End of the China bull?

[explod]

Yes I would not want to hold those either, all hard commodities and resource stocks will get whacked during a china crash, along with all aus equities. Silver more so than gold, due to the higher industrial demand component in its price. The gold price was higher prior to the 2008 crash than it was after the crash, for instance. My current thoughts would be to be in government bonds prior to the crash. My assumption would be that two things would happen after this - all governments involved will start fiscal and monetary loosening (throwing credit at random stuff, aka 'stimulus', and printing money), including Australia (although I think Australia will have a center-right government at this point, so the fiscal aspect will be less severe). I would then probably buy gold.

I would then wait until the crash had finished, and follow Rothschild's famous advice.

Good points,

however:-

In the world crash from about 1927 all bonds also went under in toto. This idea of a continued government guarantee holding all up is fraught with peril in my view.

Yes gold dropped but as you say not a lot.

Gold is rising because of q/e, ie. money dilution.

Silver and gold this time is being hoarded to protect against money devalution so has moved from being a commodity to that of a form of currency or as some describe a store to maintain wealth/equity.

But agree that for a time all stocks will be hammerrred in the change of sentiment.

Interesting connundrums here.

And yes, buy in absolute gloom.

 

[tothemax6]

Gold is rising because of q/e, ie. money dilution.

Yes this is true, however during a crash banks contract their credit as fast as they can. Since most 'money' exists as bank credit extended against money, crashes have a highly deflationary effect. Indeed, prior to central banks, the deflationary effect tended to be very severe, as many banks would suffer runs and go bankrupt - wiping out money people thought they had.
This deflationary effect still exists today, the difference being we now have characters like Bernanke who respond to this by cranking up the printing presses, which quickly puts prices back to where they were - and then some. Hence, the effect is much shorter lived.

 

[Uncle Festivus]

The indicator to look for is the date this topic was commenced. Now more than three yeas on and the situation hasn't changed. Those worried about the end of the Bul run and sitting back have missed out on the best investment opportunities that I have ever seen.

Quite an assumption there? And the situation has changed dramatically because China is now 'drawing down' it's $US reserves to pay for it's GDP growth rate, and has recently posted a trade deficit for February, and a flatline for March!

Thinking outside the square, here is the simple scenario -

The world currency is $USD's
China has lot's of them, being devalued daily by QE
China is exchanging them for hard goods like commodities
China has it's own QE program, running about 20% money supply growth per annum, manifesting itself as inflation in everything else ie soft & hard commods
The US is technically insolvent, it cannot pay it's debts without printing money
When the world accepts this fact the game will stop
China will have a bunch of worthless IOU's
Australia will have even less as our industries will have been hollowed out by the exchange rate (due to so called commodities boom)
Aussie banks will have a run, guarantee or not (due to their overexposure to residential real estate)
Cash in hand (or under bed) will be king
Gold will be the Emperor


And, food commodities did do a 'woody' so I did not miss out, among others
From my first post...........3 years ago.

Food commodities the next/current global bull market perhaps?

Here's another tip - short the $AU/$US at these levels and above - on a relative basis the $AU has more to lose in a global bust.

The amazing thing is that the most recent news I heard is that they are pushing for even more construction. People genuinely think that pouring steel and concrete into buildings that no one needs means China is experiencing 'economic growth'. So few people, its seems today, know what the hell they are talking about.

Unclefestivus, what do you think will indicate the imminent crash? I am at a loss as to what indicators I should be looking for. I have some ideas such as watching for a reduction in iron ore imports. This could indicate that the chinese steel manufacturers are receiving less orders, which would in turn indicate that construction is slowing. However, the lag here is probably huge. On the other hand, I cannot for the life of me find good data anywhere, on stuff like import/export rates etc. And I doubt there is a source of data for 'chinese building starts'.
What are your thoughts on this?

Have a look at this site - one of the most comrehensive free sites for global data -

http://www.tradingeconomics.com/

http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?symbol=CNY

 

[nioka]

Uncle,
The only hope you have in being right in the short term is if the broken clock syndrome comes to your aid. If you keep on with those arguments one of these days you will certainly be right. The only chance of a broken china bull in the next three years will only be if there is rebellion against the current regime. I think they are working hard to raise the general standard of living to prevent that happening and that is why the bull run will continue.

