Tuesday, January 11, 2011

China Bear Still Wrong, Still Talking

By Eric Jackson
RealMoney Contributor
1/10/2011 2:30 PM EST
Click here for more stories by Eric Jackson

I like Hugh Hendry. I tend to agree with him more than not. Most importantly, he makes me stop and rethink things. The 41-year-old U.K.-based hedge fund manager is one of the most colorful in the industry. He's a frequent guest on British television, and he's the kind of guest that producers keep asking back, because he's always entertaining and prone to attack panel guests who disagree with him.

Hendry is currently promoting one of his Eclectica Asset Management LLP's bets that China is about to collapse. An interestingBloomberg article ran over the weekend that summarizes his views.

Here's Hendry's argument in a nutshell: A real estate bubble will collapse soon in China and take the economy down with it. When the bubble bursts, so will China's stock market, and this jolt will be so great for the rest of the world that global markets will crash, causing an immediate drop in local demand for Chinese exports. Such a decline in demand will be more than even the Chinese government can stimulate its way out of. Therefore, the Chinese economy will finally join the world economy with its own downturn and period of deflation.

Hendry has been pushing this forecast for China for at least two years. And to date, it's been exactly wrong. Not even half-wrong. It's not as if he said China would crash and the country went from white-hot growth to tepid growth. Hendry could have taken that as a partial victory of sorts. But no, China has gone from white-hot growth to a four-month pause post-Lehman, back to white-hot growth.

Investors can double down on their bets as much as they want, but I object to people (hedge-fund managers and pundits alike) pushing the same argument publicly without acknowledging that they've been dead wrong for two years running.


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