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Presentation on China and Japan


turar
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  • 2 months later...

Ghost towns of China - hat tip to Katsenelson for the link.  It makes one wonder how much longer the misallocation of capital can continue before real estate pricing corrects or inflation becomes rampant in China.

http://www.dailymail.co.uk/news/article-1339536/Ghost-towns-China-Satellite-images-cities-lying-completely-deserted.html

 

I thought this was an interesting presentation on Japan and China.

 

http://dl.dropbox.com/u/6010227/Webshare/China%20Japan%20Presentation%20v3%20-%20By%20Vitaliy%20Katsenelson.pdf

 

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....how much longer the misallocation of capital can continue....

 

As long as Chinese communist government has firm control over its citizens ('slaves') and continue to pay minimum possible wages.

 

That is the best comments I have seen for a while, brilliantly done.

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This brings up a interesting thesis (still cheaper goods and more overcapacity in low-tech markets).  Will all of China's reserves be used to cover this loss hole?  I was watching Milton Friedman's 'Free to Choose' developed in the 1980's and the debate back then was do we put tarriffs on foregin subsidized goods because in effect foreign tax money is being used to subsidize US consumption.  Sound familar.  In any case interesting slides and considerations for natrual resource investors.  BTW I was reading Montier's "Value Investing" and the only strategy that worked in Japan's bear market was a value strategy.  That strategy actually made money from 1990 (a return of 4% versus a market return of -3%).  It appears a sideways market is a value investors best friend. 

 

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It appears a sideways market is a value investors best friend. 

 

I really hope we are range bound. I would love a 10 year range bound market while I am building capital, and then a 10 - 20 year bull market starting in 2020. One can only hope.

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  • 4 weeks later...

There must be a ton of carry trades being supported through this.

http://stableboyselections.com/2011/02/03/macau-casinos-welcome-to-the-bubble-machine-the-last-thing-we-need-now-is-a-terrorist-attack/

HIBOR is very low. That’s because the Hong Kong dollar is still pegged to the U. S. dollar, and our interest rates are almost nothing. The cheap money (and perhaps some corruption) is causing incredible real estate speculation. You know there is a bubble going on when only 100,000 out of 8 million residents can afford to own a home. More than half of Hong Kong’s residents depend on the government to subsidize their housing requirements. Meanwhile SHIBOR keeps going up because the Mainland Chinese want real estate speculation and inflation to slow down. If this can’t go on forever, it has to eventually stop. At some point the bubble will become so extreme that Hong Kong may finally depeg from our dollar. HIBOR may then imitate SHIBOR.

 

It appears a sideways market is a value investors best friend. 

 

I really hope we are range bound. I would love a 10 year range bound market while I am building capital, and then a 10 - 20 year bull market starting in 2020. One can only hope.

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This is all really nutty stuff. Taiwan has an obvious real estate bubble as well.  Lots modern apartments are being built up but are incredibly empty. It's even more maddening because the country has a birth rate of less than one child per woman. Who, demographically, is going to be living there in the future?

 

For example, I am currently in my girlfriend's sister's house in the Taichung countryside for Chinese New Year. The building is 10 years old, in the middle no where, and rice fields are on three sides of the housing community. They bought the house a year ago for 4,000,000NT they could have rent out the building for 120,000NT Which gives you a price to rent ratio of 33.3 . Of course the rent doesn't deduct any future repairs or loss of income due to inoccupancy. The kicker is, this place is on the cheap side compared to Taipei!

 

 

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This is all really nutty stuff. Taiwan has an obvious real estate bubble as well.  Lots modern apartments are being built up but are incredibly empty. It's even more maddening because the country has a birth rate of less than one child per woman. Who, demographically, is going to be living there in the future?

 

For example, I am currently in my girlfriend's sister's house in the Taichung countryside for Chinese New Year. The building is 10 years old, in the middle no where, and rice fields are on three sides of the housing community. They bought the house a year ago for 4,000,000NT they could have rent out the building for 120,000NT Which gives you a price to rent ratio of 33.3 . Of course the rent doesn't deduct any future repairs or loss of income due to inoccupancy. The kicker is, this place is on the cheap side compared to Taipei!

