Why Experts Say the Chinese Economy Will Be "Run on Lending" for at Least the Next Year

Stratfor reports that Chinese exports have not picked up as expected, or at least hope, so the Chinese bad lending/debt binge is expected to continue for at least the next year.

But never fear, Chuck Schumer is on the scene, declaring the Chinese to be "mercantalists!"

What could possibly go wrong?

Chinese Stocks "Kiss" 200-Day SMA; More Reasons the Bubble is Bursting

OK I'll admit, it's a stretch for me to sit here in my comfy office chair in Northern California and opine about the future of the Chinese economy...especially since I've been there exactly zero times.

But the internet is a wonderful place, and it's a fun sport anyway, so with that disclosure out of the way, here's a China piece worth reading from yesterday's Daily Reckoning - China: No Shortcut to Greatness, by investment author and portfolio manager Vitaliy Katsenelson.

It seems that China has got economics figured out. But don’t hurry to trade your democracy for an authoritarian system. The Chinese grass is not as green as it appears.

First, one shouldn’t believe all the economic numbers that are put out by the Chinese government. This is the government that magically managed to report 6% to 8% GDP growth in the midst of the financial crisis, when its exports were down more than 25%, tonnage of goods shipped through its railroads was down by double digits, and its electricity consumption was falling like a rock.

Second, China will do anything to grow its economy, as the alternatives will lead to political unrest. A lot of peasants moved to the cities in search of higher-paying jobs during the go-go times. Because China lacks the social safety net of the developed world, unemployed people aren’t just inconvenienced by the loss of their jobs, they starve (this explains the high savings rate in China) and hungry people don’t complain, they riot. Once you look at what’s taking place in the Chinese economy through that lens, the decisions of its leaders start making sense, or at least become understandable.



You can catch the rest of the article here.

Want a foolproof way to know how the Chinese economy is doing, from the comfort of your own living room? That's easy - just pull up a chart of the Shanghai Composite Index!

The Shanghai Composite Index recently slumped below it's 200-day SMA.

Source: Yahoo finance

We previously discussed potential weakness in Chinese stocks, and it looks like this could be bearing fruit. A decisive break below the 200-day moving average would indicate that our boy Vitaliy is on the money!

The Most Important Chart in the World...In My Humble Opinion

Is the Chinese stock market. Gold is hitting record highs, oil is breaking through to yearly highs, the DOW and S&P are hitting recent highs - but the Shanghai Composite languishes...

China: Taking a breather, or rolling over?

Source: Yahoo Finance

Do Chinese investors know something we don't?

You may recall that Chinese markets turned down before all others last time around. So, the lack of confirmation, at least thus far, from China gives me pause for now.

Does anyone know who Mr. Market is in China? Mr. Wong, perhaps? He's the boss right now...and the boss is sucking wind. Somebody grab Mr. Wong another cigarette!

Related reading: How the Chinese Government Goosed Intel's Q2 Results

Marc Faber Says China's Growing at 2-3%, Not 8%

Guru Marc Faber scoffs at China's latest reported GDP numbers - remarking that the Chinese government knows their GDP numbers three years in advance!

He estimates that when all sectors in China are averaged out, the country is likely growing at 2-3% per year - a far cry from the 8% that is being reported.

Furthermore, he comments that China has an overinvestment bubble, which is not fixed by adding more stimulus.

I'd be a bit careful about China, he says.

I love the Morgan Stanley analyst who comes on after Faber and says he is turning wildly bullish on China based on more aggressive earnings growth estimates...I wanna smoke the green shoots he's having!

Here's Faber's full interview on CNBC:

Related reading: How the Chinese Government Goosed Intel's Results

How the Chinese Gov't Goosed Intel's Results - This Week in Commodities!

If you're bearish like me, you may have found yourself wondering earlier in the week:

How the hell did Intel report results that good?

Intel is not a company that juices quarterly results (cough, GE, cough) - so the odds are they really did sell as many chips as advertised. But how? Is the green shoots crowd correct?

I grilled some of my Intel contacts this week to shed some light on the mystery.

Answer: The Chinese Government!

Not reported in the mainstream media, internal executives quiety admitted internally that the Chinese government made "large purchases" during Q2.

That fits - China seems to be driving everything right now. The commodity recovery. The stock market recovery - you think the US is hot...the Shanghai index has boomed 85% from its lows!

But how sustainable is this? I have to wonder. This is a V-shaped recovery that appeared to be impossible a few months ago.

China's been juicing the money supply for sure...I just read that the Chinese money supply shot up over 28.5% in June alone. Now that's a recipe for a good time.

I'm just skeptical that any of this can end well. Seems like the drunk on a big binge, who gets up the next morning and cracks open a beer. Sure the old "hair of the dog" is an effective short term solution, but eventually, all good things must come to an end.

So I believe caution is still the order of the day (and I wish I was following my own advice, as you'll see below). Markets can, of course, continue to surprise us to the upside - but I can't figure out what's different fundamentally now, as very few excesses seem to have been corrected. Thus, I'm cautious that the March lows will be taken out again before this is all said and done.

Business Idea - Barter, Anyone?

Had a random idea while waiting in line for my morning coffee yesterday. With tax rates on the rise globally, shouldn't we see a dramatic rise in barter?

Cash transactions are easily traced, and thus taxed. Barter is supposed to be taxed, but much easier to doctor up.

I could see businesses increasingly turning to barter as a means of obtaining goods. Plus, you're now insulated from currency risk, as the goods have their own inherent value. I know there are some barter exchanges out there, some publicly traded.

Just a random thought to share, which you may be able to apply profitably in your investing or entrepreneurial ventures. I'll continue to noodle on this topic, and please comment or email any thoughts on over.

Quick Reader Survey - Please Share Your Thoughs!

I tossed together a quick 3-question reader survey, and I'd appreciate it if you could take a minute or two to share your thoughts and suggestions with me using the survey link here.

The Week's 3 Most Popular Posts...

1. $20 Oil Just Around the Corner, Says Industry Expert
2. Great Marc Faber Video Interview (Says No Way Around US Hyperinflation)
3. 5 Easy Ways to Invest in Sugar...and Other Agricultural Commodities

Positions Update

Should have kept my cash under the mattress...

Went long cotton...my timing was impeccable :)

I bought the break own - then cotton broke right down! Still, there does appear to be a support shelf around the current price level, so I will hold for now. Will sell on the customary 15-day low stop.

Current Account Value: $24,803.91

Cashed out: $20,000.00

Total value: $44,803.91

Weekly return: -9.8% :(

2009 YTD return: -51.2% :(

Prior year's results: --> Don't try this at home...this is what is known as wreckless trading

2008: -8%

2007: 175%

2006: 60%

2005: 805%

Initial stake: $2,000.00