new piece by Andy Xie on China...

[WildspitzE]

a ponzi scheme....

http://www.my1510.cn/article.php?id=e3fc777cdd24720a

"Chinese asset markets have become a giant Ponzi scheme. The prices are supported by appreciation expectation. As more people and liquidity are sucked in, the resulting surging prices validate the expectation, which prompts more people to join the party. This sort of bubble ends when there isn’t enough liquidity to feed the beast."

growing pains as they shed their mercantilist coil and head into the world of keynes? ;)

juicy savings are always tempting... yum.

[nero3]

Re: new piece by Andy Xie on China...

a ponzi scheme....

http://www.my1510.cn/article.php?id=e3fc777cdd24720a

"Chinese asset markets have become a giant Ponzi scheme. The prices are supported by appreciation expectation. As more people and liquidity are sucked in, the resulting surging prices validate the expectation, which prompts more people to join the party. This sort of bubble ends when there isn’t enough liquidity to feed the beast."

growing pains as they shed their mercantilist coil and head into the world of keynes? ;)

juicy savings are always tempting... yum.

maybe he will be known as the man who called it early It's a brilliant piece. However, let's say the dollar becomes strong. For japan that just really triggered the blow off phase. From 1982-1989, after the bubble had been growing since the early seventies.

[jk]

Re: new piece by Andy Xie on China...

maybe he will be known as the man who called it early It's a brilliant piece. However, let's say the dollar becomes strong. For japan that just really triggered the blow off phase. From 1982-1989, after the bubble had been growing since the early seventies.

the dollar peaked in 1985. read up on the plaza accord.

[nero3]

Re: new piece by Andy Xie on China...

the dollar peaked in 1985. read up on the plaza accord.

I know, but that's not interesting at all in this context. What is interesting is that the Japanese bubble took off, and did not tank, as Xie thinks China will do (when the dollar strenghtens), after Volckers measures to bring inflation under control.

so if Japan is any guide to the future, it's not sure that a strong dollar will break China as Xie claims.

[metalman]

Re: new piece by Andy Xie on China...

I know, but that's not interesting at all in this context. What is interesting is that the Japanese bubble took off, and did not tank, as Xie thinks China will do (when the dollar strenghtens), after Volckers measures to bring inflation under control.

so if Japan is any guide to the future, it's not sure that a strong dollar will break China as Xie claims.

from... Beware Relief Rallies Update 1: DJIA 7552 the bottom?...

Japan's economic depression was rooted in the interest equalization tax instituted in July 1963 by the President of the United States John F. Kennedy... At the time, the American economy was in recession, resulting in a tremendous outflow of domestic capital. To slow this trend, Kennedy took strong measures -- a 16.5% interest equalization tax on all capital leaving the U.S. While this move did indeed decrease the outward flow of American capital, it also incited panic in world markets. Japan was no exception. In 1965, Japan felt the full effects of the tax -- the securities market slumped into the worst depression in its history. When the Tokyo Stock Exchange average dropped to 1,020 yen, many thought that the Japanese economy would collapse.

Attracting Foreign Investment, Sony

[goadam1]

Re: new piece by Andy Xie on China...

from... Beware Relief Rallies Update 1: DJIA 7552 the bottom?...

Do we mean 7552 inflation adjusted.

[metalman]

Re: new piece by Andy Xie on China...

Do we mean 7552 inflation adjusted.

at the time there was no mention of that. ej asked if that was a mistake and how to correct it... in the future always use inflation notation... or indexed to old dollars...

[Moe_Gamble]

Re: new piece by Andy Xie on China...

"Chinese asset markets have become a giant Ponzi scheme.

In a related China ponzi horror article at msnbc (http://www.msnbc.msn.com/id/32262705...orld_business/) they say:

Economists say as much as 15 percent or 1 trillion yuan ($145 billion) of that money has been diverted into stocks and real estate despite government rules that say banks should lend only for productive investment.

In general, when I see an increase in articles on the horrors of ponzi schemes in China, my first thought is that the move must have a lot longer to run.

When I read this particular article, my first thought was that the article suggested that 85%+ of the stimulus actually went into productive investment. That sounded pretty good to me for the long-term competitiveness of the Chinese economy.

[jk]

Re: new piece by Andy Xie on China...

I know, but that's not interesting at all in this context. What is interesting is that the Japanese bubble took off, and did not tank, as Xie thinks China will do (when the dollar strenghtens), after Volckers measures to bring inflation under control.

so if Japan is any guide to the future, it's not sure that a strong dollar will break China as Xie claims.

i think xie's got it backwards. a strong dollar won't burst the chinese bubble. the bursting of the chinese bubble will lead to a strong dollar.

[GRG55]

Re: new piece by Andy Xie on China...

In a related China ponzi horror article at msnbc (http://www.msnbc.msn.com/id/32262705...orld_business/) they say:



In general, when I see an increase in articles on the horrors of ponzi schemes in China, my first thought is that the move must have a lot longer to run.

