News Coverage on Deflation

  • Insights into the Deflation of “Risk Bubbles”

    You can call them asset classes or financial markets. Some describe them as “risk bubbles.”

    This latter phrase is what Bloomberg chose to use in this January headline:

    Risk Bubbles Are Deflating Everywhere, Some Market Watchers Say

    Bubbles in crypto, high-growth tech stocks are ‘popping’: BofA

    Back in November, The Elliott Wave Theorist provided a warning for an even longer list of assets that have been due to deflate:

    No stock market has ever been so absurdly overhyped and overowned. The same is true for junk bonds, real estate, cryptocurrencies and digital art. It is a unique era.

    And, speaking of tech stocks (mentioned in the Bloomberg quote), the January 7 Elliott Wave Financial Forecast provided this insight:

    You may not realize it from reading the headlines, but the NASDAQ indexes, the Russell 2000 index and the FANG+ Index all failed to accompany the Dow and S&P to this week’s highs. While the NASDAQ closed yesterday 6% below its closing high on November 19, nearly 40% of the index’s firms have plunged by at least half from one-year highs, a near-record number (Bloomberg 1/6).

    These three charts were among many others that were shown in the January EWFF. Notice that these indexes topped in November.


  • China: Even Once-Healthy Real Estate Developers Face Major Woes

    Back in October, China’s central bank governor described China Evergrande’s debt problems as an “isolated case.”

    In December, Evergrande – the nation’s largest real estate developer — was declared in default.

    Apparently, however, it turns out that Evergrande is not an “isolated case.”

    A Jan. 7 CNBC articles notes:

    Shimao, one of China’s healthiest real estate developers, has reportedly defaulted — a sign of how more pain is ahead for the heavily indebted industry.

    Elliott Wave International’s Global Market Perspective, a monthly publication which provides analysis of 50-plus worldwide financial markets, is not surprised by this development. The October issue noted:

    A plunge in Evergrande’s share price will foreshadow a decline in China’s real estate market.

    The November GMP followed up:

    Last month, GMP cited previous calls for an ever-widening Chinese property decline and stated, “That is happening now.” [emphasis added]

    Clearly, the crisis ranges far beyond China Evergrande.

    And, here’s another noteworthy comment from the GMP – this one is from the December issue:

    Despite the recent deterioration in China’s real estate market, belief in the Chinese government’s capacity to manage the crisis continues to run high. This is true even as it turns further away from capitalism and further toward communism. As GMP noted in October, China’s government recently revealed its willingness to micromanage every aspect of the economy in the name of “Common Prosperity.” The slogan comes directly from the original communist party chairman Mao Zedong, who introduced it in 1953. It didn’t work out so well the first time as China saw no material growth in GDP from 1958 to 1975. The irony of its reintroduction should prove even more profound this time.


  • Britain: Economic Growth Forecasts Are “Way Too Optimistic”

    In October, Britain’s Chancellor of the Exchequer Rishi Sunak announced plans to increase spending for infrastructure, education and to help British citizens with the rising cost of living.

    And, at a Dec. 14 International Monetary Fund press conference, Sunak remained firm (www.gov.uk):

    We must stick to the Government’s existing public spending plans.

    The affordability of this increase in spending, amounting to tens of billions of pounds, is at least partly based on an optimistic economic growth forecast.

    However, Elliott Wave International’s December Global Market Perspective presents a different perspective with these charts and commentary:

    In our view, Sunak has based his public policy initiatives on … wayward official forecasts. On October 27, the Office for Budget Responsibility (OBR) revised its forecast for economic growth upward from 4% to 6.5%. The OBR forecasts uninterrupted economic growth from now until at least 2026, as the left-hand graph shows. The right-hand graph illustrates the OBR’s rosy forecast for public borrowing. After skyrocketing to 15% of GDP in 2020, the OBR expects this metric to fall every year from now until 2026.

    According to Bloomberg, “Sunak’s firepower was boosted by a significantly improved outlook for the British economy.” (10/27/21) We say, not so fast: Negative mood will soon replace his ammunition with blanks.


  • Sales of Newly Built U.S. Homes Lose Some Sizzle

    In November, sales of newly built U.S. homes were down 14% from a year ago.

    With that in mind, a Dec. 23 CNBC article says:

    [H]istorically prices lag sales by about six months, and sales are coming down.

    Elliott Wave International agrees that the trend in home prices tends to follow the trend in home sales – not only in the U.S., but elsewhere.

    For example, the October Elliott Wave Financial Forecast discussed China’s real estate market:

    The average new home price in 70 Chinese cities fell 0.1% in September. As we’ve been saying, a decline in home sales leads to a decline in prices, and land and home sales are now falling by larger and larger amounts. In September, major real estate developers reported declines of 24% to 34% in one-year home sales.

    The same issue of the Financial Forecast showed this chart and continued with this commentary:

    Once the shares [of China Evergrande] started to trade again on October 21, the stock price resumed its inexorable decline. It now has lots of company. The shares of most Chinese property developers are plumbing new depths. This chart shows a freefall in four companies: Fantasia Holdings (where trading is suspended), Modern Land Co. (where trading is suspended), Yango Group and China Sunac Holdings, which are down 63%, 68%, 70% and 71% respectively from the beginning of 2020.


  • Weakness Persists in China’s Property Market

    China’s real estate market faces mounting woes.

    In addition to China Evergrande recently going into default, investment and construction in China’s property market has been in decline. And, property developers are strapped for cash.

    On Dec. 14, Reuters reported that …

    … [China’s] new home prices fell 0.3% month-on-month in November, the biggest decline since February 2015.

    Elliott Wave International has been keeping subscribers posted on the weakness in China’s property market well before this latest news.

    Here’s a quote from the September 2021 Elliott Wave Financial Forecast:

    [Regarding China’s housing market], heavy losses are suddenly turning up in many formerly sizzling neighborhoods. On August 25, the South China Morning Post reported, “China’s home prices are falling in districts where the most prestigious schools are located.” In many cases they’re not just falling, they’re plunging. In Shenzhen’s Futian district, for instance, the Morning Post said a home sold for 42% less than a similar home in the same neighborhood three months ago.

    The October 2021 Elliott Wave Financial Forecast followed up by saying:

    On September 20, Sinic Holdings, a smaller real estate developer, suffered a one-day decline of 87%, followed by a halt in the trading of its shares. From January through July, home prices in Futian, a Shenzhen district that was once among the hottest housing markets in China, fell 15%. In the first half of August, they plunged another 29%, according to data from the Shenzhen Real Estate Intermediary Association. The decline is attributed to “educational reforms,” but we think it will be long remembered as the beginning of the end for China’s great housing boom.