Comments on: Taking Stock as Economy Slides Toward Abyss

By: mario cavolo

mario cavolo — Sun, 26 Feb 2012 07:33:42 +0000

Yes Mava, no apologies, I AM deeply offended and I don’t appreciate hearing extreme comments, ESPECIALLY BY PEOPLE WHO HAVEN’T LIVED HERE!!!

TM, get a life you anti-Chinese racist piece of sh*&^%t.

By: Cam Fitzgerald

Cam Fitzgerald — Tue, 21 Feb 2012 20:07:14 +0000

And PS: Thanks again Erich for the article that seems to have heated up Ricks site the past few days. Looking forward to the next.

By: Cam Fitzgerald

Cam Fitzgerald — Tue, 21 Feb 2012 20:00:53 +0000

Well, I will be damned. It did show up. Seems my post was stuck in moderation for the weekend. (See above for a few links that challenge your view Mario.) There is plenty more on credit, banking issues, domestic consumption, rail traffic, imports of raw materials etcetera, etcetera. Enough to fill a book. Maybe someone will write a comprehensive report on the state of the Chinese economy as things have changed rather rapidly in just the past few months. Perhaps this is why there is so much denial. It does take time for new information to accepted and internalized. Most people are still operating on last years information so a lag has developed that will leave them at a disadvantage where investments are concerned. I have little doubt meanwhile that China is headed for a serious housing correction and it is one that will play out for several years to come. One thing we should have all learned by now is that where real estate is concerned the time lines can be quite long. These assets are not like stocks that can rise of fall 5% or more each day. Now one other thing we should know by now is that if such a large economy as China is decelerating due to a housing correction that the impacts on almost all hard commodities could eventually be quite sharp. Many of the hards are being consumed by China at an unprecedented rate. In some cases this is up to 50% of global production. A slowdown for construction of homes (not even considering all other forms of capital intensive investment) means that demand will fall sharply. Even another round of QE stimulus and the usual speculation is unlikely to refloat commodities if demand itself falls as some predict. Many people object to this idea. They cannot imagine that an economy can slide hard from a bubble burst when it is posting such high levels of growth. They are wrong of course for what they are saying is that it is different there (in China). Well, it was different in the US too yet the excess of credit was devastating. The worlds largest economy was just as susceptible as the smallest. Little varies anywhere in bubble dynamics and China is not special either in that regard. Why would China be especially immune? This is a view I am challenging. That country has engaged in one of the worlds biggest stimulus and credit programs and it was on par with the spending that took place in the US. What difference does it make that it was earned money that was used versus borrowed? The outcome is the same. Falling prices, falling demand, a surplus of homes and buildings of all sorts, under utilized capacity and little room for new expansion to keep the party going. Here I will seriously question whether the stimulus experiment can even be replicated twice. What this means is that China will have to experience its first ever modern economic correction. It has not happened before under the existing model and so there is no precedent there for what is coming. Few are prepared. Fewer still believe it possible. Is it any wonder that denial exists amongst most of the population? Now, as we seem to have arrived at that moment in time when the largest economic expansion in history is suddenly slowing we do need to rethink our own investment objectives and consider how the world might look in 5 years time. This is a valid exercise if you believe that China’s bubble is bursting and that the high inflation rates there will ultimately lead to a steep reduction in lending, lead to rising interest rates, falling home prices and an economy that has been weakened by exactly the measures it took to stimulate and expand. There must be an irony here that the medicine makes you sick for surely that is what we are seeing. My bets on China are to take a wait and see approach. This is still very much an expanding economy despite all the problems and I do not know of anyone who believes they are anywhere near to seeing recession. On the contrary I would be frankly very surprised to see GDP growth fall below 6% per annum before this is over. There will be trauma though and I would not touch construction, heavy equipment, real estate, malls or banks in the interim. The better opportunities in China seem to revolve around a rapidly expanding consumer economy and fortunately there are a lot of choices in that area. Indeed, the government has made it a priority to raise GDP internally with less emphasis on exports to keep growth levels maintained. I can see no reason they will not succeed. In the meantime, Mario, lets not deny what is obvious. It does not pay to lie to ourselves. There is no money in it. I would encourage you to keep an open mind and not paint yourself in to a corner where the problem areas of China are concerned. What is underway now will surely be one of the biggest challenges the country and the government has faced since the days of Tienanmen.

By: Cameron Fitzgerald

Cameron Fitzgerald — Tue, 21 Feb 2012 19:14:05 +0000

I got to hand it to you Robert. You have some good ideas. Maybe you should write a book. There is always room for guys who think outside the box. That seems to be what the market wants.

By: Cam Fitzgerald

Cam Fitzgerald — Tue, 21 Feb 2012 06:11:58 +0000

Thanks Mava. You might be exactly right that I never entered my e-mail correctly. Who knows, it might just be the will of the Gods so I will let it rest for tonight. Mario has gone quite crazy without extra help anyway. Tomorrow is another day.

By: TM

TM — Tue, 21 Feb 2012 04:15:59 +0000

mava’s comment floored me. It’s a truism I learned growing up Chinese and being surrounded by Chinese business people and their government backers — they are inherently evil and nothing about them can be trusted. Human life does not have the same value over there, so don’t make the mistake of thinking they’re just like you, because that will be your last one.

By: mava

mava — Tue, 21 Feb 2012 02:13:05 +0000

I know, Cam F.

It is very frustrating. Usually, it is because I haven’t yet entered email address. All gone, poof!

Sometimes, hitting “back” button helps to recover, but far from always.

It’s not Rick though. It’s the code of the page written poorly. It should do “validation” while caching the submission, and return the visitor back to “add your email” page, not just clear everything out.

Such is life.

By: Cam Fitzgerald

Cam Fitzgerald — Mon, 20 Feb 2012 23:12:49 +0000

“Over leveraged property developers are slashing their prices around 20%” ~~ Mario Cavalo
———————
Sounds like excess supply to me. Sorry Mario. Price slashing does not happen in an economy that is rapidly expanding. You cite credit problems of individual companies as the problem but that goes right to the heart of excess supply too.

Let me do this in little words for you.

There R 2 many housies in china 4 sale.

By: Cam Fitzgerald

Cam Fitzgerald — Mon, 20 Feb 2012 23:00:32 +0000

Seventy of seventy cities that are monitored by Chinese authorities report declining numbers of property sales in January. Some of these declines are double digit. Forty nine of seventy cities report falling prices.

That is how corrections begin, Mario, not how they end.

Let me ask you, did the US housing bubble burst begin at the end or did it begin at the beginning? You fail to understand the basic mechanics of a correction or why the kinds of changes I have pointed out are quite significant.

These changes may seem small in magnitude but they have made up for it in volume. Try to appreciate that housing price changes work on a multi year basis and that once a new trend is established (like this one going down) it tends to flow along the same direction until equilibrium is reached.

That is another way of saying prices will revert to the mean. This is a correction Mario. GDP will continue to fall for more than just a few quarters.

China is not special. It is not different. The same rules of economics apply there as apply elsewhere. It is you who is lost in a bubble of egoism, arrogance and denial.

By: Cam Fitzgerald

Cam Fitzgerald — Mon, 20 Feb 2012 21:57:59 +0000

Try to be more generous with your criticism. Mario earned it.