Most of the time narratives haven't been convincing enough to present a strong case.
Hence I decided to put into pictures, some relevant data that may signal the whereabouts of China's bubble cycle.
In our earlier post [see Jim Chanos Goes From Micro To Macro With Bet Against China] we showcased the chart of a bubble cycle.
I am republishing it below for comparison purposes.
In the outset of the new millennium, the US dot.com bubble appears to have unraveled exactly as the dynamics shown above.
The Nasdaq chart (courtesy of bigchart.com) shown below went parabolic before collapsing.
Hence I decided to put into pictures, some relevant data that may signal the whereabouts of China's bubble cycle.
In our earlier post [see Jim Chanos Goes From Micro To Macro With Bet Against China] we showcased the chart of a bubble cycle.
I am republishing it below for comparison purposes.
In the outset of the new millennium, the US dot.com bubble appears to have unraveled exactly as the dynamics shown above.
The Nasdaq chart (courtesy of bigchart.com) shown below went parabolic before collapsing.
Today, or nearly 10 years after, sadly the Nasdaq remains distant from its bubble highs.
And it's seems no different from the way the US real estate bubble unfolded in 2002-2006 (courtesy of the New York Times)...
...and as earlier stated bubble dynamics are manifested on asset prices via massive overvaluation and a manic 'euphoric' mood by the public.
China is alleged to be at a risk of an imploding bubble, which is deemed by some as a clear and present danger. Given such premise we should then expect some parallels with the bubble cycle template above to take shape.
In other words, China's asset markets should somewhat resemble the above dynamics.
So have these concerns been justified?
While it is true that there has been an unprecedented surge in credit expansion which has been the primary cause of concern of bears... (the following charts except indicated are sourced from World Bank China)
...these has not yet been apparent in property prices.(see below)
Even Bloomberg's own property index chart for China hasn't been frothy...yet.
We don't see the same phenomenon in China's stock markets too (unless one interprets the 2008 top as the main inflection from which today's rally accounts for merely a countertrend action)...
And so far the booming conditions experienced by China has emanated from government spending...
Although the massive credit expansion appears to be filtering into the domestic economy...
Bottom line: China's Bubble has yet to mature or transition into the mania phase. It's probably not the right time to bet against a bubble.
Yet if China is truly in a bubble but the timing of the bet is wrong, then a short position can be bloody or devastating (see bubble cycle template above) to a portfolio, since the manic phase has yet to emerge.
And it's seems no different from the way the US real estate bubble unfolded in 2002-2006 (courtesy of the New York Times)...
...and as earlier stated bubble dynamics are manifested on asset prices via massive overvaluation and a manic 'euphoric' mood by the public.China is alleged to be at a risk of an imploding bubble, which is deemed by some as a clear and present danger. Given such premise we should then expect some parallels with the bubble cycle template above to take shape.
In other words, China's asset markets should somewhat resemble the above dynamics.
So have these concerns been justified?
While it is true that there has been an unprecedented surge in credit expansion which has been the primary cause of concern of bears... (the following charts except indicated are sourced from World Bank China)
...these has not yet been apparent in property prices.(see below)
Even Bloomberg's own property index chart for China hasn't been frothy...yet.
We don't see the same phenomenon in China's stock markets too (unless one interprets the 2008 top as the main inflection from which today's rally accounts for merely a countertrend action)...
And so far the booming conditions experienced by China has emanated from government spending...
Although the massive credit expansion appears to be filtering into the domestic economy...
Bottom line: China's Bubble has yet to mature or transition into the mania phase. It's probably not the right time to bet against a bubble.Yet if China is truly in a bubble but the timing of the bet is wrong, then a short position can be bloody or devastating (see bubble cycle template above) to a portfolio, since the manic phase has yet to emerge.
1 comment:
interesting posting, but I think that the 2008 top was in fact the inflection point as it symbolized the reaching of the potential growth limits of the China's export led strategy. Hence to mask the effects of the fall of that sector, China is following US footsteps in inflating yet another housing bubble.
http://financialmarkets2007.blogspot.com/
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