China big city home prices surge in August adding to worries

A labourer selects wooden planks as he works at a residential construction site in Hefei, Anhui province, China February 18, 2012.REUTERS/Stringer/File Photo

Shenzhen lost its place as the hottest spot in China's property market in August, but the tech boomtown bordering Hong Kong remained one of the major cities driving rapid price growth as concerns mount over funds pouring into property.

Prices for new homes rose 36.8 percent in Shenzhen from a year ago, cooling from 40.9 percent in July, allowing the coastal city of Xiamen to take over as the city in China with the fastest rising prices.

More broadly, the average new home price in 70 major cities climbed an annual 9.2 percent, up from 7.9 percent in July, National Bureau of Statistics (NBS) data showed on Monday.

The same data showed 64 of 70 major cities tracked by the NBS notched year-on-year price gains, up from 51 in July.

"Sharp price gains were propped up by just a few overheated cities, mainly the four first-tier cities, namely Beijing, Shanghai, Guangzhou, and Shenzhen," said Rosealea Yao, an economist at Gavekal Dragonomics.

Prices in top performer Xiamen surged 43.8 percent from a year earlier, accelerating from a 39.2 percent in July. The inland city of Hefei was the second-fastest, with prices rising 40.3 percent in August, versus a 33.8 percent in July.

Shenzhen, which had led the league for price rises since April 2015, is still the most expensive city, with house pricesaveraging 54,478 yuan ($8,104) per square meter, according to Fang.com, China's largest real estate website.

To put things in perspective, a 120 square meter apartment in central New York and Tokyo would cost $18,499 and $13,825 per square meter on average, according to the Global Property Guide.

Analysts say Shenzhen's slowing but still spectacular property price growth during August might be due to its high base - and values have still to peak.

"Shenzhen is also the tech hub of China where many listed companies are headquartered, thus many people have secured funds from the stock markets and have the capital to invest in property," said Zhang Yiping, macroeconomic analyst at China Merchants Securities.

"Land supply is scarce, and Shenzhen's population is mainly young people, who have an urgent need to buy houses."

Official data showed prices rose 31.2 percent from a year ago in Shanghai, the country's financial hub, and 23.5 percent in the capital Beijing, both rising faster than in July.

And according to the Fang.com website, average prices in August rose to 43,420 yuan ($6,459) per square meter in Shanghai, while they rose to 38,926 yuan ($5,790) in Beijing.

"UNSUSTAINABLE"

Yao warned that prices had ballooned to "unsustainable levels", and that ample credit and relatively relaxed property policies would continue to drive prices higher.

When there were similar surges in China's property market a few years ago, Yao noted that 47 cities had imposed restrictions on home prices

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, but this time round only a half dozen had imposed restrictions.

Demand-side restrictions, she said, had proved futile.

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"Credit stimulus in the beginning of this year played a huge part in driving up prices. How to limit the liquidity in the market should be a primary concern for the government," Yao said.

Chinese policymakers have expressed concerns over mounting debts from an over-inflated property market of late, with the central bank's chief economist urging more steps to curb capital flowing into property.

Official data showed that mortgage loans remained the major driver of loan growth, accounting for more than 70 percent of bank loans in August. The rapid rise in property loans over the past few months has raised concern among analysts.

Prices in second- and third-tier cities are also rising sharply as the buying boom spills over, favoring more affluent second- and third-tier cities such as Xiamen and Nanjing.

In an effort to deter speculators and to cool prices, housing authorities from the eastern city of Hangzhou announced on Sunday that it would begin to restrict home purchases. Families which are not registered as residents and already own one or more houses in certain districts will not be allowed to purchase another home, either new or pre-owned.

Despite signs of a broadening recovery, many smaller cities still have a glut of unsold homes. Prices in the rustbelt city of Dandong, for example, recorded the biggest fall at 2.1 percent, compared with 2.4 percent in July.

