Tuesday, September 25, 2007

Random thoughts: Money velocity, China and Oil.

John Mauldin's Outside the Box edition this week is really interesting. It's titled Do Not Forget About Changes in Velocity.

It argues that because the velocity of money supply is negative, the credit contraction could be ahead of us.

At least in Asia, reserve ratios in India and China have gone up, though that obviously hasn't done much to the animal spirits prevalent there. I agree with the fact that we may be reaching the tipping point with respect to RMB appreciation. It's easier to keep a currency undervalued than overvalued (you can always print more), but the inflation would kill Chinese growth if they don't act soon.

Also, looks like it might be a good idea to short oil sector..


From the charts, it seems like Hong Kong, and maybe Singapore, have just started on a long bull. As the Chinese govt. opens up foreign investments to mainland investors, I think this is fundamentally bullish for the neighboring exchanges.

China is now exporting money supply too!

EWH 3 month chart