The world’s second-largest economy may have just entered its “crack-up boom”…
Bloomberg reports Chinese steel prices have rocketed 46% higher since bottoming in December 2015. Chinese steel mills cranked out more metal in March than ever recorded.
But here’s the curious part: The U.S. imposed a 256% tariff on Chinese steel imports last December. That should’ve cratered demand in the world’s largest steel industry…
But it hasn’t. A “steel buyer of last resort”—the Chinese government—has stepped in to “save” the day…
It’s pumped over $1 trillion in new debt-fueled cash into China’s economy—in just the first quarter of 2016. The gargantuan spending program means to stabilize and stimulate the Chinese economy. So far, it’s ended five straight years of steel price declines.
But longtime Daily readers know where this leads…
The stimulus will just finance additional Chinese malinvestment: more empty skyscrapers… more bridges to nowhere… more “ghost cities.”
That’s not good for an economy with an estimated debt-to-GDP ratio now at 350%…
Here’s what Tom told readers to expect out of China in February’s issue of The Palm Beach Letter:
China is going to be the world’s most spectacular economic contraction, as it has the highest degree of malinvestment ever seen.
China’s stock market will experience a long bear market. And its currency needs to decline by at least 30% (more like 50%, in line with most other emerging-market currencies). It’ll go through mass unemployment, bankruptcies, abandoned factories… maybe even a revolt.
Bottom line: This is the beginning of the end of China’s current economic order. Like the rest of the world… it can’t solve its debt-fueled malinvestment problem with even more debt-fueled malinvestment. Stay long U.S. dollars and gold… avoid the Chinese currency (the yuan)… and wait for the inevitable, epic collapse.
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