I read recently about a hedge fund manager that had predicted the demise of Enron and one other large company and who now is predicting that China is thousand times worse than Dubai. I sort of took this with a grain of salt until I talked to a long term investor friend of mine who spends up to 40 hours a week studying this kind of stuff as an investor.
I said, "Is it true that China could collapse economically?" He said, "There is some truth to this. However, don't trust the hedge fund manager because it is his job to sell short and bring companies and nations down. It is the way he makes money for his clients. So he is very biased in saying something like this. It is just a part of the way he creates wealth." So I was very surprised that even stable investors who aren't involved with the extreme form of investing that hedge funds comprise are concerned about China's long term economic stability. I said, "Is it because China doesn't have enough checks and balances in the form of enforceable economic laws in place?" He said, "Yes. That is one of many factors that could collapse China economically. Actually, the U.S. is much better positioned for a long term economic position than China presently is."
So I realized that even though China is doing many of the right things, even the doing of these many right things is also dangerous to China in that moving through too many changes too fast in a 5000 year old culture creates a lot of unseen hazards for a culture not used to this present fast pace of change. Even though some people on top of the Chinese pyramid might be okay it could be a disaster for the other 75% of Chinese people. And if that happens it would be a disaster for all Chinese.
My friend said, "I am limiting my exposure to Chinese investment by only owning stocks in Companies that are based in the U.S. but who do business in China. And I'm gauging what sectors might collapse first in China in the way I invest both short and long term.
So, as strange as it sounds investing in the U.S. and Europe still appears to be the relatively safest investments around whereas direct investment in China has to be viewed as Feast or Famine given present world hazards. In other words you could get rich or lose everytthing at any time. And this goes double for the Chinese investors who are investing in Chinese businesses. What very strange times we live in when everything is so extreme.
It makes me wonder what happens if China collapses eocnomically like some are predicting? Since the rest of the world is presently depending upon India and China to pull us out of the muck of worldwide recession this is not good news for anyone. And what happens if China suddenly becomes so desperate that they want the U.S. and other nations to pay back their debts to China? What happens then?
Also, what many nations don't seem to be considering is that the recession likely has roots in the growing scarcity of oil and food on earth. Oil is a limited resource and prices of $10 a gallon or more have been predicted for some time. In fact if you convert liter prices to gallons I know for sure that the price of gas at its highest was over $9 a gallon in parts of Europe within the last 2 years. So basically the world has already hit the $10 gallon once already in places.
So, when you combine $10 a gallon gas and diesel prices with Global Climate Change that is exponentially getting worse(look at the Western half of the U.S. and Europe's amazing deep freeze for example) That I think is still going on as I'm writing here and the ongoing aberrant weather (cold and hot and drought and flood and high winds) worldwide you can see why there isn't enough food or gas. Because you can't raise cheap food without cheap gas and cooperative weather, wind and soil and sun!
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