(Reporting by Yawen Chen and Kevin Yao; Additional reporting by Jackie Cai; Editing by Eric Meijer and Simon Cameron-Moore)

It's looking more likely than ever that the UK will lose its financial passport

• Ben Moshinsky
 

• 8h
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Jens Weidmann, president of the German Bundesbank and a member of the European Central Bank (ECB) Governing Council.REUTERS/Brian Snyder

The European Union won't cut a special deal with the City of London if the UK leaves the European single market, Germany's top central banker warned.

Jens Weidmann, president of the Bundesbank, told the Guardian that London-based banks would lose their right to operate in the 27-nation trading bloc in the event of a so-called hard Brexit.

This scenario would see the UK leave the EU without negotiating any form of membership of the single market – the economic trading bloc that forms the core of the EU.

Weidmann told The Guardian that “passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area.”

Membership requires that countries harmonize their financial rules, that they accept the free movement of European citizens, and that they pay into a central budget – conditions which are unlikely to be accepted by Eurosceptics.

Current EU law allows European banks to operate branches in the UK that do not need to be separately capitalised from the parent company abroad. Similarly, non-EU banks, such as those from the US or Asia, can use their London subsidiary to sell services to clients across the EU. This has allowed London's financial centre to act as a hub for global firms looking to do business in the EU.

The use of this bank "passport," which allows banks in London to access the EU single market of 28 nations (including the UK), could come to an end because of the June vote for a British exit from the EU, or Brexit.

Other financial centres in the EU, such as Dublin, Frankfurt or Paris, could take over London's hub role if the UK loses its passport.

“Of course several businesses will reconsider the location of their headquarters. As a significant financial centre and the seat of important regulatory and supervisory bodies, Frankfurt is attractive and will welcome newcomers. But I don’t expect a mass exodus from London to Frankfurt,” Weidmann said.

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Venezuela says OPEC, non-OPEC oil stabilizing deal 'close'

• Reuters

• 15h
• 708
 
• 1
 

Venezuela's President Nicolas Maduro attends the 17th Non-Aligned Summit in Porlamar Thomson Reuters

CARACAS (Reuters) - Venezuelan President Nicolas Maduro said on Sunday that OPEC and non-OPEC countries were "close" to reaching a deal to stabilize oil markets and that he aimed for a deal to be announced this month.

OPEC members may call an extraordinary meeting to discuss oil prices if they reach consensus at an informal gathering in Algiers this month, OPEC Secretary-General Mohammed Barkindo said during a visit to Algeria, the country's state news agency, APS, reported on Sunday.

(Reporting by Deisy Buitrago; Editing by Peter Cooney)

Read the original article on Reuters. Copyright 2016. Follow Reuters on Twitter.

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The world's biggest hedge fund is worried the Federal Reserve could mess up everything

• Rachael Levy
 

• Sep. 17, 2016, 9:27 AM
• 13,589
 
• 38

Ray Dalio talks at the Alpha Exchange panel at the CNBC Institutional Investor Delivering Alpha conference September 13 in New York City.Heidi Gutman / CNBC

Billionaire investor Ray Dalio told a hedge fund conference on Tuesday that the Federal Reserve doesn't need to raise interest rates now.

A note sent to Bridgewater Associates' investors on the same day further explains why the firm thinks the Fed should hold off.

The note warns that raising rates during a deleveraging, or selling off of debt, could crush the economic recovery.

"If it were us, we would not take the risk the Fed appears to be moving toward," the note said. "Cyclical conditions point modestly but not strongly toward tightening, and the secular backdrop screams that the risks of tightening prematurely outweigh the risks of falling behind."

Bridgewater's Greg Jensen, Phil Salinger, and Alan Keegan wrote the note, a copy of which was obtained by Business Insider. Bridgewater is the world's biggest hedge fund firm, managing about $150 billion in assets.

Historical precedent

In the note, Bridgewater flagged several cases of tightenings during deleveragings: the UK in 1931, the US in 1937, the UK in the 1950s, Japan in 2000 and 2006, and Europe in 2011.

"In nearly every case, the tightening crushed the recovery, forcing the central bank to quickly reverse course and keep rates close to zero for many more years," the note said. 

