Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

China Is Leading a Once-in-a-Generation Shift to Inflation

Economics / Inflation Mar 08, 2018 - 02:37 PM GMT

By: John_Mauldin

Economics

By Patrick Watson : At the Strategic Investment Conference 2018, Louis Gave, co-founder and CEO of Gavekal Research, talked about “game-changing policy shifts” and massive social changes that are underway in China.

One of the most notable changes is Xi Jinping’s effort to pull the Chinese economy away from pollution-heavy industries. Cement, steel, and textile industries are under pressure—they are forced to cut back production and reduce supply.


Source: Mauldin Economics

The president of the People’s Republic of China initiated the new policies a couple of years ago, said Gave. Now the reform is intensifying.

The China-style “supply-side reform” is exposing an inherent contradiction in our thinking. We believe central banks can always inject liquidity and companies can always get more efficient.

If these are true, Gave raised the question, why is there excess capacity in the system? Because China has been building it due to the low inflation and deflation of the last two decades.

Meanwhile, the rest of the economy responded with its own “overcapacity optimizers” like Uber and Airbnb. These will be less necessary as China soaks up the overcapacity.

This will be a big change, and few see it coming.

China’s Reform Amid US Struggles

Meanwhile, the US deficit has been deteriorating for the last two years, yet we did not have a recession. The problem is that it’s hard to cut spending. Gave likened this situation to Europe 20 years ago.

Tax cuts coupled with increased spending will mean record budget deficits for years to come. The US fiscal policy is not stable and, Gave said, the markets are starting to realize it.

If that’s the case, he asked, who will fund the ever-expanding US deficit?

There are only a few possibilities: the Federal Reserve, US banks loading up on Treasury paper, domestic investors, or foreign investors. None look inclined to do it.

Further, the US dollar shows no promise and acts like an emerging-market currency. It has failed to rally even as interest rates rise, markets fall, or other central banks sound dovish.

Considering the US debt situation and lack of other obvious financing sources, it seems likely that the debt will be paid with a weak dollar. Hence Xi’s decision to ramp up China’s imperial ambitions.

A Structural Shift to Inflation Is Underway

Gave said the People’s Bank of China is the only central bank in the world that is truly hawkish on inflation.

Chinese Marxists blame inflation for the 1989 Tiananmen Square incident and don’t want it to happen again. Gave sees a shift coming as China leads the world out of the disinflationary boom and bust cycles. Gold prices and bonds are also signaling a shift to inflation.

Conclusion: We could be seeing a structural, once-in-a-generation shift to inflation. This will require radically different thinking for most investors. US Treasury bonds will no longer be good diversifiers. Gold, and possibly RMB bonds, will replace them.

Gave is also interested in Eastern Europe—one of the regions he’s looking at. Countries there will benefit from China’s infrastructure rollout, which reduces its dependence on Germany and Russia.

Get Live Updates from the Strategic Investment Conference 2018

Learn from 25 top financial experts, best-selling authors, and investment professionals as they discuss their best investment ideas and predictions for the economy, financial markets, and geopolitical relations. Tune in to the SIC 2018 live blog now!

John Mauldin Archive

© 2005-2019 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