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
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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

6 Critical Money Making Rules