News & Analysis
VIDEO: CNBC's Smead Predicts 'Necessary' Chinese Hard Landing and Gold Plunge
Hard Landing Necessary for China ... Bill Smead, CEO & CIO, Smead Capital Management, explains why a hard landing needs to take place in China in order for country's economy to be successful in the long-term. – CNBC
Dominant Social Theme: Look, "they" need to cleanse the oven!
Free-Market Analysis: Bill Smead, CEO and CIO of Smead Capital Management, appeared on CNBC with an absolute barn-burner of an interview. He predicted a hard but necessary landing for China in the near future and indicated that commodity prices – including gold and silver presumably – should be lowered by China's collapse.
And make no mistake about it. As we've been discussing in the last umpteen articles on China, a Chinese hard-landing is a BIG DEAL. It certainly WILL affect the world.
What's interesting about Smead's prognostications is that he sees lower commodity prices as buoying countries like Italy and the US. Lower prices, he figures, will help stimulate growth. While China is going down, the US will be continuing to rise.
We would argue that a Chinese collapse of the kind that Smead is talking about is going to do a lot more damage to the West than he seems to see. We've tried to point out that Europe is in chaos and we don't believe that the US EVER recovered. The numbers are nothing but phony.
We can't see how adding a depressed China into the mix is going to aid the world's larger economy. But, again, Smead is surprisingly upbeat.
He points out that the US – in building what today must be considered a world-wide economic empire – went through recessions, depressions and downturns for several centuries.
He reminds that the railroads that were built in the US in the 1870s at the height of a post-Civil War monetary bubble didn't begin to get used until the 1890s and beyond. In between there was a massive depression.
China, he tells us, has to "clean the oven." Economies are "like ovens and if they're not cleaned, then the cakes and pies" start to taste like the considerably spicier food that the oven is also being used for.
"It has to be done," he points out, "if they want to be a great economy."
Our question, of course, would be who is "they"? Is "they" the Chinese landmass? Or is it the ChiComs? Or 400 million increasingly angry rural farmers?
Do the Chinese in aggregate even SEEK a "great economy"? And what does that constitute anyway? A great economy the way that the US and Europe have "great" economies? They're not so great, last we looked.
Smead seems to be assuming a lot in using that "great economy" quote. In fact, it seems kinda ... facile. And facile is how we'd characterize much of the rest of the interview.
He's convinced, for instance, that commodity prices wil go down hard during a Chinese hard landing. But as we point out on a regular basis, the world − at least the West − is in a bear-equity business cycle. Gold and silver tend to do well in such cycles from what we can tell. The 2000s are a virtual replay of the 1970s "on steroids."
So we don't expect a full recovery until the business cycle has entirely run its course. Such cycles are remarkably impervious to positive or negative price pressure. That's because the business cycle is symptomatic of something larger.
The business cycle, within an Austrian free-market perspective, is generated when fiat-money, monopoly overprinting so distorts the larger economy that industry grinds to a halt. Credit freezes as banks no longer know what counterparties are solvent. Businesses refuse to hire.
Sound familiar? That's what's going on now, in our view. We're involved in the down-cycle of a classic Austrian bubble and until the failed companies and facilities are purged, US and European industry won't find a way to rebound.
See ... it's not just a supply and demand issue. The entire dollar-reserve system failed in 2008, and since then its been propped up by something like US$50 trillion courtesy of the Federal Reserve and other central banks.
The whole system is sick-unto-death, and thus we take a decidedly less optimistic position about a Chinese hard-landing. We can't see it as doing anything but putting further stress on a world economy that has never recovered from the original crisis.
In fact, a Chinese takedown could create a truly global depression, in our view, on the magnitude from which the world suffered in the 1930s. The power elites that we write about regularly may be wishing for such an occurrence, as it might provide a pretext for offering a true world currency, and world government besides.
No matter how you analyze it, we think Mr. Smead ought to be careful of what he is wishing for. Of course, we agree with him when it comes to China's collapse. But we'd be surprised if China rebounds any more quickly than Europe or the US.
No, Smead seems to us to be quite the optimist. And China's not an oven ...
You can see the video in full by clicking here:
Posted by samson on 02/09/12 04:06 PM
Bill Smead is accurate in forecasting the developing depression in China.
However with it's economic downfall, the wipeout will include the entire globe. Starvation & discontent will foment massive chaotic actions that
will cause millions of deaths in all third world countries. The US & Europe
will suffer as well with increasing civil disorders. Strident attempts by
Govt's military & police to control the innercity uprisings will resemble
what's currently happening in Syria, Teheran, & Cairo. Kent University was but a harbinger of what's to come in the near future in the US. Don't cover
your eyes & ears, and refuse to observe what's happening in the world. It will begin in earnest by late 2013.
Posted by johnblenkins on 02/08/12 06:05 PM
Deflation/Hyperinflation. The point is the purchasing power of your
PMs. Gold $300 oz bread 2cents a loaf. Your In Front.
Clearly silver will be used in small buys.
Whilst I can see the attraction of a cashless world from TPTB view.
How are they going to facilatate thier Drug Running/Blackops,when the
"customers" can only pay electronicaly?
Posted by delwyn on 02/08/12 04:59 PM
Fear-Based Just like George Soros predicting anarchy in the streets - It will happen. Smead is cooking the same fear-based bread in his oven - deflation will happen - the bread will not rise this time. If one really understands Austrian econoomics you would know a massive credit inflation always ends in a total credit deflation crash. The yeast is dead this time - I'm here to tell you!
The Greater Depression I like to call it. Two or three times as large and long as the 1930's one.
Liken this to the 1930's not the 1970's. So, your Rothschild Zionists will not go the hyperinflation route as then the money they have lent out would be worthless - same thing happened in the 1930's depression. Too bad the are also playing the World War Three trump card. Click to view link is right about the elite buying up everything at pennies on the dollar, again.
PS Why is it that the world "hyperdeflation" is not in the dictionary; but the word "hyperinflation" is.
Delwyn Lounsbury - THE DEFLATION GURU
My new website - Click to view link
My deflation websitev - Click to view link
Posted by apberusdisvet on 02/08/12 03:34 PM
Smead is just another elite disinformation specialist, trotted out to the cameras to inject hopium and swat gold bugs. Sorry Smead, we don't buy your crap since we are neither economically illiterate nor mentally challenged. We actually have a PhD in Adanced Connecting the Dots.
Posted by Sloper on 02/08/12 03:29 PM
According to Jim Sinclair, gold will be trading between $1700 and $2200 this year. He has been totally right in his predictions so far.
Posted by dave jr on 02/08/12 03:11 PM
Sheesh. He wouldn't want to state outright that major economies are managed. Who's up for a good ol'fashnioned scrubbin with Grandmas famous lye soap?
Posted by alexsemen on 02/08/12 02:48 PM
We don't need the "answer", we need that this Central Banks-Guverments absolut mess will be gone as soon as possible.
But they "die hard with vengeance episode n-1" and that is a big problem. This is a chronical disease and is generalized at this moment , collapse is the only way out.
I doubt about this ! Never !
Posted by alan wattson on 02/08/12 02:45 PM
Yes, the purchasing power, or value, of money goes up during a deflationary economic contraction or depression. And what is gold?
Posted by tlhaney on 02/08/12 02:21 PM
You must not own any gold or silver. Good. More for us. But you need food more in a crisis. Preferably both and a means to ward off people wanting to buy your food for paper money.
Posted by chad2 on 02/08/12 02:02 PM
He's right, gold is going down. All prices go down in depression. Get over it. Gold is not the answer!