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Risk of Depression Low, Says Our Man in China

By Rick Ackerman Posted on July 30, 2010, 12:01 am EDT Last Updated November 23, 2010, 10:11 pm EST

( Rick’s Picks frequently runs guest commentaries expressing opinions that differ markedly from our own. Below, Mario Cavolo, an expatriate who lives in China, argues that there is no global, deflationary depression bearing down on us, but rather a muddle-along economy with strong spots as well as weak ones. We disagree and see a period of economic darkness more severe and widespread than any ever recorded.  That’s because the world is unwinding a financial asset bubble with a notional value of nearly a quadrillion (i.e., $1,000,000,000,000,000) dollars. Considering the sum involved, there can be no easy or quick return to economic health. More logical is that a totally corrupt global financial system will have to be destroyed before we can rebuild the economy on honest trade. As things stand, the world’s financial-products-and-services balance sheet is at least ten times as large as the ledger for trade in real goods and services.

Mario notes optimistically that Japan has muddled through its decades-long deflationary recession without experiencing social disintegration. Although this is true, we would argue that it is so only because Japan had the rest of the world – including an insatiable U.S. consumer – to keep its powerful export machinery humming as it traversed deflation’s valley of death.  But who will bail out the U.S. and Europe as we continue to sink together? We could take on Mario’s arguments point by point here, but we’lll let that happen in the Rick’s Picks forum, which continues to attract an intelligent and articulate following.  RA)

It is easy to continue feeling humbled and confused by the sentimental and fundamental dance of the world’s asset classes and regions, be they equities, currencies, commodities, or that shiny stuff; feel free to pick your basket of market sectors to analyze and track.  DaBoyz is a moniker here at Rick’s advisory website, typically referring to the big time market players, institutional investors, bank/investment house trading desks and other various neo-elitists who have literally taken over the world’s free markets.  Planet Hollywood was a great brand name idea. Today, so is Planet Las Vegas or Planet Macau. The singular “George Soros who made billions shorting the British pound” example has

Lamborghini's new showroom in Beijing: enough prosperity to weather adversity?

become a cancerous plurality on the daily tape in a high stakes global trading playground. It is indeed real, a separate “sector” of reality, while the rest of reality — the real reality of the real world — goes on day by day, dealing with the damage trickling down. As might be suspected as the new reality unfolds, there is bad news for some and there is good news for others, and the point of this article is the worryingly good good news. Also, note that this article has a point of view with a high correlation to China and the U.S.

The One Exception

The rich are richer than ever the world over, with more than enough evidence available to confirm that this is the case. Furthermore, it is so on an unprecedented global scale now that China and her citizens have led the rise of the APAC region to prominence and power alongside the American and European economic blocs. As we shall see, America’s decline is the decline of only one main sector of her economy, along with the rise of others. No, the baby is not going to be thrown out with the global bath water, and there will be no doomsday collapse with one exception: a 30% chunk of the middle class in America whose lives and careers and futures have been decimated. They may as well pack their bags and come to the APAC/China region to teach English at twenty bucks an hour, because that’s loads better than anything they are going to find staying put. Those are the folks in the wrong place at the wrong time in the annals of history’s economic and political cycles. We should genuinely feel for their plight, including many whom I know personally.

Inflationary Vortex To Hell?

What does it all mean? Let’s make sure we understand where the balance points lie and have a clear understanding of what to expect in the coming years. Rick and a number of his loyal, fabulously intelligent and respecting followers make a well thought-out case for an impending, downward spiral into hell which, however, will simply never occur.  Until you can wrap your mind around the idea of being sucked downward into a spiraling vortex yet that is being sucked upward into an inflationary vortex, you’re missing today’s and tomorrow’s reality.  We have quite the dichotomy to resolve, and it is not a question of inflation vs. deflation. It will not go “one way or the other.” Different regions and sectors of the now intricately connected global economy will experience vastly different economic impacts.

Oh joyful global happy days for so many than ever before! Do you know that? That’s a fact to contend with not argue about, making it very hard to reconcile with predictions of a worldwide doomy, gloomy deflation scenario.  We’ve talked about how the Japanese economy spent 15 years in deflationary hell, going nowhere. But if the majority of her citizens had a million in the bank and house worth that much, who really cared? In the end, if the trappings of daily life are comfortable, if you know your home is secure, you have enough money to make it to your death and beyond, so then what’s the fuss if the economy sucks?

This lack of economic stress is typical of the mindset of today’s newly rich China citizen, both her poor citizens and her newly rich middle class citizens. While it may be frustrating and annoying, it is not a big problem to be unemployed if you have $200,000 in the bank and a home worth $300,000 with no mortgage, like most of your neighbors.

Better to Be Poor or Rich in China

Let’s get the “poor in China” debate out of the way quickly. If you’re poor in America, you’re really screwed from several points of view. If you’re poor in China, you’re not destitute. Life can still be very safe and comfortable at only USD $200/month.  Why? Because you don’t need a car to get a low paying job, your expenses at the level of “local” life are 10 times lower than in America; you can rent a comfortable room for $75 (the room I rented in Huntington Beach back in the early 90’s was $450/month) and there are no minority drug gangs with guns around destroying the neighborhood and threatening your safety;  that’s even today, even in magnificent Shanghai! You can eat three square freshly cooked meals of noodles or rice, with veggies and a protein for USD $5 total. You ride an old bicycle no one will steal and which can be replaced for USD $10 if it is stolen anyway.  Your medical expenses are equally cheap starting with antibiotics for USD $3 (Cipro or Cefradine, for example) when you catch a winter cough and fever. You can even get a body massage with a haircut and a happy ending for less than USD $20, for those of you who understand what I just wrote. Hard to imagine such a daily lifestyle, eh? Yet it is accessible and normal to a person who is struggling to get on their feet here in China, making it a fabulous place to  be “poor”.  And let’s take a final moment for the supposedly miserable 800 million farmers; they have plenty of food, they live in brick dwellings with cheap coal  brick oil barrels to stay warm in winter, they eat three square a day, freshly picked and cooked. I’m not saying its great. They toil the fields 12 hours a day but it’s just basic countryside living and I wouldn’t call that “poor” as a typical Westerner defines poor or poverty.

America’s Deep Wealth

This lack of economic stress is also typical of the mindset of today’s upper middle class and rich Americans. While it may also be frustrating and annoying for business to be bad or to have your career obliterated, it is not a big problem to be unemployed if you have a boatload of money in the bank and a nice home with plenty of equity like most of your rich and semi-rich neighbors. American citizens with plenty of money are all over the place. They are out spending it and there are enough of them in combination with all the other of the world’s rich and semi-rich to sustain the global economy.

Ah, but wait. You are screaming that can’t be true. Then why is it true? In the U.S., the rich and semi-rich are richer than ever and out spending! We can say corporate earnings are questionable due to accounting questions and games, but are they a disaster indicative of impending doom? They are certainly not. American corporations have gotten lean in the past two years and that has hurt many in terms of employment. But that also means it is much easier to turn a profit and move forward in the global economy, which they are. And imagine what will happen when the U.S. banks do start lending again. Meanwhile, the middle class chunk of around 40 million citizens and their lifestyle has been decimated, transformed and sinking into that miserable abyss.  It is their time of decline in the economic cycle of rises and declines.

