Heinz on China and Gold
Date: Thu Apr 29 2004 09:28
trotsky (China's boom and China's bust...) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
note that a bust does not usually develop in a sitution where everybody is worrying that it might. it doesn't happen that way - more likely, the bust will come when everybody has STOPPED worrying about it. it will be a surprise. yes, China's central planners have decided to step on the credit brakes. but i would submit that they won't dare to choke off credit to the extent that would be necessary to stop the expansion in a meaningful manner. they still remember their LAST bust, and it wasn't pleasant. this time around, it would get even more unpleasant - and the danger of social upheaval is what the communist party of China fears most.
my bet: similar to what happened when easy Al first tapped the brakes in mid '99, the boom , instead of faltering, will go into overdrive. only AFTER everyone is convinced that nothing can stop it will the credit tightening bite, with the usual lag inherent in monetary policy steps.
note btw. that China is far less monolithic and centrally controlled than is generally assumed in the West. this is a VAST country, hosting several ethnicities ( the sub-set Uighurs in Xinxiang for instance numbers nearly 90 million people ) , and lots of local party bosses who have their own agenda. Beijing is simply a far away place for many of them, whose edicts only have marginal importance. the momentum of this typical credit induced boom won't break that easily - after all, last year alone, the broad money supply increased by over 21%. so far this year, there has been no slowdown whatsoever, on the contrary.
however, one must be aware that it won't continue forever. it's clearly a dangerous malinvestment bubble, and one day it WILL go bust ( thereby revealing the malinvestmens for what they are ) . so one needs to keep an eye on it.
note also: the cassandra factor. the doomsayers began predicting the downfall of China's boom by the middle of last year. by experience, they are usually about 1 1/2 to 2 years early.
Date: Thu Apr 29 2004 09:10
trotsky (gold 'seasonals') ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
supposedly, this is a season of 'weak physical demand'. however, somebody forgot to tell the Indians. currently, the major Indian gold trading centers sell almost the equivalent of one BoE auction every single day, i.e. roughly 18 tons of gold. so we have a situation where speculators have deserted gold, just as physical demand in the major gold buying area of the world is coming on unexpectedly strong ( and no doubt is getting even stronger now, since Indian gold demand is at least to some extent price elastic ) .
Date: Thu Apr 29 2004 08:08
trotsky (pm stocks) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
will capitulation occur today? always possible, note that in Rydex, money still hasn't flown out of pm stocks, in spite of a big NAV drawdown. |