In those cases, markets have tended to tank, recoveries fade, and inflation drop.

More specifically, the average rate hike during a deleveraging "caused, over the next two years, a 16% drawdown in equities, a 2% increase in economic slack and a 1% fall in inflation."

The note continued:

"Looking at each case of tightening in a deleveraging reinforces the picture: in general, the tightenings are short-lived and unsuccessful, with the central bank quickly reversing course and keeping rates at zero for many years. Even in the most successful example of tightening in a deleveraging, the UK in the 1950s, the BoE hiked rates only modestly, despite roughly 7% of nominal growth with 4% inflation, such that there was no tightening in real terms."

On the other hand, in cycles where the economy was not deleveraging, "economic activity continued to strengthen, inflation kept edging up and asset returns stayed strong, allowing the Fed to keep tightening."

Bridgewater said that, if it were the Fed, it would not raise rates faster than what is priced in. That's because what is priced in is at a much slower pace than what the Fed has recently projected.

The market has priced in a slower tightening phase than what the Federal Reserve projects, according to Bridgewater.Bridgewater document

"Normally, a mistake in monetary policy is not that big a deal because it can be reversed," the note said.

"The risk now is higher than normal because a tightening mistake is harder to reverse today when the ability to ease is more limited."

Russell Sherman, a spokesman for Bridgewater at external public-relations firm Prosek Partners, declined to comment. 

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My Ballot (Video)

My Ballot

2016 , HOME   » POLITICS  -  53 MINLEAVE A COMMENT

Money and politics seem to be unavoidable bedfellows in the modern age. Sadly, the obscene sums spent by political campaigns every election cycle do little to directly benefit the American public. The wealth divide in the country has only widened, and those with limited means are left with an even more limited voice. This stark reality is apparent in the millionaires who overwhelmingly occupy seats in the Congress and the House of Representatives. Who do they ultimately work for in the end? The penetrating new documentary My Ballot scrutinizes the American political system and those who profit most from it.

The film is a protest against those politicians who spend and earn absurd amounts of money while the poor and middle class citizens they were elected to represent suffer through abject living conditions, pay cuts, shuttered schools, limited access to healthcare, slashed social security benefits, and unaffordable housing costs. Wouldn't the money spent on election campaigns be better placed in funding a cure for these societal ills?

To be fair, the film makes it clear that the issue runs deeper than any one individual. Many industries enjoy a financial windfall come election season. Political and media insiders break down the numbers. Television advertising accounts for the majority of dollars spent, and its effectiveness is ultimately questionable at best. The system itself is broken, and stacked against the possibility of real change. If someone sets out to run for political office, they must be independently wealthy, or have unfettered access to others who are. Potential change makers who are true advocates for the other 99% simply cannot afford to provide these everyday citizens with a voice in today's political arena.

Is there a better way? Campaign finance reform has been on the table for many years, yet little has been done to act on it. As long as the dollars keep coming in, and the rich continue to get richer, there's little incentive to do so.

Admirably, My Ballot does not approach its subject from a stance of hysteria and outrage; its approach is more measured and precise. It delivers a clear message that should not be ignored.

Directed by: Mohammad Tayyeb

The Bank of Japan is worried about a stock market crash

• Wolf Richter, Wolf Street

• Aug. 27, 2016, 7:04 PM
• 9,024
 
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A man looks at an electronic board displaying a news photo of Bank of Japan (BOJ) Governor Haruhiko Kuroda in Tokyo May 29, 2013.REUTERS/Toru Hanai

No central bank of a developed country equals the Bank of Japan in trying to manipulate the stock market up by buying equities. The BOJ has done this for years. With breath-taking ineffectiveness.

So on July 28, the BOJ announced another stock market pump-up scheme: it would nearly double its annual purchases of equity ETFs from about ¥3.3 trillion to ¥6 trillion ($60 billion).

Hedge funds and other speculators expected for the BOJ to instantly throw its weight around in the stock market, and hopes were riding high that the Nikkei would surge, or at least rise in a visible manner. Alas, on Friday in Tokyo, the Nikkei dropped to 16,361, down a smidgen from where it had been on July 28.

