China

Authored by James Rickards via The Daily Reckoning,

Three-player games are easy to model - it’s always two against one. The art of geopolitics and examining hegemony powers in such situations is to be part of a duo that pressures the remaining player, or, at a minimum, keep the other two players separated.

This is basic balance-of-power politics as practiced since the rise of Napoleon (1799), with antecedents in the Treaty of Westphalia (1648), and Machiavelli’s The Prince (1532).

Copper prices surged to the highest levels since May 2015 in the last few days, prompting the ubiquitous "must mean the economy is doing well" narrative from every hope-fuelled reflationist. There's just one problem, we’ve seen all this before too many times.

Last summer we declared that "China's favorite offshore money laundering hub is officially no longer accepting its money" after the city of Vancouver slapped a 15% tax on foreign real estate buyers.  The tax was intended to curb a massive real estate bubble which had resulted from an influx of Chinese money over the preceding years.  The move seemingly worked as it resulted in a staggering and immediate 96% drop in foreign buyers (see: Foreign Buying Plummets In Vancouver: Sales To Foreigners Crash 96%). 

As is customary for the heavy-industrial equipment manufacturer, Caterpillar yesterday reported its retail sales, one day ahead of earnings, and as we discussed, the number was solid with Caterpillar reporting the longest positive streak in retail sales going back 51 months.

Despite Chinese officials reassurance that "military means shouldn’t be an option," WSJ reports that China has been bolstering defenses along its 880-mile frontier with North Korea and realigning forces in surrounding regions to prepare for a potential crisis across their border, including the possibility of a U.S. military strike.