[Editor's note: Sovereign Man's Chief Investment Strategist Tim Staermose is filling in today while Simon spends a few days with designers and engineers at the farm in Chile. More on those developments soon.]
For a few decades now, the Communist Party in China has had an implicit social and political contract with the Chinese populous for decades, which goes something like:
“We will deliver economic growth and improvements in your material living standards. You will meekly do as you are told, refrain from dissent, work hard, save a huge percentage of your money, and ignore obvious corruption.”
While nearly everyone in China has benefited to some degree under this current “system,” the wheels are definitely starting to come off. Official GDP numbers are now slowing, real estate prices are falling, and inflation is quickening.
Now, I’ve made no secret that I’m decidedly bearish on China’s medium-term prospects. After my trip there back in June to conduct some good old-fashioned “boots on the ground” research, I wrote extensively about the massive overbuilding of apartments, office blocks, and all manner of infrastructure on an almost unimaginable scale.
Put simply, every year since 2005, more than 50% of China’s GDP has consisted of construction-related spending. The law of diminishing marginal returns says this simply cannot continue.
It represents a misallocation of the household sector’s hard-earned savings on a colossal scale, and I believe it will end badly. Not a day goes by that there aren’t riots and protests somewhere in China (including cyberspace) as the downtrodden man in the street reaches his froggy boiling point.
Increasingly in China, though, those who see the writing on the wall can see that the days of system stability are numbered. And they’re not hanging around.
For a number of years, mainland Chinese buyers have accounted for nearly all new apartment sales in Melbourne and Sydney. On numbers I’ve seen, they have been investing between A$2 billion and $3 billion a year.
An increasing number of mainland Chinese are establishing permanent residency and sending their child(ren) to school and university in Australia. And Simon recently reported that from an offshore strategies conference in Shanghai that the room was packed full of Chinese people learning how to diversify abroad.
They all want to have their options open when China’s economy and political system hits turbulence.
Judging by the poor economic numbers coming out of China, this day of reckoning is drawing ever closer. One alarming indicator is that the Chinese renminbi has traded down to the lower limit of its strictly controlled trading band for SEVEN TRADING SESSIONS IN A ROW.
This suggests that there is more money leaving China than being earned from overseas trade or invested there. The exchange rate may be only one simple indicator, but it’s a great barometer for what is going on: China is not going to be the savior of the global economy, but rather another casualty.
If you have stashed some money in a Yuan-denominated bank account for the long haul, you’ll probably still be fine relative to other paper currencies. But, I would caution against expecting it to be a smooth, one-way ride to the top.
Personally, I’d rather have the bulk of my savings in real wealth: things like gold and silver bullion, productive real estate, and strong cash-generative businesses.
And for the cash that I do hold, it’s virtually all employed trading my 4th Pillar investment system earning superior risk-adjusted returns with minimal volatility.
I've been to China over 30 times since 1998 while working for 3 multinationals. It's amusing to see "experts" who has not been to China or spent few days in the big Chinese cities recommending Chinese stocks... Wonder if they ever spent weeks at a time in gritty factory towns or poor interior areas...
Andy Xie is right - Chinese market is indeed a ponzi scheme and gambling den where the "house" is CCP (Chinese Communist Party).
Some sober FACTS or my 10 reasons:
1. China is a communist country ruled by 1 party with iron grip. CCP party bosses appoint the national/regional/local politicians and many private company managements since many private companies are ex-SOE (state owned enterprises).
2. Corruption in China is prevalent, rampant and one of the worst even down to lower ranking employees. For example, factory canteen worker receives an "envelopes" in scheme where he claims he received 10 bags of rice when only 8 bags are delivered.
3. There is almost no "law" since laws are written to support the communist party or corrupt local communist bosses. Judges are appointed by the local communist boss and few if any understand law. Many judges got job thru "guanxi" or connection and of course bribes.
4. The Chinese banks in are BIG TROUBLE. E&Y got in heaps of trouble for discussing hidden bad and noncollectable debts. Local communist cadres dictate banks to lend to their pet projects and of course friends who bribe them not to mention COMPLETE lack of transparency.
5. No one except pea size brains trusts the communist government's statistics which are MANIPULATED.
6. Many of the listed companies numbers are COOKED. Auditors and their management can be bribed and extorted. It's beyond me how anyone would trust Chinese companies' financials unless audited by Big 4. And even Big 4s audited numbers are suspect since most Chinese companies carry multiple books including one for taxation and another with slush funds and hidden losses.
7. Latest Chinese share and commodity appreciation have lot to do with communists pumping money to the economy by directing the banks to lend. This kind of stimulus cannot go on.
8. Economy is red hot with inflation everywhere. Factories are facing working shortage with Honhai the maker of Iphone giving 30% raises (party to curb high suicide rates) and food price going up 20%.
9. Everyone is focused on speculating on flats and hope of becoming real estate mini tycoons. This bubble will pop sooner than later. There are 650k empty flats in China. Why not rent them? Because in CHina you just buy bare walls with front door - no sinks, toilets, cabinets, flooring, etc.
10. What's worse is the male female ratio imbalance due to the 1 child policy.
Reuter's article from April 2009 stated that selective abortion in favor of males has left China with 32 million more boys than girls, creating an imbalance that will endure for decades. It's the population of the Netherlands and Chile, combined. Official figure is 120:100 but may be as high as 128:100. Worldwide average is 106:100.
Just imagine 32 mil horny marginalized men and unable to find wives, and many women resorting to lucrative prostitution (already happening). Powder keg indeed.
The numbers aren't manipulated. They are fabricated.
