Albert Edwards of the French bank Société Générale was quoted in The Guardian article of 1-3-2011. He is a good example of independent investment advice. He said “…China is basing a growth model on the most unstable part of GDP. Something has to give – and probably sooner than most people assume. … In reality, China is a much more potentially volatile economy than people think. The Chinese situation is the one that could come out of nowhere because people are not considering it…. China has produced such strong growth for such a long time that investors assume the process will last indefinitely’…. “There is too much confidence in the lack of volatility.” End quotes.
These comments remind me of Nassim Taleb’s black swans. The comments support my opinion that China, as one of the three pillars of the world’s economy, will weaken and thus the world economy will go back into recession. Edwards also forecast the yield on UK Gilts would go from 3.5% to 2.0% and the stock market would retouch the lows of March, 2009, which is something I have been expecting. U.S. Treasuries would behave in a similar way. When China’s economy cools down then commodities will plummet and so will countries like Australia and Brazil that export commodities to China.