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business newsNever Short a Country That Has $2 Trillion in Cash
By
Keith Fitz-Gerald, MoneyMorning.com
Feb 04, 2010 12:00 pm
It's not yet time to sound the alarm on China.
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Never short a country with $2.3 trillion in currency reserves.
I’m well aware that bond king Bill Gross has been sounding the alarm about a China bubble, and that Forbes magazine is predicting a major meltdown by the Asian giant. I’ve also heard all about noted short-seller James S. Chanos -- who made his name by correctly calling the Enron Corp. demise -- who recently described China as “Dubai times 1,000-- or worse.”
Just yesterday (February 3), in fact, US stocks suffered their worst beating of the New Year on fears that new bank lending curbs in China might blunt the worldwide economic rebound. Asian markets also were down yesterday.
So what’s really going on here? China is making its banks tighten credit. Some of the biggest banks, I’ve heard, have actually suspended loans for the rest of January! Many analysts and media pundits believe this is the beginning of the end of the Great China Growth Story.
Don’t believe it.
In fact, if anything, the moves that China is making amid so much criticism are actually going to solidify the long-term future of the world’s number-three economy. The bottom line is that China’s leaders are focusing on financial-crisis solutions, while their US counterparts are still trying to figure out what kind of financial train wreck hit us.
In recent months, for instance, Beijing tightened the screws on real-estate speculation. It's raised interest rates, boosted reserve requirements, and devised some stock market changes that are aimed at limiting stock-market speculation.
In another shrewd move, the Chinese government has started to diversify its reserves away from the weakened US dollar, broadened trade relationships with seemingly everybody but the United States, and even nailed down some yuan-based currency “swap” agreements that should help it avoid some of the massive exchange-rate risks that could derail China’s recovery.The experts who are right now trying to write off China are making a very basic mistake: They're confusing short-term corrections with a long-term change in direction. And the two scenarios are very different. China’s growth is just beginning. Indeed, as measured by per capita gross domestic product, China has made more progress in a mere 30 years of market reforms than it has in the last 2,000 years. Then there’s the conveniently overlooked fact that China has had the world’s largest GDP for 18 of the last 20 centuries.
China is a land of raw opportunity. Over the long haul, in fact, it’s the greatest wealth-creating opportunity that we’ll see in our lifetimes.
If anything, I think the typical individual investor should double their exposure to China while they still have a chance: Do you really want to find yourself standing alone on the dock, left behind to lament your lost opportunity as you watch this great profit opportunity sail away? I don’t.
Let me relate to you something that legendary investor Jim Rogers recently said to me about China: “In 1807, if you were smart you went to Paris. In 1907, if you were smart, you went to New York. And, in 2007, if you were smart you went to China.”
No positions in stocks mentioned.
Fifteen trades. All profitable. Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 15 for 15, meaning he's closed every single one of his trades at a profit. And he did this during one of the most volatile periods for the U.S. stock market since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index.
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The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
