Friday Haymaker
Content Summaries & Recommendations
Michael Lewitt Analyzes Chinese Economics (& the Case for Gold)
The Credit Strategist, authored by Haymaker ally Michael Lewitt, has, in a recent post titled Pouring It On, outlined some major challenges presently threatening to destabilize, or at least substantially diminish the imperial national health of the world’s second-largest (and, per Lewitt, “over-leveraged”) economy. That, of course, would be China. At the center of China’s crisis matrix is a problem with which one too many developed-world nations are contending: debt. This is particularly problematic for a country which Lewitt correctly describes as suffering from “... [an] anti-business regulatory assault and Beijing’s flaccid reaction to the country’s sharp economic slowdown.”
It’s reasonable to assume that whatever means of generating economic revitalization and marketplace dynamism might be innately available to China are functionally handicapped by bureaucratic meddling. This is magnified by governmental powers that seem to hold free-market solutions in abject contempt.
Added to its economic woes is a population decline which, per a growing body of demographic research, does not seem capable of reversing itself. But far be it for the Chinese politburo to make necessary foreign policy adjustments after objectively assessing the country’s fiscal condition and demographic trends.
Instead, as Lewitt points out:
China is reportedly now spending over $700 billion annually on its military in efforts to assert hegemony in Asia and counter US influence around the world while wrestling with insolvent banks & local governments. China suffers from believing its own press releases about its power while ignoring its dangerously shrinking population and unsustainable economic model.
Lewitt’s thesis expands outward to encompass the similarly troubled United States, at least with respect to its own debt and political woes. Geopolitically speaking, America’s impulse towards overseas intervention could see us colliding with a China that can’t seem to keep its military reach and its imperial grasp properly aligned. (If this dual criticism sounds highly similar to our appraisal of the two U.S. presidential candidates, that is strictly coincidental.)
In making a case for individual protection as global insanity looms, Lewitt goes on to say:
This is a recipe for economic turbulence including higher inflation, trade barriers, debt defaults, & market dislocations. Lowering interest rates in such an environment may seem sensible but is actually the trigger point for chaos. What is needed now is policy stability and pro-growth policies based on settling geopolitical disputes before they collapse into expensive and uncontrollable conflict.
These are all reasons to buy gold to protect yourselves.
We’ve linked to the full Lewitt piece, which we advise you to read for yourselves. Whatever’s ahead for China and the U.S., burgeoning debts and misguided militarism are very probably going to remain in the cards; we can only hope both are governed into a manageable state (hold your laughter) before the Global Fates deal the world a dead man’s hand.
In the interest of balanced analysis, we’ve also included some excerpts from a recent research note authored by the venerable Louis-Vincent Gave, founder of Gavekal Research. For investors, the key decision at this point is whether or not the extraordinarily depressed Chinese market is a buy. Based on Michael’s take, one might conclude probably not. But in light of the very aggressive stimulus package Beijing has recently unveiled, perhaps that’s not the correct conclusion. Accordingly, with an open mind, let’s see what Louis has to say on the matter.