Things Never End Well, Otherwise They Would Never End

Why bubbles will continue to happen. And why the tech bubble in the US and China are destined to end badly.

Read the full post at Forbes here.

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Video: Low Income Housing Needed for China

Contributor Eric Jackson says that despite the China bears saying there's a bubble in China real estate, there is a huge need for low income housing there. And the Chinese government is a huge supporter of it.

Fri 02/11/11 10:55 AM EST -- Eric Jackson

Stocks in this video: CHINA | MACRO | FXI

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China's Low-Income Housing Shortage

By Eric Jackson, Senior Contributor02/09/11 - 06:00 AM EST

NEW YORK (TheStreet) - We often read in Western media about "the Chinese real estate market" as if it was monolithic. But that's as absurd as talking about the U.S. housing market that way.

There are obviously differences between the price of an Upper East Side townhouse and a condo in Miami. Besides geography, there's a huge distinction between the low- and high-end of the market in America today. Just a week ago, Barron's profiled how Florida -- with thousands of foreclosed low-end properties continuing to be dumped onto the market -- was seeing high-end housing in places like Naples and Palm Beach firm and even move up in for some properties.

Business School market segmentation principles apply equally to China as they do here. China's real estate market has as many permutations -- from coastal cities to Tier 3 interior cities, and high-income to low-income -- as we do in America.

All the bluster from the China bears over the past year pointing to a real estate bubble has -- more precisely -- been focused on the upper-middle and high-end of the Chinese residential market in the Tier 1 cities of Beijing, Shanghai, Shenzhen and Guangzhou. Those markets were white hot last year and caused the Chinese government to take swift and draconian action, which almost immediately took effect on slowing things down.

Although I still don't believe that end of the market is expensive by major Western city standards (like New York, London, Moscow or Hong Kong), the bigger opportunity in the Chinese real estate at the moment is in low-income housing (LIH).

Looking at the bigger picture, China's government is motivated by the goal of social harmony in the Chinese society. It knows that if it does not achieve this goal, there will be social unrest and protests. This is the goal behind the "protect 8" policy of maintaining at least an 8% growth rate in the annual GDP.

When housing started to rise at the higher end of the residential market last year, it was a concern not just for being a bubble, which might burst down the road but for causing resentment from people at the low-end of the market who found housing less and less affordable.

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[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

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Notes From the Ground in China, Part V

By Eric Jackson
RealMoney Contributor
11/4/2010 5:34 PM EDT
Click here for more stories by Eric Jackson

Please visit our archives to see the previous installments of this series: Part I, Part II, Part III and Part IV.

I've just returned from a two-and-a-half-week trip to China, which I've been writing about in my recent articles for TheStreet and RealMoney.

I've been trying to respond to the most common criticisms and concerns I hear U.S. investors raise about China's growth. I find that the U.S. media also tend to repeat these concerns in their articles on the subject.

Yet one gets a much different perspective when touring around China firsthand and, more importantly, talking to the entrepreneurs, bankers and other investors in China who are working on the front lines.

It would be nice if the U.S. media were able to send some journalists to do their own sniffing around, but we live in an age when media companies have cut investigative journalism budgets to the bone, if not entirely. Many financial blogs value speed over analysis. Repeating others' "news" about China is more important than trying to do original analysis that requires more time, money and homework.

But that's the way it is. In the meantime, let me provide some additional thoughts on China that are based on my own experience.

• Myth: What about all the ghost towns I keep hearing about, like Ordos?

We hear a lot about the Chinese ghost towns, including Ordos, which is located in Inner Mongolia (between Beijing and Mongolia), by reputable newspapers like The New York Times. The typical U.S. narrative is that these towns are built solely on stimulus renminbi and loans pumped into the economy in 2009 especially, without demand to support them. Since these towns sit empty, Western journalists assume that it is just a matter of time before a property bubble -- akin to what we experienced in Florida, Nevada, or Arizona recently -- busts.

Regarding Ordos, what is different about this "ghost town" relative to others in China is that although there is currently a lot of excess capacity in the town, it is surrounded by coal resources and supported by deep-pocketed entrepreneurs who are tied to this resource. If you assume the prices of coal will remain strong, along with the Chinese economy, there is every reason to assume that this area will continue to prosper and that the town of Ordos will benefit from this.

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[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

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Notes From the Ground in China, Part III

By Eric Jackson
RealMoney Contributor
11/1/2010 11:15 AM EDT
Click here for more stories by Eric Jackson

I've been in China for the last 10 days, and I've been tweeting out pictures and comments all along the way. If you're interested, please check out this Flickr group to see some.

I've been surprised at how many people have sent tweets or messages to me in response to my updates. U.S. investors are obviously very interested in China. Some are very bullish on the country and its equities, while others are very nervous and believe the country's economy is about to fall off the cliff. I want to respond to some of the criticisms I've heard and respond to them on the basis of my on-the-ground experiences in the country.

First of all, a disclosure: Anyone who has read some of my articles will know that I'm bullish for the short and long term on China. I don't consider myself a Pollyanna. I would like to think I'm a realist. There certainly are risks to the country's future growth. However, I don't think the risks I see match up with the ones most commonly expressed by Jim Chanos orThe New York Times.

• Concern No. 1: China has a housing bubble that's going to explode.

This concern has been out there for almost a year and was probably started by hedge fund manager Jim Chanos. Even he admits that this is likely only a bubble relevant to China's "coastal cities," which are experiencing the most growth (Shanghai and Shenzhen, but Beijing must be included as well, being the capital and such an important place for government and commerce). The Chinese government enacted restrictions earlier this summer to cool down speculation in the hot markets (although lower-tier cities had the freedom not to enact the new rules and haven't). There is certainly evidence that the quantity of transactions in these cities dropped immediately after the new rules were implemented, but the prices in major cities have stayed up.

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[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

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China Is Not in a Property Bubble

By Eric Jackson, Senior Contributor

04/07/10 - 07:00 AM EDT

Last week, I presented the case for why China is not in a property bubble.

In doing so, I disagreed with Jim Chanos' view on the subject and presented my arguments, based on my recent visit, which included interviews with Chinese professionals operating over there, and the statistics we have available to us.

There have been a few strong reactions to the article. I followed up with Chanos, saying that I obviously disagreed with him on this issue but that I otherwise respected and admired his work. I asked if he wanted to discuss our differing views on China either on or off the record. He didn't and has since declined an invitation to expressed his views for this article.

Chanos' argument -- and he's not alone in his thinking -- is that Chinese property prices are out of control, especially in the coastal cities. Almost by definition, his description of what's happening at the moment as a bubble implies a hard landing coming.

He hopes to profit from that hard-landing by shorting the foreign companies directly benefiting from the current property boom. This would include names from cement (like Cemex(CX) and Lafarge), iron ore (likeVale(VALE), Rio Tinto(RTP), and BHP-Billiton(BHP), copper (likeSouthern Copper(SCCO), and Freeport McMoran(FCX), and oil companies (although Chanos hasn't disclosed any specific names he's shorted). It would also include foreign-based property companies with exposure to China, such as many Hong Kong-listed developers.

My counter-view didn't dispute that Chinese property prices have been rising. Some have said prices in several cities doubled from 2003 to 2007 and they've doubled again since then.

However, there are many factors which differ between what is going on in China now and what happened two years ago in the U.S.

These differences, to my eyes, suggest that prices aren't as out of control as is often is suggested. Furthermore, the Chinese government has tremendous authority to intervene in the markets to ensure a soft landing. Its ability to do that will help the China growth story play on for many years to come.

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[This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.]

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