What happens when the China bubble bursts?
FloridaBill
Posts: 896 ✭
Today I read in USA Today about a Chinese Oil company doing an IPO yesterday and it tripled in value over the offering price. The real shocker of the story was the market cap of the company exceeded ONE TRILLION dollars! That’s more than DOUBLE the Market cap of Exxon-Mobile! If there were any doubt that China is in a speculative bubble, this single fact should close that issue.
I remember back in the 80s when Nippon Electric did it’s IPO at a similar $1,000,000,000,000 valuation. At the time, that was valuing Nippon at close to the entire NYSE listed stocks combined! Of course, not soon afterwards the Japanese Stock market declined by 75% and stayed at those “depressed” levels for over a decade.
I’m curious what the folks here think the impending bursting of the Chinese bubble will do for the Precious Metals and the US Dollar.
FloridaBill
I remember back in the 80s when Nippon Electric did it’s IPO at a similar $1,000,000,000,000 valuation. At the time, that was valuing Nippon at close to the entire NYSE listed stocks combined! Of course, not soon afterwards the Japanese Stock market declined by 75% and stayed at those “depressed” levels for over a decade.
I’m curious what the folks here think the impending bursting of the Chinese bubble will do for the Precious Metals and the US Dollar.
FloridaBill
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That was last year. I think it's over $400 now
I still collect U.S. Coins. So what should I buy ?... A half ounce of Dolly Madison in gold or a piece of paper in a Chinese company ?
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It could play out that the Chinese withdraw their support for the dollar (bringing capital back to support the internal economy). In that case the dollar would tank and Gold would soar (at least in dollar terms). At first glace, that seems to be self defeating, as it will severely impair the economy into which China sells its products. On further inspection, that may if fact be in their best interest, as the internal Chinese market is very early in its capitalism growth curve. Decades of capitalist empowerment still to come.
FloridaBill
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
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<< <i>I purchased shares of BIDU at $76. A friend talked me out of it and I sold it at $82.
That was last year. I think it's over $400 now
I still collect U.S. Coins. So what should I buy ?... A half ounce of Dolly Madison in gold or a piece of paper in a Chinese company ? >>
Wow - I looked at BIDU a year also at that price, although I never bought it. That is the sound of me kicking my own ass.
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rev the economy up again.
Camelot
<< <i> I don't think it's a bubble at all in China. >>
So, are you saying that valuing a Chinese oil company IPO at TWICE the value of XOM is rational?
FloridaBill
you do the math
what do you think their worth to service
F Bill
<< <i>They will just do what we do. Go to War and
rev the economy up again. >>
Wise?
Old?
Bear?
Well, one out of three ain't bad.
Apropos of the coin posse/aka caca: "The longer he spoke of his honor, the tighter I held to my purse."
If the China bubble bursts, there is a lot of investment $$$ that will try to find some higher quality homes.
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and think of junk from japan in the 70's and look now
were toast
just my thoughts
<< <i>They will just do what we do. Go to War and
rev the economy up again. >>
I agree with Bear, the Communists are still Communists. They will likely go to war when the boom turns to bust and won't ask for permission or worry about the press, or the party out of power. China is definitely a bubble, when a new IPO is the most valuable public company on the planet worth $1 trillion USD. This makes the new company worth more than five times what superstar Google is worth, more than mighty Exxon/Mobil for a new IPO. That said, shorting is not for the faint of heart, bubbles sometimes go up another 50% or so after these headline markers occur.
I don't know what this means for coins, or why this discussion is relevant to the coin board, entertaining as it might be for a few of the punters.
/edit typos
i said i can see it period
In other words, China is at war with the world - but not doing it with military force. Instead it will let the rest of the world come begging to them to let them do the manufacturing.
The country is anything but free - the economics are more like facism than communism, and they dont have free elections. (No surprise there either). In short, its a government monopoly on power, in collusion with a corrupt private sector that can make the rules it wishes.
