HaavBline

China: Beware Bubble 2.0

"Like other bubbles, this will end very badly. That is for certain. What isn’t certain is when exactly the music will stop.

One clue may be the date that many in China are eyeing as the expiration date of a Chinese government underwritten put option: October 1st, 2009 - the 60th anniversary of the National Day of the People’s Republic of China. The general belief is that the government will do everything in its power to not ‘lose face’ before that date so as to not mar the celebration. Of course, whether this is true or not is irrelevant. All that matters is that enough believe it to be so."

This 'intelligent', 'politically astute' guess is a sure sign that the author hasn't invested in Chinese stocks for more than ONE year.

In late 2007 bull market, many 'investors' played the Chinese market based on the firmed believe that the Chinese goverment will support the bull market until the Beijing Olympics are over in Aug. 2008, supposedly the best date when 'the music will stop'.

But Chinese economy was overheating, commodities were sky rocketing. The Chinese goverment began to tighten in a big way, raising rates, shelfing projects, passing labor laws, forcing a market crash long before the Olympic dates arrive.

What's the lesson? The Chinese goverment does not manipulate the market as much as you might think. What they care most is the real economy.

China: Beware Bubble 2.0

None of what you said are new factors the will move markets. Right or wrong, those are 'known factors' for everyone who invest in Chinese markets. Have been that way before you first went to China in 1998.

In other words, they won't help your short position. You better watch out!


On Aug 06 03:08 PM doubleshortetf wrote:

> Been to China over 30 times since 1998 while working for 3 multinationals.
> It's amusing to see "experts" who has not been to China or spent
> few days in the big Chinese cities recommending Chinese stocks...
> Wonder if they ever spent weeks at a time in gritty factory towns
> or poor interior areas...
>
> Some sober facts:
>
> 1. China is a communist country ruled by 1 party with iron grip.
> Party bosses pick the politicians and many private company managements
> since many private companies are ex-SOE (communist state owned enterprises).
>
>
> 2. Corruption in China is rampant and one of the worst even down
> to lower ranking employees. Even factory canteen chef gets "envelopes"
> in scheme where he claims he received 10 bags of rice when only 8
> bags are delivered.
>
> 3. There is almost no "law" since law itself is written to support
> the communist party or corrupt local communist bosses. Judges are
> appointed by the local communist boss and few if any understand law.
> Many judges got job thru "guanxi" or connection and of course bribes.
>
>
> 4. The Chinese banks in are BIG TROUBLE. E&Y got in heaps of
> trouble for discussing hidden bad and noncollectable debts. Local
> communist cadres dictate banks to lend to their pet projects and
> of course friends who bribe them not to mention COMPLETE lack of
> transparency.
>
> 5. No one except pea size brains trusts the communist government's
> statistics which are MANIPULATED.
>
> 6. Many of the listed companies numbers are COOKED. Auditors and
> their management can be bribed and extorted. It's beyond me how anyone
> would trust Chinese companies' financials unless audited by Big 4.
> And even Big 4s audited numbers are suspect since most Chinese companies
> carry multiple books including one for taxation and another with
> slush funds.
>
> 7. Latest Chinese share and commodity appreciation have lot to do
> with communists pumping money to the economy by directing the banks
> to lend. This kind of stimulus cannot go on.
>
> Now is good time to buy FXP when all the investment gurus in unison
> are recommending Chinese stocks.
>
> Disclosure - Accumulating FXP and initiated shorting BIDU at $336.
> Open order to short more BIDU at $358.