FXTrucker wrote:nanningbob wrote:This is what is scary about China:
Matthew Zhou and his wife spent 1.6 million yuan ($261,000) to buy a two-bedroom apartment last month in eastern Shanghai after seeing no potential for long-term returns in China’s financial markets.
“Home prices keep rising, so I’d rather buy a place now than put the money in the stock market,” said Zhou, a 30-year-old information technology engineer at a state-controlled bank in Shanghai, who plans to leave the home empty while the couple live with her parents. Gains in equities “could never outpace the growth of home prices,” he said.
The second part is a lot of these people pay with cash, so it doesnt collapse and keeps going up. At what point does a cash real estate market collapse? I have no answer to that.
The third part is they keep buying new properties and they dont sell because they dont need the money. At what point will people want to get their money and find there is a very small secondary market. I dont know any Chinese who buy older homes. They all want new and are willing to pay for it. I have never seen anything like this and have nothing in history to compare it too. Any comments.
History teaches that this is classic bubble psychology . A technical counter trend trader would tell you the market will not collapse until it begins to go almost strait up.
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The Book "Nobody Would Listen" tells the story of Bernie Maddoff's Ponzi Scheme and one mans attempt to get regulators to stop it. If I remember correctly the scheme was not uncovered until people tried to pull money out because they needed it after the 2007 financial collapse. I think something like that will pop the China real estate bubble. Some other event or crisis will trigger it. This will make whatever crisis is going on that much bigger in China and then world wide. A kind of domino effect.
Imagine a mountain covered with snow all winter and the snow keeps piling up all around the mountain eventually avalanches happen. The book "Endgame: The End of the Debt Super Cycle and How It Changes Everything " uses the term fingers of instability to describe this phenomenon. The triggering events are random occurrences that usually only cause small or sometimes medium avalanches but eventually and inevitably you get a super avalanche. The causal chain of events cannot be predicted.
The good news (well sort of...) is that this type of thing can go on much longer (as in years longer) than it makes any rational sense to and if you are aware you can prepare some what. Also if you can trade a market that is collapsing from a parabolic bubble like Gold and Silver were 2011, even an idiot can double an account. Hopefully you will actually be able to use those spectacular gains for something other than bragging rights since delaying the final collapse will only make it worse.
A hypothetical chain of events: The increasing and continuing boom in US natural gas production and the export of the fraking technology and CNG will lower the price of oil permanently below $100 per barrel, this could cause Russia to be unable to meet its budget requirements and cause a second collapse there in a couple of years. I have read by 2015 it will be cheaper to manufacture goods in the US than in China due to lower energy costs and inflation. That kind of combination could cause Chinese to need to liquidate there real estate "investments" and then... POP goes the bubble!
