Xie Guozhong: The Economic Crisis May Erupt At The End Of 2012.

2011 may be almost the same as 2010: the beginning of the year is full of hope, the middle of the year slips into panic, and at the end of the year is again full of hope for the coming year.

Shadow laden

We have been enveloped in three shadows.

First, the price of oil has risen 20% since the Federal Reserve planned the second round of quantitative easing.

Is this the expectation of increasing demand or rising money supply? Analysts often divide into two groups according to the second round of quantitative easing.

I belong to the second faction.

Global oil consumption rose slightly in 2010, reaching 10 thousand barrels per day, but still below 2007 and 2008 levels.

In the past few months, no change in the economic outlook has been able to explain why oil prices have gone up so much.

The driving force behind the sharp rise in oil prices is financial demand, not real demand.

What will oil price go up in 2011? I estimate that oil prices will increase in the first quarter, and the economic data will fall back in the middle of the year when the economic data turn bad.

If the Federal Reserve plans to implement the third round of quantitative easing policy, possibly in the second half of this year, oil prices will soar.

Second, the US Treasury bond market has fallen a lot, but it is far from a crisis.

However, the price drop is a warning of cold water in the market.

No government, even the US government, can afford to borrow money forever.

US Treasury yields are not sustainable.

The market does not believe in low inflation or no inflation.

But Bernanke hopes inflation will continue to print money until inflation occurs.

It is only a matter of time before US Treasury yields exceed 6%, and that is likely to happen in 2012.

At that time, the US government debt will amount to 16 trillion dollars.

At the rate of 6%, the interest paid by light is nearly $1 trillion.

The US government revenue is currently $2 trillion.

Perhaps inflation will increase revenue to $2 trillion and 500 billion.

If a government's debt interest accounts for 40% of its revenue, it is hard to imagine how it can operate.

Once the bond market returns to normal, the US fiscal situation will be out of control.

If the market is aware of this, the bond market will fall sharply due to fears that the federal government will be bankrupt.

The resulting surge in interest rates will continue to strengthen itself.

Third, China's monetary tightening policy is a sign that there will be more problems in the future.

China's inflation problem is actually a question of the supply of money.

The problem of inflation in China is the problem of financing in the real estate market, that is, the government's financing for its expenses.

Inflation in China is a tax issue.

This is nothing new.

Inflation in modern China has always been due to levying taxes for depositors and providing funds for the government.

If you look at the real estate market in China, imagine how China's inflation will fall into a dizzy way.

The vast majority of practitioners in the real estate industry believe that the housing market must continue to develop because the consequences of regulation are unthinkable.

To sustain development, the government should build enough public housing to appease the angry public.

Then the housing market can continue to flourish and become a playground for the rich.

But there are two loopholes in this logic.

First of all, the current mode of financing in the real estate market will lead to inflation, causing currency devaluation and social unrest.

Second, the property market is so huge that it can't be just a playground for the rich.

The rich have several vacancies, hoping to sell to those who can not afford to buy, but who can afford to buy housing in the future.

If ordinary people can afford to buy a house, it is impossible for the rich to hold millions of apartments and leave them idle.

Deja vu

At the beginning of 2010, I predicted that the trend of stock market was mainly fluctuation; hedging heavy metal and commodity price inflation would be popular; multinationals did well.

2011 is very much the same.

Precious metals and commodities will still perform well.

This will not be a steady upward trend.

At present, the US dollar is strong, because Obama implements the tax reduction policy, the Federal Reserve implements second rounds of quantitative easing, has aroused the expectation to the US economy's sustained recovery.

As long as the US dollar is strong, the price of precious metals and commodities will not rise rapidly.

However, as long as the US economic data are weaker than expected - probably in mid 2011 - precious metals will be strong again.

As in 2010, weak economic data will prompt the fed to plan stimulus measures again, which will enable the entire commodity sector to grow rapidly.

My overall attitude towards stocks is not negative.

Transnational corporations are the biggest beneficiaries of globalization.

Through rapid growth in emerging market demand, they have shifted production from higher cost developed economies to low-cost emerging economies, making profits.

The price earnings ratio of multinational companies is about 15 times.

It's not cheap, but it's not expensive either.

The nominal growth rate of the global economy may be between 5%-6%, of which 30% comes from inflation in emerging economies.

The income growth of employees of multinational corporations may be more than that, and their share prices will increase in the same range.

Emerging market bubbles are more serious, and liquidity problems are more sensitive than income.

