China: Social Stability Through Economic Prosperity

Sunday, February 14th, 2010

By Frank Holmes
CEO and Chief Investment Officer

China sees a bubble ahead and is trying to avoid it – is that such a bad thing?

Isn’t this what we expect Ben Bernanke and the Federal Reserve to do here at home – take clear and decisive action to drain off excess liquidity in the economy before inflation takes hold?

The People’s Bank of China did just that after it saw that 1.4 trillion yuan ($204 billion) worth of bank loans were issued in January, more than the total loaned in the three previous months combined.

For all of 2010, the target loan amount is 7.5 trillion yuan, so it’s easy to see why the government might want to slow the pace a bit.

Forbes’ online headline was “China Tightens the Screws,” but let’s have a little perspective.

Barclays Capital predicts that the 0.5 percent increase in bank reserve rates (from 16.5 percent of deposits to 17 percent) will remove 300 billion yuan from the Chinese economy. That’s only 20 percent or so of the amount loaned in January.

And it’s not like cash is going to dry up – the People’s Bank plans to increase the nation’s M2 money supply by 17 percent this year. January’s M1 money supply report showed a 39 percent increase (chart above). Not exactly a screw-tightening.

China’s CPI rose 1.5 percent in January, which is not extreme, and the chart above from BCA Research shows that real estate prices in terms of per-capita income had not entered a bubble phase as of year-end. But perhaps the more telling number was wholesale prices – up 4.3 percent year-over-year and more than double the increase seen in December. This signals that higher inflation at the consumer level could be around the corner.

Markets are taking a hit based on this news – this shows how important China has become to the world economy. It surpassed Germany as the top exporting country by value at $1.2 trillion, and in January its exports were up 20 percent compared to a year earlier. Even better, its imports were up 85 percent year-over-year.

What we may actually have is a classic bull market in the making – one that climbs the proverbial wall of worry, which suggests that investors buy on corrections. The table below shows the standard deviation (sigma) over 10 years for the main stock markets in mainland China and Hong Kong. The weekly sigma for the Shanghai A-share market is plus or minus 5 percent, while its normal quarterly swings can be nearly 25 percent up or down.

It’s nearly impossible to pick exact tops and bottoms – adding to core positions after any correction greater than one sigma is a safer and more prudent way to invest.

Beijing is tending to its economy so it performs over the long term. This is central to its goal of social stability through economic prosperity, and it seems to be working – millions of households join China’s middle class every year.

We all know what can happen when an asset bubble grows huge and then bursts – we’re still recovering from 2007-08.

China is a long-term growth story, and how well it manages that growth will have an impact on all of us. A little caution now should be seen as preventative maintenance, and we all know that when we’re talking about cars or economies, that’s a good thing.

Tags: Bank Loans, Bank Of China, Barclays, Barclays Capital, Ben Bernanke, Chief Investment Officer, China, Chinese Economy, CPI, Decisive Action, Economic Prosperity, Emerging Markets, Excess Liquidity, Federal Reserve, Frank Holmes, Money Supply, Per Capita Income, Social Stability, Target, Wholesale Prices, World Economy, Yuan
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James Surowiecki: Why the Chinese Don’t Spend

Tuesday, December 1st, 2009

James Surowiecki, New Yorker columnist answers the question about China’s under-consumption.

“China makes, the world takes.” For decades, that has been the motto of the Chinese economy, which is built on providing an endless supply of goods for the rest of the world to buy. But these days there’s a palpable sense that this needs to change. Barack Obama, on his recent trip to Asia, called for a “rebalancing” of the world economy, meaning that China should save less and spend more, while the Chinese President, Hu Jintao, stressed his country’s “vigorous” efforts to promote consumer spending. Everyone wants Chinese consumers to spend more. So why don’t they?

