It’s been over a month since I looked at gold, so perhaps it’s time to review my evaluation on the yellow precious metal. To recall, I didn’t like the metal at $1,800 an ounce, or even after its declines to $1,600 and $1,500. I didn’t even like it at $1,300.
Even when gold rallied from below $1,300 to $1,365 after the Federal Reserve decided to not begin tapering its bond buying at the September Federal Open Market Committee (FOMC) meeting, I refused to jump on the band wagon. It just wasn’t the right time.
The problem, in my view, was a lack of reasons why I should buy. In fact, buying into equities in mid-September would have offered investors returns, while losses mounted in gold.
Now, I keep reading about how China is buying more and more gold. Rumor has it that the country is building a big safe-house in Shanghai that could store up to 2,000 pounds of the shiny metal. Sorry, but I’m still not quite convinced that gold is a buy right now. I’m still not impressed.
China has over $3.0 trillion in cash and needs to do something with it. For China, buying U.S. Treasury bonds may not be the best idea, given that the U.S. government appears to be a mess and debt levels just keep rising. So that just leaves gold—luckily, the Chinese love the metal.
Tensions in the Middle East appear to be quiet, but you never know when a conflict could arise, especially with Syria being accused of playing the rest of the world with its agreement to allow the destruction of … Read More
I think it’s interesting how people, including the mainstream media, discuss an issue without truly understanding what it really means. It seems that skimming the surface is good enough these days, as no one seems to want to dig a little deeper.
One example is the recent reports from Chinese Premier Li Keqiang, who stated that the Chinese economy must grow at least 7.2% per year in order to limit the unemployment rate at four percent. (Source: “China Premier warns against loose money policies,” Reuters, November 5, 2013.)
As we all know, the Chinese economy is extremely important. As the second-largest nation in the global economy, its ability to manage the Chinese economy and prevent it from weakening further is quite important.
China’s Premier warned against creating even easier monetary conditions within the Chinese economy, as additional money printing could lead to even higher levels of inflation. Currently, the total credit supply is now in excess of $16.4 trillion (or 100 trillion yuan), approximately twice the size of its entire Chinese economy.
With the global economy still quite weak, China has had trouble exporting. It is now trying to transition the Chinese economy from export-led to domestically oriented, reducing its reliance on the global economy.
At least, that’s the story on the surface…
Here’s what troubles me: the Chinese economy is slowing, we all know that, yet all of its money printing so far has led to a total amount of credit supply twice the size of its entire economy.
So, what has all of this money printing really done?
It’s caused people in the Chinese economy to react by … Read More
Over the past year, I have heard a lot about how the Chinese real estate market was in a bubble and ready to collapse, similar to the state of the U.S. real estate market in 2008.
Anti-Chinese real estate pundits were saying to sell. “Chinese companies are crooks,” was a common theme and the communist regime there was not to be trusted by anyone, especially Americans, according to these talking heads.
While I do believe China has its issues and faults (heck, we all do!), the opportunity there for growth investors cannot be ignored; the country will continue to become a bigger influence in the global economy. I’m not saying the renminbi will become the go-to currency, but the economic influence of the country will only grow, especially in Africa and other emerging markets where capital is needed—we all know China isn’t hurting for cash.
The country’s real estate and financial sectors have yet to crash. The Chinese government does know a thing or two about wealth creation and financial risk. Trust me when I say it’s not the bunch of communist cronies running around with no sense of what to do that the anti-China pundits might have you believe.
China’s new leadership under Xi Jinping has a strategy in place to drive domestic consumption and reduce its reliance on foreign demand. Consumers in the country account for less than half of the country’s gross domestic product (GDP), so it’s an area that is in focus, with plenty of room for improvement. With 1.1 billion people and over 300 million people in the burgeoning middle class, the potential is enormous. … Read More
With the S&P 500 hovering around its all-time highs, I think it’s quite interesting to read some of the latest corporate earnings reports and get a sense of what’s really happening in the global economy.
One of the most international companies within the S&P 500 is Caterpillar Inc. (NYSE/CAT). The firm recently released its third-quarter 2013 corporate earnings report, in which the firm poured some cold water on expectations. Revenue during the quarter was down 18% year-over-year, and corporate earnings were down 44% year-over-year. (Source: Caterpillar Inc., October 23, 2013.)
That’s not even the worst part. The company also brought down guidance for both revenue and corporate earnings for the foreseeable future.
In its corporate earnings release, Caterpillar cites several issues that it’s worried about, including uncertainty regarding U.S. fiscal and monetary policy, the health of economic regions globally (including the eurozone and China), and a lack of demand from customers.
Because revenue and corporate earnings growth is questionable, the company is taking the only smart action it can—reducing its own cost base. Obviously, no company can force a customer to buy their product, but it can keep its operations as lean as possible. To that end, the firm has cut 13,000 jobs globally over the past year, reduced pay and incentives, and initiated the “implementation of general austerity measures across the company.”
Considering Caterpillar is a large firm within the S&P 500 and it has its fingers on the pulse of the global economy, do any of these comments give you hope or confidence that either the domestic or international economies are about to surge upward in growth? Not … Read More