China is a bubble — not!
by Peter Switzer
Now, let me be frank. I know I don’t have any problem when good news stories are pedalled and that could be a reflection of my long-term investor bias. By definition, I want positive reinforcement from news, experts and statistics that my bet that shares will go up is actually coming true.
So to be fair, I should be able to cop the negative commentator. I should but I can’t right now.
Get to the truth
Let me sort out my philosophy about commentary — the endplay has to be that I’m trying to get to the truth of the matter. That means I must process both good and bad news to work out what might happen.
At the moment, the good news is outweighing the bad and that’s why the market has gone up around 50 per cent since the March lows. There’s been a terrific unwinding of the panic, fear and loathing that followed the last days of Lehman Brothers in September of last year.
Part of that comeback story has been the rebound of China. Around this time last year, the negative types warned that China would be lucky to grow at six per cent. They were wrong.
These people joined the experts who tipped the S&P 500 would go below 500, that house prices would fall 40 per cent, that the US taxpayer won’t see the TARP money repaid, that stimulus would not work to reinvigorate the economy and the list of big, bad headlines persist.
What I hate is that these doomsday merchants who are often trying to influence a market to make a profit are claimed as being from a genius club when their negative prediction comes true.
I saw a guy who predicted a market crash for Australia in 2000 and tried to pass himself of as an expert because of the latest crash that happened nearly eight years later!
After a stock market rises for five years and P/Es are at silly levels, I am happy to start warning investors that this is a time to be cautious. I am also happy to tell everyone that most markets head to a bubble phase and then they burst. We saw that when oil hit US$147 a barrel in mid-2008 and then headed off towards US$30 or so a barrel.
These anti-China callers are guessing. And there are different views from other smart guys who don’t have a hip pocket reason to bag China. This is what CommSec’s Craig James says on the subject:
- The latest batch of monthly data has allayed concerns that the Chinese economy is growing at an unsustainable rate. While the pace of industrial production lifted in November to a 29-month high, retail spending and fixed asset investment eased modestly.
- Inflation has returned to China with consumer prices up 0.6 per cent on a year ago. A record 1.04 million passenger cars were sold in China in November, almost double a year ago.
Optimists and pessimists
A 0.6 per cent rise in inflation is not quite a bubble yet. Also, they are producing stuff and people are buying it, making the Chinese economy look like a typical, albeit unusually big, emerging economy.
With companies such as BHP-Billiton, Rio Tinto, IBM, Macquarie and some of the biggest infrastructure names in the business world investing and transacting with China, I prefer to stay in the optimists camp for now.
And that’s my gripe. I am bullish now but I can be bearish. What gets me about Chanos and other doomsday merchants is that they are always negative — they only short-sell — and that kind of guy is not my kind of guy.
Go China and prove these so and so's wrong!
Top 10 tomorrow
By the way, I know I promised my next best 10 stocks that make up my top 20, but I had to deal with this China Syndrome today. I will bring you my next 10 stocks tomorrow for sure. I promise!
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Published on: Wednesday, December 16, 2009blog comments powered by Disqus