The big difference in the Chinese economy and that of the USA is that they measure their rate of growth in material personal achievement. The USA measures theirs in monetary values that are manipulated within the financial world for the advantage of a few greedy individuals. One builds a house of bricks, the other a house of cards. (we just dig b#*!*y big holes in the ground and sell the farm.)

 

[Uncle Festivus]

Uncle,
The only hope you have in being right in the short term is if the broken clock syndrome comes to your aid.

I don't really care about the timing of something that is based on discretionary money printing to continue - you only have to look at the Dow chart, which was in danger of rolling over at the time, to see when QE2 was announced and the commensurate 2500 point lift. That's what $600B buys you in the stock market. It did very little else in the real economy but who cares - the money went to all the right people???

So I'll continue to post stuff here just for my own entertainment if nothing else

From Graham Summers -

China has begun stepping in to buy up European sovereign bonds because allowing a default in Europe will trigger a global systemic collapse that will destroy China’s economy.

The EU accounts for roughly $400 billion of China’s exports, making it China’s single largest export market. So if Europe collapses, China’s economy takes a BIG hit. Remember, China is a centrally controlled economy, NOT a dynamic open market economy.

Put another way, the entire China “economic miracle” is based on the current system continuing to operate in some form (China can continue to export, rip off intellectual property that is developed elsewhere, throw its weight around, etc).

But… if Europe collapses:

1) China loses its largest export market (Chinese economy breaks down)
2) China unemployment skyrockets along with civil unrest
3) The US Dollar rallies evaporating profit margins at Chinese export companies (Yuan is pegged to the US Dollar and so will strengthen) which results in even more unemployment
4) China’s $700 billion or so in Euro-based assets implodes

With inflation erupting in the People’s Republic and civil unrest growing, China NEEDS to keep its economy on track by whatever means possible, even if it means throwing money away to prop up bankrupt Europe.

Remember, China’s unemployment numbers are based only on surveys in urban areas; they completely ignore the hundreds of millions of migrant workers who come to the cities to find work. I’ve seen some estimates of China’s true unemployment rate that are north of 20%.

That’s a heck of a big problem for China’s totalitarian government to manage. This is why China is stepping in to prop up the European bond market. However, even this intervention will prove to be only a temporary support.

Indeed, it’s clear at this point that Europe will be breaking up within the next 12 months. While Greece could be temporarily papered over by the ECB, there is NO WAY it can handle Spain or Italy.

In plain terms, the European debt crisis is not over by a long shot. And the very issues occurring in Europe today (debt defaults, civil unrest, etc) will be coming to the US’s shores in short order as the debt contagion spreads.

And the usual under-reporting of any bad data that will come back to haunt them - China had their own $600B stimulis.

The local government debt problem was exacerbated by the 4-trillion-yuan ($618-billion) stimulus package introduced to cope with the effects of the global financial crisis. Of the package, the central government provided 1.2 trillion yuan, while the rest came from local governments. To do this, credit policies were loosened, creating an opportunity for local governments to get loans on an unprecedented scale. Local financing platforms increased from only 2,000 in 2008 to around 10,000, with local government debt increasing dramatically over the same period.
In the first half of 2008, the total amount of local government debt was just 1.7 trillion yuan. At the end of 2010, the figure was up to 10.7 trillion yuan, which was equivalent to 27 percent of China's GDP in 2010, according to the National Audit Office.
The 10.7 trillion yuan is not a small number, and 80 percent of it comes from bank loans. More than half of these debts have to be paid off between 2011 and 2013. Indeed local governments will have to race against time, as about 25 percent of their loans have to be paid off before the end of this year, and 17 percent next year.

Professor Victor Shih from Northwestern University in the US. He's widely quoted as estimating local government debt is almost twice the official figure -- that's 2.6 trillion dollars or more than 40 per cent of GDP.

By the end of last year, according to the People's Bank of China, these county and municipal district-owned companies had accumulated debt of up to 14.4 trillion yuan, ($2.1 trillion) which is equivalent to 30 per cent of China's total outstanding loans or 35 per cent of China's GDP.

Read more: http://www.smh.com.au/business/river-of-debt-may-burst-its-banks-20110613-1g0cq.html#ixzz1SgJe9RaV
​

 

[Aussiejeff]

Last I saw, the antique China bull had a large crack forming.

Intrinsic value has slipped a bit....not sure if any attempt to repair would be worthwhile?

LOL

 

[Uncle Festivus]

China's government isn't likely to ride to the rescue of the debt-hobbled Italian government, analysts said, and buyer interest in an Italian bond auction was decidedly lackluster after news of meetings between Chinese sovereign-wealth officials and Italian leaders had fueled a short-lived rally in world markets Monday.

