Publisher’s Note: Today, we officially relaunch The Daily Reckoning Australia as Markets & Money. Aside from the name change, pretty much everything else will stay the same. You’ll still get to hear from Vern Gowdie, Jason Stevenson, Bill Bonner and the rest of the gang here at our Albert Park headquarters. You won’t have to do anything, as the change will happen automatically. The only thing you’ll have to do is ‘whitelist’ the new email address by adding it to your address book, or by replying to the first email you receive.
–Today’s opening question has a very familiar ring to it: Just how much, and for how long, can China keep building? We heard about China’s ghost cities for years. Now comes this…
–A news report sent certain Chinese stocks into a frenzy this week. Beijing announced the development of a new economic zone in China last Saturday. I saw it called the 1,000-year project. That sounds rather grandiose. It’s located 100kms southwest of downtown Beijing.
–Bloomberg quoted a trader out of Hong Kong who claimed the project is a Chinese vision resembling the two big east coast American cities of New York City and Washington DC. Can we take him at face value? If Beijing is the equivalent of Washington, the Chinese want to build something like New York City down the road.
–The biggest concrete manufacturer and supplier in the area happens to be listed in Hong Kong. The stock surged over 40% on Monday. Mainland Chinese stocks surged yesterday too after being closed on Monday and Tuesday.
–Think companies involved in the use and selling of bulldozers, excavators and pipes. Such a development would require a lot of concrete, too.
–It’s a wonder the Chinese have any spare capacity to work at home considering what’s going on outside the country. China’s two major development banks doubled their lending last year to US$48 billion. It’s exporting its infrastructure development model to build out its ‘One Belt, One Road’ initiative.
–All this building requires a lot of sand. The latest issue of The Economist says the relentless building boom in Asia is driving sand extraction to illegal, and environmentally damaging, heights.
–70% of demand for sand comes from Asia, and half of that is from China. Sand, with the right qualities and close to market, is getting hard to source. Some countries import the stuff. Apparently, the Burj Khalifa in Dubai was built with Australian sand.
–The reason I mention this is that sand could be a possible indicator to keep an eye on as a way to gauge the timing of the inevitable Chinese slowdown.
–Who, after all, tracks the price of sand? Truth be told, I didn’t even know there was a global market for sand.
–All the other indicators on China are apparently faulty. They’ve been flashing red on and off for many years. Yet China rolls on, building projects all over the world.
–Perhaps we should keep an eye on married men in China. Here’s why. Colleague Phil Anderson handed me an article from 1999 the other week.
–Yep, that’s 18 years ago. An economist at the time found the employment rate of US married men had predictive value for the growth of the economy.
–The argument here is that a low unemployment rate in this sector drove wages higher, boosting consumption. Does such a thing still have any value in today’s society? The marriage rate was a little higher than it is now. But not so much to discount this idea.
–The unemployment rate for married men was 2.2% in 1999.
–It’s 2.7% now. I looked it up. See for yourself…
Source: St Louis Fed
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–Those shaded grey areas indicate US recessions. It’s been a long downtrend in the unemployment rate since 2010. History shows it can go lower.
–Marriage has a notable effect on health, especially for men, so an economic consequence is no surprise. We’ve seen this in other ways, too. Marriage plays a role in the Chinese love affair with property. A Chinese man simply must own a property to find a wife.
–I have not done deep research on this idea. But a low rate of unemployment for married men, and the resultant low spending levels, is consistent with what US stocks are telling us right now.
–US stocks are on track for their strongest quarterly earnings in years. Analysts expect growth of 9%, according to the Wall Street Journal. This looks to be based on stronger revenues, which are set for the biggest jump in five years. US companies have been cutting costs in the meantime.
–They might start to see some pressure on wages. The Wall Street Journal also reports that schools are struggling to find bus drivers.
–Some schools are even dropping routes and forcing students to walk to lighten the demand for drivers. They simply can’t fill the roles, even with some drivers getting retention bonuses and pay rises. This hardly suggests a looming recession in the US.
–Sand and married men might be an odd way through which to examine the world. But we’ll never make money looking at the world the same way as everyone else.
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