Tuesday, October 24, 2023

China’s Massive Economic Pivot That Will Shape Its (our) Future

In a fiscal year when the United States have accumulated $2 trillion in debt despite apparently 'growing' GDP by a 5.4% pace, China has decided to shift their economic strategy. The nation has cast aside the guise of fiscal modesty and austerity, in a move motivated by the ongoing global superpower competition.

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Today, China has taken a momentous step towards a robust fiscal stimulus. The country's legislative body announced plans to issue 1 trillion yuan, equivalent to $137 billion, in special treasury bonds during the fourth quarter. This initiative pushes the budgeted fiscal deficit rate for the year up to approximately 3.8%, a substantial departure from the 3% "limit" set by the government back in March.

"Relevant authorities should make preparations for the sovereign bond issuance and projects in an active and orderly manner to ensure every penny is managed and used appropriately,” said Zhao Leji, chairman of the Standing Committee.

Historically, China has rarely adjusted its budget mid-year, which makes this announcement so significant. The only exceptions were during major events like the 2008 Sichuan earthquake and the Asian financial crisis of the late 1990s.

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While around 500 billion yuan is planned to be utilized within the year, and the remaining half trillion yuan will be used next year, this is just the start because once you start the fiscal stimulus route, you don't go back... especially when your youth unemployment is a record high 21%... and so high it is no longer being reported by Beijing.

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“The additional fiscal support approved today is the intervention we had been expecting and that was needed to prevent an abrupt fiscal tightening in China in the closing weeks of the year,” said Mark Williams, chief Asia economist at Capital Economics Ltd..

Chinese policymakers had earlier considered raising this year's budget deficit and issuing additional sovereign debt as part of a push to meet the government's official growth target of approximately 5% for 2023. Despite stronger-than-expected data in the third quarter, the recent developments suggest some reservations. Challenges are expected to persist into 2024, stemming from ongoing issues in the property market and deflationary pressures. Economists anticipate a slowdown in growth to 4.5% next year.

Underlining the significance of these recent developments, President Xi Jinping of China, alongside other government officials, made visits to crucial financial institutions in Beijing, including the People's Bank of China and the State Administration of Foreign Exchange. Xi's visit underscores China's determination to revitalize the economy and stabilize markets.

Investors are closely monitoring Xi's actions for potential policy signals, especially as his visit to the foreign exchange regulator demonstrates a focus on understanding China's extensive currency reserves. These moves not only reflect the government's commitment to boosting economic growth and market stability, but also simultaneously weakening the stability of that of the US.

Critically too, this adds an enormous injection of liquidity into the all-important Global Liquidity Index we discussed last week that so clearly signals a bull market ahead for gold and bitcoin. Follow the money….


Bitcoin Returns Following Halving 2012-2020 PART 2

In my previous post (link below), I looked at what has happened to the Bitcoin price 6 months after the 3 previous halving events.

https://www.reddit.com/r/CryptoCurrency/comments/16lr5a5/bitcoin_returns_following_halving_20122020/

I became interested in this as there has been a narrative "that the 6 months after halving is when the bull run happens and the % returns after halving have diminished with each event."

I therefore wanted to review this by looking at the figures to see if this thesis is supported.

To recap the figures showed the 2020 halving had a stronger percentage return 6 months after halving to the 2016 halving event, which was unexpected although could be explained by the black swan event of Covid and the disruption it causes to previous lifestyle practices and the ultra low interest rate environment.

I therefore wanted to explore this further, using additional data and time periods prior to and post halving to see what affect this has.

Bitcoin Monthly % Returns

Bitcoin Price and % Returns Pre and Post Halving

* Prices are validated from various sources including Statmuse, Yahoo, Coinmarket Cap

**Open prices on the day are used, different sources do list slightly differing prices

*** Prices and percentages are rounded to the nearest whole number

****Halving event tables and calculations are my own

****Differing dates are given for the 2024 halving event, yesterday was not a typically day!

2012 The halving event gave strong returns at halving from 6 months prior as well as 6 and 12 months post halving

2016 The halving event again gave returns prior as well as post halving, although diminished returns from the 2012 halving

2020 The price at halving had actually declined from 6 months prior, which hadn`t happened in the previous 2 halving events. Returns were again strong 6 months and 12 months post halving with both the 6 and 12 month post halving returns being stronger than the corresponding 2016 halving.

I`d suggest the decline in price post at halving compared to 6 months prior is very likely due to the proximity of the event to the onset of the Covid 19 pandemic, having hit a high in February 2020 of $10488.

Bitcoin Price and % Returns 12-36 Months Post Halving

If we zoom out a bit further things begin to become even more interesting.

2012 The price has declined from 12 months after halving at the 24 and 36 month point, although returns are still very substantial from the halving date.

2016 The price continues to rise post halving at the 24 and 36 month point.

2020 The price has declined from 12 months after halving at the 24 and 36 month point, similarly but on a smaller level to the 2012 halving

This leads me back to the old adage "past performance is no guarantee of future returns."

I`m aware that when only relying on 3 halving events the data set is extremely small and the difference in the crypto space and it`s development between 2012 and 2020 is substantial.

What are your thoughts, where do you think we go with the next halving and what could it look like compared to the previous 3?


Fed to Be Forced Into Massive Liquidity Dump, 'Tremendous Upside' for Gold & Bitcoin – James Lavish

https://www.youtube.com/watch?v=WKPLmIHn47M