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The Cult of Peter Schiff - Is It Deserved?

Peter Schiff - down 70% 2008

George Soros - up 10% 2008

Nassim Taleb - up 55-110% 2008

The Bubble Theorists Have Shanghai Wrong

I'm convinced...

This time it's REALLY different- from every other single mania financial market history.

To paraphase that infamous Yale professor Irving Fisher:

"Chinese stocks are on permanently high plateau." ;-)

The Inevitable Collapse of China's Banks

"All truth goes through three stages:

First, it is ridiculed.

Second, it is violently opposed

Finally, it is accepted as obvious"

-Arthur Schopenhauer

The fact that China is an open (trade oriented economy) does not alter their banks' "soft budget constraint" behavior. Again, I refer you to Kornai for the more technical aspects of the microeconomic argument. Arguably, China has it worse. The Soviet Union was autarkic- insulating itself from world trade flows. China's open economy execerbates the pressure the Chinese policymakers to live up to the Potemkin Village economy they have created. The China Mania reminds me of the "this time its different" praise heaped upon the Soviet Union in the 1930s. Check out Paul Johnson's Modern Times for some juicy quotes. Also with respect to Communist party "cronies," check out the prospectuses of any of the Chinese megabanks. The corruption in these banks is rampant. One official was even given a (suspended) death sentence. But in securities law "disclosure cures all" - so there won't even be a cause of action against the banks or their underwriters when the banks implode.

When should you invest in FXI? After it's dropped 90% from its peak, and Business Week is running a cover story on corruption in Chinese banks dwarfing the corruption in Worldcom or Enron by a factor of 10 to 1.

Burgernomics: Profiting from the Big Mac Index

As a follow up to the ETF currency piece above, Ryder has just launched a Japanese currency ETF (FXY). This is the best way to profit from the decline of the yen- (on the short side, if you're a trend follower) or from its inevitable rebound (on the long side, if you prefer fundamental analysis.)

I have several issues with the comment on the weakness of the dollar. First, it's too much the conventional wisdom. Always a bad sign. Second, purchasing power parity shows that virtually all other currencies are over valued by about 20% versus the dollar. The U.S. is getting very, very cheap by international standards. That cannot last forever. Third, neither the U.S. economy or the dollar in nearly as parlous a state as headlines would lead you to believe. It never is. Finally there are some (sadly) very abstruse arguments made for the dollars current state by Ron McKinnon at Stanford on the page often WSJ and blog entries in the FT. I parsed a small handful in a Global Guru piece U wrote back in December. www.theglobalguru.com/...;offer=GURU001

A Reality Check On China Mania

Nice comment from Daniel Su relevant to this entry:


"I speak English, Korean, and Chinese. End of December, I watched Chinese news program which featured a story about 70 year old lady who was hit by truck, so the police tried to call the ambulance, but she insisted that she did not need ambulance service, because she urgently needed to get to brokerage house to purchase stocks. People massively withdrew their life savings to purchase stocks especially low price, speculative stocks. People waiting in line four to five hours in the brokerage houses to open accounts, people quit their regular jobs, and huddle around price quote TV screens in the brokerage houses. Sounds familiar? US 2000 Tech bubble is repeating in China right now. No gurantee how long this rally will continue, but my expectation is that a lot of small companies will go under with people's life savings."