Last Week in Review

Can China Bail Us Out Again?

At the beginning of the week there appeared to be growing gloom, but as you can see from my Key Economic Metrics, by the end of the week, except for oil and T-Bonds, prices were higher.

The housing market is in trouble as lower rates don’t seem to be generating much new buying. Manufacturing is contracting in the U.S. and the employment index is showing contraction. And job openings are rapidly declining.

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As Steph Pomboy tweeted this past week, “Consumer Confidence (chart below) dives on deteriorating labor conditions. ‘Jobs hard to get’ has increased 7.3pts in 8 months. Increases of that speed in magnitude are almost always associated with recession.”

China to the Rescue?

Gloom seemed to subside a bit later in the week following plans announced by the Peoples Bank of China to pump 1 trillion yuan (US$142 billion) into the equity markets. As Michel Bury tweeted, “The last time China injected capital into the big banks was during the global financial crisis in 2008.”

Friday morning on CNBC, billionaire fund manager David Tepper said that he was buying everything he could get his hands on in China. He talked about some of the companies listed above selling at single digit PE ratios with double digit growth and 20% to 50% cash on their balance sheets. David Tepper on China

But perhaps this is simply wishful thinking on Teppler’s part? I’m planning to do a podcast with my friend Chen Lin who took a somewhat opposite view. I want to know more about what he is thinking, not simply as an American but as a Chinese American who just spent a couple of weeks in China with his parents.

Also, with respect to Teppler’s bullish view, Daniele Di Martino Booth (as well as other analysts) have opined that we cannot count on China to bail out the global economy this time because they have their own problems, including massive malinvestment which always eventually occurs in a dictatorial economic system. I would also add that given rising geopolitical tensions, there is likely less incentive to bail out America this time around.

So, I wonder if the money printing by the POBC will be simply sufficient to avoid collapse of the Chinese economy without any global impact or if another round of massive construction that generates demand for commodities will sends prices higher, causing Jerome Powell even more sleepless nights? I’m looking forward to Chen’s thoughts on that.

Time will tell. But whatever is happening in China is certainly not helping the dollar realtive to the price of gold.

So far, a rising price of gold has had little impact on the share prices of the gold miners and the exploration comanies that are having great success in building multi-million oz. gold deposits. Shortly, I will have more comments on that topic to explain why I think that is about to change.

Best wishes,

Jay Taylor

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