Every now and then I stumble across a new source of information that I can’t wait to share with my readers. Today is one of those days. If you have even the tiniest shred of interest in commodities, then head over to the Goerhring & Rozencwajg website immediately. It’s just terrific stuff.
I must admit to being partial to their bullish commodity story, but in a recent RealVision TV interview, Leigh Goehring solved a problem that I have wrestled with for some time.
What if China rolls over?
We all know the China bear story. For the past couple of years, famed China skeptics like Jim Chanos (FT Article – “China:market bulls beat the short sellers – for now”) and Kyle Bass (Reuters Article – “China credit bubble ‘metastasizing’”) have been warning about a China credit bubble implosion. Although I am hopeful that China will avoid the apocalyptic scenario they paint, there is a little part of me that worries when I am betting against Chanos.
Chanos might have lost the Tom Selleck mustache (and in the process, given away a fair amount of his hipster cred), but I hate being on the other side of his trade. I am pretty sure God has an account at Kynikos Accociates. They are simply that good.
So I have always struggled with being long commodities in the face of a potential China credit implosion. After all, China is the world’s largest importer and user of commodities, a slowdown would be catastrophic for commodities, right?
Not so fast. As Leigh Goehring so aptly notes, a great analogy for a potential China credit crisis would be the Japanese credit collapse of 1990.
There can be no denying that in the wake of the Japanese bubble bursting, their economy suffered a credit contraction that rivals the world’s greatest slowdowns. Given this horrible setback, it would be logical to conclude that Japan’s commodity usage suffered a similar contraction.