My stance on China's comeuppance for attempting to pack 50 years of growth in to 3 years is still quite unchanged. I am fully aware that many "smart" bankers and analysts have different perspectives, but as I posted a couple of weeks ago, "Currency Crisis! Inflation! Sovereign Defaults! Bahhhh… Who Are ‘Ya Gonna Believe, The Government Or Your Lyin’ Eyes?". From Bloomberg, this morning: U.S. Index Futures Fall After China Raises Banks’ Reserve Ratio
China’s central bank raised reserve requirements for lenders for the second time this year to counter inflation and curb property-price gains.
...Reserve ratios will increase half a percentage point starting Feb. 24, the People’s Bank of China said on its website today in a one-sentence statement. Today’s move came 10 days after China raised interest rates.
And anecdotally on the ground as reported by BoomBustBlogger John:
We import from Asia, V-nam mostly. After Chinese new year factories returned back to:
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- 8% devalution in the dong
- New Taxes for using moterbikes and cars
- Interest on loans from 14 to a new 20%
- and more prices controls.
On top of that the real kicker. Business in Vnam had to buy US$ from the black market, the diff was 30% compared to the banks. Business would buy on the black market and get a fake bank reciept at the banks rate and keep the 30% spread & use the fake reciept for accounting, this helped keep their prices down. Now the gov is matching the black, the spread is gone.
We have people on the ground in Vnam. So who is going to pay these new prices that are coming over here right now, higher prices are on their way. Can you say margin compression, possible a big one. Look for shorts in low margin retail, big ticket item retail that are heavy into made in Asia not made in USA.
These events were telegraphed clear as day. I understand that it is difficult to be a fundamental investor with the broad market rising 98% from 2008 lows while the cause of said lows have simple been exacerbated. Looking at it this way, many bullish pundits are of the mindset that China will lead the world out of recession as China is slamming on the breaks to avoid the already inevitable inflation boom at the same time that much of Europe is showing signs of a double dip and America is struggling with rapidly depreciating housing stock, excess debt and what looks like a structural shift in unemployment. Keep hope alive if you wish, but it looks to me that the printing to pop equities has just created another Boom/Bust scenario to cure the Boom/Bust scenario that we have yet to of exited.
Don't say I didn't tell you so...
- Can China Control the “Side-Effects” of its Stimulus-Led Growth? Let’s Look at the Facts Wednesday, February 3rd, 2010
- What Are the Odds That China Will Follow 1920’s US and 1980’s Japan? Wednesday, March 10th, 2010
- BoomBustBlog China Focus: Inflation? Thursday, May 20th, 2010
- BoomBustBlog China Focus: Interest Rates Thursday, May 20th, 2010
- All Throughout Last Year and During the Inflation/Deflation Camp Debates, I Warned of the Risks of Stagflation. Did I Have a Point? Let’s Look at the Numbers Behind the Numbers… Monday, July 26th, 2010
- China Is In a Self-Imposed Bubble That Has Nowhere To Go But Bust! You Don’t Get Something (Growth Through Stimulus) For Nothing (No Economic Consequences) Tuesday, November 23rd, 2010
- My China Ruminations Have Come to Pass As the Country Enters a Bear Market Tuesday, May 11th, 2010
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