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laconic2
Joined: 23 May 2005
Location: Wonderful World of ESL
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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 Posted: Fri May 30, 2008 8:05 pm Post subject: |
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| Yikes! That kind of talk makes me nervous. I was here during '97. Once was more than enough, thank you. |
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Leslie Cheswyck
Joined: 31 May 2003
Location: University of Western Chile
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| Posted: Fri May 30, 2008 8:22 pm Post subject: |
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| That domino theory just won't go away, will it? |
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laconic2
Joined: 23 May 2005
Location: Wonderful World of ESL
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| Posted: Fri May 30, 2008 9:19 pm Post subject: |
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| Ya-ta Boy wrote: |
| Yikes! That kind of talk makes me nervous. I was here during '97. Once was more than enough, thank you. |
As was I and that article provided some serious flashbacks when I was reading it.
1997 showed it can happen and the facts spelled out in the article read too much like what was being written by some people not too long before everything went south back then.
Wait a minute.
Things went north, I mean.  |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Fri May 30, 2008 10:09 pm Post subject: |
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There is concern that while the world has been focusing on the economic troubles in the United States the imbalances within some key Asian economies have been getting significantly worse. Korea is in a very difficult situation right now.
The current account deficit is getting worse, inflation is high (due largely to the "weak won" policy that was to stimulate export growth which decreased purchasing power along side a huge increase in the price of energy), growth is slowing and in the darkest sign their foreign reserves (which stabilize the won, or are supposed to) are decreasing (3.5 billion USD decrease in April alone, though that was likely -- hopefully -- a oneoff). RGE has been warning that Korea is on the brink of a credit crunch as well. A serious problem is that problems in credit markets + inflation + low growth is a central bankers nightmare. Should they decide to fight inflation and raise interest rates, they cause a sharp recession and rapid drop in bubbly Seoul housing values. Should they decide to stimulate domestic consumer demand and export competitiveness by devaluing the won further they run the risk of sustained double digit inflation. If there is a credit crunch they have to pump money into the system to prevent bank failures OR start selling off banks at fire sale prices to foreigners. Should be interesting to watch.
The credit crunch in the United States has brought attention to the way in which ratings agencies measure risk. Should they choose to reexamine Korea it could get nasty very quickly. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Jun 03, 2008 12:24 pm Post subject: |
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Asia is in serious trouble:
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Singapore inflation rate hits new 26-year high of 7.5% in April
SINGAPORE: Singapore's annual inflation rate rose to a new 26-year high of 7.5 percent in April as food, housing and transportation costs soared and is now a risk to the economy, the government said on Friday. |
http://www.channelnewsasia.com/stories/singaporelocalnews/view/349581/1/.html
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Singapore Production Unexpectedly Dropped on Drugs, Electronics
May 26 (Bloomberg) -- Singapore's industrial production unexpectedly declined in April, the biggest drop in 10 months, as drug companies and electronic manufacturers reduced output.
Manufacturing, which accounts for a quarter of Singapore's economy, fell 5.7 percent from a year earlier, following a revised 18.1 percent gain in March, the Economic Development Board said today. Analysts predicted a 6 percent increase. |
http://www.bloomberg.com/apps/news?pid=20601080&sid=aci2w3y_2uF4&refer=asia
Singapore's Q4 2007 GDP was a -6%.
And the most scary of all is that China has apparently lost control of her monetary policy and can no longer stop the hot money flowing into the country. This places the country at an epic risk of economic catastrophe. With several hundred million Chinese living in absolute poverty, a massive bursting of the bubble would be a source of serious political risk.
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There is an article in this week�s Caijing that summarizes a survey by Deutsche Bank�s Jun Ma (hereOpen in a new window, for those who can read Chinese). I haven�t managed to get it translated yet but blog participant Kar Kheng Giam summarized it for me as:
For those with 'business' connections/enterprises: 52% opted to bring money in as 'FDI', and 11% as under-invoicing. For those who bring money the old fashioned ways: 85% use either US$50,000 per person per year, using multiple relatives and friends, or the RMB80000 per day TT limit. 57% of respondents forecast RMB to rise to 5.50-6.00.
The survey seems to confirm what we had more or less guessed � there are an awful lot of ways to bring money into China and what is driving the speculative inflows are some pretty ambitious expectations of RMB appreciation. The very large trade and investment accounts are a particular important channel for hot money and the family businesses with networks both inside and outside the mainland are likely to be particularly efficient at bringing money in (and are likely to be no less so at taking money out again one day).
The survey also suggests that the �unexplained� portion of reserve accumulation � after backing out the trade surplus, FDI, interest income and revaluation gains � is biased downwards, since there may be substantial amount of hot money in the trade and FDI numbers. Take this out and add it to the �unexplained� part and the most stable sources of reserve growth � FDI, the trade surplus, and so on � are becoming an increasingly small fraction of total net inflows. Chinese monetary policy, in other words, is at this point almost entirely driven by hot money inflows.
