The most common consensus today is that the U$ will continue to relentlessly fall and that China is an economic saviour for the world. Colour me skeptic: I can't buy either view.
China is a communist country that still arrests its citizens for protesting its government. It is a place where the one child policy has rendered a population horribly deficient in women, birth rates and young people. It is a country with so little social safety net that its citizens save 40% of their incomes to fund their own health care and personal security. A place where so many struggle to meet their basic needs that civil unrest boils close to the surface at all times. In the interests of retaining control and civil obedience the Chinese government insists on growth. But as Enron executives learned the hard way, insisting on perpetual growth rates above organic demand is a game plan doomed to eventual failure. It’s only a matter of time before reality will reveal truth. In the meantime those trying to bank on the reported economic data coming out of China are undoubtedly doing so at great risk. “Demand” in China is not always what it seems. For a sample of this point, watch:
China's empty city
See also WSJ: China’s Housing Bubble Trouble.
And this November 17 Bloomberg clip of Chinese Economist Andy Xie.
Today Barron’s Randy Forsyth offers a refreshingly contrary view to the popular consensus in “Are dollar bears too bullish”?
“…recall a year ago; the dollar soared like the yen with the unwinding of carry trades (which involve the borrowing in those low-yielding currencies) as stocks and other risk assets fell sharply.
Such a rerun seems to be the one potential risk that seems ignored as gold gets bid giddily higher — a significantly more painful deflationary squeeze than the inflationary surge they see.
At the minimum, China's likely moves to cool its boom could portend outcomes quite different from what the consensus expects. As Lombard Street's Dumas concludes, “With China's recovery as the leading force in the world recovery, this would mark the end of the stock market, and general risk asset, rebound from last winter's lows.”
The greenback, the global economy, commodities, equities and China: all very much coupled in these challenging times.
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