You may remember Citi saying before that “modern fund management is almost hard-wired to produce bubbles” and that a “weary client once defined a bubble to us: “something I get fired for not owning”.
You’ll also get fired for owning them too long. So obviously they’re keen to keep an eye. Even if bubbles are typically only spottable after they pop… and even if hypothetically spotting them is sometimes a bit pointless.
As Citi say again: “Rate hikes eventually burst bubbles, but it usually takes at least three. We think it is still too early to fight this bull market.” Read more
Credit Suisse would like to direct your attention away from that 7 per cent growth figure and back towards “China’s combination of a triple bubble (with the third biggest credit bubble, the biggest investment bubble and second biggest real estate bubble of all time)” which “remains the biggest risk to the global economy.”
From their global equity strat team (with our emphasis): Read more
Chinese regulators have markets exactly backwards.
Late on Thursday they announced an investigation into manipulation by short sellers, while the futures exchange seems to be discouraging people shorting, or betting on price falls.
In practical terms, the action failed: stocks fell again, leaving them down 12 per cent on the week and down more than a quarter from their peak three weeks ago, with extraordinary intra-day swings.
In principle, though, the action is just wrong. The reason the stock market is falling isn’t short sellers, it’s long sellers. More precisely, the hordes who’d been piling into stocks and pushing prices through the roof over the past year are selling, and that was entirely predictable (the difficult issue was when there would be a rout, not whether there would). Read more
From Morgan Stanley’s China Pulse survey first (via @jjeswani):
In June, more than half of the investors believed Shanghai A-shares were already in a bubble vs. only 12% holding this view in January.
Yes, dot-com comparisons are flung about all too easily. But it’s quite hard to argue with the fairness of this one from Bloomberg:
The world-beating surge in Chinese technology stocks is making the heady days of the dot-com bubble look tame by comparison.
The industry is leading gains in China’s $6.9 trillion stock market, sending valuations to an average 220 times reported profits, the most expensive level among global peers. When the Nasdaq Composite Index peaked in March 2000, technology companies in the U.S. had a mean price-to-earnings ratio of 156…
Valuations in China are now higher than those in the U.S. at the height of the dot-com bubble just about any way you slice them.
Nasdaq in the 1990s, Dow in the 1920s, silver and gold in the late 1970s, USDRUB, Bitcoin and oil more recently…
An example of spurious pattern searching or prescient warnings of a dollar bubble?
*shrug* We dunno.
But here’s HSBC’s position, via charts first and then words: Read more
Dubai stocks went bonkers last year, along with Qatar, distorting the performance of the (anyway tiny) frontier markets index.
Locals rediscovered their lust for equities, while foreigners were excited by a potential upgrade to emerging market status and the billions of dollars of inflows from index funds that would represent. In total the index more than tripled in two years.
In the past month it’s all gone wrong, and strategist Andrew Howell at Citi has a good reason why: the performance of Dubai, represented by the MSCI UAE index, looks very much like the out-of-control price inflation represented by the Nasdaq during the dotcom bubble. Read more
The Aussie banks are very good companies. They are profitable, resilient, well capitalised, well managed, shareholder focused and have a very strong industry and regulatory structure. However, following the significant leveraging of the Australian & NZ households over the last thirty years they are now low growth and remain heavily exposed to housing, funding markets & unemployment risk. Read more
The wonders of Google auto-suggest, silver vox pop edition:
The next asset bubbles with potential to endanger the US financial system are in farm property and Treasury bonds, a leading regulator has warned, reports the FT. Sheila Bair, who chairs the Federal Deposit Insurance Corporation – responsible for seizing failing banks – said the health of more than 1,500 farm banks would be threatened if the “positive fundamentals” in the booming agricultural sector suddenly reversed.
GMO’s James Montier has added his two-penneth to the bond bubble debate.
He reckons it is a largely sterile conversation because what investors should be asking themselves is whether bonds are a good investment at their current low levels. Read more
Here’s an, erm, brave discussion paper out from the Boston Fed.
In it, authors Kristopher S. Gerardi, Christopher L. Foote, and Paul S. Willen examine “optimism” and “pessimism” about the US housing market before the recent crash. In other words, they’re looking at why some people missed the imminent house price implosion entirely and why some didn’t. Read more
Fresh from Hong Kong — a headache for property giant, Henderson Land.
