An audio interview by Jim Puplava on the next domino of the global financial crisis.
Nov 032011
Synopsis:
This documentary from 1980 depicts a factory community in China where over 6000 workers process, spin and weave raw cotton into 90 million yards of high-quality cloth per year. Also seen are the workers’ residential, social, recreational and educational facilities, all located on factory property. The film presents an engrossing study of a lifestyle that is very different from that of the Western world.
Nov 012011
As Europe begs China for funds, China itself approaches the point where it will need to bail out its own banks.
The Chinese stock market (chart below) has barely recovered its losses from the great peak in 2008. In fact, the Shanghai Composite index is 31% below the recovery peak hit in July 2009. The iShares FTSE/Xinhua China 25 Index ETF (FXI) remains 49% below it’s all-time high and is down 23% over the past year alone. Is the market telling us something? Recently, more and more bears have been circling China.
Among the numerous examples suggesting unsustainable Chinese growth, here are two data points of particular interest:
Evidence #1: Copper, an industrial component, the use of which signals growth in global demand, is down about 22% from mid-summer levels. China, the biggest consumer of copper, recently stated that copper inventories were close to 2 million tons. (Of course, China’s inventory announcement could be a tactic to manage the price of copper down.)
Evidence #2: Chinese ghost cities and malls are appearing all over the country, as China promises to build 20 new cities a year over the next 20 years. With 64 million empty apartment units, some suggest China is experiencing the biggest property bubble ever seen. But building and speculation continues, as China’s growth is largely fueled by infrastructure investment instead of aggregate demand.
One is left to wonder about all the capital fueling China’s empty development. Even in centrally-planned economies, growth must be paid for with debt (many suspect that China may have trillions of yuan in bad loans) or money printing. Despite being a centrally-planned economy, over-development could send China down the same path as the US (2006-present) or Japan (1990-present)
An increasing number of market gurus are joining the chorus warning on China:
Albert Edwards, global strategist at Société Générale:
- “Investors should prepare for both a hard landing and a yuan devaluation.”
- “China is undoubtedly a severely imbalanced economy, suffering from credit-fueled investment and housing excesses that could easily spin out of control and crash, just like all the other ‘highly regarded’ economic bubbles before it.”
- “If China is hard landing, I agree with the bulls on one thing: expect the authorities to become aggressively stimulative.”
Jim Walker, founder of Hong Kong-based consultancy Asianomics
- “We’re really looking for something much, much worse than that (7% Chinese GDP growth). China will be lucky to get away with 5 percent.”
Marc Faber, founder of the Boom, Gloom and Doom Report
- “And then we have industrial commodities, and this is an important signal for the market. They collapsed. They did not collapse because of Greece. They are down 30 percent because it is very likely that the Chinese economy is now decelerating very rapidly.
And that on the world would have a far greater impact than say Greece. And so I think investors who all focus on the banking crisis in Europe, they overlook the next shoe to drop, which could be China.”
Jim Chanos, president and founder of Kynikos Associates
- “The numbers are falling faster than we thought. Real estate sales in September and October, which are peak months, fell 40%-60% on-year.”
- “People are buying into the idea of perpetual growth. But they have to ask, ‘Are you really growing?’”
- “The only way the Chinese government can continue to bail out everyone is to print more money, which will lead to inflation. But people are depositing money [in banks] at below inflation.”
The 21st century may very well be China’s century, just as the 20th century was America’s. However, no economic superpower grows in a straight line. Beware.
Oct 252011
Oct 232011
Good lecture on the great global economic shift:
You’ve probably seen the video of a 2 year old girl in China run over by a van. About 17 bystanders walked past the girl ignoring her as she lay on the road dying. The video is gut-wrenching to watch, but cases like these are far too common in China.
The first reaction is that Chinese people are heartless. But how can this be so when so many Chinese are just as moved by this incident as non-Chinese? The truth behind this behavior lies in the messed up Chinese legal system.
In 2006, an elderly woman fell to the ground and was helped by a bystander named Peng Yu. At the request of the elderly woman, Peng took her to the hospital. He also gave her 200 yuan to help her out. After the incident, the woman accused Peng of knocking her down and sued him to pay for medical expenses totaling 40,000 yuan (about $6200; Chinese GDP per capita is about $4400). The judge sided with the old woman stating that, according to societal norms, only the person that caused the accident would have helped her out. The judge went on to state that if Peng was indeed doing a good deed he could have let the old woman’s family send her to the hospital after they arrived. Since Peng went out of his way to help the elderly woman, it was decided that he must have caused the accident and was obligated to pay her medical bills.
Many similar well-known cases have occurred in China. Unfortunately, the system is built to discourage good Samaritans.
So I ask you this: how prepared would you be to help someone out if it could cost you more than a year’s income (in a highly competitive country with a weak social safety net)?
If China wishes to change the behavior of those that simply walk past accident victims, the authorities must make it clear that good Samaritans won’t be punished for helping.
“And then we have industrial commodities, and this is an important signal for the market. They collapsed. They did not collapse because of Greece. They are down 30 percent because it is very likely that the Chinese economy is now decelerating very rapidly. And that on the world would have a far greater impact than say Greece. And so I think investors who all focus on the banking crisis in Europe, they overlook the next shoe to drop, which could be China.”
–Marc Faber
Sep 262011
Sep 222011
Sep 222011
FCX down 9.55%
Sep 202011
“I think that will be the surprise going into this year, and into 2012 – that it is not so strong. The property market is hitting the wall right now and things are decelerating. The CEO of Komatsu said last week that he is having trouble getting paid for his excavator sales in China. Developers are being squeezed. They’re turning to the black market for lending, this shadow banking system that is growing by leaps and bounds like everything in China.” –Jim Chanos
Sep 132011
If this is true, it could impact Canada and Australia quite hard.
Sep 072011
Aug 252011
Colorful thoughts from Ned W. Schmidt,CFA,CEBS, publisher of The Agri-Food Value View, a monthly exploration of the Agri-Food grand cycle being created by China, India, and Agri-Energy.
AGRI-FOOD THOUGHTS(14 August 2011)
Since last Tuesday, when the U.S. Congress delivered a sugar-coated pig in a blanket sandwich rather than a deficit reduction plan, the Obama regime has been on a wild spending spree. Thus far,the U.S. Treasury, in little more than a week, has sucked $245 billion out of financial markets through the sale of U.S. government debt. Little else need be known to explain the collapse of financial markets.
Schmidt’s Agri-Food Thought 14 August 2011
Ken Rogoff comments:
Quotes from Marc Faber:
“If Chinese growth really slows down or if they have a crash… it could trigger a vicious circle on the downside and I would say there is a fairly good chance that this could happen. This would be really something the world’s central bankers wouldn’t be able to help with printing money.”
“The Treasury market is telling you that the economy is in recession. So if the bond market is telling you that the economies of the Western world are weakening, but at the same time the stock market is still relatively high, I think the stock market is vulnerable.”
Satyajit Das on bad debt in China:
Andy Xie on bad debt held by China:
Either way you look at it, China is playing with fire.
