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Generational Dynamics Web Log for 26-Sep-2012
26-Sep-12 World View -- China says 'Fascist' Japan must 'abandon illusions' about disputed islands

Web Log - September, 2012

26-Sep-12 World View -- China says 'Fascist' Japan must 'abandon illusions' about disputed islands

Media gushes over home prices, triggering great hilarity

This morning's key headlines from

Japan and Taiwan have military confrontation with water cannons

A Japanese Coast Guard ship (center) sprays water at a Taiwanese fishing boat (bottom), as Taiwan's vessel (top) sprays water. (Reuters)
A Japanese Coast Guard ship (center) sprays water at a Taiwanese fishing boat (bottom), as Taiwan's vessel (top) sprays water. (Reuters)

With China and Japan close to a military confrontation over the Senkaku / Diaoyu islands, Taiwan decided to stake its own claim. Taiwan sent 40 fishing boats and eight Coast Guard vessels from Taiwan to the disputed islands, to establish the right to fish in the territorial waters. The Japanese Coast Guard fired water cannons on the fishing boats, in order to force them to leave, and Taiwanese Coast Guard vessels returned fire with their own water cannons. The Taiwanese boats left after a few hours.

This skirmish was the most dangerous so far, since water cannons are far from harmless. Taiwan's third party role in the Senkaku dispute is an interesting development, because Taiwan does not want to be invaded by China, which means that Taiwan and Japan are natural allies. Thus, we can imagine two possible scenarios:


China says 'Fascist' Japan must 'abandon illusions' about Senkaku/Diaoyu islands

As the level of anger between China and Japan over control of the Senkaku/Diaoyu islands in the East China Sea continues to escalate, Japanese and Chinese officials held a meeting in Beijing with the "hope" of coming to some agreement, say, to share the oil and gas deposits surrounding the island. However, China's Foreign Ministry issued a very harsh statement following the meeting:

"On September 25, consultations on the issue of Diaoyu Dao Islands were held by Chinese Vice Foreign Minister Zhang Zhijun and Japanese Vice Foreign Minister Chikao Kawai in Beijing, during which the two sides had a candid and in-depth exchange of views.

Zhang Zhijun pointed out that Diaoyu Dao and its affiliated islands have been China's sacred territory since ancient times, as historical and legal evidences have shown. The Japanese side, however, has disregarded the repeated and stern representations made by the Chinese side, denied the important understanding and consensus reached between the older generation of leaders of the two countries, and openly took the illegal actions of "nationalizing" Diaoyu Dao in defiance of historical and legal evidences. These acts constitute a gross violation of China's territory. They are highly offensive to the 1.3 billion Chinese people, and gravely trample on historical facts and international law. It is an outright denial of the outcomes of the victory of the World Anti-Fascist War and poses a grave challenge to the post-war international order. Historical verdict can never be overturned; consensus must not be rejected; and flouting people's aspiration will not be tolerated. The Chinese side will absolutely not tolerate any unilateral action taken by the Japanese side that infringes on China's territorial sovereignty. The Japanese side must abandon any illusion, face up to its erroneous actions and correct them with credible steps. It should recommit itself to the consensus and understanding reached between the leaders of the two countries and meet China half way so as to bring China-Japan relations back onto the right track of sound and stable growth at an early date."

As time goes on, the following becomes increasingly clear:

China's Foreign Ministry

China launches first aircraft carrier into formal service

China sent its first aircraft carrier into formal service on Tuesday in a show of force. The aircraft carrier is refitted from a ship bought from Ukraine, and will have a limited role, mostly for training and testing, until the planned launch of China's first domestically built carriers after 2015. Reuters

Media gushes over home prices, triggering great hilarity

Home prices since 1987 (Case-Shiller/S&P)
Home prices since 1987 (Case-Shiller/S&P)

On Tuesday morning, S&P released the July Case-Shiller home price report, showing a 1.6% increase, compared to the previous month.

The first story I saw was the CNN story:

"Home prices at 9-year high By Chris Isidore @CNNMoney September 25, 2012: 9:08 AM ET

Home prices are back to 2003 levels in the latest sign of an improved housing market.

In another sign of a turnaround in the long-battered real estate market, average home prices returned to the best level in nine years in July."

Unfortunately, this is typical of what passes for financial journalism these days. Chris Isidore is apparently supposed to be a financial reporter, but he or she apparently doesn't even know that there was a real estate bubble that peaked in 2007, as you can easily see from the graph. Or maybe he or she doesn't know how to read a graph. Or maybe he or she just wanted to help out President Obama in his reelection bid, and purposed lied in the story.

An hour later, the story changed to:

"Home prices rebound
By Chris Isidore @CNNMoney September 25, 2012: 10:11 AM ET

Home prices are back to 2003 levels in the latest sign of an improved housing market.

In another sign of a turnaround in the long-battered real estate market, average home prices rebounded in July to the same level as they were nine years ago."

Here's more hilarity. The Bloomberg story says:

"Home Prices in U.S. Rose More Than Forecast in Year to July
By Michelle Jamrisko on September 25, 2012

Home prices in the U.S. climbed more than forecast in July from a year earlier, adding to signs that housing will spur economic growth."

And so, I guess that home prices rose MORE than forecast. But here's the Reuters story:

"U.S. home prices rise less than expected in July-S&P

U.S. single-family home prices rose for a sixth month in a row in July, though the improvement was not as strong as expected, a closely watched survey showed on Tuesday."

So I guess that home prices rose LESS than expected, not more than expected.

This is all so pathetic. What's the real story?

I've written a number of times in the past that, based on my own estimates, home prices will continue to fall to their levels in the early 1990s, or possibly worse. You can see that by simply applying the Law of Mean Reversion to the above graph.

Well known financial analyst A. Gary Shilling agrees with me. [Corrected 26-Sep] According to his monthly "insight" client newsletter, he expects home prices to drop another 20%. He gives several reasons:

So are the reporters who write these stories stupid or lying? I don't know. I report, you decide.

These figures make it clear that you should not buy a house under almost any circumstances. Five years from now, your house will be worth far less than it is today.

Standard & Poors and CNN and Bloomberg and Reuters and Business Insider

(Comments: For reader comments, questions and discussion, see the 26-Sep-12 World View -- China says 'Fascist' Japan must 'abandon illusions' about disputed islands thread of the Generational Dynamics forum. Comments may be posted anonymously.) (26-Sep-2012) Permanent Link
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