Hey IDC HoldersAgain, as economists we need to look at what is...

Hey IDC Holders

Again, as economists we need to look at what is happening in the global economy and take advantage of the situation now, so we can reap the benefits later.

After 18 months of cutting back on govt spending, increasing taxation on steel, lifting deposit requirement rates on 2nd home purchases to 50% and 3rd home purchases to 90%, higher interest rates and higher RRR, the Chinese govt and Central Bank has successfully cut back their inflation to 3%, and heading towards 1% as we head into 2H 2012.

The PMI, fell to 48.1 last month from 48.4 leaving the Chinese govt with ample room to continued interest rate cuts and RRR cuts, as well as fiscal stimulus to lift their economic growth.

Their current GDP is sitting at 8%, but is showing signs of slowing, the govt knows that if it falls below 7.2-7% they will have riots in the streets as they did in 2008 when the GFC hit.

They then stimulated their economy with a massive $850Billion Stimulus and $2Trillion lending spree which lifted the entire global economy. This 2 years later lifted inflation in China to 6-7%. They don’t want to repeat this again, so they are more careful and targeted with the stimulus measures this time. But they are still going to be large and powerful, especially for our commodity markets.

The markets are moving in the same pattern as this time last year, before we had Operation Twist and BOE money printing in August and September 2011, which lifted markets by 20% late last year.

But last year China was still cutting spending and lifting interest rates and RRR to slow their economy, since their inflation was still sitting at 6% in August 2011.

The difference this year is the following:

1. US Federal Reserve has already increased the Short Term Money Supply by activating the $267Billion Operation Twist. (AND Mr Bernanke said if unemployment starts rising he will activate more monetary easing. The only thing he has left is QEIII, which is the mother of all stimulus measures!

2. UK Central Bank will activate $125Billion Quantitative Easing next month

3. AND CHINA is about to embark on a strong and steady stimulus, they have already reduced their RRR and Interest Rates last 2 months, yet their PMI is still weak. Inflation is still falling both on the supply side (PPI) and consumer side of the economy (CPI).

Expect to hear more and more interest rate cuts (which makes the cost of money cheaper), RRR reduction (which allows banks to lend a higher proportion of their Bank Reserves (Increasing the Velocity of money in the economy) and targest public spending on housing, rail, roads, airports, ports, bridges which will ensure China doesn’t have an unstable transition between govts later this year because of weak economic growth.

The benefit for us is all this stimulus, especially from China, which we didn’t have last year will push up our minerals prices and miners share prices.

All these stimulus measures, especially China's, will have a significant lift in the price of gold due to "fears of inflation". Lifting the gold price well above its current trading range between $1550-1650/oz.

Bring on the PFS JORC Upgrade and Drilling Announcements!

Cheers Nectar


http://online.wsj.com/article/SB10001424052702304898704577479461349552418.html?mod=googlenews_wsj

China PMI Falls, Points To Need for Stimulus
By WILLIAM KAZER
BEIJING—A preliminary gauge of China's manufacturing activity showed more weakness in June, which appeared to strengthen the case for more stimulus measures to spur growth.
The HSBC initial, or "flash," measure of manufacturing also foreshadowed weakness in the months ahead as its barometer of new manufacturing orders, particularly export orders, showed further declines amid a lingering global economic slowdown.

China has already turned to an array of measures to boost growth, speeding up approvals on big projects, offering tax breaks and extending subsidies to promote consumer spending. A big unanswered question is whether the plethora of actions in the past month or so will be sufficient to boost growth during the second half of the year.

If so, it could help strengthen global demand at a time when Europe is in recession and the U.S. is growing slowly.
The HSBC China Manufacturing Purchasing Managers' Index fell to 48.1 in June compared with a final reading of 48.4 in May.

It was the eighth straight month of a reading below 50, which indicates contraction, though Qu Hongbin, HSBC chief economist for China, noted that the pace of slowdown had eased slightly.

The drop was mainly driven by a further deterioration in new export orders, which fell by 2.6 points to 45.9 in June—the lowest reading since March 2009. Total new orders also slid to a seven-month low of 46.8 in June compared with 47.9 in May. China's economy slowed to 8.1% in the first quarter of 2012 compared with a year earlier, the slowest pace since the spring of 2009, and a number of analysts are expecting a further decline in the second quarter to roughly 7.5% year-over-year.

In June, Beijing used its big monetary weapon—a cut in benchmark interest rates—after making more money available for banks to lend by reducing reserve requirements three times since November.

"There should be [another] cut in interest rates and in the bank-reserve ratio in July," said Sheng Hongqing, senior economist at China Everbright Bank. "The export situation is very difficult."

Other economists were also anticipating more monetary policy moves ahead. "The government hasn't done enough in terms of policy easing," said Wei Yao, China economist at Société Générale.
Meanwhile, HSBC pointed to less than robust signs on the domestic economic front as well.

It said there was no meaningful improvement in domestic demand in June, with a rise in inventories of finished goods. Prices were also suggesting a potential for deflation, rather than inflation, due to weak demand.

"The sharp fall of prices and moderation of new orders
suggest weak domestic demand, posing destocking pressures for Chinese manufacturers," HSBC's Mr. Qu said, adding this will weigh on the jobs market.

The preliminary China PMI figure is based on 85% to 90% of total responses to HSBC's PMI survey each month, and is issued about one week before the final PMI reading.