Global Property Markets II

With these criterion Canada’s market is especially vulnerable. A large bubble now looks set to burst. Home sales in March were 15% down on a year earlier. Buyers are in short supply. A recent poll showed that only 15% of Canadians are likely to buy a home in the next two years, down from 27% last year—the steepest decline in the 20-year history of the survey. After a big boom, the housing bust will be a wrenching affair.
By contrast, the recovery in the United States, where house prices are up by 9.3%, is based on solid foundations. Previous falls in prices have made homes cheap by historical standards. The recovery has been driven by investors rather than owner-occupiers, but interest on the part of homeowners is increasing. Housing starts are rising sharply.
In the crisis-stricken euro area the Spanish freefall will continue, judging by still- elevated valuations. Housing markets are depressed throughout southern Europe, notably in Italy. But the agony is no longer confined to the periphery of the euro zone. 
Home prices are falling fast in the Netherlands and they are also sagging in France. High valuations in both countries point to more misery ahead.
The big exception in the euro zone remains Germany, which avoided the great housing boom before the financial crisis. Property prices continue to rise but modestly.

Source: The Economist

China's "Taobao Villages" a transitional stage in agricultural and rural modernization.

Wantou, a village 350 km from Beijing, has become known as one of China's "Taobao Villages," home to over 500 online stores on Taobao, China's largest online shopping site under the e-commerce giant Alibaba.

With a stable but "boring" job in a nearby town, An in 2009 pioneered online sales of handwoven crafts in Wantou, where a tradition of wicker handicrafts has been handed down for at least 600 years.

An has since opened a physical store and a small factory with the cooperation of six neighboring family workshops in order to fill the orders flooding in from customers across the country.

"The online store has gained popularity and trust among netizens, who also bring business to my physical store," said An.

Chinese internet Alibaba defines a "Taobao Village" as a village in which over 10 percent of households run online stores and village e-commerce revenues exceed 10 million yuan per year.

By the end of 2012, more than 1.63 million Taobao stores were registered in rural areas. Total transactions from the 14 "Taobao villages" hit 5 billion yuan last year, according to a report released by Alireserach.

The growth of "Taobao Villages" has brought vitality to traditional agricultural areas of China, said Chen Liang, senior expert with Aliresearch.

Chen said that the villages are exploring a new path for China, with potential to realize sustainable economic growth and narrow the urban-rural income gap, much like the miracle created in Xiaogang Village over 30 years ago.

Earlier this month, the government of Shandong Province, a region known as China's farm produce powerhouse, put forward preferential policies for developing e-commerce, including helping graduates and migrant workers start online farm produce trade in remote areas.

China's Internet users reached 591 million in the first half of 2013, and e-commerce revenues hit 4.98 trillion yuan in the same period.

"We should pay closer attention to 'Taobao villages' in the long term. They are a transitional stage in agricultural and rural modernization," said Qiu Zeqi, director of the Center for Sociological Research and Development Studies of Peking University.

Source: Xinhua

U.S. With mortgage interest rising,the outlook becomes less certain

Record-low interest rates fueled a recovery in the housing market that spread to the broader economy. With mortgage interest rates rising in recent months, the outlook has become less certain.
The Fed signals that it may begin to  tap the asset purchases has led to an increase in the 30-year fixed-rate mortgage to more than 4 percent in recent weeks, having hovered in the 3 percent range for months.
At the National Association of Realtors, which releases the figures on sales of previously owned homes, spokesman Walter Molony says, "It looks like most of the growth in sales has already taken place this year. Higher mortgage interest rates are now causing home sales to level out."
Molony says the trade group expects sales to rise between 2 percent to 3 percent in 2014, with an increase in home prices of up to 6 percent. That's compared to what he characterizes as an 11 percent gain for this year.

Economist Robert Brusca notes that there's been a significant recovery from the depths of the housing market collapse. "Both new and existing home sales have been rising strongly in this recovery after a slow start," Brusca says. "Existing sales are up some 47 percent from their low point, while new home sales are up some 84 percent from their low. From those reference points, median existing home prices have risen 17 percent, with new home prices up 13 percent."

At the same time, he's sees some signs that are worrisome. "For low-priced houses ($100,000 and lower), existing home prices are still lower year-over-year by nearly double digits. New homebuilding is cherry-picking the hottest regions and is not representative of the (U.S.) housing market." Homebuilder stocks have recently been declining amid lower expectations.