The reason, people don't rent those empty apartment is because 1) they are not furnished, 2) there are not enough people to fill them.
http://www.theaustralian.com.au/business/in-depth/chinese-debtors-choose-jail-for-drink-driving-to-escape-creditor-mobs/story-e6frgah6-1226203357668
Japan was perceived as rich and powerful buying up the world with biggest trade surpluses. Japanese real estate and stock market was going thru the roof. Alas, the real estate and stock market bubbles collapsed in 1989 with Japan called "sick man" not to mention 2 "lost decades".
Fast forward 20 years and we have China with largest trade surplus (BTW - US had such distinction in late 1920's before the Great Depression), and stock and real estate markets on tear and luck along the way via central planning only communist can command...
We learn history so as not to repeat it
buy that country and associated trades into the FEAR now....
"Yesterday we were greeted in the foreign press with the following headline: Southern China Sees Wave of Manufacturing Bankruptcies. This was predictably followed by vehement denials vehement denials from the Chinese government. For example, the CCTV Channel 9 business news was full of stories today stating that Chinese SMEs throughout the country are operating smoothly. The result being the usual complete lack of clarity about what is really going on in China as the coastal regions restructure their manufacturing base in the face of reduced demand and higher costs.
The basic story is that that low value added/high labor content manufacturers from Wenzhou in Zhejiang down to Zhuhai in Guangzhou are undergoing extreme financial stress. The affected sectors are in the traditional outsourcing industries: textiles, toys, shoes and furniture. The reports are that many of the oldest and largest manufacturers in these sectors are closing their doors, leaving behind bad debts and unpaid workers."
Like it or not, China is the world's factory. If China is shutting down, then the world is shutting down. This is far worse for the world's economy than anything that is happening in Europe. With over 7 billion people in the world, the growing worldwide labor glut will have catastrophic results.
http://www.chinalawblog.com/2011/07/factory_closings_in_south_china_all_part_of_the_plan.html
10 REASONS WHY I AM BEARISH ON THE USA
By Zingen Poo
Some sober FACTS on the USA:
1. America Is a plutocracy ruled by two parties which routinely rotate power without any significant change in economic policy. One percent of the population rules through both parties with an iron grip, helped by captured media outlets (“Theodore Roosevelt was a known socialist who led American troop to slaughter in his reckless charge uphill at San Juan Hill. And this is the President whom Obama cites as a shining example?”). Political spoils are split, with party bosses deciding who will get official party support and funds in any national, state or local elections.
2. Corruption in the USA is prevalent, rampant and one of the worst. Presidents, senators, and representatives routinely get rewarded post-office with plumb private sector appointments to do-nothing boards, and receive inflated “speaking” fees for stumble-bum talks about general principles which they abandoned long ago.
3. There is almost no "law" since laws are written to avoid imposing liability upon anyone in power. Moreover, prosecutions are commonly dropped because the corruption is considered systemic rather than personal, and then nothing is done to change the system. Federal judges are all but chosen by the local US Senator based on whether the judicial candidate generated sufficient campaign funds.
4. The USA banks in are BIG TROUBLE. They are run like casinos, with customer cash abused like Monopoly money. The motivating phrase for the management of most banks is “greed is good.”
5. No one except pea size brains trusts the US statistics which are MANIPULATED like an aging model’s date of birth, and current weight.
6. Many of the listed companies numbers are CROOKED. Auditors are intimidated. Potential whistle-blowers are silenced by threats of retaliatory lawsuits and criminal charges. US companies carry multiple books, one for the fictional world of US tax, accounting and finance laws, and another book for the hard-gritty world which is filled with such horrifying figures that few can read the numbers and live.
7. The US has natural resources ready to be exploited, but the US finds itself unable to do anything, even to save its economic life.
8. Economy is cold, stiff, dead with inflation everywhere thanks to a dependency on foreign manufacturing. US factories are facing closure because US investors have happily funded their overseas competitors, and have cut off investment to domestic manufacturing. There is likely to be little change since economic suicide is very profitable for the top one percent—in the short term.
9. Everyone is focused on keeping their jobs even as their hours lengthen, their work load increases and their pay stagnants, or plummets. .
10. What's worse is that the young male portion of the US population is under-educated, heavily unemployed, with no prospects, and no sense of hope. Most children are born into a single mother household of grinding poverty and violence.
This evaluation is more consistent with what I'm seeing than anything coming for our own government or media.
they're like a bad xerox copy of america.
i'll never invest a single penny into it and neither should you.
1) squeeze margins to unatural level by destroying business cycle creating a artificial absolute advantage based on global labor advantage and not on innovation, check
2) infiltrate and create constant loopholes, remove any control and deregulate the markets so they cause crisis every 5 years. check
3) Transform the system into a system which aids constantly any corporate though a continuous mammoth corporate welfare Tarp bail out plan/ tax heavens. Check.
4) Transfer all the private losses to the middle class by bail outs than destroy their safety net.Check..
5) Privatize any public institution.Check.
6 )Protect your monopolies by implementing massive "firewalls" aided by governmental policies. Aka National Corporate protectionism against competition in your domestic market . Or die tying [many are already going belly up]. Check.
This is the the present and future of America.Embrace it now its global game and no more a one way game.
To be honest you can see the gaping holes in either the US, EU, China or Japanese economies; it is not very difficult. So I see little reason to mock each others economies. It is like two bald men arguing about which one has more hair. One of them may say: I am less bald than you because I have 3 hairs and you have none. A meaningless counter-argument that doesn't change the basic facts of the matter.
If you don't like the article content, don't blame it on BI.
“We will deliver economic growth and improvements in your material living standards. You will meekly do as you are told, refrain from dissent, work hard, save a huge percentage of your money, and ignore obvious corruption.”
These line has definitely some hidden meanings that author needs to explore????????????????????
Lara William
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