[quote=The-Shoveler]The Crazy part was if you wanted to buy 10 homes with nothing down and no collateral other than the house you were buying, there was not much to stop you.
Not seeing anything like that now.
Something like that only happens once.[/quote]
A lot of the money coming into the post-crisis housing market is coming from overseas. We don’t really know what’s going on over there WRT their lending and where this money is really coming from. Was it borrowed or leveraged in some way? Is it the result of a bubble overseas or in other markets? Bubbles cause bubbles, especially when you can use bubble money from one asset class to leverage purchases in another asset class. If one of the bubbles pops, they might all collapse, much like we saw in 2008.
Just because we aren’t seeing as much of the crazy stuff in our domestic mortgage market doesn’t mean it’s not happening in another market. What we do know is that a lot of money has been flowing from central banks around the world, and all of that money has to go somewhere. Where is it going?
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“The outstanding balance of margin loans on the Shanghai and Shenzhen bourses climbed to 4.4 percent of overall market capitalization on July 2 from 3.6 percent on June 12, before the rout began, as the attached chart shows. The data doesn’t include unregulated borrowing, which Bocom International Holdings Co. estimates at around $322 billion. That would increase the debt to market cap ratio to more than 9 percent.
Higher leverage may undermine government measures to stem the steepest three-week rout in the nation’s equities in a quarter-century. Margin traders reduced positions for nine days through Thursday, the longest stretch of declines on record, even as the central bank cut interest rates and the securities regulator eased margin-trading rules.”
Just when investor fears over plunging Chinese stocks appear to be calming down, the country’s frothy corporate bond market is stirring concerns it could be the next domino to fall.
Investment funds have flowed rapidly into corporate bonds since the stock market collapsed in June, triggering a surge of debt issuance. Demand has compressed corporate and sovereign bond spreads to their narrowest in four years – an oddity, when industrial profits are falling and credit risks are rising.
While bond investors say corporate bond prices are not at unreasonable levels, they are wary a sharp correction could be sparked by a bond default from major state-owned companies or a change in monetary policy.
“What concerns us is the narrowing credit spread between corporate bonds and government bonds, despite shrinking corporate profits,” said Zhou Hao, senior emerging markets economist at Commerzbank in Singapore. “In addition, we are also worried about the rising leverage ratio in bond positions.”‘
