March 25, 2010

Speeding up short sales; Government, lenders try ways to make short sales simpler and quicker http://ow.ly/1qH2V

Citigroup Warns About China

According to Citigroup economists, China appears to be on track for an “asset boom, bubble and bust” that may take three years to play out and probably won’t be thwarted by tighter economic policy. This process is expected to begin in the residential property market before spreading to commercial real estate and ultimately to stocks. This process may take as long as two years for the asset bubble to form and at least three years for it to burst. This is similar to what happened to the United States, United Kingdom and other developed contries recently which caused the recent major financial crisis.

We should keep a close attention to the China economy as it has signs of a potential crash in the near future. This is important as many of the current surge in prices of commodities have been dictated by the increase consumption by this nation. The question is how long will they be able to sustain this pace? Will they be able to correct the current signs and prevent what happened to the United States?

Here are couple of economic facts about China:

1. The country’s economic growth quickened to 10.7 percent last quarter, helped by a 4 trillion yuan, ($586 billion) two- year stimulus plan for railways, airports and homes. <--- This has created a huge demand for raw materials such as steel, iron, coal, cement to name a few.

2. Property prices in 70 cities climbed 10.7 percent from a year earlier in February. <--- This has created similar situations as in the United States where prices of homes had increases annually that were in double digits. This coupled with low interest rates creates a lot of movements in the financial sector and potential speculations in the housing and commercial markets. Again this increases in home valuations creates demands for new constructions as more permits are issued due to the movement created in the market, this in turn creates higher demands for similar commodities mentioned above as well as higher demand for electricity, water, etc.

3. The Shanghai Composite Index of stocks gained 80 percent last year and is valued at 32 times reported earnings, compared with 52 times at its peak in October 2007 and the Standard & Poor’s 500 Index’s 19 times. <-- Just look at what we experienced in the US right before the crash. No need to say more.

According to Citigroup economists, higher interest rates and an appreciation in the yuan are necessary to prevent the economy from overheating further. It is important to keep an eye on how the government manages the balance between the valuation of its currency, interest rates and the lending policies. We should all care about it since when the asset bubble breaks, the impact will be painful not only for China; it will have a negative ripple effect for its trading partners.

March 14, 2010

U.S. sales tax rates hit record high. Top tax is 12 percent; Chicago’s 10.25 percent is highest big-city rate http://ow.ly/1kaVT

March 2, 2010

Fannie Mae seeks $15.3 billion more in aid; Troubled mortgage finance company posts $16.3 billion quarterly loss http://ow.ly/1duC0
Analysts see the cost of gas rising; ‘There is no legitimate fundamental reason’ http://ow.ly/1duyr