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- Tokyo seen as No 1 market in Asia Pacific for property investment in 2014 | South China Morning Post
Tokyo is being seen as the top destination for real-estate investment in the Asia-Pacific region next year, according to an industry report by the Urban Land Institute and PricewaterhouseCoopers.
Shanghai ranked as the second most attractive market for investment.
K. K. So, the Asia Pacific real estate tax leader at PwC Hong Kong, said: "If we look at new ways to enhance returns, we can see investors are trying to enter at the development level and an increasing number of co-invested development deals are now being struck."
"Several large institutional players that have opened offices in Asia in order to gain access to direct deals have opted to co-invest in development sites as a means of securing core assets that would otherwise be unavailable or be too expensive."
- 'Safe Harbor' in Bankruptcy Is Upended in Detroit Case - NYTimes.com
As Detroit struggles to come up with money to improve services for its residents, two large banks are poised to receive hundreds of millions of dollars to cancel a deal that helped push the city into bankruptcy in the first place.
The two banks, UBS and Bank of America, were the only creditors that managed to reach a settlement with Detroit before the city declared bankruptcy last July. They agreed to let Detroit out of financial contracts called interest-rate swaps for 75 percent of what the city owed, or about $230 million. They also agreed to give up some casino tax proceeds that Detroit had pledged to them as collateral for the swaps.
Congress created the safe harbor for derivatives because they could pose systemic risk — if one bankrupt institution failed to make payment, it could swiftly bankrupt its trading partners, and they, in turn, might bankrupt their other trading partners, setting off a toxic cascade.
But some bankruptcy experts question the fairness or even the effectiveness of this exception.
- Andrew Sheng and Xiao Geng use the city of Foshan's experience to suggest how China can move from middle-income to high-income status. - Project Syndicate
A very interesting pros-and-cons article:
Few people outside of China know Foshan, a city of seven million located at the heart of the Pearl River Delta in southern China. But this vibrant and economically progressive city — which Foreign Policy and the McKinsey Global Institute ranked last year as the world's 13th most dynamic city, based on its projected GDP increase from 2010 to 2025 — embodies China's quest for a high-value-added, high-income economy.
More than half of Foshan's population and two-thirds of its workforce are migrants, who have access to the same social services as locals, owing to reforms in vocational training, health care, housing, and social security.
The problem of credit access for local SMEs will be more difficult to resolve. As it stands, local SMEs are forced to pay shadow-banking interest rates exceeding 20%, which retard their growth and limit their ability to innovate and create jobs. This suggests that macroeconomic policies, though necessary, are insufficient without parallel institutional reforms in planning, regulation, and bankruptcy procedures to enforce credit discipline for all borrowers, regardless of whether they are in the private sector or state-owned.
On pollution, the obvious prescription is for Foshan to move to cleaner industries. But, unless nearby cities do the same, such efforts will have minimal impact. A more effective approach would entail collective action to improve standards, expand public education, promote innovation in science and technology, and enforce rules more effectively.
- Testosterone Pit - Home - Financial Engineering Wildest Since The 2007 Bubble
Despite the debacle in Asia, global investment banking fees rose to $73 billion. And that too was the highest since the bubble year 2007, when investment banks pocketed $90 billion. Think of how much more fun could have been had if Asia hadn't dilly-dallied around.
And who got the lion's share of these fees? JP Morgan gobbled up 8.6% globally and Bank of America Merrill Lynch 7.5%. They were followed by Goldman Sachs, Morgan Stanley, and Citigroup. For the first time since 2009, the global top five were our too-big-to-fail friends on Wall Street. The top ten were rounded out by Deutsche Bank, Credit Suisse, Barclays, Wells Fargo, and UBS.
They're all celebrating their phenomenal success in extracting massive fees from a wheezing economy that has been barely wobbling along. But it's also a warning signal: Financial engineering looks good on paper for a while, and the markets love it, and the hoopla makes everyone feel energized, especially those who take the cream off the top, and it feeds off the nearly free money the Feds hands to Wall Street. But after these financial engineers are done extracting fees and altering the landscape, they move on, leaving behind iffy debt, shares of dubious value, wildly growing tangles of risk, and other detritus. And a lot of these financially over-engineered constructs won't make it in an environment where money isn't free anymore.
Are the underlying fundamentals sound when the "smart money" is selling? Interesting. Is all of the "smart money" selling? Did the Fed's educating the markets tame the beasts enough? It's what we called for, and it worked more easily than we thought it would. The markets listened, heard, and didn't panic.
Of course as our loyal readers know, we think the taper is premature; but we'll be glad to be wrong.
Now, if banks will just educate borrowers while those banks actually lend at decent rates, we can increase supply and demand and get people back to work again — some 8-10 million of them, at the very least.
- U.S. mortgage applications fall as refinance hits five-year low: MBA | Reuters
This is no surprise to us and why we said that we think the taper is premature.
Applications for U.S. home mortgages fell for a second week and hit a 13-year low as mortgage rates rose due to a bond market sell-off following the Federal Reserve's decision to pare its bond purchase stimulus in January, an industry group said on Tuesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 6.3 percent to the lowest level since December 2000.
Mortgage applications have fallen sharply since this summer on a jump in home finance costs as benchmark Treasuries yields eventually rose to a two-year high.
- Russia Crisis Haunts Deutsche Bank's Smith Seeing China Bust - Bloomberg
China's push to open up its economy is winning praise from Goldman Sachs Group Inc. to Morgan Stanley and Jefferies Group LLC, which predicted last month a "massive" multiyear bull run for stocks.
