Nothing About This Should Surprise You...
Everyone knows the world's economies are connected. But what many forget to realise is that the world's stimulus programs are connected too. When one country stimulates, others must too.
The news everyone was waiting for…
And therefore, it surprised no one.
Perhaps the only surprising thing is that the Chinese government still thinks it needs to make a song and dance about these things.
Government stimulus is no longer a big deal.
All governments do it.
Not just those marked communist and socialist.
Those marked (faded, mind you) capitalist do it too.
But we guess making a show of it is all part of the thing.
It adds to the drama and excitement.
Of course, that’s all they’ve got. Because even they realise, the actual stimulus has less effect each time they do it.
More below…
As Bloomberg reports:1
‘Chinese stocks overcame a bout of early volatility to post their biggest gain in a week on Monday, suggesting that investors are hopeful the government will deliver on its promise of more fiscal support.
‘At a much-anticipated briefing on Saturday, Finance Minister Lan Fo’an vowed new steps to support the property sector and hinted at greater government borrowing. While authorities refrained from giving a headline dollar figure that investors had sought, Goldman Sachs Group Inc. saw the latest measures as a sign of increased policy focus on growth. It upgraded its forecasts for China’s economic expansion in 2024 and 2025.’
It feels as though we’ve gone back in time!
The Chinese government vowing to ‘support the property sector’? We’re certain we’ve heard that before.
In fact, it’s not an exaggeration to say a month or even a week goes by without someone somewhere suggesting Chinese government support for its domestic property market.
It’s easy to understand why, when you look at accompanying news stories. Also from Bloomberg:2
‘China’s export growth unexpectedly slowed in September, curbing a trade rebound that has been a bright spot for a weakening economy that policymakers are relying on manufacturing to power.
‘Exports climbed just 2.4% in dollar terms from a year earlier to almost $304 billion, the lowest level since May, the customs administration said Monday. Shipments to key markets including Japan, South Korea and Taiwan all fell, while exports to the European Union and the US marked their slowest rise in at least four months as politicians ramped up tariffs.’
We pointed out all this last week. Stimulus and government intervention don’t happen in isolation.
It’s all connected.
All you have to do is follow the thread.
China’s real estate market is the beneficiary of the wealth achieved through exporting goods to foreign markets. The greater the exports, the more there is to invest in China’s property.
But when exports slow… demand for property slow with it. That slows demand for raw materials to build the properties, and it slows the demand for luxury finished goods too.
If there isn’t the money for property, there won’t be money for expensive handbags, watches, or fine art.
That tells us something about the position of the rest of the world’s economy. Slower exports means (mostly) Westerners aren’t buying China’s manufactured goods at the level necessary for China’s economy to grow.
Does this mean a recession now or next year?
Not necessarily. You’ve seen enough examples of folks crowing about recessions way too early. But what it does tell us is that nothing has changed.
Everything is cyclical. The problems that existed 20, 15, 10, and five years ago, still exist today. And at some point they’ll develop into consequences.
Exactly how that will show up is anyone’s guess. But as always, it will serve you well to pay attention to these kinds of stories. Because one of them will lead to the ‘big one’.
Whenever that is. All the more reason to own gold. Right now it’s trading at US$2,668. Seems like a good deal to us.
We look forward to seeing you back here tomorrow.
Kris Sayce
Editor, Crack of Doom
Issue 46 of 10,000
(We believe in the importance of setting goals. And we figure what better way than to set a big goal from the beginning. If all goes to plan, our final issue of Crack of Doom will be sometime in the 2060’s!)
Disclaimer: The content provided in this communication is for informational purposes only and is not intended as financial advice. The information is provided "as is" without any representations or warranties, express or implied. We do not offer financial advice through this communication. You should not rely on this information as a substitute for, nor does it replace, professional financial advice. If you have specific questions or need financial advice, please consult a professional advisor.
‘Chinese Stocks Climb as Traders See Hope in Beijing’s Promise’, Bloomberg News (Web Page, 14 October 2024) <https://www.bloomberg.com/news/articles/2024-10-14/chinese-stocks-rebound-as-ministry-hints-at-more-fiscal-support?srnd=homepage-americas>.
‘China Exports Growth Slows in Blow to Economy’s Bright Spot’, Bloomberg News (Web Page, 14 October 2024) <https://www.bloomberg.com/news/articles/2024-10-14/china-exports-growth-slows-in-setback-to-economy-s-bright-spot?srnd=homepage-americas>.