This is a pretty disturbing conclusion and bears repeating: Chinese monetary policy is largely a function of massive and very volatile speculative inflows driven by RMB appreciation.
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http://piaohaoreport.sampasite.com |
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Tue Jun 03, 2008 4:01 pm Post subject: |
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The S Korean government seems to have stopped it's weak Won policy. The Won has been making a big come-back in the last few days.
Who Benefits From the Weak Won?
Consumer prices rose 4.9 percent in May compared to the same period last year. Though soaring oil prices are primarily responsible, the government bears its share of the responsibility for maintaining a weak won. Only late last month did the administration intervene in the foreign exchange market to strengthen the won, which on Monday rose for the fifth straight day to close at W1,023 to the dollar. Still, signs indicate that a vicious cycle of price unrest, slowing consumption and reduced production has set in.
http://english.chosun.com/w21data/html/news/200806/200806030011.html
Intervention May Signal End of Gov't 'Weak Won' Policy
Has the government abandoned its "weak won" policy? Foreign exchange authorities intervened three times on Tuesday to shore up the sinking won, which finally climbed by W10.80 to close at W1037.70 per dollar on the Seoul exchange market.
http://english.chosun.com/w21data/html/news/200805/200805280011.html |
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Bigfeet
Joined: 29 May 2008
Location: Grrrrr.....
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| Posted: Tue Jun 03, 2008 4:21 pm Post subject: |
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| I hope Koreans are getting enough enjoyment out of their large cars. Buying them when your country have to import nearly all of its oil seems foolish to me. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Jun 03, 2008 5:11 pm Post subject: |
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| Ya-ta Boy wrote: |
The S Korean government seems to have stopped it's weak Won policy. The Won has been making a big come-back in the last few days.
Who Benefits From the Weak Won?
Consumer prices rose 4.9 percent in May compared to the same period last year. Though soaring oil prices are primarily responsible, the government bears its share of the responsibility for maintaining a weak won. Only late last month did the administration intervene in the foreign exchange market to strengthen the won, which on Monday rose for the fifth straight day to close at W1,023 to the dollar. Still, signs indicate that a vicious cycle of price unrest, slowing consumption and reduced production has set in.
http://english.chosun.com/w21data/html/news/200806/200806030011.html
Intervention May Signal End of Gov't 'Weak Won' Policy
Has the government abandoned its "weak won" policy? Foreign exchange authorities intervened three times on Tuesday to shore up the sinking won, which finally climbed by W10.80 to close at W1037.70 per dollar on the Seoul exchange market.
http://english.chosun.com/w21data/html/news/200805/200805280011.html |
Yeah, I just saw that. They are using their reserves to defend the won now. That should take you back to '97...
http://www.rjkoehler.com/2008/06/04/bok-admits-they-are-propping-up-the-won/ |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Jul 20, 2008 5:27 pm Post subject: |
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Over the weekend a story appeared on the Korea Times website about the risks associated with Korea�s housing prices and home loans, a topic near and dear to my heart. It seems Korea�s housing finance system puts borrowers at risk in a manner similar to the sub-prime meltdown and coming adjustable-rate mortgage tsunami in the States.
You see, virtually all (90%, according to the Korea Times story) of Korea�s home loans are adjustable-rate mortgages, the kind which are now roiling the US housing market as they reset. Foreign bankers at HSBC, KEB, and Citibank have tried to interest Korean borrowers in fixed-rate loan products, but the market has heretofore been wholly uninterested in such loans. Korean borrowers prefer, and therefore the banks provide, adjustable-rate mortgages. When we bought our apartment, although I specifically instructed my wife (since Korean banks refuse to lend to foreigners, even those with a good job and 12 years� continuous residency) to get a long-term, fixed rate product, she brought back an adjustable-rate loan�and then argued with me about how stupid the long-term, fixed rate product was. (Why my wife refuses all finance advice from me may be another story.)
But Koreans do Southern California one better. Korean housing loans, in general, are also not �fully-amortizing� loans�instead, borrowers take out an interest-only loan with a term of one to three years, during which time they pay only the interest and none of the principal (although, like my family, they might save separately and pay down the principal that way). At the expiration of the term they roll the note over. Why don�t they pay any of the principal during the term of the loan? Well, for starters, just like the fools in the US housing bubble, nearly all Koreans are convinced that �Real estate only goes up. They�re not making any more land, you know.� But also, the principal balances�even on 50% LTV loans�usually exceed six or seven times the borrowers� annual income. As a result, the interest expense is too great to add principal repayment to the burden.
Besides, because property always goes up, and lately has gone up like wildfire, only a sucker would pay principal now. You can take care of that when you sell the property, from all the capital appreciation that�s guaranteed to occur! After all, real estate only goes up. They�re not making anymore land, you know.