China’s Huge Home Equity

Back to China for a moment to do a big little calculation;  I’ve said the rich are richer than ever here with the rising middle class of 300 million also richer than ever, rising proudly and happily. Let’s look at just one key slice of the Chinese population with the following conservative calculation: an average 100,000,000 million homeowners with equity in their homes which has increased from $50,000 to $150,000 equaling a total of  $15,000,000,000,000. May I ask is that 15 TRILLION in pure available home equity wealth with NO mortgages? Yes it is. And is that equity on top of the fabulously rising salaries? Yes it is.  In addition to the elite rich sector, this is their time of rising in the economic cycle of rises and declines. Good for them, they are as entitled as any other nation state to prosper and grow as history reveals in the long term economic cycles of growth and decline.

So then we reach our happy conclusion; there is plenty in the pockets of the combined army of rich and new semi-rich in the U.S., in Europe and in China, to sustain economic status quo and avoid a collapse.  The bubble will burst in the face of this asset inflation created wealth? Nonsense. I’m tired of hearing it. What bubble? Which bubble? This kind of talk is becoming both misleading and self-serving disinformation fed to the masses via the complicit media. In America and Europe, the rich are richer than ever. In China, the rich and middle class rising are richer than ever. That is not a formula for the collapse of anything.

Keynesian Rape

However, it is a setup for the continuation of the Keynesian social neo-elitist raping of the world which is also arranged by those same in power to simply absorb the entire mess via continued price inflation and decline of currency purchasing power; the only exception being American real estate and wages, more than offset by the polar opposite happening in China!

What will happen, what is happening is this: One slice of the asset pie at a time, in some bizarrely rhythmic fashion will continue to inflate. For example, China wages and prices. Now they are inflating and will continue to do so for years to come. Real estate will flatten a bit but with little leverage, any sharp property value declines will be quickly absorbed and forgotten. Just think of the American expansion starting from the 60’s and you can easily see the point. Then another couple of slices also inflating globally; crude oil and gold for example. Up, up, up they will go.  The cost of energy and water supply: heading up. But not U.S. middle class wages and real estate.  Those are two slices of the pie not likely to budge anytime soon. But that’s only two slices of a very large and complex pie.

Conclusions

The final conclusion is twofold.  First, that the richer and richer hundreds of millions in the global economy identified in this article will sustain the global economy and are easily able to absorb the continued worldwide inflation of prices and decline in currency purchasing power. They will still sleep soundly at night. Interest rates by the way, must remain low relative to risk or these folks will stop spending and investing in the asset classes. Bonds won’t collapse because instead currencies will simply decline in purchasing power across the global board. The daily purchasing power of “the haves” will of course also deteriorate along with everyone else’s, but so what? They will “cut back” but still buy extra virgin olive oil, brand name clothes, send their kiddies to a good college, and go to the IMAX if they feel like it because they can afford it. Their lives will remain relatively protected, nice and comfortable. Secondly, The rest of the world starting with the struggling middle class on down will feel poorer and poorer over the coming years, a daily reality much easier to deal with if you live in China/Asia than if you live in America or Europe.

One might ask is there a historic migration from declining America somewhere in the cards? Maybe, but don’t think for a moment that there’s going to be a welcoming “Ellis Island” anywhere near Chinese shores.

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  • Chris T. August 2, 2010, 2:45 pm

    Larry wrotes:

    “I voted for Mr. Obama… the constant hatred towards our President is disturbing… most of those folk’s that hate Mr. Obama”

    And there is indeed something to hate, but not for most of his “program”. That is just misguided, status-quo politics from the “D” side of the Janus-coin. His predecessor did the “R” side of that same coin.

    What is to hate though, is the by now total repudiation of most of his campaign pledges, and it is this deceit that is to hate.

    SNL did a great job earlier this year in their now famous intro-skit.
    Another example can be seen here:
    http://www.youtube.com/watch?v=5ZvWilRn0L8

    All of you Obama supporters, who are still unwilling to drop this president for the fraud he is (just like his predecessor, both of whom had their marionette strings so extremely short) are the ones to despise.

    Just imagine the flak “W” would have received if he had handled the BP situation in this way!

    Rendition? Still going on.
    Guantanamo? Still there
    Defense spending? Still up
    Justice Department fighting against Patriot-Act (and other) constitutional challenges? All taken over by Holder and continued
    Vacation president? OB has played more golf in his first 18mo in office than EVERY^president — INCLUDING W– before him in an ENTIRE 4 year term.

    And on, and on.
    And that is leaving out all the continuations of the misguded economic measures started by Bush, just on steroids.

    You are only right about one thing:
    Those that you deem to “hate” OB had their eyes closed at W, whom they should have “hated” just as much.
    Unfortunately, you are doing the same thing.

    That is why the “left” has lost all credibility — where is your Cindy Shehan staking out OB now?

    • redwilldanaher August 5, 2010, 7:18 am

      Chris T. Let me back you up with a “hear, hear” and then some. I see that you concluded your remarks as I normally do. There is simply too much to list and I just run out of steam because I begin to think how delusional someone would need to be to still be backing our CEO Puppet and thus failing to see how not only this arrogant pretender but all of them over the past 20 years from both parties have intentionally brought the USA to the precipice. Of course the timeline is much longer than that but I believe that the “peace dividend” debate is an ideal place to start given how the totality of the decline began to accelerate from that point onward. Given the “accomplishments” that they’ve achieved for us and the tremendously “strong economy” and “powerful bull markets” that CNBC has chronicled since then one would think that we’d all be dining on honeydew and drinking coconut milk on our sliver of a sandy beach. But something unfunny happened on the way back to Prosperity Park. We seemed to have detoured to the wrong side of the tracks in the heart of Mogadishu. Both parties have nearly equally spent time occupying the president and in the majority of our “great houses” yet the lament remains the same. Seriously Larry, this is ALL the Republicans’ fault? Just a coincidence right? If we’d have just let Hilary Care pass and Democorp dominate the last two decades we’d all be much better off, like Greece perhaps? I doubt this will help but I will try in earnest regardless. The reason why so many people resent this man is because he’s an arrogant, lying fraud that even the word “hypocrite” doesn’t adequately describe. He’s never done anything of significance completely on his own accord besides develop an unjustifiably superior opinion of himself and his collectivist ideals, oh, and he also warmed to being installed as the President of the United States by a corporately owned propagandist media that largely maintains the Matrix that you do not seem to realize that you’re living in.

  • Larry August 2, 2010, 1:57 am

    Hi Rick,
    imo there is a deep hatred between the so called “right” and Mr. Obama.. every time I tune on to talk radio program it is constant hate of Mr. Obama… I voted for Mr. Obama… the constant hatred towards our President is disturbing… most of those folk’s that hate Mr. Obama are people that never served and are afraid of their taxes being raised. Mr Bush gave them a hand-out.. while the standard of living of the rest went downhill… talk about rich coward crybabies!

  • mario cavolo August 1, 2010, 7:41 am

    Thank you Martin.

    I suddenly realize as I’ve read through the article and the comments many times what the key subtheme is that is driving my approach and belief as to our unfolding future:

    The global interconnectedness is unprecedented; beyond comprehension, beyond complexity and beyond deleveraging. (Pointed out well in Ramos’ book The Age of the Unthinkable) Therefore, it is incorrect to suggest that a single currency such as the USD or EURO will be decimated, to look at the past to suggest the future outcomes. It hardly matters at all that we can say “the U.S. did this with their currency”.

