The economic forecast of China has continued to move down, according to many people, including myself. There has been some information from the actual companies, the people on the ground, which shows a disturbing trend for the truly bizarre.
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New York, NY (PRWEB) July 19, 2012
In a recent Investment Contrarians article, editor Sasha Cekerevac argues that one of the pitfalls of being in a global economy is being more closely tied with other economies; if one economy suffers a recession, it can drag down growth in other nations. Cekerevac notes that China has been a strong economic driver in the global economy for many years, but recently, questions are arising about whether or not its economic slowdown will decline into a full-blown recession.
“The economic forecast of China has continued to move down, according to many people, including myself,” comments Cekerevac. “There has been some information from the actual companies, the people on the ground, which shows a disturbing trend for the truly bizarre.”
A construction equipment maker in China called Zoomlion asked for $22.0 billion in credit so that it may fund its customers, Cekerevac reports. This is a large amount of money for any firm, especially considering the company itself is only worth $12.0 billion. This is a sign of how desperate the situation is in China, as customers have no cash to purchase equipment, notes Cekerevac.
“It gets even crazier. Reports are surfacing that machines purchased on credit are then being used as collateral! The customers who bought the construction equipment are getting credit backed by the equipment, which they in turn are using to finance their own clients,” exclaims the Investment Contrarians editor
“This is one giant house of cards,” he continues. “Essentially, none of the customers along this chain have the money to buy the goods. Purchases are being conducted solely on credit!”
China is a huge player in the global economy, says Cekerevac. When this bubble bursts, the net impact will be a severe recession, he believes, noting that the amount of excessive leverage in China appears to be staggeringly high.
“Making an economic forecast when we have a situation of credit built on other credit is that much more difficult. The U.S. has seen what happens with too much leverage. While we can’t know what will happen for sure or when,” Cekerevac concludes, “we do know that anything that happens with an integral part of the global economy such as China will have a serious impact on U.S. investments.”
To see the full article and to get a real contrarian perspective on investing and the economy, visit Investment Contrarians at http://www.investmentcontrarians.com.
Investment Contrarians is a daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”
The editors of Investment Contrarians believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply. The “official” unemployment numbers do not reflect people who have given up looking for work and are thus skewed. They believe the “official” inflation numbers are also not reflective of today’s reality of rising prices.
After a 25- to 30-year down cycle in interest rates, the Investment Contrarians editors expect rapid inflation caused by huge government debt and money printing will eventually start us on a new cycle of rising interest rates.
Investment Contrarians provides unbiased research. They are independent analysts who love to research and comment on the economy and investing. The e-newsletter’s parent company, Lombardi Publishing Corporation, has been in business since 1986. Combined, their economists and analysts have over 100 years of investment experience.
Find out where Investment Contrarians editors see the risks and opportunities for investors in 2012 at http://www.investmentcontrarians.com.