Chinese real estate has been booming. Since 2000, year estate investments grew 200% in China. The Chinese Claymore/AlphaShares China Real Estate ETF (TAO), which tracks Chinese Real Estate went up more tan 70% since January 2009.

Now add to that:
1. The demographic nightmare that China will soon be facing.
2. The global financial crisis which continues and China which will see little choice but to loosen its monetary policy even further, slashing Chinese economical growth and result in massive unemployment, which will lead to social instability.

If there is one thing that Europa underestimates than it’s the impact of a bursting Chinese Real Estate bubble. The bubble has grown mainly on the residential side of teh market, but with Beijing’s 4 trillion yan or 586 billion USD stimulus package, the bubble also started growing on the commercial side in 2009.  Remember that China pumped worth 12,9% of its GDP in stimulus packages in 2009. By way of comparison: Brazil invested less than 2% of its GDP in stimulus packages to support growth.
With 70 percent of real estate investment in China coming from bank loans, a dramatic drop in land values could send shock waves throughout the economy.

Stratfor published last week an excellent report on the Chinese Real Estate bubble, you can read it here.
Especially in Beijing and Shangai the situation is dramatic.  In both cities, real estate activities have accounted for more than 30% of the GDP since 2000.  In Shangai real estate activities even contributed more than 50% of the GDP.  A GDP which is sustained for more than 50% on an inflated real estate bubble…

No doubt there is a correction ahead on the stock exchange, but when one adds thhe extent of the inflated China real estate bubble, one could wonder how big the downward slope ahead could really be.

Tags: china real estate bubble

Last week, the Brazilian central bank announced that the country’s foreign exchange resreves have reached a record high of 209,5 billion US$.

The target of the Brazilian central bank is to further expand their foreign reserves to 300 billion US$.

Tags: brazilian central bank, brazilian foreign reserves

Quote:
“Niall Ferguson on California: It is a Latin American economy that just happens to be in the U.S.”
Paul Kedrosky has a point, the situation in California is truly catastropic; try sorting the situation yourselve.
Wells Fargo is putting up deadlines, yet no solutions are at hand with the massive job-losses; the US has lost as many jobs now as all the jobs together that were created the last nine years.

Tags: Niall Ferguson

Marc Faber, the author of Gloomboomdoom on Brazil in his report of July 1st:

Tags: Marc Faber

I’ve written previously on the risk of serious currency chaos coming our way in 2010.

My view on things:
1. I agree with Jim Roger’s that the USD will go the Pound Sterling’s way.  Crazy inflation is coming and the gigantic debts which the US government will have to sell; I rather short bonds than stocks.
2. The Brazilian Real will be a safe haven towards the USD, yet the Brazilians will try to do everyting to prevent their currency from a crazy appreciation against the USD, and they are right to do so.
3. Rather buy agriculture instead of gold or silver to protect yourselve against inflation.  “You need to put your money in countries that produce natural resources.  Many of those natural resource economies will boom; Brazil is going to be a better place to be then Belgium.  I am wildly bullish on commodities.”

4. The South African Rand will crash, heavily.  Zuma promises 4 million new jobs by 2014, which immediately puts pressure on the Rand.  Zuma even promises 500.000 new jobs by the end of 2009; all South African sources agree this is wildly unrealistic.  As to the World Cup in 2010: “The government appears to hope that the 2010 World Cup soccer tournament will generate a demand for goods and services justifying public investment. Here again, the track record is murky. Historically cities hosting the Olympic Games have experienced inflated housing prices, a loss of jobs and high debt levels”.

Tags: currency crisis