Wednesday, December 8, 2010

To infinity and beyond... Vancouver Style

So yesterday Re/Max came out with another one of those upbeat assessments that real estate would go up in every market across the country.

Garth Turner had a succinct analysis, saying:
  • "Yes the fabricators at Re/Max struck again, issuing a 2011 forecast based on, well, nothing, and predicting still-higher housing prices. In every single city. As outrageous as this seems, at a time when the economy is so fragile that we still have emergency interest rates, exports are plunging, unemployment is going structural and families have never owed as much, the media reaction was even more cookie-hurling. After reading 18 versions of the story in as many markets, I could not find a single one that expressed a contrarian sentiment. So Canadians were once again deprived of a balanced view of the world."

In Vancouver the Re/Max spokesperson gushed about the presence of Hot Asian Money and how, like it or not, it will send the Vancouver westside market higher by 10%. This based on "someone" from CMHC telling him that upwards of 40,000 Asians 'may' immigrate to Vancouver next year. Guess we better buy now or be priced out forever...

Meanwhile Westside Realtor Larry Yatkowsky also had an Asian themed post yesterday, 'Chineseness’ = Gold in Your Pocket.

As I have written before, China - on a per capita basis - has pumped more stimulus money into their economy than have the Americans. A vast amount of that money is working it's way into the Asian stock markets and into foreign property purchases.

I personally believe the China Economic Miracle is, in reality, a paper tiger waiting to be shredded.

With that in mind, I took particular interest in a MarketWatch article by Paul Farrell. Farrell is predicting another major stock market crash and notes that the preceding condition that triggers that crash is collapse in China.

Citing an interview that Fortune’s Bill Powell did with hedge-fund kingpin Jim Chanos of Kynikos Associates, Farrell notes that Chanos is “betting that China’s economy is about to implode in a spectacular real estate bust.”

From the article:

  • China is “an economy on steroids.” In a Charlie Rose interview, Chanos said “China’s on an economic treadmill to hell.” If so, then all of Wall Street’s highly promoted emerging markets are also sucker bets.

    Another hedge-fund player warned: Chanos “is shorting the entire country,” including a company “Goldman Sachs recommended as a buy … the listing for the Hong Kong Stock Exchange … China’s Merchants Bank, one of Beijing’s largest.”

    Back in the 1980s, Japan “grew largely on the back of capital investment” and then turned into “a capital-destruction machine, and that’s what China is now. You have an economy that’s 60% fixed-asset investment, and not even in the developing world is that sustainable.”

    Chanos won’t pinpoint the timing or the trigger: “He just believes it’s coming,” and he is betting on it. Reminds us of Henry Paulson shorting Goldman Sachs’ crooked deals before the 2008 crash.

As everyone gushes about how the stagnating North American economy and wages are irrelevant to our increasingly unsupportable real estate market because of the Asian factor, one thing is for certain.

If China suffers a 1990s style economic collapse, not only will our real estate implosion be spectacular... it will be on a scale that surpasses even my predictions.



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1 comment:

  1. To be clear, "Chineseness" is a term coined by the authors of the UBC report. Their report, which is the most complete investigation read to date, appears to give 'legs' to what a number of Realtors have in the past accepted as a marketing tool that works but, were unable substantiate with fact.

    From my perspective as a Vancouver Realtor, their report stands as validation of empirical knowledge.