    I am officially discounting Taleb’s Black Swan event. There is no such animal. The depth of sector interconnectedness trumps all. It is the new global glue. The whole basket can’t collapse together, it is impossible in the interconnected global reality of today. If some wild Black Swan goes flying up or down (you name your crisis here…) , something else on the other side of the markets, the other side of “Goldman Sach’s trading desk” will go up.

    Say U.S. equities start tanking; we’ll just rotate to China, Europe, currencies, oil, gold, for a few months. The end of the U.S. as we know it. Hardly. One year later when all we rotated into is the new overbought and U.S. equities are the new oversold, we’re back into U.S. equities! Everyone together has gotten way too smart, therefore cancelling out how smart they are. Capitalism in the free markets has trumped what is best for a country and its citizens. The quality of life of the average citizens will be the price in this new world order which has already arrived.

    Per Charles Nenner, there will be 40% swings of things, so be ready; but per Mario, there will be no doomsday collapse.

    Now let’s move toward the validity of the key opposing point to this article which is no small thing; that the U.S. govt has destroyed the future of the world by printing trillions. Skipping the analyses we’ve all read, now the whole thing can not possibly have a reasonable winding down or solution as a final outcome into the future.

    Ok, so let’s imagine that instead of just accusations, we definitively know that the key government leaders and neo-elitist powermongers of the world had a real roundtable meeting at which they simply agreed to take this course of action. Something like “Ok, we want to get richer and richer and need to get more and more control of our countries and no matter what the little guy is going to suffer, but we can’t change that anyway. Let’s respond to the current set of crises by printing trillions more USD. It will mess up the system, we will be in position to hoard more and so relative to the currency devaluations which will result worldwide, we’ll be on top to rebuild the future once again.”

    Something like that gang. In which case the three key points I have put forth in this article are very reasonable to expect, as “Brad” noted. What actually is going to happen in the next few years?

    1. The currencies will all go down in value and purchasing power, they will suffer together because of the excesses of USD, though the gory details of the unfolding across global markets we can only guess.
    2. The rich and the almost rich will be relatively ok no matter what because they are relatively unleveraged. My point here is that the size of this group is much larger than is commonly understood.
    3. The rest will experience decline and in fact will become wards of a deeper and deeper socialism across the globe. That’s not such a foreign or idea to Europe and Asia, but its very new and disruptive to the America that was only a couple of decades earlier. Nevertheless, the transformation has arrived and is accelerating.

    Cheers, Mario

  • Martin Snell July 31, 2010, 6:31 pm

    Kudos Mario. Excellent piece.

    Couple of points:
    1. I agree with your rotating asset class model. That does appear to be what is happening. It is really hard now to generalize about anything in the complex world we live in.
    2. To me America is starting to look like what has happened to Britain over time. A slow non-stop decline, while they cling to the long obsolete feelings of greatness. Yes there are vestiges of the glorious past, but visit any town in the northern half of the place and heavens help you. A disaster.
    3. Went to China the first time almost 30 years ago and agree wholeheartedly with your comments on the paths of the various segments of society.
    4. Lived in Taiwan in the late 80’s and lived through the collapse of the stock market, from 12,000-3,000 in about 6 months, plus the associated collapse of a number of Ponzi schemes. I thought for sure there would be a depression . Nope. It was a bit tough for a bit but the resiliency propped up by a strong underlying growth curve held the place together.

    I can relate to lifestyle in China. I used to eat out almost every meal (zillions of restaurants) for peanuts, had a small scooter, lived with my wife and 4 other people in a 4 bedroom apartment. Once you take out the costs of a car and a big house, you don’t need that much to live. But for Americans that would be quite hard to do.

    • Benjamin August 3, 2010, 2:53 am

      “Once you take out the costs of a car and a big house, you don’t need that much to live. But for Americans that would be quite hard to do.”

      Wish I had seen this comment earlier. Anyway, it’s malarkie because that assessment doesn’t consider that over here, we’re still the new world. Total population vs liveable/desireable land mass in all of the Americas still isn’t anywhere near as crowded a Europe, let alone China. Naturally, over there renting is much more doable because what else are people going to do? It’s not like China will ever be anything like it is or ever was over here. Renting is going to have to be the only choice for many people there because land doesn’t grow nearly enough to put so many people in houses.

      Which brings us to cars. Because we aren’t crammed together as much, distribution works differently. And because it does, we have to have diesel fuel for truck and trains to cross all that land. Even if we all crammed into a few big cities, we still have land to cross with truck and train. And that nesseciates the production of gasoline, unless dumping it or just burning off without the “benefit” of a gigantic catalytic converter that runs without profit is more acceptible than burning it with cars.

      So, yes, WE, the Americans, DO need cars. What, you want us all to go live in China so that we drive your rents up in order to take advantage of a distrubtion system that would probably crash from the very act? Because that’s really the only way we can get rid of houses and cars. It isn’t out of cultured snobbery that we live the way we do. And as far as houses vs apartments go, the whole bubble and bust thing wouldn’t have been different if we financed more apartments into more central locations instead. Financing is financing is financing, regardless of what is financed.

      We’d be much more wasteful, dirty, and broke in trying to live more like Asians. But mainstream criticisms of the U.S. never consider that, let alone the why behind. The worst thing is, that isn’t going to change, and hardwired realities ignored will lead to more malinvestment. Then again, the ruling classes always did hate the fact that a new land was discovered. From the time the Knights Templar staked a claim here (interesting story, that) in pursuit of religious freedom, to the time the founders wrote a Constitution that declared the old world forms of rulership obsolete, the cheiftan classes never miss a chance to dump on and shame us. Never.

    • redwilldanaher August 5, 2010, 7:32 am

      Martin, do you think that it’s possible that one of the main reasons why Americans have such a large cost for a “big house” has to be the misguided manipulation and deformation of the housing market which in large part can be directly traced back to the central planners and their bosses (the lobbyists) that mangle the tax code when they’re not busy ensuring fairness by way of the elimination of empirically sound lending standards? What happens if their compass is off someday? What if transparency were to be raised from the dead? One can only dream.

  • ebear July 31, 2010, 12:14 pm

    Interesting debate. Without taking a stand one way or the other, I’d like to offer a few observations.

    Comparison to the Japanese Miracle. While it’s clear that China is following the same path as Japan, there are two important differences: Japan had the wind at its back in the form of a global secular bull market. Japan also has a much smaller population to support – around 130M, or roughly 2% of world population.

    China, with 1.3B people, roughly 20% of world population, is attempting a Chinese Miracle in the face of severe economic stress in most of its end markets. In addition, it has serious competition from India and SE Asia, whereas Japan pretty much had the field to itself, at least at the outset. They also had strong US backing at time when that meant something.

    As China moves up the value chain, it will have to automate to achieve Japanese levels of output and quality. Bearing in mind their population, what does this imply for employment? Can 1/5th of the world’s population live well on value-added exports, or will they have to develop internal markets to absorb their output? If so, what are the political ramifications? Rising income implies a demand for greater political participation. Can the CCP alone provide this? If not, what will the nature of the transition be? Will the CCP simply fade away, will they cede some power, will they put up a fight?

