http://blog.mpettis.com/2013/08/the-changing-debate-over-chinas-economy/#comment-416I’m pretty sure China is going down, and that it will prompt a major economic collapse in SE Asia too. SE Asia is currently in its biggest boom ever, from what I can see, from Singapore to Malaysia to Indonesia to Thailand to Cambodia to Laos etc. giant condo projects are announced every few days and sell out tp speculators in a weekend. Thai guys are buying shiny new pickup trucks at a rate that would make an Alabama redneck scratch his ears. New Range Rovers and Hummers almost outnumber the beggars in downtown Phnom Penh. All of SE Asia is on steroids. Most of the reason is China and central bank money-printing worldwide.
http://blog.mpettis.com/2013/08/the-changing-debate-over-chinas-economy/#comment-434I was reading the Philippines Inquirer news section on some days earlier this year, and nearly every time I read about some bond issue by a corporation denominated in dollars (e.g. MegaWorld, Ayala Land, San Miquel, etc). My hypothesis is that QE sat at the Fed but it raised the reserves of the banks allowing them to loan out more money, but this doesn't show up in Western credit increases rather somehow the loans are ending up in the developing world. Or it could just be investors seeking higher yield due ZIRP in the West. I read from Martin Armstrong that this was going on in Latin America too.
But now the Great Rotation has started and capital is rushing back into the dollar, USA housing, USA equities, and as this drive USA interest rates higher, then it has a spiraling upwards feedback because potential home buyers rush to lock in the rates before the rise more, international investors (escaping coming capital controls in Europe and depreciating Yen due Abeconomics) rush to grab higher rates with an appreciating dollar, and domestic investors jump on the bandwagon (noticing that the recovery in equities since the 2008 crash is now more than just a recovery given new all-time highs).
This rotation is also pushed by declining GDP in China, Europe, and thus rest of the developing world which feeds commodities and manufacturing inputs (notice a deadcat bounce in copper, gold, and stall in USA equities since China released better data past week).
This rotation thus reveals the developing world is short the dollar (they owe dollars) while their currencies decline relative to the dollar due to this shift in capital flows. This will bring the developing world to its knees between now and the end of 2015, while the USA non-bond (except high yield) assets and dollar will be skyrocketing. Yet simultaneously this rise in USA interest rates and dollar will be choking the real economy (along with Obamacare tax rises coming 2014 and plans for more increases), thus in 2016 we will likely see the USA economy roll over, as Europe, Japan, and the developing world will likely already be sinking into the abyss by 2015 (c.f. my upthread post on the net liabilities of Germany, France, USA, and UK greater than the PIIGS although this is hidden in accounting gimmicks, also German and French banks are bankrupt, again hidden in accounting gymnastics).
Michael offered his
calculations on China in an email to Mish Shedlock. The problem is those calculations don't factor in a 30 - 50% contraction (contagion) in global trade.
Face it, the world is bankrupt financially (maybe not in human and real capital in the countries with much youth but the write-down can be chaotic). Fasten your seat belts. Giant Portobello ahead.
http://blog.mpettis.com/2013/08/the-changing-debate-over-chinas-economy/#comment-437Armstrong's ECM (Economic Confidence Model) is global (and based on time multiples of Pi, i.e. 224 yrs ≈ 78 yrs x 3.1459, 78 yrs ≈ 26 yrs x 3.1459, 26 yrs ≈ 8.6 yrs x 3.1459, 8.6 yrs ≈ 1000 x 3.1459 days) and it expected the turn downward and shift of exodus capital flows to accelerate Aug 7, 2013. Right on time on Aug 7, Europe decided that
depositors will only be able to withdraw 100 Euros per day when a bank is bailed-in. Imagine the collapse in monetary velocity thus GDP upon widepread bail-ins. I've read that banks' trading losses have priority in bankruptcy ahead of bank investors and depositors.
http://blog.mpettis.com/2013/08/the-changing-debate-over-chinas-economy/#comment-438Armstrong arrived at this ECM model with the scientific method by
back testing the hypothesis to all recorded history (even spending $100 million to obtain the data and build the computer model) and then to the future, and has been more accurate than any other forecaster. I have not been able to find one forecast from him since the 1980s that didn't come true. Predicted the Sept 2000 market top, Nov 2002 market bottom, January 1st, 2005 yearly high for the NASDAQ to exact day in document that was published in 1997 which also predicted the 2007 market top and earlier had predicted the upturn in commodities in 1977. Predicted back in Jan. 2012 that gold would decline from $1600 to below $1200 before 2015 even while everyone was screaming he was nuts. This year he was writing a blog every few days shouting that gold was going to fall. The goldbugs hated him. He predicted the top in gold in 1980. He predicted the crash of 1987 (to the day!) and that bull market in Japan would continue until end 1989. His model predicted an event something like 9/11 would happen, etc, etc, etc..
http://blog.mpettis.com/2013/08/the-changing-debate-over-chinas-economy/#comment-439Clif Droke wrote
an article challenging the Great Rotation based on the Kondratieff wave, while explaining why the divergences in the USA equities are largely an exodus from low yield muni-bond funds. Thus the net capital ingress is much higher than he realizes as it is obscured by an egress which is funding the ingress. Kondratieff only used data from when the economy was primarily agarian and thus commodities. Unlike Armstrong who gathered data from 10,000 B.C. until now, the Kondratieff wave is only valid for commodities and thus yes gold won't likely bottom until 2014 (under $1050). Yet the ECM model sees the DJIA doubling (after a dip now due to deadcat bounce in China) by 2015.75.
I know this blog is not about speculation predictions, yet what I am writing about here is the model for the unraveling dominoes order of the coming global contagion, i.e. the international capital flows. Herbert Hoover wrote about the Great Depression, it was as if capital where chairs on the deck of the Titantic, rushing from side-to-side of the global economy unable to find a safe haven and real growth. This is what happens with ZIRP and sovereign debt end game all through out history. This pattern repeats as Michael wrote in his blog about "Globalization". The ECM quantifies the timing of the (business, political, technology) cycles.
Why does energy transfer in waves and why does human action occur in waves (i.e. cycles)? Michael possesses a physics background so he can readily appreciate inertia, acceleration and force. For example, if you push on a twig then you increase the force until it breaks. If you put too much force on a thick enough twig, you fall down as it breaks and your inertia pulls you forward. Then you recoil, i.e. a wave. Everything in the universe has an inertia, including every human and thus human action. My blog is linked on my name and I wrote more about this in The Universe.
