China Is The Biggest Short…Ever
By Tyler Durden
Submitted by Chris Hamilton via Hambone's Stuff blog,
As simply put as possible… over the next 2 decades, there will be an average of 7.5 million fewer 0-55yr/old Chinese every year vs. an average annual increase of 9.5 million 55+yr/olds. And the wealthy minority of the elderly have stashed their reserves in a whole lot of expensive, vacant real estate that they intend to pass along (rent or sell) to the declining young population. What could go wrong since housing prices only go up…right!?!
China, a story of a massive population and population growth. As the adult population growth began to wane, debt was substituted for the waning growth. Population growth turned to massive outright depopulation among the young while all remaining population growth was among the “pig through the python” elderly. But as the Chinese gained wealth, (particularly among the wealthy of the tier 1 & tier 2 cities) the wealthy, soon to be elderly didn't trust banks or the stock market…instead they piled their savings primarily into real estate. The top quintile of Chinese purchased the bulk of the new, speculative inventory of high end housing typically buying multiple apartments and condos. The vacancy rate among the housing segment in these cities is supposedly in excess of 20% (compared to a peak of 3% during the US subprime crisis). There are roughly 500 million households in China and best guestimates suggest that there are 50 million or so vacant housing units…or 10% of the national housing stock.
To put this in perspective, I'll compare it to the US subprime crisis…a crisis that was likewise triggered by the demographic deceleration of population growth. But still, despite decelerating in the US, there was (and still is some growth…see below). The Fed was determined to use (ok, abuse) interest rate cuts as a substitute for decelerating population growth among adults. The chart below outlines the decelerating 20-64yr/old annual population growth through 2025 (this includes all permanent residents…legal or otherwise).
And on a percentage basis (below), the declining growth among the adult population correlated to the Federal Funds rate and federal debt. The introduction of nothing down, NINJA and liar loans was simply because there was a collapsing number of potential buyers to support a speculative bubble, particularly in the “tier 1” US cities and locations.
And the changing nature of US net new job creation vs. US new home creation (below). A 2.5 to 1 ratio has inverted since '00 with more houses being created than full time jobs to support them. Further evidence that US subprime crisis was triggered by a demographic collapse…HERE.
So, back to the biggest bubble leading to the biggest short (ever?). The chart below highlights China's annual adult population change, the Bank of China discount lending rate, and China's moonshot of total debt. The decelerating population growth offset by declining lending rates leading to …read more
Source: China Is The Biggest Short…Ever