    One similarity between China and Japan is scarcity of resources. Again, the contrast is stark. Japan had the benefit of cheap energy imports, save the period of OPEC embargo. Likewise, most commodities were cheap to come by. That is definitely not the case today where material and energy costs are higher, leaving a smaller slice of the end pie for both investors and workers. What are the implications then, for capital formation and consumption?

    I’m not saying it can’t be done, just pointing to some of the constraints. In my mind, energy is number one. Energy for production, but also consumption, for which there’ll be an insatiable demand once things really get moving. No doubt China has its work cut out for it – the long march to prosperity, if I can mix metaphors. For the moment, I withhold judgment. There are simply too many variables and not enough hard data to form any kind of reliable conclusion.

    ebear

    &&&&&&

    China has been investing huge amounts of capital acquiring energy and mineral resources around the world. This will give them a powerful RELATIVE advantage during the next upswing. RA

  • mario cavolo July 31, 2010, 4:10 am

    As always, thanks to one and all for adding their views to the argument this article brought to the table here at Rick’s. I do share everyone’s concerns that a more positive view could be wrong and would love to have something really edgy and controversial to say now to keep the pot boiling but I don’t.

    …redwilldanaher’s rant would be the best one to reply to as a representative reply. He is exactly the one person who would show up in China, pick any major city as an arrival point, and I would once again laugh my butt off as I watched his jaw drop in awe, an instant convert to

    “Oh geez, now I get it. Some of the world is crumbling, but not all of it.”

    This by no means implies I am “pro-China” or think China will save the world; it is a new “third” enormous source of wealth which has been recently added to the global economy. It only serves as a supporting reference to the point of the article, that there is a larger than ever global constituency of upper and middle class wealthy who will keep the world’s economy’s muddling along. How dare one suggests a modicum of stability rather than instability?

    And that brings us back to the core concern of Rick’s site et al….which is that this article assumes there even is a global economy to muddle along in the first place.

    We share the fear that at the hands of certain governments and powermongers to be feared, we will end up with a worldwide “Argentina” or “Finland”. As I’ve read many times, a scenario of hyperinflation/massive currency devaluation is only caused by a root government policy decision. Barring that, the world’s currencies will continue to devalue in relative buying power, slowly choking those who have not accumulated enough assets to live comfortably.

    Yes, we are at the mercy of the madmen in charge. Just remember that the goal of the madmen in charge in China is national stability and continued improvement of the entire society, which they have accomplished on an unprecedented scale. Without question, that is their goal and approach, so if you think otherwise with some unfounded bias about horrible communists, you are sorely mistaken. Another thing to keep in mind, ultimately their interest is for their own country as the center of the earth, far from the defined ideals of what the word “America” originally meant.

    While I don’t get the sense that national stability and the good of the citizens and country is the goal of the madmen in charge in the U.S., which unfortunately then, is still the superpower of the world. It cannot be denied that this scenario does put us all at quite a risk of a serious destabilization. As comments by “brad” noted, the article does recognize that many will be on the receiving end of bad tidings as the many complex balances of global life and economics continue to shift.

    Sorry my website is temporarily down due to a malware attack which will be fixed up within a day or two. Nice that google pops up to warn about such things.

    Mario Cavolo

    • redwilldanaher August 5, 2010, 8:10 am

      After reading your additional comments and those of Aidehua I wanted to briefly respond. I’m not arguing that there hasn’t been, is not currently nor will there be natural, legitimate and expected growth realized in China, India or anywhere else. I’m arguing that it is rife with manipulation and deceit of all sorts and that the statistics that are disseminated and the financial and banking systems that underpin it all can not be trusted. I’m not comfortable accepting the BS that comes out of the West that I’m familiar with so I’m certainly not going to accept at face value what China’s OK’d to report. I’m also arguing that snapshots in time are dangerous to draw long term conclusions from regardless of how spectacular they look upon first glance. You’ll not that I didn’t compare you to a flipper but stated that you sounded like one to me because that’s exactly what I heard a few years back. The idea that nothing can go wrong. Nothing can veer off course. That it is simply an inevitability, yes, I take issue with that. I’ve heard those proclamations many times before and at those times I was dramatically underestimating the power of illusion compared to now. The Ghost City, from reports that I’ve come across, is but one of many. It’s difficult for me to know for sure since I’m not in the same position as say Goldman Sachs telling the government how to handle the bailouts or how to word “financial reform”. I passed on many parts of your original commentary because it was very far ranging and it would have been difficult to adequately respond to it all at the time. I will add that I don’t believe that there is one right way or good way or that the American way is the way etc. What I value highly may be of little value to another thoughtful person. I may have missed it but it seems as though you haven’t accounted for the possibility of social change and unrest etc. It can happen anywhere and its managed to undo some of the best laid plans across time. That’s just one factor that could forestall for a time “inevitability”. Finally, although somewhat familiar with structure in China I wouldn’t claim to even resemble an expert. Yet I will note that I’ll cast my lot with individual favoring systems over those of are even a mix of centrally planned and market-based all other things being equal. Unfortunately from the reports I’ve seen China’s “lobbyists” seem to be enriching themselves with the same great disparities that their US counterparts have and it would take a coin flip to determine who holds corruption bragging rights.

