Its Over, page-20862

  1. 22,806 Posts.
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    Watch Chine closely, yes, watch the iron ore price - a falling iron ore price reflect China's deflationary situation.
    China could export its deflation globally because we live in an interconnected world.
    ...this is why this thread had opined to avoid resources stocks for now...
    ...winter hibernation likely to continue awhile before the start of the next commodity up cycle. That next cycle could start when the US dollar weakens significantly.

    And if you haven't noticed, the DXY is roaring again and technically has broken above its downtrend line trajectory.

    1 year view
    DXY — U.S. Dollar Index Chart — TradingView
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    Excellent piece on China by Macro Alf.

    The Chinese economy has never looked more fragile than today. Here is what's happening, and why it matters for global markets.

    How did we even get here? China joined the WTO in the early 2000s and benefitted from a wider access to global markets where they could leverage their internal competitiveness (read: low salaries) to gain shares – and they did. But the inevitable demographics decline... 2/

    https://x.com/MacroAlf/status/1771184854983414012?s=20




    ...was already biting in the background, and so the Chinese ability to generate structural growth started fading rapidly in the 2010s: how to fix that? With leverage, of course. After the GFC the West de-leveraged, while China went on a huge credit binge! 3/


    https://x.com/MacroAlf/status/1771184857760014768?s=20


    Between 2012 and 2016 the Chinese corporate sector took on most of the burden as companies tried to lever up their business models and expand operations in the West. But the second phase of the credit binge was driven by Chinese households. Why?

    https://x.com/MacroAlf/status/1771184860503171077?s=20


    The Chinese business model doesn’t centre around rewarding workers with higher wage growth as that would hurt Chinese exports, and so the easiest way for households to participate in the Chinese ‘’wealth creation’’ process was through the Chinese real estate market. 5/

    Lever up a lot, buy houses, prices go up, finally feel involved in the Chinese ‘’wealth creation’’ process. Property now account for over 60% of Chinese households net worth versus 23% in the US. And that’s all fine until it’s not. 6/

    https://x.com/MacroAlf/status/1771184865167265825?s=20

    Xi Jinping applied a clampdown to the property sector with the intent to send a signal: China is all about common prosperity and ‘’paper wealth’’ creation shouldn’t get out of hand But it turns out you can’t orderly deleverage a $50 trillion real estate bubble 7/

    The concrete risk is triggering the biggest balance sheet recession of the last few decades. When house prices start dropping, this hits the balance sheet of highly indebted households and developers causing them to sell properties to repair their balance sheets. 8/

    https://x.com/MacroAlf/status/1771184869638369572?s=20

    Nobody wants new mortgages when they are busy repairing balance sheets Lack of new credit and buyers hits house prices further in a vicious loop also known as balance sheet recession! China is cutting rates but that's unlikely to work as demand for credit isn't there 9/

    https://x.com/MacroAlf/status/1771184872440160402?s=20

    With rates dropping in China while the Fed promises only a mild cutting cycle, interest rate differentials are widening further. The pressure on the CNY is building, and China is trying to defend the 7.20 level but a few cracks are appearing already. Why does it matter?

    https://x.com/MacroAlf/status/1771184874520445049?s=20

    Chinese capital controls and the lack of sizeable capital market interconnections mean the weakness in the property sector remains isolated to China for now. But China is a big investor in other countries, and this flow of money will quickly dry up (Australia, Brazil...)

    https://x.com/MacroAlf/status/1771184876386931156?s=20

    Finally, China is a large trade partner for many countries - it's actually become the largest (!) trade partner out there for many! As domestic growth is under pressure, trade flows could slow and hamper foreign economies too. Watch China closely! 12/

    https://x.com/MacroAlf/status/1771184878807040202?s=20
 
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