The Chinese currency is pegged to the dollar. Interestingly, as the US dollar goes down, so does the Chinese Yuan. This means that their goods and services are in even more demand in the world, and they still have advantage over the US. -- another question is why is the dollar dropping so low all of a sudden? could it be someone is selling thier dollar holdings?
What will undo them? probably price inflation, lack of natural resources, and overpopulation. They to rule the world economically, they will need to replace oil and coal with renewables as their primary energy source. But they will do this only when it becomes strategic to do so. Unlike the US, they now have the money, the technological infrastructure and the desire to succeed even with the oil shortage.
Next time you drive your SUV to the Mall to load up on Chinese manufactured clothes and electronics, think about all those dollars getting changed into Yuan. --an in the longer run, gold.
<< <i> This 21st century economy holds great promise for our people. But unless we give all Americans the skills they need to succeed, countries like India and China will take good-paying jobs that should be ours. >>
<< <i>In short, its a government monopoly on power, in collusion with a corrupt private sector that can make the rules it wishes. >>
Sounds a lot like San Diego, with the politicians and developers scheming very similarly.
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but can i change this or can you
nope but can we see this yep
so the answer is ?????????????
These people populate a number of large portions of the country.
Further, the farm folks of the countryside, have been pouring into
the cities seeking high paying jobs and a better life style. In many ways,
China is a country always on the edge of pandemonium. It has a booming
economy with all the worst aspects of polluted water unfit to drink, food unfit
to eat and air unfit to breath. If the economy should take a serious tumble, then
China may well be looking at large scale popular uprisings. The economy has out stripped
the ability of the rigid governmental system , to manage the economy to the betterment
of its people. China is seeking to achieve, what took most Western Nations a century or more
in a compressed period of several decades. It is an almost impossible task and one fraught with serious
consequences , social, medical, economic and political.
Camelot
<< <i>
<< <i> I don't think it's a bubble at all in China. >>
So, are you saying that valuing a Chinese oil company IPO at TWICE the value of XOM is rational?
FloridaBill >>
You were talking about China being in a bubble. I said I don't think so. Have you been to China in recent years? It's pretty amazing what's happening there....in the whole region but especially so in China.
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
<< <i>China is seeking to achieve, what took most Western Nations a century or more >>
Exactly....BUT....and a VERY big but....
Without the structures and systems to restrain a runaway economy (which they clearly have now)...nor a "safety net" structure like the US has evolved over 250 years of experimenting in capitalism...the bubble burst in China will be HUGE....
This bubble will burst....sometime within the next 18 months....the valuations exceed the dot.com bubble in 2000....
When it does, what will happen to Gold and US Dollars?
FloridaBill
FVUMC FXI JAN 2008 185.0000 PUTS
Just keep rolling them !
Buying top quality Seated Dimes in Gem BU and Proof.
Buying great coins - monster eye appeal only.
I knew it would happen.
Yes, a lot of jobs have headed to China. BUT, American companies OWN the frickin' companies in China...they employ the workers there, and they manage the $$ that go through China. In other words, when I, as an American consumer purchase a product made in China, but is OWNED by an American company, the percentage that goes to the Chinese is fractional!! The rest ends up in CEO's pockets (ok, dumb shot), I mean, in corporate coffers to reinvest in the company's growth and future.
Once China's labor prices get too high to remain competitive, then India or Vietnam will be the next evil empire we have to defeat and/or bemoan about all the lost jobs. Then likely some Aftrican country will be next...then we'll be back in America.
I'm not saying I'm happy with where jobs are going, but I'm VERY happy American companies are STILL ruling the financial world in many sectors. If we were losing so much to China, why then are ANY American companies posting profits? Listening to some of you here makes me want to join Heaven's Gate for their next departure...sheesh. If you're so worried about this economic powerhouse that China has become, then join in! No one's stopping you from buying up THEIR stock...
<< <i>China presently holds much of US debt; they own the US. The biggest risk is they sell US $ in favor of harder currency. When this happens what will we do? >>
And so it begins....
China diversifying away from dollars!