  • redwilldanaher July 30, 2010, 9:26 pm

    I had a similar reaction to that expressed by PhotoRadar: Where to begin?
    After reading Mario I felt like it was a bad break for me that the central planners hadn’t arranged it so that I could be a poor Chinese citizen sitting around having a late dinner and lip syncing to Burl Ives’ cover of the Big Rock Candy Mountains.
    Mario seems like an intelligent well-meaning contributor but unfortunately I take issue with most of his assertions.
    Quite honestly, he sounds like a lot of guys that were boldly launching “flipping” operations on Condos in South Florida and the Las Vegas area circa early 2006. I had a South Florida-based realtor friend that I tried to warn about what was likely coming down the pike and his response was always the same: “Not Florida. It won’t happen here.”
    Mario’s not the first intelligent observer to be fooled by the reckless open-air dispersal of excessive monetary “ligther fluid” and he certainly won’t be the last. For some reason, (I REALLY should know better by now) I remain amazed that most people are perfectly content with taking a “snapshot in time” of a “tidepool” and then confidently super-imposing that not only upon the sea but the future of the sea and its inhabitants as well.
    By the way, have any of these wide-eyed bulls ever familiarized themselves with the concept of mal-investment?
    This is from the Mises blog. One of China’s great number of Ghost Cities:
    It is sad to see a once-thriving city deserted. The heart-breaking sight of a handful of forlorn stragglers and struggling businesses remaining from what once was a bustling community makes us wonder, “why, why?” Only the most cold-hearted could be indifferent to the painful legacy of broken families, the receding memories of what once was, and hopelessness among the young. Take this city in China, for example. Oh wait…sorry….scratch that. The city in that video has never been inhabited in the first place. It was constructed by central planners to contain around one million people, but no one bothered to move there. The video contains eerie shots of a few solitary construction workers driving down the empty streets between never-occupied buildings.
    This is an example of why I am a skeptic of the China growth story. A lot of the so-called GDP growth is spending by central planners that has no real economic value. The reporter says that “a country can raise its GDP by spending more”, which is almost a tautology, since GDP counts spending. But GDP growth does not necessarily mean real economic growth. Real growth can only be accomplished by expanding the capital base, and that requires economic calculation by entrepreneurs who are risking loss of their own capital. Just building a lot of physical stuff and counting the amount you spent is not the same thing.
    The Chinese embarked on what can now be labeled a giant, oversized “stimulus program to nowhere” so they could maintain their targeted 8% GDP growth rate despite the chaos and deterioration that was unfolding in the economies of their consumption and debt junkie friends in the West. Yes, they reverse-engineered “extend and pretend” after sifting through old copies of the capitalist playbook. They planned to print their way through the natural laws of economics and officially repealed that pesky business cycle too. (Just like Alan Greenspan, Ben and Bob “reverse midas touch” Rubin did here.)
    Think for a moment how fraudulent and increasingly and intentionally opaque “all things financial system” are here in the USA? The fabeled land of transparency. Then there is Euroland. Where the operators are much smoother and naturally more sophisticated, no doubt from the fact that their Elites have centuries more experience in matters of financial diplomacy, clandestine political maneuverings and when necessary initiating wars to distract the sheeple at critical times when their schemes have resulted in imminent operational failure. While the USA may have taken the lead from Europe in these types of matters (perpetual war, imperialism) few would disagree that the Europeans pull it off with more polished professionalism. Reasonable observers would likely also agree that the so-called “stress tests” and ensuing mark-up phases were designed to fool the casual observer and to function as PSYSOPS to allow the truly insolvent financials to “issue stock” and to restore faith in the economy and the “system”. Naturally, when the American consumer feels better and worries less, they do what they do best: over consume. That helps all of those in the interconnected Cartel Clubs to maintain the illusion shows and to press on with favorite pastime: power consolidation. But back to China and their banking system. From Evans-Pritchard:
    China’s banks are veering out of control. The half-reformed economy of the People’s Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December. Money is leaking instead into Shanghai’s stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump. Fitch Ratings has been warning for some time that China’s lenders are wading into dangerous waters, but its latest report is even grimmer than bears had suspected. “With much of the world immersed in crisis, China appears to be one of the few countries where the financial system continues to function largely without a glitch, but Fitch is growing increasingly wary,” it said. “Future losses on stimulus could turn out to be larger than expected, and it is unclear what share the central and/or local governments ultimately will be willing or able to bear.” Note the phrase “able to bear”. Fitch’s “macro-prudential risk” indicator for China threatens to jump from category 1 (safe) to category 3 (Iceland, et al). This is a surprise to me but Michael Pettis from Beijing University says China’s public debt may be as high as 50pc-70pc of GDP when “correctly counted”. The regime is so hellbent on meeting its growth target of 8pc that it has given banks an implicit guarantee for what Fitch calls a “massive lending spree”. Bank exposure to corporate debt has reached $4,200bn. It is rising at a 30pc rate, even as profits contract at a 35pc rate. Fitch traces the 2009 bubble to the central bank’s decision to cut interest on reserves to 0.72pc. Bankers responded to this “margin squeeze” by ramping up the volume of lending instead. Over half the new debt is short-term. Roll-over risk is rocketing. China’s monetary stimulus since November is arguably more extreme than the post-Lehman printing of the US Federal Reserve, though less obvious to the untrained eye.
    If the schemes and scams are as thick and ridiculous as they are in the USA and Europe, how can you trust what the central-planning communist Chinese are allowing you to see and thus must want you to see? How will they and OUR central planners respond IF it doesn’t work?
    What if things aren’t so swell once the lighter fluid burns off and the Alka Seltzer kicks in? Just shoot more right? Keep rates artificially low for an extended period of time right? There can be no harm in that right? Not with the new “reform” we just got. Barney Frank and Chris Dodd’s replacement will be there for oversight right? I know I feel better.
    Mario’s commentary covered a lot of varied territory so it is difficult to touch on it all and time consuming to provide contra-side reports to many of his assertions. Judging by what he touched on and some of the replies that have come in it seems as if we should be excited because now much of the world wants to waste its wealth on consumer disposables nearly as much as Americans do. It sure sounds like we’re going to smartphone and designer fashion our way to prosperity globally. It’s really too bad that much of it is illusory. Guys, if and when these artificially manufactured bubbles pop the aftermath isn’t too pretty. If the Cartel doesn’t manage to hold it together then we’ll see just how stable the foundations were that it’s all built on. And on a side note, since fraud accounting was mentioned, search for John Hussman’s comments with regards to it and you’ll find a great deal of information on it. For real fun though, track down the video of him and permabull Mike “I didn’t see it coming in Fall 2007” Darda along with the commentary that Hussman wrote after appearing with Mike on Kudlow’s Laugh In a few weeks back.
    As someone that would confess to sharing much of the extremely negative long-term outlook that many seem to have here at Rick’s Picks, I feel compelled to address some of the comments that have been made recently regarding the so-called “gloom and doomers.” Although I don’t claim to speak for others that would reluctantly classify themselves as I have, I would be willing to bet that the majority of the like-minded would feel comfortable stating it something like this: Our problem is that we’d prefer to reside outside of the matrix and would permit the natural laws of economics and social freedom to be allowed to unfold organically, free from malevolent manipulation, all the while knowing that we’d have to contend with both the good and the bad that flows from economic cycles, free markets and the outcomes that they produce.
    The “counter” to this, solely from my personal perspective, is that those that wish to remain in the debt-slave manipulation matrix are content to begrudgingly accept their pawn status yet quite pragmatically set out to make the “best of things” come what may. This may or may not be true but these people are certainly entitled to feel as they do and I would expect that they are a more blissful lot, by and large, than my compatriots. At this point though I hasten to add a quote from Ben Franklin that’s now back in vogue thanks to Obamao’s early-stage totalitarianism soft selling: “Those who desire to give up freedom in order to gain security will not have, nor do they deserve, either one.”

    Yes that’s how it distills. We simply cannot look past the workings of the various cartels and schemes by the elites because we know where they will eventually lead. Allowing that to become reality for posterity is immoral.
    As painful as it is likely to be, I would personally rather witness the permanent burial of the rotting corpses of what were once much freer markets and less thoroughly corrupt governing bodies than to cheer on the matrix-produced illusion shows that the cartel “saved” from the abyss and is now fortifying for the sequel which will only be “bigger and better” as they always are.
    Please note that I’m not arguing that the engineered fantasies won’t work temporarily and even produce nominal new highs in this or that and other sundry intentionally biased measures or indicators. If you welcome that “news” and the type of paid, mindless cheerleading that accompanies that sort of sentiment then simply turn on the more popular MSM propaganda dissemination outlets such as CNBC and get your fill of audio/visual soma. Trust me, even the “guests” will help keep you placated as they talk their book, err, I mean as they find absurd ways to look past all the obvious bumps in the road that lead to the shining city on the hill that most people are likely to never reach. In fact, just last week, an esteemed guest imparted quite confidently, that “fundamentals are excellent right now” and he’s rarely seen them better in his career to paraphrase. Finally, please, and by all means, don’t let a few crazy rebels here at Rick’s bring you down.

    • Aidehua July 31, 2010, 4:02 am

      redwilldanahar,

      I ‘m a fan of The Quiet Man too.

      I don’t disagree with the main points of your proposition regarding the parlous state of the US and European econonomies. Nor do I take issue with your comments about the “various cartels and schemes by the elites”. There are however a number of points I’d like to raise in response:

      The Chinese stimulus package was aimed at bringing forward spending on previously planned, massive infrastructure projects such as the high-speed rail networks, ports etc. The secondary objective was to stimulate retail spending by ordinary Chinese consumers in order to partially compensate for declining export revenues. To a large extent, the package was successful.