As for helping to spread the wealth, so to speak, to the broader economy, Brusca says, "It is not surprising that sales of items that relate to homebuying -- like appliances, furniture and building materials -- are lagging."

Source: Bankrate

Research & Development in the Euro Zone

One of the five headline targets of Europe 2020 Strategy is to
achieve an R&D intensity (R&D expenditure as a percentage of
GDP) of 3% in the EU. In 2011, R&D intensity in the EU-27 stood
at 2.03%. Despite an increase on the 2010 figure (2.01%), it was
below the figures recorded in Japan (2009: 3.36%), South Korea
(2010: 4%) and the United States (2009: 2.87%), but higher than
in China (2009: 1.7%).
Among the EU Member States, only Finland (3.78%), Sweden
(3.37%) and Denmark (3.09%) exceeded the EU goal of devoting
3% of GDP to R&D, also outperforming the United States.
Another seven Member States, namely Germany (2.84%), Austria
(2.75%), Slovenia (2.47%), Estonia (2.38%), France (2.25%), the
Netherlands and Belgium (both 2.04%) were above the EU-27
average although below the target figure of 3%.
Between 2005 and 2011, R&D expenditure in the EU-27 increased
by an average of 3% per year, reaching EUR 257 billion in 2011.
Germany, France and the United Kingdom together accounted
for more than half of all R&D expenditure in the EU-27.
The business enterprise sector (BES) was the largest of the
four main institutional sectors of R&D performance in 2011,
accounting for 62.3% of EU-27 R&D expenditure. The higher
education sector (HES) and government sector (GOV) followed
with shares of 24.0% and 12.7% respectively.
In many of the countries under review, the ‘manufacturing’
sector accounted for the greatest share of business enterprise
R&D expenditure. This was notably the case in Germany,
Slovenia, Finland and Sweden, where 75% or more of R&D
expenditure by the BES was devoted to manufacturing. However,
eight other Member States (Bulgaria, Estonia, Ireland, Cyprus,
Latvia, Lithuania, Portugal and the United Kingdom) saw more
than half of their expenditure go on the services of the business
economy.

Source:  Eurostat

Enhance competitiveness of Chinese Agriculture

In recent years, investment in excess of three billion yuan has been devoted to furthering agricultural industrialization, an important part of the national program for enhancing the international competitiveness of Chinese agriculture. In 2004 alone the government set up 35 agricultural programs, supported by 30 million yuan from the Central Government, over 50 million yuan from local governments, some 100 million yuan of bank loans and more than 600 million yuan raised by enterprises and farmer.
Now a pattern has been formed, with 582 key national enterprises and over 2,000 key provincial enterprises as spearhead, and agencies of various forms connecting farmers with the production base. Leading enterprises in certain sectors, e.g., corn processing, dairy industry and chicken production, have taken major market share and play an increasingly important role in the development and pricing of their respective industries.

Since 2003, the state has set up six types of demonstration projects for the industrialization of modern agro-technology, so as to promote the use of advanced technology for agricultural production, and enhance foreign earnings from exports of farm products.

These projects include industrialization of breeding and cultivation of excellent new varieties and fine strains; high-efficiency, eco-friendly planting and aquatic breeding technology; water-saving and precision technologies; downstream processing of agricultural and ancillary products; pollution-free inputs (e.g., fertilizer and fodder) and the establishment of an agricultural information platform. The "downstream processing of main agricultural products project" was listed as an important sci-tech project during the 2000-2005 Five-Year Plan period. It aims at developing key technologies and equipment for downstream processing of staple agricultural products, research into integrated quality control systems and the quick testing of agro-product technology and equipment. Once completed, some of China's technological aspects will meet the advanced international standard. Meanwhile, the "dairy industry development" and "water-saving agriculture" projects have been listed among important sci-tech application programs initiated by the Ministry of Science and Technology.

Source: Xinhua

China: Innovation in railway funding and speed up railway construction

The central government on Monday published detailed plans to innovate railway funding and speed up railway construction as the new leadership is devoted to deepening reforms.

The State Council said in a statement that railway investment this year is likely to exceed the planned amount. Also, for this year and the following two years, the central government will provide transitional subsidies for China Railway Corp, established in March after a separation of the now-defunct ministry of railways' government and enterprise functions.

