Sunday, April 28, 2013

China jails 1400 for loan sharking

China jails over 1,400 in loan-shark crackdown
People netted in the crackdown were convicted of violations including public advertising to find lenders and promising excessively high rates of return, Du said at a news conference. He gave no details. Legal experts say loans between individuals are legal and the government has failed to make clear what lenders and borrowers are allowed to do.
Loan sharks have a more balanced two-sided relationship with "clients" than the term implies in the west. They are known as much, or perhaps more so, as a means to invest for outsized returns than they are as place for the desperate to borrow. So this crackdown could theoretically been entirely over fundraising.
"Banks are offering fewer loans, because the bad loan rate is rising," said Zhou. "It is harder to get underground loans, too. People are more afraid of running the risk of lending money.

Thursday, April 18, 2013

GDP growth is slowing while credit expands -- is China facing a great economic wall?

Has China's Economy Hit a ‘Dead End’?
Robust credit issuance – which rose by almost 60 percent in the first quarter from a year earlier – is no longer able to generate the same level of growth as it did compared to a decade ago, said analysts.

Back in the mid-2000s, one yuan of credit generated around one yuan of nominal GDP. In 2012, three yuan of credit generated around 1 yuan of nominal GDP, according to financial analysis firm IHS.
While the manufacturing index has returned to positive territory: China Manufacturing Index Hits 11 Month High
The purchasing managers index, a measure of economic expansion and contraction, reached 50.9 in March, slightly above the equilibrium mark of 50. It was 50.4 in January and 50.1 in February and has now remained above 50 for six consecutive months.
The CNBC article goes on to say:
Of the data released on Monday, economists say the most telling indicator of weakness in the economy is the deceleration in industrial production in March to 8.9 percent from an expected increase of over 10 percent. In August 2012 when hard landing fears were running high industrial production also grew at the same pace.
"We have lost confidence in a robust recovery," added Alistair Thornton, senior China economist at IHS
This IS the recovery. China's economy is a giant snake still digesting the bulk of the post crisis bailouts. Now we are just waiting around to see how skinny the snake really is without being force fed.
"While August 2012 proved the bottom for last year's downturn, we doubt March will be the turning-point for 2013, given macro policy has shifted to a tighter stance with renewed controls on the housing market, local government financing vehicles and wealth management products," Thornton said.
Okay, this is an unexpectedly short economic cycle (based on the calendar year?) being analyzed here. I don't know where to go with that.

Hat tip: Painted Turtle commenting at

Canadian Revenue Crackdown on Condo Flips

Long overdue. Lots of anecdotal evidence tax dodging in flipped assignments is widespread. If so, just wind of a crackdown will put a damper on speculative sales.
Currently there are three tiers:
No tax on gains from sales of primary residence.
Tax on half the gain from selling a recreational, rental, or investment property.
Full tax for making a business of real estate investment.
Some Toronto condo sales face CRA scrutiny
The CRA has yet to disclose how many sellers have been affected. But Toronto tax lawyer and text author David Sherman and other tax experts, accuse auditors of unfairly ignoring some legitimate explanations for sales. Meanwhile, Finance Minister Jim Flaherty wants the CRA to collect more than $500 million extra from suspected tax cheats this year.
“The auditors have applied a rare 50 per cent penalty for ‘gross negligence,’ even on those who had never owned a condo previously,” says Sherman.
Sure sounds like they want to make a point about the seriousness here, not just collect the tax.
One of Rhodes’ clients was single when he bought a condo in downtown Toronto in 2005. By 2009 he was engaged, and his fiancĂ©e wanted to be closer to her work in Guelph. So, he sold it, soon after it was registered. An auditor decided that the sale so soon after registration was suspicious, and so was the original choice of a two-bedroom apartment: “There is no reason to purchase a two bedroom condominium for one person,” he claimed. Rhodes says his client was assessed with over $100,000 of business income, resulting in a tax bill of roughly $50,000. He also faced a $25,000 penalty. “I estimate the cost to take this to the Tax Court (of Canada) will be around $10,000 to $15,000.”
It will be interesting to see if the decisions from this crackdown stand. Real estate seems to get its way on these things. Given the long timeline between condo sales and registration, most everyone could come up with a life excuse for bailing.

