Chinese Real Estate Prices Jump Most in 5 Years

Bloomberg details:

China’s property prices rose a record in April, defying government measures to stem gains and suggesting more drastic curbs are needed.

Residential and commercial real-estate prices in 70 cities climbed 12.8 percent from a year earlier, the National Bureau of Statistics said on its website. That topped the 11.7 percent surge in March, which was a record then for the data series that goes back to 2005.

Below is a chart of the national "70 Medium-Large Sized Cities" real estate index, along with China's 5 largest cities showing the widespread jump for new, existing, and the broader index.



And while there are conflicting reports (the Bloomberg article has a quote claiming “the only reason why April posted a gain was the low basis of comparison from last year”), the data seems to show the pace was accelerating. Economic Times with those details:

Property prices rose 1.4 percent from the previous month, higher than the 1.1 percent pace in March and logging the quickest pace since December, when the monthly increase was 1.5 percent.

Moreover, many analysts say the way the index is compiled seriously understates the degree of property inflation. Real estate investment in the first four months increased 36.2 percent compared with the same period last year. Year-to-date investment in the first three months of 2010 was up 35.1 percent.

A chart showing the year over year change vs. the month over month change annualized seems to show an increased appreciation.



China is now apparently ready to do whatever it takes to fight the bubble:

China, trying to peel back the effects of a $586 billion stimulus package and lending binge that drove a surge in home prices, is stepping up efforts to cool the market with policies Deutsche Bank AG described as “draconian.” It ordered developers not to take deposits for sales of uncompleted flats without proper approval, curbed loans for third-home purchases, and on May 2 boosted banks’ minimum reserve requirement for the third time this year.

How much of an impact can this all have? Well, if one were to believe a Business Week article (I believe the direction, not the scale) a LOT.

Beijing News said property prices in the capital slumped more than a third over the past one month.

Housing prices fell 31 percent for the week ending May 9 from the week ending April 11, to average price of 16,898 yuan per square meter, the Beijing News reported today, citing statistics from consulting firm Comprehensive Real Estate Services Corp.

I don't buy 31% in a week, but it shows just how much air is in the bubble if that kind of number seems somewhat reasonable.

Source: National Bureau Statistics of China

Golden Bubble Cont'd (Part II)

Another case for gold entering bubble territory. Tim Iacono at Seeking Alpha with the details:

To me, it's just fun to watch their stash grow as inventory at the world's most popular gold ETF passes holdings by central banks all around the world. Switzerland, you're next! Soon, GLD will be number six in the world and then it'll be a long way to go in relative terms to catch Italy at almost two and a half thousand tonnes but, at the rate they're going in 2009, that'll happen by this fall. Then it's just a chip-shot away to surpass France.

With net assets of over $33 billion, GLD is already the second largest ETF in net assets according to Yahoo! Finance behind only its SPDR brother SPY at about double that figure. Somehow, it seems like that gap might narrow rather quickly over the next year or so.

Are Treasuries Really in a Bubble?

A Barron's video posted at The Big Picture warns to 'Stay Away From Treasury Bonds'. I'll agree that Treasury bonds look awfully rich and I have no intention of going long, but I do feel there is danger to outright shorting treasuries in this environment (though as I post this, 30 year yields have blown out 20 bps today). First lets look at some data that shows at a minimum long bonds (i.e. 30 year Treasuries) appear rich.

30 year treasury yields have rallied dramatically over the past 25+ years, but the most recent rally is unprecedented over that time.



In terms of pricing, long bonds have rallied more than 30% in the past 3 months. Supporting the case that these bonds are ready to sell off... long bond prices have historically sold off ("mean reverted") following smaller, yet similar rallies.



However, it is important to remember that the current market is not "normal" and mean reversion is not a certainty. Off the top of my head, I can think of many reasons why long bond yields may not only stay at current levels, but may actually continue to rally.

1. Real yields are not abnormally low (a deflationary environment makes those puny yields much better in real rather than nominal terms)
2. The Fed can (and will likely be) purchasing Treasury bonds to keep rates artificially low; likely starting in the 5-7 year space, but possibly out along the curve
   
3. The economy can continue to get worse / companies will default in the coming year at substantial levels, creating the possibility of another "flight to quality"

As Larry MacDonald states in his post Shorting The Bond Bubble? Hold On:

Shorting government bonds would thus appear to be a no brainer as risk appetite responds to signs of an upturn in economic growth and inflation worries arise anew. But what might not be so obvious is the timing of the trade.

Lags in the impact of stimulus measures could mean deflationary news will linger for awhile yet. More importantly, the Federal Reserve has stated it is committed to buying Treasuries to keep interest rates low until the crisis and economy stabilizes. China too will likely be a buyer of U.S. Treasuries as part of its strategy of suppressing the yuan to enhance the competitiveness of its exports.

So watching from the sidelines may be the strategy for now.

Update: My post was all set to go when I saw Credit Writedowns had an eerily similar post. Always nice to be in good company.

Anatomy of a Bubble?

According to AAA, the price of gas has now dropped 25 straight days. Is this the beginning of a large reversal?


Source: S&P, EIA