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Investors Are Missing the Single Most Critical Fact About China

Phoenix Capital Research's picture





 

 

The investment world is convinced that China is about to engage in another massive round of stimulus. After all, this is what China did in 2008 when its economy slowed, so surely this is what they’ll do now that the economy is slowing again.

 

The fact of the matter is that China cannot do this and will not do this. The reason is that the Chinese Government today is facing a very different set of circumstances than it was in 2008.

 

Since 2008, global Central Banks have printed $10 trillion in new money. Between this and the supply shock for natural resource companies created by credit drying up in the crash, the inflation genie is now officially out of the bottle.

 

This is most clear in China, where workers have begun demanding wage increases.

With nearly a third of its population living off less than $2 per day, any bump in food prices hits China much harder than the US or other developed nations.

 

Chinese workers are now demanding higher wages to survive. Indeed, this situation is so serious that many multi-national manufacturing firms are in fact moving facilities to the US because of the greater stability there. Apple, Ford, GE, Bridgestone and many others have announced this.

 

Even China’s official data shows inflation is at a seven month high. Chilly weather is blamed in the official reports, but the truth is that China has a major problem with food inflation regardless of the weather.

 

The Chinese Government cannot suddenly print a massive amount of money without facing massive civil unrest. We already know that the Government is deeply concerned about losing its grip on society from the fact that it is making a very public display of cracking down on corruption.

 

This is meant to appease a population that has realized A) it’s no longer better off than before B) many government officials and their families are getting wealthy through corrupt means.

 

So China cannot and will not be engaging in massive stimulus for the simple reason that doing so would kick off a very dangerous wave of civil unrest. Indeed, China’s new party leader Xi Jinping has openly stated that China will not be pursuing high growth rates through stimulus going forward.

 

This is just one of many major issues pointing towards 2013 being a debacle for investors. With that in mind, smart investors are taking advantage of the lull in the markets to position themselves for what’s coming.

 

We offer several FREE Special Reports designed to help them do this. They include:

 

Preparing Your Portfolio For Obama’s Economic Nightmare

What Europe’s Crisis Means For You and Your Savings

 

How to Protect Yourself From Inflation

 

And last but not least…

 

Bullion 101: Everything You Need to Know About Investing in Gold and Silver Bullion…

 

You can pick up free copies of all of the above at:

 

http://gainspainscapital.com/

 

Best

 

Phoenix Capital Research 

 


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Sat, 01/12/2013 - 14:07 | Link to Comment walküre
walküre's picture

Pollution in Bejing is deadly.

http://www.spiegel.de/wissenschaft/natur/feinstaub-pekings-luftverschmut...

US Embassy measuring is off the scale and beyond severely dangerous.

Breathe, fuckers breathe...

Sat, 01/12/2013 - 09:24 | Link to Comment SWIFT 760
SWIFT 760's picture

Chinks in Thailand suck. They think they own the place while mistreating every non-chink. They don't really like each other for that matter.

Chinks proposing high speed rail in Thailand. Words already out chink engineering is inferior and without any safety standards.

I suppore I'll ride it as I have a sense of adventure, wtf. Anything is better than the current stone age Thai rail system.

 

Sat, 01/12/2013 - 06:21 | Link to Comment GFORCE
GFORCE's picture

His predictions crash and burn but he rises like a phoenix from the flames and finds a new subject to protect us, our families and our savings from. Dear Tyler, enough's enough from this man!

Sat, 01/12/2013 - 05:47 | Link to Comment Leraconteur
Leraconteur's picture

"Technically, no IP theft either."

I live in China. I do business here. You know it's immoral, I know it is, those who did business with China all know they got stolen from.

Now, and this idea is spreading to all countries and businesses on the planet earth, everyone knows not to do business with the Chinese because you steal, and then you say "technically, no IP theft either". You will justify it any way you can - 150 years of shame, The West stole it from China, endless excuses.

Good luck getting anyone to bring any future technology to China ever again. Everyone knows the Chinese attitude in business now, and they simply won't let you steal from them again.

Treating laowai as stupid gullible idiots is going to backfire upon China.

Sat, 01/12/2013 - 12:39 | Link to Comment walküre
walküre's picture

Treating laowai as stupid gullible idiots is going to backfire upon China.

It already is

Good luck getting anyone to bring any future technology to China ever again

The Chinese have started buying private companies in Germany to have the source of innovation. That too shall pass. It's the last ditch effort.

Chinese are linear one dimensional people. Have been for several centuries. Money can buy alot of nice things but money doesn't buy centuries of enlightenment and rational thinking. I will make sure my kids will learn and understand just who the Chinese are and never work for them directly or indirectly.

