Marc Faber sounds a strong note of caution about China but, for no apparent reason, expects the gold bubble to continue.
gloomboomdoom.com
>>>Whereas CLSA actually predicts economic growth in China to accelerate in 2004, I take a more conservative approach and believe that its growth will slow down considerably or even be temporary interrupted by a mini crisis. In addition, since China's rapid economic expansion had a very beneficial impact on Asia by sucking in imports from the region, I have to assume that any slowdown in its growth rate would also have a negative impact on the rest of Asia as well as on commodity prices.
I am, therefore, leaning towards the view of the research team at ABN-AMRO who believes that, "the market is too complacent over China's over-investment problems and the country's need to tighten". According to ABN-AMRO, "some argue that China is not overheated on the ground of low CPI inflation rate. They miss the point that China's current overheating is caused by excessive investment. The resulting excess capacity will be deflationary, rather than inflationary. The market hopes for fine-tuning. This is wishful thinking. The severity of the problem is already well beyond what fine-tuning can solve, and also the system and tools that allow the government to fine-tune the economy simply do not exist. History tells us that China has never achieved fine-tuning…There are two options for the Chinese government: 1) try to engineer a slowdown now and hopefully it will be a soft landing (not fine-tuning), or allow the investment ratio to continue to rise until it blows up."
A slowdown in the growth of net capital formation aside there are other reasons to take a more cautious approach towards China. If, US consumption slows down as the stimulus of the tax cuts and the housing refinancing boom disappear, then export growth not only of China but also of the entire Asian region will cool down. Moreover, Chinese domestic consumption is already showing signs of slowing down somewhat, as at least some markets are becoming increasingly saturated.
Finally, what disturbs me the most is that every magazine or paper I open has some favorable comments about China's economic development and China's positive impact on commodity prices, and that there has been widespread speculation in just about any stock that has something to do with China. Just consider the three Nasdaq listed internet companies, Net Ease, Sohu and Sina which are all up over 2000% from their lows a year ago and combine all that speculators can dream of - high tech, telecommunication and China.
The problem I have is that I don't find many bargains today anywhere, except maybe among precious metals, which are partly commodities and partly the only really "hard currencies", whose supply cannot be increased meaningfully. Platinum prices are at a 23-year high. Thus, it is entirely possible that also gold and silver will fly to the upside in the next two years.<<<
And to parody Faber, "Finally, what disturbs me the most is that every magazine or paper I open has some favorable comments about gold and the collapsing US economy, blah blah." |
