Saturday, July 25, 2009

SAFE investment strategies

I find myself linking to IKN again today.

Good read on China and copper

in the post Otto links to the latest John Mauldin article which deals with China, the US, respective growth prospects, and so on.

now I think I subscribe to Mauldin's freeletter, but it gets delivered to another email I rarely check, because, well, that box is chalk full of eletters and the like that I just can't be bothered to read with any regularity.

so the talk is China. Mauldin rightly sees this year's forced credit expansion leads to speculative bubbles within the Chinese economy. but then he says that it is very smart for the Chinese to spend their official reserves to buy up natural resource assets beyond the Middle Kingdom.

so the former is reckless bubble blowing, while the other is sound investing?

prediction: China's (oh the absurdity of referring to 1.3 billion people in the singular, but this whole discussion is really just a reflection of the absurdity of the Nation State per se) investment of accumulated foreign exchange reserves for this 'going out strategy' will come to an abrupt halt the moment the domestic credit expansion unravels.

the bromide has been that China accumulated those reserves by selling Americans 'real stuff' in exchange for 'worthless paper'. but which is worthless at this point, the US paper, or the desechables with which China has blanketed the world? every other tienda here in Quito is crammed full of worthless Chinese Shit, and I would guess the situation is similar in most other cities of the world. so if we invert the bromide to say that China has been accumulating valuable paper in exchange for dumping worthless shit on the world, then perhaps China hasn't been so foolish after all.

but within China, who has benefited? Chinese manufacturers are up to their eyeballs in debt (and likely massive inventory overhang). Chinese banks are up to their eyeballs in soon to be NPLs (and these likely collateralized by worthless inventories of worthless shit and near worthless factories and equipment from which all the shit is expelled), while all the while the Official elite, through SAFE (or as I like to call it, the 'Communist Party Pension Plan'), have amassed an enormous amount of wealth.

when push comes to shove, these reserves will be used to keep the Chinese ruling class the, ah, Chinese ruling class. if you want to bet on where these reserves get deployed, as Mauldin purposes, my suggestion is manufacturers of riot gear. a second idea is discrete off-shore banking institutions. the real money will be made in the laundering of the $2 odd trillion.