So that's a 'pass' on that 'bailing out the UE' thingy then?

International financial markets are notoriously twitchy when it comes to speculation over how China may invest its vast foreign-exchange reserves.

Maybe they can use it to pay for the $2TRILLION of local government debt.......bailing out their own indebtedness?

HONG KONG (MarketWatch) — China’s real-estate market may face an escalating credit crisis, with industry data for August providing clues that big developers are running short of cash, according to Credit Suisse analysts.
The unfolding situation heralds a perfect storm for China’s home-building industry, and China’s deteriorating credit backdrop should be viewed by investors with alarm, the Credit Suisse analysts said.

The first cracks in the Communist Ponzi facade.........

http://online.wsj.com/article/SB10001424053111904353504576568241578833756.html

http://www.marketwatch.com/story/china-developers-short-of-cash-analyst-2011-09-14

 

[Knobby22]

The first cracks in the Communist Ponzi facade.........

http://online.wsj.com/article/SB10001424053111904353504576568241578833756.html

http://www.marketwatch.com/story/china-developers-short-of-cash-analyst-2011-09-14

Both very weak examples if they are in fact cracks.

1. Why should they "rescue" any EU country to their own detriment.
2. China is trying to slow their economy by limiting credit to stop a giant bubble forming.

Would like to see some stronger evidence that something is wrong. It is a centralised economy where the government pulls all the levers. My opinion is that they could quite a lot longer before they stuff up. At present they are making the USA and EU appear incompetent.

 

[Uncle Festivus]

Well you have to believe the official figures and take them at face value to believe all is good? They may not be the first cracks either; there have been an accumulation of negatives for a while now, just needs a final (external?) catalyst? I just don't believe China is as strong or invincible as everyone makes out they are. After all, it's generally the same permabulls that said all was ok with the world economy 3 years ago who also see no end to the China bull?? And we have seen how wrong they have been.

The bottom line is China has just as much hidden debt as the rest and would dearly love to exchange their USD's for any other hard asset? It just happens to be directed to building things with our commodities.

They are under the same cost pressures as anyone else it's just that it's hidden from view ie their enterprises profit margins are low to negative ie the state subsides them in order to keep people employed. Eventually the human tide will be too much for even them to hold back.

 

[notting]

One of the great ignorance's and dare I say it arrogance's of Westerners is that they know a bit about their own history but very little about Asian, especially Chinese History.
People have no idea of how far ahead China plans and how they see everything as war and destruction of everyone else.

You need to understand how China conquered Mongolia which was at the time the most powerful nation in it's region and the greatest Kingdom that has ever existed on earth in terms of the vast space they occupied and power they wielded in Asia.

Know about the Chinese wall? That was to keep the Mongolia out as much as possible.
The Mongolians used to mock it saying a Wall is only as powerful as the men guarding it.

Basically China overcame Mongolia by trading with it, corrupting people and overthrowing it from the inside.
They made them dependent on China for their continued wealth.

Sound familiar?

Don't you think it's a bit odd that every major city in the world has a China town in the middle of it? Where's the India town, French town, Mongol town etc?

We have no idea.

I think the Americans understand.
I reckon that's why Cheney used to say don't worry about the debt. He new that China gives no real value to it's own currency. The communist Chinese just do what ever it takes to become more powerful and influential in the world.
Did you see how many contracts they dishonored during GFC part 1. They just blatantly stopped honoring them. "What are you going to do about it?" Was the basic stance. "It's a peace of paper. You got nothing!"

People have no idea! Notice how Murdoch won the contract over the ABC in China. He's one they have corrupted. That's why most of the news doesn't tell you about the real China story! There is a million things I could say, examples etc but I can't be bothered.

 

[tothemax6]

So I'm raising this thread back up to the top of the heap because I don't think people are giving this enough consideration.

This is going to be big.

For those who aren't familiar with the situation, I'm sure you've heard that China is the biggest buyer of our commodities (coal, iron ore etc). I'm sure that you've also heard that there is massive investment in mining in Australia, to such a skewed extent that people talk of a 'two speed economy' - referring to the contraction that has to occur in the non-mining sector as the labour/capital move into mining.

