I am not saying China has peaked. Far from it. China will do nothing but continue to grow in size and influence throughout the 21st century. The 21st century is the Chinese century (22nd century is India's).
What I am saying is the current reverence and awe for China and its seeming infallibility in the face of Western incompetence and decline reminds me of peak Japan back in the 80s. On the face of it China appears to have pulled off a seemingly perfect emergence.
Beneath the surface there are many cracks (overcapacity, overindebtedness) and with increasing commitments both at home and worldwide, China will be found to be fallible.
Just sayin!
Showing posts with label china. Show all posts
Showing posts with label china. Show all posts
Tuesday, April 21, 2015
Tuesday, April 7, 2015
Bubble, bubble toil and trouble
Julian Robertson in an interview today speaks about a bubble being blown by the Fed. Like everyone else, he doesn't know when it is going to pop, but he knows it is going to pop.
A bubble is a serially correlated error on a mass scale perpetrated by a blinded marketplace. Herding if you will.
Which leads me to ask myself the question (which I ask periodically), where do I see bubble characteristics?
What are the characteristics to begin with? Substantial increase in leverage and laxity of constraints wrt to access to cheap capital - leads to misallocation of resources and increase in valuation. Unsustainable and undefensible increase in valuation. Area attracts a large flow of new capital. Industry/sector/country is systematically important due to its size and spreading effects throughout the economy.
In financials? No. Capital has been rebuilt. Lending standards have improved.
In energy? No. The bubble, and there was one in shale, has been popped already. There are dead men walking, but no systematic risk impact on the market.
In technology? No. Not if you look at the balance sheets and valuation of the majors (AAPL, MSFT, SAP, ORCL, QCOM, etc.). I definitely see a bubble in next generation tech (TSLA, NOW, CRM, NFLX, N, etc.) but even many of those have seen their valuations shrink as they grow and market price have come off the boil.
In materials? No. If anything, the bubble has been popped already in that space. Just look at gold, copper, coal, etc.
In industrials? No. Valuation is stretched, but not out of this world.
In consumer discretionary? No.
In healthcare? Don't know. It has had a huge run. Definitely biotech side of sector. But biotech is not a systematically important part of the economy.
In utilties? No.
Dollar. No. That is good for everyone else and the US can handle it. Although if it were to throw the US into recession then that would be bad for everyone.
In bonds? Possibly. Massive move to bonds over last six years. But bonds don't really pose a systematic risk unless the underlying defaults. And most of the new debt is govt.
In China? Possibly. But I've been calling that one for years, so I have zero credibility. Like Julian Robertson I believe there is a bubble (in China), I just don't know when it will burst.
China looks to me as the best potential for a "bubble." The massive run in the Chinese stock market may be a sign of things getting out of control, or it may simply be a sign of a soft landing.
Or, it could be the whole global system which has increased its leverage significantly in the last six years and susceptible to a rise in interest rates.
Perhaps that is it. Interest rate risk is the largest risk out there.
A bubble is a serially correlated error on a mass scale perpetrated by a blinded marketplace. Herding if you will.
Which leads me to ask myself the question (which I ask periodically), where do I see bubble characteristics?
What are the characteristics to begin with? Substantial increase in leverage and laxity of constraints wrt to access to cheap capital - leads to misallocation of resources and increase in valuation. Unsustainable and undefensible increase in valuation. Area attracts a large flow of new capital. Industry/sector/country is systematically important due to its size and spreading effects throughout the economy.
In financials? No. Capital has been rebuilt. Lending standards have improved.
In energy? No. The bubble, and there was one in shale, has been popped already. There are dead men walking, but no systematic risk impact on the market.
In technology? No. Not if you look at the balance sheets and valuation of the majors (AAPL, MSFT, SAP, ORCL, QCOM, etc.). I definitely see a bubble in next generation tech (TSLA, NOW, CRM, NFLX, N, etc.) but even many of those have seen their valuations shrink as they grow and market price have come off the boil.
