بتوماس [إ] فاغنر [كفب] 

على الماض عدّة أسابيع قد قرأ أنا مواد لا يحصى يساند يتعارض موقعات على المجلس نظام الاحتياطيّ الفيدراليّ حقن دائم تزايد رأس مال داخل النظام بنكيّ [أس ولّ س] ال يقترح 700 بليون دولار إنقاذ من أزمة ماليّة من البنوك. قد أخذ كثير مؤلفات واحدة جانب أو الأخرى, إمّا يوافق مع الحقن ضخمة [أس نسسّري] أو يسيّج ضدّ المجلس نظام الاحتياطيّ الفيدراليّ وخزينة ل يقودنا نزولا إلى [إينفلأيشنري سبيرل].

أنا أوافق مع أنّ مؤلفة أنّ قد أشار أنّ لم يزد ال [تف] وأخرى سيولة حقن [تو دت] يتلقّى المال إمداد تموين. لسوء الحظّ, [ب] هذا لم وليس القصد من المجلس نظام الاحتياطيّ الفيدراليّ غير أنّ منتوج ثانويّ من نظام بنكيّ مجمّدة. المجلس نظام الاحتياطيّ الفيدراليّ نهاية هدف أن يزيد بنك يسلّف أيّ يكون بطبيعته جدّا تضخّميّة, بما أنّ هو يزيد التوفر المال في المحلّية واقتصاد شاملة.

يلاحظ كثير معلقات بشكل صحيح أنّ بنوك لا يسلّفون, في الدّرجة الأولى لأنّ خطر علاوات يكون يرتفعون بما أنّ سيولة ينشّف فوق والبنوك يكون أوّلا [فوكسد] على يقايض خارجا (يسلّف إلى المجلس نظام الاحتياطيّ الفيدراليّ) ملازمة سيّئة في محاولة غير مجد أن ينقذ [بلنس شيت] هم. [أس لونغ س] يسبّب [فسب] 157 و140 علامة أن يتسوّق قواعد أشواط على [فيننسل كمبني] [بلنس شيت] والإخفاق من بنوك و [إينسورنس كمبني], أنت لن ترى حالة نموّ نقديّة [إين ث فورم وف] قروض جديدة. If I’m correct, you will not see lending growth for some time as the primary focus of financial firms is survival and moving bad assets off their balance sheets. This does not mean that the massive injections in the banking system will not eventually show up in the form of too much money or inflation.

China Policy 

Many authors have pointed to China as well as the sharp drop in commodity prices as support for there deflationary arguments. Having traveled extensively in China for the past several years, I have come to understand a little about how China’s policies are engineered. China’s primary reason for supporting the US treasury through massive investment in US dollar denominated assets (read Treasury bills and MBS securities) is simple: we’re a good customer. Any business understands that you take care of your good customers and grant them credit on favorable terms. It’s also the primary reason why the Fed had to head off the failure of Fannie (FNM) and Freddie (FRE) as this would have caused an immediate run on all dollar denominated assets by foreign central banks including China.

More to the point, China needs to create 24 million jobs per year just to break even and is financing the largest migration of rural workers to manufacturing jobs in world history. It makes our own industrial revolution, adjusted for inflation, look like a boy scout merit badge project.

Consumption 

There are serious forces at work inside China that clearly indicate that their end goal is to shift away from export growth to domestic consumption. Dramatic increases in construction, military spending and infrastructure continue despite the end of the Olympics. Many inside and out of SAFE (China’s currency regulator) are urging the government to move away from supporting dollar assets. Unfortunately the probability of this happening just increased as China is now contemplating just how good a customer the US really is. Good customers pay their bills on time and are highly cherished in Asian culture, while those that don’t pay their bills are dealt with much differently. When China ultimately makes the determination that it is in its best interest to redirect its efforts on internal consumption, the United States will see the flip side of exporting our manufacturing base and allowing China to finance its consumption.

Right now investors are experiencing the ’stag’ as domestic asset values fall, drying up the availability of credit. The next punch is the ‘flation’ as China and others move to liquidate dollar holdings as the US is no longer considered a good customer. The continued fall of the dollar will increase import prices and re-inflate falling commodity prices.

Don’t be fooled by a strong Euro. Now that the tide is starting to recede on the economies of Europe, we are finding out that most of them were also swimming naked in the credit pool. I suspect that the Euro is only just starting a long and protracted fall.

Similarly, don’t be fooled by the short term absence of China in the commodity pits, the fall in the Baltic dry shipping index or the fall of Chinese equity prices. These all work in China’s favor as the ratio of commodity and capital inputs to labor inputs is falling, thus increasing the strength of the underlying Chinese economy. Remember, China must keep GNP growth above 8% in order to support its political objectives of furthering the communist party as the right road for the Chinese people.

Chinese Stocks 

Unfortunately, no one is talking about the next shoe in the global liquidity crisis. I believe we in America are about to feel, and pay for, our headlong foray into globalization. While stagflation is never pretty, fortunately there are now strategies that individual investors can engage in to preserve their asset base and purchasing power. We continue to look for favorable opportunities to enter Chinese stocks and ETFs including FXI and CHN, as well as individual common stocks that will benefit from China’s internal consumption growth.

The recent fall in Chinese B shares as well as all of the ADRs listed in the US represents a second chance to those who missed the huge run in these stocks that started in late 2005. However this time around, some serious homework will be required, as investors will need to focus in on those underlying social trends that will continue despite a global slowdown. Some of our favorite stocks will continue to benefit from the well established trends in education, dairy consumption, capital spending and travel. We continue to be short the dollar and are looking to re-enter various commodity ETFs on price declines.

Thomas E Wagner CFP, Quantitative Advisors Inc