      The second point was that the money for the package was not “printed” but came from reserves. It needs to be remembered that China is a creditor not a debtor like the US and much of Europe. Of course, a lot of the money that was lent by the banks ended up as speculative money in the Shanghai stock market and real estate. Much of that speculation was undertaken by local governments and various state-owned enterprises as well as individuals. The Chinese themselves know this and are attempting to rectify the situation by various means including reducing bank liquidity and reigning in some of the excesses by local government.

      Traditionally, the Chinese are great savers and it needs to be remembered that the newly affluent Chinese middle class is saving as well as spending. Interest rates on bank deposits are very low, which drives some of the money into more speculative venues. As an aside, a very large number of Chinese have bought and are buying gold.

      The “Ghost City”, you highlighted exists but it was planned at the local level, not the national level. This is part of a situation that is not understood well by people outside of China. Political power is not exercised exclusively by the central government. Local government has great power and frequently makes decisions based on the micro view rather than the macro view. This can lead to poor decision making and wastage. One million people may seem like a big number but in China it equates to a very small town.

      Like most of the correspondents here, I come from a background that prizes democracy and freedom. However, I consciously try to avoid the trap of believing that it is the ONLY system. The popular belief that China is a somewhat totalitarian state is erronious. It is authoritarian but the Chinese have had various versions of authoritarianism for 2000 years. To ask them to adopt Ben Franklin’s philosophies in a heartbeat is not practical.

      Nearly everyone I know in China is acutely aware of the various problems that China faces. They are however, adamant that they are Chinese problems for which they will find Chines solutions.

      Many of my Chinese aquaintences indicate that export trade continues to be quite strong but significantly more of it is going to other emerging markets in the Middle East, Russia, South Africa, South America and of course, Asia. There is a growing conviction that future export growth will be generated by hi-tech and value added products.

      The Chinese are moving out into the world. They are using their cash to acquire assets everywhere, particularly oil and minerals. They are gaining export markets in developing countries and are becoming major tourists. They acknowledge the somewhat symbiotic relationship that they have with the US and Europe and are sufficiently pragmatic to take actions that support thse economies.

      In the final analysis, China will do what it perceives is best for China. If the west derives a benefit, then so be it.

    • mario cavolo August 1, 2010, 8:55 am

      Thank you for your add on. However, two things:

      First, its worse than you think about me on the “flipping condos” thing…. I actually TEACH executives how to communicate more persuasively and I was often mentored in my early years by some very charming, unethical people. Fortunately, I can say I don’t have those intentions with the knowledge I share. As you sit there in our chair now reading this sentence, sharing the same concerns as many…. you can find yourself thinking…enough, you get the idea I hope…beware the manipulators…

      Second, you’re way way off on the China Ghost City example….way too small a slice of the pie to include in any credible China argument.

      Best, Mario

  • ricecake July 30, 2010, 9:10 pm

    It’s erroneous to make your prediction base purely on money aspect. Economy and politic (+social) power are inseparable. Political power is managing manipulating over the money aspect. Just heard an very intriguing idea from a Chinese media elite. It’s that when worst come to worst, China can write off the USA debt to exchange USA’s stopping interfering China’s unification with Taiwan. Stop blocking China’s assess in the yellow and south China seas and beyond. That means Americans get out of China’s backyard and frontyard from the that region.

    The same thing to Japan too in my opinion. Japan can cancel some of the USA debt if Americans get out Japan. Now the Japanese have to support the US base in Japan year after year and it’s a huge financial burden to them. Who will invade Japan now these days? Of course the Americans will do anything make the Japan feel the needs for the US base to continue in their land. Same to S. Korea. You know what I mean.

    But will the Pentagon do without en important enemy? It seems that the US military getting very every lonely and empty in their soul and heart without an major enemy like Russia. Now it seems China is replacing Russia. Just look at how the USA is wrapping up China in the Asian pacific region recently by creating all that tensions instability intensionally. Like Mac Faber says that Americans will never let others to raise without do something try to stop that. If they can’t get it, they may destroy it. If you invest in Asia, you must foreseen all that dangers. The political struggle and possible wars (or the threats of possible unrest and war possibilities.) Political Economy 101, not Economy 101 is ultimate guide. Lots of uncertainty will be our the future.

    The difference between the US military and the PLA (Chinese army) is that the PLA don’t sit idol after their military exercises. They are the first on site where there’s natural disasters and they are everywhere. They are working on the country’s infrastructures – building roads bridges, and so on. They don’t do go to foreign lands to bomb the hell out of other people.

    Again Political Economy 101, not Economy 101 is ultimate guide. Back to the US. Do you think the political power the governmnet will ever allow the society to crash and burn? What do you do when your neighbor’s house is burning? Are you stand aside watching? Or are you grab a hose help to water the fire down? Or at least call the fire department? You must do something because your house will be the next to burn. Do you feel safe in your shinning billion dollar castle when other people’s homes in your neighborhood running down when criminals around your corner?

  • Rich July 30, 2010, 8:56 pm

    Speaking of reality sandwich:
    When gold breaks 1149.90, look out below…

  • cosmo July 30, 2010, 8:38 pm

    Hi All
    Interesting…Hey Mario, have you been back to the US lately? I just returned from a 3 1/2 year trip abroad(mostly in India, but also Europe, for my first time) and got told to F-off by the BART employee in San Francisco because I had a minor complaint. No where else in my travels could I even consider that kind of abuse happening. NOWHERE!!

    So the ‘rich'(who do you define as “rich”BTW) are going to carry the day?? If you are counting on the top 10%, what do you think is happening down on the lower half, not to mention the numbers that will be very desperate doing desperate things?? The rich will be forced behind secured walls with guards, a prison, but in reverse…ooohhh what fun(better get a dog…)

    And, with the price of oil and therefore transport destined to rise, how will you keep the ships, trains and trucks moving except by higher prices to the consumer.

    I went into Safeway the other day and they are advertising ‘lower prices’. Nearly every item was marked down around 10%. I was thinking that the cost of groceries would be getting crazy expensive with all the complaints I was reading about, but ,no, prices are falling…on essential items, not just computers and houses.

    It is with an iron fist that India and China rule the masses because they know that if a mob riot gets out of control, the police will run for cover. If the price of food rises in these places, the poor are not just going to sit and go hungry in a nice way.

    Personally, I plan only to visit the US and will be leaving again soon for points south where there is plenty of rain and a nice growing season and a simple life that is fulfilling. I’ll probably even get a dog…

    • mario cavolo August 1, 2010, 8:45 am

      Hey cosmo, yep could be…Meanwhile, I’m about to write my mother to send me another fabulous American care package that only a mother can do…loaded with goodies that as you point out are on sale everywhere back in the states…gotta love those 2 for 1 deals at Walgreens on their health supplement stuff….2 for 1 OsteoBiFlex for my aching neck is an amazing bargain…and God bless peanut butter Ritz crackers!