In materials? No. If anything, the bubble has been popped already in that space. Just look at gold, copper, coal, etc.
In industrials? No. Valuation is stretched, but not out of this world.
In consumer discretionary? No.
In healthcare? Don't know. It has had a huge run. Definitely biotech side of sector. But biotech is not a systematically important part of the economy.
In utilties? No.
Dollar. No. That is good for everyone else and the US can handle it. Although if it were to throw the US into recession then that would be bad for everyone.
In bonds? Possibly. Massive move to bonds over last six years. But bonds don't really pose a systematic risk unless the underlying defaults. And most of the new debt is govt.
In China? Possibly. But I've been calling that one for years, so I have zero credibility. Like Julian Robertson I believe there is a bubble (in China), I just don't know when it will burst.
China looks to me as the best potential for a "bubble." The massive run in the Chinese stock market may be a sign of things getting out of control, or it may simply be a sign of a soft landing.
Or, it could be the whole global system which has increased its leverage significantly in the last six years and susceptible to a rise in interest rates.
Perhaps that is it. Interest rate risk is the largest risk out there.
Saturday, November 22, 2014
China Is Melting Down
China is melting down but no one knows it or sees it.
The signs are all there. Falling growth (everywhere). Myriad government attempts to pump liquidity and capital into the system. The market still in make believe mode.
Panic has not set in. Commodities have been the canary in the coal mine, but no one seems too concerned. My bet is the property development sector will provide the trigger. Weakness in the Yen has set about the next leg of the global currency wars. Stresses and strains are showing everywhere (Europe, Japan, Latam, Australia).
We are in the calm before the storm. Batten down the hatches.
The signs are all there. Falling growth (everywhere). Myriad government attempts to pump liquidity and capital into the system. The market still in make believe mode.
Panic has not set in. Commodities have been the canary in the coal mine, but no one seems too concerned. My bet is the property development sector will provide the trigger. Weakness in the Yen has set about the next leg of the global currency wars. Stresses and strains are showing everywhere (Europe, Japan, Latam, Australia).
We are in the calm before the storm. Batten down the hatches.
Saturday, March 22, 2014
It's a set-up
Not an intentional set-up. Not a malelovent set-up. But a set-up all the same.
The set-up is this. The market is extended. But we already knew that. We have been conditioned to buy the dip (Bernanke put and everything). Everyone is happy. Stocks have gone up. There are no signs of disaster around. The economy is healing. However, there are signs of momentum sapping and sentiment changing. The coup de gras is a combination of respected commentators talking caution (Marks, Montier, Dalio, Gundlach), Fed tapering, meme that new Fed governor will be tested, geopolitical conflict & China cracking.
This is how the worm turns. And this is how it takes time for the market to digest the turn and then in turn justify the takedown. All of these things and more have been around a long time. Fear and risk are always there. But there are times when the market sits up and takes notice. I think now is one of those times. I am trying to lighten up going into mid-14, but it is hard to sell names that I think are good long term plays (even when I know they WILL take a 20%+ haircut in any takedown).
The set-up is this. The market is extended. But we already knew that. We have been conditioned to buy the dip (Bernanke put and everything). Everyone is happy. Stocks have gone up. There are no signs of disaster around. The economy is healing. However, there are signs of momentum sapping and sentiment changing. The coup de gras is a combination of respected commentators talking caution (Marks, Montier, Dalio, Gundlach), Fed tapering, meme that new Fed governor will be tested, geopolitical conflict & China cracking.
This is how the worm turns. And this is how it takes time for the market to digest the turn and then in turn justify the takedown. All of these things and more have been around a long time. Fear and risk are always there. But there are times when the market sits up and takes notice. I think now is one of those times. I am trying to lighten up going into mid-14, but it is hard to sell names that I think are good long term plays (even when I know they WILL take a 20%+ haircut in any takedown).
Thursday, March 20, 2014
China! China! China!
How long, oh China, will you defer reality?
