China sees a bubble ahead and is trying to avoid it – is that such a bad thing?

Isn’t this what we expect Ben Bernanke and the Federal Reserve to do here at home – take clear and decisive action to drain off excess liquidity in the economy before inflation takes hold?

Bloomberg News today reports on 50% vacancy in Beijing commercial real estate. This is up from a 22% vacancy rate in the third quarter last year. From the article:

Empty buildings are sprouting across China as companies with access to some of the $1.4 trillion in new loans last year build skyscrapers. Former Morgan Stanley chief Asia economist Andy Xie and hedge fund manager James Chanos say the country’s property market is in a bubble.

Gold has historically been used in a variety of ways by different investors, but the precious metal is perhaps most commonly embraced as a safe haven investment that smooths out overall portfolio volatility in rocky economic environments. When signs of economic weakness appear, investors tend to sell risky assets such stocks in favor of low-risk safe havens such as Treasuries and physical currency. The relative performance of these asset classes during the most recent recession highlights the potential benefits of holding gold: between September 2008 and the bear market lows in in March 2009, the SPDR Gold Trust (GLD) added 14% while the S&P 500 SPDR (SPY) lost almost 45%.

Is there a bubble in China? I do not think so as it relates to commodities, but expect volatility as they will be absent from the markets next week. Though past performance is not indicative of future results, I recall last year big swings and would expect the same this year. All things being equal, volatility is already present so just a heads up.

As for the markets: Oil finished lower but pared its losses. Our clients have no exposure but we will be buying dips in the weeks to come, given the opportunity. A trade below $70 should be bought! We like the action in natural gas today. In the next 2 weeks we will be looking to gain long exposure in the May contract for clients via options and futures. In years past, when natty bottoms in mid-winter we’ve seen a trade higher into late April (15 out of the last 19 years). Past performance is not indicative of future results.