How many times do we discuss the idea of looking at the global market and not to focus on just this United States. This is especially true from the perspective of capital flow.
Too many people think that the only thing that matters is what happens in the United States. This viewpoint causes people to miss the entire situation and make a complete misdiagnosis.
On a number of occasions we covered the fact that the US equities market is NOT going to collapse. Why do I make this statement? Simple. Capital Flow.
How many people know what the NIIP is? This stands for Net International Investment Position. Basically is a countries "balance sheet" in terms of assets and liabilities.
For the United States, here is what the most recent charge looks like.
This is at the end of the 3rd quarter, the latest update.
For those who do not know how to read this, the liabilities are American assets acquired by foreign individuals and entities. The assets are foreign assets that are owned by American individuals or entities.
Therefore, as we can see, the capital flow for the last decade was INTO the United States. As we can see, there was roughly a $4 billion difference in 2012. Now, a decade later, it is more than $16 billion. That means we have an average of $1.2 trillion move into the US per year.
Real Estate
The challenge for people who just look at things from the US perspective is they miss why things are happening. While many call for bubbles, how can that be stated when one has no idea why things are moving up? It is impossible. Nevertheless, that is exactly what people do.
Have you heard that the Fed caused all of this with their "money printing". Leaving aside the fact the Fed does not create USD, it is seriously overlooking the fact of what is taking place. While the Fed can play their games, trying to get the banks to lend, the reality is the Fed cannot create that. Banks operate based upon their own self interest.
What we do know is that plenty of capital is flowing into the United States. Anyone who takes the time to look around will soon realize that there is nothing that compared to the US markets. In other words, capital is heading into the US because there is a lot of sickness globally.
Where are you going to put your money?
Do you want some negative yielding bonds from the EU? How about German Bonds? Japanese? Of course not. They all nuked their bond markets.
How about equities? The Japanese stock market might be solid until you consider it is still almost 30% off its all time high, 30 years later.
What about Japanese real estate? Certainly Tokyo, the most populous city in the world, should be booming. That one is still off 40%. So much for the QE, easy money inflating asset prices considering the Japanese are on QE25 (they did invent it after all).
Thus, when we look around, we see the US markets as the viable option. Most are not going into commodities or cryptocurrency so we are dealing with equities, bonds, and real estate. While the US didn't blow up its bond market, the yield is rather poor. That leaves equities and real estate.
Hence why the US real estate market is not likely to crash.
Here Come The Chinese
The Chinese are returning.
Chinese demand for US property grew late last year and is predicted to climb further in 2022 as coronavirus travel restrictions are eased, industry insiders have said.
About US$700 million worth of Chinese money entered the US commercial property market over the year ending in September, up from US$600 million the previous year, the Washington-based National Association of Realtors said in a February outlook.
We know how the Chinese love to invest in real estate. One might find it odd that they are buying commercial properties in the US until you consider what their options are at home. The wealthy are doing all they can to get money out of the country and into investments that won't collapse.
The CCP is trying to negotiate a soft landing with their real estate market. Whether they accomplish this or not remains to be seen. What is not open for dispute is the CCP is sending it down. That point is made clear.
Wealthy Chinese see US property as a solid investment for overseas-earned income and one that is hard for the Chinese government – which imposes stringent capital controls – to touch.
Commercial properties are not their only interest. They are buyers of residential properties, providing a cushion into any pullbacks.
Homebuying by Chinese nationals hit an 11-year peak of US$31.7 billion in 2017, but had fallen to US$4.5 billion last year, according to the National Association of Realtors.
So while everyone is looking for a housing market collapse due to the Fed proclaiming that it is raising interest rates, the expectation is a lot of foreign money is going to flow in from China. Here we could see a lot of buying pressure. We will have to watch the capital flow out of China.
One other thing to monitor: keep tabs if the EU starts discussing the idea of capital controls. If this happens, the floodgates into America of European capital will open up.
And all of this has nothing to do with the Fed.
Anyone beginning to wonder what it is they really do?
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