I did skimmed through too as it is very long, the first part is the more interesting...
The fact that China is switching into Hard assets is going around for a while. My opinion is that it is good for the short term commodity rally and we can see it from the spot price. But Ithink is neutral or bad for medium/long term. We have to keep in mind that most (if not all) resources company have debt that need to be repaid (as interest and capital form). So when you see China accumulating months if not year worth of supply they'll be in charge of pricing and the market as they could afford to stop buying for long time while resource company MUST sell (or bankrupt). Probably gold mining and food would still be safe from China market manipulation
I agree with most of this, except i dont think its a deliberate ramp and dump strategy by China.
I see it in several phases:
Phase 1: china starts using NEW foreign reserves to buy hard assets. Everyone is pretty happy, nobody notices too much, traders think its a great thing because it justifies the China Stronger For Longer theory, people start ploughing money into resource stocks again irrespective of long term fundamentals.
Phase 2: cracks start to appear, since New foreign reserves are going into hard assets and not bonds, countries with account deficits have to increase interest rates to keep up support for new issuance of bonds. This negatively impacts on demand, leading to reduced consumer demand for goods made in china.
Phase 3: China's new foreign reserves start to shrink as exports decline and its left with a bunch of hard commodity reserves priced above market value.
This is not a new problem for China, every country that has run up consistent current account surpluses has faced the same problem. Japan tried to fix this problem in the 80's by buying commercial realestate around the world (property never goes down right
). THe result massive increase in supply and a hot overheated commercial property market.
Remember as well that hard commodities are just a 'cost input', into the final product. If costs skyrocket, then the final product price goes up which stifles demand. But this time there will be no easy credit to finance the increase in the final product.