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Understanding that it’s now fashionable for consensus pundits to fancy themselves as professional Crash Callers is what it is. After missing making the call on the 2008 crash, it’s called career risk to miss the next one.

In an environment where Professional Bubble Watchers are in increasing supply, beware of calling something a bubble that’s already popped. Even though we are currently bearish on China for the intermediate term TREND (see our Macro Theme titled Chinese Ox In a Box), we are not superimposing this view across all longer term durations, yet…

Duration mismatch is a classic mistake that I (and plenty other short sellers) sometimes run into. In an industry where most bosses ask the same investment question (“what’s your best idea?”), there is a structural pressure locked into investors brains to be early with “new ideas.” However, the repeatable edge in this business resides in neither being too early, or staying too late.

Let’s assume for a minute that the Chinese make up all the numbers. But let’s also agree that, if they have been making them up the entire time, that everything is relative. The chart below shows real estate prices in 70 Chinese cities going back to 2006. This price data comprises of both residential and commercial real estate, allegedly…

What are some takeaways and questions from this chart?

  1. If there was a bubble in 2007, it already popped once
  2. If the current pace of y/y price growth is another bubble forming, its potentially locking in a lower-high (see the red line)
  3. The latest reading is a December number, and the Chinese have started to tighten much more aggressively here in January

Altogether, this morning’s December report was for real estate price growth of +7.8% year-over-year.

Is less than double digit price growth a bubble? Or are we still so scarred by having missed living through our own real estate bubble, that everyone else must be in a bubble? And that we are the only ones who can see theirs?

Too many questions without answers for a Monday.


Keith R. McCullough
Chief Executive Officer

Chinese Bubbles? Some Context...  - chihaus