The Great ‘Fall’ Of China [Part 3]

By | Forbes / Investing | Original Source

The latest number of the PMI (purchasing managers index) flash estimate was 48.2, a fifteen-month low. Pretty soon, the big hedge funds globally will also discover that their assessment of China growth was very wrong. It has already started with the confession of Ray Dalio, founder of the world’s largest hedge fund group.

Machinery sales, such as heavy trucks, loaders, excavators, are at or even below the dismal levels of the 2009 crisis low.

The private sector recession (depression) in China is reflected in the negative growth of cement, steel, and autos. They are also at or below the crisis level of 2009.

Obviously, a growing economy shows growing rail traffic. However, the growth of China rail traffic is now below the crisis low of 2009.

For U.S. investors who do not want to bother with China’s problems, please realize that U.S. rail traffic is now also showing a severe slow-down, in spite of all the optimistic economic projections by Wall Street. Wall Street tells you that the economy is strengthening. My evidence is to the contrary.

China’s  infusion of money is about 25 times bigger than at the start of their rescue operation in early July. Their government has panicked. This is the equivalent of Hank Paulsen’s “Big Bazooka,” which was initiated to stop the 2008 meltdown. Will China’s money infusion halt the crumbling of their debt pyramid through the creation of even more debt?

Furthermore, China is encountering a significant outflow of foreign investment capital. That will be a big problem for China in the future. In my Wellington Letter, I will follow this very closely on a regular basis.

Goldman Sachs estimates that capital outflows from China in the second quarter topped $224 billion.. Over the past year, it may be as high as $800 billion. Goldman comments that it is “beyond anything seen historically.”