Sat, 01/12/2013 - 01:40 | Link to Comment amanfromMars
amanfromMars's picture

Methinks the supposed problems for China as pimped by Phoenix Capital Research in that puff piece are the problems which are guaranteeing the collapse of the fiat capital system which uses wealth and lack of wealth to try and control intelligent moves.

Making dumb moves creates catastrophic mistakes which will be ruthlessly zeroday exploited  by smarter thin clients and non-state actors who may or may not be stealthy well paid proxies for other nation states/intellectually challenged leaders/incompetent virtual business chiefs.

It may very well be though, also, a wholly new phenomenon in a new field of intelligence play with relatively anonymous players sharing global systems weaknesses to enable hardening of systems, which is vanity's attempt at saving face whenever owning and being left in charge of a right crooked lemon, or removal of the weakness.

 

Sat, 01/12/2013 - 01:32 | Link to Comment walküre
walküre's picture

The US and European cocksuckers of Chinese commie cock are all getting their ass handed to them when the time comes. It's absolutely disgusting to see how the West is basically bending over backwards to and get the Chinese commie dick in their ass for some quick Dollars. They're all acting like the cheapest whores in Phuket. Come, come China man give it to me hard for a few quick $$ and I will show you all I got! What's the endgame for the traitors among us? Giving away trade and selling out decades of innovative advantage to the Commies? They're all pussies who gave up their manhood for jew confetti. I have no respect for them and the nation has no use for them either.

Fri, 01/11/2013 - 23:26 | Link to Comment Room 101
Room 101's picture

A question to long term ZHers....why is junk like this at the top of the page?  I could post a recipe for making your own yogurt that would have more positive economic impact on your life than this tripe.  

Sat, 01/12/2013 - 00:38 | Link to Comment DeadFred
DeadFred's picture

$$$

Fri, 01/11/2013 - 17:43 | Link to Comment Joe moneybags
Joe moneybags's picture

Based upon Phoenix Capital's track record, I'll go the other way, and predict that China will absorb the stimulus, continue its rapid economic growth, and smoothly transition to a modern country, politically and economically.

Fri, 01/11/2013 - 19:54 | Link to Comment bart.naf
bart.naf's picture

And even if food prices haven't gone up and do go up, it's trivial for China to subsidize or control the prices.

Fri, 01/11/2013 - 15:44 | Link to Comment laomei
laomei's picture

Sitting here in China.  Food prices at the market really have not moved much at all.  High quality beef is up in the supermarkets, but it's the same price it's been for the last year everywhere else... the place where the vast majority buys their food.  Eggs are down, chicken is down, veggies are stupidly low and fruit is the lowest it's been in 2 years.  I don't need some bullshit analyst to see it, my market is about a 1 minute walk from my door and I go there every morning.

Sat, 01/12/2013 - 05:10 | Link to Comment Setarcos
Setarcos's picture

Thanks for your first-hand-experience input on this and other matters you've given informed comment on, e.g. the developing railway system.

Sat, 01/12/2013 - 02:56 | Link to Comment Kina
Kina's picture

I suspect the down arrows is from others living in China, not so lucky.

Fri, 01/11/2013 - 18:00 | Link to Comment americhinaman
americhinaman's picture

I agree; anecdotally, inflation in China has slowed to a crawl if that.  CPI is one of many govt statistics, that is more accurately reported in China in the US.  I'm not saying it's accurate on an absolute basis, but relative to the US.  Chinese don't continually change the basket of goods to overweight whatever has decreased in price the most, nor do they make adjustments such as "cellphones are more powerful than multimillion dollar supercomputers in the early days, therefore there has been >99.9% deflation in computing and communications costs with iphones going for less than 0.01% of your grandparents' supercomputers".

China won't stimulate in the absence of a crisis because Chinese don't like debt.  We like savings.  We save in gold, silver, platinum, property, dollars, euros, and any other near-universally accepted mediums of exchange whether real or fiat.  We're not gold bugs, but my grandma gave some typical Chinese advice to the family when we broke into the ranks of being able to afford gold... "It's a good idea to always carry gold or wear gold jewelry on your person.  If something bad happens, gold is money."  In the US I'd be called a goldbug for listening to grandma.  In China, it's common sense.