 

In general, housing prices in Taiwan appear to be really nuts.

My wife and I moved back to Hsinchu, Taiwan from Dallas TX about 5 years ago.  When we started our house hunting, I noticed that the typical price to rent ratio is in the 30s, also.

 

I then found out several friends at work actually own multiple apartment units and are renting them out.  I asked them how they feel about this very high (at least to me) price to rent ratio. They told me the property tax rate is very low, the adjustable mortgage rate is also very low (currentlt at ~2%.) The svaing's account is paying less than 0.5%.  They just don't know where to invest their excess cash.

 

I fear that this is not going to end well.  On the other hand, I ended up buying an apartment as my wife kept bugging me about it.  She is tired of moving all the time.

 

The apartment price has gone up 10-15% since we bought it but I just keep telling myself to treat this as an "lifestyle" decision instead of a "finaicial decision."

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In general, housing prices in Taiwan appear to be really nuts.

My wife and I moved back to Hsinchu, Taiwan from Dallas TX about 5 years ago.  When we started our house hunting, I noticed that the typical price to rent ratio is in the 30s, also.

 

I then found out several friends at work actually own multiple apartment units and are renting them out.  I asked them how they feel about this very high (at least to me) price to rent ratio. They told me the property tax rate is very low, the adjustable mortgage rate is also very low (currentlt at ~2%.) The svaing's account is paying less than 0.5%.  They just don't know where to invest their excess cash.

 

I fear that this is not going to end well.  On the other hand, I ended up buying an apartment as my wife kept bugging me about it.  She is tired of moving all the time.

 

The apartment price has gone up 10-15% since we bought it but I just keep telling myself to treat this as an "lifestyle" decision instead of a "finaicial decision."

 

Happy New Year Zippy =)

 

Yeah, bugging wives is the leading cause of bubble apartment buying, haha.  The adjusted rate mortgages are interesting, once this rate goes up there will be a great deal of suffering among mortgage holders. It will be really interesting to see what happens going forward.

 

Do you have real estate shops opening up left and right in Hsinchu? In Taipei they are popping up like mushrooms. There are 5 real estate shops, five minutes away from my door.

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Happy New Year Zippy =)

 

Yeah, bugging wives is the leading cause of bubble apartment buying, haha.  The adjusted rate mortgages are interesting, once this rate goes up there will be a great deal of suffering among mortgage holders. It will be really interesting to see what happens going forward.

 

Do you have real estate shops opening up left and right in Hsinchu? In Taipei they are popping up like mushrooms. There are 5 real estate shops, five minutes away from my door.

 

Happy Chinese New Year!

 

I live in a newly built area and indeed there are more than 5 real estate shops within 5 minutes of walking distance.  I even regulary receive junk mail from them asking me to sell my apartment, which was just built about 18 months ago.

 

The adjustable mortgage is going to be a big problem once te interest rate starts to go up for many people.  I tried to get a fixed-rate mortgage when I bought my apartment but was told that no sane bank will make such kind of loan. So clearly all banks here a betting that the rate will go up.

 

It does pose a delimma to me on whether to pay off the mortgage, though.

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Good presentation.

 

Keep in mind that Malls/Commercial Real Estate are a prime money launderiing vehicle in much of the Middle East. China is not unique. The criminal element pays for the bricks & mortar, & the bank lends them back 98% of what they put in, against the physical collateral. Building occupancy is essentially irrelevant. UAE (Dubai), Vegas in its early days, etc. Borrow enough & you also control the bank - if dont pay the debt service, the loans default, the collateral sells @ < 10 cents in the $, & the bank will go under. 5% bi-annual protection money as a new loan please.   

 

Idle Capacity: Make millions of the poor a little richer & they will start buying, but they'll buy the cheapest goods - & they will come from that idle Chineese capacity. China will be primarily buying from itself, which probably close to the long term plan.

 

Interest Rates. The risk free Global real interest rate can only move up, & aggressively. Add in risk & inflation premiums & its hard to see how mid-term Euro backed debt can average a market yield of much < 8-10%. If you've hit the debt wall, maybe 15-20% (Canada reached 17%+)

 

We live in interesting times.

 

SD

 

 

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