I already agreed that unemployment was a problem, but really…do they need more western fiat? (I don’t think so.) You have these protected export industries sitting on piles of worthless paper, just looking for tangible treasures to hoard.

It’s about time they open their domestic markets to the wealth multiplying effect of free trade. A burgeoning domestic market will provide their industries with domestic consumers that will benefit by having wider choice and more entrepreneurial opportunities, especially involving trade – real, sustainable, two way trade – both domestic and international.

Protected industries will need to adapt to free competition or close shop. They served their purpose: they were essentially a bribe to the communist party members to loosen up on business.

Well… they got enough already – they’re now an impediment to further progress – they even increase the risk of a devastating trade war – the oligarchs have greater wealth than they ever dreamed of and now it’s time for them to give up their privileges – allow China to liberalize and open up to the modern world before their greed destroys their future.

Are you just drunk, Mario? I can forget that.

If the options have all been played out in the West, Mario, what makes you think that China will have what it takes to make the same policies work over there? And what bullets do you think they have available in the form of “angles and reforms” to respond to the serious economic issues that country faces.

You can be sure I do appreciate that you have finally seen the light. While you are acknowledging that China does have problems (in the form of expressing it has options to escape the consequences of its past excesses) you are finally in agreement with my thesis that the economy is facing a serious slowdown.

Just a few months back you were arguing hard that I had no idea what I was talking about. You actually bragged you had “kicked my ass’ on the topic when you clearly had no idea what you were talking about.

Obviously, living there is not the key to enlightenment.

As you have no doubt noticed since my posting “way back when” the Chinese economy is indeed showing true signs of stress and this is contributing to a destabilization of the global economy as I had warned.

I don’t know if the powers in charge there are going to be prepared to make the necessary adjustments in order to adapt to a global slowdown that is underway simultaneous to China’s housing bubble bursting.

The leap of faith required to increase the incomes of the small but growing middle class and average workers while reducing the share of revenues the state takes is as great as a chasm. In order to make that leap of faith the government will need to be prepared to turn over more of the authority of its centrally planned economy to the people themselves.

That might seem tantamount to political suicide to some. And yet it must be done. We know that the Yuan still needs to be revalued versus the dollar and the Euro and that China must reduce its dependance on exports to fill its boots.

Some of us have already been talking about this and waiting for real action for over two years now. Still, the powers dither and waffle. China does not want to give up its relative trade advantage despite the ominous warning signs within its own economy that serious imbalances are being created in equity amongst various parts of the population. I think it is a powder keg if not addressed quickly.

Workers are in effect subsidizing both consumption in the West and the simultaneous demands of their own government to build reserves from the differences in the balance of payments over the rest of the globe. That is an unworkable strategy in a world where delevering and austerity are the name of the game and consumption is falling in the West.

It is clear, as many others have already pointed out, that for growth to continue in China at a high level that it must rely more upon internal growth in the coming years and reduce its dependence on foreign cash infusions. Chinese workers cannot be called upon to subsidize waste in the west anymore. It is in nobodies best interests that this continue.

On a separate note, I agree that the tips from Neil were pretty good. Some guys have the discipline to make a better than average number of trades. I notice most investors are really too emotional in their approach to their work. The religiously follow one set of ideas or philosophy to the exclusion of other good ideas. They “marry” their ideas in other words and then can’t back out once committed. Investing really requires a mercenary approach in my opinion. We all need to divorce ourselves from the loyalty of one or another types of commodity or stock or bond issue. All that matters is the numbers and when they don’t add up we walk. I think Victor Niederhoffer was probably just such an investor and that is part of what made him better than most.

Thanks Mark, glad others can see it for what it is. I had not heard until your post that China imported 104 tonnes of gold in April. That is an astonishing amount in such a short period of time. The amount ranks right up there with the total gold holdings of Mexico which has the 32nd pole position on the Wiki chart of “world gold reserves by country”. The Chinese are taking the acquisition of the yellow metal very seriously. Even more interesting is that combining just those two numbers you offered (China’s annual 2011 gold output which it retained plus it’s April 2012 purchases) means that China has added almost as much gold to its domestic reserves in 13 months as the ECB holds in aggregate. Wow!
http://en.wikipedia.org/wiki/Gold_reserve

Gee, I wonder why?
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If you don’t mind, can I change the subject here for just a minute. I had a hard time reading the third paragraph of your post. That was one really loooooong sentence. At 98 words I had to read it three times and still was not quite sure I knew what you meant. But I might not be that bright. Would you mind breaking it up into smaller pieces for people like me? It will be a lot easier to respond to you then.

I think the confusion is yours Mario. You do not presumably have any idea what a reversion to the mean for property prices portends in Asia. The fact that values have shot up in a dramatic fashion is only evidence of how far they will eventually fall to rebalance the market.

The wealth effect that you are seeing meanwhile could be fleeting. It is after all based upon an artificial expansion in property valuations. That fiction is clearly in the process of coming to a conclusion.

Make no mistake, China is not immune to the same forces of supply and demand that are basic functions of economies all over the world. The same principles apply in Zimbabwe as they also apply in Russia, Saudi Arabia, Spain and America.

Try to take my earlier words to heart. You do need to have a mercenary approach to your investments.

When your usual ideas are not working it is bad advice to buy into more of the same thing. That is the time to get out and do something else. I appreciate you are smitten with your adopted country but it is folly from a personal investment perspective to follow it closely as it falls (it is falling by the way so pay attention).

Your post epitomizes the emotionalism of so many investors who seem unable to discern hazard from opportunity. I understand that you want China to be a fountain of strength but am less sure you appreciate how the global interconnected community is going to rain on that parade.

