Next play: Shorting China?

[Scanner]

Ticker: FXP

Me thinks China has not seen a major correction yet and are due to get theirs.

A first real test of capitalism for them. There is a real estate bubble there with an overextended middle class also.

The only difference - they have cash cushions as savings rates often approach 50%.

After all, I do have a bunch of this silver profit burning a hole in my Roth IRA now.

[KTP]

Unfortunately I think shorting China in the long run would do about as well as shorting Apple stock.

Now if you stick to Chinese reverse merger formed US exchange traded small caps, you might do quite well. The shorts have killed my investments in CNIT and CHOP (CNIT down almost 40% from where I bought it) even though these two companies do not have any bad books and trade at a PE of less than 4!

[Frugal]

I don't personally think China will see a correction this year. Maybe in a few years, if the global economy continues to decline as it as over the past 1-3 years. Just my opinion.

[Scanner]

I disagree with you Frugal. . .so much so. .. I bought $5000 today of China Short - 1-5 years is my time horizon. . .I will add slowly to this position.

It's funny you should bring up Apple. . .I am starting to make my investment strategies based on "Cult Mentality". . .when an investment starts to reach a "cult mentality". .. sell. . .buy in if you think it will.

The Apple Cult. (I have a lot of family members in the Apple Cult - my sister used to work for them in Palo Alto, CA)
The Silver Cult. (I Have to say as much as a silver bug as I am, try talking to a silver cultist. .. it's like talking to a Peak Oilist. . .you can't reason with them - silver was going to $2000/oz as far as they were concerned)
China has become somewhat of a Cult lately.

They can do no wrong - we borrow money from them, they debase their currency without apparent ill effect, they manufacture cheaper but one thing I have always learned from being in business - someone will always come along and do it cheaper, the report is they have OVERINVESTED in infrastructure - roads to nowhere. . .airports mostly empty. (we are the opposite here in the US - underinvested).

Add to that a cultural unfamiliarity of what to do when there is a crash. . .I don't think it will bode well. They'll tend to hoard/save. . .and not lead themselves out of a depression. . .rather wait for someone else to lead them out (the US). . .it may not even be a crash but a slow, contrarian steady decline for 10 years like Japan.

That's my 1-5 year prediction.

[KTP]

I agree with the Apple cult and recognized it as such 2 years ago. Thank god I did not act on my recognition and short Apple for the past 2 years.

I saw the cult around gold when it was ridiculously overpriced at almost $1000 an ounce and silver at $15 an ounce.

There are some pretty wise words I have heard: "Markets can remain irrational longer than you can remain solvent."

These don't apply to Gambler, who always seems to be on the correct side of a trade somehow.

[JBinKC]

I think the short China etf is a tough call because the Chinese market hasn't really been in a bubble mode because of the rising interest rates over there and any deflation in the system which this sell off in the commodities space has caused will enable them to lower rates which would actually be bullish for their market.

As long as they have money and they continue to get stronger as a creditor nation at our expense they can continue to build these ghost towns and roads to nowhere and they still have a large poor agricultural population to occupy/use those projects in the future. I think you have to really monitor the population shift if you can find such data to really get your timing right with this short.

If you want to short China I think it would be much less expensive in carrying costs shorting the base metal miners that happen to not pay a dividend. Even thoughe 70% of China's gdp is based on the construction sector I would definitely monitor for a QE3 program that would potentially kill that short idea down the road.

I wouldn't write off consideration of the precious metals sector again for another rebound once a bottom has been established from the probable attempt to drain liquidity from QE2. The underlying fundamentals still are very much intact. We still have economic uncertainty, massive fiscal problems and a system too short term orientated that is not designed to make difficult choices by curtailing entitlement programs or defense spending and most important the carrying costs to hold precious metals is still near zero.

[Scanner]

Oh, I actually doubled up on my speculation on ECU Mining - a junior mining co. that is actively mining the stuff. I like the risk/reward ratio of the mining stocks over the metal itself. So. . .I am not entirely out of silver . . .just out of the pure metal exposure. . .I see SLV is up today. . .making a bit of a recovery.

I don't know. . .we'll just have to disagree on China. . .I have to applaud the way their government does handle their economy but fundamentally, you can't have an economy with a massive supportive infrastructure and then no businesses to support the infrastructure.