Now we add the risk factor of the variable-rate loans. Because of the wild property bubble inflation of the last few years, a lot of Koreans have stretched themselves by buying into properties on which they can barely afford the interest-only payments. Interest rates have been quite low of late, with housing loans in the high 5% range available (again, not to you, Mr. Good-Job Foreigner, but any Korean on the street could get one).
But what happens when the interest rate increases, say, to the high 7% range? That interest-only payment, which the homeowner could barely afford in the first place, is now almost 40% greater than it was before. A W1,000,000 payment (which would comprise half the after-tax monthly income of the average Korean wage earner) is now almost W1,400,000. It becomes that much harder to pay the interest. (Remember, most borrowers don�t touch the principal.) Also, since local banks are now required to examine the borrower�s ability to continue to service the loan, by comparing the payment burden to the disposable income of the borrower, many Korean homeowners may find it hard to roll those notes over.
And that means lots of foreclosure sales, or short sales, coming soon. But those tend to depress prices. So mark my words, Korea�s property is entering a deflationary phase. In Japan, Hong Kong, and Singapore, at least, past experience with property bubbles has shown us losses of up to 70% are possible.
Here�s where the 50% loan-to-value ratio hurts the Korean homeowner more heinously than the Americans who�ve lost their homes in the sub-prime crisis: The price decline eats up equity first�the bank�s loan gets paid off in the repossession sale, with the homeowner getting what�s left. This means in the coming bubble deflation, years and years of hard-earned cash savings are about to be lost. In the States, people get dinged on their credit scores and lose a few thousand dollars on the down payment (and no-money-down buyers just lose the imaginary bubble gains)�in Korea, people are going to lose real, hard-to-replace cash.
We�ve been through this kind of thing before�in 1998, interest rates spiked and asset values dropped slightly, putting a lot of apartments into foreclosures and auction sales. What�s different about now and 1998 is that the world economic conditions are different, as well as local ones. In 2009 there will be no American foreign investors galloping to the rescue, that�s for sure. This is going to be ugly. |
http://www.korealawblog.com/entry/koreas_own_coming_mortgage_crisis/
It is looking more and more like Korea is at an acute risk of another crash. The property market in Seoul is extremely important as a store of value for Koreans. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Jul 20, 2008 5:36 pm Post subject: |
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http://www.koreatimes.co.kr/www/news/nation/2008/07/123_27692.html
http://www.koreatimes.co.kr/www/news/nation/2008/07/123_27554.html
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Xie, who received Ph.D. from MIT, pointed out that stagflation is a global phenomenon, as most major economies are reporting surging inflation and slowing GDP.
``This is due to excessive monetary expansion in the past during low inflation. The low inflation came from globalization. As the global economy hits constraints in the supply of basic inputs, inflation surges everywhere together,'' he said.
``At the same time, asset values are declining, because they rose too much in the past, which slows economic growth. This is the stagflationary dynamic we are seeing around the world,'' he added.
Regarding the recent sharp fall in the Korea's foreign direct investment (FDI), Xie said that the nation's anti-foreign capital sentiment is the key culprit behind falling inbound investment.
``Korea has become less friendly to foreign investment in the past five years as it recovered from the financial crisis,'' he said.
He explained that Korea's development model is based on developing indigenous firms to conquer foreign markets, very similar to the Japanese model.
``The opening to FDI during and after the crisis was out of necessity. Korea was down and needed the money,'' he added. ``When Korea recovered, it changed back. Korean people may disagree but this view is widely shared in the international community.''
He pointed out that when the property bubble deflates, Korea may become friendly to foreign investment again but that may prove temporary again.
``Korea may never become a truly open economy. An open economy is a matter of choice,'' he said.
``Its foundation is to treat all businesses, foreign or local, the same. The mere fact that people always talk about foreign versus local means that the economy cannot be truly open,'' he added.
He pointed out that Korea may not be willing to make the changes to attract FDI as it takes a major crisis to change attitudes. |
The Lone Star disaster scared away billions in investment. Korea is shooting itself in the foot. |
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mises
Joined: 05 Nov 2007
Location: retired
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Tue Sep 02, 2008 3:35 pm Post subject: |
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| Things are not looking good here. My fund numbers are pretty bleak. The market is now below where it was when I bought in in April '06. The upside is that my monthly deposits will buy more at the cheaper prices and surely things will be better in three or four years when I'm ready to cash out. |
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TexasPete
Joined: 24 May 2006
Location: Koreatown
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| Posted: Tue Sep 02, 2008 5:02 pm Post subject: |
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| So....transfer money home now and take a loss or wait it out and hope for the best? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Sep 02, 2008 5:50 pm Post subject: |
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| I'd say the Lehman sale is on the back burner for now. |
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