Morning all! I've been seeing more and more mention of the China bubble bursting lately (Rock's recent mention of it spilling over to Singapore's housing market also caught my attention) but this article that ran in The Telegraph on Sunday particularly caught my eye - Hedge funds bet China is a bubble close to bursting.
Here are a couple of key excerpts from the article:
There have been academics and analysts who have argued about the dangers of China’s economy overheating for some time. But for many, the fact that hedge funds, particularly those with track records on previous crises, are launching specific funds is the sign that the bubble is close to bursting.
One academic said: “Economists have contrarian views all the time. But these hedge funds have their shirts on the line and do their analysis carefully. The flurry of 'distress China’ funds is a sign to sit up.”
More analysts are becoming bearish too. Last week, Lombard Street Research put out a note warning of China’s “already dangerously home-grown inflation”.
According to the article, many of these funds believe the many implications on the rest of the world may also be dire if/when the China bubble does indeed burst:
The analysts said figures showing the continuing boom in China were far from welcome: “On the contrary, Chinese policymakers have to slam on the brakes.” The financiers are warning that rather than depending on China as the prop of the recovery plan, Britain needs to be braced for another shock.
A recent study by Fitch concluded that if China’s growth falls to 5pc this year rather than the expected 10pc, global commodity prices would plunge by as much as 20pc. China is the global price-setter for oil, coal and base metals.
According to Corriente Advisors: “We expect the economic fallout from a slowdown of China’s unsustainable levels of credit and growth to be as extraordinary as China’s economic outperformance over the past decade.”
Or, might this be a contrarian signal that things in China might still have some room to run before the jig is up? It seems like the China bubble is one that so many have been calling for a very long time now, yet they roll onward without it blowing up. Yet. What does everyone think?
From my perspective, there's 2 Chinas.
ReplyDelete1 is the prosperous urban dwellers who are growing richer each day; this is the crew that is investing in the properties because of the inflating prices. The inflating prices are not due to housing demand, rather they are due to "property demand"; that is they are places where people can invest their money and presumably grow the capital.
2 is the poor almost destitute rural population. These people are the numbers in China, but live on $12 US per day. I have seen this, up close and personal.
The odd thing is the poor almost destitute rural population does not hate their rich neighbors, rather they look up to the urban dwellers, almost as a kind of god, a nirvana their children could someday reach. The picture of Dorothy skipping off to Emerald City comes to mind.
I think China's got a long long way to run, because as long as the export economy is working, both the Chinas will support it and grow it.
But again, I lose my opinion when the market opens, so I don't lose my money. Lower highs, higher lows, relative strength, volume, and good/bad herds. Those become my opinions when the market opens.
Thanks for weighing in, Rock. I'm kind of in your camp on this one. Think it will run FAR longer than anyone can imagine.
ReplyDeleteThen there's this. Unreal.
http://www.nytimes.com/2011/01/24/business/24fees.html
Morning all! Great post Manny - the money shot:
ReplyDeleteThe financiers are warning that rather than depending on China as the prop of the recovery plan, Britain needs to be braced for another shock.
Agree the bubble will take longer than many folks expect to burst. Also, think about this, if we're hearing about the bubble in China starting to tremble through the distorted reporting of the Communist Party there, imagine what's really going on.
Making a march to DOW 12K. Amazing run here. How long can it continue to grind upward virtually every single day (or at least not go down much if at all)?
ReplyDeleteManny - a lot longer than the perma bears can stay whole that's for sure. I'm shocked that there are still any left after the last two years.
ReplyDeleteAt 9am Rock says "The odd thing is the poor almost destitute rural population does not hate their rich neighbors, rather they look up to the urban dwellers, almost as a kind of god, a nirvana their children could someday reach"
ReplyDeleteAnd here in America we are doing it all back assward again.
Why is it so difficult for us Western people to understand we need to look up to and worship or bankers.
Mangy Mutt
@Mannwich
ReplyDeleteIt's sad. But I guess not unexpected; if we buy trouble, we have to administrate trouble.
I see a lot of instances of lower highs and lower lows. I guess that's to be expected with the market up as far as it is since the 666, but it makes me wonder....
CY reports today. I'll be interested in seeing that report. I tried to short FSLR, but I guess the short interest is too high, TDA won't let me short it. Anyway, CY may be as good, percentage wise.
Oops, sorry, CY reports Thursday.
ReplyDeleteInteresting article from PragCap today.
