When China Sneezes, the World Catches Pneumonia. China Is About to Sneeze
Nov. 13, 2010
I have said repeatedly that China's central bank will be forced to slow the rate of monetary inflation to keep price inflation from appearing. Price inflation has now appeared.
It is expected that the Bank will raise the interest rate soon. So, the Shanghai index fell by 5% on Friday. The rest of Asia's stock markets fell with it.
I reported on May 1, 2010.
This is May Day. Asia will be issuing "May Day! May Day!" cries before the next 12 months are past.I want you to go on a Singapore Ferris wheel ride with Mike Maloney. This will warn you about what is coming. This crash will shake the foundations of Asia, and with Asia, the banking system of the world. Asia provides the credit that finances Western consumption.
I showed this video. It is worth watching.
I still think the crash is coming. I still think the overbuilt Asian commercial real estate market will take a big hit.
When nations inflate, they create bubbles. Real estate in Asia is like real estate in Japan, 1989, and Dubai, 2007. It is booming. It seems to be unstoppable. In short, "this time it's different."
The People's Bank of China is riding the inflation tiger. Its policies have created bubbles. If it backs off and reduced monetary growth, rates will rise, real estate will fall, and unemployment will rise. It is trying to get off the tiger without incident. That was what Greenspan tried to do. He made it off the tiger's back. Bernanke replaced him. He did not make it off painlessly.
We must expect an Asian recession. That will reduce demand for commodities. This is why I have hesitated to recommend them. In the long run, they will work. In the next 12-18 months, they are risky. They are bubble markets.
The gold market is less of a bubble, but it is a commodity. It is a unique commodity. Central banks own it and buy it. It has a floor. But it is still part of an overall sector that has been in a bubble phase.
There is no possibility that these increases will continue for long. The sooner China goes into a cooling phase, the sooner this will come to an end.
There will be a time to invest in China's and India's stock markets. I do not think the time is now. I think the same about Jim Rogers's commodity fund. I think it's best to get in when the economy is in recession. I think this is where we are headed.
The Shanghai index and gold's price revealed on Friday that others share my view. I think the setback in China will be worse than other forecasters have expected. The central can inflate more to delay the day of reckoning, but that day is getting closer.
It is good to own gold. It is not good to think that recession favors gold. International currency crises favor gold, but not a decline in consumer demand.
The commodity sector has been where the speculative money has flowed. My belief is that this sector is overbought, which is why I have not pushed subscribers into it. To have 20% of your net worth in gold coins as a hedge is wise, but don't expect it to serve as both a boom hedge and a recession hedge.