It’s “different in China”. The phrase sounds awfully familiar to the widely used “it’s different this time”. Investors are always looking for a “new normal”; however, the truth is that real fundamental change rarely happens. As history shows, people tend to commit the same mistakes over and over again.
Investment guru Jim Rogers believes that the China growth story is here to stay. Rogers believes the Chinese government’s recent short-term rate hikes and other monetary tightening measures are only an attempt to slightly cool down the economy. Overall, he believes the rest of the economy is “hardly in a bubble” (Business Week).
Rogers is so bullish on the Chinese economy that the official Chinese Communist Party newspaper published his verbal attacks on Jim Chanos’ (a dedicated short-seller hedge fund manager) anti-China position.
” American investment guru Jim Rogers has debunked contrarian investor James S Chanos suggestions that China’s investment bubble may lead to a Dubai-style implosion.
Rogers said the Chinese economy is not in any imminent threat of collapse, and investors and companies are wise to stay involved with it.
“It is absurd to say China is in a bubble when the stock market is 50 to 60 percent below its all-time high. If you have a bubble you have things going through the roof. You have everybody screaming fire every day,” he said.” (People’s Daily Online).
“Debunked”?
Anyways, my favorite quote from Rogers is the following:
“His [Jim Chanos] remarks show a lack of understanding about Dubai and of China. Dubai’s economy is built on real estate speculation, whereas China’s is not. It is just part of the Chinese economy”
Let’s put the Dubai issue aside and refer to the big U.S. of A instead. Real estate speculation was and is “just a part” of the American economy. Notwithstanding, a housing sector bubble and collapse created some serious consequences (as we have all witnessed). The housing sector is typically very interlinked in an economy. As a result, an asset price collapse due to a speculative mania will likely always create big problems. In China, it would slow down construction, create shock waves in the commodities market, and maybe even create social unrest because of slower job creation.
Commodities
In a similar note, Rogers is also bullish on commodities.
In the video below with CNBC India, Rogers states he is bullish on all commodities except gold. It’s not that he is bearish on gold, but he thinks it may be overvalued. Rogers articulates an interesting point of view regarding his bullish view which I don’t quite understand. His rationale, it seems, is that copper, silver, oil, and other commodities are a big buy (and not in a bubble) because they are well-off their all-time highs. I’m not a “bubble” expert, but I’m sure that an asset can still be trading at “bubble” levels even if it’s off their highs.
We’ll start with a hypothetical yet relevant example. Assume the mortgage-backed securities markets drops 40% from par (100 cents on the dollar). The mortgage market could still be at bubble levels if it should be trading at 20 cents on the dollar. Maybe even zero cents.
Rogers has repeated over and over how oil is way off it’s all time high (with the suggestion that it means something). While we use that $147 a barrel high as a reference point, it could well be meaningless because it was achieved through a speculative mania and in the back of the grand idea of extraordinary Chinese demand. The high was also reached 3 months before the biggest financial crisis and world-wide economic meltdown since the Great Depression. All in all, the world of $150 per barrel was never close in reality but only in our minds.
Nevertheless, I’m not suggesting that oil is in a bubble. Maybe in “5-10 years” it will be at $200 a barrel; however, for the purposes of shorter term trading, I don’t think the $150 a barrel idea should be a big factor on trading decisions. Most importantly, I don’t believe an asset is cheap just because it’s way off it’s highs.
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