Wednesday, April 17, 2013

Kung Fu fighting against developer

Chinese Kung Fu Expert Beats Up Men Who Came To Evict Him From Home
At first, the property company stuck up posters warning of dire consequences for any families who held out. Then, Mr Shen said, when 70 of the 100 households had left, the threats escalated. "This mob of thugs would block the street most days. They would pick on the women, threatening to kill their kids. Then people started tossing bricks through windows and letting off fireworks at night. Some people got beaten on the street."

On October 29, as Mr Shen went to work and his wife popped out for a packet of instant noodles, a mob of "30 to 50 men" materialised at their front door. "My wife tried to close the door, but they pushed it back and she tripped over. That is how the fight started," said Mr Shen. With a flurry of kicks and punches, he and his 18-year-old son, a fellow kung fu devotee, set about the attackers, rendering seven of them near unconscious in the hallway.
Shen went to Beijing and after a call from the Central Military Commission has been unreachable.

Sunday, April 14, 2013

Cocaine contributed to the financial crisis

Financial crisis caused by too many bankers taking cocaine, says former drugs tsar
Prof Nutt said that too many bankers who took the drug were “overconfident” and so “took more risks” and said that not only did it lead to the current crisis in this country, but also the 1995 collapse of Barings bank. He said cocaine was perfect for their "culture of excitement and drive and more and more and more", adding: “Bankers use cocaine and got us into this terrible mess. It is a 'more' drug."

Wednesday, April 10, 2013

Condo Developers in Toronto backing off

Toronto Condo Kings Retreating to Avert Crash: Mortages
“Most developers have their hands in their pockets right now,” said Brad Lamb, president of Brad J. Lamb Realty Inc., a developer and the city’s largest condominium broker. His firm, which is marketing more than 45 high-rise developments in the city, won’t start a new project until 2014, Lamb said in an interview at Bloomberg’s office in Toronto. Lamb said he has eight projects in Toronto and Ottawa “on the drawing board.”
The supply of new high-rise units reached 21,262 in February, 34 percent more than the same period a year ago and close to a record 21,696 in October 2012, RealNet figures show. About 61,000 units are currently under construction -- the most ever -- and a record 35,757 residential units will come on stream next year, RealNet said.
Sales of high-rise homes in the city have dropped 34 percent since 2011, after rising 64 percent in the past decade until 2012. Prices have declined 5.5 percent over the past two years, according to RealNet.
Rising supply facing the headwind of sharply declining sales this year, implies this move is too late. Hat tip: vangrl posting at

Wednesday, April 3, 2013

An Australian Housing Recovery without a Construction Recovery?

There will be no housing recovery until there is a construction recovery: Catherine Cashmore
Albeit – do not mistake this for a market recovery – once again, it’s all confined to the established sector. Everyone is effectively fighting over the same pool of existing dwellings in a never ending game of 'musical chairs.' We’re simply paying higher prices for an ageing stock of second hand homes.

Indeed, there’ll be no housing recovery until we have a construction recovery. As the first ABS building approvals update for 2013 indicated, approvals in January fell for a second consecutive month, lingering back below the 13,000 mark.

Spokesperson for the HIA, Harley Dale, commented that even with a rise of 3.3% in detached house approval, overall approvals for this sector are still down by 1% over the three months to January 2013.

Fletcher Building LTD is also flagging the weight of the issue, stressing that the ongoing weakness in Australia's new housing sector is likely to last until the end of the year. Along with the others, they are crying for lower rates and a return of incentives for first-home buyers.

Tuesday, April 2, 2013

Exposure to housing could come back to bite Australia

The proportion of total loans in Australian banks is now 59%, up from 24% in 1990. Exposure to housing could come back to bite us
Cross-country comparisons of house prices against incomes and rents are inherently problematic, but comparing the total value of a nation's housing stock against the size of its economy makes for a more useful comparison.

Australia's ratio of housing stock to gross domestic product increased by more than 50 per cent from the mid-1990s, peaking at 3.3 times GDP in 2007 and 2010. It has since fallen back to about 2.9 times GDP, similar to that of New Zealand and Britain but much higher than the ratios of the US and Canada. By international standards, this simple measure confirms the view that Australian housing is relatively expensive but by no means head and shoulders above every other country's.
Rising housing debt was the key driver of Australian home prices until 2004 but strongly rising incomes from the commodity boom have played a greater role since.

A reversal of this trend could prompt a severe correction of house prices. A slowing Chinese economy or an increase in global commodity supplies could cause a sharp reduction in incomes and employment.