the highest it’s ever been in United States history. While the media claims that this record has been reached because of drastic improvements to the US economy, they are once again failing to account for the central factor: credit expansion. The auto bubble has yet to burst, but its negative effects are already starting to gradually appear.
Some very troubling charts for the stock bulls to consider.
"It’s no secret that Alberta’s economy is closely linked to the peaks and craters of oil prices—nominal GDP (not adjusted for inflation) swings in tandem with crude prices. It’s why Fort McMurray is like a wounded beast these days. MacKay’s neighbour got laid off this fall. “I watched the bank come and take his truck,” he recalls—it was that or not feed the kids."
All we can do is point out the risks, so that people can at least prepare on an individual level. A major lesson everybody should take to heart from the Cyprus experience is this: when the next crisis strikes, do not believe any of the promises uttered by government or central bank officials. You will be lied to in the critical moments, and you could stand to lose a lot if you believe the lies.
Look out Stefan Ingves, the 2 and 20 crowd smells blood: "The market seems eager to challenge the Riksbank and there are rumors that many foreign hedge funds are long kronor and see a weakening of the krona after a possible intervention as a good buying opportunity.”
The reckless herd has been in control for the last few years, but their recklessness is going to get them slaughtered. Corporate profits are plunging. Labor participation continues to fall. A global recession is in progress. The strong U.S. dollar is crushing exports and profits of international corporations. Real household income remains stagnant, while healthcare, rent, home prices, education, and a myriad of other daily living expenses relentlessly rises. The world is a powder keg, with tensions rising ever higher in the Middle East, Ukraine, Europe, and China. The lessons of history scream for caution at this moment in time, not recklessness. 2016 will be a year of reckoning for the reckless herd.
While the market might have been disappointed by the ECB’s “underdelivery in December, it came as a relief for the Riksbank, the SNB, the Norges Bank, and the Nationalbank who are effectively forced to cut each time the ECB eases or risk seeing upward pressure on their respective currencies. That dynamic has led to a veritable race to the Keynesian bottom with Norway as the last man standing in terms of conducting monetary policy with rates above zero. As we enter the new year, a number of questions remain regarding Europe's headlong plunge into NIRP-dom.