ReplyDeleteTHE USA IS NOT EUROPE
As noted last week, the municipal bond panic has been blown well out of proportion. While the state budget woes are serious issues and will require substantial cutbacks and perhaps even tax increases, it’s important to keep things in perspective and avoid comparisons of the USA and Europe. First of all, the state budget issues as a whole are simply not comparable. Figure 1 from a recent report out of the CBPP puts the historical debt levels in perspective. As you can see there is nothing that far out of the ordinary currently occurring:
More importantly, however, one must recognize the operational differences between the USA and Europe. Europe has no central treasury. They are not truly politically unified. They are a monetary union of individual countries with individual political systems. While they have one central bank they still lack the key ingredients that makes them even remotely comparable to the USA – a central treasury and centrally unified political system. This, combined with the true unity of the USA exposes the vast differences between the two.
Make no mistake – I am by no means encouraging reckless spending policies at the state and local level, however, we must recognize the operational reality at hand. Localities can and likely will default in the coming years, however, an event as potentially catastrophic as a state default would be a purely political decision (as the US federal government can never not have the funding to aid its states). The Europeans are unwilling to unify and provide aid to their neighbors. I am confident that Americans remain unified despite the growing political divide.
Up 90 - Full steam ahead!!
ReplyDeleteYet in other news . . .
ReplyDeleteCalifornia's unemployment rate ticked up in December to 12.5 percent, while Los Angeles County hit a new record high of 13 percent, according to state figures released Friday.
That means the state's monthly jobless rate remained above 12 percent for all of 2010, while the national unemployment rate decreased in December to 9.4 percent.
The county rate jumped from 12.8 percent in November, and was well above the 12.3 percent recorded a year earlier. The state rate ticked up from 12.4 percent, and was just one-tenth of a point shy of the record high 12.6 percent set last March.
Manny,
ReplyDeleteGreat article about China. I think that a parallel argument could be made about our wars in Afghanistan and Iraq, we have spent about 1.42 trillion and counting. At least they have a city to show for their spending, all we have is destruction and death.
If China is in trouble for those types of expenditures, we are screwed as well as the world's police man.
@Rock,
ReplyDeleteThere are two of everything in this world, 2 China's 2 India's, 2 America's, etc.
The rich who will pretty much stay that way and then there is the rest. Few have gone wrong by catering to the first class.
FOMC meeting tomorrow and State of the Union.
ReplyDeleteAny bets for a whopping TurnAroundTuesday?
ReplyDeleteEuro made a new high, oil new lows. SPY, QQQQ, and IWM not making new highs with the DIA.
ReplyDelete@Rock,
ReplyDeleteThis market has not shown any fear from the bottom in July.
@Dss
ReplyDeleteI am of the opinion that there are 3 Americas. I've ridden my bike (although not lately) through the hills of Tennessee and Southern KY. I've eaten lunch and dinner with good folks with no teeth. I've worked on Project Head Start in Chicago. I'd call that one America.
I'd call one America the rest of us who pay the 2.5 Trillion that the government uses to bury us with.
And then I'd call one America the governmental leaders, the wealthy, and the Rockefellers/Roosevelts/Waltons.
In China, the wealth polarization is much greater than in the US.
In Singapore, the wealth polarization is much greater than in the US.
Rahm Emmanuel not deemed a resident, so he was booted off the ballot in the race for Chicago's mayor.
ReplyDelete@Rock,
ReplyDeleteAgreed, but we are slowly headed in the wrong direction and I do not see the political will to change that direction.
Plus there are too many folks here like the poor and destitute Chinese who not just look up to the ruling class, they have been brainwashed to think that they are part of the ruling class.
They think they are the recipients of tax cuts, that they have enough assets to pay the death tax, that any attempt to socialize medical care will destroy them, etc.
DSS - Wow, seriously? I hope that doesn't mean he's going to go back to DC.
ReplyDeleteRock - When I was growing up we said those people had summer teeth.
ReplyDeleteSum are there, sum aren't.
In this town there was an old timer who wore a 6 shooter on his hip all the time, one day he comes into drug store were I was working to ask the pharmacist for some pain pills.
It turns out he was on he way home from the liquer store, he was going to get drunk and dig out a tooth that had becomes absest. OUCH
Mutt
I'm sure they'll find a way to change the law for old Rahm. Just watch.
ReplyDelete@Manny,
ReplyDeleteNot sure that there is time left to even appeal the decision, if that is even possible.
Not sure what his next move would be but he would not go back in the administration after having left, but anything is possible.
Knowing Rahm, he has a few tricks up his sleeve and a plan B.
@Denise: Perhaps the O man will step in on old buddy Rahm's behalf?
ReplyDeleteQuite the melt up in progress.
ReplyDeleteThought I just saw an AP wire that said McD's may increase its prices soon but can't find it. But there's no inflation anywhere. No sirreee, Bobby.
ReplyDeletePORTLAND, Ore. (AP) -- McDonald's affordable food drew even more customers in its fourth quarter, but the burger chain said it may raise prices this year as its own food tab rises.
