These Popular Delusions Could Cost Investors Fortunes in
2013
http://albertpeia.com/costlydelusions.htm
‘…we’re stepping back from our usual daily analysis of the
markets to address the big picture for the investment landscape in 2013.
The following is an excerpt
from a recent issue of Private
Wealth Advisory.
In it, we outline three popular investment delusions pertaining to China, Japan
and the US. As was the case in 2007, many investors are investing based on
misguided theories. We outline three of the biggest here.
Private
Wealth Advisory
subscribers are already gearing up for the next round of the great crisis with
several back-door trades that will profit enormously as the investment herd
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Popular Delusion #1: The investment world believes China will
engage in another massive round of stimulus.
This will not be the case.
China’s new ruling party has stated point blank that the country will not be
engaging in rampant stimulus (for the obvious reasons of rising inflation):
This may sound like an oxymoron,
but China‘s new Communist government is turning away from financial
stimulus to help its slow-moving economy.
During the party’s two-day Central
Economic Work Conference this weekend, party leader Xi Jinping said the country
would essentially not be pursuing high growth rates through stimulus. That doesn’t mean that Beijing has turned
sour on fixed asset investments on things like roads, bridges and subways.
They’re still going through with major urbanization projects. But whenever the
economy is slowing, the new leaders say they will be less likely to
prime the pump.
Source: Forbes
China’s market has rallied over
16% in the last month on the belief that China will engage in another
large-scale stimulus plan… despite China’s leaders stating they will not. This
has the makings of a very nasty correction.
Popular Delusion #2: Japan’s new leadership will be able to
kick off an even more aggressive monetary intervention.
Truth be told, Japan is on the
cusp of the mother of all debt implosions. Case in point, Japan’s Yen is
thought to be a safe haven. With that in mind, it’s critical to note that when
the EU Crisis hit in mid-2012, the Yen fell. Indeed, it has now taken
out its trendline:
Indeed, it is interesting to
note that political leaders Japan, like those in Europe and the US, have begun
to use verbal intervention as a primary tool. Prime Minister Shinzo Abe took
office urging the Bank of Japan to act even more aggressively, even threatening
to strip the bank of its independence.
Since that time, the Nikkei has
erupted higher. The Japanese Government got what it was looking for, and
Japanese Economic Minister Amari announced that the Yen was correcting in line
with fundamentals.
Take note, this series of events
indicate that Japanese leaders will likely engage in verbal intervention to get
what they want. It’s worked for the EU and US.
Popular Delusion #3: The US
bond bubble will burst in 2013.
It’s become increasingly common
to see calls for the US bond bubble to implode this year. To be clear, the US’s
financial situation is terrible. But it is nothing compared to the
financial situation in Europe, Japan, and China.
Europe has not recapitalized its
banks. Many of its countries’ entire banking systems are insolvent. The EU
banking system as a whole is leveraged at 26 to 1 (Lehman was at 30 to 1 when
it went bust). Even Germany’s banking system is in worse shape than the US’s
(the US recapitalized its banks following the 2008 crisis. Europe. including
Germany, has not).
China’s true Debt to GDP is over
200%. Already in a hard landing, the country is now facing several major
problems, namely looming water and agriculture crises, food inflation and
accompanying civil unrest, and the potential of armed conflict with Japan.
Moreover, the belief that China
will shift over to a consumer economy is misguided. Consumption has increased
by 9% per year in China for 30 years now. The China consumer is not
somehow dormant. And as more and more manufacturing firms leave China for more
stable markets (Apple, Ford, GE, Bridgestone, have all announced they are
moving facilities back to the US), China will be facing rising unemployment.
Finally, and most critically,
financial institutions are desperate for high-grade collateral in the form of
quality sovereign bonds. Say what you will about the US, it remains the most
liquid market for debt in the world. And if you had a choice between lending
money to the US, Japanese, any European, or the Chinese Government, the US is
the obvious answer.
This is not to say the US is in
great shape. Instead, we would argue that the US is the least ugly of the major
debt markets. The US bond bubble will burst at some point. But it will likely
not do so in 2013.
To conclude, the world Central
Banks and EU politicians have done everything imaginable to postpone the EU
crisis. They’re now out of options. The EU crisis will very likely erupt anew
in the first half of 2013. Meanwhile Japan is waiting in the wings. And China has
its own issues to contend with.
This is why, smart investors are
already taking advantage of the lull in the markets to position themselves
accordingly. While everyone else continues to believe the fairytale story spun
by the political class and mainstream media, our Private
Wealth Advisory
newsletter
subscribers have already been warned of these issues and are taking action
(just as they did in early 2008 when others were bullish, or in 2010 when the
EU crisis first began to take off).
Private
Wealth Advisory
outlined several
critical investment strategies, designed to hedge our subscribers from the
risks in the market while also alerting them to unique investment ideas that
99% of investors don’t know about.
To find out about these
investments and start positioning yourself for what we all know is coming, but
no one wants to openly admit, all you need to do is take out a trial subscription
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