Real Estate Bubble - China?

You have heard it before, there is a real estate bubble in China. Now you would think that a country where the government calls the shots would be able to stop bubbles in their tracks. Well, apparently it cannot. This is not to say the government in China will not eventually be successful, but their initial measures have fallen short so far. And the fear is that enacting measures that might be needed will be overkill and lead to the very result China is trying to avoid, i.e. a popping of the bubble.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHmZ.NWuCybc&pos=4

So let's step back. We have an economy that many have thought to be the saving grace for the world - our crutch, if you will, as the rest of the world labors to recover economically. Well, I read an article last week showing that the GDP of China is a relatively small percentage of the U.S. and EU GDP, showing even a hot economy in China has no real chance of leading to a global rebound. So let's not put our chips on that bet. And even for those making that bet, the inevitable popping of the China real estate bubble will lead to the opposite result, as other real estate bubbles around the world have proven well in the last few years.

Now we all know what happens when a real estate bubble pops as most the folks in the U.S. and Europe have seen it first hand. Thank goodness all that is past us here in the U.S. Well, then again, perhaps not. I posted a couple of weeks ago on how new mortgage applications fell to a 13 year low after the government tax incentive ended. Most builders were somewhat up beat in the past month or two. Now, at least one builder has changed its tune recently. Apparently things since May have been a tad worse than last year (a very bad year) for Toll Brothers. They seem to blame it in no small part on the oil spill situation in the Gulf, which they fail to note was in full swing when they were rather up beat toward the end of May.

http://www.calculatedriskblog.com/2010/06/toll-brothers-demand-choppy-sales-down.html

BP Coming to the Confessional

And talking about the oil spill situation in the Gulf, I have not read all the articles but it appears BP is maybe about to do something right. It is a long time past due for BP to come to Jesus and save what little is left of its image. It could be the stock price, folks avoiding their stations or other problems but they finally have decided to do what they should have done a long time ago and made their peace with Obama. They are suspending dividends and agreeing to a $20B fund for the cleanup. Dollar short and a day late, as they say.

Disclosures: None.