Tags: Barack Obama, China, Chinese Consumers, Chinese Economy, Chinese President Hu, Chinese President Hu Jintao, Columnist, Consumer Spending, Consumption, Economy China, Emerging Markets, Endless Supply, Hu Jintao, James Surowiecki, Motto, New Yorker, Palpable Sense, President Hu Jintao, Rebalancing, Rest Of The World, Trip To Asia, Vigorous Efforts, World Economy
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Hugh Hendry Walks the Streets of China

Thursday, July 30th, 2009

This home-made clip features Hugh Hendry, founder of Eclectica Asset Management, walking around the streets of  China (Central Business District, Guangzhou), earlier this year, March, and pointing out numerous empty buildings. Huge debt must have been incurred in erecting these buildings and without tenants there is no prospect of servicing the debt. What’s more, the workmanship also seems shoddy as a nearly-completed 13-story building in Shanghai collapsed last month.

Who will pick up the tab for creating all the overcapacity in the Chinese economy?

Hendry has perhaps looked at only a limited sample, but the video provides food for though in the greater economic scheme of things.

Source: YouTube, March 27, 2009 (hat tip: Edward Harrison, Credit Writedowns).

Tags: Asset Management, Central Business District, China, China Business, Chinese Economy, Clip Features, Edward Harrison, Empty Buildings, Guangzhou, Hat Tip, Hugh Hendry, Limited, Overcapacity, Sample Video, Scheme Of Things, Shanghai, Workmanship
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Is China the Next Bubble?

Monday, July 20th, 2009

This post is a guest contribution by Dr Jay Bryson* of Wells Fargo Securities, Economics Group.

Recently released data showed that the year-over-year growth rate of Chinese real GDP rose from 6.1 percent in the first quarter of this year to 7.9 percent in the second quarter (Figure 1). Monthly data certainly suggested that economic growth in China was picking up steam in the second quarter, so the confirmation that overall GDP accelerated in the recently completed quarter was a pleasant, albeit not totally unexpected, outturn.

Why is the Chinese economy accelerating again? A breakdown of real GDP into its underlying demand components is not available, but monthly data offer some clues. First, foreign trade is starting to stabilize. The swoon in exports in the second half of 2008 and early this year exerted a powerful drag on the Chinese economy. Now that foreign trade is starting to stabilize, Chinese real GDP growth is returning to its underlying “run rate.” In addition, growth rates of retail spending and investment spending have also strengthened over the past few months.

So why are Chinese consumers and Chinese businesses opening up their wallets with newfound vigor? The Chinese government responded very quickly and aggressively to the global financial crisis last year, and the recent acceleration in domestic spending reflects, at least in part, the effects of policy stimulus. The government implemented some modest tax cuts late last year, which may help to explain the acceleration in consumer spending, and its sizable infrastructure spending program is helping to boost investment spending.

Monetary policy was also eased via a number of channels. Not only did the central bank cut its benchmark lending rate by more than 200 bps between September and December but, more importantly, the government rescinded lending restrictions that were put in place in early 2008 when inflation was seen as Public Enemy #1. Indeed, the government has been actively encouraging banks to lend, and its efforts appear to be paying off. As shown in Figure 2, loan growth has simply exploded over the past few months. The current rate of lending growth exceeds the super-charged rates that were registered earlier this decade when the government was attempting to stimulate the economy at that time.

Should we be worried about the strong rate of lending growth in China at present? In its zeal to jumpstart the economy, is the Chinese government sowing the seeds of yet another bubble that will have disastrous consequences for not only China but for the entire global economy?

Click here for the full article.

Source: Wells Fargo Securities, Economics Group, July 16, 2009.

* Jay Bryson is the Global Economist at Wells Fargo Securities. He joined Wachovia (now a Wells Fargo company) in 1998 to provide analysis on financial markets and macroeconomic developments in foreign economies. Before joining Wachovia, Dr. Bryson was an economist in the Division of International Finance at the Federal Reserve Board in Washington, D.C. From 1989 to 1992, he was an assistant professor of economics at the University of Alabama. He received his B.A. and Ph.D. degrees in economics from the University of North Carolina at Chapel Hill.

