The Next Big Worry - China!

[Parsad]

First I was concerned with the housing bubble in the U.S., along with derivatives and counter-party risk.  Then later, I was concerned about Europe, but surprisingly, 17 countries trying to come to some consensus has been easier than watching the U.S. congress agree on something.  It looks like little by little, Europe may work their way out of this...but it's still very early. 

 

Now my fixture is China...slowing giant, hidden loan losses within its banks, enormous disparity between the livelihood of city dwellers and their farming community, uninhabited cities, a housing bubble, a commodity bubble, rising interest rates...there's alot not to like.  But they are rich, and they can hide these things for a long-time.  They're awfully good at saving face and rich enough to do it for some time...but I think this is going to lead to deflation at some point, as well as the demise of the commodity bubble.  Cheers!

[ragnarisapirate]

First I was concerned with the housing bubble in the U.S., along with derivatives and counter-party risk.  Then later, I was concerned about Europe, but surprisingly, 17 countries trying to come to some consensus has been easier than watching the U.S. congress agree on something.  It looks like little by little, Europe may work their way out of this...but it's still very early. 

 

Now my fixture is China...slowing giant, hidden loan losses within its banks, enormous disparity between the livelihood of city dwellers and their farming community, uninhabited cities, a housing bubble, a commodity bubble, rising interest rates...there's alot not to like.  But they are rich, and they can hide these things for a long-time.  They're awfully good at saving face and rich enough to do it for some time...but I think this is going to lead to deflation at some point, as well as the demise of the commodity bubble.  Cheers!

 

So, to do fix this, they puts down/jails their disgruntled populace, Tiananmin Square style, then, they devalue their currency like crazy, and us Americans can go back to what we do best: have a trade deficit with China and buy their goods again... I see no problems with any of this! I miss the days of being able to feel rich whenever I would go into a WMT, while working a close to minimum wage job, and being able to buy half the store...

 

Ok, so, that may be a little bit to much dark humor.

 

But, in all seriousness, if there is any country that can manipulate it's currency "better" than any other, it's China (and, I don't mean that in the negative way that it might be taken, they have done an amazing job of keeping that country stable; a government like that has lasted in no place that is anywhere near that size geographically or in terms of population). One big advantage that they have, is that the poor people (farmers in the country) are completely separated from the rich people in the cities. With no internet in the western 1/2 to let them know what they are missing out on, they are less likely to get pissed off over the disparity in wealth... Compare that to America, where it is easy for the have nots to see what the haves possess (just a few miles, sometimes, a few blocks separate a whole lot of poor people in NYC from the billionaires)

 

While there is likely a day of reckoning coming, it may prove to be less bad than you make it out to be. Hell, Sanjeev, a few months ago, I was almost convinced that the end of the world was coming as part of the debt talks, but, I was wrong. I am getting to the point of almost "whistling in the graveyard": By this, I mean that I almost never (emphasis on the almost) want to worry about macro issues again, as, it seems like if the doomsday scenario plays out, it doesn't matter what I invest in: I will want guns, food, and ammo. Otherwise, I should just invest in companies that Ben Graham, and, to some extent, Phil Fisher would have loved.

 

Granted, if 1929, repeats, I'd be hurt using that thinking, but, Ben Graham did recover from the depression better than anybody I know of.

 

In regard to Europe, I am curious how much of their compromising is due to the culture over there. From what I gather as an American (who, somewhat stereotypically, just wants to be left alone) the Europeans are much more socialist all the way around which, may be why they are willing to work this out in a way that Americans never would. After all, 1/2 of Europe was communist a few decades ago, and, they do seem to have a stronger sense of community in the whole continent. America, and even Canada, are mainly made up of people who's ancestors gave the thumb to everybody they knew, sailed across the world on rickety ships, and more or less stole a country from indigenous people... Oh, that reminds me: "Happy belated Columbus Day". (a little more dark humor)

 

I hope that made as much sense typed out as it did in my head, everybody, feel free to rip into what I just typed.

[leftcoast]

It will also be interesting to see what effect this might have on the Vancouver housing bubble, since BC's economy is very heavy on rocks and trees, and also because mainland Chinese buyers have been the most recent justification used by the real estate industry to rationalize Vancouver's inflated prices. (Taking over for the Olympics.)

 

Vitaliy Katsenelson, the author of "Active Value Investing," has been been ringing the alarm bell about hidden trouble with China's economy for a couple of years now. You can read his detailed thesis on his website:

 

China – The Mother of All Grey Swans

http://contrarianedge.com/2010/10/30/china-the-mother-of-all-grey-swans/

 

The Chinese Black Swan

http://contrarianedge.com/2011/07/05/the-chinese-black-swan/

 

[rkbabang]

 

While there is likely a day of reckoning coming, it may prove to be less bad than you make it out to be. Hell, Sanjeev, a few months ago, I was almost convinced that the end of the world was coming as part of the debt talks, but, I was wrong. I am getting to the point of almost "whistling in the graveyard": By this, I mean that I almost never (emphasis on the almost) want to worry about macro issues again, as, it seems like if the doomsday scenario plays out, it doesn't matter what I invest in: I will want guns, food, and ammo. Otherwise, I should just invest in companies that Ben Graham, and, to some extent, Phil Fisher would have loved.

