Thursday, January 7, 2010

The Chinese Will Act Rationally

Mobius Says China to Avoid Property Market ‘Crash’ (Update1)

“The Chinese will act rationally and they’re not going to kill the market,” Mobius, who oversees $34 billion of developing-nation assets at Templeton Asset Management Ltd., said in an interview in Singapore. “There’s still a lot of savings in China. Prices are high but I don’t see a crash.”

Contrarian Investor Sees Economic Crash in China

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.


mab said...


How many times have we heard about Japan's "stagnant" growth over the past two decades?

What gives? It looks like Japan had similar growth to that of the U.S. since the year 2000. If we account for MEW (~ 1% of U.S. GDP since 2000), it appears Japan may be out "growing" the U.S. eCONomically. The comparison is probably even more favorable to Japan on a per capita basis too.

I'll say it again. In our debt money system, there is NO such thing as a jobless recovery. The "recovery" after the dot.CON bust was not a recovery at all. It only seemed like a recovery while American households were impoverishing themselves with debt.

Our entire eCONomy is a lie.

mab said...


In my comment above, I stated that MEW was ~ 1% of GDP. That approximation was off by a factor of ~ 3. The ramifications of my under estimation are huge!

Looks like MEW was ~ 4% of disposable personal income. DPI year 2000 = $7 trillion, DPI year 2009 = $11 trillion. Hence, ($7t + $11t)/2 = avg DPI = $9t x 4% = $360 billion/year.

That $360 billion/yr was about 7.7% of private wages over the past decade!

It's a good thing we invested the money in productive assets like granite counter tops and two story foyers. The returns on those necessities will be huge.

However, I still think the biggest returns will come from the money we sent to China for drywall, trinkets and melamine products. I'm looking for dot.CON returns from that money - literally. ;)

EconomicDisconnect said...

100% Agree!

Stagflationary Mark said...

mab (& GYSC),

"It's a good thing we invested the money in productive assets like granite counter tops and two story foyers. The returns on those necessities will be huge."

Once the granite is cut to fit and installed, the chance of returning it to the store are minimal. It's especially unlikely if the store went bankrupt.

(I'm just trying to play the straight man in this ongoing comedy sketch.)

EconomicDisconnect said...

How about countertops made by stacking tp rolls for support and just lying some granite over that? Kill two birds with one stone kind of thingy.

EconomicDisconnect said...

Silver (AU) made a nice move this week. When can I expect another PM bubble post?
Kidding my friend!
Still have that lucky Eagle round or did you trade it for 1000 rolls of TP?

Anonymous said...

I am so blasé with the Japan comparisons.

1. When the SHTF in Japan, they were net exporters of goods and had plenty of capital. They did not need foreigners to subsidize their debt.

2. They did not have to fix anything because they were net exporters and boomers in the Western world, hitting their peak earning years, were about to go on a buying binge.

3. They did not have the rerserve currency and the whole world was not imploding at the same time.

4. Unemployment never went beyond 4%, due to point 1.

5. Most households kept making their mortgage payments due to point 4. and cultural reasons. No jingle mail.

I could go on and on and on...

watchtower said...

Hey Mark, GYSC alluded in the last comment section that you were thinking about spilling the beans on the new Halo 4 developments.
Let me assure you that any details leaked of the above mentioned game will be held in the strictest of confidentiality.
I still don't know how shoulder the responsibility of carrying this great game dynasty forward but somehow you manage.
I guess it's like they say:

"Uneasy lies the head that wears the crown".

EconomicDisconnect said...

We can keep our mouths shut on Halo 4!!!!!!!!!!!!

I do not even play games but I will stay quiet!!!

watchtower said...

I noticed that the Chanos story was picked up by the Yahoo home page today (which linked it to the Yahoo finance section).

Mark I would ask how you stay one step ahead of the curve, but after creating Halo this finance stuff is probably just child's play to you.

EconomicDisconnect said...

try Fractal Iteration, that stuff will bend your mind.

Stagflationary Mark said...


Forget physical silver. Think ahead.

"Silver Funeral Package $4,980"

"Professional services, local transportation, 2-hour visitation prior to funeral ceremony, private committal service, embalming, 20 gauge non-seal steel burial casket, and concrete outer burial container."

Sounds like a great place to store toilet paper if it all hits the fan, lol.


I subscribe to a few custom searches in Google. The Chanos one was probably caught by the "China Bubble" one.

Of course, that just means I'm at risk of seeing what I expect to see and not what is really there.

Take "reality of prosperity". I never search for it.

"Once you accept that your dreams will create a reality of prosperity, choices become more spontaneous and less tentative."

That's good to know. I just dreamed that I was fighting spider bugs with a machine gun. I think it was based loosely on the "virtual reality" video game I was playing before I went to sleep though. You better hope that I don't accept that my dreams will become a reality! Otherwise, watch out!!

Stagflationary Mark said...


One of the biggest differences is that Japan's population is shrinking. Hard to maintain never ending exponential domestic growth in that environment.

That said, I don't think our situation is all that comparable to Japan's. I think China's situation might be though.

As for China vs. America, we're both in trouble.

When the customer can no longer afford the goods the customer is in trouble. The entity selling the customer the goods is also in trouble though.

G.H. said...

Chanos thoughts on China appeared in this article last year:

”...investing in Enron was, instead, a ‘trust me’ story,” Chanos told a congressional committee in 2002.

