Chinese Credit Bubble Is Bursting

Chinese Credit Bubble Is Bursting

Another scary story from China - Apparently, the problem is not restricted to real estate prices crashing!!!

• Chinese credit bubble starts bursting - "The BRICs are falling like bricks and the crises are home-blown, caused by their own boom-bust credit cycles. Industrial production is already falling in India, and Brazil will soon follow." - Albert Edwards at Societe Generale. This particular article, however, sticks to the crisis building up in the most secretive of the BRICs countries - China. If the article is indeed reliable, the impact on the global economy and the markets would make the Greek Crisis appear to be a minor pin-prick!!! (Oh! Before I could post this item on the blog, I just happened to read a forbes article which talks more about the Chinese real estate bubble - Chinese Property Prices Crash - Is this a bubble???)

While I've started sounding increasingly pessimistic in my blog posts of late, unfortunately, my worry that I may still be too optimistic and may actually be grossly underestimating the problems in the global and domestic economies. What's worse, I can't think of any meaningful manner in which we can actually shield ourselves from the coming onslaught of global financial chaos.

2012 looks bleak.

Perhaps the Mayans actually saw it coming!

Regards,

N

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Now, it is official: Euro-mess is escalating rapidly

Now, it is official: Euro-mess is escalating rapidly

I've just got offical confirmation on something that all of us have been suspecting all along: The European crisis is actually much deeper, much worse, and is likely to last much longer than what any one of us currently imagine. This time, there is official confirmation of the actual degree of the chaotic problem that we are all facing right now.

Read on:

• IMF Chief says: European crisis escalating rapidly - The IMF Boss, Christine Lagarde says: "Lagarde said that if countries don't work together, the world will face a situation similar to the 1930s, before the world slid into World War II. There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super- advanced economies that will be immune to the crisis that we see not only unfolding, but escalating at a point where everybody would actually have to focus on what it can do"

Regards,

N

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Cause for concern - Chinese Home Prices are crashing!

Cause for concern - Chinese Home Prices are crashing!

Take a look at:

• Chinese home-buyers in big trouble, with huge crash in housing prices - Chinese home prices have apparently gone up by 155% over the past decade. And now, in certain pockets, the prices are coming down by 20-25% virtually overnight!

Apparently, the pace of the crash in real estate prices in China is even worse than what the US experienced during the sub-prime crisis. And, interestingly, there are several chinese cities where as many as 70% of all apartments are empty.

Scary, indeed. Take care!

Regards,

N

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Thoughts on Fixed Income Scenario

Thoughts on Fixed Income Scenario

All of us are familiar with the old adage about bankers offering umbrellas in summer and seeking a return of those umbrellas the moment it starts raining.

I just observed that a lot of banks have started advertising "Long-term Fixed Rate Home Loans". The latest one is from HSBC. When bankers want you to borrow money from them at a fixed rate, that too for a long duration of time, you can be fairly certain that:

• Bankers expect that the rates are unlikely to go up much in the near and medium term
• Bankers expect that the rates are actually likely to go down in the coming quarters

Combine the above two points, and a couple of simple strategies emerge for the retail folks:

• If you are looking at taking a loan to buy a home or a car, go in for a floating rate product. Avoid the temptation to go in for a fixed-rate loan
• If you have surplus cash that you wish to invest in debt products (like fixed deposits in banks, for instance), the time to act is now. Ideally, lock in your money in a good public sector bank with a long-term fixed deposit for a few years. Chances are bright that a few months later, a 3-5 year FD will fetch much lower returns than what they do right now.

Regards,

N

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Governance and impact on the economy

Governance and impact on the economy

Look at the year 2011 thus far - Domestically:

• Series of Anna Hazare fasts - Resulting in policy paralysis
• Multitude of scams, with several political bigwigs going behind bars - resulting in policy paralysis
• Telangana crisis - Most of AP comes to a grinding halt
• Manipur blockade - Large chunks of the north-east come to a grinding halt
• Politicisation of a multitude of issues ranging from Mullaiperiyar dam, Dow Chemicals boycott demand, Afzal Guru "non-hanging", Rajiv Gandhi killers "non-hanging", etc.
• Release of people "wrongly accused" of acts ranging from terrorism to murder - Obviously the suffering that those who were wrongly confined for no fault of theirs are not going to be happy Indians.

Each of the above, individually, can cause immense harm to the economy.

We've had ALL the above.

Unfortunately for us, despite all the above, the Euro crisis and the continuing US economic recession happen to be an even bigger threat to the Indian Economy. In addition, our neighbours - Pak, China, Nepal & Sri Lanka - Each of them have their own basket of problems which have a direct or indirect impact on our economy.

Result:

• Runaway inflation that refuses to climb down
• Significant slow-down in our GDP growth rates
• Ever increasing inequality and vast disparity in income and wealth levels among different segments of society
• Huge fiscal deficit becoming even worse

I don't see any of the aforementioned problems going away any time soon.

Each of the problems appears to be nowhere near a solution and is only likely to get much worse in 2012.

I'm sad to be a scare-monger. However, the problems are only too real. And growing bigger.

We need to be prepared.

Some suggestions on the financial front at an individual level:

• Review your asset allocation and increase the weightage to safer asset classes
• Increase the "Emergency Cash" levels
• Be opportunistic (to utilise the violent moves in the equity markets and to use the temporary "high interest" offerings from reliable institutions like PSU Banks, Infrastructure bonds, etc.)
• Reduce your "risky asset" allocation
• Be very wary of complex financial products
• Be prepared for violent fluctuations in the prices of Crude Oil, Gold, Metals, Agri-products, Forex rates, etc.
• Be liquid to the extent you can.

Take care. Be very very cautious.

Regards,

N

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