A jumble of thoughts on the economy.
At the end of 2006 and several times in 2007, I took a lot of heat for writing that the US economy was on the brink of catastrophe and that gold would be a smart investment. The price of gold when I first recommended it in 2006 was about $685 an ounce. Today it is $1,825 an ounce. It wasn’t long after my prediction that the housing bubble burst, dragging down America’s, and the world’s, economy with it. Gold went down, too, for several months in 2008 and then came soaring back to record highs.
Some commenters said I was crazy, others wanted to make bets that gold would fall, others cited articles in the Economist and interviews with Warren Buffet that proved I was wrong. I’m not going to gloat. At least not much. For once in my life, I was right about something.
Now that gold today hit its all-time high I am cautious about recommending it again. Obviously it’s going to have its ups and downs, and I would only buy on the momentous dips. Gold is manipulated, meaning it makes huge moves up and down as hedge funds and high-speed electronic traders speculate and short it. It is not for the weak; I had to watch my investment crash for nearly an entire year in 2008, but patience saw me through. You have to have nerves of steel. Otherwise don’t invest in gold and don’t even think of investing in silver, the most manipulated commodity on the planet.
I see one area of gold that remains depressed, and for anyone who can stomach huge risk I would recommend keeping an eye on it. These are the mining stocks which, instead of following gold higher have followed the stock market lower. I’ve been watching these stocks since 2006, and this is a pattern: gold soars, miners fall, then the miners make up for lost time by soaring up very quickly, often as high as 8 percent in a single day. They are as risky an investment as you can ever make, with outrageous rewards and crushing collapses. If anyone wants my specific stock picks, email me, but don’t complain if you lose your shirt.
Even more controversial than my advice on gold was my prediction that China would do better during the catastrophe, its economy moving up as America’s went down. When I quoted Niall Ferguson’s calling this “China’s century” I took more heat. I’m not sure I’d go so far as Niall Ferguson, but the fact is that China’s financial crisis was less painful and more short-lived than our own. Their influence has grown while ours has declined. I believe that at this moment more people, rightly or wrongly, see this as China’s century rather than America’s.
All of that may change, of course. China’s problems are legion, and its economy remains as fragile as ever. One match could turn it all into a fireball. And much of China’s continued growth has been based on government spending and massive BS construction projects leaving many cities afflicted with ghost malls and ghost luxury housing. But again, the fact remains, China’s economy went up as ours went down, manipulated though China’s prosperity may have been.
I’m now more pessimistic about the US (and European) economy than ever. Our austerity mindset is destroying everything the US stands for, and that is providing a safety net for the poor and the disenfranchised and the unemployed. I’m not saying handouts. I mean stimulus to boost spending and allow for more jobs, and increasing, not slashing, programs designed to help the underprivileged. We are doing everything wrong, guaranteeing low taxes for those most able to pay, while making everything harder for the poor and middle class, defunding social services while subsidizing the rich and the super-rich and their endless tax loopholes.
I’ve never seen morale so low in the US. Every news program leads with stories on either unemployment, the stock market crashing, or America verging on a new recession. Several of my friends have lost their jobs, and others are in constant fear that they’ll be next. I contrast this with China, which is bursting with optimism, and I know where I would rather be. Now, this optimism and energy may be misplaced and may not last forever, but there it is; it’s real (and yes, I know that doesn’t apply to everyone in China and a lot of people there get screwed worse than in the US). Bottom line: China’s spirits are high, the US’s are at rock bottom.
The depressing thing about being in the US now is that there is literally no end in sight. Inflation is up, housing prices fell again, the markets have crashed, unemployment is to the stratosphere and those who can find a job are being paid less. Most Americans in numerous polls said they want to end loopholes and special tax breaks for the rich and focus on jobs, yet Congress does the exact opposite. Obama, trapped in a cage by deficit hawks, shows little leadership, declining to fight for working people the way FDR did. FDR actually stood up to the banks and vowed not to let them decimate the working classes. He raised hope in a demoralized nation. So on top of the horrific state of the economy, we have no leadership that inspires Americans to have any hope at all. There’s a huge void. And the fact that three inexplicable wars are siphoning off hundreds of billions from the economy only rubs salt in the nation’s collective wound. Everything is grim, and if you think I’m exaggerating, watch the news. Skim through the newspaper.
It’s a grand time to be working in Asia. I wish I could put into words how much I miss it.
Finally, since I haven’t been blogging in a long time, let me offer up a couple of links:
Custer at China Geeks has done an outstanding job fisking the apologist fraudster Eric Li, whose idiotic columns in the NYT and Christian Science Monitor made me apoplectic. This link is ten days old, but it’s a must read.
Mark’s China Blog has an excellent review of Tony Parfitt’s Why China Will Never Rule the World — very different from my own.
Lastly, Imagethief has a great post on the torture of doing banking in China. And I mean torture.
As I said at the beginning, this post is a jumble, and I hope you could make it through to the end.
Richard Burger is the author of Behind the Red Door: Sex in China, an exploration of China's sexual revolution and its clash with traditional Chinese values.