Not long now…..

The China story continues…

• …On the outskirts of Tangshan, a city of 7 million people that makes more steel a year than the whole of the United States, the hulking cranes and chimneys at the Qingquan Steel mill are frozen in inactivity. Workers unpaid for six months went on strike in October and haven’t returned.

• “In Tangshan and other parts of Hebei, the private mills are facing the most difficult time in their history,” said Xu. “Profits are poor and producers are all losing money – this has nothing to do with environmental measures: it is the economy.”

…housing price growth decelerating. This is not a major issue in itself however coupled with rapidly rising non performing loans, bankruptcies, defaults and bail-outs things look precarious at best. If this was a simple problem it would have been solved relatively quickly but as conditions go from bad to worse only the most pragmatic optimist with a severe case of cognitive dissonance and an intractable faith in command economy theory would believe this problem is nothing to worry about.

Jump ship or pushed??

Q's in big trouble and the govt's coffers are straining. Big layoffs are coming I hear. Another kick in the head for Melbourne. 

…and the European dimension to this saga continues on its not so merry way…

France is the second largest economy in Europe and 5th largest in the world. With Holland running things …what could possibly go wrong????

And the contraction will continue for Vic (AU in general) for the foreseeable future. Globally we have over supply and over production. As demand decreases on global increases in both unemployment and underemployment (underemployment is rising in Australia faster than unemployment) the race to depreciate currencies and out-compete the next guy to hold or reduce losses in market share intensifies. 

The last 3 decades were marked by loose credit policy and consequently a credit bubble has grown to the point it either pops (crash) or deflates. Either way the next 3 decades are likely to be marked by contracting economies (real not nominal). We saw it in the first 50 years of the 1900's. The next 50 of this century could look remarkably similar.

PInvestors will need to get their head around the new normal and adapt their strategies to suit. Those who think the old methods will work are likely to fall by the wayside. 

Two things are holding up RE in AU (especially Syd & Melb) at the moment: foreign hot money and investors. I expect to see a surge in foreign money over the next 12 – 18 months as things turns south in an increasing number of countries but then it could very well simply dry up. At that point RE markets loose a leg under them and the other leg (investors) could quickly leave the market as well. Under that scenario I don't see how RE markets can hold up but I've been surprised before. 

Three and half years ago I suggested that things would go pear shaped given the crazy distortions in the market place. 12 months ago that prediction started to take shape. I see no sign yet that there is anything at all capable of stopping the decline in economic conditions either globally or nationally. On the contrary. Everything I see only suggests the downward forces are accelerating in both number and extent.

Not long now could mean next week or 10 years from now. In a lifetime neither is a long time but if I was a betting man I'd say the timing is closer to the next week end of the scale than the 10 years from now end.