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China: Three reasons how she could create an October crash

Friday, 10 Jul 2009

Summary

Everyone speaks of China. She is to become a super power, a reserve currency, and her economy is to become the second or third largest in the world, after Japan. Readers know that we are a little skeptical, but in markets, you have to go with the flow. So assuming that this is what the market thinks, a bad storm may be brewing...one that we tell you how to save your money off.

Topics Covered

  1. How China could create a global crash
  2. How to save money off this idea

Background

1. How China could create a global crash

How could China possibly catalyze a global crash?  In our recent piece presaging such a crash this October, we gave you four non-Chinese triggers.  But with China now being such a doll on the cat walk, maybe events on the mainland itself can cause this global calamity?

Here are some roadside bombs that particularly those investors who are not following China "real time" might want to bear in mind:

  • Unrest in Urumqi.  Do not discount the Chinese government's resolve. Understandably, they want to keep a handle on any social unrest, given that the migration from the cities back to the countryside already is causing social undulations. So expect some form of very public, virulent crackdown here. That may shock investors...as it has before...;
  • New loans growth is racing ahead. We have admitted in our last piece our incorrect reading of China's  Economic Time®; due to government Diktat, and thus contrary to the West's fearful banks, lending has been forced to race along. Ominously, this Wednesday, the Central Bank, the Peoples' Bank of China (PBOC), released loan figures ahead of its normal time frame. The oddity is that such early warnings are unheard of: normally, the Central Bank releases loans data later. Why such an early release? See next.,  and 
  • Monetary policy is tightening because of this strong growth in loans. According to yesterday's  South China Morning Post, "The rare release of preliminary monetary figures was aimed at helping offset the negative impact that the PBOC would resume issuing one year bills today to absorb at least 50 billion yuan after a seven month long halt..." Yesterday, in order to drain liquidity from the system, the PBOC issued, ("gave") RMB 110 bn in overnight  to one year bills and drained  ("got") about this amount of money out of the system. The PBOC prefers to tighten  liquidity as opposed to raising interest rates for fear of stalling China's recovery.If you want to know more about this last point, get me to write a piece on it, as it is of market-psychological nature, even if the effect of tightening liquidity is not dissimilar to that of raising interest rates; indeed, tighter liquidity begets higher interest rates!
Our point is simple: social unrest and tighter monetary policy, on top of a somewhat creaky global Economic Time®, can create havoc if one tinder is lit...Now we have given you four global tinders and three mainland tinders, any one of which may be lit...

2. How to Save Money Off This Idea

  1. Always consult your financial adviser first.
  2. We already have given you eight ways to earn off the October crash.
  3. Be very selective in which stocks to buy  at this stage. Fear is bigger than greed  during this subtle worsening in China's Economic Time®.

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