There’s been talk of a collapse of Chinese real estate for a while now. I’ve generally ignored it, as it has no impact on me. I have zero invested in China and really don’t see any reason to go there.
But sometimes big things slop over to other countries. And China is really big now. Besides, where else can we the $Trillion we need this year (and every year to come…) just to avoid our government collapsing?
I first heard this on CNBC World. China has had another drop in Real Estate. About 6% in this last quarter.
hina’s Real Estate Climate Index Drops in April
By Mark O’Hara • May 20, 2015 8:23 am EDT
China’s real estate climate
We’ve already seen how land area purchased by real estate developers for future construction has fallen steeply in the first four months of 2015. Building sales in China have also declined for 14 consecutive months. Now we’ll look at the April reading for China’s real estate climate index.
China’s real estate climate index measures the aggregate business activity for land and real estate. The index helps investors analyze trends in the Chinese real estate industry. Figures above 100 indicate economic growth. Readings below 100 indicate a slowdown in China’s real estate market.
A negative sign
The decline in China’s real estate climate index is another indicator that construction activity has slowed down in China (FXI). China’s real estate sector is a key driver of global steel demand. China’s construction industry accounts for more than a quarter of global steel consumption. A slowdown in the Chinese real estate industry is a negative for the global steel industry.
Then tonight they reported that Iron Ore prices were way down again. This matters a lot to places like Australia, who supply a lot of Iron Ore.
Has an interactive chart where you can pick length of time. Even the 5 year chart looks dismal, though the last 2 years are the worst.
Since Iron is the stuff of skyscrapers, trains, cars and trucks, factories and oil pipelines, that low a demand is a bit of a worry. In the context of China real estate being off, it is more so. In the context of darned near every large Central Bank handing out money like chocolate and setting interest rates at near zero (or below!); it is a very significant worry.
There’s an awful lot of TALK of a recovery, but it sure isn’t showing up in demand for iron and steel.
To me, this chart looks like copper has started up. That does imply some kind of economic upturn. It also has silver looking like it has made a bottom. Not particularly in an up-run yet, but the down has ended and there was a spike about January that looks like shorts covered. So neutral at this point. Probably an OK place to park money, but not making much or anything. Gold is about the same.
Now given that this is all priced in $US, and that these are ETFs (so have a certain ‘shrinkage’ in long term holding), for folks not in $US, those prices likely are moving up some. (IFF you are in Ukraine, with 60% / year inflation, they look like a great alternative!).
I also note in passing that Greece said it can’t repay the IMF (again) this week. While that ought to cause some kind of panic somewhere, we also have “the usual EU suspects” moaning and saying that they might maybe somehow find a way to keep the wolf just one more week or three away. So this next week is a Greece Watching Week as the EU tries to decide if it really wants to just let it sink, or wants to be on the hook for whatever Greece demands. While I keep thinking that eventually one of these immutable deadlines will actually mean something, so far the Germans have been unable to accept a failed Greece. So maybe they can pony up a few more €Billions for the next week…
I also note that since last January, long term T-Bonds have had a bit of a wobbly down run. There is ongoing anticipation that eventually The Fed just must raise rates. When that happens, existing bonds will take a big hit. Given that we are headed into an election cycle, and that the US Economy is still not great shakes (and the EU is worse), and with deflation fears still in many places; I’d not expect The Fed to move much, or soon. So while I’d not hold a large bond position, or would at least shorten the maturities, I’m just not seeing it likely that anything big will happen fast.
Finally, oil fell off a cliff, did the Dead Cat Bounce thing, and now has a “higher high” after that point. It is likely time to revisit the Oil Patch as a bottomed move. Consider, too, that we effectively have Libya, Iran, and Iraq out of the oil market. (And not likely to be entering in size any time soon). Even with that, price is down. IF the wars in the region spread, oil could spike up. Recently there was a bomber hit a Shiite group in Saudi Arabia. Generally the House Of Saud keeps things quite and orderly there, but if it starts to lose that grip, oil could be very volatile to the upside. (And if, miraculously, peace breaks out across the region it could drop more, but don’t bet on it…)
Given the mixed (but reduced) picture on Arab region production, that low price also hints at low global demand (and thus low growth).
In Conclusion: It looks to me like “trying times” and like the global economy is not in “boom times”, nor even in “good times”, and only barely in “it isn’t so bad is it?” times… And it looks like keeping an eye on China domestic issues and Russian political moves are worth the time right now.