Very interesting correlation between Chinese and Indian income levels and the price of gold.
Is China and India the reason for Gold’s continued price increase? At least contributing to it if not the cause (remember that correlation does not equate with causation).
I think the demand for gold is a factor, which causes me some slight concern due to the bubble that I think China is. India I’m not sure about yet. If the bubble bursts, the demand for and price of gold will decline.
I’ve been talking about the problems with the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) for over a year now. Greece in particular has been very prominent in the news recently.
Has this been a slow train wreck? Yes. Has our investment markets continued to go up during that time frame? Yes. Will our markets continue to go up? That’s always the question, and a harder one to answer. One of the things I’m trying to do is guide you and my clients to that answer, knowing of course the future is unknown.
Anyway, this week I discuss what I believe is another bubble ready to burst–China. I’ll be following up over the summer with technical reasons why structurally and euphorically (if that’s even a word), China is someplace to be cautious.
TRANSCRIPT:
Hi Clients and Friends, Mike Brady here.
This week I’m thinking about some of the similarities between China, right now, and the U.S. right before our stock market crash in the late 20s, frankly. So does that mean that I think that China is going to have this huge implosion? No. Do I think that China is a bubble? The answer is absolutely yes. Tread lightly, as it relates to China.
One similarity is just a massive disparity between, in income, and in wealth, and in education; China now, the United States back in the late 1920s.
There’s the rapid industrialization; huge boom in the last 10 to 15 years in China, very similar to the rapid industrialization in the United States.
Opaque and misleading economic data and fiscal data- very big similarity. Massive buildup of leverage amongst the rising class. Credit and leverage is, has, had increase significant in China just like we had in the 1920’s.
And kind of the last thing, is bubbles, in both residential real estate and infrastructure. What they have done, they being China, in the last fifteen to twenty years is just unbelievable. But this has also led to an incredible infrastructure bubble and real estate bubble over in China. And when that thing bursts, we just saw it back in 2008; it can have some pretty dramatic effects on the economy and on the stock market. And that’s what I’m greatly concerned about right now.
I haven’t really thrown out a bunch of statistics and reasons for why I’ve come to these conclusions. But if you want to give me a call and I’d be happy to talk to you about them, 303.747.6455. My name is Mike Brady; my company is Generosity Wealth Management.
The reason why it’s called Generosity Wealth Management is I believe that if we put together some of your investments, and your tax and your retirement, and your estate planning; all these kinds of silos together that you can start to be generous with yourself, your family and the causes you believe in. I want to help you learn to be generous. So I am a registered representative with Cambridge Investment Research. And you have a wonderful, wonderful week and I’ll talk to you later. Bye bye.
Oh, and in case you’re curious or a compliance officer, the Shanghai Composite Index is an index of all stocks (A and B Shares) that are traded at the Shanghai Stock Exchange. It is merely being used as a proxy for the stock makret and cannot be invested in directly.
If you’ve been reading my blog for the past 2 years you’ve been hearing me talk about the slow disaster that is Europe and our municipal governments.
We’re now seeing the worst falls in Municipals since Lehman’s collapse back in September 2008. Ouch! I also say that the worst is before us, not behind.
To do: Watch your municipal holdings and know what your exposure is!
Ireland has a bailout (thank you EU and IMF) and now the yields for Portugal, Spain, and Italy are going through the roof.
This does NOT bode well for the rest of the PIIGS, Europe, and the Euro.
To do: What’s your exposure to what I think is the next big collapse?
