Guest Post: “This Time It’s Different”– The Four Most Expensive Words In The English Language

Tyler Durden's picture

Submitted by Simon Black from Soveriegn Man

“This time it’s different”– the four most expensive words in the English language

For at least a decade now, the world has marveled at China’s amazing economic transformation.

Hundreds of millions of people have been lifted out of medieval
peasantry and brought into the modern world. Living standards have
improved dramatically. China has become the manufacturing hub of the
world.

And, today, China boasts world-class infrastructure on a truly
impressive scale.  Beijing, Shenzhen, and especially Shanghai, have all
become modern metropolises with facilities on par with any in the world.

Every taxi driver from Melbourne to Manitoba, and every money manager
from London to L.A., recite the same mantra: insatiable demand from
China (and India) will guarantee decades of prosperity for countries
such as Australia and Canada which are blessed with the raw materials
that billions of Chinese and Indian consumers require to emulate western
lifestyles.

So the story goes…

Thing is, once anything has become mainstream knowledge in financial
markets, it’s usually a sign we’re nearing the END of the boom. Or, at
the very least, that all the positive news is already baked in the
price.  That’s where we are today with China.

The Australian press is constantly running economic puff pieces,
declaring endless rosy times for the country due to its commodity
exports to China. This sort of thing borders on propaganda.

They claim that “this time it’s different,” suggesting that the
resource boom in Australia which got underway in the 1990s is not going
to bust this time around (as has happened so often in the past).

It’s been said that, “this time it’s different” are the four most
expensive words in the English language. They have an uncanny knack of
showing up at the top of EVERY boom, just before the bubble bursts.

I’ve been around in the financial markets long enough, and lived
through enough spectacular booms and busts, to know the telltale signs
of a bursting bubble when I see them.

China today fits the bill…  and that’s most likely going to be very
bad news for industrial commodity prices and the economies of the
countries that supply them. China accounts for less than 10% of global
economic activity. Yet, the country is consuming nearly half of all the
steel, cement, and copper used in the world.

You’ve seen the videos
vast, empty ghost cities in China with thick forests of empty apartment
towers, 8-lane highways with no cars on them, and brand new government
buildings and public infrastructure all sitting idle.

I’ve read estimates from well-respected, independent (i.e. not
invested in seeing a continuance of the Chinese gravy train) analysts
who suggest that there are up to 64 million empty apartment buildings in
China. This is a misallocation of capital on an unimaginable scale.

To be sure, any time you have a government-directed boom that lasts
for 3-decades and is fueled by cheap credit, you are going to get
massive economic distortions. Construction and fixed capital formation
in China has accounted for more than 60% of GDP for more than 10 years
in a row now. This is simply not sustainable.

These empty cities, bridges to nowhere, airports with only three or
four flights per week, brand new bullet trains with hardly any
passengers (because they can’t afford the fares), and millions of empty
apartments are NOT indicators of a healthy economy at all.

True, China’s economy is quite a bit of cloak and dagger… they don’t
let you see what’s going on behind the curtain.  But there is enough
objective and empirical at hand to suggest major problems in the
country, and we should take measures to protect ourselves from the
consequences.

I’m in Hong Kong right now and will be heading over to the mainland
in a few days to put some boots on the ground myself (concurrent to
Simon’s PIIGS tour in Europe). Naturally, you’ll be the first to hear
about our findings, right here, in Notes from the Field.  Stay tuned.

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Clueless Economist's picture

Nothing like a little Chinese-Style Keynesianism to save the day. 

SheepDog-One's picture

Any problem you got, throw money at it. That doesnt solve it? Throw more money at it.  All hail Keynes.

GeneMarchbanks's picture

'The Australian press is constantly running economic puff pieces, declaring endless rosy times for the country due to its commodity exports to China. This sort of thing borders on propaganda.'

Borders on propaganda. What is it then, Hopium?

Keep it dumb, that's the name of the game...

trav7777's picture

Idiot Abroad went to China and I didn't see anything there that resembled modern

silver surfer's picture

In the long term no country get rich by exporting commodities and importing manufactured goods!

falak pema's picture

you be true son of confucious.

Moe Howard's picture

Confucious say tight pants like cheap hotel - no ballroom.

YHC-FTSE's picture

+1

It's been true for Africa for almost a century.

Temporalist's picture

That's not exactly fair - the people with guns run many places in Africa.

moonstears's picture

And altruistic China's in Africa now, too.

Urban Redneck's picture

And the people behind the really big guns run the USA, fortunately they are outnumbered by those with small arms, and their big guns haven't proven particularly effective against large numbers with small arms.

Rynak's picture

But the GDP looks so good!

drivenZ's picture

tell that to the Arab oil exporters. 

moonstears's picture

Arabs trade gold gold for black gold according to some...just sayin'.

wkwillis's picture

America, Australia, Canada, New Zealand, all grew very large and prosperous selling commodities and importing manufactured goods.

But America at least has no net exports these days, not even foods. Our food exports pay for the diesel, insecticides, fungicides, nitrate fertilisers, etc, necessary to grow those foods.

SheepDog-One's picture

OK China whatever....whats going on with the big Greek vote sotry did they cancel it? No news about it anywhere.

GeneMarchbanks's picture

Comes out tomorrow, friend. Trust me when I tell you: it's irrelevant.

SheepDog-One's picture

Well everythings irrelevant. Fuck it.

