Thursday, 21 January 2010 23:00

Follow Up to the China Short Thesis Debate

I have included ETFs that have exposure to the industries discussed in the post "Some Light Shown on My Developing China Thesis". The list of ETFs can be found here: pdf Chinese ETFs with Exposure to Real Estate, Banks, Insurance and Export Industrials 2010-01-22 02:27:03 377.96 Kb.

The subscriber download to the aforementioned post is pdf "A Note On Potential Short Opportunity Opinions in China 2010-01-21 01:13:06 475.18 Kb " which is available to retail and pro Subscribers as a 6 page PDF document, Pro subscribers are invited to the discussion/debate between myself and my analysts
on the merits of the China short as it compares to the up and coming
European Sovereign Crisis short opportunities I will be publishing very
soon (a preview is available here:
Deflation, Inflation or Stagflation - You Be the Judge! - please excuse the fact that I compressed several European nations into EU charts).

I want it to be known that we are still formulating the empirical thesis behind the short, but I have decided to keep all subscribers abreast of the deliberations in real time, as well as offering the tools that I would use to take action if I deemed it prudent.

Last modified on Thursday, 21 January 2010 23:00


  • Comment Link china bubble Wednesday, 27 January 2010 03:05 posted by china bubble

    China Bluff Exposed, Regime Overthrown-
    China's communist regime continued to print money, lending it to everybody that wanted and didn't want it. The giant housing, infrastructure, and manufacturing bubble came to a violent crash when the debts where not paid and inflation forced the authorities to tighten despite massive unemployment. The combination of high inflation and high unemployment in the urban centers took the people to the streets. The Chinese citizens refused to accept state intervention in the economy and their personal life demanding more personal and economic freedom resulting in prolonged civil unrest which almost reached a full scaled civil war. The collapse of the Chinese regime and economy resulted in a colossal bust for commodity prices, albeit temporarily and caused a severe recession in Australia, Brazil, Russia, Argentina, and the Gulf States.

  • Comment Link Reggie Middleton Friday, 22 January 2010 17:41 posted by Reggie Middleton

    Rahul, as Shaunsnoll alluded to, the US has much stronger "regulation" than China from what I can see from a distance. One shouldn't confuse a communist stronghold rule state with capitalism-style regulation. It appears to work because all of the information that comes out is exactly what the state wants to come out. The negative state reported news from China is included for the sake of plausibility, I'm sure. As a disclaimer, I have never been to China, but I am a good listener.

  • Comment Link shaunsnoll Friday, 22 January 2010 17:19 posted by shaunsnoll

    redirecting china's economy in the near term is absolutely not possible. They already have TONS of spare capacity and our economy is what, 8x larger than theirs? If US consumption falls 20% given tariffs, trade wars, fx swings, increased savings rates, decreased credit outstanding, etc, then China would have to increase their economy by >100%?! NO WAY in the next few years they can move their economy to remove dependence on the US. NO WAY. The % of their GDP that is healthcare and education is TINY too, they would have to increase those sectors by many multiples to begin to replace a slowdown of US spending.

    Also, when/if the bubble pops in China it will be WAY worse than here, I think people foget that the country is RUN BY MILITARY DICTATORS not to mention has a NEGATIVE demographic shift over the next decade.

    There is no free flow of information, which is KEY for capitalism. The only two military dictatorship capitalist societies that did well for awhile were Hitler's germany and Pinochet's Chile and we all know how those both ended.....

    China will look fine and grow well as the government does everything in its power to keep the economy growing. Until it stops working. Then it will implode on an epic scale.

    Inflation in China given credit growth is an issue too.

  • Comment Link rahul Friday, 22 January 2010 16:14 posted by rahul

    I agree with you that DDR will hurt from China. But, I would rather put my money on the originator than the derivative. China's bubble story is well documented, but I think the bust won't be as severe as US due to strong regulation in place and demographics. (IMHO, I haven't carried detailed analysis). I strongly agree, currency risk is a major factor but its a matter of intense debate, the reason I shied away. Many macro and political consideration (more of political for the moment) go into it.

  • Comment Link Reggie Middleton Friday, 22 January 2010 16:06 posted by Reggie Middleton

    [quote], I dint think there any key risks in the medium term unless there is a double dip recession which is most likely to come from the west (US and UK)[/quote]

    A double dip recession in the west is a guaranteed economic shock to China.
    Currency issues will be a factor, for it will drive up the costs of China's exports which are almost purely cost competitive commodities. Not Good.

    As for redirecting thier economy, its possible, but not probable in the near term. It is a lofty task

  • Comment Link rahul Friday, 22 January 2010 15:52 posted by rahul

    Recovery in China is consolidating on back of pickup in industrial production and exports. However,the main issue with China is the overshooting of infra spending and excessive credit growth. With China planning to rein in credit growth by 20% in 2010 that leaves with the country with 2 key challenges - 1) maintaining its exchange rate (which I don't wnt to dwell at the moment) and shift
    from the single-minded pursuit of growth to
    improving the quality and efficiency of growth,
    implying some tweaking of the policy. If China can slowdown on infra spending and re-balance its fiscal policy to other sectors like healthcare / education , I dint think there any key risks in the medium term unless there is a double dip recession which is most likely to come from the west (US and UK)

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