There is sin, yes sin, in River City

Flash, investors are worried about China’s economy, specifically the spike in commodity prices. All of a sudden, everyone is commenting on the government’s stimulus policy which has flooded the market with money. However, while the country’s money supply has quadrupled since 2007, most Chinese investors can’t invest abroad. As a result, any investment opportunity is overwhelmed. This isn’t new, but all the hand wringing is. Yes, China has a bubble but most economies live for bubbles.

Coupled with that is the rush to bring new and/or unused capacity on stream as fast as possible to take advantage of higher prices. This is especially risky in markets where speculators take forward positions. So, as soon as the threshold of profitability is met, producers start selling forward which stimulates more production.

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