Tags: Bps, Chinese Businesses, Chinese Consumers, Chinese Economy, Chinese Government, Consumer Spending, Domestic Spending, Dr Jay, Drag On, Economic Growth In China, Economics Group, GDP Growth, Global Financial Crisis, Public Enemy, Public Enemy 1, Real Gdp, Retail Spending, Stimulus, Swoon, Wells Fargo
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Rebecca Wilder: Waiting on the Sidelines (June 5 – 12)

Monday, June 15th, 2009

This post is a guest contribution by Rebecca Wilder*, author of the of the News N Economics blog.

This week’s economic reports show a global economy hanging in the balance: signs of stabilization present, but the lagged economic reports still show no decided turning points. Exports are crashing - China and Canada, who depend on exports to fuel economic growth, are seeing export income fall at an increasing annual pace. Canada’s housing market is suffering, but it’s decline is not even comparable to its southern neighbor. Unemployment rates surge as resource utilization falls precipitously, and taking prices down to negative territory. However, the recent uptick in oil - uptick! more like a rocket-powered boost - will relieve the drag on headline prices.

Exports continue to disappoint in China, Canada and the US. Foreign demand for economic growth is out for the count. From the WSJ:

“Although recent economic data offer increasing evidence of a recovering Chinese economy, the external environment remains weak, spelling ever more dependence on domestic demand for growth,” Morgan Stanley economists said in a note after the data were issued Friday, predicting Beijing won’t shift its monetary policy stance in the near term”.

Canada’s housing market is taking a serious tumble. However, one cannot compare this housing market recessionary response to the meltdown in the U.S. The Canada Housing and Mortgage Corporation, a bottom may be forming:

Housing starts are expected to improve throughout 2009 and over the next several years to gradually become more closely aligned to demographic demand, which is currently estimated at about 175,000 units per year.

And reality rears its ugly head as unemployment rates surge in the US, Canada, and Australia.

Inflation is (almost) negative across the board - Germany posts 0.0% annual inflation in May.

The weak global economy will keep inflation low, but the surge in oil - already over 15% since the May average - will relieve the drag on headline inflation!

Industrial production may have found its bottom in the UK, but not in Germany! Germany, the Eurozone’s biggest economy, helped to push the Eurozone’s industrial production down 21.6% in April.

Overall, signs of a bottom are certainly forming; however, we wait for a turning point to show up in most of the lagged reports (1-3 months).

Source: Rebecca Wilder, News N Economics, June 12, 2009.

* Rebecca Wilder is an economist in the financial industry. She was previously an assistant professor and holds a doctorate in economics.

Tags: Canada, Chinese Economy, Drag On, Economic Data, Economic Reports, Export Income, External Environment, Global Economy, Hanging In The Balance, Housing Market, Housing Starts, Monetary Policy Stance, Morgan Stanley, Mortgage Corporation, Negative Territory, oil, Resource Utilization, Southern Neighbor, Ugly Head, Unemployment Rates, Uptick, Wsj
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China: Profit Margins Recovery Should Help Stocks

Monday, May 11th, 2009

BCA Research has published the following analysis on the strong general corporate earnings recovery in China, May 8, 2009:

Overall Chinese corporate profits will likely recover strongly from deeply depressed levels in the coming months as the broader Chinese economy stabilizes. Rising earnings expectations for listed firms should sustain the rally in the stock market.

Chinese corporate profit cycles have historically been highly sensitive to volume expansion. The reason is that China’s highly competitive business environment has long kept pricing power weak and profit margins trim.

This means that volume expansion, which is highly sensitive to China’s business cycle, has long been the determining factor in corporate profit growth. As various leading economic indicators have all been turning up strongly in recent months, volume expansion has begun to reaccelerate. In addition, input costs have dropped more deeply than output prices.This means that the severe profit margin squeeze for the Chinese corporate sector in 2008 may have also eased.

Thus, a sharp recovery in the corporate profits from currently deeply depressed levels is likely in the coming months. Longer term, we expect the overall macro environment will likely remain challenging for the corporate sector and it is unrealistic to expect an across-the-board profit boom. Investors should focus on equity sectors that are able to capitalize on the economy’s top-line growth.