John-Paul Smith doesn't share the enthusiasm.
When the Deutsche Bank AG equity strategist looks at the country, he says he detects some of the same signs of a financial meltdown that led him to predict Russia's 1998 stock market crash months in advance. China's expansion is being fueled by soaring corporate borrowing, a high-risk model that needs to be replaced by the kind of free-market measures and budget cuts that fed Russia's growth in the aftermath of the country's default and subsequent 44 percent monthly tumble in the Micex Index (INDEXCF), Smith said.
Smith's 2013 call for a drop of at least 10 percent in developing-country stocks has proven prescient. ...
Smith wrote an article for the Financial Times in December 2007 saying he sensed that the worst in the subprime mortgage crisis was over and that the U.S. market was poised to rally. The worst financial crisis since the Great Depression followed.
The analyst, who has also been wrongly bearish on oil since April 2011 ....
Is he right this time?
We don't know how people missed calling the housing crash, but some knowledgeable people did. Fracking is a bit different, but still....
We think he's closer to right this time on China. China would be pulling off a reform miracle were it to take necessary measures soon enough, avoiding a serious slump.
We think China bit off more than it can chew, but we'll see.
- The global property outlook for 2014
Mahdi Mokrane, head of research and strategy at La Salle Investment Management, discusses the outlook for the global property sector in 2014.
He was interrupted there at the beginning but instantly made his point anyway.
Spain may be at its bottom, but digging out from 25-27% unemployment won't be overnight.
Do you think it's a buy-and-hold while being able to absorb little to no inflowing cash but spending on fixing and maintaining or tearing down, waiting for the Spanish economy to revive (a great play for the patient ultra-rich)?
- China Repo Rates Are Spiking Again, Reliving June 2013; Hard Landing Watch
If the Chinese government can't prevent a hard landing in its economy, the deflationary effect would ripple through the global economy and financial markets. Everything is interconnected. A hard landing in China would probably look like the U.S. asset price bust and deleveraging spiral that occurred in 2008, which realized all of the mal-investment in the too-big-to-fail banking system. But China is different because its government is behind Bubble Capital Management, which is why the Chinese government and PBOC are trying to deleverage its credit bubble slowly to prevent a hard economic landing and to reprice/rebalance its system ....
China has yet to get out in front of the stampede to turn it from going over the cliff: better to take a major correction now than a depression later.
- Job Growth to Drive 2014 Housing Market | Realtor Magazine
The housing recovery is expected to continue on its path in the new year with home prices continuing to rise (although at a slower pace); sales to rise slightly; and the foreclosure crisis expected to finally draw to an end.
That's the general consensus of those who are paid by a psyched-up housing market. We think their optimism is premature. Let's see what happens once the Fed actually buys $10 billion less in bonds in January 2014.
As you've seen above in our links, mortgage applications are way, way down; and that's not attributable to the Holiday Season when sales normally slow but mostly to the recent taper announcement and rising mortgage rates.
We think people still have thrift on their minds. College kids will have to delever too. There's still an adjustable-rate reset coming and on and on.
Let's see what the banks do with rates when borrowing slows.
- 10 healthiest housing markets in America
A new housing gauge called the Zillow Market Health Index aims to illustrate the current health of a region's housing market relative to other markets across the nation. The index combines 10 measures capturing home value movements, the time homes stay on the market, and the financial health of homeowners. It assigns a value for each region ranging from 0 to 10. For example, if a metro area has a value of 8 on the Market Health Index, the metro is healthier than 80% of all metro areas covered by Zillow in the United States.
... 10 healthiest housing markets in the United States.
1. San Jose, California
Market Health Index: 9.04
Share of Homes Sold for Gain: 86%
Mortgages in Negative Equity: 7.6%
Days on Market: 45
- ABA to Sue Regulators Over Volcker Rule - American Banker Article
WASHINGTON — The American Bankers Association plans to challenge the Volcker Rule in court unless regulators immediately suspend portions of the controversial regulation that restrict certain collateralized debt obligations of trust-preferred securities.
In a letter to regulators, the trade group said the financial harm from the provision is "real, imminent and irreparable."
"CDOs, which are collateralized against an asset pool comprising a variety of bonds and other fixed-income securities, were blamed for the 2008 financial crisis." https://www.cnbc.com/id/101293932
- US Federal Reserve tapering: A soft landing?
One may conclude that the Fed seems to have engineered "a soft landing" for its tapering program, which is very much uncharted territory in the realm of macroeconomic management. The implications so far for the US and the rest of the world have been manageable. However, at the time of writing it is still early days and vigilance and caution are necessary. Going forward, one needs to monitor the US inflation rate to understand the direction of US policy interest rates. In addition, the key transmission mechanism for the impact on emerging economies will be the US bond yields — more significantly the trends in yield differentials. These will inevitably decline. However, the more gradual the increase in US bond yields, the less disruptive it will be for emerging markets. The strength of their macroeconomic fundamentals will be the key determinant of their vulnerability/resilience to declining yield differentials.
Yield differentials: https://www.businessdictionary.com/defin ition/yield-differential.html
- Here's why you should worry about housing: Strategist | Talking Numbers - Yahoo Finance
Gina Sanchez, founder of Chantico Global:
"If you really dig into the data, it really isn't showing a positive sign," says Sanchez. "Inventories are continuing to rise. So, I don't see this as a bullish sign. I actually am very concerned right now about the housing market."
Click through to watch the video. Yahoo won't allow it to be embedded off their site.