China.

[ArrieS]

I was thinking, since the Chinese market is falling and I've started to see comparisons to the stock market crash of 1929, how this may affect America.

I don't mean to talk about the obvious, but rather more subtle changes that could hurt us.

For the past few years the inflow of dollars into China has allowed them to buy everything under the sun. If the crash is hard enough, since the market is driven by margin, there could be sever selling of other assets to cover the debts.

Since China has bought so much gold and silver, could this mean a coming drop in those prices as Chinese investors sell precious metals to cover debts? What does it mean for real estate holdings in America and around the world? How much of the spreading spree they enjoyed will unravel when those assets have to be liquidated.

Just food for thought.

[skiehawk11]

I personally think that China is more dependent on the U.S. than the U.S is to China. For instance, if the U.S. economy tanks the Chinese economy will tank. After all, if demand dries up Chinese companies will close.

In this instance it's different it seems. The real estate and equities market in China prices have been based off speculators driving up prices. Prices have to come down. Consumer spending is up here so there is definitely still demand for products to be made in China. The Chinese equities market have dropped around 30% or so? And yet the U.S. markets are slightly up?

Just something to think about too.

[ArrieS]

I personally think that China is more dependent on the U.S. than the U.S is to China. For instance, if the U.S. economy tanks the Chinese economy will tank. After all, if demand dries up Chinese companies will close.

Sorry,

I'm not directly talking about stock market to stock market.

China has been buying large amounts of precious metals, large amounts of real estate outside of China, and other investments with American dollars and Euros.

Look at the real estate market in other countries, such as Sweden. It has exploded in value, could Chinese liquidation of holdings in the Swedish real estate market be the straw that breaks its back? Same thing for New York or San Francisco?

What about the impact of selling precious metals on the market to cover losses from the drop?

Secondary impacts that could be harmful from a fire sale.

China has already lost $2.4 Trillion dollars since the drop started. Regardless of who's stock market it is, that is a large loss to the global economy.

[skiehawk11]

Sure, Chinese holdings are already depressing prices in certain commodities like copper, etc, but that's mainly due to the fear that the stock market route will trickle over to actual economic downturn. It's what the Chinese leadership is afraid of which is why they are desperately trying to put the breaks on.

I'm sure worse case scenarios like above could happen, but the probability of it happening globally are very low. Even in the 2000, and 2008 crashes there was ample warning economically speaking. In the U.S., I don't see any of the major economic indicators flashing warning signs. I personally would look for 2 to 3 consecutive quarters of unemployment increasing as a good sign that the U.S. economy is slowing down.

[dcramer29]

The gold that China has stored will never see daylight again. China has strong hands when it comes to real currency that has stood the test of time for over 5,000 years.

China has plans to be a part of the special drawing rights.

In order to accomplish this, the plan is to peg the yuan to gold in order for the rest of the world to have more faith in its yuan.

Ultimately they want the yuan to compete with the dollar as the worlds reserve currency.

Therefore the thought of a Chinese economic collapse is bad timing for the yuan.

[skiehawk11]

China will never, ever peg the yuan to gold. Ever. Ever. Ever. Ever. Gold is big in China for cultural reasons, not monetary.

EDIT: I know China has said that they want to increase their gold reserves so that they'll be able to be considered a reserve currency, blah, blah, blah, but I don't buy in until it happens.

[CSI]

The gold that China has stored will never see daylight again. China has strong hands when it comes to real currency that has stood the test of time for over 5,000 years.

China has plans to be a part of the special drawing rights.

the plan is to peg the yuan to gold

Golden Rule - he who owns the gold makes the rules.

I believe India and Russia have also been stocking up.

[skiehawk11]

No matter how much gold China has now (a little over 1k tonnes right?), it is still dwarfed by the U.S. reserves which are in excess of 8k tonnes. And the U.S. even though it has reserves doesn't peg the dollar or back the dollar by it. So, even if China increases its reserves it'll be a long while before they have 8k tonnes and even if they increase their gold reserves, it doesn't mean that they will absolutely back it to gold. They have options.

https://en.wikipedia.org/wiki/Gold_rese ... d_Holdings

EDIT: Good articles:
http://fortune.com/2014/08/08/china-gold-standard/

http://www.dailyreckoning.com.au/yuan-d ... 015/01/20/

[dcramer29]

Skie - China hasn't reported their gold holdings in years.

There are estimates that they have been averaging 2 tons of physical annually buying the ongoing bear market.

There is a reason why they haven't reported their holdings...and I wouldn't underestimate how much they have.

[Relevant]

Sure, Chinese holdings are already depressing prices in certain commodities like copper, etc, but that's mainly due to the fear that the stock market route will trickle over to actual economic downturn. It's what the Chinese leadership is afraid of which is why they are desperately trying to put the breaks on.

I'm sure worse case scenarios like above could happen, but the probability of it happening globally are very low. Even in the 2000, and 2008 crashes there was ample warning economically speaking. In the U.S., I don't see any of the major economic indicators flashing warning signs. I personally would look for 2 to 3 consecutive quarters of unemployment increasing as a good sign that the U.S. economy is slowing down.

Unemployment is a lagging indicator. If you had waited for unemployment to drop 2-3 consecutive quarters in the last 2 Bear Markets you'd have seen the market fall more than 20% first. Which in of itself would have put you in an "Official Bear Market".

Watch the Transports - they are already down 13% from their high and nearing their October low.

[ArrieS]

I wasn't talking about national reserves of Gold. A financial crisis isn't going to make a country sell its gold. It doesn't have to. There is far more gold in the private sector and private Chinese have been buying large amounts of gold.

My original point is none-governmental organizations and people selling.

[ArrieS]

Looks like gold has had some hard selling recently... Hmmm.

[skiehawk11]

More likely a currency issue as gold is denominated in USD. I think your scenario is possible, but it isn't the main driver currently.

EDIT: This article sums up my analysis on gold
http://www.economist.com/blogs/economis ... xplains-17

[rcozby]

"Physical demand for gold in China is down 9 percent. Worldwide, demand for gold coins, gold bars down 17 percent this year. So you're not getting the buyers even though the price is going lower," said trader Anthony Grisanti on CNBC's "Futures Now."

http://www.cnbc.com/2015/07/22/gold-is- ... :topnews:4