Worse, purely internal excesses within China are threatening to wreak havoc on Government finances and are a threat to the countries stability and to its financial sector. Billions upon billions of Yuan loans are at risk of never being repaid and it is largely a function of the top down approach of government that has precipitated the new hazard.

What I am talking about is the manner in which credit was dispensed and the over reliance upon regional land deals and real estate that are now forming a very dark cloud over all other aspects of the economy. No country in history has ever place so many eggs into one single basket and so the anecdotes you provide of line-ups at restaurants are really quite meaningless.

Not that I am in disagreement that consumption within China is a bad thing. It is not and indeed we want to see much more of it. But the relative wealth effect created through the misallocation of resources into one single asset class now leaves China with its cahoonas mightily exposed to the ill winds blowing around the rest of the globe.

I would suggest you take a look at some of the thousands of articles and interviews that have been written about that country in just the past few months. Are all those analysts crazy? Are you suggesting none of them can see the risks and that only you with your feet on the ground know better?

The problem here Mario is that you are trying to understand China from the perspective of a few hotdog stands instead of looking at the broad charts and real economic consequences that usually flow from housing bubbles bursting. You can gather a clearer perspective by looking at the outcomes faced by countries who have already seen real estate price collapses in the past. They are legion and the experiences are current enough that nobody can deny their applicability to China’s own house crash dilemma.

China is not immune, Mario. China is not special either.

Don’t even try to tell me that 3 trillion in foreign reserves is enough of a cushion to protect the country from adversity either. Remember, they only get to spend that money once. But which crisis will they spend it on? And what then?

If you cannot appreciate that the worlds largest economy is going in the hole 15 trillion annually tp rpop up an impossible dream while the worlds second largest (China) is now facing stall speed in economic growth with a meager 3 trillion on hand then you will never be able to see further into the future than that lineup at the hot dog stand.

China is weaker than most realize. It is perhaps one of the most vulnerable large economies in the world right now and the Command approach is at the heart of its imbalances and misallocations of real wealth.

Have you not seen the China PMI numbers nor considered the rapid rate of decline they have suffered?

Do you actually think everything will be just fine if the current contraction in manufacturing is not dealt with on some level? HSBC is already printing a number below 50 for the April PMI incidentally and if that is to be believed then Chinese manufacturing is already in contraction. That means trouble is coming. You just can’t see it while you slather on the mustard.

Here, I am not suggesting China stimulate to expand capacity nor support industries that are suffering but rather pointing out that a different perspective is required to address a slowdown that is being generated by the falling customer base. Activity is in decline even while inflation is once again increasing due to discord in Western consumption patterns. The forward looking numbers are telling us to be vigilant and to closely watch what the policy makers do to correct the situation.

China is an economy at risk just because of its over reliance on foreign income and its unprecedented capital investment schemes at home. Both of those factors now threaten to unwind years of economic gains if the imbalances are not addressed.

Time to divorce your old beliefs, Mario. Time to move on.

Thank you Mario. I will link that brief article for anyone else who might be interested. It is obviously of greater significance as it comes from the China Daily itself and not some biased Western viewpoint.

For anyone who is not familiar with this paper it should be known that it is a State Owned Enterprise and the editorial content is designed to reflect government policy. So this is significant.

China Daily Article: Fuel Prices Cut to Fight Slowdown.
http://www.chinadaily.com.cn/business/2012-06/09/content_15490196.htm
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An excerpt from the article states….

“Gasoline and diesel prices have been cut for the second time in a month amid growing government efforts to reverse a sharp slowdown in the economy”

“The reduction came after an interest rate cut on Thursday – the country’s first in nearly four years – prompting analysts to suggest that data due this weekend will show May trade and industrial activity was even weaker than pessimistic forecasts had suggested”.

“Markets are bracing for a potentially bad set of May economic data for China,” said Moody’s Analytics economist Alaistair Chan in a report”.
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So now we can perhaps agree that everyone sees a China slowdown (including you). But Mario, I do not agree that this fuel price cut will significantly alter the outcome of the housing deflation that is now underway.

While lowering the cost of energy is stimulative in the same way dropping interest rates boosts economic activity it is debatable as to whether these changes have been enacted quickly enough to forestall the slowdown that is already in progress.

In any event, as we have seen in the past, stimulants often have the negative effect of drawing forward consumption from the future and in the end quickening the absolute decline. So a command approach is enviable for its ability to respond quickly but the downside is it may offer responses prematurely thus exacerbating an existing problem.

There is an unfortunate irony where most intervention is concerned; the medicine is sometimes worse than the cure.

Thanks Mark. I noticed the link was broken too. But I have this from Wiki discussing Victor:

“On his website Niederhoffer claims to be proudest of having had “a benevolent influence” on people that came in contact with him. At least a dozen employees whom he started out or taught became billionaires or multi-centimillionaires, including Monroe Trout, Toby Crabel, Jake Burton Carpenter, Stu Rose, John Hummer, and Roy Niederhoffer (Victor’s younger brother), all of whom are money managers or entrepreneurs. Victor Niederhoffer employs promising young traders, whom he mentors. He encourages them to develop their own trading strategies and runs his firm more like a science lab than a traditional trading firm”.

Wiki:
http://en.wikipedia.org/wiki/Victor_Niederhoffer

Got to say, Victors record was impressive. I might just buy the book. He obviously had a knack for seeing through the confusion every market throws off daily. To be consistently successful is no easy task. As we know, most individuals lose money when they try their hand at stock buying.