By
Tom Dyson, publisher, The Palm Beach Letter
Tuesday, August 18, 2009
If the Chinese authorities had caught him making this video, they would have arrested him...
Hugh Hendry is a hedge-fund manager from Britain. Eclectica is the name of his fund. He's outspoken and critical of the establishment. You could say he's somewhat of a pariah in London's hedge-fund industry. In 2008, his fund generated 32% by making massive bearish bets...
Earlier this year, Hendry took a trip to Guangzhou, China's third-largest city after Beijing and Shanghai. There's been a huge construction boom in China in recent years, and Guangzhou is one of the hot spots. Developers have erected so many skyscrapers, Guangzhou's central business district could easily match Chicago or Boston for the number of modern, high-rise buildings.
So Hendry shot a video of the office buildings in the district. He focuses on one shiny black skyscraper with a giant neon screen at its base. It's close to 100 stories... And it's obviously brand new...
"This is a seriously large building," says Hendry. "We're talking at least half a billion dollars to construct this thing. It's empty! Who is going to fill this thing? Who is going to pay the debt that that building is resting on?"
Hendry's film shows several more skyscrapers... each as large and modern as any new tower you'd find in Manhattan... and they are all completely empty.
"This is astonishing," he concludes... You can watch the whole video here.
Thing is, the Chinese are incredibly touchy about foreign journalism. I experienced it first hand when I was in China last year and tried to organize a tour of a factory in Lanzhou. They almost arrested me when they discovered I didn't have a journalist visa. If the Chinese had known Hendry was filming empty buildings and posting his movie on the web, they would have definitely arrested him...
So why does Guangzhou have so many empty office buildings? It's because of false market signals. The Chinese government's inflation and easy-money policies have led developers to build more office space than Guangzhou needs.
Now that the world economy has fallen apart, the malinvestment sticks out like an empty skyscraper.
From the reports I've heard, it's not just Guangzhou. There are now too many factories, too many buildings, and too much infrastructure relative to demand all over China...
Instead of letting the market liquidate these mistakes when the crisis struck, the Chinese government decided to make it even worse. Over the last nine months, it has forced banks to make more terrible loans and encouraged a new batch of unnecessary construction. A second China bubble has formed. You can see this second bubble in this chart of Shanghai's stock market index. It rose over 100% between November 2008 and July 2009.
But that bubble may be about to end... Three weeks ago, the Shanghai stock market reached a peak and started falling. Now we have the downtrend. We have a fantastic opportunity to short this bubble and make a fortune as the new Chinese miracle falls apart...
There are a lot of ways to go about shorting China. You can sell short commodities like copper and oil. Chinese stocks and commodities tend to trade along with each other. You can also short the big Chinese stock ETF (FXI) or buy an "inverse fund" that profits when Chinese stocks fall. The symbol here is FXP.
A trend line is a stock chartist's way of tracking the health of trends in stocks, currencies, and commodities (you can read the excellent Trader Vicbook for the full story on them). The theory goes, once an overpriced, popular asset "rolls over" and breaks through its trend line, it's a good time to short the asset. It's a sign the trend's upward momentum is broken.
Today's chart displays the year's trading action in the Shanghai Composite Index. This is the most widely used gauge of Chinese stocks... and it's close to exhibiting a classic trend line break.
We can't know if this new decline and trend line break will turn into a big wipeout... but we can say that every large decline begins as a small one. If you've been itching to bet against Chinese stocks, the market is getting on your side.
Monday, August 17, 2009 China PLUNGES Biggest one-day drop in nine months.
How to Play the Collapse in Meat Prices By Tom DysonMonday, August 17, 2009
Here's the thing, while livestock prices collapse, the stock prices of the giant meat companies Tyson and Hormel have soared in the stock market bounce. Tyson is the world's largest processor of beef, pork, and chicken. Its stock is up 150% since last November...
Are You the Smart Money or the Dumb Money? By Dr. Steve SjuggerudFriday, August 14, 2009
The message here is simple... The smart money (corporate insiders) is selling. Meanwhile, the dumb money (individual investors) is excited about stocks. The dumb money is buying. Which group are you in now?
Be Smart With Your Money... Buy This Guy By Dr. Steve SjuggerudThursday, August 13, 2009
I don't want to waste your time singing Buffett's praises. You already know he may be the greatest investor who ever lived. He's made a career of making distressed loans to big businesses for a high interest rate, plus an arm and a leg...
Back in March, when I was saying "buy," those traders were nowhere to be found. But now that the market has run farther faster than anyone can remember, they're getting in. They're late to the party... but that doesn't mean the party is over just yet...