ReplyDeleteWorries about rising costs at the world's largest hamburger chain gave some investors pause even as McDonald's ended a banner year in which it outperformed its competitors. Its emphasis on low-priced items and an expanding menu, including the limited-time McRib and its McCafe coffee line, helped sales grow all year.
McDonald's Corp., based in Oak Brook, Ill., reported that its net income rose 2 percent to $1.24 billion, or $1.16 per share, for the quarter. That's up from $1.22 billion, or $1.11 per share, a year ago.
Revenue climbed 4 percent to $6.21 billion.
The results met the expectations of analysts surveyed by FactSet.
However, the company said it expects food cost will rise 2 to 2.5 percent in the U.S. and 3.5 to 4.5 percent in Europe during the year.
McDonald's has already raised some prices in the United Kingdom to cover higher costs. The company said as prices for beef and other ingredients and other cost pressures in the U.S. become more pronounced throughout the year, it will likely increase prices to offset some, but not all, of its higher costs.
However, McDonald's management said it would raise prices selectively to avoid compromising the popularity it has gained with diners looking for low-priced meals during the down economy.
The company said the commodity cost increases still keep it below its 2009 levels, when it coped with increased prices on a number of ingredients. But it still expects some pressure on profit margins.
In its fourth quarter, sales at U.S. stores open at least 13 months increased 4.4 percent as the company rolled out its Caramel Mocha and customers participated in its perennially popular Monopoly promotion. Worldwide, the figure rose 5 percent on strength in Asia.
The increases were smaller than in the third quarter, when the figure rose 5.3 percent in the U.S. and 6 percent worldwide.
This figure is a key indicator of a restaurant operator's health because it measures results at existing locations instead of newly opened ones.
McDonald's said bad weather in December hurt U.S. sales. It expects global sales at stores open at least 13 months to rise 4 percent to 5 percent in January.
Investors had a mixed take on the quarter with the commodity news as well as strong sales that were hampered in December by the bad economy.
Shares of McDonald's dipped in the morning but rose 12 cents to $75.13 by midday trading. They hit an all-time high of $80.94 in early December.
For the year, McDonald's net income climbed 9 percent to $4.95 billion, or $4.58 per share, from $4.55 billion, or $4.11 per share, in the prior year. Revenue rose to $24.07 billion from $22.74 billion.
McDonald's CEO Jim Skinner said in a statement that in 2011 the company plans to use about half of its $2.5 billion in capital spending to open about 1,100 new restaurants. It will spend the rest improving existing locations.
AP Business Writer Michelle Chapman contributed to this report from New York.
Mutt
@Mutt:
ReplyDeleteThe folks I met there seemed mostly happy. I hardly ever talk to anyone who's mostly happy anymore.
Good post Manny.
ReplyDeleteYes knowing what is going to happen in China and when, will make or brake fortunes.
They are becoming the powerhouse from a manufacturing capacity point of view, like US 80-90 years ago, but still not trusting all their clout, just my hunch.
Dan
Nice post Mannwich. As for when is China going down, the ghost of Jim Chanos would certainly agree it's a hard call to make.
ReplyDelete@Manny,
ReplyDeleteSince this was an appellate court decision there is nothing that Obama can or would do on his behalf.
Rahm knew this was going to be a possibility so it looks like he is appealing the ruling.
Wolfie
ReplyDeleteYes Chanos and H Hendry are really bearish on China.Not familiar with their timelines though.
Dan
@Mutt,
ReplyDeleteSummer teeth :-)
The problem with China is the total lack of transparency and following of standard accounting practices. Think of all of the fraud here in the "law abiding" states and imagine what happens in a country with 4 times the population and 100 times the incentive and ability to cheat westerners and other foreigners.
ReplyDeleteThink of the scandals with the dog/cat foods, children's toys with lead paint, the pollution and you know that the best businesses practices are ignored.
dss
ReplyDeleteThat was a good summation of my hunch.
Dubious best businesses practices, a torrid romance with knock-offs etc, etc.
Dan
@Jeff,
ReplyDeleteTimely post. But where do the WallStreet IBs want this market to be? They have access to printed dough.
From FT.com/home/us
"Obama to spell out centrist vision". SOTU
"Davos:what's on the agenda". From banking to economic growth to Ems.
"WallStreet reignities bullish mood". Traders eye central bank meetings and earnings. Fed meets this week. CBs of Japan, India, Malaysia -on rates, and fear China may hike rates.
ICan
@Dan,
ReplyDeleteWhat's your next date? and What are you thinking?( No pun intended).
ICan
@Dan:Hendry made his China call in May 2010. That would not have been a good trade to make at this time.