These measures are expected to strengthen growth in the world's second-largest economy, which slowed to 7.5 percent in the second quarter of this year.

Railway construction should be accelerated in an attempt to exceed the 2013 investment plan, while the building of railways and related infrastructure should be prioritized in the western and less-developed areas, the statement said.

The reform will see railway fundraising methods diversified and encourage private investment in railway construction as the ownership and management rights of intercity, suburban and branch railways, as well as railways for resource development, will be open to local government and social capital.

In addition, a railway development fund to support national railway projects will be set up with founding capital from the central financial fund coupled with social investment. Private investors will gain reasonable rewards, although they will not directly participate in the construction and management, according to the statement.

"Before the railway freight price determined by the market and the accounting system for nonprofit transportation is established, central finance will support the CRC with transitional subsidies this year and the following two years in view of the latter's insufficient capital, heavy interest rate and the nonprofit function of railway transportation," the statement said.

Source  China Daily

Sixteen Asian and Oceanian countries Monday agreed to adopt common tariff rates

Sixteen Asian and Oceanian countries Monday agreed to adopt common tariff rates in principle under a proposed regional free trade pact.

The countries agreed to work out a broad plan for tariff reductions and elimination under the Regional Comprehensive Economic Partnership pact before a ministerial meeting is held in Myanmar in summer 2014, said sources with access to the conference.In addition, the nations confirmed that they will speed up discussions so that they can end the RCEP talks by the end of 2015.

China's central bank governor Zhou Xiaochuan ready to liberaze deposit interest rates

China's central bank governor Zhou Xiaochuan said Monday the economy will not post persistent slowdowns, indicating the bank is ready to free the long-awaited deposit interest rates to fully liberalize the financial market.

During an interview, Zhou told reporters that the People's Bank of China (PBOC) will continue to implement the prudent monetary policy and conduct some structural finetunings if needed.

The current growth rate is at normal level. China still has powerful endogenic potential of growth and will not slow further, he said.

In response to when the central bank will liberalize the deposit interest rates, Zhou said PBOC is ready and the reform is underway as planned. He is personally optimistic.

Precious Metals Prices 7.10 Eastern Time

Gold Price Futures          3 months      US$   1,366.02

Silver Price Futures        3 months      US$       22.96

Global property markets Part I

According to an article published in the Economist of May 18th,STOCKMARKETS around the world have been stimulated by ultra-loose monetary policy. The response of property markets—the biggest asset class of all—has varied. Whereas the housing boom before the financial crisis was remarkable for its global reach, the recovery after the bust is uneven.
 Among the 18 countries comprised in this article, prices have risen over the past year in 12. The biggest increase has been in Hong Kong, where house prices are up by 24.5%. The biggest faller is Spain, where prices are down by 7.7%.
  Prices have forged ahead by 11.1% in South Africa. They have also been buoyant in two big emerging economies included in our compilation for the first time: Brazil (up by 12.8%) and India (10.7%). China’s house prices have increased modestly, by 3.3%.
  Housing markets are notoriously prone to boom and bust. To judge whether prices are at sustainable levels we use two criterion. One is the ratio of prices to disposable income per person, a measure of affordability. The other is the price-to-rent ratio, in how many years you recover your investment in a house,if you rent your property.
   If these ratios are higher than their historical averages, property is overvalued; if they are lower, it is undervalued.
  On this basis Canada’s market is especially vulnerable. A large bubble now looks set to burst. Home sales in March were 15% down on a year earlier. Buyers are in short supply. A recent poll showed that only 15% of Canadians are likely to buy a home in the next two years, down from 27% last year—the steepest decline in the 20-year history of the survey. After a big boom, the housing bust will be a wrenching affair.

Asian Emerging markets looking fragile

According to an article, published today in the Wall Street Journal "Major emerging markets in Asia plunged Monday on growing concerns among foreign investors that many of the region's largest economies look increasingly fragile as a period of global easy money appears to be coming to an end.The Indonesian rupiah fell to its lowest level in four years and the Indian rupee hit a fresh low adding to signs the emerging market selloff from this summer is deepening.

Global investors are betting the U.S. Federal Reserve will soon start winding down its massive bond-buying program, a view that got a boost from encouraging U.S. employment data last week.

