Goldman Sachs: $6000 Copper

Remembering Exactly How The Japanese Economy Collapsed

By Also Sprach Analyst via Businessinsider

The wonderful things internet and Google are. We can search through some really old news date back more than 20 years ago, even though there were no people reading news online (sure, did anyone use internet?).
Out of curiosity, I found some really old news from Western media about Japan. Specifically, what’s happened in Japan over 20 years ago.
Note: the following quotes are all from New York Times, and it is merely a coincident.
7 September 1988, New York Times

Japanese investors have become major players in key real estate markets in the United States, snapping up hotels at Waikiki and stepping over each other to grab skyscrapers from Los Angeles to New York City.

 Does it ring a bell?
7 September 1988, New York Times

The real estate boom here has been long been out of control, but many people were still shocked when a Government-affiliated research group calculated a few months ago that the book value of all the land in Japan – $13.47 trillion and change at current exchange rates -easily exceeded the value of all the land in the United States.

22 August 1989, New York Times

Japan became the world’s richest nation on paper in 1987, surpassing the United States in national assets for the first time with $43.7 trillion worth of land, factories, stocks and other wealth, a leading Japanese newspaper said today.
The value of Japan’s assets in 1987 jumped sharply from $28.3 trillion in 1986, said Nihon Keizai Shimbun, the country’s top economic daily, quoting figures from the United States Federal Reserve Board and Japan’s Economic Planning Agency.
…
According to Federal Reserve figures, the United States had $30.6 trillion in assets at the end of 1985, $34 trillion worth in 1986 and $36.2 trillion in 1987, the newspaper said.

Remember this rubbish statistics that Beijing total land value equals to one year of GDP of the United States? Although totally incomparable quantities, that scared quite a bit of people.

It didn’t end well, of course. As reported here:

14 September 1991, New York Times

Japanese company bankruptcies jumped 74.3 percent in August, compared with a year earlier, a private research company reported Friday, the latest indication of how far Japan’s economic bubble has deflated.

We know the rest of the story: the Japanese economy experienced two lost decades.
I will have more to say on that later.

source

Is the Chinese Economy Sputtering for the Same Reasons as the American Economy?

It was tempting to believe that China was different.

With its command and control economy with some of the trappings of free market capitalism, trillions in reserves, and abundant natural resources, many thought that China would "decouple" from the Western world's problems and sail into a prosperous future.

However, despite its long history, exotic names and seemingly strong position, China cannot avoid the rules of economics which have applied to all countries throughout history.

Corruption and Phony Bookkeeping

Corruption and the failure to follow the rule of law is one of the main factors which has dragged down the American economy.

The fact that - according to the Chinese central bank - Chinese officials stole $120 billion and fled the country does not auger well for China.

Scandals among various Chinese companies are not helping, either.

And then there are the made up statistics. As Warren Hatch of Catalpa Capital Advisors notes:

As Li Keqiang, the vice premier and heir-apparent to Wen Jiabao, laconically remarked to the US ambassador a few years ago, most of the statistics in China are “for reference only.” 

And Charles Hugh Smith argues:

Despite their many differences, the economies of China and the U.S. share a number of key traits: both are corrupt, rigged, crony-Capitalist, rely on phony statistics and propaganda and operate with two sets of rules: one for the Elites, and another for the masses.
Despite their many differences, the economies of China and the U.S. share a number of key traits: both are corrupt, rigged, crony-Capitalist, rely on phony statistics and propaganda and operate with two sets of rules: one for the Elites, and another for the masses.

Can We Trust You?

The credit crisis hit in 2008 largely because American banks lost trust in one another. Specifically, top economists say that each bank had so much bad debt on its books (in the form of mortgage backed securities and derivatives which worth the paper they were written on) which made them essentially insolvent that they assumed that all of the other banks must be in a similar situation ... so they stopped lending to each other.

This drove the price which banks charged each other for loans (libor) skyrocket, and the whole credit market froze up.

The same thing is now happening in China. As ZeroHedge reports, Chinese interbank lending is freezing up and "shibor" - the prize which Chinese banks charge each other for loans - is skyrocketing.
.............

More on this subject:
http://www.washingtonsblog.com/2011/06/is-chinese-economy-sputtering-for-same.html

Dr. Copper, the housing bubble edition

The mighty Dr. Copper; the only metal has a suffix attached to his name, for his accuracy predating equity prices for years. In the past 30 months or so, copper had a fantastic performance, almost quadrupled its price from December 2008 lows. But recently, this is becoming more of a story about emerging market infrastructure spree than acclaimed shortages.
An article in daily mail about a Chinese ghost city Kangbashi may give us some idea about the scale of the spree.

From dailymail.co.uk:

One approach road leads past what was until recently a 30,000-seater stadium, costing £100 million and rushed to completion in nine months for last year's Mongolian Games - horse-racing, archery and wrestling. When it was opened, it looked rather like Concorde about to take off. But soon after New Year's Day, a whole white wing, plus the central peak, collapsed during the night. http://www.dailymail.co.uk/....

Refined copper imports by country in 2010

As the ancient Chinese saying goes:” one shall invest in art in heyday and own gold in troubled times:” With some Chinese art prices soaring to unprecedented levels, not doubt we are in a boom time. However, anybody who studied some history may ponder the question whether this time is different. Looking at the media flooded with articles about how superior a state-driven fixed asset investment economy is, I couldn’t help but wonder if anyone experiences the same déjà vu as I do.

Sotheby Indicator

Supply wise, for all the Malthusians I’ve got bad news for you. BBC just discovered new source of copper supply! They are in Goldman’s warehouse! Several prominent website has already covered this story in detail:

BBC bubble trouble interview via ftalphavilla.ft.com

MR: In fact it turned out that only about 40% of the copper was on the LME’s official stocks, and therefore visible to the market. 

From Zerohedge.com:

The primary driver of this anti-competitive behavior is the fact that GS, JPM and Glencore now control virtually the entire inventory bottlenecking pathways: "In recent years, major investment banks like Goldman and J.P. Morgan and commodities houses like Glencore have been snapping up warehouses around the world, turning the industry from a disperse grouping of independent operators into another arm of Wall Street. The LME has licensed about 600 warehouses around the world. http://www.zerohedge.com/......

Copper guru Simon Hunt explained:

The real story about copper is the size of the financial sector’s involvement in buying surplus copper and warehousing it outside the reporting system both in your country and elsewhere, which probably started in 2006. This is what creates robust demand, which is quite different to consumption.

I’m also a big believer in seasonality; the chance of a market collapse in autumn is just too high for me to discredit markets seasonal traits. So I examined three major housing bubble in the past 20 years or so, the Japan asset bubble, Asian tiger, and US housing bubble and put them into a seasonal perspective, presidential cycle in this case. These three housing bubbles are each characterized by the same stated-induced cheap credit, reckless speculation, and debt fueled asset inflation. And here is the result:

Seasonal copper price during major housing bubble

If the Chinese housing bubble talk is validated, with inflation pressure mounting up and further tightening measures in emerging market, Simon hunt’s prediction of copper price plunging to 7500 level surely could be realized by year end. After that, copper price tend to rally at the beginning of election year, and an even lower copper price in second half of 2012 is not avoided.

I will continue to monitor closely the market developments, feel free to visit my website: riskhacker.blogspot.com.