Tags: Boom, Business Cycle, Business Environment, Chinese Economy, Corporate Earnings, Corporate Profit, Corporate Profits, Corporate Sector, Depressed Levels, Earnings, Input Costs, Leading Economic Indicators, Macro Environment, Profit Growth, Profit Margin, Profit Margins, Rally, Sectors, Squeeze, Stock Market, Volume Expansion
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China: Signs of a recovery – already?

Saturday, April 4th, 2009

This post is a guest contribution by James Pressler* of Northern Trust Company.

We are just over six months into this global financial crisis, and most major economies have yet to get back on their feet. Yet somehow, the numbers coming out of Beijing suggest that the Chinese economy has already dusted itself off and is preparing to take off at a dramatic pace. Is such a quick recovery possible, and if so, how do other countries get in on it?

Our first piece of evidence is found within today’s PMI release for March. Given the particular survey methodology behind this index, we do not give the PMI significant attention, although it does carry weight in the markets at large. The overall PMI rose above the breakeven line of 50, and new orders broke above the line for the second consecutive month. These numbers suggest that the manufacturing sector of the economy was in contraction for about five months and below its usual pace for about nine months. Considering the wealth of anecdotal discussion of widespread shutdowns and mass layoffs, it seems odd to think that the worst has passed.

It also seems odd to see that another key category of the overall PMI - export orders - is doing surprisingly well. While neither the export orders index nor the imports index has crossed above 50, they both have come back from horrible droughts and appear set to break the line in April. Again, this is reassuring to see, but it does seem odd that this same kind of turnaround has not been witnessed in China’s main trading partners. For all the energy of China’s export recovery, few countries are showing any increased import demand these days, and those countries that supply China with economic inputs have not been bragging about a recovery in sales.

One indicator that we do pay particular attention to is bank credit, and several sources in Beijing suggest that lending has been dramatic through Q1. The People’s Bank of China (PBoC) reports that lending has spiked since November, with the main indicators exceeding the 17% rate officials are comfortable with. This growth is driven primarily by the government’s fiscal stimulus drive and its call for banks to lend more vigorously to offset the economic slowdown. From this perspective it is difficult to argue against the figures, and we recognize that plenty of entities will be putting large amounts of yuan to work in the coming months.

Our main concern for the near-term, however, focuses on how these funds will be put to use. The Chinese banking system has been improving its balance sheets over the past few months, but a significant amount of non-performing loans and ‘special mention’ loans still weigh on the sector’s ability to generate credit. If this wild growth in credit generation does not ignite self-sustaining economic activity, there is every chance that today’s big loans could become tomorrow’s burdens. For now we remain cautious - more so than the rallying Asian markets - and wait for more signals that can either confirm or refute all this economic activity.

Source: James Pressler, Northern Trust - Daily Global Commentary, April 2, 2009.

*James Pressler is an associate international economist at The Northern Trust Company, Chicago. He joined the bank in 1993 and has been in Economic Research since 1995.

Tags: Array, Bank Of China, China Signs, Chinese Economy, Contraction, Dramatic Pace, Droughts, Export Orders, Export Recovery, Global Financial Crisis, Import Demand, James Pressler, Manufacturing Sector, Mass Layoffs, Northern Trust Company, Pboc, Pmi, Second Consecutive Month, Shutdowns, Supply China, Survey Methodology
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Albert Edwards: Back in the bear camp

Wednesday, January 28th, 2009

Albert Edwards, London-based strategist of Société Générale, has always been a firm favourite among Investment Postcards’ readers. His latest research report appeared a few days ago and saw him firmly back in the bear camp after turning short-term bullish at the end of October. (See the previous posts “Albert Edwards: Turning More Bullish” [October 24] and “Market Fundamentals are Appalling” [July 5]).

Edwards’s “Global Strategy” report is sub-titled “Technicals say it is time to bail out. Cut exposure and prepare for rout. US depression looking likely. China’s 2009 implosion could get ugly.” The executive summary below provides the gist of his thinking.

“After increasing our equity exposure at the end of October we believe that the market is set to quickly slide sharply towards our 500 target for the S&P. While economic data in developed economies increasingly reflects depression rather than a deep recession, the real surprise in 2009 may lie elsewhere. It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the Yuan. A subsequent trade war could see a re-run of the Great Depression.

