SHILLER: ‘We’re Living In A Totally Artificial Real Estate Economy’; Shiller thinks a full housing recovery is a long way off. He thinks it could take 40 years before home prices rise to pre-2007 levels

SHILLER: ‘We’re Living In A Totally Artificial Real Estate Economy’

Drew Sandholm, CNBC | Mar. 26, 2013, 7:51 PM | 11,479 | 27

Housing data released Tuesday was mixed, showing home prices jumped while new home sales dropped, prompting renowned economist Robert Shiller to call the housing recovery positive in the short-term, but not without many headwinds. There might even be a bubble, he said.

“One thing that makes it very hard to forecast home prices right now is that we’re living in a totally artificial real estate economy,” said Shiller, co-creator of the Standard & Poor’s/Case-Shiller Index, a widely followed measure of housing prices.

Shiller pointed to the Federal Reserve, which last week reaffirmed its policies on bond purchases and record-low interest rates. In September, the Fed launched a third round of quantitative easing (QE), in which it has bought $40 billion of mortgage-backed securities per month, primarily in mortgage-backed bonds.

Meanwhile, Fannie Mae and Freddie Mac, the two largest U.S. home funding sources, remain in government conservatorship as Congress looks for ways to raise new tax revenues, Shiller noted.

“All of these things are weighing on the futures of housing,” Shiller said on CNBC‘s “Futures Now,” adding the recovery might even be a bubble. “One thing you learn from history is that bubbles can occur at any time.” Read more of this post

Global pool of triple A status shrinks 60%, forcing investors and financial regulators to rethink definitions of “safe” assets.

March 26, 2013 7:34 pm

Global pool of triple A status shrinks 60%

By Ralph Atkins and Keith Fray in London

The global pool of government bonds with triple A status from the three main rating agencies, the bedrock of the financial ­system, has shrunk more than 60 per cent since the financial crisis triggered a wave of downgrades across the advanced economies.

The expulsion of the US, the UK and France from the “nine-As” club has led to the contraction in the stock of ­government bonds deemed the safest by Fitch, Moody’s and Standard & Poor’s, from almost $11tn at the start of 2007 to just $4tn now, according to Financial Times analysis.

The shrinkage, largely a result of US’s downgrade by S&P in August 2011, is part of a dramatic redrawing of the world credit ratings map, which is encouraging investment flows into emerging markets and forcing investors and financial regulators to rethink definitions of “safe” assets. Read more of this post

BOE Says U.K. Banks Have a Capital Shortfall of $38 Billion; Banks need to set aside more money to cover bigger potential losses on commercial real estate and from the euro area, possible fines for mis-selling and stricter risk models

BOE Says U.K. Banks Have a Capital Shortfall of $38 Billion

By Ben Moshinsky and Jennifer Ryan – Mar 27, 2013

U.K. lenders were told by the Bank of England to raise 25 billion pounds ($38 billion) of additional capital, less than analyst estimates.

Banks need to set aside more money to cover bigger potential losses on commercial real estate and from the euro area, possible fines for mis-selling and stricter risk models, the Bank of England said following a report by the Financial Services Authority. The BOE didn’t identify or quantify the number of lenders that need to bolster capital and it said plans already announced by banks should cover about half the shortage.

“It’s a bit of a damp squib,” said Simon Maughan, an analyst at Olivetree Securities Ltd. in London. “The banks are going to have until the end of 2013, at least, to do it and there was no change to the message that they won’t need to raise fresh capital or restrict dividend payments.”

The BOE is pushing banks to increase resilience so they can boost lending and fund an economic recovery. The bank’s focus on loan losses could still hit Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc (LLOY) the most because of their commercial real-estate holdings, while Barclays Plc (BARC), with its investment banking unit, would be most affected by the changes to risk weights, Maughan said. RBS and Lloyds have announced asset sales this year to bolster capital, and Barclays plans to sell contingent convertible notes. Read more of this post

S. Korea’s debt-to-GDP ratio rises to record high in 2012; the rate of combined debts to the nominal GDP was 283 percent in 2012, higher than the 227 percent for the 1998-99 Asian foreign exchange crisis and the 278 percent in 2009 when the global financial crisis peaked

S. Korea’s debt-to-GDP ratio rises to record high in 2012

English.news.cn   2013-03-27

SEOUL, March 27 (Xinhua) — The ratio of South Korea‘s total debt to gross domestic product (GDP) rose to a record high last year, boosting concerns over lack of capabilities to repay massive debts, central bank data showed Wednesday. Combined debts of households, companies and the government were 3,607.3 trillion won (3.25 trillion U.S. dollars) as of the end of 2012, according to the Bank of Korea (BOK) data. The rate of combined debts to the nominal GDP was 283 percent in 2012, the highest since the related data began to be compiled. The figure was higher than the 227 percent for the 1998-99 Asian foreign exchange crisis and the 278 percent in 2009 when the global financial crisis peaked. The ratio continued to rise from 221 percent in 2003, 236 percent in 2006 and 274 percent in 2008. The rapid rise was attributed to a faster growth in debts than economic output, boosting concerns that the Asia’s No.4 economy may fail to pay back debts amid slowing economic growth and its consequent low income gain.