ReplyDeleteAs for Chanos, just checked, and he's short since Nov 2009 or earlier. Not a bad trade if you got in around this time. Honestly, I thought I remembered him making bearish calls on China since much earlier than late 2009.
I-Can
ReplyDeleteOh don't worry I didn't get it (the pun).
I'm working on it tonight, and I'll post it tommorrow morning.More exactly in about 6 hours.
Not easy damn it.
Dan
@WS,
ReplyDeleteJim Chanos was back on CNBC on 10Dec2010.
"China overbuilding to "Hit a Wall" : Chanos".
http://www.cnbc.com/id/40605908
I posted a link here in Dec.
ICan
Boom and Doom all on the same page.
ReplyDeletewww.financialpost.com
"Forget Great Recession: Growth Super Cycle ahead".
"U.S. $14.3T debt limit looms closer".
"Rising China labour costs new headache for the west". West importing inflation. Rates will have to rise.
ICan
Mark Carney, Bank of Canada's Governor, VS. Jim Chanos.
ReplyDelete"United States a 'reclining power', Mark Carney says". http://www.theglobeandmail.com/report-on-business/top-business-stories/
Urges Canadians to look abroad - look beyond U.S. to emerging Asia. "Emerging markets in Asia, he told CTV, are coming on strong".
ICan
Man oh man what a busy day in the salt mine :-/
ReplyDeleteSlow day with tomorrow FOMC and the SOTU.
ReplyDeleteI'm going to post in the morning around 7 am instead of tonight. There are a few more things that I want to check before I post.Thanks.
ReplyDeleteDan
Sounds good Dan!
ReplyDeleteAs eager as they are for a fight with the White House, Republican budget cutters have a problem in their own back pasture: what to do about a system of farm subsidies that’s still pumping billions into GOP districts at a time of record income for producers.
ReplyDeleteNet cash farm income for 2010 is projected to finish near $92.5 billion — a 41 percent increase even after subtracting payments from the government. Yet conservatives are almost tongue-tied, as seen last week with the Republican Study Committee’s proposal to eliminate relatively modest subsidies for an organic food growers program without mentioning the nearly $5 billion in much larger government direct payments to farm country — including to the home districts of many of the RSC’s members.
Read more: http://www.politico.com/news/stories/0111/48097.html#ixzz1C1MPOInD
Golly gee, you mean all those Republican voting, liberty lovin', socialist hatin' farm states are suckling on the government teat? Quel Suprise
@I Can:thks. Technically speaking, the Shanghai Composite Index (-0.68% today at 2677.43) is at best in no trend, at worst resuming its downtrend.
ReplyDeleteI think it goes to 2600 support, then if broken it's 2400 next.
Hedge funds underperform S&P 500 in 2010.
ReplyDeleteBest strategy: Distressed Securities (+13.8%).
Worst one: our favorite toy, short selling (-16.9%)
@WolfStreet:
ReplyDeleteThere sure are a lot of possible short sales right now. I look at almost every other stock on my charts, and see a lower high, or a lower low.
I dipped a little short on NVDA and will watch it carefully. I mean nobody's worth 11% in a day. Of course, that's not how the algos see it.
also I dipped a little in the shorts of CY. They wouldn't let me short FSLR, and it's too late to short my JRCC (I shoulda kept on track of that one, it had lower lows and just kept going. Sigh.)
Having been in kinda sorta the business, I won't say CY is worthless, but there is NO WAY it should have a PE of 57.05, with TI only 14.3. TI is circles around CY, as a development and production organization. So I think CY is due for a fall. At least 50%.
But, what do I know. I'm just a Rock.
@MAnnwich:
ReplyDeleteFrom TDA: "X reported 3rd quarter 2010 losses of $1.20 per share on October 26, 2010. This missed the $0.23 consensus expectations of the 11 analysts following the company.
"The next earnings announcement from X is expected the week of January 25, 2011."
BTU dropped its estimates from $.99 last quarter to $.71 this quarter. I'm thinking X is in worse shape, by far.
so I'm looking to short my favorite short X again....even after the pullback.
So Bloomie had a segment on earnings and why they're beating estimates. Is the game fixed?
ReplyDeleteFor the last 6 quarters, 70% of companies beat estimates. If you beat estimates, you win. Your stock goes up.
NEVER has the percentage of companies reporting that beat estimates fallen below 50%. In the worst recession times, >51% beat.
Gee, I wonder how that happens? You don't suppose it's fixed do you? Remember my comment on the Symantec upgrade just 7 days before reporting.
TXN reported missed estimates. Think CY will?
ReplyDeleteFelt like a slow day but it wasn't in matals, 10y, crude, corn, etc.
ReplyDelete