Decided to pop back in for a quick squizz, and good to see all the old hats still playing this wonderful game.
Been offshore on some corporate stuff for the past few months, so that sorta explains my absence. Glad to finally see markets coming to their senses, being the notorious bear that I am.
Several thoughts, take from it what you will...
Asia (especially Shanghai) led this selloff. After being in China for the past month, in Shanghai and Beijing, I'm utterly convinced that whatever crap the government is spinning regarding statistics is fudged. The real growth of the Chinese economy is phenomenal. If you take to account the growth rate some of their villages are experiencing, being turned from dirt roads with 3 shops into metropolitan cities, those figures published yesterday makes a mockery.
The concern is however, that most of the top dollar people in China (tycoons, govt officials and syndicates) have moved their money offshore to Hong Kong, to take advantage of the tax benefits that will last for the next 40 years. HK tax is almost half of Chinese tax, aptly dubbed Special Administrative Region.
Anyway, the rate in which cash is flowing out of China (and I'm talking private money) is incredible. This started happening after Chinese New Year, and sure enough the Shanghai Composite started tanking from late March.
The other aspect, that no one looks at and disregards is two World events happening in the 3rd quarter. You have the World Cup, which means every syndicate on the planet that normally trades stocks and shares (and some fund managers and big clients) will suck money out from the market to punt on the 1 trillion dollar gambling fiesta that is the South African World Cup. The second is the Shanghai World Expo. After this event, China has no need to put on a magnificent show to the world on how stainless its steel is, and will focus on domestic infrastructure growth at best cost efficiency, rather than "we have to show the world we are not barbarians" mentality.
Expect the market to remain subdued right up to the end of the third quarter, and then end the year with a flourish, as players reset their positions in the market. But 2011 will be one to watch, as we will see the real valuation of Chinese domestic expansion and GDP, without the added premium of paying top prices for nickel and iron ore because everything they build in Shanghai for World Expo has to be made of stainless steel.
Expect nickel prices, iron ore and coal to soften to a more reasonable level, and expect low grade stuff like tungsten, pig iron and zinc, to be more in demand.
Understand I'm not calling the Chinese demand false, I'm merely stating there is an added premium where everyone in China is willing to pay for raw materials leading up to the presentation of Shanghai to the world. You will recall the boom pretty much started when China was gearing up for the Olympics.
Those that remembered Brisbane's showing in the World Expo, compare these figures:-
-Shanghai are going to have a 4km SQUARED site for the Expo site. -It will be two levels, above AND underground. -70 million people are expected to visit Shanghai during that 3 months, and 5% are expected to STAY in China.
It's phenomenal figures, and the mentality is we have to show the world how good we are. Once than mentality is not needed, perhaps we'll see how real the demand for quality resources are. And I am willing to back my own estimation that they are more likely to revert to cost savings rather than splurging.
On Greece, Euro and Flash Crash - meh. Whoever thinks 1 billion Euro bailout is the end of it all is dreaming. Portugal, Spain, Italy, Iceland, Ireland and UK are all at death's door. 1 billion each and 3 billion for UK is another 7 billion euros of bailout. The Amazon forest isn't enough to provide pulp to print that kind of money.
True, the US is recovering. Australia is supposed to be back to a surplus in 3 years. Yadda yadda yadda. Europe is the land of OLD money. If OLD money is struggling to support the economy, required NEW money to dilute the OLD money, then we actually have a systemic and cultural problem in that continent. Who knows, in a few years time the new Third World Country list could read Italy, Spain and Greece.
Back in the middle ages, the Europeans were the colonists and the power. They went far and wide, Dutch went to Indonesia and the Antilles, English took Malaya and Hong Kong and India, French had a stake in Vietnam, Cambodia. Spanish had Phillipines, and Spain had almost all of the Carribean and South America. The European powers CARVED up Africa. They had accumulated ALL that wealth, that would have lasted till today....considering what they took.....gold, silver, diamonds, tin, rubber.
However an Anglophile I am despite the biopiracy, slavery and convict settlement plans, the UK is stuffed. Pound should be parity with the Aussie. It may still be.
I remain utterly bearish, but stock markets will do what they will. I missed 3/4 of the bull run from the 660 lows and got in on the tail end of the euro contagion and flash crash efects (thank god) because I was overseas.
Going forward, not much light available at the end of the tunnel I fear. Anyone who feels otherwise, is on some kind of hallucinogen or has no idea of inflation and dilution of wealth. China is the one standing light, but it remains to be seen if the premium they are happily paying for top quality resources is the standard modus operandi, or more of a seasonal thing.
On reflection, perhaps I'm too harsh. There is an oft chance that Europe could get destroyed, but the US stays ok, and China powers on.
The one real investment therefore, might be the crusty old USD after all.
(20min delay)