The Mother of all Bubbles

It is very hard to separate yourself from most Chinese Stocks these days. It is so easy to double your money fast. The etf, FXI, and PetroChina (PTR) just keep going up and up. Most investors know all this, and many have put a lot of money to work in FXI, PTR and many others. It is hard not to. And, the TV gurus tell us that the Chinese government will control things such that its market doesn’t come crashing down, at least until after the Olympics – August 2008. But, if you believe that, I have a bridge in Brooklyn for you at a real cheap price.

Even China will have a hard time keeping this from crashing on its own schedule. It may be able to control its people, but market dynamics are global and far too unpredictable. It will crash and it will do so on its own schedule. The parallels with the internet bubble of the 1990s are stark. That bubble had its own momentum too.

The problem with all bubbles is that it is hard, as an investor, to exercise discipline. I don’t know anyone investing in China now who doesn’t worry a lot about things turning south fast. But it is just too seductive to stay in and reap daily gains. One investor knows better and we should follow his lead. Warren Buffett’s Berkshire Hathaway just unloaded most or all of its very large position in PetroChina. Buffett’s timing is always excellent. The smart among us will follow him and get out of the Chinese market.

When it comes down, it will be the mother of all bubbles.

Comments

Francis

October 13, 2007

Grandpapa Warren is still keeping around 3.x% of PTR because anymore shares further sharesold he will not need to report. He sold his stocks due to the pressure given from the government on the Sudan issue.

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ChinaBull

October 13, 2007

There are tons of dollars floating around China and few places to put them. This is creating enormous demand for the relatively few stocks that trade. As long as China is growing like gangbusters and more dollars are flowing into the country, they have to go somewhere. Chinese stocks are the recipients. There is no reason this should end now.

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AronLiv

October 14, 2007

You would have doubled your money on PTR if you bought on the day in July when it was announced that Buffett was starting to sell. It is amazing, but you are right that it is a bubble.

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JRodgers

October 14, 2007

I called for the bubble to burst two months ago here:

http://www.bestcashcow.com/economics_and_currencies/article/jrodgers/you-will-lose-your-shirt-pants-and-underwear-with-emerging-markets-here

I don't know if they can hold on to this through the Olympics, but it is playing with fire to think so. One thing that is clear is that the longer it spirals higher, the worse the fall will be.

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JRubinstein

October 16, 2007

Agree that Olympics are a red herring. It won't be long now.

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chi

October 16, 2007

FXI will be an avalanche. But you can profit going down just as well as you did going up. ;) Olympics??? Financial Markets????? Is anyone really buying that crap?

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tim clinton

October 20, 2007

@chi - Or you can get burned like everyone else who has said at the slightest selling that this is the beginning of the avalanche. One lesson about avalanches, steer clear of them - don't think that you are a better skiier than everyone else.

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