Saxo Bank chief economist Steen Jakobsen had some interesting comments via email today on property bubbles in India, China, and emerging markets.

Steen writes ….

We are close to big bubbles and discontinued pricing in the market (with less and less real liquidity). In 2014 there will be taken a lot of bad MACRO decisions on:

  • Inequality
  • Deflation
  • Bubbles
  • Lack of growth


I am just back from Asia and I had my worst fears confirmed. Here are my quick-and-dirty conclusions:

  • USD vs. Fragile Five (Indonesia, India, South Africa, Turkey, and Brazil) likely to be up 20% in 2014. The emerging market crisis is coming back, for real this time.
  • India will be under IMF supervision post their election in May, which is turning extremely nasty. (Check the opposition candidates program!)
  • Domino effect? 2014 could the year where “elections matters” – (EU in May, India in May, etc.)
  • Asia realizes that lower “quality growth is needed” – meaning 200 basis points overall lower growth in exchange for less “rentier Foreign Direct Investment models)
  • Asia contribution to global growth will be 100-150 bps lower, reducing global growth by 50-75 bps.
  • Housing is in major bubble – I did not meet a single person who did not want to increase housing investment if prices fell 10%. Housing is up 100% and they want to buy a 90% price rise!
  • The day Fed does tapering, the housing market is at risk for 40%-50% correction
  • Asia direct market remains the only segment still expanding US dollar net funding (with increased capital dependency on the FED). US dollar dependence is increasing not falling.
  • China’s plenum real objective is overlooked: Policy uniformity – which never comes with real reforms and progress. China will not change fundamentally, but consolidate its Communist model.

The good news?

Volatility is certain to return.

Tapering is not the real risk. Look to India, Indonesia and Brazil as the canaries in the coal mine. Current account numbers cannot be easily managed. Lower growth and weaker currency is the only way to reduce short-term pressure.

Mike “Mish” Shedlock