Korea’s National Pension Service (NPS) has increased its securities investment in the country’s top four conglomerates ― Samsung, Hyundai Motor, SK and LG ― by about four times over the past five years; he four firms accounted for as much as 58 percent of the NPS’s combined stock investment in 2012, compared with 34.6 percent in 2007

2013-03-26 17:54

NPS exposure to risk increasing

By Na Jeong-ju

The National Pension Service (NPS) has increased its securities investment in the country’s top four conglomerates ― Samsung, Hyundai Motor, SK and LG ― by about four times over the past five years. This is another indication that the state pension fund is making little effort to diversify its investment portfolio ― the No. 1 rule for risk-hedging. That also means the NPS is betting bigger money from pensioners on the four firms ― if they falter, people’s money will be at risk. According to the NPS, Tuesday, its investment in stocks and bonds issued by the four business groups and their affiliates totaled 51.7 trillion won ($46.6 billion) as of the end of 2012. That’s about 3.7 times larger than 13.5 trillion won in 2007. The four firms accounted for as much as 58 percent of the NPS’s combined stock investment in 2012, compared with 34.6 percent in 2007. Read more of this post

Red Flag, the secret supermarket in the walled grounds of Zhongnanhai, China’s Krelim and well-guarded headquarters of China’s central party and government leaders, has closed

Zhongnanhai’s Secret Supermarket

2013-03-26 18:44

Translated by Li Jing and Pang Lei

Update: Cao Shiru (曹世如), the chairwoman of the Red Flag supermarket, revealed onher Sina Weibo account yesterday afternoon that the Zhongnanhai supermarket closed way back in 2003, not long after it opened.

One of the top stories floating around China’s internet today was about a Sichuan supermarket chain that managed to open up a store within the walled grounds of Zhongnanhai, the well-guarded headquarters of China’s central party and government leaders.

Sometimes referred to as China\’s Kremlin, Zhongnanhai was once part of the Forbidden City with its lakes – Zhongnanhai (中南海) literally translates as the Central and Southern Seas – were part of the former imperial gardens.

Reports said that the Red Flag supermarket chain’s (红旗连锁超市) outlet within the walled compound has now closed, though no-one seems to be really sure when it happened. The store was reportedly opened in December 2003. Read more of this post

China’s “black clinics” flourish as government debates health reform

China’s “black clinics” flourish as government debates health reform

12:31am EDT

By Hui Li and Ben Blanchard

BEIJING (Reuters) – A one-room shack with a single, bare light bulb on a non-descript Beijing side street is 29-year-old Chinese migrant worker Zhang Xuefang’s best recourse to medical care.

Not recognized as a Beijing resident, she does not qualify for cheaper healthcare at government hospitals, and her hometown is too far away to take advantage of medical subsidizes there.

Like millions of other migrant workers, Zhang, on whose labor China’s economic boom depends, is forced into a seedy and unregulated world of back ally “black clinics” if she falls ill.

The issue highlights the two-tier nature of China’s overburdened health care system and goes to the heart of a heated debate about how to reform the contentious “hukou” system of household registration, a cornerstone of government policy for decades which essentially legalizes discrimination between urban and rural residents. Read more of this post

Outsourced Chief Investment Offices Gain Traction with Institutional Investors

MARCH 25, 2013

Outsourced Chief Investment Offices Gain Traction with Institutional Investors

Everyone from former endowment CIOs to asset managers is hanging out a shingle as an outsourced chief investment office. As endowments, pension funds and other institutions take advantage of OCIO services, this growing market will consolidate, experts say.
By Frances Denmark

This January, Matthew Wright joined a growing trend by walking out of his office at Vanderbilt University. He didn’t walk far. The former vice chancellor of investments founded Disciplina Group, an outsourced chief investment office, or OCIO, in Nashville.

Wright’s exit is part of a stream of high-profile talent from endowments that began in 2004, when former University of Virginia CIO Alice Handy founded Charlottesville, Virginia–based Investure. Mark Yusko left the University of North Carolina to launch Chapel Hill, North Carolina–­based Morgan Creek Capital Management, and Scott Wise departed Rice University to set up financial services firm TIAA-CREF’s Covariance Capital Management. When these people leave their posts, there’s no guarantee that they take their former institution with them.

