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Three Popular Delusions for 2013

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Three popular delusions to be aware of for 2013:

Popular Delusion #1: The investment world believes China will engage in another massive round of stimulus.

This will not be the case. China’s new ruling party has stated point blank that the country will not be engaging in rampant stimulus (for the obvious reasons of rising inflation):

This may sound like an oxymoron, but China‘s new Communist government is turning away from financial stimulus to help its slow-­?moving economy.

During the party’s two-­?day Central Economic Work Conference this weekend, party leader Xi Jinping said the country would essentially not be pursuing high growth rates through stimulus. That doesn’t mean that Beijing has turned sour on fixed asset investments on things like roads, bridges and subways. They’re still going through with major urbanization projects. But whenever the economy is slowing, the new leaders say they will be less likely to prime the pump.

http://www.forbes.com/sites/kenrapoza/2012/12/17/reform-­?minded-­?chi...? shuns-­?stimulus/

China’s market has rallied over 16% in the last month on the belief that China will engage in another large-­?scale stimulus plan... despite China’s leaders stating they will not. This has the makings of a very nasty correction. We’ll be on the lookout for when it hits and will issue a trade alert when it’s time to go short.

Popular Delusion #2: Japan’s new leadership will be able to kick of even more aggressive monetary intervention.

Truth be told, Japan is on the cusp of the mother of all debt implosions. Case in point, Japan’s Yen is thought to be a safe haven. With that in mind, it’s critical to note that when the EU Crisis hit in mid-­?2012, the Yen fell.

Popular Delusion #3: The US bond bubble will not burst in 2013.

 

It’s become increasingly common to see calls for the US bond bubble and economy to implode this year. To be clear, the US’s financial situation is terrible. But it is nothing compared to the financial situation in Europe, Japan, and China.

Europe has not recapitalized its banks. Many of its countries’ entire banking systems are insolvent. The EU banking system as a whole is leveraged at 26 to 1 (Lehman was at 30 to 1 when it went bust). Even Germany’s banking system is in worse shape than the US’s (the US recapitalized its banks following the 2008 crisis. Europe. including Germany, has not).

China’s true Debt to GDP is over 200%. Already in a hard landing, the country is now facing several major problems, namely looming water and agriculture crises, food inflation and accompanying civil unrest, and the potential of armed conflict with Japan.

Moreover, the belief that China will shift over to a consumer economy is misguided. Consumption has increased by 9% per year in China for 30 years now. The China consumer is not somehow dormant. And as more and more manufacturing firms leave China for more stable markets (Apple, Ford, GE, Bridgestone, have all announced they are moving facilities back to the US), China will be facing rising unemployment.

Finally, and most critically, financial institutions are desperate for high-­?grade collateral in the form of quality sovereign bonds. Say what you will about the US, it remains the most liquid market for debt in the world. And if you had a choice between lending money to the US, Japanese, any European, or the Chinese Government, the US is the obvious answer.

This is not to say the US is in great shape. Instead, we would argue that the US is the least ugly of the major debt markets. The US bond bubble will burst at some point. But it will likely not do so in 2013.

Buckle up, 2013 is going to be an “interesting” year.

 

With that in mind, smart investors are taking advantage of the market rally to position themselves for what’s coming… much as they did in late 2007.

 

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, 01/19/2013 - 21:49 | 3169883 Dan The Man
Dan The Man's picture

Amerika will collapse. But it will collapse LAST

Sat, 01/19/2013 - 19:16 | 3169670 Gold Dog
Gold Dog's picture

All of those puts I bought a year ago expired worthless!

Sat, 01/19/2013 - 18:49 | 3169623 dumpster
dumpster's picture

popular delusions (illisions)  4)  put as much shift on the wall see what sticks ..so far it has just made a mess of the walls

 

graham has one clue .. less 9 clues =   ghost writer fishing for $250 please .. as the market has left me broke

Sat, 01/19/2013 - 18:34 | 3169594 the grateful un...
the grateful unemployed's picture

popular delusion 1) the debt ceiling (there is no debt ceiling) 2) the US economy will take off when they open up to free markets 3) the bond bubble will burst but it will not affect interest rates

 

Sat, 01/19/2013 - 18:39 | 3169607 Winston Churchill
Winston Churchill's picture

4)Check is in the mail.

Sat, 01/19/2013 - 19:00 | 3169642 knukles
knukles's picture

5) I won't cum in your mouth.

Sat, 01/19/2013 - 18:20 | 3169576 Joe moneybags
Joe moneybags's picture

The Phoenix Capital Research random word generator is on the loose.

Mon, 01/21/2013 - 10:10 | 3172464 XitSam
XitSam's picture

Graham says that China won't do stimulus this year. From the guy that said the Fed won't QE3.

Sat, 01/19/2013 - 18:14 | 3169566 Winston Churchill
Winston Churchill's picture

Graham,

You might want to rethink which banking system is overleveraged.

Last I read ,the Squid is nearly at 400:1 and the other TBTF US banks are in the

hundreds.JPM got lucky last year.This year ,who knows.....

Sat, 01/19/2013 - 18:05 | 3169548 joego1
joego1's picture

Sounds like a good year to invest in high gradeTequila!

Sat, 01/19/2013 - 17:37 | 3169505 bigkahuna
bigkahuna's picture

The debt ratio being a problem is now a matter of perspective.

Sat, 01/19/2013 - 17:33 | 3169501 spinone
spinone's picture

This post needs a re-write, Graham. Non-sensical rambling.

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