  Global investors are already thinking that the Fed will start to taper its bond buying program.The encouraging data of U.S. initial claims added to this view".

"That belief already has pushed up long-term interest rates and drawn billions of dollars in capital back to U.S. assets. On Monday, the yield on 10-year benchmark U.S. Treasury notes hit a fresh two-year high".

Markets are not convinced by EU Central Bank and Bank of England, forward guidance on monetary policy.

A rise in market interest rates in the euro zone and the U.K. in recent weeks suggests investor confidence in central banks' forward-guidance plans may be on the wane, just weeks after the European Central Bank and the Bank of England pledged to keep interest rates lower for longer.

U.K. government bonds have slumped to their lowest levels in two years and German Bunds are trading at a 16-month low. Contracts tied to European money-market rates that are used to price trillions of euros and sterling worth of assets from corporate loans to mortgages, are predicting that interest rates for borrowers may start rising, if only moderately, as early as 2015.

Even allowing for the fact that holiday-thinned trading conditions have been magnifying moves, it is likely that the two central banks had hoped for a more favorable market response, when they followed the U.S. Federal Reserve in giving an indication to the market that interest rates were unlikely to climb unless the economic recovery appeared more robust.

The fact that bond yields are on the rise and traders have advanced their expectations of rate increases despite soothing words from the ECB and the BOE may force central banks to step in, some investors say.

Precious Metals Prices 7.15 a.m Eastern Time

Gold Price Futures         3 months   US$  1,375.26

Silver Price Futures       3 months   US$      23.29

Chile's Unidad de Fomento Index to express Real State prices

Chile’s Unidad de Fomento
The Unidad de Fomento (UF) was introduced in Chile in January 1967 by the
Suprintendencia de Bancos e Instituciones Financieras, a government regulatory agency.
As far as I have been able to determine, the UF is the world’s first successful indexed unit
of account. That is, it is the first time that indexation was achieved by quoting prices in a
money-like unit, rather than relying on an indexation formula.
Chile had issued an earlier unit of account in 1960, the Unidad Reajustable or UR,
which was based both on price and wage indices, but it was not very successful. The UF
was and is an amount of currency related to the Indice de Precios al Consumidor (IPC), the
consumer price index for Chile. Originally, the UF was calculated three times a year, and
was calculated monthly between 1975 and 1977, but daily adjustments in the UF have been
made since 1977. The UF is now a lagged daily interpolation of the monthly consumer price
index. The formula for computation of the UF on day t is:
        UFt = UFt–1 x (1+y)1/d      1/d (means exponential days)

where y is the inflation rate for the calendar month preceding the calendar month in which
t falls if t is between day ten and the last day of the month (and d is the number of days in
the calendar month in which t falls), and is the inflation rate for the second calendar month
before the calendar month in which t falls if t is between day one and day nine of the month
(and d is the number of days in the calendar month before the calendar month in which t
falls). Since the inflation rate for a calendar month is computed using the consumer price
index for that month and for the preceding month, the UFs within a given calendar month
will depend on the consumer price index for each of the three preceding months (e.g., the
April UFs will depend before April ten on the consumer price index for January and
February, and starting with April ten on the consumer price index for February and March).
The use of the UFs by the public did not become habitual until the early 1980s, about
fifteen years after their introduction, though only a few years after the values were produced
on a daily basis (Levin, 1995). Now, the UF is widely used in Chile.
Most bank deposits in Chile are 30-day nonindexed deposits or 90-day indexed deposits
whose rates are expressed in terms of the UFs. Interest rates on the indexed deposits are
expressed as a premium over the UFs. On maturity, the deposits are converted back to pesos
at the current UF rate. Because indexed and unindexed bank deposits coexist, one might say
that the Chilean banking system is partially indexed using the UFs. Deposits denominated
in US dollars are also permitted for maturities over 30 days. The UF is used in Chile for
nearly all mortgages, car loans, and long-term government securities. All taxes are
expressed in UFs. Pension payments are automatically tied to the UF. Executive stock
options sometimes have strike prices denominated in UFs. The UF is widely used for rent
payments. Alimony and child support payments are often denominated in UFs. Office
properties for sale are usually quoted in UFs. Houses for sale are often quoted in UFs,
though pesos are also used. However, the UF is not so commonly used for selling prices of
automobiles, nor is it used commonly directly as way of setting salaries. Wages and salaries
are denominated in pesos and only indirectly influenced by the UF, in that the change in the
peso value of the UF is taken into account in wage and salary deliberations.
An indexed unit of account, such as the Unidad de Fomento (UF) in Chile, is a money
analogue that can be used to price items for sale or to specify amounts to be repaid in the
future. While it is in a sense a sort of money, it is not true money since it is not a medium
of exchange, and has no physical embodiment like coins, notes, or reserve balances. An
exchange rate between the unit and the true money or legal tender, in Chile the peso, is
defined using an index number (such as the consumer price index), and payments are
executed in money. Thus, the indexed units of account facilitate payments that are tied to
the index number, without being a means of payment.