• Economic data has been truly dreadful through the fourth quarter. Over a year ago we forecast deep US recession. As it had not suffered one since the early 1980s, we thought this outturn would shock. Yet recent data has been consistent with something far worse than deep recession. There is no agreed definition of a “depression” as opposed to a deep recession. But The Economist magazine is probably more qualified than many to take a view. They consider a peak-to-trough decline in GDP in excess of 10% a reasonable definition. We had been thinking of deep GDP declines of the order of 5% peak to trough but we are now thinking that this view might be too optimistic.

• But, until yesterday, equity markets had been paddling quite happily sideways for most of the last few months. They have been broadly flat since we increased our equity weighting sharply on 23 October. Within that time the intra-day peak-to-trough rally in the S&P was a creditable 28% from 740 low of November 21, but we do not claim to have captured that. Nevertheless we feel very comfortable that the technicals at the end of October cried out to close our extreme underweight equity exposure. They now tell us to cut exposure again.

• 2008 was a shock for investors. But 2009 could be an even bigger shock. There is evidence that the Chinese economy is imploding. Investors should consider what would happen if China descends into social chaos. Yuan devaluation could spark a 1930’s style trade war. Do you really trust the politicians to ‘do the right thing’?”

Source: Albert Edwards, Global Strategy Weekly, Société Générale, January 15, 2009 (hat tip: David Fuller, Fullermoney).

Tags: Bear Camp, Chinese Economy, Economic Data, Economist Magazine, Equity Exposure, Gist, Global Strategy, Great Depression, Implosion, Market Fundamentals, October 24, Recession, Regime Change, Rout, Societe Generale, Strategist, Strategy Report, Target, Trade War, Trough
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Emerging Markets in 2009

Tuesday, December 30th, 2008

Michael Hartnett, Chief Global Emerging Markets Strategist, Merrill Lynch is interviewed by Bloomberg TV, December 12, 2008 (click to view below), regarding his outlook for Emerging Markets in 2009. Here is a summary of that conversation:

• Volatility of all markets has meant that correlations have been very high.
• It’s been fiendishly difficult for EM to break away decisively from what’s going on in Washington and New York.
• China is a big factor that could help the rest of the EM break away.
  • In China there’s a raging debacle over what the economy will do next year.
  • People are quite pessimistic about what’s happening.
  • If the Chinese economy is able to come back more quickly and more strongly than a number of other economies around the world, that probably would be the moment you’d see the other EMs break away (from the high correlation).
• (anchor) Jim O’Neill from GS said that he likes China now for the first time in a while.
• We’ve been overweight China since the end of August.
  • Its been a good trade thus far, with A shares and Hang Seng up nicely.
  • Its not because China is going to be fabulously strong growth wise - those markets love when they get lots of liquidity.
  • That’s what’s happening at the moment - There is a big easing of monetary policy and credit policy.
  • The RMB is expected to remain robust.
  • China is the one equity market where the banks have outfperformed.
  • It doesn’t feel as if there’s an impediment to the stimulus that you’re getting from the Chinese government - I think the Chinese market will outperform next year.
• The consumer theme is very strong in China, and Emerging Markets.
  • If you go back a year ago, we were worried about inflation. Why?
  • Inflation compromises the purchasing power of the billions of consumers in these markets .
  • They couldn’t afford to spend on anything but food, and food prices were going through the roof. Its the complete opposite of that now. Oil is at $40, not $140 and food prices have come down a lot.
  • There’s a lot of purchasing power in China, India - obviously there’s a cycle as well - its not as if the numbers are going monstrously higher.
  • Today (12/12/08) we saw China report a 20%+ increase in retail year-over-year. That’s incredible when you consider that we’re in a global recession.
  • We think the demand story is there.
• In non-Emerging Markets there are a lot of US and European companies that are going to benefit enormously from the consumer story in EM.
  • Thinking laterally, there are a number of companies outside the EM that can benefit from that relative growth.
• The other story in the EM - You’ve got a number of countries that are attempting to reflate forcefully - India, Korea, South Africa, Brazil.
  • There are going to be opportunities in all of those countries.
• The other thing to think about is the “Best Companies,” the “Best in Breed,” concept.
  • We think the best in breed idea will be a big outperformer next year.