Nov. 7 (Bloomberg) -- The dollar slid to record lows against the euro and the Canadian dollar after a Chinese government adviser said plans to diversify foreign-exchange reserves will involve buying better-performing currencies.
The currency slumped to a 26-year low against the pound and a 23-year low against the Australian dollar. Cheng Siwei, vice chairman of China's National People's Congress, told a conference in Beijing the country ``will favor stronger currencies'' when adjusting its $1.43 trillion of reserves. He later added that doesn't mean buying more euros.
``We're likely to see further pressure on the dollar,'' said Thomas Harr, senior foreign exchange strategist in Singapore at Standard Chartered Plc, a U.K. bank that makes most of its profit in Asia. ``The potential for diversification is quite big. This a structurally negative story for the dollar.''
The U.S. currency slumped to $1.4666 per euro, the lowest since the 13-nation currency debuted in January 1999, before trading at $1.4642 at 2:23 p.m. in Tokyo from $1.4557 late yesterday. It fell to $1.0990 per Canadian dollar, the lowest since Canada's currency was floated in 1950. The dollar traded as low as 113.99 yen, the first time below 114 since Oct. 29.
The dollar may fall to $1.50 against the euro, Harr said.
The decline helped drive the price of crude oil to a record and gold to a 27-year high, encouraging investors to buy assets in commodity-producing nations. The dollar's 9.8 percent drop against the euro this year boosted the competitiveness of U.S. exports, helping shrink the nation's trade deficit to $57.6 billion in August, the smallest since January.
French President Nicolas Sarkozy yesterday brought his concerns to the U.S., saying ``you don't need too weak a dollar'' to spur growth in the world's largest economy.
China's Reserves
Chinese investors have reduced their holdings of U.S. Treasuries by 5 percent to $400 billion in the five months to August. China Investment Corp., which manages the nation's $200 billion sovereign wealth fund, said last month it may get more of the nation's reserves to invest to improve returns.
``Cheng has a history of speaking out on a range of financial market and economic developments, and his comments are not always accurate,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong.
Cheng's remarks on Jan. 30 that China's stock rally was a ``bubble'' caused the benchmark index to fall the most in almost two years on Jan. 31. The Shanghai and Shenzhen 300 Index, then over 2,500 points, has since climbed above 5,300.
Against the pound, the dollar declined to $2.0947, the lowest since May 1981. The currency slid against the Australian dollar to 93.81 U.S. cents, the lowest since April 1984 from 92.87 U.S. cents. The U.S. currency also fell to as low as 1.1347 against the Swiss franc, the lowest since December 2004.
``This is an asset story and shows sentiment for the dollar continues to be quite negative,'' said David Forrester, currency economist at Barclays Capital in Singapore.
Federal Reserve
FloridaBill
If China goes belly up,
where will I buy my toaster, socks, shirts, wallets
pants, underwear, shoes, belts, toys, jackets?
How will Wal-Mart stay in business?
What will happen to Ma Perkins and Our Gal Sunday?
Will Dorothy ever find the Wizard of Oz?
Camelot
Not at all inevitable. China has been the most populous country for centuries, that a handicap - it holds back growth.
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<< <i>Will Dorothy ever find the Wizard of Oz? >>
No, she has to go back to brown, dusty Kansas and live with her dirt-poor American Gothic teetotaling aunt and uncle.
60 years into this hobby and I'm still working on my Lincoln set!
It is probably the most horribly polluted country on the planet, and the locals are getting increasingly angry about it. More and more farmers are reacting with violence when the government is taking over their land to put factories on it and not giving them adequate compensation.
There is lots of outright racism of the Han Chinese toward the various minority groups, which leads to resentment. The Han Chinese have a "Muslim problem" in the west (ie Xingyang), which is rarely mentioned in the papers.
The Chinese buy our debt because they need us to buy their products. Simple as that. This keeps our interest rates lower, so our consumers buy more of their goods. If our economy sneezes, the Chinese economy will get a cold.
Everything over there is rigidly controlled, and oversight as we know it in the West is unknown over there. The financial data you receive from China is not subject to the same oversight, rules and regulations that it is over here. I wouldn't trust it with my shadow.
