09 August, 2013
China's millennium – how to invest in the new world order
Dear Buzzhairs Buzzhairs,
I know that figures released by China's National Bureau of Statistics are usually met with a lot of scepticism... especially when the figures look good! And that's how people have reacted to the latest report from the bureau, which landed overnight.
According to the bureau, industrial production was up 9.7% in July, while retail sales grew 13.2%. That was hot on the heels of data released yesterday, reporting exports rising 5.1% and imports up a significant 10.9%. Can we trust any of these figures?
Not according to our mainstream media. They've poured scorn all over this story. And I find that depressing.
Sure, the Chinese fiddle the data a bit... but ignoring the rise of China is both conceited and dangerous. This is a very real, and very concerning story.
The whole situation reminds me of the seventies, and the propaganda wars between East and West. Only this time, we're on the wrong side of the curtain!
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You can't argue with the plan
China's five-year plan is to re-align domestic consumption with its massive production capacity. So with retail sales up over 13%, I guess they're on track. What's more, the trade surplus narrowed to £11.5bn... which again makes sense; basically, they're not exporting quite as much last year. But that's still a massive export surplus... and it means China is still very much in the mode of building significant foreign currency reserves.
I don't see how anyone can argue with the fact that China is becoming an ever-increasing industrial behemoth. Whether you believe the growth figures or not, the fact is, all you need to do is look in your local DIY, electrical, or clothes store, to see where all this stuff comes from.
And look at the commodities markets if you need more confirmation. Yesterday, Bloomberg reported China's record iron ore imports of over 73 million tonnes... that's the largest monthly imports figure since records began in 1990!
In fact, the figure was up 17% on the previous month... and consumption of practically all the industrial metals is on the up.
Commodities markets have been in a bit of a lull over the last year on talk of weak global growth. But with data like this, I don't think that's going to last. In fact, I recently made the point that Western banks are increasingly getting in on commodities too... frightened of unbacked paper wealth, shrewd banks and hedge funds are collateralising contracts with industrial metal.
China has been only too happy to play along with the global growth slowdown story and took the chance to stockpile metal on the cheap.
In fact I believe that China is winning the economic war and we should plan our portfolios accordingly.
These guys aren't stupid
As well as importing an ever-increasing amount of industrial metal, China is still amassing plenty of Western paper too. And like anyone else currently holding Western government bonds, they must be concerned about its long term future.
Now, the classic reserve currency has always been gold - in fact, right up until 1971. Yet the Western propaganda machine has played down gold's reserve status for years now.
In 2011, Ben Bernanke told the US congress that "gold is not money"... and more recently he said: "Nobody really understands gold prices and I don't pretend to understand them either". It's as if gold doesn't matter.
Just as the Chinese played their role in subduing the commodities complex, I suspect the Chinese have been only too happy to go along with the subdued gold price too. In fact, it played the same stockpiling game in both places...
Just take a look at the following chart to see China's accumulation of gold through Hong Kong imports over the last ten years or so.
Click on the image for an enlarged version.
And bear in mind, China is the world's biggest gold producer too... but does it export any of this production? Not likely!
The Chinese aren't stupid. They don't announce the fact that they're purchasing and increasingly stockpiling gold. Not like Gordon Brown, who actually announced his massive gold sell order in advance!
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The alarming truth about Britain
A dangerous financial experiment – carried out by our own government – has gone horribly wrong.
The effects will be felt by everyone in the country.
We believe savers and investors like you could be worst hit. And it could put everything you have worked hard to achieve at serious risk.
Read this as soon as you can.
Find out what's happening – it's all here in black and white.
MoneyWeek magazine is an unregulated product published by MoneyWeek Ltd.
China is amassing real wealth
There's no doubt that China will meet its fair share of obstacles along the road to economic supremacy. I mean, economic central planning always goes wrong doesn't it? As such, China has already seen a massive misallocation of capital; much of it in infrastructure spending where whole cities are said to sit vacant... with ghost airports and stalled railway systems.
With limited avenues for investment, locals have bid up a property bubble that looks none too pretty. And I'm sure there are other bubbles in the making too.
And given the international monetary bias toward the West, China finds herself importing inflation. Something causing considerable local agitation.
But the point is, China is winning the economic race (as Cameron likes to call it). If anyone is guilty of misrepresenting the picture, it's the West. We are sinking in a sea of debt... and the political solution is always the same: keep piling up the paper promises.
Meanwhile China amasses real wealth. Industrial capacity, production knowledge and most of all gold. Right now, we don't know how much – and given how little gold China started with, it may not yet be a concern. But I suspect that one day it will be. I mean, only a couple of days ago, People's Bank of China official Yao Yudong wrote an article calling for a new "Bretton Woods".
Bretton Woods is the post-war dollar currency regime. Built by the West, and for the West, it's days are numbered.
I am planning for the day we see a new international currency standard. Though it may be many years away, there's no doubt in my mind that it draws nearer. Reading between the lines, it would appear that gold may well be an integral part of any new regime.
Don't believe the Western propaganda... gold is money, and to my mind, it has a place in every investment portfolio.
Good investing,
Bengt Saelensminde
The Right Side
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