Where not to invest? (for now)

• There are a number of countries that have large current account deficits and you have to worry about how they are going to fund those deficits.
• There are some currencies, particularly in the Eastern European region to avoid.
  • Russia has a big problem right now, as it has destroyed a great deal of shareholder trust.
  • At some point next year, when the rouble troughs, and oil prices trough, Russia is going to move up significantly.
  • At the moment we recommending that our clients take their money out of Russia.
  • They have a big problem there like Saudi Arabia; they’re a one trick pony.
  • As long as oil prices were strong so was the economy, but with the lower oil price the economy has weakened.
  • Unless we get the oil price moving up in a strong fashion, its going to be very hard to persuade investors to put a large chunk of capital there.
• Certain places like Iceland and Hungary have gone to the IMF - its going to be very difficult for those economies to come back in a meaningful way.

Opportunities in Emerging Markets?

• India, Korea, Turkey and South Africa were taken to the brink by markets and now there are a lot of swap lines to support them.
  • What they’re doing in these countries is something almost revolutionary.
  • They have big deficits, they’re currencies have gone down a lot, and guess what they’re doing?
  • They’re cutting interest rates - (and they have lots of room to do it).
  • If they can convince the markets that their interest rate cuts can rescue their growth situations - those currencies are going to do very well.
  • In India for example, Industrial Production fell and policy formation (favours profound monetary easing).
  • India has great companies.
  • our clients are increasing their weightings from being underweight most of the last year since markets were overvalued and earnings expectations were too high in contrast to the idea that the economy could not do well in the context of high oil prices.
  • Now oil prices have fallen, and the current account deficit is improving and they’re cutting interest rates.
  • They are increasing their weightings to neutral, if not, overweight at the moment.

Rule of Thumb?

o We like large , not small companies.
o Looking for decent balance sheets, good management, and good brand.
o Survivors who can gain market share from those affected by the global credit crunch.

Click play to view

Tags: Bloomberg Tv, Chinese Economy, Chinese Government, Chinese Market, Correlations, Debacle, Emerging Markets, Food prices, Global Markets, Hang Seng, Impediment, India, liquidity, Merrill Lynch, Michael Hartnett, Monetary Policy, O Neill, Outlook, Purchasing Power, RMB, Stimulus, Strategist, Volatility
Posted in Credit Markets, Economy, Emerging Markets, India, Markets, Oil and Gas, Outlook | No Comments »

Rx for China: US Recession

Saturday, January 5th, 2008

Finally, The Economist has published a story, An Old Chinese Myth, which confirms the decoupling of Asia ex-Japan is actually real. A recession in the US is welcome in China, as it will help to moderate China’s growth at the margins, something that its macro-economic policy has not had much success in doing. In any event the article is a good read, and if you are investing in China, this is welcome news for you too.

An American downturn will cause China’s economy to slow. But the likely impact is hugely exaggerated by the headline figures of exports as a share of GDP. Dragonomics forecasts that in 2008 the contribution of net exports to China’s growth will shrink by half. If the impact on investment is also included, GDP growth will slow to about 10% from 11.5% in 2007. This is hardly catastrophic. Indeed, given Beijing’s worries about the economy overheating, it would be welcome.

The American government frequently accuses China of relying excessively on exports. But David Carbon, an economist at DBS, a Singaporean bank, suggests that America is starting to look like the pot that called the kettle black. In the year to September, net exports accounted for more than 30% of America’s total GDP growth in 2007. Another popular belief looks ripe for reappraisal: it seems that domestic demand is a bigger driver of China’s growth than it is of America’s.

With China’s true export-to-GDP ratio at under 10%, and NOT as high as the Headline exports-to-GDP ratio of 37%, a US slowdown would perhaps have the impact of an interest rate hike on the Chinese economy. This may just what the doctor ordered in China’s case. 

