Wednesday, July 31, 2013

The Paper Dragon

I have written extensively on this blog regarding global investment preferences and the risk/return matrix specifically between the U.S. and China.  Specifically here, here, here, and here.

So it will be no surprise to readers here that the preferred zone of asset placement is the U.S., and China is becoming more marginalized.  The totality of all the literature anointing China as the new world hyperpower can now be safely confined to the dustbin of history.

U.S. GDP will continue to stagnate unless additional deficit spending is injected into the system.  Where will all those export from China go?  What will the accounting treatment for the warehouses full of inventory and high-rises with no-one living in them be?  These are all things we have discussed here before.  And there is a very high and rising probability it will not end well.

But hey...they were useful, were they not?

The Shanghai Composite Index (SHCOMP), which doubled in 10 months through August 2009 as the government poured $652 billion of stimulus into building roads, railways and housing, has tumbled 43 percent from its high, destroying $748 billion in market value. Only Greece’s ASE Index (ASE) has fallen more in percentage terms. The Standard & Poor’s 500 Index, the benchmark gauge of American equity, erased all of the losses from the worst recession since the Great Depression and has gained 68 percent since the China peak, reaching a record this month.

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