Hong Kong – A Bird of a Different Feather?

HK-Skyline-r

QUESTION:

Dear Marty,

I have been reading your writings a few years already and am so inspired by your analysis and ECM model. I understand you mentioned many times about the deflationary cycle that is coming and actually happening in Europe and reflected in oil prices. From many data, the inflation rate in US and UK are close to 1%, however, in hk, the official figure announced in Dec was 5.1% (which was still too low if compared to daily goods and property price). The continuous increase in property prices and daily goods, groceries are killing us. I really wanna see how you see such a gap and how we should react in this part of the world. Maybe Hong Kong is such a small and strange place but being pegged with US dollar, I’m really worried.

Your little fan.

K

Martin Armstrong-HKOffice

ANSWER: I am familiar with Hong Kong. This was actually a headquarters. Most likely when we do go public it will be there. Understanding the way the world functions is rather simple. Not everyone can have a trade surplus for someone has to have a trade deficit in order to allow that to happen. The ECM represents turning points. At those same points, some markets are peaking while others bottom. For example, gold peaked with the bottom of the ECM in 2011 not the top in 2007 for that is when its rally took off – the HEDGE AGAINST GOVERNMENT never inflation.

THLAND-Y

Look at the Asian Crisis. We see the peak in share markets took place in 1994, the bottom of the ECM following the high at the peak in 1989.95, which marked the high in Tokyo. The Asian Currency Crisis took place and bottomed in 1998 with the collapse in Russia.

1994 SP500

 

Now look. The bottom of the ECM was April 1st, 1994. Asia peaked and the US bottomed. The capital flows shifted out of Asia and back to USA to the day.

Honk Kong is moving up in opposition to Europe. Not everyone experiences the same thing simultaneously. This is how capital simply moves like the water on the deck of a ship from side to side in a torrential sea storm. Hence, expect inflation to still rise into the ECM as capital flees the Euro.