Friday, October 16, 2009

China's Auto Sales Rise 78% - The Doom Meter Is Pegged On Extreme Warning, Complete Failure Dead Ahead

As we highlighted earlier this week, central bankers around the world are unwittingly creating or at least contributing to the next liquidity crisis via their activities. So, let's take a moment to look at another future contributor to that dynamic. China. We were a lone voice in our concern over China before the Chinese stock market collapse. Today there are some willing to acknowledge that China is in a bubble. Yet that bubble is often compared to the bubble in U.S. housing or stocks. Not even close. I doubt very many people truly appreciates the scope of horror that is China. They will. Only when they see it. Until then, my remarks will simply be those of a cassandra who maybe luckily called the Chinese stock market bubble.

But first we must cheer the continued incredible economic growth in China as proven by the auto sales report this week. People who focus on the American economy this cycle are missing the biggest global economic bubble in history. The future is going to be very different than almost anyone imagines. The U.S. can easily get out of their crisis in a relatively short period of time. It's only a matter of political will. We'll eventually tear down many walls built by many bears who have been heretofore correct on their assessment of the American economy. We have obviously been correct as well but too many bears have well too many blind spots in their understanding of this crisis and how to overcome it. Maybe I do as well but I can easily discount every single bearish argument for perpetual economic doom in the U.S. And do so with some very easy solutions. Unfortunately, those solutions will never be considered until doom is upon us. Already we see a political establishment who generally believes the economy is on the mend. That means most politicians are back to their favorite games of collecting lobbyist money with one hand and holding babies with the other.

Our premise remains that emerging markets are going to collapse and China remains the biggest crisis in the world. And while many people point to statistics like the one in the title of this post as proof of China's emergence and future economic dominance, it's simply more of the same learned idiots who generally know literally nothing about many words which pass their lips.

Anyone who understands basic economics knows when the capital goods sectors are in recession, money flows to the consumer sector - something we highlighted on within months of starting this blog. It's not very reassuring that nary a single economist has mentioned this dynamic regarding the economy in China. The vast majority of economists and financial wizards simply do not understand economics - an affirmation of Pareto's Principle and/or the Peter Principle, both of which we have written of on here over the years.

So.....Here's a real winner. While the mainstream media pumps this auto statistic and many other data points as proof of the coming Asian century and the strength of the Chinese economy, let's look at reality. The capital goods sectors in China have imploded. Over ten thousand factories have closed. Most likely thousands, if not tens of thousands more than that. It's impossible to get clean data out of a communist country. South Korean firms alone have shuttered over five thousand Chinese factories so reality is likely to be in the tens of thousands.

In order to keep it's economy from completely collapsing, China is extending never before seen credit growth into its consumer sector hence the absolutely surreal auto sales growth over the last half a year => autos are consumer goods. Let's put this another way. The enormous size of China's auto sales growth is in fact a validation of just how bad the Chinese economy really is. Huh? You read that right. In order to keep its economy from completely collapsing, China's very, very small consumer sector must run like gerbils in a cage at speeds never before seen to absorb the massive economic losses from the capital goods sectors. Never before seen. Ever. In the history of mankind. I am not exaggerating. China simply cannot ever balance this equation. Ever. We have talked about the dynamic of a nearly nonexistent consumer sector in China as a huge and growing problem for ages but it falls upon deaf ears as yammering sycophants from Goldman Sachs, McKinsey and others participating in the greater fool scheme blabber about the rise of China. Collapse is imminent.

You won't read any of this elsewhere. That's because the world of economics and finance is in a perpetual haze of lunacy. And as a commenter in our last dollar post noted, you surely won't be reading this from the hazy lunatics at HSBC. They were still pumping the Asian century just this last week.

So.....I wonder how long $2 trillion in currency reserves will last when China is making very high risk loans of truly "junk" quality at a $1.5 trillion dollar a year clip? With an honest GDP of probably $2 trillion. This on top of a decade of already bad loans festering within the Chinese banking system.

This is one area distinct area where I have highlighted differences in my perspective with those of Marc Faber. Marc is clearly not looking at the entirety of the data and interpreting it accurately. The Asian century is a fantasy made up by Wall Street pinheads and a pliant media. And so is the perceived safety of collective currency reserves held around the world. Something we wrote of regarding Russia in advance of its collapse and again as it pertains to China in countless posts. But, then none of this is new in any of our discussions. Just a rehash for new readers.

I can't wait to see the Fed trying to issue central bank liquidity swaps with the central bank of China as they did with other nations during the 2008 collapse. Ha ha ha. That act, were it attempted, would likely be the final nail in the coffin of the Federal Reserve or private banking in the U.S. or both courtesy of a populist mob. Seriously, I fully expect the U.S. and the Federal Reserve will clearly let China choke on its own vomit before this would ever happen. And choke they most likely will.

The world continues to become more and more interesting. And even though it may not appear so on the surface, all of our anticipated outcomes are working quite nicely towards their destination.

As we have repeated time and again over the last four years, the entire world will literally shudder and shake when this cycle ends.

But remember above all, the yuan is going to replace the dollar as the world's reserve currency. And China is going to inherit the economic mantle from the U.S. It's so completely obvious. As obvious as a collapse in the dollar. We highlighted price data confirming our anticipated deflation out of China right before its market again started its downward trend a few months ago. Wait till China panics and tries to produce its way out of this crisis using any forms of export subsidies and manipulation it can muster. It's nearing the time for another yuan devaluation. Just in time to reward foreign purchasers of newly minted China bonds. All of these dynamics will make global politics really interesting.

Maximum U.S. exposure to China? Wall Street and American multi-nationals - another substantial reason why anti-trust regulations should have been enforced. American multi-nationals are almost all monopolies as are all Wall Street banks. No American firm would be disproportionately exposed to China or any risk-laden market were anti-trust regulation enforced. We've seen Federal Reserve bailout after bailout of mega American banks involved in emerging market risky schemes over the decades. Never on a scale anywhere near that involving exposure to China.

Unlike others who believe the Fed can manufacture a devaluing of the dollar for benefit of "inflating" their way out of this crisis, contrarily I believe the Federal Reserve has lost complete control of the dollar and as any ability as lender of last resort to a global economy. Those who view monetary policy of the U.S. in a vacuum are missing a much larger impact placed on the dollar being the world's reserve currency. Because the world is focused on the U.S., the next crisis will catch everyone off guard if it comes from abroad or because of global dynamics. Being caught off guard includes Wall Street.

Party hard. The world is not as it seems. And it most definitely isn't as the media, politicians or Wall Street would have us believe.

China's auto sales up 78% story link here.

And the future of China's auto sales can be gleaned from this story here.
posted by TimingLogic at 5:32 AM