China Stands Ready to Re-Inflate Bubble, Says Michael Kosowan
Commodity prices have slumped as the Chinese stock market declines… Investors worry that commodity prices will stay low if China’s growth stalls.
Michael Kosowan, a broker at Sprott Private Wealth LP, believes that China’s economy is sound. The recent bubble may have resulted from central planners’ policies, not underlying problems with China’s economy.
China’s stock market took a mighty shudder for the second time this summer. Stock prices have crashed, sending a tidal wave of fear and panic across the globe.
Will China, the “engine” of the world’s great economic machine, come chugging to a halt?
Not likely -- at least not in the long run.
With wages on the rise, rising educational attainment and literacy rates, and the decline in income inequality across the board, the sheer mass of its upwardly-mobile population makes China a powerhouse of human capital and personal consumption.
China has changed dramatically through the years. Most notably, it has delivered a massive middle class. China has seen unprecedented liberalization of its markets and personal and professional freedoms.
The Chinese government has actively sought ways to promote growth by encouraging its population to buy property. Last year, it encouraged households to invest in stocks.
These methods of stimulus helped create the bubble that is unwinding now. But overall we have witnessed healthy growth.
Housing and commodities, which Chinese investors use as collateral to gamble in stocks, were caught up in the market downtrend.
Gold was likely a primary form of collateral during the Chinese market boom. According to data from Hong Kong, China imported around 3,000 tons of gold over the last couple of years.
But the People’s Bank of China (PBOC) only reported around 1,600 tons of gold in its current holdings.1 The “missing” 1,400 tons could have been used as collateral for purchasing stocks.
So the central planners of the PBOC may have brought about a bubble by encouraging households to get into stocks and real-estate. But it’s not a reflection of a weakening underlying economy.
Those central planners still have many different easing instruments at their disposal, including debt issuance and currency de-valuation. In the weeks ahead, they are likely to experiment with cutting interest rates and further devaluing their currency in order to stabilize the stock market.
They may shuttle the bad debt off to warehouse-like institutions while they re-inflate their markets.
So if stocks fail to rebound, the PBOC stands ready and willing to re-inflate the bubble.
P.S.: To hear more from Michael on how the “Shanghai Surprise” might impact gold, watch his recent comments from the Sprott-Stansberry Symposium here:
This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested.
Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and nowadays also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment. Because of significant volatility, large dealer spreads and very limited market liquidity, typically you will not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.
Wednesday, September 2, 2015
China Stands Ready to Re-Inflate Bubble, Says Michael Kosowan
Friday, August 28, 2015
Rick Rule: “Scary Times Are Upon Us – Capitulation Is Beginning in This Market”
Friday, August 21, 2015
Thompson: Taking Advantage of A [Bear] Market Gave Us A $200mm Interest On A Property That Cost Us Nothing
Thursday, August 13, 2015
Steve Todoruk: Japan Is Setting the Stage for a Uranium Rally
Wednesday, August 12, 2015
Exploration Geologists: “[Properties] Are Available That You Don’t See For 10 Years—And There’s No Competition”
Thursday, August 6, 2015
Own shares in Central GoldTrust or Silver Bullion Trust? Can You Trust Your Trustees?
Wednesday, August 5, 2015
A Recovery “Is Going to Happen” -- Rick Rule at the Sprott-Stansberry Symposium
Thursday, July 23, 2015
Jim Rickards: "Euro Creators Want to Force Common Fiscal Control, Eurobonds”
Monday, July 20, 2015
Eric Sprott: "I Haven't Lost any Conviction" on Gold and Silver
Tuesday, July 14, 2015
$85 Billion in Write-Offs May Fuel Small Gold Mining Stocks
Friday, July 3, 2015
Use E-Trade or another Online Broker? Beware of “Pink Sheets” Market