Housing Bubble Bursting?

[Randolph Kinney]

Absolutely the best article I have ever read

Keeping the yuan in pocket

The current-account surplus of a country represents an excess of domestic savings over local investments. The latter have boomed in China in recent years. And yet, the current account hasn't worsened.

How has China managed to engineer such a rise in national thrift, which by now must equal almost half of its GDP, to finance its growing hunger for investments?

That's mystery No. 3.

Economists have advanced plausible hypotheses that seek to solve each of these mysteries separately.

<snip>

So which of the two should the central bank increase?

If it buys domestic assets - government bonds - from banks, it gives people the money they want. This is what happens in developed countries; and this is how they get inflation when the economy grows above its potential.

But in fast-growing developing countries, most notably China, the approach of the central bank is to buy foreign assets - say, U.S. Treasuries - to prevent appreciation in the currency. Since the resultant growth in base money may spark inflation, an attendant practice is "sterilization": The central bank sells local bonds to deny people the purchasing power they want.

<snip>

The People's Bank of China added the equivalent of 5.5 trillion yuan, or $740 billion, to its foreign reserves between the end of 2003 and 2006. In this period, it whittled down its net domestic assets by 3 trillion yuan, Mussa says.

This left Chinese residents high and dry. They had no option except to save more to get the purchasing power they want.

<snip>

In the first half of this year, base money expansion was 6 percent even as nominal GDP grew 16 percent and foreign-exchange reserves jumped by a fifth. Unless China allows significantly faster appreciation in the yuan, obviating the need for large accretion in foreign reserves, there's a good chance that people will save even more and the current-account surplus will bloat even further in 2008.

Either that or the Chinese economy will have a hard landing and demand for money will ebb. That will be more painful to both China and the world.

 

[moh malekpour]

Keeping the yuan in pocket

One of the main reasons that the US doesn't care about declining dollar is due to flawed chenese currency manipulation. They are going to lose big time on their holdings of Treasury bonds and also dollar that they have gotten from selling their goods in US market. They also are big loser on their US assets investments. They don't let their currencies to flucatuate based on the free market so when other currencies go down, the value of their holdings also is going to go down.
I have heard everyone over there is investing in the stock market and there is no downturn at all. It always goes up without the exception some of them 200% per year

 

[sunnycal]

Good for you. these are interesting contrarian ETF stocks for this declining market. Did you ever tried them when market was on the upturn?

If S&P 500 goes down –1%, You get +2% on SDS which function opposite to S&P 500. Today S&P 500 went down –1.75%, you got +3.50% on your SDS but if the market was going up, your return should have been –3.5%.

I neither do individual stocks nor ETF which are basically index funds but function like indidual stocks. I just buy index funds for saving myself management and transaction costs and capital gain taxes.

Vanguard Index Funds!

 

[MARK JOLLIFF]

Mark:

My total for the day: (18,844)

Oh no!! Are we measuring to see who is bigger? Once again I'm smaller! oh well. I hope parenthesis doesn't mean loss. Then I would feel bad.

 

[Randolph Kinney]

One of the main reasons that the US doesn't care about declining dollar is due to flawed chenese currency manipulation. They are going to lose big time on their holdings of Treasury bonds and also dollar that they have gotten from selling their goods in US market. They also are big loser on their US assets investments. They don't let their currencies to flucatuate based on the free market so when other currencies go down, the value of their holdings also is going to go down.
I have heard everyone over there is investing in the stock market and there is no downturn at all. It always goes up without the exception some of them 200% per year

Moh,

Read this one on India: India Boosts Capacity To Sterilize Forex Intervention

So many of the developing countries are manipulating their exchange rates. Foreign money keeps pouring into their country, mainly dollars to invest in their companies, as well as what these countries generate from exporting to us.

As long as these countries continue with their policies of currency sterilization, we get the benefit and as you say, we don't care. It keeps our interest rates lower than what they otherwise would be and allows the FED to keep lowering the funds rate.

