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[Premium] Spain’s nationalisation plan won’t work as the banking system is insolvent

Edward Harrison — Thu, 17 May 2012 15:44:12 +0000

The Spanish banking system is insolvent and the Spanish government simply does not have the wherewithal to clean it up. This is the problem in Spain that has come to a head, particularly now after the rescue of Bankia, Spain's fourth largest bank. Unless the European Union come to Spain's rescue, there will be runs on Spanish banks, with contagion rippling outward.

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Don’t Fight the Last War: Lessons from the Battlefields of Risk Management

Niels Jensen — Tue, 08 May 2012 17:41:25 +0000

Our brains are not calibrated to deal with the unexpected. Most of us believe we are good risk managers but in reality we are not. Most of us trust that risk can always be quantified and expressed through some fancy modelling whereas, often, it cannot. The world is not normal, yet universities continue to teach our young students the wisdom of Markowitz and Sharpe which brought us modern portfolio theory and, more specifically, the capital asset pricing model. Garbage In, Garbage Out, as they say. One of the fundamental assumptions behind modern portfolio theory is that asset returns are normally distributed random variables. The return profile of US equities fairly closely matches that of a normal distribution with the exception of large negative returns. They have come about more frequently than one would or should expect

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Judging by Ireland, Spanish banks to take a lot more credit writedowns

Sober Look — Mon, 23 Apr 2012 18:00:23 +0000

Ireland dealt fairly quickly with its property market bubble by effectively and forcefully nationalizing and recapitalizing its banking sector. They clearly still have a serious problem on their hands, but the nation has been aggressive in addressing the issue of distressed real estate loans. In contrast, Spain's banking system is nowhere close to fully recognizing the full extent of the problem. Not facing the problem however is not going to make it go away

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On building debt

Michael Pettis — Tue, 24 Jan 2012 14:00:00 +0000

I am glad to say that the overinvestment thesis is much more widely acknowledged today than it was even two or three years ago, but one myth, I think, is that most of the overinvestment excesses in China are concentrated in the real estate sector. I have always argued that it is infrastructure where the most amount of investment has been wasted

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Bubble Trouble in the U.S. Heartland?

Global Macro Monitor — Fri, 16 Dec 2011 18:00:51 +0000

The “smart money” has been buying up farmland hand over fist for the past few years and you can see how they helped drive up land prices in the U.S. heartland. Some think this is the place to be if the shit really hits the fan. Not gold, but productive assets that you can eat. Nevertheless, with ag commodities starting to rollover, farmland prices have probably seen their best days.

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Jim Chanos on China, Hong Kong and Australia

Edward Harrison — Thu, 24 Nov 2011 00:49:27 +0000

Famous shortseller Jim Chanos was in Hong Kong and Australia and reported back on what he saw to Bloomberg Television. Copy provided below including a link to the video

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The debt-financed investments of Chinese state-owned enterprises

Michael Pettis — Thu, 07 Jul 2011 16:00:51 +0000

A lot of Chinese SOEs are involved in a very wide variety of business activities, and are especially fond of activities in which cheap capital is the comparative advantage, or in which there is political advantage to be gained. That makes real estate development and “high tech” two of the most popular ancillary businesses. And of course if it is true that SOEs are investing unnecessarily for reasons that have nothing to do with value creation, one consequence is likely to be an increase in debt, as SOEs borrow and invest

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Video: Australia on China’s property market and ghost cities

Edward Harrison — Mon, 11 Apr 2011 14:19:08 +0000

You have seen a few of these videos on ghost malls and ghost cities in China. This one from an Australian broadcast is quite good. It reinforces what I have been saying about the magnitude of non-performing loans and how this constrains Chinese economic policy. Very sobering

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Three eminent domain cases show corporatism in action

Edward Harrison — Thu, 17 Mar 2011 21:00:00 +0000

So the dialling for dollars campaign is under way in U.S. municipalities. I'm talking about the use of eminent domain laws to dispossess property owners of property in order to make way for luxury facilities. This is an ongoing process I expect to get worse as cash-strapped municipalities figure out how to close budget gaps. There are three recent cases that I want to highlight. But first, here's some history

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Dongguan Ghost Mall And China’s Property Boom

Edward Harrison — Sat, 15 Jan 2011 13:00:28 +0000

This is what the biggest mall in the world looks like on a typical Saturday, very reminiscent of this Hugh Hendry video of China’s empty skyscrapers and this video of China’s empty city. Related Posts Irish property dam about to burst 1 Jun 2008 Andy Xie is much less bearish on Chinese housing market 26

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