Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Trade War Truce Won’t Fix China

Economics / China Economy Dec 03, 2018 - 04:53 PM GMT

By: Michael_Pento

Economics

The Main Stream Financial Media would love to have investors believe that the recent problems in the global equity market are all about a trade war with China. Therefore, everything can be made right just because Trump shook hands with Xi Jinping at the G-20 meeting in Argentina. But the truth is, China’s problems are structural in nature--resulting from a centrally-planned economy that goads its citizenry into pre-fabricated urban areas in order to manufacture a pre-determined rate of growth. Nevertheless, what the Chinese government has actually accomplished is to produce a dystopia; one that was erected upon the largest percentage increase in debt the world has ever witnessed.


China is home to 18.5% of the world's population. In order to micro-manage all these people, the Communist government has engineered a mass migration from rural areas into urban pre-planned cities. The government claimed this would allow them to better distribute resources. But the government’s biggest fear is a peasant’s revolt. By moving people into highly populated urban areas where they can be placed under constant surveillance by over 170 million cameras, helps Xi Jinping sleep much better.  It also helps him implement China’s “Social Credit System”, where people gain and lose points by conducting their lives in allegiance with government policies. This is not a monetary reward system; but one where freedoms must be earned from autocrats instead of ordained by God.

Since 1995, the amount of Chinese living in urban areas has doubled from 30% to 60%. Yet, even with this huge relocation, over 22% of these dwellings remain vacant. This is because relocation plans went into overdrive during the worldwide financial crisis. What started as an exercise in state control, morphed into a Keynesian style unproductive jobs initiative. With this, China’s debt has risen from $2 trillion in 2000, to $40 trillion today.

Mortgage loans have grown 8-fold in the past decade. Loans on empty homes in China grew to 4.2 trillion yuan, on what is estimated to be 50 million vacant apartments. There were 22.4% vacant homes in 2013. That number is up from 20.6% in 2011, according to the Research Center for China Household Finance.

This centrally planned rural exodus has created an enormous real estate bubble. Therefore, home prices are trying to be stabilized by the government, which purchases the surplus inventory. But, this is becoming increasingly difficult to manage because the value of the yuan is coming under extreme downward pressure. The government now has a balancing act dilemma: print more yuan to support the real estate market and the economy, or allow the housing Ponzi scheme to collapse. In some areas, home prices are already declining, forcing sellers to cut prices by 30%.

The Chinese government must maintain the illusion of economic stability to preserve social order. However, should the housing slowdown pick up steam and tens of millions of empty units suddenly hit the market, we may see a resurgence of the Tiananmen Square revolts; the kind that turned the nation upside down back in 1989 and engendered the condemnation from the worldwide community. 

The Chinese economic smoke screen is also showing signs of fading in the automobile industry, which was once viewed as a bottomless pit of opportunity and growth. October auto sales numbers, according to the Wall Street Journal, were down 12% year over year.

China’s slowdown in consumption is partially the result of a persistent bear market in their stock market, which is down 25% year to date and has crashed over 50% since its 2015 high. This equity-market carnage has had a huge negative effect on disposable income. Also, adding to investor uncertainty is the record wave of onshore bond defaults by Chinese companies. These defaults have shaken the faith of the country's bondholders and created doubt among international investors, who have only recently gained access to the Chinese bond market. Chinese banks have as much as 2 trillion yuan ($287 billion) of nonperforming loans on their books—at least that is the amount that they are admitting to.

China’s economic problems are taking a toll on the global economy. For example, the European Union’s biggest customer is China. Also, the Asian-block nations rely on a rising Sino GDP growth rate for their economic health. A wounded China is a significant cause of contracting Japanese and German Q3 GDP growth. The other salient factor is the major shift of global central banks to a hawkish monetary policy stance.

Hence, the state of global growth lies within China’s ability to juggle its currency and debt-disabled economy. The nation has accounted for about 1/3 of global growth since the Great Recession. However, its Potemkin economy is now heading for a crash commensurate with the debacle currently witnessed in the Shanghai Stock Exchange.  A hand-shake agreement between Trump and Jinping to work towards resolving the trade war isn’t going to ameliorate the primary issues behind anemic global growth.

Rather, look for this to provide just a relief rally across financial markets. But that should prove short lived, as the Fed continues to slowly raise interest rates and burn $600 billion worth of cash during fiscal 2019. And, as the ECB shuts down QE entirely in December and prepares to raise rates later in ‘19.

This is because the immutable and baneful reason behind the weakening global economy consists of record global debt that was issued to push asset prices to record highs. The dagger to those bubbles is rising interest rates. Now that central bankers have achieved their inflation goals, especially in asset prices, they really have no other choice but to continue on a hawkish path; or risk asset prices, debt ratios and long-term rates rise out of control.

In Q1 2018, it took a record $8 trillion of new debt to create all of $1.3 trillion of global GDP, according to the Institute of international finance. Therefore, don’t expect more debt-based stimulus measures to automatically rescue the economy. Instead, look for a deflationary recession/depression to finally reconcile the massive imbalances of debt and asset prices that have been built up over the past two decades.

Michael Pento produces the weekly podcast “The Mid-week Reality Check”, is the President and Founder of Pento Portfolio Strategies and Author of the book “The Coming Bond Market Collapse.”

Respectfully,

Michael Pento
President
Pento Portfolio Strategies
www.pentoport.com

mpento@pentoport.com

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.               

Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 

Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance www.earthoflight.caLicenses. Michael Pento graduated from Rowan University in 1991.

© 2018 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules