Let’s take a look at China, and the significance of a potential total collapse of the second largest economy in the world, how the coronavirus pandemic is intensifying the issue, and the world’s top economists have determined that this could be the world’s greatest financial meltdown ever witnessed. First, let’s look at how China’s per-person wealth has exploded by 3192% since 1990, an unsustainable growth in wealth over that time. The biggest boom in their economy was in the 2000s, when nationwide GDP jumped by an average of more than 10% per year, which was an unsustainable pace. But after its promising development the first 18 years, the global financial meltdown of 2008 slowed its economic growth, then after a brief recovery, it has been sliding in a downward spiral since 2010. Then in the summer of 2015, the hybrid capitalist/communist economy truly backfired, forcing the government to take drastic measures to prevent its collapse. For the first time since 1990, China’s GDP dipped below 7% in 2015 at 6.9%. Due to the fallout from the coronavirus, according to Moody’s, China’s 2020 full-year gross domestic product growth is forecast at 1.9%, the slowest annual growth in over four decades, which is an alarming descent from its highs and a very concerning trend downward in the overall GDP of China. As of May 2020, the national debt of China stood at $5.48 trillion, 317 percent of its GDP. Standard & Poor's Global Ratings has stated Chinese local governments may have an additional $5.8 trillion in off-balance sheet debt.
Now let’s identify where the underlying cracks in the Chinese economy are starting to form. Here are the alarming parallels between the financial practices of China today and what led to the stock market crash of 1929 and the 2008 global financial meltdown.
In the last few years, China attempted to artificially stimulate growth by easing restrictions on its domestic stock market, allowing many of its citizens to invest for the first time. This inundated the market with new accounts, as the working class used their savings in an attempt to accumulate wealth much more quickly than they were used to. In fact, in 2015, there were 90 million stock traders in China, most of them relatively unsophisticated, lacking any real experience in assessing equities and asset valuations. A dire similarity in the United States in the 1920s had many ordinary Americans beginning to invest in stocks for the first time.
China’s government began cleaning up its own balance sheets by selling off state owned junk assets at significantly overvalued prices back to its own financially inexperienced and potentially naïve people in assessing valuations related to equity markets. Does this eerie scenario sound familiar? Back in the 1920’s, a tactic of bankers in the lead up to the U.S. stock market crash of 1929 was to manipulate the price of a particular stock. Wealthy investors would pool their money in a secret agreement to buy a stock, inflate its price, and then sell it to an unsuspecting public.
Because of the coronavirus pandemic, China’s retail sales plunged 20.5% during January and February over the same period in 2019. Industrial output was down 13.5%, and fixed asset investment fell by nearly 25%. All three data points were much weaker than analysts were expecting. China's $14 trillion economy contracted by 6.8% in the first quarter, compared with the same period a year ago. China’s economy is predicted to suffer its worst crash in 60 years with an economic shrink of nearly 10 per cent due to the coronavirus lockdown.
As this financial global meltdown is occurring as we speak, could you afford to lose 50, 75, even 90% of your investments and life savings in paper assets?
Now that you know what is potentially right around the corner, now is the time to include precious metals and select rare coins as a portion to your long-term investment portfolio. Precious metals and select rare coins have shown strong appreciation in times of economic boom as well as in downturns in both global and domestic markets, including paper assets and currency devaluations.
The Dow Jones Industrial average from its peak in 1929 to its low in 1932 had dropped a staggering 92.9%, wiping out entire savings of millions of people around the world. By December 1935 the stock market had only recovered to 140 from its 1932 bottom at 41. During the same bear market period, hard asset investments of gold soared relentlessly upward the entire time. For instance, Homestake Mining stock rose approximately 680% during the worst financial meltdown in United States history.
Based on the statistics that Hard Asset Management research team is doing and finding, China is very much past the tipping point, where the debt simply no longer can be ignored.
The 1929 crash and the 2008 crash cut wealth and net worth by 50% in as little as 180 days while metals and rare coins dramatically rose in price, in some cases by multiple increases. This time, China will be leading the global meltdown, as its economy starts to top out and is in decline.
Hard Asset Management, one of the world’s leading precious metals and rare coin firms offers an approach where we proactively allow our clients to have access to the finest and rarest coins. Not only do we make recommendations on select pieces, but we recommend on when to sell and take profit. We also offer a free evaluation of your current collection and determine if those are the right pieces for the long-term that will maximize those coins for the best possible growth potential.
To learn how precious metals and select rare coins can benefit your overall long-term portfolio, call us toll-free (844) 426-4653
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