More on my macro views; A Financial Crisis in China Is No Longer Unthinkable; Why I'm cautious about fully betting against China
1) Picking up where I left off in yesterday's e-mail, sharing excerpts from my presentation at the Stansberry Research conference in Las Vegas...
Had you told me a year ago that the Fed would increase interest rates farther and faster than at any time in history, and that this would sharply reduce inflation – and that this would happen without a recession or an in unemployment, I would have said, "That's impossible. It has never happened before."
Yet that's exactly what has occurred:
Economists are still trying to figure out how this has happened, but the rest of us should just be counting our blessings...
"Ah, but inflation is really hurting wage earners," some naysayers claim...
While this was true that inflation spiked in 2021 and 2022, it has now reversed – great news for average Americans:
Another positive development is the boom in manufacturing construction spending, led by the tech sector, driven initially by the rise in tensions with China and, more recently, the passage of the CHIPS Act:
I'll continue next week with more from my presentation... Stay tuned!
2) Speaking of China, this article in yesterday's Wall Street Journal – which I sent to my personal China e-mail list (to subscribe to it, simply send a blank e-mail to: china-subscribe@mailer.kasecapital.com) – provides a good overview of the challenges the country faces: A Financial Crisis in China Is No Longer Unthinkable. Excerpt:
Chinese officials are well aware of these risks and have taken tentative steps to restructure local government debts and prod troubled developers to finish projects.
But the debts are too large and growth too slow for China to sweep bad loans under the rug as it did 20 years ago, said Martin Chorzempa, a China expert at the Peterson Institute for International Economics. He also worries that under Xi , the quality of governance has deteriorated.
"I'm concerned about an exodus of talent, a reduction in economic indicators being published, a reduction in space in China for economic debate. Those things all make me concerned they might not be getting the full picture."
What does this mean for the rest of the world? A multiyear financial quagmire that depresses Chinese consumer confidence would sap demand for imports while swelling exports, pressuring foreign producers.
And while contagion is circumscribed by the limited connections between China's financial system and the rest of the world's, that system is still, in absolute terms, gigantic. Should it start to flail, the ripple effects are certain to be felt abroad.
3) That said, while China does indeed face many challenges, I'm cautious about fully betting against the country...
The Chinese people are, based on my experience and observation (including a half-dozen trips to China), extreme capitalists and risk-takers, focused on education, and, of the 80 countries I've visited, they are the second-hardest-working people I've ever seen (after the South Koreans, who are truly nuts).
I thought this short video captures some of this:
It reminds me of when I was in Guilin, China in 1992 and climbed one of the famous nearby peaks (see photo below)... At the top was a kid who had climbed up with a cooler of ice filled with Cokes. I gladly paid $2 – five times the normal price – for one!
Best regards,
Whitney
P.S. In the October issue of Empire Stock Investor, I shared seven stocks – primarily from America's manufacturing sector – that would stand to benefit from economic turmoil in China. If you aren't already a subscriber, you can find out how to gain instant access to Empire Stock Investor and these recommendations right here.
P.P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.