Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

China's Leadership Serious About Keeping Inflation Under Control and Economy Booming

Economics / China Economy Jan 21, 2010 - 12:50 PM GMT

By: Tony_Sagami

Economics

Best Financial Markets Analysis ArticleI’d laugh if it didn’t make me cry.

I’m talking about the money-printing, bubble-blowing excuse for monetary policy that our last two Federal Reserve Bank Chairmen have followed. By chopping and then keeping interest rates close to zero, Alan Greenspan and Ben Bernanke were responsible for creating the painful real estate and credit crisis that we’re going through.


Those two are as haplessly blind as Mr. Magoo and I believe will ultimately be treated by historians as the worst Federal Reserve Chairmen in history.

Paul Volcker, on the other hand, was a brilliant Federal Reserve leader. Volcker was the Fed Chairman under Presidents Carter and Reagan from 1979 to 1987.

Inflation had risen to a painful 13.5%, but thanks to Volcker’s unpopular but effective decision to raise the prime rate to 21.5% in 1981, inflation was ultimately beaten back to 3.2% and our economy entered a new period of economic prosperity.

Benanke and Greenspan … Paul Volckers they are not.

You know what country does have Paul Volcker-type leadership in place? China!

Like the U.S., the Chinese money supply and worrisome inflation signs have been growing. Chinese banks loaned out a record US$1.3 trillion in the first 11 months of 2009 driven by China’s aggressive $586 billion stimulus plan. In just the first week of 2010 alone, Chinese banks loaned out another US$90 billion.

China GDP Growth

Chinese leaders have set their full-year 2010 new loans target at around the US$1 trillion mark so that US$90 billion in the first week of January was a warning sign.

Instead of being “reactive” and waiting for inflation to show up, the Chinese leaders are choosing to be “proactive” and heading off inflation before it takes hold. The People’s Bank of China (PBOC), China’s central bank, increased the reserve requirements by 0.5% effective on January 18 from 15.5% for large banks and 13.5% for small banks.

The reserve requirement is the amount of cash reserves a bank must keep on hand instead of loaning it out.

That’s not all the PBOC did. It also increased interest rates on three-month bill rates by 4 basis points and one-year rates by 8 basis points.

I loathe admitting it, but a bunch of communists are showing more prudent monetary management than the people running our country.

While I wish our leaders would act more fiscally and monetarily responsible, the real question for us as investors is whether this newfound tighter monetary policy will derail China’s economic recovery and expansion.

I think the best answer is found by looking at how the markets reacted. The Shanghai Composite Index lost 3.1% last Wednesday when the news came out but rebounded by 1.4% the next day.

Investors around the world breathed a sigh of relief for three reasons:

1. The Chinese leadership is serious about keeping inflation under control.

2. By taking action now the odds for another rate hike are now less likely.

3. The Chinese are behaving more like Paul Volcker and less like our two Mr. Magoos: Bernanke and Greenspan.

China's proactive policies have all but guaranteed a strong economic rebound.
China’s proactive policies have all but guaranteed a strong economic rebound.

My view? I’m more enthusiastic than I’ve been since 2005. Those were great times to invest in China. In 2006, the Shanghai Composite Index jumped by 130%, 97% in 2007, and 80% last year.

In fact, I am now so enthusiastic about China that I just told my Asia Stock Alert subscribers to close out a protective hedge we’ve had in place since the financial crisis unfolded.

If you have not done so yet, THIS is time to jump on the China bandwagon. If you’ve been a reader of this column for a long time, you know that I favor individual stocks over mutual funds and ETFs but if you want to get some fast, easy exposure to China, here are some ETFs for you to consider.

iShares FTSE/Xinhua China 25 Index (FXI): Seeks to track the performance of the FTSE/Xinhua China 25 index. This index consists of 25 companies that represent the largest 25 Chinese companies listed on the Hong Kong Stock Exchange.

PowerShares Golden Dragon Halter USX China (PGJ): Seeks results that correspond to the returns of the Halter USX China index. This index consists of 103 Chinese companies whose common stock is publicly traded in the U.S. The index uses a formula that prevents the largest market-cap companies from becoming too large a component of the index.

SPDR S&P China (GXC): Seeks to replicate the total return performance of the S&P/Citigroup BMI China index. This index consists of the largest 342 companies that are publicly traded and domiciled in China.

There are more sector-focused ETFs too. Claymore Asset Management just launched three new interesting China-focused ETFs.

  • Claymore China Technology: This ETF will track the GICS Information Technology index.
  • Claymore China Consumer is an ETF that tracks the AlphaShares China Consumer Index.
  • Claymore China Infrastructure will track the AlphaShares China Infrastructure Index.
  • Additionally, Global X also unveiled two new ETFs: The Global X China Consumer ETF and the Global X China Industrial ETF. The Global X China Industrial ETF (Nasdaq: CHII).

However you choose … just get on board because the lucrative Chinese train is about to leave the station.

Best wishes,

Tony

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in