The debacle was right in line with the BOJ’s prior stock-market pump-up schemes. While it managed with its negative interest rate policy to totally kill off all money market funds in Japan, with the last 11 shuttering earlier this year, and while it managed with its gigantic purchases of Japanese Government Bonds to completely freeze up the JGB market, the BOJ has failed to accomplish much of anything in the stock market. The Nikkei stock index is down 21% from its recent peak in June last year, and is down 57% from its all-time peak in 1989.

But nearly doubling the ETF purchases should have done something. So why did the highly anticipated pump-up-scheme rally flop?

Now an answer is seeping to the surface. It seems the BOJ is worried about a stock market crash, triggered by Fed tightening, and has decided to keep its power dry to be able to put a floor under plunging stocks later this year.

According to the Nikkei Asian Review, the BOJ purchased ETFs on only three days in August through Wednesday: August 3, August 4, and August 10, totaling ¥176 billion.

But its new rate of purchases of ¥6 trillion annually would mean ¥24 billion in ETF purchases per trading day. So 18 weekdays in August through Wednesday, minus one holiday (Mountain Day) should equate to ¥408 billion – which left the BOJ’s purchases short by ¥232 billion.

This pile of moolah has been added to its “dry powder.” Every day the BOJ is not buying ETFs, its pile of dry powder increases. The Nikkei Asian Review:

The BOJ does not make public the process by which it buys ETFs, for fear of unduly influencing the market. But an official offered a passing reference to “last October” by way of explanation for the conservative approach.

“Last October” means this: Last year, the BOJ had front-loaded much of its ETF spending during the stock-market swoon in the summer, when China was crashing, and Japan followed. Then there were just ¥500 billion, or two months’ worth of ETF purchases, left over for the final three months of the year. So in October, it bought ETFs on just one day, saving up what was left to combat any sell-offs at the end of the year.

Hedge funds watch this sort of thing closely to wring some advantage out of it. Central bank action is all that matters anymore in the markets – at least, that’s the meme:

But as 2015 drew to a close, market players nevertheless began to suspect that the bank was out of options. An extra ¥300-billion ETF purchase quota added at the BOJ’s December policy meeting was viewed merely as a tack-on measure and failed to keep share prices from entering a slide.

This year, too, speculation around US interest rate hikes makes a stock market slide near the end of the year a real possibility.

But with stocks going nowhere now, the BOJ has decided to not waste its powder at the moment, because it wouldn’t accomplish much anyway. Instead, it would keep its powder dry for when it was needed. The Nikkei:

The BOJ does not explicitly define its buying as a stock price control measure. But eschewing a regular buying schedule to tailor purchases to market movements speaks to a significant level of concern about staving off another slide.

These ETFs are a special central-bank concoction. In a new twist last December, the BOJ promised to buy ETFs based on companies that boost wages, employment, and capital spending. But those ETFs didn’t exist. They’d have to be created first so that the BOJ could buy them.

Major asset managers in Japan have been busy creating these ETFs. Daiwa Asset Management partnered with index provider MSCI to develop a special stock index for these anointed companies. Nomura Asset Management and other firms in the Nomura group also came up with an index. The first ETFs that track those indices started trading in May.

Everything was ready when the BOJ announced at the end of July that it would nearly double its purchases of these ETFs. With every day that the BOJ is not buying, its pile of dry powder is growing. It is likely that the BOJ, when it decided to ramp up its ETF purchases in July, already knew why, and it had nothing to do with inflation or any of the other pretexts of QE: it was to prepare for the moment when the Fed made its move despite expectations that it would not, and when, in response, the markets would unravel.

But it’s doubtful that this will work out. Practically nothing the BOJ has tried to accomplish in the Japanese stock market has worked out. While stocks might have reacted positively at first, they invariably ended up tanking.

Read the original article on Wolf Street. Copyright 2016. Follow Wolf Street on Twitter.

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