      Cheers, Mario

  • Chris T. July 30, 2010, 8:14 pm

    Rick,

    Prob. a quibble, but in the short-scale counting (what has been in use in the US since the 18th cent, and in UK since the 1970s, most non-English countries use the long-scale) the numbers should be counted as:

    10^6 = million (ss)/million (ls)
    10^9 = billion (ss)/ milliard (ls)
    10^12 = trillion (ss)/ billion (ls)
    10^15 = quadrillion (ss) / billiard (ls)
    10^18 = quintillion (ss) / trillion (ls)
    etc.
    Thus, the name for the notional value is off by 1000x, as you are showing 10^15, thus quadrillion.
    I doubt that you meant to show in numbers 10^18, as that seems impossible even now (with the BIS notional derivatives value being about 0.5 quadrillion, another 0.5 seems quite right for everything else, not 995.5 quadrillion).

    You surely are aware, just a typo, but wanted to point that out.

    BTW, and especially with the long-scale, the constant proposals people keep making for new names for large numbers is shown to be farcical, as the ls can comfortably cover an octilliard, which would be
    10^51, even with the most hyper of inflations, I doubt we will see that one!
    Regards.

    &&&&&&

    So, things are not quite so bad as I may have given readers to infer, since there are in fact three fewer zeros for the world to deleverage. Thanks for the correction. RA

  • Rich July 30, 2010, 7:48 pm

    PCR Deputy Secty Treasury under Reagan:

    http://statesmansentinel.com/paul-craig-roberts-united-states-dissolve-2017

    • Bradley July 30, 2010, 9:43 pm

      …as my wife’s grandmother used to say after hearing someone spout on and on,

      “And the next day it rained…”

  • Brad July 30, 2010, 7:07 pm

    No-one posting comments seems to have noticed that he says the financial world will fall apart….for a majority of people.

    He says:

    We will continue to deflate the value of our currencies.

    Gold / Silver & commodities will continue to inflate.

    The middle class in the US is doomed.

    So, where’s the disagreement? He pointed out that pockets of people in some parts of the world will do better than other people over the next 40 years….duh, that was self evident.

    And yes, I do think he is wrong about the economy “only” gradually sliding downward because he does not consider what appears to be an ever increasing tension building to a “recognized / declared” WWIII, much less biblical prophecy. However, even if he is correct, he actually agreed with the doomers that things will be very rotten for large subsections of our US population.

    He also did not consider the affect on the wealthy of living amongst the poor. Living amongst poor people whom have poor ways drags everybody down.

    Overall I thought he was simply spinning the doom by pointing out that “some” folk will get through better than they were before.

    Good day Mate!

    • mario cavolo August 1, 2010, 11:10 am

      …..meanwhile, I get the impression worldwide that the rich and semi-rich have quite well mastered isolating themselves from the poor…

      A perfect moment to remind us all to pop in your Trading Places DVD to laugh and smile at the treachery all around us as Mortimer gets crushed!!!!!!!!….Bless that cast of characters one and all…

      Cheers, Mario

  • Aidehua July 30, 2010, 6:04 pm

    I’m an Australian expat who like Mario, has lived and worked in China for a number of years.

    Mario’s assessment of what is happening in China is spot on. The dynamic in China can only be understood by living here long term. I see what Mario sees. The rich and the semi-rich have an extraordinary level of disposable income and they love to spend it, primarily to show that they can.

    The “rising middle class” which pretty much equates to the entire US population, also has money to spend and they ARE spending it. They are buying housing, cars, computers, cellphones and a wide variety of domestic appliances including large screen plasma televisions.

    However, they are not spending borrowed money, they are spending their own money. They are spending it for things that may be “non-essentials” but they want them and they can afford them.

    Benjamin, you are correct in your assumption that the Chinese government “does not want to lose their…control”. What government does? However, the implied presumption of oppression is wildly inaccurate. I mix almost exclusively with Chinese and there is the usual quota of complaints as there is in OZ and the US but people here do feel free to make money and unthreatened by the state.

    Rich, China is rampantly capitalistic but the central government does exercise a strong degree of control, in hindsight, perhaps not a bad thing. Although the official label is “communism”, the new description is “Socialism with Chinese characteristics” i.e. capitalism.

    PhotoRadarScan, you are correct, there are many multi-generational households but that is due more to cultural factors than purely economic considerations. The grandparents who “live in” are usually retired and provide free child care, thus allowing both parents to work either for themselves or for someone else.

    The ordinary Chinese in major cities in Eastern China tend to define the middle working class as those with a household annual income of around 10-12 k USD and housing valued at 150-250k USD. The lower middle class are seen as having annual household incomes and housing at double this rate.

    There are still a lot of poor people in China but Mario’s assessment of being poor here is pretty accurate. Life is much tougher for them but as he noted, the cost of living a simple life here is very cheap.

    I read your comments on a daily basis and derive a lot of enjoyment from them, Thank you.

    Who is right and who is wrong is not for me to say but being a ” a half full glass” person, I expect the best but am prudent enough to plan for the worst.

    • ricecake July 30, 2010, 10:15 pm

      I move to the USA in late 80s. I can tell first hand that live 30 – 40 years ago was THE BOTTOM. Now the dramatic change in China is not just from person to person or families to family. It’s region by region, city by city, county by county, village by village. Increase in all living standard of the People I know, grew up with. The whole neighborhood I used lived are much better off. The family members, extended families all over China are all change for the better. (Note, I’m not from anywhere connected to the power or any government officials . Just very average people the lower of the society the small fish.)

      Yes the rich and the poor gap is enormous in China. But even the worst off are better than where they were before in general. You don’t see homeless in China like those in the developed world because the poorest group are those living the countryside the peasants. But they all have their land and home and their family farms. What they don’t have is cash that’s why they have to migrate to work. But now many migrants workers can make much more near home and stay at home or near home, so they don’t want to go to work in the coastal region factories anymore. Many smart migrant workers going back home open their own businesses.

      p.s. The Chinese government is the ultimate land owner, developer, tax collector, the bank…… Most of the Profit go into the government’s coffer. So when China needs better infrastructures, social security programs, or when crisis hit, the Chinese government can easily dish out some money to handle it because they make most of the money and save it for the raining days.

      China is a state capitalism – China Corp. They learn capitalism from the Americans. As I read from the Chinese media, they are now learn socialism from the Norther Europeans. More exciting China’s metamorphosis play is coming.

    • mario cavolo August 1, 2010, 8:40 am

      aidehua… which Han Zi characters my friend? just a straight grammatical translation of “Edward” or some literal meaning in aidehua?….thanks for your thoughts and cheers, Mario

  • Bradley July 30, 2010, 4:43 pm

    As others have mentioned, it was refreshing to read Mario’s take on things here on a site where depressing and scary posts are more often found. Whether he has his facts straight, or has interpreted them correctly is another matter.

    What I like is that Rick seems willing to consider both sides, and allows opposing ideas to be aired on the same site where others preach “end of the world” concerns. This allows me to read and think and consider things I might not otherwise have considered, in an attempt to form my own opinion about the future.

    After reading Mario’s article, I have to say that I am a little less convinced that our economic world will crumble into pieces this week…

    • mario cavolo August 1, 2010, 8:36 am

      Bradley, Rick is a wise man, knows very well how to run a site of great value for his followers…don’t mean for that to sound like a plug, its self-evident…Cheers, Mario

  • Benjamin July 30, 2010, 3:25 pm

    One more thing, for all you cheerleaders in your girly skirts…

    Why can’t any of you say that things would be much better without the way things are done, instead of calling us naysayers “doom and gloomers”? How is that it has to be this or (cue the doom music) ELSE?