Most people have far less debt than assets, as does the central government.  Local government debts are high, but that can be covered many times over by just the forex reserve assets... that's before even counting the sovereign wealth funds, government land, or the real and financial assets held in state-owned companies.  The only segment of the Chinese world that is overleveraged is a handful of small companies, whose owners have managed to more-than-fully monetize the value of their companies.  But even here, bankruptcy and loan fraud happen much less often in China than in the US, where it's fashionable to wipe the slate clean by moving your assets to Switzerland and declaring bankruptcy in the US, wiping free your debts onto the general taxpaying population while hiding your assets.  China discourages that sort of behavior with the death penalty... the US media sensationalizes it by giving Donald Trump television shows and allowing him to keep his assets despite having declared bankruptcy multiple times (and never having paid back what he owed on his previous bills).  In China he would have been sent to a prison close to Mongolia and possibly beheaded for that sort of behavior.

Fri, 01/11/2013 - 23:59 | Link to Comment laomei
laomei's picture

Exactly.  When I got married, originally she wanted some diamond thing.  I told her that the price was not the issue, the issue was that diamonds are worthless.  Find 2 rings, 1 gold only, 1 with the diamond.  The difference in prices, I made up with a bunch of gold.

 

The only debt we have right now is a USD loan we used for a housing investment.  It's fixed and the bank interest is higher, plus the value of the USD's been falling.  We had the cash to buy the place outright, but instead did the loan thing.  Cash continues to earn money, apartment continues to generate revenue.  We're selling next month with some very decent profit.  The difference in the exchange rate makes up for basically all the interest (nearly, not quite).  Interest from our playing around is another $20k or so.  Rental proceeds another $22k.  Capital gains from the sale of the property is an easy $100k.  Only reason we're even bothering with the sale is to take advantage of some other opportunities with bigger payoffs.

 

Here's the difference though: we're not overleveraged in anyway shape or form.  If the market had gone to shit, it would have been easy to pay it all off.  Sure, we take a loss, but the property location is fairly insulated from decline.... far too much desire for it.  Fine there goes 10 months of savings if it crashed to zero, but that's honestly just a setback, not a disaster.  And in a real disaster, I'm pretty sure that foreign banks here dealing in USD would just get kicked out anyways.

 

Our cars: paid for in cash

Our actual homes that we care about: paid for in cash

Our actual long term investments: paid for in cash

 

The people's mentality here is also vastly different.  While in the US, if you're poor, you'll probably just go get a second job somewhere.  Over here, if you're poor, you try and do some business for yourself.  All the big domestic companies were started up typically by a guy or two with some luck and a few connections.

 

Yes, the local governments have made some over-investments in rail and whatnot, but the issues everyone ignores are:

1) The loans are coming from the big 4 state owned banks

2) The loans will eventually be taken over by the government, as they were for public services development

3) If the government controlls the banks that made the loans which are now theirs, and that funding came from the government injected to the banks in the first place... it's pretty easy to cancel it out.  Poof, gone.  Nothing different from monetary policy to control inflation and lower money supply.

4) The investments are actual, material, beneficial things.  No dicking around with financial horseplay, no foreign wars to pay for, no dumping it over onto the people.   Those lonely stations that were tauted as "ghost stations" due to their size and non-use are now filling up fast due to the fact that they were planned as hub-stations and the other lines are going in now.  Cheaper than flying, more convenient than flying, safer than flying.... and it helps reduce reliance on oil and develop the hell out of domestic industry.  

Those trains, they're domestic now.  Technically, no IP theft either.  China brought in multiple players, greedy with the notion that they would be looking at endless contracts.  Happily negotiated tech transfers under seperate contracts stipulating XX% of the tech in the trains would not be transferred.  Add it all up, and it's 100% of China-owned IP.  Combine the best elements of each and do some development to better suit it to China.  Tada, China has a (read as the best in the world)  train industry and can tell the foreign firms to suck it.  Same thing has happened with nuclear plants.  It's China who's building them overseas now.

 

Nothing wrong or illegal about it either.  Just simple reverse-engineering, and a few tweaks to improve the design.  It's the same game the west plays, same rules, but it's suddenly ghastly and criminal when the shoe's on the other foot.

 

So, sure, people cry about the ghost cities and ghost malls.  But they understand neither the cause for the outcome nor the original intent.  See that ghost mall? It's built on primo land.  It was built following a change in rules that amounted to "use it or lose it" for developers.  So hell, build a mall.  It might generate some profits, and if not, it'll jump up in value anyways and be torn down or converted.  Just like the golf courses.  The ghost cities... meh, mostly built up in anticipation of a need not yet being demanded.  But when you have a big pile of cash and the ability to build for cheap, you do it.

