China and USA…Two Alerting Perspectives…. by each for each…Residential Housing Bubble in China & Country Rating Downgrade for USA…and where will our Sensex head in the second half of 2010 ?

China and USA…different political idealogies that makes for strange bedfellows….China deliberately keeps it’s Yuan low to benefit from exports to USA…get’s paid in US Dollars which it reinvests substantially in US Government Treasuries !..nearly US $ 900 billion of the US $ 2.3 Trillion Fx Reserves of China are invested in these Treasuries

USA was threatening to declare China manipulator of Currency…China agreed to revalue it’s Yuan upward a wee bit recently and also has just declared their continuing faith in the US Dollar and US Treasuries !

That’s some Consolation between the two on the surface….but the undercurrents run deep

Here are two Alerts….you can put it this way….one by China for USA and the other by USA for China! 

  • Is China facing a Housing Bubble ?…the Western Countries seem to think so
  • A Chinese Credit Rating Agency has just downgraded USA from  ‘AAA’ to  ‘AA’ Country Rating

Is China facing a Housing Bubble ?

Have a Look at the above Graph that matches the Value of Residential Housing against the Country’s GDP for USA,Japan,Hong Kong and China

In 1989,Japan shows a peak level of 3.8  and since shrunk to 2….Japan has been facing Economic Woes for the past two decades now…..China has reached an alerting level of 3.5 and if historic precedent is to be believed for this parameter,the Fall is inevitable….China is heading for a Real Estate Bubble soon

A Chinese Credit Rating Agency has just downgraded USA from  ‘AAA’ to  ‘AA’ Country Rating

Two months ago in May 2010 ago I had blogged on how the top Credit Rating Agency S & P yet continued USA’s Rating at ‘AAA’ 

S & P’s Sovereign Rating of USA remains at Top ‘AAA’….Amusing!

Friday, May 21st, 2010

Now China’s leading Credit Rating Company,Dagong Global Credit Rating Co has downgraded USA from ‘AAA’ to ‘AA’

The World’s Top Three Credit Rating Agencies…all based in the West….S & P,Moodys and Fitch….. have come in for  some scathing attacks…and justifiably too…they have lost considerable credibility in the past few years for their failures to spot and alert proactively  and, even more stupidly, reactively on Lehman’s Collapse,the Sub Prime Dangers,the Greece Problem among others….seems these rating agencies are a cartel with vested interests and agenda….when a Problem is so apparent even to a Commoner,it becomes difficult to believe that these Top Agencies run by Top People out of Top Colleges and Institutions and with Top Pedigree Degrees and Positions are really Dumb,Stupid and Incompetent or even Complacent!…..so the conclusion is that the ‘High Ratings’ maintained for Corporates and Countries by these Western Agencies is a deliberate Game plan not to break the Hand that’s feeding you…combined probably with a Political agenda too !…..Bloody Shame ! read more

Gold Tonnage held by Countries as a Percentage of their Fx Reserves

Official Gold Holdings as of April 2009 as per the World Gold Council

 

Country

Tonnes

Percent of Reserves

1

USA

8,133

78.9

2

Germany

3,412

71.5

3

IMF

3,217

N/A

4

France

2,487

72.6

5

Italy

2,452

66.5

6

GLD (Gold ETF)

1,104

N/A

7

China

1,054

1.6

8

Switzerland

1,040

41.1

9

Japan

765

2.2

10

Netherlands

612

61.7

11

ECB

537

23.7

12

Russia

523

4.0

13

Taiwan

423

4.2

14

Portugal

382

90.2

15

Venezuela

364

35.5

16

India

357

4.2

17

UK

310

18.7

18

Lebanon

287

30.0

19

Spain

281

40.5

20

Austria

280

50.5

 

Interestingly you can observe that the relatively higher GDP Growth Nations of India and China have single digit percentage of Gold as part of their Fx Reserves

With China already beginning to flex it’s economic might and demand that the World must debate the need for another Reserve Currency than the US Dollar,it is very likely that it will move it’s Gold Reserves up by over 300% past 4000 tonnes in the coming few years…Currently it holds justs over 1000 tonnes valued at under US $ 30 billion,with Gold hovering around US $ 900/oz…This is  very low at under 2% of China’s Fx Reserves of @ US $ 2 Trillion…Buying another 3000 tonnes at current prices will involve US $ 100 billion and will bring the Gold percentage past 6% of Reserves

Nothwithstanding claims by USA that the fortunes of China and USA are coupled strongly and that the US Dollar will remain the Reserve Currency and that China to maintain it’s economic growth and stability will have no alternative but to invest heavily in US $ Denominated Treasury Instruments,it is likely that China will continue this policy of lowering exposure to the US Dollar…It will continue to buy Gold

In an era of Asset Bubbles in Stocks (2001) and Housing (2008), Gold Price has soared from US $ 250/oz levels in early 2001 to cross US $ 1000/oz in early 2008…Since then it has corrected and is currently just over US $ 900/oz 

Monetary and Fiscal Bailout and Stimuli Packages as a % of the GDP in USA in Recession Years

Year

%

1974

4

1982

2.8

2001

7.2

2009

30

 A fresh Bull run in Gold is indicated in the coming years as the Global Financial Crisis will take a few years to abate and the US $ will seek new lows…This time around the Bailouts are in Trillions of US Dollars and already a huge 30% of US GDP ….This Inevitably will lead to eye popping and heart attacking and brain haemorraging Mounting deficits and National Debt of Trillions of US Dollars in USA….the Fed itself may need a Bailout ! There is clearly no Fresh Thinking by the Obama Government…In the crisis of 2001,Bush too had resorted to pumping in Billions of Dollars into the System…Obama is merely scaling it up to a Trillion and more !His “Yes, We Can! ” Speech now seems to be more an answer to Bush’s poser to him ” Can You Print More Dollars to save USA ! ?”….”Yes, We Can !” 

Enough Ground and Growing Evidence that Gold will enter another bullish trajectory soon…Strong corrections should serve as entry points like when it dipped below US $ 750/oz in late 2008  read more