The Fonz's picture

Chill sheepy :)  It takes a minimum of 3 govts to be thrown out before the politics can change enough to allow them to deal with the debt fraud.  I think Iceland had to throw out 3 govts? Argentena was... several I think. Equador was 3?  They are going to have to pitch out all the parties that made money from this. Right now that means the main party and the large opposition party. If your worrying about shorts I am with you, Even with this pig passed I don't see the market flying :)

Harry Paratestes's picture

The Omen in China will be in the Gold

huggy_in_london's picture

Australia has sold its self to China, and the problem is now though that non-mining related businesses in australia are struggling under the weight of a currnecy that is the wrong price.  Australia does not operate well under a high rate of exchange.  Now if Australia had an unbalanced economy before this boom then I would say fine, let the ccy adjustment realign things.  However, such is the impact of the mining boom that it is distorting investment away from almost every other area.  This will end the same way, as all mining booms do.  You are right about the aus newspaper pimping the good times forever.  Sadly, life doesn't work that way.  And even before the crash you will see a material decline (perhaps thats happening now) as the impact of the infamous second derivative kicks in.  China are unlikely, even for a small period of time, increase their demand at a higher and higher rates (of change).  Eventually things come down, and then they go pop.

Sad to see Australia get destroyed by this.  At a minimum the govt could stop spunking all the boom proceeds and start running a surplus.  The ccy is trading 1.05 today, but after this bursts it'll be 70c again.  Just make sure you're not doing a chuck prince, cause that music is about to stop!

GeneMarchbanks's picture

You forgot to mention Australia's huge housing bubble that is now about to collapse. Either in orderly fashion or something like... Vegas. Doesn't matter, it pops, banks need rescue, sadness to commence...

huggy_in_london's picture

Thats hilarious.  I can tell you (if you don't already know) that both Brunswick and Newtown are shite places to live.  I have lived in both melbourne and sydney and they (brunswick and newtown) are both awful places.  That people pay $700k for a 2 bedroom piece of 50s shit in brunswick is just stupid.  Its a fucking dump, and yes, it's reminiscent of the US a few years back.

huggy_in_london's picture

i totally agree.  Not sure why i am getting junked for my comment.  What i wrote is all true....

YHC-FTSE's picture

50/50 Simon sings a different tune after his tour of the mainland. 

 

I like aussies as a rule, especially when they lose at cricket, but they are also one of nature's simpletons when it comes to believing in bullshit, unicorns, and rainbows. I wouldn't take stock in anything they say about the future, but simpletons have a way of expressing views that are plainly obvious and they are obviously correct at this moment in time. 

william shatner's picture

Aren't those like 5 words?

SPADOC4's picture

I'd call it three words and one contraction

WestVillageIdiot's picture

This reminds me of the silver play two months ago.  Our former CFO finally started asking me about buying silver.  At that point I literally said, "oh, shit, the run is over".  It was down 20 percent before I could even blink an eye. 

We have friends that bought a condo in Florida for $370,000 in 2006.  They timed the top to the near second.  At the time they were comfortable with it because it was bringing in $1,100 per month rent. 

Does anybody else notice how everybody around you is totally confounded if you say words like, "the 120 rule"?  But at the same time they are lining up to pour into investments. 

Franken_Stein's picture

 

So the singlehanded and unilateral decision by CME group to hike margins has nothing to do with it ?

Interesting how quickly you forget.

I don't.

 

WestVillageIdiot's picture

You've never met our former CFO.  Have you?  The CME can't pop a bubble nearly as well as he can.  He just thinks of something and it crashes.

The Fonz's picture

I'd buy his newsletter! Is he consistent?

Bay of Pigs's picture

Comparing the silver market to FL condo's?

1 person in a 100 or maybe even 1 in a 1000 owns any physical silver. 

The mania stage hasn't even started yet. Going to take three digits to get that going.  

WestVillageIdiot's picture

Any comparison of silver to Florida condos is unintentional.

I don't believe silver is in a bubble.  Government, on the other hand......

oddjob's picture

So you have latent hostility towards Silver and are taking satisfaction in other peoples real estate losses, just end your frustrating life.

 

WestVillageIdiot's picture

Oddjob, was that towards me?  I still like AG a lot.  I don't think that was a bubble popping.  It was a correction brought about by the CME, god, whatever, at the exact moment that my former CFO thought about buying. 

I'm not taking pleasure in their losses.  I am completely frustrated.  They are one of the many that we know that got hurt that would not listen. 

My life's not really that frustrating.  Thank you very much. 

oddjob's picture

Just the past tense reference to the 'Silver play' seemed somewhat disingenuous. My apologies.

kito's picture

jim rogers laughs at your ignorance soveriegn man

Non Passaran's picture

Wow, what a powerful argument!

Manzilla's picture

And the second most expense 4 words in language???? There is a bubble. There's no doubt prices will eventually crash but "predicting" it too early is extremely costly in it's own right.

WestVillageIdiot's picture

I disagree.  My experience shows that it is better to entirely miss a bubble than it is to be any part of the bust.   Sitting out the tech bubble, Beany Baby bubble, real estate bubble didn't hurt anybody.  The believers get crushed.  Typically the non-believers just keep moving along like the tortoises they are. 

treemagnet's picture

early isn't wrong, unless you're margined to your eyeballs, its just early - you never get the top or bottom anyway.

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Yes, as someone once said, "the market can remain irrational longer than you can remain solvent".

 

Tuco Benedicto Pacifico Juan Maria Ramirez

gerryscat's picture

The people of China and India CAN NOT reach the western-world's level of consumption, there simply is NOT enough resources for that to happen. They (and we) need to seriously reconsider what we call "quality of life". It needs to be redefined and the fucking economists can all go to hell.

DaveyJones's picture

Not sure why you were junked