sidney

China's Huge Property Bubble

I've been following this story as well for a few months at least and I thank you for your contributions to the historically significant bubble forming. However, what I would like to see is a list of executable actions that can be taken by a US based investor who wants to bet against this bubble. This list should enforce risk management techniques ala the hedge fund manager Paulson's bet against the US housing bubble using by only putting part of the portfolio down at a time leaving room to be wrong longer...(bubbles have a tendency to outlast shorts...). While there may be no CDO market to short like Paulson did, what other means might be available to the average investor to invest in such a bubble bursting theme. What ADR's might have out of the money put options that could be bet on a little at a time that would offer a huge pay out if the theme turns out correct. This theme suggests that a "black swan" type strategy is appropriate. It is not enough to lay out the theme... we need to offer a plan... We should be able to look at the domino effect that played out in the US and European bubbles bursting to further strengthen the plan. It seems the crisis rippled through industries slowly in US and Europe. Plenty of time to act as long as you plan out the different stages in the ripples. Look to the early Roubini work prior to the bubble crashing for his ~20 steps and apply them to China. How many still fit... can you lay out a case that China would see the same ripples and lay out the black swan bet across the calender...

China's Latest Hunting Trip

Lets set the story straight on China and its so called Silver standard. China didn't avoid the great depression because it repeated the mistakes of the Europeans in the 1920's IE it hyper inflated instead of acting in fear of repeated hyperinflation due to unsound money policies of the 20's.
The Republic of China went through the worst inflation 1948-49. In 1947, the highest denomination was 50,000 yuan. By mid-1948, the highest denomination was 180,000,000 yuan. The 1948 currency reform replaced the yuan by the gold yuan at an exchange rate of 1 gold yuan = 3,000,000 yuan. In less than 1 year, the highest denomination was 10,000,000 gold yuan. In the final days of the civil war, the Silver Yuan was briefly introduced at the rate of 500,000,000 Gold Yuan. Meanwhile the highest denomination issued by a regional bank was 6,000,000,000 yuan (issued by XinJiang Provincial Bank in 1949). After the renminbi was instituted by the new communist government, hyperinflation ceased with a revaluation of 1:10,000 old Renminbi in 1955.
Which Silver standard were you referring to? And how is hyper inflation any better than a great depression?

Is a Hard Landing in Store for China's Economy?

Another question might be to what extent the market sentiment has already priced in a hard landing. I might suggest that the negative sentiment already reached an extreme that factored in a worst case hard landing...

Strong RMB, Yen Not Good for the World

The problem isn't too much appreciation in the RMB but rather its not enough; not even close. There is no way the RMB has appreciated enough for the Chinese middle class to replace the USA middle class in purchasing power. Clearly China can force the US to default at anytime by no longer purchasing US treasuries and floating(that is where gov't doesn't intervene) the RMB. Once the RMB explodes up the Chinese consumer can buy their own goods(this is where stuff is produced); they can import raw goods into China just like the USA did for decades while they produced the finished products. By delaying the appreciation of the RMB they are just assuring a more crushing defeat later for the USA. Enough already. The game is over. China won. Now stop making everyone suffer longer while you think you can move every last ounce of manufacturing to China. Haven't you gained enough capacity and US$ reserves? Is 2 trillion not enough? Aside from floating the currency China should allow its citizens to invest anywhere and travel anywhere. By letting the RMB float the Chinese citizens will want to come back to China thus you can drop the stupid ransom paid by every Chinese traveler abroad. The Chinese middle class needs to be able go visit the USA and rub their new found wealth around a bit. The Chinese investor needs to be able to choose where they put their money. Who are the old Japanese, European, or American's supposed to sell their assets to if the Chinese investor is locked behind the curtain. The WTO people should be fired for letting such imbalances exist with currency,travel, and investment restrictions in place. "Free travel" and "Free investing" should have been rock solid requirements for WTO's "Free trade". China will win WWIII without firing a shot as a result of the world going along with its "Free Trade/Locked RMB/Locked investment" strategy. Without a way for the Chinese consumer to get access to the surplus and send it back in some form(spending(imports or travel) or investment) China essentially is a vampire sucking the life blood of the world. Now that the US is so clearly "printing" money how long will the Chinese consumer tolerate the inflation that results from China printing RMB to give to the exporters in exchange for US$? Right now USA gets to export inflation to China. Of course right now deflation is rampant around the world so while that is true US should just kick 5-10 trillion US$ China's way and see how much we can buy before someone in China realizes we took them to the cleaners with funny money.