# Chinese Black Swan event imminent?



## Boggo (23 July 2010)

Twenty slides of interest.
Slides 10 and 11 are a summary perhaps, does that pattern/scenario seem recently familiar ?
Original link provided by Michael Covel.

http://contrarianedge.com/2010/02/12/china-the-mother-of-all-black-swans/


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## Sean K (23 July 2010)

*Re: Chinese Black Swan event imminent ?*

I'm not sure if you can put 'black swan' and 'imminent' in the same sentence, but it would be pretty untidy if China fell over and world economic confidence collapsed again. There's not much left in the golf bag to play the next shot.


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## tech/a (23 July 2010)

Frankly I think its a cert after this was released about month ago.

http://www.chinavestor.com/knowledge-base/economy/71956-chinese-stocks-could-jump-by-17.html

Do experts actually know anything?


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## wayneL (23 July 2010)

China doesn't have to fall over, just trim its growth to western norm... that would put a cat amongst the pigeons.


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## Timmy (23 July 2010)

When you say imminent, what do you mean?  

It is commonly accepted that there has been a significant slowdown in the Chinese economy in say the last 6 months, is this about to get significantly worse?

Sorry, just after some definition in terms so I have an idea of what we are talking about here.


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## Timmy (23 July 2010)

kennas said:


> I'm not sure if you can put 'black swan' and 'imminent' in the same sentence,




Agree.



wayneL said:


> China doesn't have to fall over, just trim its growth to western norm... that would put a cat amongst the pigeons.




Cross-posted.

Thanks Wayne. 

Is this the "Black Swan" outcome in your opinion Boggo?


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## johenmo (23 July 2010)

There seems to be an expectation that China will slow so does that by definition NOT make it a Black Swan if it happens (one having to be unexpected and, typically, random)?  Or is that is quite difficult to predict that DOES make it a Black Swan event if it happens?  I'd say it's the latter case from my very limited knowledge.

I will gratefully receive any comments that correct my thinking on a Black Swan event.


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## GumbyLearner (23 July 2010)

Here's the last Black Swan event that I'm aware of. Damn accurate too!
Drew blood as well.


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## explod (23 July 2010)

All we are really talking about is a bit of over production, or if you like a levelling off for China's growth of the last few years where we have seen around 10% plus growth per year.   Do we expect this adinfanitum.  I got news for you *pal*

However the money industry has built its growth out of the GFC1008 on China continuing to expand.  The continued low cost (paper) money depends on it.

Game is nearly up now.  

Hope you all hold some physical gold or silver, if not, its hard to aquire now.


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## drsmith (23 July 2010)

The following is from late last year but it's still interesting.

http://www.youtube.com/watch?v=0h7V3Twb-Qk


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## Boggo (23 July 2010)

wayneL said:


> China doesn't have to fall over, just trim its growth to western norm... that would put a cat amongst the pigeons.




That is probably the "imminent" outcome, refer to the last dot point on slide 15.




Timmy said:


> Is this the "Black Swan" outcome in your opinion Boggo?




I don't really have an opinion at the moment, everything associated with China seems on one hand to be sturdy and factual but on the other it could be seen as a house of cards that is presented to the outsider by smoke and mirrors.


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## Boggo (23 July 2010)

GumbyLearner said:


> Here's the last Black Swan event that I'm aware of. Damn accurate too!
> Drew blood as well.





You may need to read this again GL, can we stick to the subject...
https://www.aussiestockforums.com/forums/showthread.php?t=20082


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## GumbyLearner (23 July 2010)

Boggo said:


> You may need to read this again GL, can we stick to the subject...
> https://www.aussiestockforums.com/forums/showthread.php?t=20082




Sorry mate. I was just thinking of those beautiful black swans from WA.

Don't mean to divert from the topic. 

I don't see how a "black" swan should be a negative. But within the time confining constructs of the English language. A "black" <-(adjective) event is not always a bad one. 

Anyway back to what's happening in the economic realm.

Sorry Boggo. Don't want to bog down the thread.


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## Boggo (23 July 2010)

GumbyLearner said:


> Sorry Boggo. Don't want to bog down the thread.



Almost rhymes 

No problem, just trying to get some opinions/views on China, seems to be tons of experts with conflicting views.
That 20 page slideshow seemed to be telling it how it is.


