Thanks to Pej for finding this:
Chanos relays a great quote from Milton Friedman: He was brought to watch the Chinese built a canal, and when he asked why they were using shovels and not bulldozers, he was told that machinery was being eschewed in order to create more jobs. Friedman replied with something like, “Oh, I thought you were building a canal. If it’s jobs you want, why don’t you give them spoons?”
Like the Chicago school that he founded, Friedman was great on most issues except for money. He couldn’t come to terms with the idea that the very existence of a central bank and legal tender laws create insurmountable moral hazard and will always lead to bubbles.
Ok, so how big is China’s commercial real estate bubble? Under construction right now, there are 25 square feet of office space for every person in China.
Family savings are being invested as down-payments for investments in highly-speculative developments. The bust will take care of a lot of the middle class’s much-touted savings.
Copper has just broken the trendline which defined its rally from the oversold lows. If it’s moving into a third wave down it could be a great short here.
Lately I’ve been bending one of my own trading rules and adding some exposure in front-month OTM puts, given the resemblance of the recent market to the peak in 1987.
I shorted it a day or two ago at 3.28, and just tightened up the stop a lot in case this is a choppy top and not a narrow peak.
A few days ago FCX touched its 50 DMA & now it’s down quite quickly. Apparently AUD is also rejected by its 50 DMA. John Murphy also noted that this very 50 DMA rejected many other stocks’ bounces.
Recently, oil, emerging markets (EEM), china (FXI), & others found support on its 200 DMA. If this downdraft continues, it could be the scenario where the whole world is breaking the most significant resistance to the downside.
How bad do you think China will crash, Mike? Oil $20 on the table? I just noticed after Japanese crash, commodities also tanked during 1990s. In 1998 it bottomed when oil reached $10. China sort of replaces Japan’s role in commodity consumption, doesn’t it?
China’s crash is going to be monstrous – value in their stocks and real estate seems to be 90% under today’s prices. Nothing is off the table — I’m not going to be the guy who says oil won’t fall to $10, or copper to $0.25.
That said, war is pretty bullish for commodities, so if the evil doers in DC decide to start a really big one in a few years, these prices would recover, likely as the currency finally fails.