The issue resides in the origin of this massive demand for industrial commodities. China is engaged in a massive construction boom that is completely unhinged from demand. Whilst the quota systems of the Mao era are long gone, the Chinese government still implements some basic macro-economic quota. One of those plans is a requirement for 8% growth (http://en.wikipedia.org/wiki/Five-Y...lfth_Five-Year_Guideline.2C_2011.E2.80.932015). Faced with this demand, the response of local governments in China is to build, and build and build. All construction (fixed asset investment) enters GDP figures. A search 'china empty city' on youtube will show the results of this. As a result banks have been pressured to heavily extend loans into these projects. Add to this the constant state of negative real interest rates, and this smacks of a credit-fueled boom in the construction sector. It is not a question of when this will crash, it is a matter of when.

And what are the inputs to such a boom? Copper, coal, iron ore.

Hence the consequences of a crash in China will be that the massive overallocation of resources into mining will come unstuck in Australia, and an unavoidable and sharp recession will ensue. The AUD will plummet, the ASX will plummet, housing prices will be hit hard.

So the question is, what is the defensive move? Going to cash by itself is not defensive - cash is AUD. Gov. bonds are also AUD. One could pick a foreign currency, but which one? Would yen be safe? The swiss franc is no longer any use. So far I'm thinking gold, since it will go down less than AUD.
Ideas...

 

[tothemax6]

Yeah, I guess a crash in China wouldn't affect Australian investors at all .
Whatever.

 

[drsmith]

A search 'china empty city' on youtube will show the results of this.

I was dissapointed when this one changed to commentary about half way through.

 

[drsmith]

Yeah, I guess a crash in China wouldn't affect Australian investors at all .
Whatever.

I posteda link to this in another thread, but it's also of obvious revelance here,

China's headline debt to GDP ratio of 17 per cent (around $1 trillion) is misleading. If local governments, its state controlled banks, state owned enterprise, and other government supported debt are included, then debt levels increase to 60 per cent ($3.5 trillion), compared to America's 93 per cent of GDP. Some commentators argue that China's real level of debt is far higher in reality, well above 100 per cent.

Interesting question.

https://www.aussiestockforums.com/forums/showthread.php?t=21965&p=660573&viewfull=1#post660573

 

[tothemax6]

Ideas on where to put ones money then...

 

[Tysonboss1]

Ideas on where to put ones money then...

I range off quality income producing assets, ie. Property, good businesses etc. ( offcourse all purchased at good prices)

 

[drsmith]

Ideas on where to put ones money then...

I'm still trying to find the artist that sings the song in the first half of that video clip.

Ignoring that it's religious, it's not a bad piece of music.

 

[tothemax6]

I range off quality income producing assets, ie. Property, good businesses etc. ( offcourse all purchased at good prices)

This would be crazy. Holding Australian real estate (esp say, Sydney) and stocks leading up to the China crash would cause obliteration of wealth (or if one is talking 'long term', a very heavy opportunity loss). The 'good prices' will come after the crash, not before (by definition).

So far I'm thinking something along the lines of USD, JPY, gold. I can't see anything else rallying during the China crash.
Buying stocks would be for afterwards.

 

[GRYPHON80]

I'm still trying to find the artist that sings the song in the first half of that video clip.

Ignoring that it's religious, it's not a bad piece of music.

Lianna Klassen 'I WILL NOT BE SILENT'

Not an easy song to find that's for sure. After the first time I watched the clip it bugged me so much I persisted for a couple of hours trying to find it.

 

[MR.]

http://www.bloomberg.com/news/2011-...nticipating-2003-low-as-credit-goes-bust.html

What's that song "China will not go silent"!

The MSCI China Financials Index sank 24 percent this month, falling more than benchmark bank gauges for Europe, the U.S., Japan and emerging markets. Valuations in China dropped below levels reached during the global financial crisis for the first time last week, even after Industrial & Commercial Bank of China (601398) Ltd. and Bank of China Ltd. (3988) said first-half profits hit a record and analysts raised forecasts for next year.

China has led the recovery from the worst recession since the 1940s, contributing more than 30 percent to global growth last year, after the central government ordered state-owned banks to increase lending and encouraged local governments to boost spending on infrastructure and housing.

Evidence is building that Chinese property developers and local government financing vehicles, used to get around laws prohibiting direct borrowing, are struggling to repay their obligations as the economy slows. About 85 percent of the government financing vehicles in China’s Liaoning province, on the border with North Korea, had insufficient income last year to cover debt-servicing payments, according to a July speech by the provincial auditor.