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## GumbyLearner (23 July 2010)

Boggo said:


> Almost rhymes
> 
> No problem, just trying to get some opinions/views on China, seems to be tons of experts with conflicting views.
> That 20 page slideshow seemed to be telling it how it is.




Yes. LOL First time someone in AFL has kicked a bag in excess of 10 for 10 years!

China? 

Well there were a few days of yellow dust on the Korean Peninsula this spring/summer. More than 2008/2009 but nothing like 2005/2006. So things are picking up but nowhere near 2005/06 levels in my *cough* *cough* experience.


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## IFocus (23 July 2010)

China just isn't real 

When running really high growth rates for so long inefficiencies creep into the numbers yet China doesn't have this problem

US and Europe are currently not growing in fact contraction has been, is going to be the issue but China is still a bull.

This week all the talk is that Tio2 prices are going up in the Asian market WTF?

Oz is sailing along on the Chinese junk or is that a tramp steamer............

China I don't get.  

Can do you have any opinion on the China?


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## Sean K (23 July 2010)

IFocus said:


> China just isn't real



Didn't they buy more new cars than the US last year, or something? Must be some substance there.


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## nioka (23 July 2010)

Does it matter if China has what westerners call a black swan event. Western society spends more than it earns and needs market growth to fund the difference. Look at the inflation rate as the measurement of the gap between what we earn and what we spend. Sooner or later it had/has to end. We should all get used to living within our means. The credit card is maxed out.
 Does China really have the same problem. I fail to see why it would be bad for us if China only performed next year at the same level as it has for the past year or why the same level of trade for the next year as for this one would be a disaster.


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## skc (23 July 2010)

I was in China recently and went to the expo in Shanghai. The scale of construction and organisation were truly amazing. At the same time much is wasted as most will be pulled down in 3 months' time. 

Walking the streets in Shanghai there was no sign of any obvious downturn.

People keep talking about that the China growth story needs to be sustained by domestic consumption. What I have yet to see is any figure out there suggesting how much consumption need to increase to fill the void left by the deleveraging of the West consumers. Are those figures realistic (wrt saving rates), over what timeframe, and are they on track?

The China growth story can go either way...


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## IFocus (24 July 2010)

kennas said:


> Didn't they buy more new cars than the US last year, or something? Must be some substance there.




Wouldn't be surprised think they now also use more energy than the US.

Maybe with China "its different this time" in terms of growth year after year of 8 to 10%


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## Timmy (24 July 2010)

kennas said:


> Didn't they buy more new cars than the US last year, or something? Must be some substance there.




All the news a few weeks back about pay rises in China too.


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## jonojpsg (24 July 2010)

Hmm, very interesting...however given that the central govt IS in control of the economy, then there seems little reason why they couldn't just keep building more Ordos' to keep GDP at "reportably" good looking levels?  No reason why it couldn't keep rolling for a while longer?


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## warakawa (24 July 2010)

that slides is an typical example of Western's bias, as a Chinese I as so used to read negative news from CNN and BBC. 

And you are interested in the amount of car production, here is a list

http://en.wikipedia.org/wiki/List_of_countries_by_motor_vehicle_production

China has built 13.7 millions cars in 2009 while America only built 5.7 million. If you look at the figure from 2005, the figures are almost reversed for both countries. Most of the cars built in 2009 in China are sold in China which shows the amount of domestic demand. BTW, haven't you guys seen the Great Wall ads lately?


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## IFocus (24 July 2010)

warakawa said:


> that slides is an typical example of Western's bias, as a Chinese I as so used to read negative news from CNN and BBC.
> 
> And you are interested in the amount of car production, here is a list
> 
> ...





Actually all the Western bias I have seen particularly main stream is the opposite that China is a bullish story for ever and how wonderful it is!

Australia has really just become a southern province as our economy is so depended on China's demand. 

Many just think this commodity bull market in particular pricing is normal I don't know maybe this time is different.


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## So_Cynical (24 July 2010)

IFocus said:


> Australia has really just become a southern province as our economy is so depended on China's demand.
> 
> Many just think this commodity bull market in particular pricing is normal I don't know maybe this time is different.




Focus...you have heard of the Commodity/resources Supercycle ? point im trying to make is that the current demand and prices are normal in the middle of a 20 year super cycle...as pointed out in the linked write up from 2006.