Tags: American Government, Asia, Beijing, China, China Economy, China S Economy, Chinese Economy, Chinese Myth, Decoupling, Downturn, economic policy, Economist, Economy, Emerging Markets, GDP, GDP Growth, Gdp Ratio, Interest Rate Hike, Investing In China, Investment, Japan, Margins, Popular Belief, Recession, Singapore, Slowdown, Us Slowdown, Welcome News
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Byron Wien’s Ten Predictions for 2008 and what he predicted for 2007

Thursday, January 3rd, 2008

January 2, 2008 Check out what Pequot Capital’s Byron Wien predicts for 2008 in Wall Street Journal: Here’s a quick summary of his 2008 predictions:

1. The U.S. economy suffers its first recession since 2001.
2. S&P earnings decline year-over-year, and the index falls 10%.
3. The dollar strengthens in the first half to $1.35 against the euro, but weakens in the second half.
4. Inflation rises above 5% on the CPI and 10-year yields hit 5%. Stagflation becomes a prominent topic on the campaign stump and in op-ed pieces.
5. The price of oil goes down early in the year (to $80 a barrel) and up again later, rising to $115 a barrel in the second half of 2008.
6. Agricultural commodities remain strong. Corn rises to $6.00 a bushel and cotton to 85 cents a pound, while gold reaches $1000.
7. The Chinese stock market gets hit sharply as the Chinese economy slows. China revalues the remnimbi by another 10%. (As an aside he expects several long-distance runners to beg off from the Beijing Olympics due to air quality issues.)
8. Russia’s new president, Dmitry Medvedev, becomes more assertive in world affairs, and Russia and Brazil lead the BRIC stock markets, while the Gulf Cooperation Council markets begin to attract interest among emerging market investors.
9. Infrastructure improvement will be an important election theme, bolstering construction and engineering stocks. Water supply becomes a criticial problem world-wide.
10. Barack Obama is elected president in a landslide over Mitt Romney, and the Democrats end up with 60 Senate seats and a clear majority in the House of Representatives.

  Here’s what he predicted for 2007: Pretty Good Calls

1. The S&P 500 exceeds 1600 thanks to strong earnings, and market volatility jumps.
2. China revalues the yuan by 10%.
3. Crude remains in short supply because of Asian demand, pushing oil to $80 a barrel.
4. Agricultural prices rise – corn at $5 a bushel, wheat to $7, soybeans to $9 and cotton to 80 cents a pound.
5. S&P 500 earnings grow by 10% in 2007.
6. The Fed doesn’t lower rates in the spring, and the 10-year yield rises to 5.5%, with the yield curve resuming a positively sloped shape.
7. Gold hits $800 an ounce and silver rises to near $18.
8. Japan’s Nikkei 225 rises 15% as the Japanese economy improves.
9. Latin America does well, particularly Brazil, where the Bovespa index rises to 55,000 (currently 44,780).
10. Rudy Guiliani pulls ahead as the leading candidate for Republicans and Barack Obama “gains momentum” for the Democrats.

He appears to have been dead-on 4, 6, and 9.

Tags: Agricultural commodities, Agricultural Prices, Agriculture, Air Quality Issues, Asia, Barack Obama, Beijing Olympics, Blog, Brazil, BRIC, BRICs, Byron Wien, China, Chinese Economy, Chinese Stock Market, Commodities, COT, CPI, Dmitry Medvedev, Dollar, Earnings, Economy, Ed Pieces, Editorial, Emerging Market, Emerging Markets, Euro, Fed, Gold, Gulf Cooperation Council, inflation, Infrastructure, Infrastructure Improvement, Investment, Japan, Latin America, Long Distance Runners, Market Investors, Market Volatility, Markets, Metals, Miscellaneous, Mitt Romney, Nikkei 225, Obama, oil, Pequot Capital, Recession, risk, Russia, Senate Seats, Silver, stagflation, Stock Markets, Value, Wall Street, Wall Street Journal, Water, water supply, Yield Curve, Yuan
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