Indexed Units of Account:
Theory and Assessment of Historical Experience

by Robert J. Shiller

Japan will cut oil demand by 9% in 2014

Japanese oil refiners will cut their capacity to the lowest in four decades next year to meet a government deadline, slashing the country's Middle East imports and tightening regional fuel supplies.

Imports of crude by the world's No. 3 oil consumer could fall by up to 320,000 barrels per day (bpd) -- down nearly 9 percent on last year -- with Saudi Arabia, the United Arab Emirates, Kuwait and Qatar bearing the brunt of the cuts.The contraction in one of the world's biggest oil markets adds to falling demand from the United States as shale oil output booms, and from the ailing European economy. As import demand elsewhere falls, top oil exporters are competing more intensely for the biggest growth market -- China.
The combination of a declining, ageing population and improved efficiency have cut deeply into Japan's fuel consumption. The decline in 2014 demand is almost as much as the 380,000 bpd by which China's appetite for oil is expected to grow next year.
By March 2014, Japan's total refining capacity will fall to its lowest level since 1970 or just below 4 million bpd, dropping about 1 million bpd -- or 20 percent -- from 2010, when Tokyo issued a mandate to slim down the bloated sector with falling domestic demand.

Japan's refiners will benefit by increasing throughput at remaining facilities, but less spare capacity could lead to a growing dependence on imports of oil products such as kerosene and gas oil to meet peak seasonal demand.

Source: Reuters

Japan planning to cut tariffs on about 80% items in TPP free trade talks

Japanese government officials are planning to propose cutting tariffs on about 80 percent of items in the coming Trans-Pacific Partnership free trade talks.

The officials are drawing up a list from around 9,000 agricultural and industrial products, ahead of the new round of TPP talks starting on August 22 in Brunei.The negotiators are also planning to say that Japan is "undecided" on whether to agree to abolish tariffs on 5 key farm products, including rice and wheat.

News on japan

China: Uneven home price rise in July

Prices of both new and existing homes continued to rise in most Chinese cities in July, according to official data released on Sunday.

According to the bureau, 57 cities reported month-on-month price gains in existing and second-hand homes in July compared to 55 in June, lower than the 64 rises in May.

On a year-on-year basis, new home prices rose in 69 cities last month, the same as the June figure, while 67 reported higher year-on-year prices for existing homes in July, down from 68.

For existing home prices, 25 cities had a lower month-on-month growth rate in July and only one city reported month-on-month growth rate above 1 percent, as opposed to two in June.

The data covers the nation's large and medium-sized cities, including Beijing and Shanghai, provincial capitals, and other municipal cities.

Source: Xinhua

Overcharge taxes by local governments reflects financial pressure

Unwelcome taxes recently exposed all across China are symptomatic of the financial burden that local governments are forced to shoulder against the backdrop of a slowing economy and spiraling debt.

A recent audit from eastern coastal province of Shandong showed that 40 enterprises from 11 counties had been overcharged 573 million yuan (92 millon U.S. dollars) land utilization and value added taxes by the end of 2012.

Six other enterprises had been prematurely levied taxes worth 144 million yuan.

Companies in northern Hebei Province and southern Guangdong complained that they had been levied taxes that they should not have paid or were supposed to be paid in the next fiscal year.

Statistics from the China Iron and Steel Association showed that 80 of its members were supposed to pay 89 billion yuan taxes in 2012, but actually paid 98.4 billion yuan.

"Many local governments have aggressively pursued fiscal revenues and demanded increments in tax income, so the tax authorities have done whatever they could (to levy taxes)," Liu said.

China's economy has shown signs of slowdown since last year, bringing local governments under pressure to reduce their expenses.