Ill link to a fullermoney.com PDF overview from *2006*..and quote a little



			
				fullermoney.com said:
			
		

> Historically, commodities often have the longest cycles, lasting 20 years
> or more. The current bull market is only 5 years old. The approximately
> 21-year bear market since 1980 considerably reduced production
> capacity for industrial resources and expansion has lagged analysts'
> ...




http://www.fullermoney.com/content/...tySupercycleIsStillInItsEarlyYears23Oct06.pdf


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## warakawa (24 July 2010)

why does a higher commodity price have a bearish effect on the long term government bonds?


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## Boggo (24 July 2010)

warakawa said:


> that slides is an typical example of Western's bias, as a Chinese I as so used to read negative news from CNN and BBC.




I think it is irrelevant what your nationality is other than perhaps you have more inside info than the international commentators have.
There will always be comments from so called experts in countries that already have issues in an attempt to deflect the spotlight from their backyard.

I don't see any of these reports being western bias, especially on a forum such as this where the majority, myself included, would like to see where such an influential economy as China is headed.

Spain has gone down a path of lending to extremes and now they estimate that 45% of the loans there will not be repaid. There are over a million properties for sale in Spain for less than what they were originally financed for and yet there are no buyers (or no one willing to borrow/lend further) for them.

There are numerous predictions on the massive effect that a Spanish collapse can have on European and eventually world markets especially with Ireland and a few others waiting in the wings.

The Spanish/European situation is only a fraction of a similiar situation in China where whole towns are empty rather than just groups of apartment buildings.

The overall implications of a negative outcome in China would be massive with obvious severe implications for Australia and that I think is what most posters on here seem to be trying to get a handle on.

We want China to be a massive success but we are allowed to question and form an opinion which can only be based on the information available to us and that comes from Western sources.


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## IFocus (24 July 2010)

So_Cynical said:


> Focus...you have heard of the Commodity/resources Supercycle ? point im trying to make is that the current demand and prices are normal in the middle of a 20 year super cycle...as pointed out in the linked write up from 2006.
> 
> Ill link to a fullermoney.com PDF overview from *2006*..and quote a little
> 
> ...




Thanks SC I'll stop rambling.....for a while


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## Timmy (26 July 2010)

warakawa said:


> China has built 13.7 millions cars in 2009 while America only built 5.7 million. If you look at the figure from 2005, the figures are almost reversed for both countries. Most of the cars built in 2009 in China are sold in China which shows the amount of domestic demand.




This seems to have got lost.  
China is up the 'emerging market' end of the spectrum - huge domestic demand still to be unleashed (it is happening, but loads to come as incomes rise).  Structural change, not just cyclical. 
Spain, is a much more mature economy compared to China.
Its like comparing lychees with oranges.


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## Temjin (26 July 2010)

IFocus said:


> Actually all the Western bias I have seen particularly main stream is the opposite that China is a bullish story for ever and how wonderful it is!
> 
> Australia has really just become a southern province as our economy is so depended on China's demand.
> 
> Many just think this commodity bull market in particular pricing is normal I don't know maybe this time is different.




Agree. The general sentiment among the "investment community", both industry and private, are biased toward a forever bullish story for China. Any "bearish" news are considered very contrarian at this point of time.

The information provided by the article are actually pretty well know among the "contrarian" community, and does a good job at summarising them too. We (at least I do) all know about the excessive capacity over there and certainly know the potential number of bad loans that the LOCAL regional governments may have in their books. Plenty more "inside" information are available at a number of blogs, including zero hedge, china financial markets, etc. 

I do agree that I wouldn't call it exactly a black swan event as the coming up "slow down" (whether it is hard or soft) has already been pretty well documented.



			
				Boggo said:
			
		

> The overall implications of a negative outcome in China would be massive with obvious severe implications for Australia and that I think is what most posters on here seem to be trying to get a handle on.




I agree. The fact remains that most mainstream financial commentators in Australia completely ignore the potential impact of a hard slow down in China, or rather, outright downplay them for the sake of their own career. Mums and dads investors stand to lose not only because they trust these commentators, but also because they do not have access to such information to make the right decision for themselves. The sames goes for those mainstream economists in political parties. 

P.S: I'm a Chinese too. I PERFECTLY understand their culture and has no doubt in my mind their economy will suffer a slow down one way or the other. And I personally opt for a hard landing more than a soft one until new information suggests otherwise.


