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Goldman's China Portfolio: Professional Investing or Day Trading Rag?

The market can remain irrational a whole lot longer than you can remain solvent or patient.

That is the key key mantra.

I do not doubt China is blowing a bubble; I also do not doubt that some of the stocks are overvalued. However, consider this with the big picture, and you tell me where to put your money:

USA is coming off the biggest bubble scheme in history. A never before seen perfect storm collision of: Credit, Housing, Debt bubble and even stock are bubbling orders of magnitude bigger than what China offers.

From a realistic point of view, if you're trading assets/monetary credits from a massively bubbled economy; to a somewhat bubbled economy; you're actually doing risk reduction.

Due to global savings glut, there's really no "non-bubbled" places of the 1980's kind left in the world anymore, this even includes Oil and Glod.

Thus, you have to view our current market in perspective. GS is more right than wrong, that China's stock bubble is going to take a while to run to exhaustion -- far longer than how other bubbles is going to unwind.

The big bubble you should worry about is UST and the real RE market that's currently being covered up through a series of Mark to Model, TARP, Not going to foreclosure, Not relisting REO, Not recognizing security paper losses problem.

China's tiny stock market pales in comparision.

America's Banks: Are They Really Insolvent?

We don't have the luxury of a lost decade.

Japanese are furious savers. Their govt can exploit that and use their behavior / savings to eventually plug the hole. That gives them the ability to maintain economic status quo statically without growth nor catastrophe.

US Citizens are the furthest thing from a saver. As a result there's no funding behavior that the govt can exploit to eventually plug the hole. Right now we're muddling through by Fed's carrying of debts, but that's clearly not sustainable. You can't run a 10 year fed bailout. In fact, with our huge, govt debt and running deficit, our debts run a natural course to crush the economy unless we can grow / increase enough cash flow to service it. A static economy doesn't work in our case.

So don't think for a second that the current "relative" calm in the market can be sustained for long. The Govt has to decide: Default, Nationalize or hyper inflate; soon or the market will decide for us.

GE, Goldman Bond Spreads: Unrealistic and Unsustainable

The article's premise is right, although the conclusion is doubful.

The spread between what CDS is saying someone will demand to insure against default; vs interest, which is what someone is demanding in yield (which (in theory) should include default risk) is an interesting angle.

Either CDS folks are wrong and/or bond people are wrong. In any other period, the two should converge and agree. The fact that they're not says something:

1. There's something artificially suppressing bond yields
2. There's something increasing the inherent risk in CDS market itself, that is showing up as a general increased CDS rates for everything that needs insurance. In other words: AN INCREASED CHANCE OF SYSTEMIC FAILURE.

Insurance fails or have a loss when everything being insured fails at once; and to guard against such large scale loss, premiums (for everything) have to increase when such risks increase. Think how much insurance went up when Katrina occurred and caused widespread losses.

These two pieces of data tells a story with these 2 numbers:
that *IF* there's no systemic failure, then GE bonds should be at it's face value. CDS is saying there's a general heightened risk of systemic failure, and GE's vulnerability is rather high.