Inflation has pushed all big emerging economies to tighten policies, such as the BRICs.

With the introduction of the new policy of the Federal Reserve, its inflation problem has been magnified, and their tightening rate is not fast enough, and the overall liquidity has not yet contracted, nor has there been a bigger flood.

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Therefore, I think the emerging market will be dominated by volatility, like 2010, and there will be a big dip in the middle of the year.

In 2010, China's stock market was worst performing.

For large companies, the market threshold is not high enough, but for small and medium enterprises, it is still unattainable.

There is a huge amount of liquidity lifting shares.

The realisation of these shares has greatly affected the stock market.

If the Chinese stock market in 2011 has seen an astonishing rise, it may be because of the QFII expansion.

Large financial stocks such as big state-owned banks and insurance companies have huge discounts when trading with their Hongkong H-shares.

International institutional investors have been unable to enjoy such a discount, because the QFII quota is full.

China worries about the influx of hot money and limits the expansion of QFII.

Because QFII is a potential tool to boost the market, the government will only use it if it is worried that the A share market will be weak.

I am not optimistic about the housing market.

The global housing bubble lasted for many years.

The bubble burst first in the developed economies.

As property is a long term asset, it is unlikely to recover quickly.

In fact, I believe that in the next two years, the real estate market in developed economies will shrink.

But property bubbles in emerging economies are still large because their real interest rates are negative.

Inflation is generally good for the housing market.

But when housing prices are high, this relationship will become counterproductive.

The latter triggers monetary tightening, which will first affect overvalued assets.

China's housing market is particularly vulnerable.

Credit discrimination policy has set the market ceiling.

In 2010, developers may sell only half of the property they intend to sell.

Although domestic banks did not force them to repay the existing loans, other debts such as construction costs and land purchases must be repaid.

China's developers will face more serious liquidity problems in 2011.

They are likely to sell at a reduced price, expand sales and solve the problem of insufficient liquidity.

In the new year, China's housing market is likely to fall by 10%-15%.

This does not mean bubble burst.

The elimination of bubbles requires the elimination of real negative interest rates.

Emerging economies have never taken the initiative to eliminate real negative interest rates.

This is usually done only under the pressure of devaluation.

If the Fed raises interest rates rapidly, it is either because of the strong economic recovery in the US or inflation in the US.

Only in this way will emerging economies reduce negative interest rates.

I suspect that this will happen in the second half of 2012.

Enjoy pleasure in good time

Countries have not seriously reformed to solve the structural problems facing the global economy.

Even the legacy of the financial crisis has not been completely resolved, for example, bad debts and the incentive system of financial institutions.

Large banks derive capital from implicit government guarantees and are cheap. They usually rely on these capital to continue to profit from traditional investment banking business.

This forced investment banks to take greater risks to write off the adverse factors of financing costs.

This creates turbulence in the financial markets.

Structural problems include: (1) advanced economies have higher social costs; (2) developing economies suffer from high inflation and asset bubbles.

The former calls for tightening money and redistribution.

Europe has done something.

For example, France has just extended the retirement age.

That may not be enough.

The key indicator to successfully deal with this problem is that the proportion of treasury bonds in GDP continues to be stable.

However, there is no movement in the major developed economies.

The United States is heading in the opposite direction.

Emerging economies are benefiting from trade and foreign investment.

They are expanding rapidly.

The big cake is of course good news.

But the developing environment of emerging economies can easily lead to inflation and bubbles.

If we fail to deal with the dark forces properly, it may destroy the society of emerging markets.

In fact, after so many years of excess accumulation, emerging economies are facing the risk of a hard landing, and the outbreak of the financial crisis is not far off.

In some emerging economies, beneficiaries from asset bubbles will exert excessive influence on national policies.

Therefore, they formulated policies aimed at creating bubbles rather than eliminating bubbles.

China's housing bubble is particularly dangerous, resulting in the huge income redistribution from the family sector to the government sector.

The latter can dominate large-scale financial resources, resulting in increased government spending.

These expenditures are difficult to handle because they usually involve projects that have lasted for many years.

Therefore, any measures to tighten monetary policy will encounter resistance from the government departments themselves.

The longer the bubble lasts, the more resistance the austerity policy encounters.

China's efforts to curb inflation and deflation have not been enough.

Unless house prices fall sharply, inflation is unlikely to weaken, as money supply mainly flows to the housing market.

It is too early to predict that China can avoid hard landing.