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…China is heading toward an economic crash and its spiraling downward is affecting other economies around the world according to Crescat Capital’s Portfolio Manager Tavi Costa and Chief Investment Officer Kevin Smith. This article identifies the 8 metrics signalling the coming “China Crash” and how they have positioned its funds in preparation for the likely Chinese event.
Metrics Signaling A Coming “China Crash”
1. China’s industrial production of crude steel has declined year-over-year. It’s the largest drop since the global financial crisis and reset of China’s credit environment, and the plunge is steeper than it was during the yuan devaluation. China’s ore imports are declining, too…
2. Whereas Chinese equities and China’s trading balance margins used to generally move in concert, today, they’re moving in separate directions. Equities are declining, and trading balance margins are increasing. The last time this divergence happened, it led to a major devaluation of the yuan.
3. The gold price and gold miners’ stock are also showing an atypical divergence as the former decreasing and the latter increasing…
4. China…[can expect] a massive People’s Bank of China liquidity injection, money printing, currency devaluation and hyperinflation. All of this will impact the rest of the world and the U.S. already is experiencing effects of what is happening in China.
5. Emerging market stocks are starting to fall apart (e.g. Brazilian stocks) and further decline is expected in the emerging markets as a whole. leading the way to possibly a major deceleration of growth in the U.S. The Federal Reserve wanting to taper compounds the situation.
6. The Dow Jones Transportation Index is bearishly diverging from the Standard & Poor’s 500, which also happened during the tech bubble. Even though transportation is a small portion of the market, it tends to lead it…
7. The U.S. is expecting rising inflation, as evidenced by the housing data component of the Consumer Price Index and in major growth in wages and salaries.
8. Yields in China’s corporate bond market are spiking. While similar yields in the U.S. are much lower, they tend to move in sync with China’s, indicating the same upward trend is likely to occur in the States as well…
How To Prepare For the China Crash
The current global macroenvironment continues to validate Crescat Capital’s four-pronged investment advice…as the way to prepare for a “China crash.” The firm recommends:
- being short the Chinese yuan,
- being short overvalued U.S. mega-cap growth stocks,
- being short the S&P 500 Index, and
- being long precious metals…because we know that the Federal Reserve and, in China, the PBOC, are going to come in with massive new amounts of quantitative easing and money printing to deal with these problems…
Editor’s Note: The original post has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
Please read Crescat’s important disclosures.
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