Late on Tuesday, the company controlled by billionaire Lee Shau-kee let slip that it would take an HK$734m charge (USD$94m) on 20 cancelled Hong Kong apartment sales. Henderson had already included sales of 24 flats in its 2010 earnings, but only four of them have actually closed. Read more
The problems in China’s housing market are more severe than those in the US before the financial crisis because they combine a potential bubble with the risk of social discontent, according to an adviser to the Chinese central bank. Li Daokui, a professor and member of the Chinese central bank’s monetary policy committee, said recent government measures to cool the property market needed to be part of a long-term push to bring high housing prices under control, the FT reported.
Over the past two weeks, the Chinese government has been rolling out an aggressive campaign to squeeze speculative buyers out of a property market that many analysts fear is close to a bubble, the FT says. Almost every day a new administrative measure has been announced – raising the required deposit and interest rate on mortgages for second homes, and making it harder for people not resident in a city to get a mortgage there.
The blame game for the crisis has now reached central banks themselves. FT Alphaville notes Deutsche Bank’s view that they were simply too boring. Read more
And the great Chinese credit bubble leap forward continues, with Tuesday’s datapoint coming from Bank of China.
After all, the bank led the charge on Tuesday with some really not too shabby results. As BusinessWeek reported: Read more
The following ars technica headline caught the eye of FT Alphaville on Monday: ‘Historian finds tech bubble that didn’t pop (180 years ago)‘.
Ars cited a fresh batch of research by Andrew Odlyzko, author of a paper with an even more intriguing headline, on a subject that is, at best, niche. Read more
It sounds like an airport novel, FT Alphaville notes. But The Crisis, the 66-page paper authored by Alan Greenspan, is the closest we’ve ever gotten to a mea culpa from the former Fed chief, who chaired the US central bank in the midst of a growing housing bubble. Read more
Amid the flurry of media attempts to parse the assurances of elusive Chinese mandarins, one announcement on Monday from the housing ministry looked like it might actually tell us something about the direction of Chinese economic reform.
Fat chance. Read more
We believe that we now have a bubble in many cities, particularly the big ones. The central government is trying to deflate these bubbles gently, rather than pop them. The fact that prices have been at these levels before suggests this can be accomplished, as it was last time. But this does not mean that the land market will not experience pain during 2010-11.
That’s Standard Chartered on the matter of Chinese land prices on Monday. Read more
Gluskin Sheff’s David Rosenberg has taken umbrage with the term ‘The Great Recession’ to describe the current global economic malaise.
According to the seasoned economist, it’s quite clear what we experienced last year was not a recession but a depression. That said, it was definitely not another ‘Great Depression’. Read more
Here’s something you may have missed — not least because it comes from a Reuters chat room.
Regardless, the comments from James McCormack, managing director of Asia Pacific sovereign ratings at ratings agency Fitch, make for thought-provoking reading: Read more
When Pimco moves in, you know there’s money to be made.
Amid signs of both currency appreciation and economic recovery among various Asian countries, Bloomberg reports on Friday that Pacific Investment Management Co., better known as Pimco, is planning to set up its first dedicated Asian-currency bond fund in Japan as it increases bets on the region’s “stable” economies. Read more
That is the building which houses the most expensive apartment in Hong Kong. The five-bedroom apartment sold for $56.6m on Wednesday, sparking further speculation that the city — and the rest of China — might be in the grips of a real estate market bubble. Read more
This is Guangqu Road in Beijing.
The headline on a recent Bloomberg stock market report out of Japan said it all: “Japan Stocks Rise on Green Technology Optimism”.
We’re seeing a growing number of headlines in that vein. Indeed, the rising wave of investor optimism on everything and anything related to so-called “green technology” has seen some lucrative deals and surging stock prices in sectors ranging from alternative energy sources to hybrid cars, anti-air pollution systems and environmental technology of every description. Read more
Were bubbles really the best choice of graphic for the USA’s Economic Recovery Act?
Dresdner has some interesting charts out today, depicting bubbles — and lots of them. Specifically in housing and equities in the UK, US and Japan.
Fortis certainly thinks so.
The bank’s analysis, which is based on Didier Sornette’s research into bubbles (think US housing and oil circa 2008), holds that recent increases in CDS spreads in both US and European markets have reached unsustainable levels and are due for a correction – sharpish. Read more