We woke up this morning to find oil prices weighing on the market… again… with China suffering the biggest losses. Oil prices have already kept stocks at bay in the best time of the year.
Funny how this “Santa Claus†rally that I predicted wouldn’t happen this year, didn’t. The last time was in 2007 and 2008 – the last years the stock market crashed.
I’ve been looking at how low oil prices will be the first trigger in the next crisis. Although it helps consumers a bit, low prices kill the $1 trillion QE-driven fracking industry that’s been such a stalwart of this bubble economy. And it’s already causing junk bonds to fall further in value, as energy-related bonds have been as high as 20% of that market recently.
But the second and biggest trigger I’ve been warning about is China’s unprecedented real estate bubble collapsing…
Recall the Japanese at the top of their stock and real estate bubble in 1989. They were buying real estate hand-over-fist, from Pebble Beach to Rockefeller Center to London. Then, after bidding them up, they ended up selling those holdings at big losses.
The Chinese make the Japanese look prudent!
Chinese buyers are bidding up the high end of the top coastal cities in English-speaking countries like they’ll never go down and like they can’t get enough.
We’re talking Sydney, Melbourne, Brisbane, Auckland, Singapore, San Francisco, L.A., Vancouver, Toronto, New York, London…
These markets are considered “Teflon-proof.†They’re not! In fact, they’re some of the greatest bubbles that exist today. China’s leading cities – like Shanghai, Beijing and Shenzhen – are up 700% or more since 2000!
Guess what happens when the bubble wealth in real estate that has built up in China finally collapses?
So does the capacity of the more affluent Chinese to buy real estate around the world. And these are the guys who have by-and-large been driving this global real estate bubble at the margin on the high end!