Sat, 01/12/2013 - 01:23 | Link to Comment walküre
walküre's picture

Aren't you special.. Wake me when China can build cars people actually care to drive rather than have to drive for lack of funds to buy the real thing. Innovation "made in China" is virtually non-existent. Germany has been beaten twice badly and still kicks major ass. Go cook some rice.

Sat, 01/12/2013 - 11:39 | Link to Comment Raymond Reason
Raymond Reason's picture

My daughters just had to have VW bugs, the new type, because they are sooooo cute.  Well, i have become a vw mechanic of sorts, out of necessity.  What happened to the superior German engineering?  Basically this.  They can't compete with the Asians labor, so they make it up with cheap parts.  Granted, this may or may not be the case with luxury cars, but for lower end, the product is german junk. 

 

Sat, 01/12/2013 - 12:35 | Link to Comment walküre
walküre's picture

Race to the bottom. Thanks to Chinaman and worthless paper $$$. But the lowest German junk is still lightyears ahead of anything China puts on the roads.

Sat, 01/12/2013 - 03:17 | Link to Comment laomei
laomei's picture

It's moving fast towards that direction, don't worry.  Already exporting a whole lot of em to the developing markets.

Sat, 01/12/2013 - 12:40 | Link to Comment walküre
walküre's picture

Just this morning another "made in China" crap equipment of mine broke down. I thought "made in Mexico" was the worst. You guys take the prize. Can't even copy properly like the Japanese.

Sat, 01/12/2013 - 01:59 | Link to Comment willwork4food
willwork4food's picture

BECKS Bitches!!!!!!

Sat, 01/12/2013 - 00:59 | Link to Comment tango
tango's picture

laomei,  You are probably around my age and grew up with the same work and savings ethic.  I was always told to abhor debt, save my money and help others in need.  My wife came from a similar background so we were pretty stingy with our money but now that we've retired (with all assets paid for) we can finally rest.   Yet we too are looking for new investments, probably a rural farm. 

As for Chinese expansion, this is the 3rd or 4th time she has tried to influence outside her borders and for some reason the expansion ends in failure every time. I'm not sure that in the long run she will be more than a regional player - particularly with her massive loss of population in the next few decades.

Sat, 01/12/2013 - 00:45 | Link to Comment willwork4food
willwork4food's picture

How do they pay for the massive construction, with USD's? Wouldn't that find it's way back into the US mainland eventually?

I'm in construction and all I see are massive labor fights as the few jobs out there get bid on less and less. Seriously, I know of major area contractors that are paying wages LESS than I received 25 years ago for the same work.

Sat, 01/12/2013 - 01:35 | Link to Comment laomei
laomei's picture

RMB of course.  Unless it's international.  In which case they throw normally around USD to finance it and repayment is typically linked to resources and market access.  If you poke around the newer construction sites, what you are seeing more of is higher quality construction.  Sure, there's some bad eggs, but overall, quality's going up.  And the big construction projects tend to be the types of things that are required overseas as well.  So there's that aspect to it as well.

Sat, 01/12/2013 - 01:54 | Link to Comment willwork4food
willwork4food's picture

Thanks Laomei!

Sat, 01/12/2013 - 05:05 | Link to Comment Setarcos
Setarcos's picture

I'll second that.  Good to get a perspective from direct experience, rather than from (especially) those elsewhere with a doctrinaire axe to grind, honed on the propaganda of "Amerikan Exceptionalism/Superiority".

Fri, 01/11/2013 - 15:20 | Link to Comment orangegeek
orangegeek's picture

There's Two:

a) Seems as though there's a credit bubble in China too.

http://www.zerohedge.com/news/2012-11-05/chinese-credit-bubble-full-frontal

 

b) They're communists.

Sat, 01/12/2013 - 06:40 | Link to Comment IamtheREALmario
IamtheREALmario's picture

a) I don't see it as a credit bubble if it is used to create value through labor. The money is turned into something tangible. That differs from the US where the money is NOT used to create value, but is instead used to dilute value, simply raising price. We have a massive misallocation of resources here in the US.

b) So, what does it mean to be "communists". We throw the word around as if we think we know. Communism, as written by Marx is the utopian (progressive) vision that one promises to the exploited masses to get them to be cannon fodder in the effort to overthrow an aristiccracy. Once the transition is complete the only thing for the new leadership to do is start exploiting the masses, just like the old leadership. Sure, the new leadership might wear uniforms instead of fancy duds, but it is the same thing with a different label. Here in the US bankers, "connected business leaders" and politicians exploit the masses. How is that different from China? Communist? Just a label.

