All I can say is WOW! China is on the move again, big time, with the new Silk Road already ramping up, part of an infrastructure investment that will total $1 TRILLION when all is said and done.

It’s all part of Beijing’s commitment to build out Western China, where the bulk of the population lives, including a whopping 30 million Chinese who actually live in caves.

They need power, food, education, health care, communication services, transportation infrastructure and more. Most are living not in the 21st century, or even the 20th, but in the 19th century.

So if you think China’s economic growth is going to slow much, think again. Fully 46 percent of mainland China’s population, or 629 million people, still live in rural China. That’s almost twice the entire population of the United States. And they are living on less than $1 a day.

Right now I’m in Yichang, one of the smaller cities in China with a population of roughly 4.5 million.

I arrived here after a three day cruise down the Yangtze River checking out small river coastal towns that are to be developed as part of the new Maritime Silk Road, which will use the Yangtze, through the Three Gorges Dam, to ship goods eastward and westward, then by rail south through Thailand, Malaysia and Indonesia.

There’s construction everywhere. Along the Yangtze, in small river towns, and right here in Yichang. All part of the build out of new Silk roads that will literally transform China into the largest economy in the world over the next few years.

The opportunities to profit are also literally boundless. German, American and French companies are forming joint ventures with Beijing to help the build out. Not to mention oodles of publicly traded Chinese companies.

From here I’ll be going to Xian by train, then to Lanzhou, two more very important stops along the new Silk Road. I’ll be collecting my observations, contacts and research and once I vet everything, will be issuing recommendations to my Real Wealth Report subscribers.

But right now, let’s turn to recent market action. All I can say again, is WOW. DEFLATION is now striking hard!

Consider the dollar, which, despite all the pundits claiming that its rally was over, soared like an eagle, precisely as I had forecast .

That dollar strength, driven largely by the rapidly disintegrating euro, is now beginning to accelerate the pace of deflation in the U.S. and in the dollar-denominated commodity markets, where almost every commodity is tanking.

Most noticeably, and again, precisely as I forecast, is gold and precious metals. Gold has now cratered back to the $1,168 level, and silver to below $16.

While short-term bounces are inevitable, the trends remain firmly negative for the precious metals (and miners), precisely as I have warned … and they will not bottom until you see gold below $1,000 and silver near $12.50.

Likewise, the price of oil and gas remain weak at the knees, as do food prices, corn, wheat, soybeans and more.

A while back I suggested inverse ETFs on gold and silver, and a bullish ETF on the dollar. I hope you acted on those suggestions. If you did, you’re making money hand over fist. Hold them, more gains are coming!

Now, let’s take a look at the stock market. Yes, I still maintain my view that the major U.S. and European stock indices are headed for some short-term trouble.

Granted, my timing here has been off, to say the least. But all of my indicators continue to strongly suggest that the stock markets’ next major move will be to the downside, not the upside.

In part, it will be a reaction to the deflation striking other sectors. It will also be largely technical in nature, as corrections are necessary to pave the way higher down the road.

The important points are this: Long-term, the equity markets remain very healthy, but short-term, danger is the byword.

I much prefer to stand aside a correction. The Dow will begin its ascent to Dow 31,000+ only after a steep, surprising correction unfolds. 

So if you’re a savvy investor, you’ll stand aside most stocks, or invest conservatively, until that correction comes. Then, you’ll deploy your capital aggressively, when the blood starts running in the streets.

It will be much the same for commodities. Stay patient or outright bearish. Go back in only when you see mining companies, food processors and companies in the energy sector, going bust. 

Best wishes, as always …

Larry