Now, Chanos says he has found another “trust me” story: China. And he is moving to short the entire nation’s economy...”

And here is a related piece by Gordon Chang also last year:

” While optimistic analysts point to astounding car sales--up 70.5% in July, 94.7% in August and 83.6% in September--there are reports that central government officials have ordered state enterprises to buy fleets of vehicles and that these businesses are storing them in parking lots across the country. These stories are as yet unconfirmed, but they are consistent with statistics showing that gasoline sales have been flat this year--up only 6.4% in August, for instance, and sliding since then from all indications. So here's another question: At a time when economic activity is supposedly rising at a quick pace, how can large increases in passenger vehicle sales not be accompanied by corresponding surges in fuel usage?

From the NYT’s piece in the original post:

”I find it interesting that people who couldn’t spell China 10 years ago are now experts on China,” said Jim Rogers”

I like Jim Rogers, but I think he has it wrong this time. My favorite quote from Rogers is here from December, 2008:

” What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics.”

No one could have summed it up better, however...

This is perhaps an appropriate way to sum up JR's feeling regarding China:

”I recommend NOT buying any overrated Jim Rogers books. I wish I could find a way to short Jim Rogers. Maybe selling gold would be the next best thing.”

Stagflationary Mark said...


Nice summary!

I agree with your take on Jim Rogers. I think it applies to Peter Schiff as well.

"In other words, Schiff failed where it matters most: Peter Schiff did not protect his client's assets."

They both saw the problems. It isn't enough to simply see the problems though. One must decide what a suitable defense is.

Both of them seem to think that if the customer is going to implode (us) then it would be best to bet on the one selling the customer the goods (China). That logic escapes me.

Stagflationary Mark said...

Why Deflation Is Not Inevitable (Sadly)

The deflationists point to the dream indexes and say, "They cannot survive. They will crash." They probably will, but that will not affect the price of toilet paper.

I AM bearish on "dream indexes"! That makes me a deflationist.

I AM bullish on "toilet paper"! That makes me an inflationist.

I'm walking the tightrope just like the Fed! Go figure.

G.H. said...


"It isn't enough to simply see the problems though. One must decide what a suitable defense is."

So true. So true.

Take a look at this sentence from Europac's (Schiff's investment co.) "Investment Strategy":

"As a result of our buy and hold strategy, during those time periods when the U.S. dollar is rising in value, or when global stock markets are in decline, our portfolios will lose value."

And they say it without so much as a blush.

What their customers need to realize is that if the managers implemented a simple sell-stop strategy it could save them from bear-market losses.

And the worst case is, should Mr. Market send a few false signals via whip-saws or head-fakes, you can call exits and quick re-enters a "safety premium" for protecting oneself from disaster.

G.H. said...


"Both of them seem to think that if the customer is going to implode (us) then it would be best to bet on the one selling the customer the goods (China). That logic escapes me."

They both are drinking the kool-aid of China's domestic consumption will somehow grow..........exponentially.

And they themselves will eat their own cooking.

We'll see.

Stagflationary Mark said...


There's a bull market in Kool-Aid.

"...Kool-Aid powdered drinks have benefited from a budget-minded shift to eating more at home..."

I like it. It's got that what-a-cruel-world-let's-toss-ourselves-in-the-abyss type ambience. - J.D., Heathers (1988)

Hard times force some area restaurants out of business

"The current economic downturn could prove to have a permanent impact to the industry, experts say."

Oh crap. I'm on the same side of the fence as the "experts". As a contrarian, this is alarming.

EconomicDisconnect said...

Venezuela devalaues currency by 50% but no worries it is a banana republic, nothing like our fine country:

Remember, if stuff goes bad it goes overnight not in slow motion:
"Venezuelans rushed to the shops on Saturday, fearful of price rises after a currency devaluation that will let President Hugo Chavez boost government spending ahead of an election but feeds opposition charges of economic mismanagement."

I hope they stocked up on toilet paper!!

EconomicDisconnect said...


Patriots were terrible today and I wanna puke.

AllanF said...

Jumping in here... I think the title answers the question. Was China rational buying $2T in US debt? How about those empty cities, are those rational?

EconomicDisconnect said...

almost forgot to tell you that Ron Insana was on the Today show this morning with investment picks and it was so funny I almost passed out. His big 3 for this year:
1.-real estate (LOL)
2.-the stock market (funny)
3.- TIPS
your investment vehicle has entered the mainstream media and thus is no good!

Stagflationary Mark said...


"I hope they stocked up on toilet paper!!"

I am SO bullish on toilet paper!


I think you are right!


"your investment vehicle has entered the mainstream media and thus is no good!

No kidding needed. I think you are actually right. If you will recall I SOLD all of my TIP fund in November (that wasn't in a retirement account). So far, buried cash has slightly outperformed it.

I also regularly post on Yahoo's TIP board and my recent advice has been to lower expectations of future returns. Too many people have rushed in and the real return stinks.

I still own TIPS and continue to buy 10-Year TIPS as part of a bond ladder. I'm buying the 10-Year TIPS this week directly from the government. That said, anyone buying the 5-Year TIPS' 0.27% real yield is pretty much guaranteed to lose money after taxes.

I think the same may be said of real estate and the stock market too at these prices. It may be Ron Insana's trio of pain!