Peak peking?

The American Senate passed the $95bn “foreign aid” package funding Ukraine, Israel and Taiwan last week and sent the legislation to president Joe Biden’s desk. There was a time when “foreign aid” meant help to poor people in poor countries. Now it is essentially a payoff to the US firepower industry and the Israeli lobby. How it will affect the primary trend moving markets is our subject this week.

Real economic progress is made by voluntary exchanges of goods and services. You can get political power, as Mao put it, from the “barrel of a gun”. But not economic power. Before Deng Xiaoping unleashed China’s entrepreneurs, Mao’s China was a hellhole. It produced roughly nothing that the world wanted to buy. Now, it is the world’s leading exporter. But today US policymakers follow Mao’s example, not Deng’s; they try to bully, blast, tariff and sanction their way to success. Most likely, they will only exaggerate the primary trend. Asset prices will go down; most people will get poorer.

If we are right, we’ll see this trend reflected in the Dow/gold ratio. The price of gold should go up. The Dow should go down (adjusted for inflation.) We’ll stick with gold to preserve our wealth while prices sink. Then, when the Dow/gold ratio sinks to five, grosso modo, we’ll switch back into stocks.

There is a belief that we’ve already seen “Peak China”. China found a sweet spot in world commerce, they say, by putting hundreds of millions of peasants to work at pittance wages. And then, the US made a big mistake opening its markets to cheap Chinese products. But that phase has played itself out, they say. China’s wages are no longer so low. And the US is closing its doors. China will play a smaller role going forward.

Far be it from us to claim to know how the future will play out. But the Chinese peak may still be ahead of us. The more competitive China becomes, the harder it is for industrial players to leave it, says the Financial Times. “Both old and new industrial companies repeatedly emphas