Back in March, I posted an audio interview with Puru Saxena, who runs Puru Saxena Wealth Management, an established money management firm based in Hong Kong. Saxena produces the monthly Money Matters report, which follows economic, historical and geo-political trends, and explores investment opportunities in unpopular and distressed markets.
It was a fascinating interview where Saxena raised the alarm on China, arguing that there would be a pull-back in Chinese economic growth within a few months. He was also extremely worried about the euphoria in the Chinese and Hong Kong housing markets, describing both as a “severe and gigantic bubble that is going to end very badly”.
Saxena noted that China’s housing value to GDP was around 350% of GDP, which is only slightly below the peak value reached by Japanese real estate (370%) just prior to its collapse in 1990. Similarly, Hong Kong’s housing value to GDP ratio was around 330%, which is above its peak level reached just prior the Asian Financial Crisis in the mid-1990s.
Regarding Australia, Saxena warned that base metals prices (e.g. iron ore – Australia’s biggest export) could collapse following a significant decline in construction activity. Mining companies, most notably BHP, RIO and Vale, would be hit hard, as would the Australian economy. Saxena believed that any slowdown in China would likely prick Australia’s housing bubble, which he claimed has reached “absurd levels”.
Now Puru Saxena has returned with another audio interview on Financial Sense (click to listen). This time around, Saxena argues that there is no such thing as a ‘soft landing’ in China. Whenever an economy experiences a massive boom, as China has, it is always followed by a large bust.
“You don’t have a once in a lifetime bull market in property and the you expect a 5-10% correction. Historically, at least, this has never occured. And I believe that the Chinese property market is on the cusp of a big decline. And the reprecussions of this bust are going to be felt in the commodity markets all over the world. The countries which export to China are going to feel the heat – Australia, Brazil, etc, and the fact that the Chinese stock market is now at a multi-year low is a clear sign that all is not well in China.
Smart money has been selling this rally for the last year and a half… and I don’t know when this carnage is going to end, but I certainly would not be taking any [long] positions in China at the moment.
Saxena also believes that the US Dollar is going to rally quite strongly on the back of global distress due to its status as the world’s reserve currency. He expects to see a ‘big event’ in Europe over the next few months. And when that occurs, the Euro is going to implode, taking down all the risky assets with it – precious metals, stocks, commodities, high yield junk bonds, etc – and the US Dollar is going to rally.
Importantly, Saxeena believes that anyone long in risk assets over the next few months – commodities, stocks, precious metals, high yield junk bonds – is going to get burnt. Saxena’s theme at the moment is defence – protecting capital. “We are in cash, in the world’s senior currency, and we are shorting a variety of stock and credit items”. All the risky assets are now below their 200-day moving assets, which is a sign of weakness and signals that the trend has reversed. The place to be is the US Dollar and if listeners want more risk, they can short risky assets.
Special thanks to Revert2Mean for providing this link.