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Truth About China

Wednesday April 10, 2013 10:06

China operates in a communist/capitalist hybrid economy loaded with dichotomy. With more power in the central committee than the USA congress and executive combined, China can force through hard decisions much faster for both good and evil.

It certainly behooves us to have a clear understanding about commercial and social reality in China. They just had a changing of political guard and a long, wild ride of growth and good times, but their superior production has become a little long in the tooth.

China’s obvious format advantage is utilizing excellent decision-making that promotes their economy, growth and well-being for the folks that can be slammed into motion with no political nonsense or very much debate. The dark side is these iron controls could also work to the detriment of consumers while stifling objections that might prove helpful.

For the most part over the last decade, the good stuff has dominated with sparkling results, inducing major growth and prosperity. However, now that China’s foreign customers are on the economic ropes, China must seek organic domestic growth more internal to their national consumers.

China’s export business has gone sickly, primarily in Europe where 850 million customers reside. The USA customers are also much weaker but that presence has been masked-over by American media pap and fictional hype from Washington, D.C. and the New York trading community.

Everybody has an agenda and the USA public relations stench, stretch and strain has become overly transparent as media party line stories clearly resemble fairy tales of hope and change rather than grim reality.

For now at least, China marches bravely forward with a dragon by the tail so to speak; running a nation with over a billion souls needing food, work and some semblance of security. This is a gargantuan task for sure.

China needs over 25 million new jobs each year just to stay even. We find this to be an almost impossible dream but they are hard workers and very determined to move ahead with their latest New Great Leap Forward.

Many things are working against them as they lose export sales while fighting air and water pollution. Further, finding all those new jobs just isn’t possible (in our view) as the economy becomes weaker on trend.

The northern 1/3rd tier of land in China is engulfed in a dust bowl of drought. If that land were productive, it would go a long way toward enhancing food production and providing work for folks. It is not, and imports of grain and other commodities’ demand are legendary to make this nation work.

When import prices are low, it’s common for American grain growers to get a routine order for 5-6 huge transport ships of soybeans corn or wheat. Then when prices increase on new demand they cut back their buying and just wait for dollar-grain related drop. This is why we see more volatility.

Other imports include massive amounts of copper, coal, and base metals for steel production. We see quotes almost daily on Bloomberg Television for reinforcement steel rods used for concrete construction. Apparently, China’s manufacturing of that product has still not caught up to demand.

So What’s Next?

Keep in mind, millions of workers were pushed off their primitive farms and relocated to city jobs with little or no training. While performing this new kind of work, they were exposed to a more modern lifestyle and diet with numerous upgrades. This was all new to them and it has changed the personality of an agrarian persona to one of a city worker; hungry for change and new ideas.

You can’t unwind a clock or un-ring a bell, so the Central Party Planners have created a dilemma. Those former farmers are being squeezed with inflation as they endure a newer and faster life-style. The struggle to stay working becomes more intense as unemployment rises and so do tempers.

The greatest fear of the central planners is one of social unrest. China has a long history of this stuff and party officials are determined this will not happen again. We say it very well could.

Formerly, while on the farm, expectations were lower, and food was easily available as the folks were the food producers. Inflation was not a big deal as they operated outside of the system for the most part. Now, a new paradigm has arrived and it’s not working very well.

The daily game of survival is quite different.  In addition, with 100 million young adult males (with wives or girlfriends) lacking work, we can see a social pressure cooker about to explode. The old Chinese “one child” rule resulted in way too many males having no companionship.  

This was by design to create a massive army of angry young men: and it worked. The stated reason was population control but I’m not so sure. China has 50 and 100-year plans while the American CEOs are always trying to make the next quarter (90 days) report look admirable.

Could military adventures be part of the nearby future? They could, but we have to watch closely and see. As of now, both China and Russia say they have to stay out of the current fray stirred up by the man-child in North Korea.

This kid is engaged in a do-over, copying his daddy’s plan to stir the pot and manufacture a crisis to scare the folks. This normal USA black mail produces more free stuff. Usually it works but if the immature kid pushes it too far he might get stepped on; and very hard methinks.