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## Temjin (26 July 2010)

Timmy said:


> This seems to have got lost.
> China is up the 'emerging market' end of the spectrum - huge domestic demand still to be unleashed (it is happening, but loads to come as incomes rise).  Structural change, not just cyclical.
> Spain, is a much more mature economy compared to China.
> Its like comparing lychees with oranges.




For anyone who believed that China's domestic demand would save their economy (or the global economy for that matter), have a read on this article.

http://mpettis.com/2010/07/what-do-banking-crises-have-to-do-with-consumption/

It's not that they wouldn't eventually become the world next biggest consumers of goods, but it wouldn't come in a way that everybody hope would drag the world out of "depression" very soon.


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## Timmy (26 July 2010)

Temjin said:


> For anyone who believed that China's domestic demand would save their economy (or the global economy for that matter), have a read on this article.
> 
> http://mpettis.com/2010/07/what-do-banking-crises-have-to-do-with-consumption/
> 
> It's not that they wouldn't eventually become the world next biggest consumers of goods, but it wouldn't come in a way that everybody hope would drag the world out of "depression" very soon.




No suggestion from me re China domestic demand and dragging the world out of "depression" (I don't even know what that means, it seems to be applied to the current slow global growth environment).  

Just still don't agree any "black swan" (Katsenelson doesn't even seem to understand what Taleb means by "black swan") is "imminent" (and no suggestion what this means either - Katsenelson seems to my reading to be saying a China "black swan" will happen eventually, which is sort-of like saying pretty much nothing at all).  These extremists (doom-and-gloomers *and *sunshine-and-lollypoppers (anyone remember _Dow 36,000_?)) seem more interested in self-promotion than defining terms & making meaningful contributions.


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## Timmy (26 July 2010)

Temjin said:


> Agree. The general sentiment among the "investment community", both industry and private, are biased toward a forever bullish story for China. Any "bearish" news are considered very contrarian at this point of time.




I disagree.  The bearish views are very widespread and well known indeed.
All over the MSM; eg. 'empty cities' article in *Time *magazine/website, here is the link: http://www.time.com/time/magazine/article/0,9171,1975336,00.html).


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## sinner (26 July 2010)

Well gee, of course it isn't an "imminent black swan" *now* after a 600 point drop in the SSEC , but that article was posted Feb 12 2010 when everyone was eating the China story with dumplings and green tea.

The fact is, as usual, nobody really anticipated a 3000 pip drop in EURUSD would chew the SSEC up and spit it out as the PBoC maintained their hard USDCNY peg making CNY less and less competitive in Euroland as every day went past. That is a Black Swan. 

Contrarians were warning people (just like this article) to be out of their BRIC investments and in cash at the beginning of 2010. Such people making said warnings were generally ignored or rationalised against using all the arguments posted in this thread. Apparently, nobody can ever see it coming, except you know, the guys who tend to see it coming.


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## IFocus (26 July 2010)

Temjin said:


> For anyone who believed that China's domestic demand would save their economy (or the global economy for that matter), have a read on this article.
> 
> http://mpettis.com/2010/07/what-do-banking-crises-have-to-do-with-consumption/
> 
> It's not that they wouldn't eventually become the world next biggest consumers of goods, but it wouldn't come in a way that everybody hope would drag the world out of "depression" very soon.




Thanks for the link Temjin


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## Temjin (26 July 2010)

Timmy said:


> I disagree.  The bearish views are very widespread and well known indeed.
> All over the MSM; eg. 'empty cities' article in *Time *magazine/website, here is the link: http://www.time.com/time/magazine/article/0,9171,1975336,00.html).




Sorry, I will have to disagree with you. First of all, that is a US centric article, and I can find far more "bearish" view from US commentators than from Australian sources. (even if they cites oversea sources)  Any discussion on possible Chinese economy crash, production over capacity, massive mal-investments, property bubble/crash and/or local government bad debt are simply non-existence in Australia. (with the rare exception of commentaries from Daily Reckoning Australia)

However, in recent weeks I do see more and more articles discussing the potential for slow down in Chinese growth due to their government "intervention" of cooling down their economy. But in most cases, the fear have been downplayed with little to no mention of a hard landing that could have severe implication for the Australian economy.  

