Mish's Global Economic Trend Analysis

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• Top Tier Chinese Cities Discounting Property; Beijing Prices and Volume Down 11 Straight weeks
• Reader Question on Shadow Banking and Gold Buying in China
• Merkel Tiptoes Through the Tulips; Russia Debt Cut to One Notch Above Junk; Is Anyone in Control?

Top Tier Chinese Cities Discounting Property; Beijing Prices and Volume Down 11 Straight weeks Posted: 25 Apr 2014 02:03 PM PDT The Australia Macro Business Blog notes Tier 1 Chinese Cities Discounting Property Prices and volumes are falling in Beijing and real estate agents are started to drum up sales by delisting homes listed at high prices. Lots of homes listed online now show price cuts, and volumes have picked up recently from depressed levels. Total listings are down about 50% in some parts of Beijing due to listings being removed. Online Prices Falling Everywhere; Real Estate Agents Cut Prices 30% (网上随处可见降价房 北京中介三成房源进入降价通道) "Two weeks ago the price fell 200,000 yuan," "6 hours ago the price fell 100,000 yuan," …… Yesterday, the sites of real estate companies show homes in the east, south and west Third Ring large area, about thirty percent of listings are marked with The green arrow indicates the listings with price cuts have almost quadrupled since the period before Spring Festival. Such a situation from two weeks since the beginning of April, the city is currently at this largest second-hand housing sales real estate agent are starting to tell homeowners who ask for high listing prices, "no." Every home exceeding the average price for the area is being persuaded one by one to cut their asking price, otherwise they will be removed from the website, "off the shelf." Reporter survey found that many hot spots in the district, real estate agencies have taken as much as 40% of the properties off the market, resulting in an eyeful of lower prices online. In Guangzhou, developers only paid a premium of 1.4% on the "star plots" at a recent government land auction. In Beijing, prices and volume have been sliding for 11 straight weeks. Hugh Pavletich posted the following links as comments to the above article. Housing projects in China in limbo due to debt-ridden developers Does China's Q1 GDP Figure Rule Out A Hard Landing? New Zealand's Bubble Economy Is Vulnerable Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Reader Question on Shadow Banking and Gold Buying in China Posted: 25 Apr 2014 11:28 AM PDT Reader Jason pinged me with a MarketWatch article Will China Drop Gold Next? by writer Craig Stephen. Stephen notes that for the first time, Chinese demand topped 1,000 tonnes, reaching 1,176 tonnes after a 41% year-on-year gain, not including central-bank buying and that "investors have done well in the past with a simple strategy of buying what China was buying." Stephen also cautioned about a "worrying explanation" that "a big chunk of China's gold demand is the spectacular growth in China's shadow banking, for which that the government is now trying to apply the brakes." If so, Stephen claims that "raises the possibility of a gold crunch, depending on how the People's Bank of China flushes out the yuan carry trade by orchestrating a weakening in the Chinese currency." Does the Story Make Any Sense? Reader Jason wonders "if the story makes any sense." The answer is "Yes" and "No". Given what happened with copper, no one should be surprised if shadow banking operations in China used gold for the same purpose. But does that mean or imply a "possibility of a gold crunch"? For that, the answer is no. Shadow Banking Demand Story a Big "So What?" Here are comments from Pater Tenebrarum at Acting Man, via email This story is a big 'so what'? That China buys a few hundred tons more or less is completely irrelevant to the gold price. People continue to make the fundamental mistake of confusing gold with an industrial commodity. You can see it already in the very first sentences: "Investors have done well in the past with a simple strategy of buying what China was buying. So earlier this year, things were looking up for gold when it was revealed that China had swept past India to become the world's biggest buyer in 2013." It is completely irrelevant if Chinese gold imports 'swept past India's'. The most relevant factor in gold pricing are macroeconomic drivers and reservation demand. The total gold supply amounts to something close to 180,000 tons by now - which means that the total global gold demand is also for 180,000 tons. In what way does a few hundred tons here or there matter? The answer is "it doesn't". I have covered this type of question before. Please see Plague of Gold Bears Now Say "Gold Unsafe at Any Price"; What's the Real Long-Term Driver for Gold?. Also read I suggest an interview on Gold Switzerland with Robert Blumen: "What's really key for the price formation of gold?" Time and time again, you hear talk of demand in India or China going up or down as if it is meaningful. It isn't. You also hear about the price of physical gold vs. paper gold. I suggest you ignore that talk as well. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Merkel Tiptoes Through the Tulips; Russia Debt Cut to One Notch Above Junk; Is Anyone in Control? Posted: 25 Apr 2014 09:52 AM PDT Citing the tense geopolitical situation between Russia and Ukraine, the S&P Cut Russia Debt Rating to Step Above Junk and warned further downgrades may come. S&P cut Russia's rating one step to BBB-, it said in a statement today. The grade, on par with Brazil and Azerbaijan, has a negative outlook. S&P last downgraded Russia in December 2008. Russia's currency and bonds fell. "The tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects," S&P said in the statement. The downgrade was expected by investors and won't significantly change their behavior, Russian Economy Minister Alexei Ulyukayev told reporters today. Russian President Vladimir Putin told reporters in St. Petersburg yesterday that "sanctions are not effective in the contemporary world and are not bringing the desired outcome." "The decision is partially expected -- Russia is almost in recession, even without sanctions," Dmitry Dorofeev, a money manager at BCS Financial group, said by phone. S&P said it may lower the rating further "if tighter sanctions were to be imposed on Russia and further significantly weaken the country's net external position." Threats of More Sanctions The Financial Times reports Angela Merkel Warns Russia it Faces Further Sanctions. "I spoke to the Russian president this morning and made clear again that on the one hand Ukraine has taken a whole series of steps to implement the Geneva accord but on the other side I see no Russian backing for the accord which would of course have an effect on the separatists in Ukraine," Ms Merkel said. The German chancellor made it clear that any additional measures would be an extension of the current financial sanctions, not the introduction of full-blown trade sanction, which include energy. Merkel Tiptoes Through the Tulips By making it clear the threats do not involve full-blown trade sanctions, Merkel effectively chose meaningless tiptoe steps that cannot possibly accomplish much. Then again, a full blown trade war will not accomplish much either, except perhaps quickly sink Europe back into recession. If Russia shuts off gas to Europe, everyone loses. Merkel knows that, so does UK Prime minister David Cameron. The only person who doesn't know or doesn't care is president Obama. Is Russia in Control of the Separatists? Merkel stated "Russia has the power, or could have the power, to bring the separatists on to a peaceful path of discussions about the constitution and preparations for elections". Is that necessarily true? One can make a case that Russia spawned these uprisings. Some claim Russia even supplied the weapons. But does that mean Russia is in control of the situation? Recall that Denis Pushilin, the head of the self-declared Donetsk People's Republic, told journalists in regards to the now broken peace accord, that "Russian foreign minister Sergei Lavrov did not sign anything for us, he signed on behalf of the Russian Federation." The only thing Russia clearly has control over, is whether or not to invade if Ukraine responds with more force. And if Russia does invade, the Ukrainian army will be no match. Let's hope it does not come to that. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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