What goes up (China Market, Silver, Apple). . .must come down.

[snafu]

I wish you could go to PRC to observe their culture and how they do things. Corruption is rewarded until the principals are caught with their hand in the cookie jar and the retribution is death for the individual while his extended family 'disappears.' The response is always...'too bad he got caught.'

This is a communist government dressed in capitalist clothing. The top 10 are very powerful and nearly drowning in American dollars thanks to the American borrowing. China's politicians don't answer to their politburo, or constituents or G_d. Current Pres Hu Jintao will step down in 2012 to be replaced by Xi Jinping whose term will extend to 2022. His views are unknown, how will he use his power? All we know is he will crack down on any dissent.

For example, when they wanted to build the 3 Gorges dam on the Yangtze River, 4 million people were displaced... told to get out or drown. The environmentalist say this project is an environmental disaster waiting to happen but the dam dam is being built! The population is grateful they are no longer starving as their grandparents did. They just want to get on with their own lives and look after their families. They don't believe a single word spoken by a government representative.

That is China!

[kv968]

I disagree with you Frugal. . .so much so. .. I bought $5000 today of China Short - 1-5 years is my time horizon. . .I will add slowly to this position.

Scanner, I hope that you're not planning on holding FXP for a 1-5 year time frame. I'm not saying that shorting China is a bad idea, but ETF's like these (leveraged shorts, or longs for that matter) aren't really made for a time period that long. With the way they're designed and calculated, they have a huge tracking error which only compounds over time (and it might not be the way you think it would). The underlying index could over time in fact go down, even substantially, but if there are periods where it rises in the interim (which there will be), the double-short ETF could in fact go down also. Just the opposite of what it's supposed to do. All I'm saying is look into it before you decide on such a long time frame.

[rj.phila]

i know this may be a daft question, but it pertains to shorting a general trend such as "china"...

if one were to look at P/E ratios of the dow as a whole, and think they were historically overpriced, would there be a way to short something like the dow or the s&p? (kv968, if the answer is "yes", would you response be similar?) i am by no means a day trader, but i wonder sometimes if in theory it would have been possible to, say, buy a short position in the dow when it hit 10k a few years back, and ride it down until it started to tick back upwards at the 5k-ish point....

[Slug]

rj,

Sure. Just short SPY for the S&P 500. Plenty of shares available.

[Snodog]

No way I would touch the stuff. 1-5 year timeline is suicide IMO. It actually lost over 50% in 2008 when the world economy was melting down. Its hard enough to tell what is going on in the US (with all the media spin) let alone China.

[ea1776]

Ticker: FXP

Me thinks China has not seen a major correction yet and are due to get theirs.

A first real test of capitalism for them. There is a real estate bubble there with an overextended middle class also.

The only difference - they have cash cushions as savings rates often approach 50%.

After all, I do have a bunch of this silver profit burning a hole in my Roth IRA now.

Overextended? Yeah right, try googling "China savings rate". Also getting a mortgage in China typically requires a mini al 40% down payment. A lot different than the USA, and the cash rich Chinese govt can actually roll out a stimulus that works whenever they choose. They are committed to long term steady growth. Shorting would be foolish IMHO.

[Scanner]

EA:

They said the same thing about the Japanese - they are such hard workers, frugal savers. . .there are other problems with the culture and they aren't perfect or necessarily even meant to lead the world in economics.

KV:

I have 2 choices. . .I could argue with you about why I am right or I could just admit that you have a good point about holding that long term and just chalk my recent buy as impulsive and rethink my strategy.

I'll choose the latter.

I do think China is due for a correction. . .how to play that in investing, I am not sure.

[kv968]

Scanner, I'm not questioning your reasoning of whether or not China is due for a correction over the next few years and saying shorting it is a bad idea. What I'm saying is you should make sure you totally understand how a "double-short" ETF works. Maybe you do and that's fine but if you don't you might be very surprised when over a couple of years the ETF tracks nothing like what you think it's supposed to. I'm not even saying that you won't make money off of it but, if you think that over the next few years China's market is going to go down say 30% (and it actually does) and your fund is going to return 60%, you're going to be disappointed. Granted you might make 40%, and who's to complain about that, but all I'm saying is it's not going to be a true "double".