I tend to swam myself with bearish articles on the Chinese economy from various sources, but I just don't see the level of bearish discussion from mainstream Australian news sources. (again, even if they cite bearish oversea articles, they tend to have a bullish tone behind it)


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## Timmy (26 July 2010)

sinner said:


> Well gee, of course it isn't an "imminent black swan" *now* after a 600 point drop in the SSEC , but that article was posted Feb 12 2010 when everyone was eating the China story with dumplings and green tea.



This thread was started on July 24, not Feb 12.
So, it isn't 'imminent' if it has already happened, right?
Unless the imminent refers to another 25% fall in the next few months?
But that would involve a bit more than 20-20 hindsight, right?
Little bit harder, right?



sinner said:


> The fact is, as usual, nobody really anticipated a 3000 pip drop in EURUSD would chew the SSEC up and spit it out as the PBoC maintained their hard USDCNY peg making CNY less and less competitive in Euroland as every day went past. That is a Black Swan.



Why are moves like the EUR/USD move classified as black swans? 
Markets move.  
Thats what they do.  
A 20-odd percent move in a currency pair in a few months is a fast move, not a black swan.   
And, why is an existing hard currency peg a 'black swan'?  Its already there, it can't be unexpected.
These are for you, sinner:   




sinner said:


> Contrarians were warning people (just like this article) to be out of their BRIC investments and in cash at the beginning of 2010.
> 
> Such people making said warnings were generally ignored or rationalised against using all the arguments posted in this thread. Apparently, nobody can ever see it coming, except you know, the guys who tend to see it coming.



Yes, not six months later.  Hindsight is easy.  Please let us know if you expect another 600-or so point drop. 

ps.
Saying this:


sinner said:


> nobody really anticipated



contradicts this:


sinner said:


> nobody can ever see it coming, except you know, the guys who tend to see it coming.



Can't have it both ways.


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## sinner (27 July 2010)

Timmy said:


> This thread was started on July 24, not Feb 12.
> So, it isn't 'imminent' if it has already happened, right?
> Unless the imminent refers to another 25% fall in the next few months?
> But that would involve a bit more than 20-20 hindsight, right?
> Little bit harder, right?




Err. Did you bother to check the actual article posted? Boggo, not the article writer, posted late.



> Why are moves like the EUR/USD move classified as black swans?
> Markets move.
> Thats what they do.
> A 20-odd percent move in a currency pair in a few months is a fast move, not a black swan.
> And, why is an existing hard currency peg a 'black swan'?  Its already there, it can't be unexpected.




Err actually, what I said was: nobody anticipated a decline in the Euro would cause such havoc in the SSEC because everybody was gobbling up the China story at the time. In hindsight it is obvious that the hard currency peg would cause CNY to become less competitive in Euroland and thus have such a dramatic effect on the index, but "nobody" warned of it in advance.

To clarify, when I say nobody and everybody in the above context I mean the general investment community who always likes to shout down people who are warning that the current investment craze is treading a dangerous path.


> Yes, not six months later.  Hindsight is easy.  Please let us know if you expect another 600-or so point drop.
> 
> ps.
> Saying this:
> ...




 Once again Timmy: this article was posted on Feb 12. The Chinese black swan *was* imminent when this article was posted and played out over two financial quarters while everyone else was busy predicting AUDUSD parity. That Boggo only just found it and posted without providing any context or information to people here does not really change the fact it was a prescient warning back in Feb for those willing to listen.


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## Timmy (27 July 2010)

Will happily leave the hindsight discussion to you sinner.  Carry on.


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## Boggo (27 July 2010)

A more recent article, particularly for anyone who thinks that five months is a long time in Asian economics.

http://www.foreignpolicy.com/articles/2010/07/21/the_consumption_gap?page=full


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## TraderSmits69 (4 August 2010)

Its hard to bet against the industrial growth and rise of a middle class in a country 5 time the size of the US... it might be a black swan in 10 years but not now.


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## Timmy (4 August 2010)

TraderSmits69 said:


> Its hard to bet against the industrial growth and rise of a middle class in a country 5 time the size of the US... it might be a black swan in 10 years but not now.




Welcome to ASF.
Saw your other post on the 'bullish signs' thread too.

With posts like yours, you will be needing this, the bears are worse than mozzies 'round here:



Instructions on the bottle.


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