A reader, ‘Sceptic’, today posted the above link to an interview on Financial Sense with Puru Saxena. Mr Saxena runs Puru Saxena Wealth Management, an established money management firm based in Hong Kong. Mr Saxena produces the monthlyMoney Matters report, which follows economic, historical and geo-political trends, and explores investment opportunities in unpopular and distressed markets.
It’s a fascinating interview that covers a broad range of areas, including: the outlook for the Chinese economy; commodities markets; and the implications of the Federal Reserve’s quantitative easing (‘money printing’) efforts.
On China, Mr Saxena believes that there will be a pull-back in Chinese economic growth within a few months. He is 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”.
Mr Saxena notes that China’s housing value to GDP is currently 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 is currently 330%, which is above its peak level reached just prior the Asian Financial Crisis in the mid-1990s.
However, Mr Saxena notes that, unlike their counterparts in the United States, Chinese households are not particularly leveraged. As such, if China’s housing bubble bursts, it is likely to have less impact on household consumption than that experienced in the United States in the wake of its house price collapse.
Nevertheless, Mr Saxena warns 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 believes that any slowdown in China would likely prick Australia’s housing bubble, which he claims has reached “absurd levels”.
Mr Saxena also discusses how loose monetary policy and money printing by the world’s central banks is creating all kinds of asset bubbles. However, now that we are getting price inflation in oil and food, central banks will soon have to begin raising interest rates in order to ward off inflation, which will likely collapse asset markets (except US treasuries). He thinks that we will see a repeat of the last crash (the Global Financial Crisis) within two to three years – “equities, commodities, precious metals, everything will collapse”.
Finally, Mr Saxena believes that energy production is about to enter terminal decline. He, therefore, recommends that investors gain exposure to energy companies, particularly “upstream oil companies, oil services stocks, offshore drilling companies… solar companies, electric car manufactures, battery manufactures, etc”.
Overall, it’s an excellent interview that commands 20 minutes of your time (click to listen).
Cheers Leith
