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China Moves to Devalue Yuan

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Re: China Moves to Devalue Yuan

#41

Post by chatmasta »

lubos wrote: post #30
go1979 wrote: post #23

Earlier quoted context omitted.

I fully believe the capital outflow link to the rise in western real estate prices. As someone unlucky enough to be caught without any property, I am perplexed by the reasonable response. Friends have responded by taking insane loans (since property prices went up after said loans, these were really prudent financial decisions). I am at a loss. Will I be buying at the top? :(

Foreign investors buying up real-estate don't do it for the love of it. They seek returns by renting out. And even though real-estate value has increased a lot. Rental income from these properties didn't increase at the same rate. Tenants can't afford to pay rent landlords would like to charge so there is downwards pressure on returns these properties can generate. Not to mention, interest rates are at record low. Wh…

I'm expecting a significant rise in the number of homes for sale when interest rates spike. Many multi-property landlords are relying on "hard money loans" or "bridge loans" to finance their properties. The nature of these loans is that they put the asset itself (i.e. the house) up as collateral, but also allow the landlord to leverage the loan into another one. So a landlord can put just a little bit of money down on a house, and then leverage it into a chain of multiple houses.

When interest rates spike, landlords lose leverage ability and may even have to refinance their loans. Spiking interest rates will lead to an influx of homes into the market as landlords who did not plan well enough for the spike are caught underwater in the same way as residential homeowners were in 2008.

Private equity firms are backing the loans, so maybe they'll just take the houses when interest rates spike, and rent them to tenants themselves. In the future, we'll all be renting from the Blackstone group!

Disclaimer: I am very uninformed on this subject and do not know what I'm talking about. :)

Re: China Moves to Devalue Yuan

#42

Post by toomuchtodo »

bkeroack wrote: post #37
pjc50 wrote: post #21

Earlier quoted context omitted.

I prefer ftalphaville's take: http://ftalphaville.ft.com/2015/08/11/2137067/this-one-time-... There is a massive but officially not permitted capital outflow from China that's pushing up real estate markets around the Western world. To some extent we're paying for our imported manufactured goods from China by exporting house ownership and rent payments.

Which is actually nice for the US, since Chinese buyers can't pick up a piece of real estate and bring it back home with them, and the ownership obligates them to pay taxes, etc. It hurts the domestic home buyer, though, who has to compete with inflated all-cash offers from these foreign investors.

This:

> It hurts the domestic home buyer, though, who has to compete with inflated all-cash offers from these foreign investors.

is much more hurtful then the benefits provided by foreign buyers paying taxes. If you don't believe me, look at London. Actual workers are pushed out by money launderers (yes, that is what they are).

Re: China Moves to Devalue Yuan

#43

Post by toomuchtodo »

jpollock wrote: post #38
clavalle wrote: post #36

Earlier quoted context omitted.

Unless they bought it from a foreign investor. There is something to be said for not having another country control property that one's citizens need to live. What if another country started buying up farmland, for example? Beyond that they have no interest beyond financial to, say, keep things nice or affordable or to encourage sustainable growth or any of the other bonuses communities get when they have locals own…

Citizens (and occasionally residents) have ultimate control over the land, through control of taxation and regulation.

Only if said Citizens are keeping their government in check.

Re: China Moves to Devalue Yuan

#44

Post by chatmasta »

adventured wrote: post #13

Some likely effects from this: 1) US consumers just got a small standard of living boost. The same things they were buying before, will now cost less. It'll have little to no effect on US domestic manufacturing. 2) This will put some downward pressure on US consumer prices. Giving the Fed even less inflation concern (at least from the CPI angle). 3) The Fed is very, very unlikely to raise interest rates in September.…

I keep hearing about the Fed raising interest rates, or not raising interest rates, but I'm unclear what the pros vs. cons are for the Fed to raise them at a given time. Would someone mind explaining that?

Why does China devaluing the Yen have any impact on US raising interest rates or not?

Re: China Moves to Devalue Yuan

#45

Post by noir_lord »

Zach_the_Lizard wrote: post #22
pjc50 wrote: post #21

Earlier quoted context omitted.

I prefer ftalphaville's take: http://ftalphaville.ft.com/2015/08/11/2137067/this-one-time-... There is a massive but officially not permitted capital outflow from China that's pushing up real estate markets around the Western world. To some extent we're paying for our imported manufactured goods from China by exporting house ownership and rent payments.

I think the Chinese billionaire effect might be real, but really the chief reason housing prices are so high is because we make it difficult to build housing. This is especially true in the most economically productive metro areas, such as New York and the Bay Area. Even smaller cities such as DC are facing housing affordability crises. DC gained ~90K residents from 2005 to the present, but only gained ~12.5k new hou…

In fact you could argue that if foreign investors have bought all your available housing then by building more housing you solve the problem of affordable housing and devalue the housing sold to others (but you got the income at the previous level).

