"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 21 hours Major League Baseball Turns To Blockchain Tech
  • 2 days Institutional Investors Hold A Lot More Crypto Than You Think
  • 2 days U.S. Treasury Yields Could Be About To Break Out
  • 2 days Tesla Stock Stumbles On Model 3 Cancellations
  • 2 days Yuan Rebounds At The Expense Of The U.S. Dollar
  • 2 days Iraq Unplugged: No Internet, No Protests, No Money
  • 2 days The Tariff War Could Spark A Debt Crisis In China
  • 3 days Gold Selloff Continues As Dollar Climbs Higher
  • 3 days Gold Investors In A Frenzy Over Sunken Russian Warship
  • 3 days The New King Of Electric Cars
  • 3 days BlackRock Goes Bitcoin
  • 3 days U.S. Banks See Best Earnings Report In Years
  • 3 days The Case For Gold Is Not About Price
  • 3 days Stock Market Sentiment Turns Bullish
  • 4 days What Is Bitcoin Really Supposed To Be?
  • 4 days The Surprising Media Giant Taking On Netflix
  • 4 days Cybersecurity Stocks Are Red-Hot As Election Looms
  • 4 days Americans Grow Weary Of U.S. Trade Policy
  • 4 days What Putin Really Wants From Trump
  • 4 days Europe’s EV Sales Growth Is Slowing
The Biggest Winners Of Q2 Earnings Season

The Biggest Winners Of Q2 Earnings Season

The second quarter of 2018…

Chinese IPO Fervor Slows As Xiaomi Disappoints

Chinese IPO Fervor Slows As Xiaomi Disappoints

The Chinese IPO space was…

3 Reasons Small-Cap Stocks Are Booming

3 Reasons Small-Cap Stocks Are Booming

As major market indexes waiver,…

Peter Schiff

Peter Schiff

Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the…

Contact Author

What Do Stocks Have to do With the Price of Pork in China?

By tripling the tax on brokerage transactions, the Chinese government succeeded, at least temporarily, in restraining the surging Chinese stock market. But my expectation is that the correction will be short-lived. It's not that the Chinese stock market is not a bubble, as it clearly is, only that more air will likely inflate it further before it finally bursts.

While Chinese concerns over a potentially bursting bubble are legitimate, their attempts to discourage further speculation can be compared to the captain of a sinking ship who dispenses teaspoons to his crew instead of fixing the gaping hole in the hull. The giant hole in the Chinese economy is the currency peg to the dollar. In order to maintain it, China must pursue a highly inflationary monetary policy which fuels the stock bubble. As long as they continue this policy, dispensing teaspoons will have little effect.

The effects of inflation are not limited to stock prices. Pork prices in China, the primary meat in the Chinese diet, rose over 30% in May alone (live hog prices actually rose over 70%)! In order to hedge against such persistent price increases, Chinese savers are being forced into the stock market. The alternative is to watch the value of their savings erode as the government debases the yuan to prevent the U.S. dollar from collapsing.

Initially, a dollar peg brought stability to China. When the dollar was sound, discipline was required to keep a pegged currency from falling. Now that the dollar is weak, inflation is required to keep it from rising. It's analogous to tethering your monetary ship to the Titanic. Failure to cast off the line will inevitably sink the pegged currency along with the dollar.

Recently two Arab nations have done just that. Within the last three weeks, both Syria and Kuwait de-linked their currencies to the dollar. Other Gulf States will likely follow suit, with The United Arab Emirates looking like the next domino. The most logical progression would be for these nations to no longer price crude oil in dollars.

Perhaps these actions will cause the Chinese to begin abandoning their defense of the dollar in much the same way the U.S. did with the British pound in 1929. When that happens China's stock market bubble will burst, but its economy will be on much firmer ground as a result. Though nominal stock prices will decline, the value of the yuan will soar, mitigating the real extent of the losses. Despite some short-term pain, China will not experience anything like our Great Depression (as long as they do not make the same mistakes that Hoover and Roosevelt made).

America however will not be so lucky. Our stock market and economy will fare much worse, as a collapsing dollar will exacerbate the real value of the declines.

For a more in depth analysis of the tenuous position of the American economy and U.S. dollar denominated investments, read my new book "Crash Proof: How to Profit from the Coming Economic Collapse." Clickhere to order a copy today.

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com, download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com, and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp.

 

Back to homepage

Leave a comment

Leave a comment