Yesterday, we spent the best part of the day studying James’s latest dispatch to members of his Strategic Investment research service. Frankly, what we read shocked us. Because it made us realize just how flimsy the case for a quick recovery is.
The mainstream would never publish this kind of analysis because it would be afraid of panicking investors… and hurting their advertisers. The underground doesn’t have these constraints. Because there are no advertisers. Just individual investors who pay to read honest analysis and investment advice.
If a warning goes out to the underground, it doesn’t matter if that warning is extremely bearish. The underground is, by nature, very small. They can short a market and take home the profits without the mainstream even knowing it happened. If they go bullish on a sector, an asset class or a growth stock, the same thing applies. They can get in at a low price because they’re a naturally small group. Try doing that with a tip you see on Cramer’s “Mad Money” or read on CNNMoney. You won’t get very far. In fact, you’re more likely to buy high and sell low. It’s just the way the system works.
James’s macro investment research service, Strategic Investment, costs $99 a year. It’s an inconsequential amount of money when you consider the kind of profit opportunities it brings members. But most people don’t like paying for information. So the small fee is a great way to keep the mainstream away… and makes sure the each of the profit plays it presents stays within a small group.
Having said that, we feel it’s important that Notes readers are apprised of the dangers James has outlined in the upcoming issue of Strategic Investment. The issue hasn’t even gone out to James’s paid-up subscribers yet. So we ask you to please not forward this email to people outside the Notes community. (Under normal circumstances, we’re very happy for you to forward our emails. But we’re sure you understand that it wouldn’t be appropriate given the nature of today’s issue.)
James has spent a long time examining the Chinese stimulus program. And his analysis reveals that it is likely to trigger another heavy leg down in the global economy. In fact, James believes that China is the single biggest threat to your wealth right now.
This flies directly in the face of conventional wisdom, which holds that China is leading a turnaround in the global economy. You see, far from contributing a solution to the global depression, China’s stimulus program is aggravating the underlying problem. That’s because it is proliferating supply in a world plagued by excess capacity and collapsing demand. Put simply, China is stimulating the wrong things. This from James:
Beijing has flushed trillions of yuan into expanding capacity in sectors already suffering from collapsing demand and an overhang of capacity.
To cite one example, which has been highlighted by Chinese officials themselves, Li Yizhong, chief of the Chinese Ministry of Industry and Information Technology, has proclaimed that China will withhold approvals of new steel projects for at least the next three years.
Li told a press conference on August 13 that oversupply has become a serious problem because China’s annual production capacity of 660 million tons exceeds estimated demand by an astonishing 190 million tons.
One of Li’s spokesmen put it this way: “The industry must produce according to market needs and avoid adding to the excess capacity. They should avoid reckless investments. The government must also take action to curtail additional investments by companies that are already in excess.”
The problem is Li’s warning is being ignored by the Chinese regime. And James believes that China is now in danger of entering the same kind of deflationary spiral that left the once-booming Japanese in the doldrums for close to two decades.
What the Chinese are doing today is much like what the Japanese did in the mid-1980s. Fearing a fall-off in the earnings of Japanese business from trade, Japan’s Ministry of Finance directed a torrent of low-interest bank loans into the manufacturing sector that were backed by a “nod and a wink” from the Bank of Japan.
The big banks knew they could lend profitably to manufacturers because the government implicitly guaranteed the loans. The manufacturers took the money at low nominal interest rates. It was, after all, almost free money.
Naturally, Japanese manufacturers found themselves awash in liquidity. And they looked to deploy this cash in asset speculation, rather spending on capital goods or other aspects of the real economy. […]
Flash forward to today, and we find another Asian economic superpower has replaced Japan as the world’s largest trade-surplus country. And it is now making the same mistake that Japan made in the 1980s.
China’s leaders have instructed Chinese banks to lend trillions of yuan (CNY7.4 trillion so far) to Chinese manufacturers. These are mostly old-line state-owned enterprises that are the least productive sector of the Chinese economy. As a result, Chinese M2 money supply has increased by 28.5%. And yuan based lending has soared by 34.4%.
James believes Beijing is unwittingly inflating a gigantic bubble. And that when it bursts, it will trigger an even great crisis than the one Japan experienced during its “lost decade.” The specific ways to profit from this collapse are available only to members of Strategic Investment. But we can reveal here that James reckons that a collapse of the Chinese bubble economy will benefit investors long on the US dollar.
Here at Notes we think a strategic short of the commodities complex – particularly industrial metals – could prove to be extremely profitable in the short term. (We remain long-term bullish on commodities.) Another way to play the China collapse would be to short the “commodities currencies” – particularly the Aussie and Canadian dollar.
If we’re due another leg down in the global economy, we also highly recommend owning gold, either via gold ETF GLD or by holding physical gold (bullion or coins).
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