Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
How to Simplify Commodities (Simon Constable, Barron's) An economist at HC Wainwright & Co, David Ranson, has found that just four commodities have tracked the broad commodity sector over many decades. The four are: crude oil, soybeans, cotton and copper. The entire space is well tracked by an equal purchase of the four.
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Japan Household Spending has Collapsed (Walter Kurtz, The Daily Shot email, no url) For four months now household spending in Japan has averaged more than 5% below the same month a year earlier. The latest data is -6%. This is a clear indication that the tax increase 01 April has stalled the Japanese economy. This should be no surprise. See GEI News almost 14 months ago: Japan: Conflicted Policy (GEI News, 04 July 2013).
Homebuilders in the world's second-largest economy got $5.9 billion from foreign banks, up 39 percent from the same period last year, according to data compiled by Bloomberg. Builder debt has soared to 128 percent of equity.
E China housing market trips up (Want China Times) Hat tip to Ian R. Campbell, GEI Discussion Group, LinkedIn) Builder debt is now 128% of equity (previous article) and prices are being slashed - not good at all, since all of the price cuts will come out of what would have been profit plus equity.
Developers have slashed prices for their housing projects in eastern China, traditionally the most important housing market region in the nation, in order to bolster slackened sales, reports the Guangzhou-based 21st Century Business Herald.
Consequently, the gross margin of China Merchants Property Development and Gemdale Group for their projects in eastern China has dropped to below 15%, according to their semiannual reports.
Little effect from lift of second house purchase ban in China (Want China Times) China's attempts to revive the sales of its real estate market appears to be ineffective despite 37 cities lifting their limits on second house purchases. These restrictions were put in place to reduce speculation during the boom when everyone wanted to buy. But no ne wants to buy in a bust.
Earnings Could Suffer Some Wear and Tear (Justin Lahart, The Wall Street Journal) Profits as a share of GDP are falling and Lahart thinks that may be a warning. A change in the depreciation rules at the end of 2013 is the primary driver of the change. So it is just an accounting change, not a real one. But it might lead to real problems if it leads to a permanent decline in capital expenditures to maximize quarterly profits. Will it turn out to be a change that caused the economy to "eat its own children"?
In the wake of series of bond defaults by small and medium enterprises in China, market players are worried the situation could become a major financial issue.
A long list of SMEs have defaulted on their debts recently, including Tianlian Coastal Composite Materials in Tianjin, Chaori Solar Energy in Shanghai, Zhongsheng Co and Jintai Co.
Zhong Dajun, director of the Dajun Economic Observation Center in Beijing, predicted more defaults are in the offing, making 2014 a year of corporate default, according to the Chinese-language Enterprise Observer.
In a report on China's corporate debts released on June 16, Standard & Poor's said total corporate debts in China top US$14.2 trillion, 30% of the world total and larger that US$13.1 trillion in the US, the second-largest.
The staggering corporate debt, including bonds and loans, amounted to 119% of the nation's GDP as of the end of 2013, according to a study by Louis Kuijs, chief China economist at RBS.
Yun Gangmin, research follow at the Center for China in the World Economy at Beijing's Tsinghua University, attributed the staggering corporate debt to the excessive amount of currency in circulation, noting that M2, or broad money supply, amounts to 200% of the nation's GDP.
Enterprise Observer reported that corporate defaults are concentrated among SMEs in lines with excess capacity such as the steel industry, as liabilities/assets ratio of Chinese steel enterprises approached 70% in the first half of the year, even topping 90% for some, according to the China Iron and Steel Association. As a result, many steel firms have resorted to refinancing to avoid default, according to Cui Gang (pseudonym), a veteran for corporate-bond issuance at local banks.
The mining, metals and solar energy sectors are also lines with a high risk of default, due to excess capacity, according to a report released by Deutsche Bank in early April.
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