China Will Face Crisis Within 5 Years, 45% of Investors in Global Poll Say

Global investors are bracing for the end of China’s relentless economic growth, with 45 percent saying they expect a financial crisis there within five years.

An additional 40 percent anticipate a Chinese crisis after 2016, according to a quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 7 percent are confident China will indefinitely escape turmoil.

“There is no doubt that China is in the midst of a speculative credit-driven bubble that cannot be sustained,” says Stanislav Panis, a currency strategist at TRIM Broker in Bratislava, Slovakia, and a participant in the Bloomberg Global Poll, which was conducted Jan. 21-24. Panis likens the expected fallout to the aftermath of the U.S. subprime-mortgage meltdown.

On Jan. 20, China’s National Bureau of Statistics reported that the economy grew 10.3 percent in 2010, the fastest pace in three years and up from 9.2 percent a year earlier. Gross domestic product rose to 39.8 trillion yuan ($6 trillion). (more)

Four Reasons Why The Government Is Destroying The Dollar

The United States government has four interrelated motivations for destroying the value of the dollar:

1. Creating money out of thin air on a massive basis is all that stands between the current state of hidden depression, and overt depression with unemployment levels in excess of those seen in the US Great Depression of the 1930s.

2. It is the weapon of choice being used to wage currency war and reboot US economic growth.

3. It is the most effective way to meet not just current crushing debt levels, but to deal with the rapidly approaching massive generational crisis of paying for Boomer retirement promises.

4. Political survival and enhanced power for incumbent politicians.

In this article we will take a holistic approach to how individual short term, medium and long term pressures all come together to leave the government with effectively no choice but to create a high rate of inflation. If you have savings, if you rely on a pension, if you are a retiree or Boomer with retirement accounts - any one of these four fundamental motivations is individually a grave peril to your future standard of living. However, it is only when we put all four together and see how the motivations reinforce each other, that we can understand what the government has been and will be doing, and then begin the search for personal solutions. (more)

Why the Smart Money is Trading Dollar Bills for Hard Assets

“With each passing day,” we observed last week, “inflation seems less and less a theoretical fiction, and more and more a genuine threat… No self-respecting economist or self-aggrandizing central banker is acknowledging any inflationary risk whatsoever,” we continued. “But the indifferent data points of real-world prices testify to the contrary.”

Shortly after airing these remarks we learned that import prices soared 1.2% during the month of December alone – lifting the year-over-year surge in import prices to 4.7%. The following day we learned that producer prices jumped 3.8% year-over-year. A few days after that, the Federal Reserve Bank of Philadelphia announced that producer prices in the Philadelphia region had jumped to their highest levels since July 2008.

These data points do not prove that an inflationary threat is stirring, but they do offer compelling testimony. Meanwhile, commodity prices are providing ample corroborating evidence. During the past eight months, the Reuters/Jefferies CRB Index of commodity prices has soared 32% – far outpacing the stock market over that timeframe. The grain complex, in particular, has been on a tear, as the prices of both wheat and corn have nearly doubled since last summer

These eye-popping gains may be exceptional, but they are hardly unique. All but one of the 19 commodities in the CRB Index has advanced during the last two years. (more)

The Fed, the Fear Index, and the Dollar

Bloomberg provides some insight into the current two-day Fed meeting:

“The Fed is not ready to let up on its accelerator,” said Gramley, senior economic adviser for Potomac Research Group in Washington. “They are going to be impressed with the fact the economy has gained some momentum, but there are still strong headwinds to growth, and bank lending is quite modest.”

Policy makers will probably affirm their plan to buy Treasury securities through June to reduce long-term yields and spur lending, said Mark Gertler, a New York University professor and research co-author with Bernanke.

With the markets not having experienced a correction for some time and the Fed due to release a statement tomorrow, it is prudent to review some big picture issues. The VIX, or the “Fear Index”, falls when investors are less concerned about volatility or pullbacks. Conversely, the VIX rises when concerns about volatility and possible corrective activity begin to mount.

The chart below is a monthly chart of the VIX going back to 2002. The VIX is at a level where it could logically reverse and begin to move higher, which would most likely coincide with a pullback of some kind in risk assets. Two things we are monitoring relative to the VIX are highlighted in the chart. The parallel blue trendlines in the Relative Strength Index (RSI) have acted as both resistance (red arrows) and support (green arrows) – notice the blue line is at a point where it could provide support for the VIX. A break below the lower blue RSI trendline would open the door for another push higher in risk assets. (more)

Richard Russell: The Dollar Has Lost All Stability And Is Ready For A Crash

Legendary newsletter writer Richard Russell has been calling for the collapse of the U.S. economy for awhile.

Based on recent dollar movements he says that crash is going to come now (via King World News) First the dollar has lost all stability:

Today there's no definition for the dollar. So how do we price the dollar? At one time, the dollar was priced in terms of the time-honored standards -- gold and silver. But today we must price the dollar against other fiat currencies. "A dollar is worth so much against the yuan, or so much against the pound sterling, or against the euro and so forth"

Second the dollar is moving in a bearish pattern:

To get back to the chart, we see that the Dollar Index is now trading below its blue 50-day moving average. The 50-day, in turn, is below the red 200-day MA. Thus, the Dollar is in the classic bearish configuration as long as it trades below its 50-day MA.

Note also that the Dollar has now broken below three preceding lows, a bearish situation.

Furthermore, MACD has turned bearish, pushing the blue histograms into negative territory (bottom of the chart).

Russell compares the dollar to the foundation of a house. When it crumbles (soon) the whole thing will come crashing down. To prepare for this scenario you should get the hell out of dollars:

The Russell advice -- swap your dollars for physical gold or CEF, GLD, or SGOL. In other words, do as China and Russia and many other nation are now doing -- get out of your dollar assets.

But remember, Russell has been making these predictions for awhile.

McAlvany Weekly Commentary

An Interview With Ian McAvity

Posted on 26 January 2011.

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Gold Holdings in ETPs Plunge Amid Signs of Recovery

Gold held through exchange-traded products, or ETPs, tumbled by the most in more than two years amid speculation that improving prospects for the global economic recovery are undermining demand and hurting prices.

Assets in gold-backed ETPs fell 31 metric tons yesterday to 2,043.09 tons, the lowest level since Aug. 10, according to data compiled by Bloomberg from 10 providers. That’s the biggest drop in percentage terms since October 2008, the data show. Holdings have shrunk 3.4 percent from the record 2,114.6 tons on Dec. 20.

Global economic growth may be 4.4 percent this year, the International Monetary Fund said yesterday, boosting its outlook from 4.2 percent. More than half the respondents in a quarterly poll of 1,000 Bloomberg subscribers said that the gold market is a bubble, according to the survey taken Jan. 20-24. Spot gold has lost 6.5 percent since setting a record last month.

“Strong economic data has improved confidence about the global outlook and reduced the need to hold gold and silver as a safe haven against credit risk, event risk and currency weakness,” Standard Chartered Plc said in a weekly report dated Jan. 25. “We expect further weakness in both markets.” (more)