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“When the multiculturalist celebrates the fundamental equality of all cultures—excepting, of course, the culture of the West, which he reflexively disparages—he substitutes ephemeral political passions for the recognition of objective cultural achievement.”

Roger Kimball, The Fortunes of Permanence

Commentary & Analysis
Lurching from nirvana to crisis; our dogma is barking?

In the midst of the great commodities boom past, despite the prognostications of many it was never going to end, e.g. one top seer was fond of asking us to visualize every Chinese citizens eating just one egg and one strip of bacon and having a glass of juice every day for breakfast and voila–commodities investing nirvana. Well, despite the logic of this visualization, it hasn’t been that simple. But that’s the point—it never is simple.

In the real world of human action and modern economies, we are presented with more complexity than we can intelligently process. Yet it seems our investment gurus continue to preach either Ms. Rosy Scenario into perpetuity or doom and gloom just around the corner. I guess stridency sells. Validate your reader/viewer/listener whether right or wrong; just be damn confident when you do it. This entire milieu of hubris is why I increasingly shun TV and conferences—and prefer books to news.

Well, in the wake of commodity investment wreckage far and wide, we may be at, and I hate touse this two word phrase, as all the “smart” guys on TV love to utter it— an “inflection point” of some type. I.E. something that leads to a change in the long-term down trend in the commodities market. My idea and usage of the phrase “inflection point” in no way should be construed as a new bull market cycle in commodities; but we may be in the midst of a playable multi-week or multi-month bounce in key commodities once some near-term frothiness is burned off—which I think we are seeing at the moment.

I guess one of the reasons I am edging toward commodity bullishness is my natural contrarian nature railing against the mantra-like screech from so many analysts who now insist Chinese crisis is “inevitable.”

Well, to put it bluntly—it is not inevitable. And in fact, China’s stimulus efforts will likely create interesting price action, and this action may last longer than many now believe.

There is a degree of complexity about China the Western mind seems to have trouble grasping; at least speaking for myself. We tend to fixate on what we perceive as facts with somewhat flawed lenses—or models of reality if you will. From Henry Kissinger’s brilliant book, On China:

Other societies, the United States included, have claimed universal applicability for their values and institutions. Still, none equals China in persisting—and persuading its neighbors to acquiesce—in such an elevated conception of its world role for so long, and in the face of so many historical vicissitudes. From the emergence of China as a unified state in the third century B.C until the collapse of the Qing Dynasty in 1912, China stood at the center of an East Asian international system of remarkable durability.

Are we to believe willy-nilly that China’s rise and economic cycle is no different than the other “economic miracles” in Asia? Is the recent history of the “Asian growth model” more important than the history of China’s “remarkable durability” over centuries? Are we to believe $3 trillion in reserves, and the fact that 95% of its China’s debt is owned domestically, are not powerful crisis buffers?

And according to The Economist, “The central government’s relatively low level of debt, at just over 40% of GDP, means it has plenty of room to help the banks. Indeed, with the right policies, China could survive a deleveraging without too much pain.”

So why is there such certainty about a pending Chinese economic crisis?

Keep in mind when you read both well-reasoned, and not so well-reasoned, rationales for pending crisis, many of these same analysts not so long ago believed China was about to take over the world; as if hegemon status is such a simple feat.

Funny to think of now, but it seems every China hegemon forecaster worth his weight in gold told us it was a sure bet the US dollar would be replaced by the Chinese yuan “any day now” as the world reserve currency. The US military would soon cower under the weight of advanced Chinese weaponry and be pushed easily out of the region as China asserted its version of the Monroe Doctrine; the skirmish shaping up in the South China Sea—Spratly Islands—contains elements of said doctrine despite the fact China has a bit more work to do to get there; this is yet another reason China’s leadership can ill afford a financial crisis and will likely act with more vigor than many expect—even if said actions is likely to lead to “bigger risks” down the road.

But when it comes to speculative investment time frames—if Chinese policy makers act with vigor, as they seem to be doing, I suspect it will create at least a multi-week and more likely multi-month counter trend moves in stuff which has been crushed.

The perfect master is the market itself. The market speaks to us in only one language—price.

Edward Toppel

We have structured our new Key Market Strategies service as a simple way to monitor trends in markets of key underlying assets which seem highly dependent on China’s economic success or failure. Our goal is to do this objectively, through pattern analysis of price action and not let our own story get in the way of reality.

So, regardless of whether China does slip into crisis, muddles-through, or becomes the overnight hegemon it seems plenty of investment opportunities abound for those who can suppress their own dogma.