Posted on 09/23/2008 8:05:44 PM PDT by DeaconBenjamin
"The collapse of emerging market economies will shake investors to the core. The great unwind has only just begun," said Albert Edwards, the bank's global strategist.
"The big surprise in store is what could happen in China. The potential for a deep recession in the US is already on the radar screen, but people will be stunned if China's economy contracts, as I believe it will. Investors could be massively caught out," he said.
"The consensus has a touching belief that emerging markets will prove resilient despite a deep downturn in developed economies. My view is that an outright contraction in global GDP is entirely possible next year."
"The emerging market boom is totally tied up with a decade of ballooning current account deficits in the US. Put that into reverse and you'll be surprised what pops out of the woodwork."
Mr Edwards said the vast accumulation of foreign exchange reserves – led by China with $1.8 trillion – had provided the "rocket fuel" of liquidity for frontier markets. This virtuous circle has now turned vicious as America tightens its belt. Countries in Asia and Latin America are intervening to prop up their currencies, causing reserves to fall.
"We could see monthly trade surpluses in the US within a year. The emerging market liquidity squeeze will intensify ferociously, and assets linked to the region will become toxic waste. That includes previously resilient banks such as HSBC, Standard Chartered and Banco Santander," he said.
The gloomy forecast comes as Fitch Ratings warns of mounting distress for banks in China, where debt has been shunted off books to circumvent state limits on credit growth.
(Excerpt) Read more at telegraph.co.uk ...
Invest in metal: gold, silver, steel, copper, lead.
Wow. This is a big news.
The great unwinding continues. It started in U.S. and would end in China. U.S. and China are so intertwined business-wise. If U.S. is in intensive care, China would die.
I’ll invest primarily in gold, silver and platinum, mostly because they can be used as a form of currency to buy anything. Be ready for a US dollar being backed by precious metals within 3-4 years, just like it was before 1933.
The next big bubble to burst.. Red China!
I thought demand from China and other emerging markets was driving the price increases we’ve seen in metals, so wouldn’t this mean those gains will be reversed? These price increases were even larger because of the fall in the dollar, but that too should reverse if China’s economy falters.
"It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."
just like it was before 1965 -- silver-backed.
You are RIGHT!
Precious metals are not “productive investments” - they are MONEY for all of recorded history.
How many of your “productive investments” SWAPs, ETFs, tax-free municipal bonds... have been around 5,000 years?
How many of your “productive investments” do you really think will be around next year?
Lurking’
Municipal bonds may technically be "investments," but I'm not sure how productive they are given how good municipalities are at spending money on useful projects...
No, the only productive investments are actual investments in capital goods (factories, equipment, etc.), research and development, or training that end up producing more wealth. These can be direct or in the form of stocks, bonds, or even bank deposits (which are then lent out to people who need capital). The key difference is that with these, your money isn't just sitting there doing nothing (being well protected if it's in precious metals, and maybe less well protected if it's in plain cash); it's being used by other people who can use it better at the moment, and they're paying you for the privilege.
I would disagree with you again, when you said, “your money isn't just sitting around doing nothing...” you are hoping to get a return ON your investment, whereas I suggest that you start to worry about getting a return OF your investment.
Holding PMs allows your wealth to survive and be invested another day, whereas dollars, bonds, deposits, etc. have had a half-life of a ice cube in hell lately.
PMs are for survival when the little bailout bucket breaks.
Lurking’
While precious metals may not be “precious” investments, they certainly can be used for real payments. Get ready for more construction of highly-guarded gold and silver depositories as the world returns back to a precious-metals standard for currency.
I've read that the credit crunch could hit Europe and China far worse than here in the USA. And that will literally refloat the US economy because we'll end up holding all the liquid assets sent over from Europe and China.
ETFs build up hoard of gold
Investors in gold-backed exchange-traded funds (ETFs) have amassed a record 1,039.68 tonnes of bullion, becoming the largest holders of gold after the reserves of the US, Germany, the International Monetary Fund, Italy, France and Switzerland.
The purchases partly reflect concerns over the health of US financial institutions and safe-haven buying spurred by a weakening dollar.
Spot gold prices yesterday hit a peak of $908.8 an ounce, the highest level in seven weeks. Bullion eased later to $889.80, down from Monday’s last quote in New York of $900.20. Gold set a record of $1,030.80 in March.
Investors’ bullion assets have risen by 31 per cent in the past 12 months and have almost doubled since September 2006, according to statistics compiled by the industry-backed World Gold Council. The world’s largest bullion-backed ETF, the New York-listed SPDR Gold Trust, saw a 30.2 tonnes inflow on Monday, bringing its holdings to an all-time high of 709.2 tonnes.
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