One of the things that I have found about the Chinese is that they have been brainwashed by their schools and propaganda to be VERY nationalistic. The Chinese Powers That Be get control of the minds of the young and pound nationalism into them (like the Obamanation wants to pound globalism into our kids),,, Oh, and Mao was a very great man no matter how many freedoms he took from the people or how many people he murdered ... just like Stalin. If they cannot be brainwashed then they must be killed.

Fri, 01/11/2013 - 15:19 | Link to Comment BattlegroundEur...
BattlegroundEurope2011's picture

"People believe things more if they have invested in it" ;)

 

Fri, 01/11/2013 - 15:17 | Link to Comment SmittyinLA
SmittyinLA's picture

China's moving into Africa "big time" and not just for lumber and mining, big Chinese agribusiness will easily be able to meet near & long term food needs of China, China is also getting educated & more productive daily, short term spikes can still cause inflation but long term for the next 10 years barring some huge weather driven collapse in food production the world's poor workers will eat just fine. 

Under Chinese leadership Africa will soon be the "world's breadbasket" like America used to be.

Food in America is another issue altogether, we're in a massive drought and we've been draining national aquifers that took millions of years to fill, our level of agriculture is water unsustainable given no change in weather.

And you can't trade "energy for water" unless you have surplus energy and given our immigration policy we'll never have excess energy or water or food plus foreigners are buying up more and more farmland and exporting the food and profits.

On top of that 40% of Americans food is subsidiezed by foreign debt holders, should no new donors arrive to maintain the debt that 40% may get hungry.

The political risk for America is far higher than China, we have way more debt and subsidized workers.

Sat, 01/12/2013 - 00:51 | Link to Comment tango
tango's picture

We recently had teams of both Indian and chinese officials in our state (TN) looking for huge spreads of farm land.  So in the end, wealth derives from land and what we can get out of it. 

Fri, 01/11/2013 - 19:34 | Link to Comment Tango in the Blight
Tango in the Blight's picture

The US Army is also moving into Africa big time.

Moar wars, moar GDP increase. Great for the economy as El Krugman said!

/sarc

Fri, 01/11/2013 - 22:08 | Link to Comment caShOnlY
caShOnlY's picture

The US Army is also moving into Africa big time

BINGO!!!  Think "stability" is the real reason American firms are moving home? How about "protection"!!!    China has been stockpiling resources even when they seem to have no more room to put it and sales are dropping off.  

The average american donkey has no clue what "war footing" means or looks like.  Prep accordingly, the peaceful season is just about to end.    

Sat, 01/12/2013 - 08:58 | Link to Comment tip e. canoe
tip e. canoe's picture

**archived**

Fri, 01/11/2013 - 17:20 | Link to Comment DaveyJones
DaveyJones's picture

yes, once again, China is putting money into real physical assets. Weird 

Fri, 01/11/2013 - 15:12 | Link to Comment SAT 800
SAT 800's picture

Many government officials and their families are getting rich off of corruption!! OMG. I can't believe it. And I read it right here. Imagine that! Corruption!. Well, that changes everything; I guess I better sign up for this newsletter right away so I don't miss out on any other earthshaking items that everyone else has missed. LOL.  These people crack me up.

Fri, 01/11/2013 - 15:09 | Link to Comment SAT 800
SAT 800's picture

Oh my God, I'm about to find out about the single most important fact about China! I'm so excited. Now, I'll go read the article and see what this amazing revelation is! Wow, this is going to be a real eye opener, a real game changer.

Fri, 01/11/2013 - 14:51 | Link to Comment WhiteNight123129
WhiteNight123129's picture

Everyone knows that China will just do the amount of stimulus necessary to avoid something very disruptive. The biggest hope from China´s standpoint is this. They are trying very hard to develop North Korea and Maynmar, Sichuan region, Laos and boost trade with Russia which has practically no leverage etc and other South EAst Asia still very backward. trying very hard to boost trade with those nations because they know the West is toast as a customer and that the currency regime is done. So that is their hope. US is interfering with that with the Asia pivot, like the last thing the US needs is to do more foreign politicking instead of focusing on how to alleviate teh debt problems domestically and be creative in trying to control the damage...

 

Fri, 01/11/2013 - 23:30 | Link to Comment e2thex
e2thex's picture

"The investment world is convinced that China is..."

What investment world are you talking about? That's your singular belief and premise. Do not attribute it to others.

Fri, 01/11/2013 - 17:19 | Link to Comment DaveyJones
DaveyJones's picture

well said

and our toast is burnt

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