A Peak Under The Hood will be dedicated to providing unique insights into macro topics happening around the world and how these topics may affect financial markets. We will try to provide an entertaining, but informative blog, on subjects ranging from Real Estate, Mortgage Markets, Commodities, Major Stock Indexes, Bonds, and Select Trading Ideas. Our site will contain original posts, charts and also include opinions from outside investors and reporters who furnish original thoughts. We will attempt to dig deeper than what can be found on major network financial news outlets and it is our hope that you will continue to visit the site as we provide intelligent analysis that may be counter intuitive to mainstream ideas.

Wednesday, February 23, 2011

Smoking Crack(s) in China (Real Estate)

Some things take a long time to materialize.  Foundation damage is one of these instances.  In some cases, years of poor grading, inadequate draining or improper initial construction grow and build until there is a major shift or crack in the foundation of the home.  The homeowner can either ignore the damage and allow for further deterioration (of the home and their bank account) in the future, or fix the problem.  If the damage is severe and the neglect has been going on for some time the fix is very costly, in some cases costing more than the value of the home.  

China has been showing major foundation cracks in it's property bubble for years, but there has been little done to fix the impeding collapse.  Today, in addition to recent rate rises, China's 5 major banks have pulled the plug on 1st time home buyer discounts.  Bye Bye discounts .  This will take away the 15% discount many Chinese have enjoyed on their first-time purchase of 344 sq feet of grossly inflated high rise condos in many a city in China.

China is in the first stage of grief: DENIAL, in regards to their property bubble.  This was made most apparent on Feb 17th, when the gov't decided to stop publishing the countries index of property prices. No more property data in China.  I'm sure that China doesn't want to publicize the declines when they start coming harder and faster each month.  As stated in the above article:
"It's just like changing the scale of a thermometer, and then telling a patient they no longer need to take medicine for their fever, and the whole family cheers that the illness is cured,"

China's property bubble may be the largest real estate bubble of all time, making California's housing bust look like a Pomeranian next to a Great Dane.  China's property bubble is the fat person that has to buy two airplane seats that makes you say, 'dammmmmmmmmmn that guy is fat.'  You would think that after years of ridicule fatty would slow down, but instead he keeps pounding pound cake despite knowing this binge eating will kill him.  China's property bubble is an economic cancer that keeps growing and growing.  At this point, regardless of the diagnosis or treatment, the cancer will kill the economy.  The crooked Dr. (the Chinese  government) has been telling everyone for years that the sick are well, but now that the patient's skin is falling off and they are puking up blood, there is no way to hide the fact that someone is going to die.  Still though, the Dr. says everything looks fine.
China is smoking crack if they think they can stop the bubble at this point.  There is no such thing as a soft landing for a property bubble.  No rate manipulations, bank program suspensions, credit expirations or all the kings horses and all the kings men will be able to save the China Dumpty real estate market once the bloated housing market falls off the wall.

To be sure of this I found Humpty Dumpty translated in Mandarin Chinese:

"Huendih Duendih tzuoh de chyang-jongjiall:Huendih Duendih igulu shuai leangball. Suooyeou hwangdih de maa, gen suooyeou hwangdih de ren,Yee tzay buneng baa Huendih Duendih pin-cherng g huluentwen."

Trust me on this one-- Yee tzay buneng baa Huendih Duendih pin-cherng g huluentwen is bad.  It does not mean sunshine and cookies for real estate and a soft landing for all.  

It mean once the crash comes, you can't just 'fix' it.  
China Dumpty is barely holding onto the wall. The wall is a tall jagged mountain that rises higher than Mt. Everest.  There is no base camp on this Mt. Everest.  It rises up rapidly to the peak, miles above the earth, and strait down on the other side.  


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