Written July 2014 via http://savantreport.com
For years, I have been warning of a bubble so large, so significant, so catastrophic, that it will make the U.S. real estate and stock market bubbles of 2008–2010 look like a walk in the park. Perhaps the biggest economic, real estate, and stock market bubble has yet to burst, and when it does, millionaires will be made, and millionaires will be shattered…It just depends which side of the bet you want to take.
Bubbles are not that difficult to detect. Double digit gains in any asset class for years on end are certainly a warning sign. But the real nail in the coffin is when inherent value has been dismissed totally, and the investment
becomes a “must” for no other reason than “it just keeps going up!”
Warren Buffet is a pretty smart guy. I don’t agree with his political or taxation stances necessarily, but I have to give him credit for being able to detect inherent value in a company or asset, or the lack thereof. That skill (note that I didn’t use the word “gift” — because anyone can build a skill) has made him and his shareholders billions upon billions of dollars. In short, he knows what to stay away from, and he knows where value exists where the market may not see it yet. Detecting a bubble uses those same skillsets in the opposite way.
There is a bubble so large, that it will likely take years, even a decade or more, to fully unravel. The bubble is so pronounced, that even a novice level skillset of determining intrinsic value in an asset, economy, or company will be able to see this one right off the bat without looking too hard. If you’re on the right side of this bet, you’ll make incredible returns. If you’re on the wrong side, you’re going to get slaughtered.
Keep in mind, economic and asset bubbles don’t “pop” overnight. Bubbles take time to expose themselves to those who aren’t paying attention. Then denial sets in.
And then? Then pure panic.
What is this massive bubble? Perhaps the greatest bubble of all is…
That’s right, China is perhaps the greatest bubble that this generation will ever see. The speculation of real estate, equities, and lending are beyond anything that could be comprehended without seeing the visual charts of what is happening.
When you add financial sector or government debt to the above chart, some estimates of China’s total debt is around 277% of GDP!
China has been overbuilt twice as much and for twice as long as any other government driven emerging market in the history of mankind. There is virtually no other way for this to end than very, very, very badly.
The real estate speculation in China has led to literal “ghost cities” being built…But not like the old wild west…No, these are far more prolific! We’re talking about dozens and dozens of high rises condos being built, complete shopping malls, restaurants, office towers, all of which are completely empty…Built purely on speculation, and bought by individuals suckered into thinking that it was a good investment. These “cities” remain absolutely, utterly, empty.
So what do these “ghost cities” with not a single resident look like?
The renowned TV program “60 Minutes” recently did a special on these Chinese ghost cities. I’ve included a link to view this segment. And trust me, it’s 13 minutes
that you can’t afford not to watch.
Folks, I kid you not…This crisis is brewing…
Chinese government officials rushed to deal with the collapse of a property developer they say is unable to repay almost $600 million of loans, marking a large default for a real-estate fi rm and the latest sign of stress in a slowing Chinese economy. Officials in the eastern city of Fenghua have been meeting to determine how to deal with Zhejiang Xingrun Real Estate Co.’s outstanding debt and dispose of its remaining land assets. The company owes banks 2.4 billion yuan ($390 million) and a further 1.1 billion yuan to other creditors, according to a statement posted on the local government’s website.
The lending bubble in China is massive. A number of Chinese developers have gone bankrupt. And for the first time, a major Chinese developer is discounting their condos by as much as 40% to get them sold.
The “smart money” investors such as Billionaire Li Kashing (worth a reported $31.9 billion) is selling off several billion dollars’ worth of commercial real estate. “Just because?” Probably not…He likely knows the storm that is brewing on the real estate and economic fronts.
A recent survey of wealthy Chinese households shows that 60% of the rich are considering moving overseas. This is not surprising, considering the huge amount of Chinese money that has been invested abroad, much of which in the U.S..
What about the Hang Seng (stock market)?
This chart would not look so bad unless you consider the wide speculation that Chinese companies that are listed on the Hang Seng may be “cooking the books” to a pretty significant degree, given the lax oversight and regulation of financial standards in China.
But what about the Chinese government? Wouldn’t they intervene to help stop the economic bubble? Wouldn’t they prevent the ghost cities being built? Wouldn’t they tighten credit to prevent the over speculation? Well, they have certainly intervened…But only to feed the lie and control the media. The fact that China openly manipulates its economic data, especially around key political phase shifts, such as one communist regime taking over for another, is no secret. China is a massive economic banking superpower (creating trillions in new loans and deposits each year). But China lives in a stagflating world, and as such must be represented by the media as growing at key inflection points by mysteriously reporting growth even without open monetary stimulus.
This “cooking the books” tactic is crucial for preserving hope and faith in the future of the stock market, real estate market, and lending markets.
Even Goldman Sachs says that China is cooking the books…
“China’s unexpected surge in exports last month renewed concern from analysts at Goldman Sachs Group Inc., UBS AG and Australia & New Zealand Banking Group Ltd. (ANZ) that statistics from the nation can be unreliable.
The 14.1 percent jump from a year earlier was the biggest positive surprise since March 2011, according to data compiled by Bloomberg. The increase didn’t match goods movements through ports and imports by trading partners according to UBS, while Goldman Sachs and Mizuho Securities Asia Ltd. cited a divergence from overseas orders in a manufacturing index.
Smaller trade gains could signal a less robust recovery from a seven-quarter slowdown just as Australian Treasurer Wayne Swan says the economic rebound is a sign of improving global demand. Accurate statistics from the world’s second-biggest economy are increasingly important for domestic and foreign investors and for China’s government, ANZ’s Liu Li-Gang says.”
The Chinese government rules with an iron fist. They control the media, the internet, and their economic data.
So as far as they are concerned, the bubble will dodge the needle at all costs…Even outright manipulation of financial and economic data.
Make no mistake about it…China is a bubble worth recognizing. Investors who are invested there will get slaughtered. Those who find ways to “short sell” the bubble will make millions.
The safest bet? Being on the sidelines, watching it from afar, and finding real value investments in your own back yard where there is tremendous economic growth on the horizon, coming right out of the backside of an economic and real estate cycle, with plenty of upside for years to come.
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