Is The Air Coming Out Of China’s Boom?

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The latest skuttlebutt from China, is that China’s phenomenol growth story of the last 15years is coming to an end.

HSBC, reporting from the far continent suggested that a number of datapoints strongly indicate that the 10% plus growth of 15 years ago, and the 7.5% growth that has been normal throughout the last 5+ years while the west has been in the worst recession in over 70 years, is finally weakening.

Supply of houses in some of the larger cities, reached 15months supply, in tier 2 cities, and about 2 years in tier 3 and 4 cities.

However, house prices climbed in 44 of the 70 cities, but down from the 56 cities where prices had climbed in March, as monitored by the government’s statisticians.

Greenpoint, one of the largest Property Developers in Zheijang province reported that propery prices dropped 0.7% from the previous month, and housing in some of the northern cities is close to ten years’ supply.

Off the record remarks from one large company exec – Mao Da Qing, of Vanke Group, admitted that its stock of housing units was at over a 100 month’s supply.

Some developers in the Beijing area are attempting to stimulate demand by slashing prices. One even offered discounts, of upto 50%, and some with “Zero-down” loans such as were common in western economies in the lead up to the bubble of 2008, while others are attempting to add capital to their businesses to provide some security. All this is just more grist to the mill of the Boom becoming a Bust, and the over-development being similar to the bubbles that built up in western economies during the heat of the housing boom, but on a far grander scale.

In fact reporters from America have noted on several occasions of the huge number of vacant properties in some of the newer cities, as over development has meant visitors to these towns say they resemble “Ghost Cities”. But will this over-development mean a hangover, for the financial authorities as loans for development go unpaid, as properties go unsold?

China’s political leadership may not be too concerned, in regards to the cooling market, and they appear unwilling (at the moment) to reflate the economy via more Quantitative Easing, but going forward, if unemployment rises from the circa 15% reported by Will Hutton in his 2007 book, “The Writing on the Wall”, at around 170,000,000. (I suspect they may change their mind if the economy goes into freefall – as anything less than about 5% growth, would be seen as insufficient to keep the population quiescent)

Even if Bank of China has seen its market capitalisation shrink from RMB1 Trillion in 2010, to RMB740 Billion in recent months, will this mean less, or more, government intervention to keep the economy burbling along?

China’s Answer To Deflation?

If deflation does begin to take affect, with energy growth declining, and China’s Coal fired power stations looking for ways to reduce the pollution, that China seems to endemically suffer from, by cleaning exhaust fumes, without pushing up costs even while Mr Putin signed a deal to provide Gas to China, in an effort to clean up China’s air; what will the political elite do?

It is well known that China has been accumulating precious metals with increasing fervour in recent years.  Is it the intention of the government and its economic wizzards to hedge their economy with large doses of Gold?

According to Byron King of King Capital, precious metals and natural resources commentator, and regular visitor to the middle-east’s hotspots, China is on track for being the world’s largest Gold holder sometime in the next 18months.  Jim Willie who also comments on such matters has weighed in with a perhaps rash claim that they already have 10,000 tonnes, and Russia with 20,000 tonnes.

However, as imports through Hong Kong are reported via their financial authorities, China has also begun importing directly through Shanghai’s and Beijing’s financial heart and reports of buying through alternative channels, which are not reported, so this is a distinct possibility.

Reports of Chinese miners working in sub-Saharan Africa, sending back Gold to support families back home, and of Chinese officials buying at spot price from artisanal miners in Democratic Republic of Congo (DRC) bringing in upto 40 tonnes per month. It is therefore not outside the bounds of possibility.

And as a recent report of Dark Dealing in the Banking world suggests it is not just the “Morgue” (JP Morgan-Chase) and Goldman-Sachs who are involved in manipulating the Gold markets for their own (political?) ends.

Daniel Plunkett was a precious metals options trader for Barclays. On 28th June 2012, he was in hot water about to lose a considerable sum unless the Gold price fell that day. The Bank would have had to make a $3.9m payment to a client on an options contract. Plunkett had other ideas…  He began selling Gold just before the 3 o’clock fix, and the contract was due to expire, and the price fell, netting him and the bank a $1.75m profit.

Of course the plan didn’t have a happy ending – at least not for the Bank, or the Trader. The client smelled a rat, and after an internal investigation, Barclays agreed to repay the $3.9million. The Financial Conduct Authority, fined Barclays £26m, and the trader £95,600 and a ban from ever working in the city again.

But is shows what happens where large sums are involved – desperate people do desparate things – and the Chinese? With the Fed’s policy of loosening of monetary stimulus, still at $45 Billion per month, and the Chinese holding $1.3 trillion in currency reserves, every 1% fall in their dollar reserves value is the equivalent of $13 Billion in lost purchasing power – enough to build 25 hospitals at half a billion each.

America’s Deflation Gathering Strength

If the figures released recently by the American statisticians indicate anything, it’s that the U.S. economy is also far from strong.  Housing prices in the U.S. have risen recently partly because investment funds have been snapping up what were perceived to have been low prices in housing. But we also need to consider whether today’s youth of America are as wedded to the idea of home ownership as their more affluent forbears.

Many twenty somethings are now leaving college heavily indebted and without the jobs that would sustain long term mortgage payments as rapid changes in technology mean jobs are no longer secure for life, but until the next big thing comes along to disrupt the economy.

As I’ve said on many occasions before, the antidote to more financial manipulation by those in the centralised financial services industry is to decentralise.

Bitcoin, and the 80 or so other digital currencies may yet prove to be the undoing of so much influence, and skulduggery, as banks are stripped of their money creating powers over time, and governments are stripped of their tax raising powers, except on those with hard visible assets, such as property.

Perhaps that is one more reason, why the young are eschewing property. What you can’t see, you can’t tax.  And at least for now, Bitcoin, Litecoin, Feathercoin, Maxcoin, Ultracoin and the others allow people to exchange values, without money changing hands.

And in recent weeks the big pull-back in Bitcoin that happened after the bankruptcy of Mount Gox, has partly been regained as the price of one coin, rose to $581 late this last week from its $400 lows.

For those keen to learn a little more about crypto-currencies, and hear a debate for and against: watch this – Peter Schiff, and Stefan Molyneux.

And for those looking to maybe dip a toe in the water and get some FREE crypto-currencies – go here —>>>

Those who think Peter Schiff has it right, maybe they will need to address that by buying what I believe is the most undervalued metal on the planet, and I’m not the only one who thinks so either… Ted Butler of the Butler Research Group thinks so too.

And if you are looking for a way to buy some silver. I can heartily recommend Liberty Silver

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