On the GDP side for the US, deflation is gripping the bond market and is beginning to show up in falling corporate earnings and that makes the market go down.

Gentlemen: Place your bets! Who wants the horn bet? The high-low bet? The hardway? :new_all_coholic:

 

[Randolph Kinney]

To intervene or not to intervene - Can Japan take it?

Japanese stocks swoon

Tokyo investors react to Wall Street sell-off, weakening U.S. dollar falling below psychologically important 110-yen level.

 

[MARK JOLLIFF]

Good for you. these are interesting contrarian ETF stocks for this declining market. Did you ever tried them when market was on the upturn?

If S&P 500 goes down –1%, You get +2% on SDS which function opposite to S&P 500. Today S&P 500 went down –1.75%, you got +3.50% on your SDS but if the market was going up, your return should have been –3.5%.

I neither do individual stocks nor ETF which are basically index funds but function like indidual stocks. I just buy index funds for saving myself management and transaction costs and capital gain taxes.

Moh, i have a pension with my company (I'm a teamster) that is great. I also have a supplemental 401k that the company doesn't match at all but I've been putting 10% in for about 12 years. They have a feature from Morningstar that picks your portfolio for you and I own 9 different funds in there that I know little about. Health care, bonds, foreign etc. Then i have my money that I play with. I had all of it in Vangaurd and a couple a months ago I put half in foreign index funds. I got out of those 3 weeks ago just in time. Then I started reading about Pro Shares etf that short the market. After reading you and Randolph ,Austin and Greg Bell I decided to move 30K into these funds just for fun. I was buying individual stocks and watching Cramer and for some reason I had this uncanny ability to sell before something spiked or buy before it tanked. so now I'm back to mutual funds. I owe my recent good fortune to listening to you guys and am having a ball with these ETF's. The temptation is to move all my dough into these things but with my luck I will be personally responsible for starting a rally if I do!!.

 

[MARK JOLLIFF]

Vanguard Index Funds!

Been in Vangaurd for years. Love their index funds. Very low cost.Great for the long haul. My problem is I get bored and want to play so I move money around just to have fun. sort of like gambling. If I didn't have my pension or 401k i would definately be dollar cost averaging into these funds and leave them alone for the long haul. I love Vangaurd!

 

[moh malekpour]

Moh,

Read this one on India: India Boosts Capacity To Sterilize Forex Intervention

So many of the developing countries are manipulating their exchange rates. Foreign money keeps pouring into their country, mainly dollars to invest in their companies, as well as what these countries generate from exporting to us.

As long as these countries continue with their policies of currency sterilization, we get the benefit and as you say, we don't care. It keeps our interest rates lower than what they otherwise would be and allows the FED to keep lowering the funds rate.

On the GDP side for the US, deflation is gripping the bond market and is beginning to show up in falling corporate earnings and that makes the market go down.

Gentlemen: Place your bets! Who wants the horn bet? The high-low bet? The hardway? :new_all_coholic:

This is the benefit of globalization. We export our inflation by paying them our excess dollar for their cheep exported goods in our market that keeps our CPI and inflation low. Their central banks buys those extra dollars from their exporters and trade them with local money, the excess of locall money causes inflation so their governmet issues bonds and sells them to people in order to collect those excess money in the people's hands and gives that money to bank again and bank exchanges that money with the dollar that exporters have gotten from us and this goes on and on.
I guess they have a ceiling for issuing their treasury bonds but it seems that they are increasing their ceiling every 6 months so they can sell more bonds to people to collect their excess money from people and prevent inflation but I don't know for how long they can do that.

 

[Randolph Kinney]

More deflation - bad car loans

Alarm at rising US car loan defaults

US car loan delinquencies have climbed markedly, raising another potential red flag for financial institutions and the automotive industry.

“We are beginning to see deterioration in auto asset-backed securities (ABS) credit conditions,” Lehman Brothers said in a report on Monday, drawing on data from two of the US’s biggest car finance companies – GMAC, 49 per cent owned by General Motors, and Ford Credit.