Juggling Dynamite

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.

Ms. Park was a guest on Business News Network (BNN) this morning, November 25 at 8:45 am EST. The clip is available on BNN web site here.

Over the past 9 months markets have rallied from the sublime to the ridiculous in the risk-asset melt-up since March. Just one of the many areas where prices have gone delusional once more is commodities. The Canadian stock market with our rocks and trees concentration has been a major recipient of melt-up euphoria, leading some familiar culprits back to the “decoupling” banter of 2007-2008: “Commodity bubble? What bubble?” they say, wide-eyed and hopeful.
The flow of the US carry trade into our Canadian stock market speaks for itself in this picture of the falling U$ and it’s near perfect negative correlation with the Canadian TSX year to date:

Today's Bloomberg article “Aluminum Bubble Concerns Mount as Surplus May Add 29%” highlights some important facts about the present supply/demand disconnect in pricing:
“This year’s 33 percent rally in aluminum and the 48 percent jump in the S&P GSCI index of commodities are prompting concerns of a bubble in the making. China, the biggest aluminum producer, is at risk from an absence of consumer demand from trading partners, said Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. Exxon Mobil Corp. Chief Executive Officer Rex Tillerson said Nov. 13 oil prices aren’t supported by market fundamentals.
Investors are “chasing commodities” and there is a risk of bubbles emerging, Nouriel Roubini, the New York University professor who predicted the global financial crisis, said Nov. 20 in a speech in Lisbon…Commodities will likely attract a record $60 billion this year as investors seek to diversify their assets, Barclays said Nov. 19. That’s helped stoke prices for everything from copper to zinc. Lead added 140 percent this year as stockpiles tripled and copper 127 percent as inventory expanded 25 percent…
Copper production will outpace demand by 344,000 tons this year and 210,000 tons next year, Barclays estimates. Refined copper imports by China, the world’s largest consumer, slumped 40 percent last month, according to customs office data today…
Improving profits and rising output may coincide with a release of stockpiles onto the market. As much as 75 percent of the warehoused metal monitored by the LME is tied to transactions that may unwind, according to London-based research group CRU. The proportion may drop closer to 50 percent of the total next year, CRU estimates.
“This is a financial-market driven move at the moment rather than a fabricator and manufacturers move, so it is very dangerous to call a top,” said Sean Corrigan, chief investment officer of Diapason Commodities Management SA in Lausanne, Switzerland. “Once this momentum has exhausted itself the background picture is not that positive.”
My assessment: buyer and holders, beware.