Having pondered it a bit more...
If it is A Tale of Two Markets...
The U.S case is more like a repeat of 2001's dot.com stock market bubble... only, admittedly, with "the everything bubble" narrative not being wrong. But the bubble in real estate here was mostly an urban and bi-coastal phenom, which had already began unwinding in the last years of the Trump Administration... even before Covid came along and accelerated the tail end of the trend. We chatted about urban prices crashing... as demand for rural acreage in Idaho and Montana grew rapidly. Not all and only direct economic drivers behind that trend... but the political craziness in the cities chasing jobs and wealth away as cities are made unlivable by insane policies. But, that all largely settled out by now ? The base case in stocks is hard to ignore... that the flows of borrowed money have driven silly valuations in tech stocks... almost entirely owned by the top 10% if not the top 1%... is undeniable... even while the inflation adjusted relative value of "real" assets is hitting generational lows in the long cycle ?
In China... almost the opposite. Stocks have taken a hit, already,. along with the numbers in the basic economic performance declining again... and with "structural issues" imposing inflation. Technical issues in the current account could become more of an issue over time as the trade issues slow the flows and generate imbalances... which China has been countering, it seems, through "austerity" measures restricting government spending as well as agency lending. The policy disconnects are a bigger issue in China than the balances, IMO, as it doesn't matter what the balances are if you're not going to try to sustain balance ? China's bubble in real estate is massive... unparalleled... and it seems it is taken as an item of near religious faith that it cannot be re-priced... that it will always continue to appreciate... for no reason other than that the consequences of that actually occurring would be unthinkable... so, far more like what happened in the U.S. back in 2008 at the genesis of the "Great Financial Crisis"... which was based in that same sort of euphoria dominating both the real estate market in pricing, and the banking sector in lending, as the easy money drove a speculative construction boom.
Beyond that in "difference"... there's also vastly more interconnectedness between markets now... and that far more than anyone is comfortable with, now, as it turns out... so its hard to see how the trends that got us here are going to do anything to enable avoiding the inevitable in the result of it ?
Maybe the markets don't implode tomorrow ? But, without a determined counter... the trends in place are likely to sustain the erosion and get us there again by the end of the week, or the end of the month... ?
Where Chinese consumers are likely to discover they are overleveraged... is in the component of debt that is tied to equity in real estate lending... where lower prices will drive "margin calls"... and as lending is throttled back... there aren't willing new buyers to bid prices higher... without the lending to enable them ?
Maybe i'm seeing it wrong... but as it also seems to align with purpose in the policy shifts occurring... kind of hard to see what it is going to be that's going to work in preventing prices moving lower...
"Lehman" gets the blame here, of course... as it is Evergrande in China today that is the name people know... but its not like they created the problem by themselves, rather than being the first ones who got caught out... the issue in timing not being about "leadership" in being first into the tank ?
The issue will always prove to be... not that risk which you do know... but that bit you don't ?
Skilled and competent leadership can help... but I've not seen any of that around in many years, now ? |
