Over two weeks ago, I wrote a post suggesting going long US Municipal Bonds and China , as a “knife catching” trade . Those trades haven’t fared too poorly since. That said, I recently listened to a fund manager who is (arguably) the most bearish manager out there (on China). I won’t pretend that I’m suddenly an expert, just because I sat through a very detailed, and well-researched presentation on the country. That said, all prospective investors in China should ask themselves the following questions:
- Do you know what’s going on in the country?
- Specifically, do you know how China’s banking system works?
- Do you know how large China’s banking system is? In absolute terms? In relative terms?
- Do you know what a ‘deposit’ in China is? Do you know how comparable said deposits are compared to a US bank’s deposits?
- Do you know why short term rates skyrocketed recently?
- As far as vacant properties go, if Ordos is NOT the exception, and actually indicative of what’s going in more populated centers within China… what would you do?
I currently believe one should stay away from going long China until there has been some cleansing in its banking system and/or some drastic Renminbi actions. This doesn’t mean there is not room for counter-trends to the upside (which should be taken as a gift to SELL; see the US in 2008). But being too cute can backfire.
Relying On Old-Fashioned Stock Picking, Lee Ainslie Reports His “Strongest Quarter” Ever
Lee Ainslie's Maverick Fund USA enjoyed its "strongest quarter in the fund's history" during the three months to the end of June. According to a copy of the firm's second-quarter letter to investors, which ValueWalk has been able to review, Maverick Fund USA gained 18% in the second quarter. Following this performance, the fund was Read More
Thesis: China’s banks will have to take some pain, or its currency must take a hit. I don’t think there will be another way around it. Steer clear until either happens.
For the more speculatively inclined: shorting always, and everywhere is a precarious undertaking. That said, there is more than one way to skin this cat.