Here in the UK we need a massive concerted national effort to replace both the sold housing stock and the demand from an increased population - not going to happen though as neither major party is looking to be responsible for a house price fall (however beneficial in a net sense that would be) as the newspapers/media will beat them over the head with it.

So we continue the wealth transfer from the poor/young to the rich/old.

Re: China Moves to Devalue Yuan

#46

Post by astrocyte »

I've asked this question many times to people deeply educated and versed in economics and never got a a good answer... In a world of currency pairing (ratios) A:B:C:D:E

Assuming parity among A:B:C:D, if each country prints 1 Trillion in their respective currency, what is the net effect aside from inflation 'potential'? 100:100, 1000:1000 .. It's still 1:1. Assuming there are deflationary forces countering the inflationary force of printing, nothing changes beyond maintenance of status quo.

The more and more I look at this picture, the more it appears to be global maintenance of status quo to, in the face of destabilizing systemic forces, keep things stable via countering forces (printing)

The only thing I can see suffering here are the variables outside of the clown show :

> Natural resources

> Environment

^ (Economic system becomes disentangled with underlying condition of resources/environment)

I guess this is where the eventual selling of 'global control' of these variable comes....

A system headed to centralized control.

Re: China Moves to Devalue Yuan

#47

Post by ebiester »

toomuchtodo wrote: post #42
bkeroack wrote: post #37

Earlier quoted context omitted.

Which is actually nice for the US, since Chinese buyers can't pick up a piece of real estate and bring it back home with them, and the ownership obligates them to pay taxes, etc. It hurts the domestic home buyer, though, who has to compete with inflated all-cash offers from these foreign investors.

This: > It hurts the domestic home buyer, though, who has to compete with inflated all-cash offers from these foreign investors. is much more hurtful then the benefits provided by foreign buyers paying taxes. If you don't believe me, look at London. Actual workers are pushed out by money launderers (yes, that is what they are).

The big difference between the US and GB is how much more land there is in the US.

We can always build a new city.

Re: China Moves to Devalue Yuan

#48

Post by toomuchtodo »

ebiester wrote: post #47
toomuchtodo wrote: post #42

Earlier quoted context omitted.

This: > It hurts the domestic home buyer, though, who has to compete with inflated all-cash offers from these foreign investors. is much more hurtful then the benefits provided by foreign buyers paying taxes. If you don't believe me, look at London. Actual workers are pushed out by money launderers (yes, that is what they are).

The big difference between the US and GB is how much more land there is in the US. We can always build a new city.

Its not where the land is. Its where the jobs are. Is everyone going to live in a tiny house in BFE Texas?

Re: China Moves to Devalue Yuan

#49

Post by ethanhunt_ »

adventured wrote: post #13

Some likely effects from this: 1) US consumers just got a small standard of living boost. The same things they were buying before, will now cost less. It'll have little to no effect on US domestic manufacturing. 2) This will put some downward pressure on US consumer prices. Giving the Fed even less inflation concern (at least from the CPI angle). 3) The Fed is very, very unlikely to raise interest rates in September.…

> The Fed is very, very unlikely to raise interest rates in September. It's practically guaranteed not to happen. Investors are likely to bet on this today, and stocks will probably climb significantly over the next few months in response to the Fed not hiking. The bet will shift from expecting a hike, to not expecting one for the remainder of 2015.

Why would the yuan devaluation affect the fed's decision?

The stock market opened after you wrote your comment, and u.s. index is down >1% and foreign index is down >2%.

Re: China Moves to Devalue Yuan

#50

Post by droopyEyelids »

rm_-rf_slash wrote: post #28
jakozaur wrote: post #4

China is devaluing yuan for quite a while, but usually more smoothly. Will this that do the trick or there is problem in fundamentals? Like debt is growing too fast comparing to rest of the economy. Moreover, will China start making transition from cheap labour, efficiency based economy to innovation based one. Does government is aware of that challenge or they try to execute strategy for old model, that used to work…

>Moreover, will China start making transition from cheap labour, efficiency based economy to innovation based one. This is my biggest skepticism towards China. They are simply not an aspirational brand. Who says "I buy Vietnamese so someday I can buy Chinese"? No, they say "I buy Chinese so someday I can buy European." It doesn't matter how much of my dad's semiconductor research they steal (>10,000 hacking attempts…

Precisely the same thing was said about Japan. I know Japanese products don't have special cache now, but there was a time when the phrase "Jap crap" was in common circulation, and then a time afterwards where Sony took over the world.

It seems entirely plausible to me that China is working through the same historical process. Consider the possibilities of Foxcon- they already manufacture the most desirable consumer devices in the world.

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