Figures released by the Ministry of Finance show China's tax revenue totalled 6.94 trillion yuan in the first seven months this year, up 8.5 percent year-on-year. However, the growth is 0.5 percentage point lower from the same period last year.

In such circumstances, local government debt has become a grave concern in China.

In early June this year, the NAO said a follow-up audit found total debt of 3.85 trillion yuan owned by 36 local governments by the end of 2012, up 12.9 percent from 2010.

Illegitimate taxes can temporarily increase fiscal revenues of local governments but, in the long term, they harm enterprises and inhibit the establishment of a healthy tax system.

Source: Xinhua

China's Merchants Bank H1 net profit higher 12.39% YoY

China Merchants Bank said on Saturday that its net profit climbed 12.39 percent from one year earlier to 26.27 billion yuan (4.24 billion U.S. dollars) in the first half of the year.

The growth was sharply lower than that posted in the same period of last year as the country's financial institutions felt the pinch of a slowing economy.

The bank attributed the increase in profit to net interest income gains and higher commission fees, which grew 8.71 percent and 45.54 percent year on year, respectively.

The value of the bank's total assets amounted to 3.81 trillion yuan as of the end of June, up 11.81 percent from one year earlier.

Its non-performing loans ratio went up 0.1 percentage point from the beginning of the year to hit 0.71 percent at the end of June.

US Investment Banks positive over China´s economy in H2

Foreign-funded institutions are optimistic about China's economic development arguing the country will face less risk of a severe slowdown, the China Securities Journal reported Friday.

JP Morgan Chase & Co. said three factors will support China's future economic recovery. These include robust investment in infrastructure and stable private input in the real estate sector, improving global economic circumstances in the second half of 2013, and the lagged effect of credit growth in the last quarter of 2012 and the first three months of this year.

JP Morgan maintained the forecast of China's yearly economic growth as 7.6 percent in 2013, with a steady and mild recovery in the next several quarters, according to the article.

Credit rating agency Moody's said the worst situation has already passed as July statistics showed that China's economy was returning to normal status, but recovery will be at a slow pace.

Goldman Sachs Group said that the Chinese central government is striving to stabilize the market and sustain economic growth before the approaching third plenary session of the 18th CPC Central Committee, according to the report.

Source:  Xinhua

China's outbound investment into the United States

The investment community has long awaited the growing wave of direct investment by China into the United States. Now, finally, despite continuing challenges, the US is swimming in Chinese capital. The Rhodium Group calculates that total Chinese direct investment in the US last year was US$6.5 billion, the highest ever, and the first half of this year has already seen US$4.7 billion of investment.
The first big wave of China's outbound investing was focused on natural resource and commodities plays. But, with the downturn in China's export economy and the related cooling of world commodities markets, such investments are less important. Today, a more urgent motivation to invest offshore is China's need to diversify its foreign reserve holdings.
The rational choice is for China to allocate more investments to the US, still by far the world's largest and strongest economy. US property markets are recovering, gross domestic product growth is back, employment is improving and US innovation continues to outpace the rest of the world.

Chinese banks face debt problems of local governments

In an article published yesterday in the Wall Street Journal about the financial sector in China says:
"The country's banking sector, a key part of a financial system that has powered China through three decades of breakneck expansion, is feeling the strain of years of rapid credit growth. Bank-fueled lending to state enterprises and local governments has led to overcapacity; serious debt problems for local governments, companies and lenders alike; and numerous white-elephant projects, from nearly empty malls and resorts to bridges to nowhere".
  The weakness at the banks is a major part of broader problems in China's financial sector. Many investors worry about the surge in off-balance-sheet loans employed by banks as a way to get around official lending limits, keeping the credit flowing to local governments and other high-risk borrowers. The surge in such "shadow-banking" activities prompted China's central bank to allow interbank borrowing costs to rise sharply in June—an attempt to rein in reckless lending. 
  The four largest state-owned banks by assets the Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd. and Bank of China Ltd.—recently won board approval to issue up to a total of 270 billion yuan ($44.1 billion) in securities in the next two years.
  But the issue to raise more capital comes at a time of weak market sentiment.
China's banks have provided the resources necessary to finance the remarkable growth
rates of their economy. "In the process they surpassed their western rivals in market value,
as investors wanted a share of the country's growth". Based on market capitalization four
of the 10 largest banks in the world are Chinese.
   Much of that growth was built on politically directed lending. Some of it ended up establishing globally competitive industries ranging from steel to energy to solar panels. But a large portion also was used to build highways, railroads and other infrastructure projects sponsored by local governments.
  Assets in China's banking sector jumped 126.5% to about $21 trillion as of the end of last year from four years earlier, making it the fastest-rising banking system among emerging economies, according to Fitch Ratings Inc. But it also is the most thinly capitalized among those economies, with the amount of equity representing only 6.5% of total assets in China's banking system. By contrast, equity represents an average of 11.2% among 48 emerging economies.
  Most of the securities sales planned by the top four banks involve a kind of debt that banks can use to meet capital requirements and absorb losses from bad loans under new global and Chinese banking rules. The banks are seeking debt that doesn't mature for at least five years, providing a more stable source of liquidity than the short-term funds they lend to one another.

