SOS Ferrari, Bentleys with Marc Faber

May 25 (Bloomberg) Marc Faber : ..recession in China could be a technical recession , if you go and slow down from a growth rate of say ten percent to a growth rate of three percent then there is a recession , also I do not believe in the growth rate that China publishes , because if you had adjusted nominal GDP for the true rate of inflation then real growth is of course much slower , you know I want to tell you something that disturbs me in all emerging economies and in many other developed economies , from my taste , in front of far too many luxury hotels there are far too many Ferraris, Maseratis, Bentleys... I see a boom everywhere, except for the working class, except for the lower, middle class. But among the well to do people the wealth that is floating around and the prices you pay for high end properties is incredible, and I think that will come to an end, and a lot of people will lose a lot of money... I was in La Jolla, Laguna Beach, Newport Beach, I was in front of a restaurant smoking and I've never seen so many Ferraris, Maseratis, Bentleys and fancy cars anywhere in the world, and this is in America. I am not saying this is wrong, but there is an opulence among a small group of people that is huge when there are lots of people that are struggling. This gives me a bad feeling because I've seen so many emerging economies when they were booming, that was the time to get out." Marc Faber told Bloomberg

MyView

I believe China is going for a hard landing for its economy mainly due to the credit growth bubble. A lot of the borrowings went into fixed assets investments, especially properties. Properties developers tend to go in cycles, on occasion they made super normal profit, and during a bust, many went into bankruptcies. Although many Chinese buy properties with their high savings, the developers are gearing up to an unbelievable level. Instead of high gearing towards the households, in China, it was the developers. Yes, the bubble is slightly different, but, it is still a bubble, the only different, it is the developers that will suffer the most here, as a result of the MYTH that consumers will forever have enough money to buy the pricey properties. It will come to a stage that the empty cities in China cannot be filled up, and the cracks appears, then we it will be too late. Like most Americans are unable to see the housing bubble, it will happen to China as well. So will Australia. China treats the property investments like GAMBLING, period. In conclusion, like what Marc Faber said, a lot of people will lose a lot of money.

Just look at the chart above, make you own conclusion, is another credit driven economy. Don't believe the most expensive statement in financial markets, this time is different.