China is the dominant trading provider for North Korea and would rather not make them mad. China might have millions of North Korean refugees pouring over the border into the mainland creating more food and jobs demand. North Korean adventures have driven asset protection against negative market moves in South Korea to the highest costs and prices ever. New records like these can be scary and portend nasty stuff over the horizon.

Numbers from China have long been reviewed with skepticism. This week Goldman Sachs doubted a China recovery and reported that overseas shipment gains of +7.5% for December were hard to believe. That was the third month in a row that hot sales were reported. This is not the norm in China when it extends over three months. Bloomberg said this hasn’t happened in eight years.

New Commodities, Business, and Social Pressures Arrive

China just ordered 960,000 metric tons of grain from the USA just as the American winter wheat crop is being threatened on bad weather.

Meanwhile, Japan next door, has embarked on a very aggressive bond printing and sales program rivaling anything the USA has done so far, which we would openly call very scary.                    

These boys are printing 45% of GDP each year for the next two years in a supreme effort to create 2% inflation and smash -2% deflation. We say nice idea on the surface but the aftermath can be a legendary bond crack-up.

“The Bank of Japan will increase monthly bond purchases to 7.5 Trillion Yen (US$76 Billion) exceeding even the strongest analysts forecasts.” -Bloomberg.net  WOW!

We say this is playing with matches while standing in a pool of economic gasoline just waiting to explode into tiny bits and pieces messing up the global world of finance in one fell swoop!

The outcome for now is a rising Japanese stock market on bond steroids with domestic employers like Toyota receiving a huge currency gift of major league profits. This angers other foreign auto producers making them distinctly uneasy on who just might go whining to their congress persons asking for import taxes and other such foolish and ignorant responses.

Japanese commerce neighbor Hong Kong’s Hang Sang stock index rose +1% as the Shanghai Composite rose a more modest +0.4%; as their consumer buying was more subdued. In Tokyo, securities firms advanced smartly on new buying opportunity and automaker Nissan rose +1.5% while struggling Canon increased +1.6% to 3,460 Yen.

Big miners (BHP) Billiton and Tinto Group (RIO) rose to new highs as Komatsu Ltd., the Japanese construction equipment maker added +2.6% while copper turned around from a selling posture to a second day of gains.

This means the next new round of inflationary moves is underway not only in Asia but in global commodities.

Investors and traders in gold and silver have endured a prolonged slump. Many have gone from being merely discouraged to very disappointed and then to angry and rejected.

We have tried to explain over time that as metals prices rise to new and lofty highs, the following corrections can and must be equally strong on pullbacks; selling those trades.

Just envision a NORMAL GOLD CORRECTION FROM $3,000 BACK TO $1,850 WITH A FIBONACCI CORRECTION.  This is more than likely as gold travels ever higher. Some of the intermediate corrections should be -23.6% instead of the higher number.

Observers will complain about manipulation. We are not naïve as we know gold markets are regularly fudged and tampered with; however, the overall longer trends of many years will not be denied. Our 2005 technical gold forecast is $2,960 and silver to $156 or more.

Stay with the trend. This is a trend we fully expect should last until 2017-2018 on normal historical cycles. It might even last until 2024 if the market massagers can stretch out the bond-buying game for a few more years. Who knows?

For now, if gold can stay above $1,523, I am not worried. For silver, the key number of $26.62 is paramount. We already had our precious metals corrections and it appears a new base has been established and fresh buying begun. The bigger moves should come in August, but we have some more juice in the current gold and silver markets. Stay alert and stay optimistic.

Meanwhile, be certain your base accounts contain at least 10% in gold and silver coins for growth, security and peace of mind. Personally, we like silver but that is just an opinion. 

By Roger Wiegand
Editor Trader Tracks Newsletter
The Jay & Rog Blog at webeatthestreet.com

Roger Wiegand is the writer and editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and long term traditional stock shares, futures and commodities trading with specifics for individual trades. Stay tuned for more of Traderrog’s insights and predictions via his exciting new daily audio subscription.  Coming soon! Details at www.wavelengthpublishing.com

Roger also is a regular contributor to The Korelin Economics Report (www.kereport.com) the highest rated Internet radio program listened to throughout the world. It specializes in politics and hard assets. He is also a regular guest on the Weekend Edition of The Korelin Economics Report, which airs on radio stations across the U.S. on Saturdays and Sundays.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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