The only thing that won't change over there is that as their economy grows, they will need more natural resources to support that growth.
"Seu cabra da peste,
"Sou Mangueira......."
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Then, we send Paulson over there to tell the Chinese not to save so much. Be like the stupid American consumer....no savings and a ton of debt. Guess he'd be happy to see the Chinese go out and buy homes 3 times what they could afford...no money down. And get a new car too. Doesn't matter that you can't afford it. Just lease it for 7 years, so you can make the monthly payment. Even a Chinese peasant is smarter than that!
They must find it hard not to laugh in our faces.
I started investing in Asia in 2004. No regrets.
<< <i>China will win the next war without firing a shot. It will be an economic war. They are already fighting it, and they are winning. >>
They certainly are................................by 2025 the US will be a suburb of China.
Herb
<< <i>China presently holds much of US debt; they own the US. The biggest risk is they sell US $ in favor of harder currency. When this happens what will we do? >>
The world just doesn't work that way. First off, China owns so much of our debt that if they chose to sell it, it would collapse the market, which means that CHINA would not even get face value for it. Imagine if the Hunt Bros had sold all their silver at the same time. It would have crashed the market, meaning that they would have gotten very little out of it. China isn't so dumb as to slit their own throat by selling our dollars. It would take decades to safely divest themselves of our debt.
Secondly, if you deposit money in a bank, who has the advantage--you, or the bank? What happens if the bank says "I'm sorry, but we are keeping all your money."? It's the same with the U.S. and China. China holds lots of T-bills and such. All the U.S. has to do is say "I'm sorry, we're no longer accepting those bills for payment." Yes, it would have serious worldwide implications, but it is possible to abrogate our debt. Not a good thing (who would buy a savings bond ever again?) but it is possible in an extreme emergency (such as China trying to take us over, crash the market on T-bills, etc.).
P.S. There are regional hatreds within China that make the U.S. Civil War look like a walk in the park. In China, the North hates the South, there is rivalry between the SARs and the rest of the country, corruption is endemic, etc. China has a LOT of problems.
It would work short term, but long term it would probably destroy our creditibility. Nobody would do business with us again being that we are now in a global economy. Perhaps even cause World War III.
Box of 20
<< <i>China will win the next war without firing a shot. It will be an economic war. They are already fighting it, and they are winning. >>
Remember that when you shop at Walmart or almost every large chain store these days.
<< <i>
<< <i>China presently holds much of US debt; they own the US. The biggest risk is they sell US $ in favor of harder currency. When this happens what will we do? >>
The world just doesn't work that way. First off, China owns so much of our debt that if they chose to sell it, it would collapse the market, which means that CHINA would not even get face value for it. Imagine if the Hunt Bros had sold all their silver at the same time. It would have crashed the market, meaning that they would have gotten very little out of it. China isn't so dumb as to slit their own throat by selling our dollars. It would take decades to safely divest themselves of our debt. >>
China could write off the $1.3 or $1.4T in debt without blinking - and it would be a cheaper alternative than any military conflict between them and US.
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Teddy Roosevelt's statement of "Talk softly but carry a big stick" still applies to the USA today. Woe to any country who decides to mix it up with the US military when it is allowed to do what it has to do to win.
You know what happens when you bite the hand that feeds you!
True in some cases, but not all. American OEM's also outsource to pure Chinese suppliers. I've been in manufacturing for 20+ years, and I've never seen such a mad rush to outsource parts overseas. Having said that, I don't think the Chinese will dominate the world. We thought the same about the Japanese 20 years ago, and it didn't happen. And the Japanese have a lot more on the ball than the Chinese do with regard to infrastructure, education, etc.
Dave
<< <i>they are winning because we have given them the technology to win...but we can also take it away! >>
I thought we just gave them missle technology and unimportant stuff like that. What was that guy's name who did that?
Apropos of the coin posse/aka caca: "The longer he spoke of his honor, the tighter I held to my purse."