 

Granted, if 1929, repeats, I'd be hurt using that thinking, but, Ben Graham did recover from the depression better than anybody I know of.

 

Sure, but investing aside there's nothing wrong with having some guns, food and ammo on hand whether TEOTWAWKI comes or it doesn't.

[BargainValueHunter]

Maybe now is time to buy puts on the FXI...

 

...or if you really want to Las Vegas it up, buy puts on the FXP!  :P

[ragnarisapirate]

 

While there is likely a day of reckoning coming, it may prove to be less bad than you make it out to be. Hell, Sanjeev, a few months ago, I was almost convinced that the end of the world was coming as part of the debt talks, but, I was wrong. I am getting to the point of almost "whistling in the graveyard": By this, I mean that I almost never (emphasis on the almost) want to worry about macro issues again, as, it seems like if the doomsday scenario plays out, it doesn't matter what I invest in: I will want guns, food, and ammo. Otherwise, I should just invest in companies that Ben Graham, and, to some extent, Phil Fisher would have loved.

 

Granted, if 1929, repeats, I'd be hurt using that thinking, but, Ben Graham did recover from the depression better than anybody I know of.

 

Sure, but investing aside there's nothing wrong with having some guns, food and ammo on hand whether TEOTWAWKI comes or it doesn't.

 

Nothing wrong with it in the least. Plus, with the guns, you get to occasionally have a good time shooting them at the range or farm (if you are so inclined).

[meiroy]

I am more worried about China's closest allies (may be China's ONLY 'real' friends) - Pakistan and North Korea - both are nuclear powered, crazy and are in a position of being they have "nothing to loose" which makes them extremely dangerous. A scenario where China uses them as a distraction from their domestic discontent (a Tiananmen type situation).

 

*polishes crystal ball*

 

I believe you are being overly pessimistic with all that nuclear stuff, it's more likely that when all the stuff in Europe blows up and the wold comes to an end the powers that be in China would blame it all on those externalities.  Which in turn would be accepted by everyone and the world (what's left of it) would continue to live happily after.

 

BTW an interesting read:

http://chovanec.wordpress.com/2011/10/11/huijins-head-fake/

 

"Will Huijin’s head-fake work?  Zhen Wei, chief China strategist at Bank of America-Merrill Lynch, doesn’t think so:

 

For example, last time when Huijin announced a similar purchasing plan of bank shares on Sep 18, 2008, SHCOMP and HSCEI rose by +9.5% and +15.5% respectively the next day. However, the market fell back even more after just a week’s rally with SHCOMP and HSCEI declined by 26% and 51% respectively within a month of the short-term peak.

 

That time, the markets were “rescued” by the huge bank lending binge that followed, which pushed a massive amount of liquidity into speculative hands.  This time, that option isn’t available — at least not at an acceptable cost."

 

 

 

[biaggio]

It seems that there is always something to worry about.

 

It will probably be something that nobody is talking about that end up hurting us.

 

I am convinced that governments around the world will rig things so the things we worry about today will be taken care of.

 

If we have deflation, I think it will be a fraction of a % per year.

 

I can t see the government allowing market to crash ala 1929-they will just buy ETF's, stock indexes to prop up market.

 

There are a lot positive things happening in China, but just like having major surgery you never know when you get a complication either during the surgery or in the immediate post operative period. I am sure there will be bad things  that happen in China as well. In the long run I am bullish on China + China succeeding will help the rest of the world.

 

I think its good to have something to worry about. It makes one be more careful + thoughtful.

[Baoxiaodao]

It seems that there is always something to worry about.

 

It will probably be something that nobody is talking about that end up hurting us.

 

I am convinced that governments around the world will rig things so the things we worry about today will be taken care of.

 

If we have deflation, I think it will be a fraction of a % per year.

 

I can t see the government allowing market to crash ala 1929-they will just buy ETF's, stock indexes to prop up market.

 

There are a lot positive things happening in China, but just like having major surgery you never know when you get a complication either during the surgery or in the immediate post operative period. I am sure there will be bad things  that happen in China as well. In the long run I am bullish on China + China succeeding will help the rest of the world.

 

I think its good to have something to worry about. It makes one be more careful + thoughtful.

 

I could not agree more with this. 95% of my money is in 2 stocks(used to be 4 this year). Despite this financial crisis, it has done well this year. Of course portfolio managers do not have the luxury to own so few stocks and that fact makes me feel better when I have so little money to run :)

[merkhet]

 

I could not agree more with this. 95% of my money is in 2 stocks(used to be 4 this year). Despite this financial crisis, it has done well this year. Of course portfolio managers do not have the luxury to own so few stocks and that fact makes me feel better when I have so little money to run :)

 

 

More people should run a concentrated fund -- if I remember correctly, Bruce Berkowitz at one time in the 90s held only two stocks --> Berkshire and Fireman's Fund.  (I don't remember if he was running money for others at the time though...)