    • SDavid July 31, 2010, 1:05 am

      This is hardly about “cheerleading,” nor girly skirts.

      Far too many people here would rather be right about the economy going to hell than be wrong and watch their gold holdings drift back below $1,000 per ounce.

      Be very careful about what you wish for.

      I will leave it at that.

  • Rich July 30, 2010, 3:04 pm

    We saw how centrally controlled economies worked out with the Sino Soviets.

    He’s baaaack:
    http://www.amaresource.com/wsi/index.html

    Staying happy here making money in the markets with Big4 and TopTen…

  • MP July 30, 2010, 2:05 pm

    Well done Mario, finally a clear mind amongst the wishful doomsday thinkers.
    Having spent a month in China this year, it is clear there will be no bubble bursting there. Development is fully controlled. Infrastructure being put into place, to be followed by the (continuing) migration of rural workers to the cities, followed then by the mechanization of the rural areas… You are looking at decades of unending development.. fully controlled by the powers that rule…and the globe will keep turning… although perhaps with less and less input of western labour.
    Great ideas to think about… it sin’t as simple as Inflation vs. Deflation…thanks

  • Benjamin July 30, 2010, 1:27 pm

    “One might ask is there a historic migration from declining America somewhere in the cards? Maybe, but don’t think for a moment that there’s going to be a welcoming “Ellis Island” anywhere near Chinese shores.”

    Well, of course not. It wouldn’t stay that way otherwise, now would it? Which is to say that this isn’t an unprecedented boom thingamajig. It’s a refusal to truly test itself. Sorry, Americans, but down you go as we go kinda flatwards up.

    Thanks for poking your head up over the great wall and sticking your tongue out at us. I’m sure a lot of people will appreciate that bit of “comic relief”!

    As for the boatloads of extra savings… Ugh… I had posted a response to that, on how money was certainly not everything, but the site was temporarily down as I posted it. So that post got lost in the cyber tubes, and I can’t possibly rewrite it in the same way.

    Speaking of which, I found this handy little site recently… http://downforeveryoneorjustme.com/

  • SDavid July 30, 2010, 6:12 am

    I am not going to get into an argument with those who frequent the chat room or the commentaries section here. On an intelligence scale, I cannot compete.

    But there is something to be said about negativity, and – hands down – this site can often be as bad as it gets. The market is going up and people look – technically – for reasons why it should be going down. Gold is going down and people look – technically – for reasons why it should be going up. How are we supposed to take the Hidden Pivots course on a technical basis when we allow our own biased fundamental idealism to get in the way?

    Throw your bias out the window for once and trade the damn charts! How hard is that?

    Mario might be wrong … so what if he is?

    In a world of people looking for everything that is wrong, someone came along looking for something that is right. A singular voice of optimism in a world of negativity.

    Without hope, the human race is done.

    And not a single one of the doomsayers here on this site or elsewhere can own enough gold or short enough stock to change things, and that is the only fact we need deal with.

    People have a tendency to grow weeds in their back yard and then get pissed off when it comes time to pull them.

    Thank you Mario. You may not be right, but I sincerely hope you’re not entirely wrong.

    • mario cavolo August 1, 2010, 11:03 am

      …Thank you very much especially for “just trade the damn charts!”….I am sure Rick would agree that is glorious advice….Cheers, Mario

  • PhotoRadarScam July 30, 2010, 1:28 am

    Wow, where to start? This guy is ignoring so many major items.

    The rich may be spending but they are NOT investing. Investing activities are what largely drives the economy, not as much the purchase of luxury goods and services. He also ignores that fact that many formerly rich are no longer rich, or no longer have comfortable cash margins that the rich feel comfortable investing and spending like they were.

    A huge difference in China which this guy ignores is that yes, the homes may be owned with no mortgages, but 3 or more generations live in one home! It would not be much different in the US if multiple generations moved in together – it’s easy to make a mortgage payment if you divide the payment several ways.

    And while the poor in China may be comfortable, our poor here are probably just as comfortable – or could be – except they also have priorities like cell phones, televisions, and other non-essentials that are perceived to be necessities here – that they can easily live without in China. It’s just a different lifestyle.

    • Benjamin July 30, 2010, 3:11 pm

      “And while the poor in China may be comfortable, our poor here are probably just as comfortable – or could be – except they also have priorities like… non-essentials that are perceived to be necessities here – that they can easily live without in China.”

      I’m not sure what you mean here by including this. So let me get this straight… If we all cram together and give up the little trinkets, we should do just fine?

      If so…

      First, why do people always pick on the little things? Granted, I said the other day in the “Obamanet” article that indeed the internet wasn’t vital. But the point wasn’t to go without it. What I meant was that it’s not so important as to give government cause to provide it. Few things are so important/endangered/in need/etc

      Anyway, it’s human nature to have “frivolous things”. I have dogs. No one NEEDS dogs, and when my very first dog (not family pet) passed away, I decided to buck the trend of having always had one since I was two. But I wound up getting another in less than a year. I HAVE TO have one because… Because! Yet in reality, we don’t need to keep dogs anymore for any reason that they have traditionaly been kept.

      But what would I do without my beloved pets? Be a bit more needlessly miserable as I pass through this life. And I guess since there are multiple lives, I could give up all that I have just so I can say I have enough money to endure a depression caused not by own frivolous ways, but rather for the largese of my government.

      Right. Screw that! And having grown up poor myself (but even if I didn’t), I wouldn’t demand that any poor person give up their meger trinkets for it either. In fact, I ENCOURAGE all to keep what is theirs and keep on keeping it because if they don’t, WE lose the tug of war over our liberties to a government that cares nothing for them. Even if what they have is the result of welfare… So what? They wouldn’t be on welfare if it wasn’t for the military and NASA’s (two name two) desire to spend us into oblivion with their “nessecary” pet projects. And if there were not people over-compensating themselves for all this malinvestment, there sure as heck wouldn’t be any need to “give” people things, what is really crumbs what of the cheaters and manipulators let dribble from their dinner napkins at the pig trough. They’re the true frivolous who need some forced cut backs (and maybe castration, too, if they have anything TO “over-circumsize”).

      Now, China is “different”. Should they cram generations into a house like that? To each their own, I say, but only so long as it is their own. I look at the world… Did you know if the U.S. (minus Alaska) were to absorb both India AND China’s populations, we’d have a populatin density only slightly higher than India has now? About 956/sqmi to India’s 932, and that’s every last person from both population behemoths. Or just Asia (minus Siberia) could do it, with 322/sqmi, which is less than China has now at 363/sqmi.

      There’s a huge problem in the world. People are not allowed to migrate, even though there is PLENTY to migrate into! And if they did, the means by which to pay/finance it all would be provided. Resources are abundant, land is abundant, we’ve so much technology… There is no need to cram, even though some probably still would for the same reason that I must have dogs. Still, I don’t think it would be something most would still do.

      Anyway, China has the same problem as we do: Government policies preventing what is truly wanted and/or needed. Their government does not want to lose their precious control. They’re jerks, pure and simple, and I hope I live to see the day where the people there wind up and kick them hard in the rice cakes!

    • mario cavolo August 1, 2010, 8:34 am

      PRS….thanks for your insights too! I certainly do realize such an article leaves out plenty…scary times we live in…opinion unchanged 🙂 Cheers, Mario


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