1/10
According to “Japan’s Policy Trap (2002): “The first wave of bankruptcies appeared among firms that speculated in land and stock, beginning with the sensational collapse in September 1990 of Itoman, a trading company turned property developer."
According to “Japan’s Policy Trap (2002): “The first wave of bankruptcies appeared among firms that speculated in land and stock, beginning with the sensational collapse in September 1990 of Itoman, a trading company turned property developer."
2/10
"The Itoman saga," it continues, "unrolled like a third-rate potboiler, with revelations of massive fraud, gangster connections, prison sentences, and a suicide, making it easy to dismiss as a one-off event. But such complacency did not last long."
"The Itoman saga," it continues, "unrolled like a third-rate potboiler, with revelations of massive fraud, gangster connections, prison sentences, and a suicide, making it easy to dismiss as a one-off event. But such complacency did not last long."
3/10
"Within a few months," the passage concludes, "a string of other developers and speculators were either bankrupt or the subject of massive rescue operations.”
"Within a few months," the passage concludes, "a string of other developers and speculators were either bankrupt or the subject of massive rescue operations.”
4/10
I am not arguing here that we are necessarily seeing a step-by-step repeat in China of what we saw in Japan 30 years ago, only that a certain sequence of events can be boringly predictable.
I am not arguing here that we are necessarily seeing a step-by-step repeat in China of what we saw in Japan 30 years ago, only that a certain sequence of events can be boringly predictable.
5/10
The Chinese property market for the past 40 years, like the Japanese property markets in the 40 years before 1990, was very clearly seen by everyone as a one-way bet. But when a major asset class is a one-way bet for may years, it always has the same impact.
The Chinese property market for the past 40 years, like the Japanese property markets in the 40 years before 1990, was very clearly seen by everyone as a one-way bet. But when a major asset class is a one-way bet for may years, it always has the same impact.
6/10
The economy always over-leverages operations around that asset. This isn’t because people are stupid or dishonest, but rather because there is always a natural distribution of risk-taking among them, ranging from the highly speculative to the highly prudent.
The economy always over-leverages operations around that asset. This isn’t because people are stupid or dishonest, but rather because there is always a natural distribution of risk-taking among them, ranging from the highly speculative to the highly prudent.
7/10
In a normal market those who take excessive risk are eventually bankrupted. Those who take too little are eventually pushed to the margins. That is what keeps risk-taking efficient. But that is not what happens when prices move in one direction for a very long period.
In a normal market those who take excessive risk are eventually bankrupted. Those who take too little are eventually pushed to the margins. That is what keeps risk-taking efficient. But that is not what happens when prices move in one direction for a very long period.
8/10
In that case after many years in which the highly speculative strategies consistently outperform their more prudent competitors, every entity will have either adopted the highly-speculative strategy or it will have been pushed to the margins.
In that case after many years in which the highly speculative strategies consistently outperform their more prudent competitors, every entity will have either adopted the highly-speculative strategy or it will have been pushed to the margins.
9/10
It is inevitable, in other words, that the sector becomes financially overexposed to any volatility in asset prices, let alone to a sustained reversal.
It is inevitable, in other words, that the sector becomes financially overexposed to any volatility in asset prices, let alone to a sustained reversal.
10/10
It would be astonishing if after 40 years of sharply-rising real estate prices, the Chinese financial and property sectors were not highly vulnerable to a property correction. That’s why Evergrande matters, but as a symptom of the problem, not a cause.
It would be astonishing if after 40 years of sharply-rising real estate prices, the Chinese financial and property sectors were not highly vulnerable to a property correction. That’s why Evergrande matters, but as a symptom of the problem, not a cause.
"New-home prices dropped 0.33% in November from October across 70 cities, the biggest month-over-month decline in about six years."
wsj.com/articles/china…
wsj.com/articles/china…
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