   Source: The Wall Street Journal

US Housing Starts in July

Housing made somewhat of a comeback in July and taking into account wet weather on the east coast should be taken as stronger than face value. Housing starts in July rebounded 5.9 percent after falling 7.9 percent in June. The July starts annualized level of 0.896 million units nearly matched the consensus forecast for 0.900 million units and was up 20.9 percent on a year-ago basis.  The boost in starts was led by a monthly 26.0 percent jump in the volatile multifamily component after a 24.8 percent fall in June. The single-family component dipped 2.2 percent after rising 1.2 percent the month before. By region, the gain in July starts was led by the Northeast with a monthly 40.2 percent surge, followed by gains of 25.4 percent in the Midwest and 7.2 percent in the West. The South declined 7.0 percent on the month. Permits returned to a moderate uptrend. Permits made a 2.7 percent comeback after dropping 6.8 percent in June. July's annualized pace of 0.943 million units was up 12.4 percent on a year-ago basis. Market expectations were for 0.935 million units for July permits. Housing data are weak currently due to atypically wet weather on the east coast and there is uncertainty from mortgage rates going up from worries about Fed tapering. But the trend still appears to be a moderate uptrend-especially as short supply of houses on the market is boosting construction.

Housing starts retrenched sharply in June on a downswing in the volatile multifamily component. And atypically wet weather likely weighed on starts. Housing starts in June fell back 9.9 percent, following an 8.9 percent surge in May. The June starts annualized level of 0.836 million units was up 10.4 percent on a year-ago basis. June's starts level was the lowest since August 2012. The decrease in starts was led by a monthly 26.2 percent drop in the multifamily component after a 28.2 percent jump in May. The single-family component slipped 0.8 percent, following a 0.5 percent rise in May. Permits also dropped sharply on a plunge in the multifamily component. Permits fell 7.5 percent in June after dipping 2.0 percent the prior month. June's annualized pace of 0.911 million units was up 16.1 percent on a year-ago basis. Source  Bloomberg

Fed Bullard hinting small reductions in bond buying

"The Federal Reserve could hedge its bets by making small moves rather than large, aggressive ones when it starts pulling back on its $85 billion-a-month bond-buying program, said James Bullard, president of the Federal Reserve Bank of St. Louis.

"A larger move would be interpreted as a faster pace of reduction," he said Thursday. "A smaller move would be considered a more hedged bet, a slower rate of reduction in purchases."

He didn't elaborate on what amount would constitute a small pullback or a larger one"

Source: WSJ

Once again individual investors flocking into risky new "generation" investment products

According to an article published in the Wall Street Journal today, "individual investors are pouring tens of billions of dollars into a new generation of complex investment products, and regulators are raising concerns that not all buyers understand the costs and risks.
 The products often employ sophisticated strategies that aren't used by traditional stock and bond funds. They include betting against stocks, or shorting them, using derivatives or leverage to amplify bets, and buying unusual assets such as privately issued junk bonds.

A total of $59 billion poured into alternative mutual funds this year through July, according to Morningstar, making it by far the fastest-growing mutual fund category.

The figure reflects new investments into such funds minus withdrawals. The jump in those seven months was bigger than any previous full-year increase. The alternative mutual funds attracted $25.6 billion in additional assets in 2012".

Wall Street regulators are always "concerned" but when they apply regulations they are always too little and too late.

Source: The Wall Street Journal