As the OCIO business stakes out its turf, there seems to be an insatiable demand for veteran endowment investors to step in and manage endowment assets. But not everyone is convinced. “It’s an incredibly overcrowded space right now,” says Kevin Quirk, a founding partner of investment management consulting firm Casey, Quirk & Associates, in Darien, Connecticut. Read more of this post

China’s officials go underground to defeat moves to curb their lavish feasting

Officials go underground to defeat moves to curb their lavish feasting

Wednesday, 27 March, 2013, 12:00am

Keith Zhai and Minnie Chan

Officials dodge Xi Jinping’s curbs on luxury by turning canteens into five-star restaurants and meeting businessmen away from public gaze

Xi Jinping’s call for officials to cut down on extravagance and feasting appears to have hit a snag at the local level.

Officials from four different regions have told the South China Morning Post that the banquets have merely gone underground, where they are now being held in much more lavish style.

Two officials in Fujian province said many canteens in government departments had been renovated and had hired chefs from the region’s finest restaurants after outside banquets were banned as part of the Communist Party leadership’s anti-corruption and austerity drive.

“Such renovation is not only happening in Fujian, but in many provinces around the country,” one of the officials said. “There are plenty of ways at the local level for cities to get around rules from the top.”

There are plenty of ways at the local level for cities to get around rules from the top. Read more of this post

Eurozone’s bully boys will come to regret penalising tiny Cyprus

Eurozone’s bully boys will come to regret penalising tiny Cyprus

Europe’s monetary union was meant to be about solidarity among the many and prosperity for all.

An immediate collapse of 10pc to 20pc in national income is in prospect, with unemployment soaring to more than a quarter of the population Photo: EPA

By Jeremy Warner

8:17PM GMT 25 Mar 2013

In practice, it’s turning out to be a doomsday machine for the fringe economies that once so enthusiastically lined up to join.

If even Wolfgang Schaeuble, the German finance minister, is prepared to admit that Monday’s bail-out is a bitter pill for Cypriots to swallow, then it must indeed have been merciless. Nicholas Papadopolous, chairman of the Cypriot parliament’s finance committee, had a rather blunter way of putting it: “We are heading for a deep recession, high unemployment. They wanted to send a message that the Cypriot economy ought to be destroyed, and they’ve succeeded. They’ve destroyed our banking sector.”

The terms of this latest bail-out are scarcely any better than the ones so comprehensively rejected by MPs only last week. The offshore banking model on which so much of the island’s recent prosperity has been built is being broken beyond repair. Small wonder the latest package is structured in a way that doesn’t require another parliamentary vote. Democracy is once again being suspended for the supposed sake of the single currency. Read more of this post

Big Players Cash Out of Hong Kong Property

March 26, 2013, 3:00 p.m. ET

Big Players Cash Out of Hong Kong Property

By ISABELLA STEGER

HONG KONG—With the government growing confident that it has halted the meteoric rise in property prices, some of this city’s biggest real-estate investors are getting out.

Several of Hong Kong’s wealthiest families are planning initial public offerings of hotels, offices and other real-estate assets in coming months, while others are lowering prices on luxury apartments to entice buyers.

“Developers are selling assets at the very top of the market, when appetite is big, and interest rates are low,” said Christopher Wong, senior investment manager at Aberdeen Asset Management ADN.LN +4.03% in Singapore. Read more of this post

Abandoned gold loans are India’s “jingle mail”

Abandoned gold loans are India’s “jingle mail”

MARCH 25, 2013

By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The myth that Indians’ love for gold is driven by tradition rather than financial self-interest has been dashed. Falling prices have prompted borrowers who took out loans secured against the yellow metal to break a cultural taboo and abandon their collateral. It’s the Indian equivalent of American homeowners who walked away from their underwater mortgages by mailing the keys to their homes to the bank.

India’s version of the “jingle mail” came to light when Manappuram Finance, a lender against gold, recently warned that defaulting borrowers would force it to report a quarterly loss. The lender’s Mumbai-listed shares tanked 31 percent over just three days. The precipitous fall was partly due to concerns the company had selectively leaked its guidance — a charge Manappuram denies. But clearly the lender, which was forecasting a profit as recently as February, had underestimated the borrowers’ response. Read more of this post

India Plans New Rules for Companies Pawning Shares to Borrow after uneven disclosures resulted in some small companies plunging 80 percent last month.

India Plans New Rules for Companies Pawning Shares to Borrow

By Pradipta Mukherjee and Santanu Chakraborty – Mar 26, 2013

India’s capital market regulator will frame stricter rules for companies and owners pledging shares as collateral to borrow funds after uneven disclosures resulted in some small companies plunging 80 percent last month. The Securities & Exchange Board of India is also planning to overhaul regulations for insider trading, as well as share repurchases, Chairman U.K. Sinha said in Kolkata today. The regulator set up a panel on March 5 to review insider trading rules. Indian companies had pledged as much as 1.5 trillion rupees ($28 billion) of shares to lenders as of Dec. 31, Morgan Stanley said in a report on Feb. 21.