When I read this particular article, my first thought was that the article suggested that 85%+ of the stimulus actually went into productive investment. That sounded pretty good to me for the long-term competitiveness of the Chinese economy.

Unravelling what is really happening in China seems critical to judging the future. It's a pretty confusing picture for me:

• On the one hand the imports of raw materials [coking coal, etc.] are verifiable and they are real.
• The Chinese may be stockpiling some materials [oil?] but it's hard to imagine they are stockpiling what is readily available globally and not likely to be in supply shortage, such as coking coal, which leads one to speculate that they may be using most of the record quantities they are importing on a current basis.
• That then leads to the question of what is all that steel being used for...
• ...which suggests that the "productive investment" argument Moe makes above seems reasonable [bridges, railways, etc?]...
• ...which opens the question of how will that influence Chinese/Asia domestic consumer consumption in the future, since somebody, somewhere has to start to make up for the secular decline in USA consumption.
• Finally, I wonder about the reports of a potential banking crisis in China and the developing world; I would have thought that the recent memories of the Asia/Russia/Brazil crisis would have put their financial systems in a somewhat more resilient state than the overlevered USA/UK/German/Swiss banks...not perfect, but more resilient.

I know iTulip is quite convinced there will be a bursting bubble in China, perhaps as early as next year, but bubbles seem to have a habit of inflating longer and becoming bigger than anyone expects.

[touchring]

Re: new piece by Andy Xie on China...

In view of the state secret prosecution case, my gut feel is that they may want to restrict rio tinto, so everyone is importing like crazy before this happens.

Unravelling what is really happening in China seems critical to judging the future. It's a pretty confusing picture for me:

• On the one hand the imports of raw materials [coking coal, etc.] are verifiable and they are real.
• The Chinese may be stockpiling some materials [oil?] but it's hard to imagine they are stockpiling what is readily available globally and not likely to be in supply shortage, such as coking coal, which leads one to speculate that they may be using most of the record quantities they are importing on a current basis

[kartius919]

Re: new piece by Andy Xie on China...

I believe that the Chinese markets and assets are significantly overvalued in terms of RMB. Loans are RMB denominated and thus RMBs will be in high demand once the defaults eventually pick up. The timing is anyone's guess.

Xie thinks that the Fed will initiate a Dollar Bull Market by raising interest rates to double digits. As EJ has noted, such actions would cripple the already putrid US economy leading to falling tax revenues and capital flight. If the US economy recovers, it will be based on a falling dollar and a massive consumer spending spree where all dollar holdings are liquidated before they become worthless. That is the point of hyperinflation and no amount of interest rate hikes will stop the train from falling off the cliff.

Collapse of the US economy will cripple the Chinese economy. They will be better off than much of the world, but I'm not delusional to believe they will come out of this unscathed.

[metalman]

Re: new piece by Andy Xie on China...

I believe that the Chinese markets and assets are significantly overvalued in terms of RMB. Loans are RMB denominated and thus RMBs will be in high demand once the defaults eventually pick up. The timing is anyone's guess.

Xie thinks that the Fed will initiate a Dollar Bull Market by raising interest rates to double digits. As EJ has noted, such actions would cripple the already putrid US economy leading to falling tax revenues and capital flight. If the US economy recovers, it will be based on a falling dollar and a massive consumer spending spree where all dollar holdings are liquidated before they become worthless. That is the point of hyperinflation and no amount of interest rate hikes will stop the train from falling off the cliff.

Collapse of the US economy will cripple the Chinese economy. They will be better off than much of the world, but I'm not delusional to believe they will come out of this unscathed.

here's the acid test... jim rogers turns tail and heads back to the usa.

[nero3]

Re: new piece by Andy Xie on China...

I think this is starting to smell like the 1990-s. It's certainly special formations in stocks like Wells Fargo, and other stocks that could signal a breakout from the secular bear market they have been in for this decade. My best stock is peaking 1400 % now, since I bought it, late last year (and that was a play on lower commodity prices) So I think it's a bit of 90's in the air now.

I even bought some stocks in June last year, as a play on lower commodity prices. They to are moving very good.

[Southernguy]

Re: new piece by Andy Xie on China...

I find refered article simply brilliant. Most if alleged credentials are true. Of course imports of raw materials are true. They need them to build houses and infrastructure, as Xie says.
And they´re probably building more industries too.
So, who´s gona buy the goods produced?
Already the world has an overcapacity problem, which is the origin, the real one, of this economic crisis.
Financial crisis is the destruction of the credit bubble needed to be created to offset low demand from stagnant salaries against big production capacity which was beeing created.
So, in the end, world consumers in USA and Western Europe, which account for no less than half of world buying capacity are overindebted, and third world countries are not increasing buying capacity due to the crisis.
The only way out is massive inflation with debt destruction, buy ONLY if it is accompanied by wage inflation at least as big as consumer goods inflation.
A Volcker style correction as Xie suggest may be or may be not in the cards. The last time it succesfully saved dollar reserve status. This time I don´t think it will.
Just Americans shall have to adjust to lower standards of living and USA will loose it´s imperial dominance, probably becoming one of a bunch of same powered nations.