Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Monetary Tightening Threatens China’s Economic Prospects

Economics / China Economy Dec 29, 2010 - 09:16 AM GMT

By: Claus_Vogt

Economics

Best Financial Markets Analysis ArticleChina’s role on the global stage has grown tremendously during the past several years. And there are valid reasons to believe this trend will continue. But it will not go as smoothly as many pundits assume …

On Christmas Day, Beijing raised the benchmark deposit and lending rates by 25 basis points (bps) to 2.75 percent and 5.81 percent respectively. This is the second step in the current tightening cycle, following the first surprise 25 bps hike on October 19.


But that’s not all … reserve requirements have also been increased considerably during the year.

This monetary tightening is absolutely necessary, because …

China Has a Dual Inflationary Problem

First, consumer prices rose 5.1 percent in November from a year earlier, the biggest increase since July 2008. During the same time in the U.S, prices rose just 1 percent.

Second, China’s housing bubble is much bigger than the one that burst in the U.S. In fact, this year China constructed 12 to 15 million residential units. The U.S. built only 2.5 million units at the height of its 2006 housing boom. And as shown in the chart below, China’s housing bubble rivals Japan’s of the late 1980s.

Rising consumer and housing prices are symptoms of China’s easy money policy, which was in response to the 2008 global crisis. Moreover, relative to its GDP, the Chinese government’s stimulus was much larger than the huge programs the U.S. and Europe implemented.

Now Chinese officials have obviously realized they have an inflationary problem. And they are addressing the problem via the only viable policy: Interest rate hikes and higher bank reserve requirements.

That, however, may turn out to be the prick that pops China’s housing bubble. And this bubble is big enough to pose a real threat to China’s short- to- medium-term economic prospects.

Already …

China’s Stock Market Is Showing Relative Weakness

Interest rate hikes are bearish for the stock market. And this well-known relationship also applies to China. Look at the Shanghai Stock Exchange Composite Index. Since its high in mid-2009, it’s one of the weakest performers globally.

As such it conveys a message … and this message is clearly bearish. The stock market seems to be discounting an unpleasant surprise coming out of China. And to me it looks as if the Chinese stock market has just begun another major down wave.

In the chart below, you can see that the 200-day moving average is falling, and the price momentum oscillator (PMO) is hovering around the zero line. Indeed, the technicals are supporting my bearish interpretation.

My suggestion: Stay tuned. China is on a dangerous road. An unpleasant surprise may be in the offing.

In the meantime, you might consider an inverse exchange traded fund (ETF) to protect yourself from a decline in the Chinese market or even profit from a decline.

The ProShares Short FTSE China 25 (YXI) is one such example …

YXI seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the FTSE China 25 Index. So for every 1 percent decline in the index, YXI is meant to rise 1 percent.

The FTSE China 25 Index is comprised of 25 of the largest and most liquid Chinese stocks listed on the Hong Kong Stock Exchange. And if my misgivings for China become reality, this index is sure to take a beating.

Wishing you a Safe, Happy and Profitable New Year!

Claus

P.S. I have just released my new book, The Global Debt Trap: How to Escape the Danger and Build a Fortune, which I think is timed perfectly for what’s happening in China and the other the events swirling around us.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 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

6 Critical Money Making Rules