How long, oh China, will you defy gravity?
How long, oh China, will you run roughshod over the laws of economics?
How long, oh China, will you continue to mock us who doubt?
How long?
Maybe not all that much longer.
http://www.macrobusiness.com.au/2014/03/morgan-stanley-chinas-minksy-moment-is-here/
How long, oh China, will you defy gravity?
How long, oh China, will you run roughshod over the laws of economics?
How long, oh China, will you continue to mock us who doubt?
How long?
Maybe not all that much longer.
http://www.macrobusiness.com.au/2014/03/morgan-stanley-chinas-minksy-moment-is-here/
Thursday, July 16, 2009
When Will China Explode?
A country, especially one the size of China, can't grow at an average rate of 8% for 30+ years, and not create some imbalances. I'm talking here about a country bubble (not a stock market bubble). China has already had a stock market bubble, with the air coming out in 2007 and a recovery beginning in March of this year.
Everyone knows the future is China's, and that is true. But the path between point a. and point b. on the economic development timeline is not always smooth (as in 8% growth every year!). China reminds me of one of those old movies where the steam engine is racing along the track going faster and faster as the train driver continues to stoke the furnace, and even as it keeps going faster, more and more things are falling off the wagon. Eventually, it goes beyond the point of no return and blows apart at the seams. That, I am afraid, is the economic destiny of China. It is on a collision course with history. I don't know when that day of reckoning is going to come, and I don't know what will push it over the edge.
Hopefully it won't lead to social disorder or anything like that. But there is a price to be paid for defying the laws of economics.
Everyone knows the future is China's, and that is true. But the path between point a. and point b. on the economic development timeline is not always smooth (as in 8% growth every year!). China reminds me of one of those old movies where the steam engine is racing along the track going faster and faster as the train driver continues to stoke the furnace, and even as it keeps going faster, more and more things are falling off the wagon. Eventually, it goes beyond the point of no return and blows apart at the seams. That, I am afraid, is the economic destiny of China. It is on a collision course with history. I don't know when that day of reckoning is going to come, and I don't know what will push it over the edge.
Hopefully it won't lead to social disorder or anything like that. But there is a price to be paid for defying the laws of economics.
Monday, April 27, 2009
Mindray (MR) down but not attractive...yet
Mindray (MR) off as much as 15% today on a downgrade from Credit Suisse. But I missed it at $18 and will sit and watch. The news is not encouraging (March orders weaker than Jan and Feb...ouch!) and I am not a great bull on China right now. I also missed China Med (CMED) below $14 (had a big run-up over $20), but I've got no interest in chasing and am very cautious on CMED (smoke surrounds that company). MR seems like the higher quality play.
Disclaimer: No position in these stocks either personally or professionally.
Disclaimer: No position in these stocks either personally or professionally.
One of many dilemmas
One dilemma I have been wrestling with is to what extent is the future economic performance of the economy factored into current equity/asset valuations. With equity prices off over 58% at their lows, an awful lot of future bad news was being factored in. This largest decline since the Depression made sense to me because we were dealing with the largest economic decline since the Depression (in addition to a financial crisis of global proportions). But the question is did we overshoot on the downside and what is a reasonable level for equities given interest rates, growth prospects and a greater appreciation for risk. I do a lot of back of the envelope calculations in order to gauge perspective and am a great believer in normalizing things, especially in the midst of an extreme event. As such back in January when I put pen to paper and tried calculating a ballpark fair value number for the Standard & Poors 500, I came up with normalized EPS of $65 and a normalized PE multiple of about 15 to arrive at a ballpark fair value of somewhere between 900-975 [Note: this calculation was done in the midst of downward earnings revisions taking S&P 500 earnings to $40 and multiples of 8 being thrown around as reasonable - pointing to levels of 320-500 on the Standard & Poors].
P.S. The divergence between all the positive information coming out of China and the performance of the FXI recently may be telling of something. Keep an eye on that.
Disclaimer: I have a personal position in the FXI.
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