Re: Why the Secular Bull Market has Ended
>> the guy said it’s a real estate bust on enormous leverage
Leverage means little when it is all internal and you are in a socialist country. Here's an example, the bonds of Chinese builders have fallen through the floor. Nobody in his right mind would would lend them any money. But the Chinese government just put aside 200B RMB loan guarantees so builders can finish their projects and hand it over to the people who have paid for it. They are going to let the builders and bond holders suffer and go bankrupt if they must, but they will see to it that the people who paid for the property will not be screwed. So the chain of defaults ends right there. There will be contractors who don't get paid b/c the homes are unsold and no banks that default because the people won't be paying their mortgages.
Does this mean that the Chinese system is safe? No. China's debt to GDP is too high and they will be under pressure for a long time. But there is a good chance - not a certainty, but a good chance, that they can let the air out of the bubble rather than burst it with a pin prick as happens in the US.
>> Who in the US would take out a mortgage 15x your annual salary when the apartment was not even built yet?
That is entirely the wrong question. The only valid metric is how that mortgage payment compares to the rent of the apartment. And BTW, *lots* of Americans went for home flipping and buying properties that were way over their head. And in 2007, they even did it with zero down.
>> you are probably right that Chinese real estate bust will probably cause inflation here,
I said no such thing.
What I said is that the US is causing a global stagflationary cycle by refusing to allow China to advance and wanting to onshore and nearshore the supply chain.
The global economy has changed immensely over the past 40 years. Companies have been able to lower costs and improve productivity by finding the cheapest materials and production sites as well as the cheapest workers anywhere in the world and efficiently stringing the production lines together around the globe.This system is designed for low production costs and fast time to market.
However, during the Covid companies realized that this efficiency is achieved by compromising resiliency b/c when one country is locked down, the whole production takes a big hit. So now they don't want to do just in time inventory nor do they want to be reliant on a single source. Redundancy increases yours costs exponentially.
Furthermore, what was once a logistical issue, has turned into a geopolitical issue. So now not only we want to onshore TSM's fabs, we also want to bar TSM from building fabs in China. Well, the Chinese (and Russians) are not going bend over and take it. Wars are highly inflationary and wasteful - regardless of whether they are hot or cold.
This is why the secular bull market has ended. It has nothing to do with the Chinese RE market. |
