The reports of 11.1 % China GDP growth - which might be an under estimate - have almost certainly got China's financial managers sweating.
With that kind of growth, funny things can happen.
An exagerated example -
Let's say China uses 3 million pounds of metal Y a year, and production of Y is 3 million pounds a year. There is 2 million pounds of recoverable Y in scrap, and inventories of 0.5 million pounds (about 2 months)
So China GDP growth causes Y useage to expand to 3.5 million a year, then to 4.0 million per year. So far, so good - but 1.5 million pounds of scrap have been used up.
Half way though next year all the scrap is gone, and by September the inventory is reduced to maybe 2 weeks.
Now useage will need to be cut back from 4.0 million to the 3.0 million pound a year rate. That's 25% CUT in production, employment, etc.
That's like stopping a car by hitting a tree.
Two years later, all the new Y mineral mines are permitted and able to increase producion to 6 million pounds a year, but that's too late.
This already happend in China with electricity , and somewhat with copper.
Now imagine this happening with two dozen commodities, skilled labor, infrastructure, transportation capacity, hotel rooms, etc.
The fix is to limit the GDP growth to a rate where there is time to build more capacity.
So now there is an expectation that the Governent of China will be hitting the brakes to slow down, becuase it is much better than hitting a tree.
*******
Your long term view on gold is likely correct.
Short term, cash , or ... mineral Y, where Y is uranium, moly, copper, etc.
Note that we may be a price peak in Y, so we need to be careful.
The IMF has an estimate that the WORLD economy will grow at 4.9 % this year and next. That's really large growth.
I just heard on Blooeberg that the average P/E on China listed stocks was about 40. That's a little high even with high growth, and way too high is the government is going to cool the economy.
We may need to do some stock picking. |
