Australian Housing – A bubble? Deflation coming – China no longer the savior.

Australian Housing Doomed – Deflation Coming – China no longer the savior.

Maybe Bank Economists want to take note of another Nobel Prize laureate – who is the latest to warn that Sydney and Melbourne’s real estate markets are showing every sign of being in a dangerous price bubble.

Okay – what does he know – right?

Australia the lucky country with house prices doubling each ten years.

We missed the full affects of the Financial Collapse in 2008 through pure luck – Chinese commodity demand.

The outlying city suburbs – during this period did have severe devaluation in prices – something that surveys overlook as these agencies took the ‘average’ throughout the whole city and suburban areas into account.

Not this time!

“We learned it in the 1930s (during the Great Depression) but we forgot it – it isn’t that we’ve never been there.”

Professor Smith also worries that the concept of short memories is getting shorter when it comes to the genesis of the global financial crisis.

“Political memories and economic memories can be very short,” he lamented.

“When times are good no one wants to be remember what can be the result of the good times if they’re done to excess.”

Read the full article here:-

http://www.abc.net.au/news/2015-07-30/australian-housing-bubble-nobel-prize-winning-economist/6659014?section=business

image
Professor Vernon Smith – nice view over the harbor – click on image to emblazon.

Credit photo: MGSM

The simple fact of the matter is that this new financial crisis will not have Chinese support – no commodity demand – investors should indeed worry.

Even though Yellen has not indicated a rate rise is on the cards in September 2015 – due to bad economic figures in the U.S. – she will increase interest rates through the simple fact of a perceived stock market bubble.

If one follows the Bond and Stock markets – the Chinese share markets ‘carried over sentiment’ to global stock markets – this small tremor made the so called ‘smart’ money – withdrawn from the stock markets and the demand increased for bonds (3 to 5 years).

This – despite the U.S. stock markets only making short adjustments – no major crash – just plodding along with replacement investors – whether retail or corporate.

Yes fully aware that the P/E ratio is skewed – is out of reality – but that is human nature. My simple explanation is that the majority of currencies devalued and USD perceived strength – with the secondary problem of depositors trust in the banking industry.

This jump in demand for Bonds – to my mind anyway – is just paving the way to inflict more damage to these investor’s capital base when the shit hits the sovereign debt fan.

China has been a covert seller of US Treasuries in Q1 and Q2. A large swathe of foreign reserves dumped on the market – various theories have emerged as to their reasoning – but needless to say it is now history – they did so without warning and without Bond Bulls knowledge.

Those in control of the purse strings in China have far more intelligence than what commentators are prepared to admit – liquidity in the Bond markets is very tight causing extreme volatility – to dump that amount of Bonds without causing chaos should be applauded.

The Chinese pegging of Yuan to the USD is now a major factor – and it would not surprise me if now China devalues the Yuan. Yes – to the wrath of the U.S. congress – with accusations of currency manipulation.

Yes China entering currency wars – devaluing their currency in a further effort to boost exports – no different to Canada, Australia and New Zealand – plus the majority of other countries.

The U.S. quantitative easing policies over six years from 2008 benefited China – however – Japan’s monetary policy (Abenomics) is no doubt causing consternation to all the near Asian neighbors.

This together with the increase in value of the USD over the past three years has meant China has to re-assess and seek to adjust the Yuan – to improve the currencies negotiating value on the global stage.

Some will say retaliation – but the simple fact of the matter is that the Yuan pegged to the USD – even against the country widening the trading band – has trade implications – the question is whether it will increase export market share bearing in mind the devalued currency of its trading partners.

Personally I doubt this – as there are internal and external pressures that apply to currency devaluation (deflation) – plus the world demand for goods is self evident – commodities are trending lower and will continue to do so for the foreseeable future.

So China has a while to go – one hopes that they decide to depeg the Yuan completely and allow the global currency market to decide its fate.

In the meantime – Australia and Canadian housing markets will suffer this time around.

Commodities are not a ‘lucky’ escape for both countries.

Edit:

Self explanatory on commodities – will just keep on going downhill

http://www.abc.net.au/news/2015-07-30/terms-of-trade-collapse/6660716?section=business

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s