“People have come out with creative solutions with some instruments through which they are pledging shares and they are not informing the stock exchange,” Chairman U.K. Sinha said today in Kolkata, without elaborating. “Very soon we will take measures to ensure that all kinds of encumbrances are reported well in time so the market knows about it.”

Sinha is reviewing regulations to raise corporate governance standards in the $1.2 trillion market. A dozen companies on the S&P BSE500 index plunged last month amid speculation the shares pledged by company’s founders in return for loans have been sold. Core Education & Technologies Ltd. (CETL) crashed 80 percent, Gravita India Ltd. (GRAV) 38 percent and ABG Shipyard Ltd. (ABGS) 17 percent in the period. Founders who have pledged a large chunk of their shares risk losing control of their companies should a drop in equity prices erode the value of the collateral, according to CNI Research Ltd. (CNIR) Borrowing costs in the $1.8 trillion economy are among the highest in Asia. Read more of this post

Shadow Loans Hard to Squelch in China City Hit by Suicide

Shadow Loans Hard to Squelch in China City Hit by Suicide

Zhou Xiang is playing with his mobile phone in a room just big enough for a desk and chairs at the year-old Wenzhou Private Lending Registration Center. Not a single prospective customer has shown up for hours.

As a government-sanctioned loan broker seeking to match cash-strapped business owners with private investors, Zhou is one of the few people who can even be found inside the two-story building in a high-end residential district of Wenzhou, a city of 9 million people in China’s southeastern Zhejiang province. Rows of airport-like seats are empty.

“Only those who are really out of options would come here for loans,” says Zhou, a manager at Sudaibang, one of five independent brokers operating out of the center. “Most of the time, you would find these firms so weak financially that they can be literally crushed by a straw. The volume of lending is so low that we ourselves won’t be here long without expanding into some other businesses.”

One year after China’s leaders picked Wenzhou to start a pilot program designed to curb and regulate the city’s informal shadow-lending networks, it’s clear, based on a recent trip to the country’s epicenter of private lending, that the plan isn’t working. Small firms it intended to benefit still can’t access loans because they lack collateral and are struggling to stay afloat. At least one broker, Beijing-based CreditEase, has given up, citing a gap between the center and targeted borrowers. Read more of this post

Foxconn Plant in Peanut Field Shows Labor Eroding China’s Edge; “China’s advantage in low-cost manufacturing will end much sooner than expected, I believe within five years,”

Foxconn Plant in Peanut Field Shows Labor Eroding China’s Edge

Standing on a street corner near Foxconn Technology Group’s (2038) plant in central China that makes iPhone 5 handsets, employee Wang Ke says he’ll quit if his wage doesn’t double.

“I don’t have high expectations, I know I’m a migrant worker,” said Wang, 22, who earned 1,600 yuan ($258) in December, after deductions for lodging. “But I want to make 3,500 yuan a month, net. That’s a fair price.”

Wang’s attitude springs from a labor-market squeeze across the country after China’s pool of young workers shrank by almost 33 million in five years at the same time as industry added 30 million jobs. The resulting wage pressure means Foxconn, Apple Inc.’s (AAPL) biggest supplier, pays the same basic salary at the Zhengzhou plant it built in 2010 among the corn and peanut fields of Henan province, as it does in Shenzhen, the southern city that spawned the nation’s industrial boom.

“China’s advantage in low-cost manufacturing will end much sooner than expected, I believe within five years,” said Shen Jianguang, Hong Kong-based chief economist at Mizuho Securities Asia Ltd. “Wages are rising faster inland than on the coast. More companies will consider moving to countries such as Vietnam, Indonesia and the Philippines.” Read more of this post

Malaysian PM Najib Uses Public Humiliation With Graft Gallery: Southeast Asia

Najib Uses Public Humiliation With Graft Gallery: Southeast Asia

Malaysia’s government is using public humiliation in its war on graft as Prime Minister Najib Razak seeks to show voters that he’s getting tough on corruption ahead of an election that may be held within weeks.

An online gallery shows the names and photographs of more than 1,000 convicted offenders, including former Selangor state Chief Minister Mohamad Khir Toyo, who was sentenced to a year in jail in 2011.

Najib is trying to bolster his graft-fighting credentials to counter criticism from the opposition that companies from power producers to toll-road operators have unfairly benefited from their ties to a government that has ruled Malaysia since independence from Britain in 1957.

“The opposition will use corruption and financial irregularities in government spending to try and help win the election,” Ibrahim Suffian, a political analyst at Merdeka Center for Opinion Research, said by phone on March 15. “They will present a picture of pervasive corruption in government, including trying to link Najib himself.” Read more of this post