regarding liz's post: I think she's capitulating to her frustrations. Not objectively to what in fact is true. An emotion driven market is not a basis for what she says, and as Trotsky points out, she misses the mark by not looking at where she starts her bullish thesis:
oh well, the China boom is going to last a while longer...but overall, the views expressed in the post are rather simplistic. one must ask: where does the boom come from? what is it based on? and it is based (mainly) on the huge US current account deficit, and the money the central banks are printing everywhere to sustain it. in the Austrian sense, the Chinese are now building factories for demand that simply won't be there in the future, i.e., a lot of malinvestment is already taking place. it will continue until SOMETHING STOPS THE CREDIT EXAPNSION. now look at US M3 of late: what do you see? you see that interest rate payments on US based debt are now probably already exceeding the creation of new debt - partly because the housing bust (that she thinks 'can't happen') has in fact already begun. US bank assets are declining, as the last bastion of credit demand, mortgage credit, is nosediving.
the US savings rate it has recently turned out has been OVERestimated. it is an entire percentage point lower than previously thought. private sector debt and debt service as a percentage of income however reach fresh all time highs by the minute, as real earnings fall while debt has continued to go up. iow, the limits to the US consumption boom are being reached as we speak imo, since the consumption boom depends entirely on credit creation continuing in exponential fashion. what is the TRUE US unemployment rate? according to the BLS itself, if you count everyone (i.e. even the 'discouraged' job seekers, etc.) it is almost 10%. when BLS admits 10%, let's call it 12%. idle industrial resources are almost at an all time high of over 30% (the recent GDP reports are a cruel joke actually - if you dissect them in detail you realize what an immensely distorted view they present).
what we have is in fact a stealth bust- the evidence is here for those that seek it out. e.g., bankruptcy filings and mortgage delinquencies are at fresh ATHs. THAT's supposed to be a boom?
longer term China will no doubt continue to grow - and i also agree that the strength of the China boom is generally underestimated. but there's going to be an intermediate term bust that will coincide with the resumption of the deflationary recession in the Western economies. a lot of the bubble type investments in emerging markets (including China) will be revealed as malinvestments on that occasion - we'll probably get a crisis similar to Russia's at that stage. should be a huge buying opportunity for Chinese assets, but neither stocks nor commodities are going to escape this bust unscathed.
and the US housing market? the biggest accident -in-waiting EVER. the fact that the bust hasn't happened YET proves nothing, except that when it comes, it will be that much worse. it's like with the NAZ trading at 5,000 - the bulls would assert that many bears had issued warnings for years, and NAZ 5K proved that they must bewrong forever. but it only proved that the plunge would be very large indeed. you're going to see 90% discounts in US housing a few years hence, compared to current prices.
the so-called 'reflationary' boom that has gripped China and the rest of the world with it, is a direct result of the deadly combination US current account deficit plus the mercantilist policies of the Asian CBs that are 'financing' it. it is the biggest 'something for nothing' crack-up boom the world has ever seen - based entirely on printing money out of thin air. and it will end in the biggest bust the world has ever seen.
the only uncertainty imo pertains to timing. but even that could be closer than we think: a dollar crisis could become the trigger. notice how the dollar can't even manage a frigging dead cat bounce, even though the BoJ has just thrown $10 billion at it in a SINGLE trading day? this is very telling imo - it says: " the end is near - the 'something-for-nothing' consumption boom is coming to a screeching halt". |
