I’ve always believed that bubbles start when everybody starts buying something just because they think everybody is buying something.

Like most bubbles, this one is supported by actual opportunity.  There are good companies out there, you just have to find them.  If you doubt me then ask anybody who held eBay or RIMM through the tech bubble burst. 

I am not an FA, so I’m sure that somebody will blast me for speaking up.  (I’ve been here a while, so I’m used to it.)  But my instinct is to wait for the correction then buy quality & hold for the long term.

My wife is Chinese, and we’ve owned real estate in Beijing since 2002. Changes in real estate prices are measured by hours and days, not by weeks, months, or years. Also, many of my father-in-law’s friends(in their 70’s) are taking every penny out of the bank & investing it in the markets(Baidu is one of their favorites) because there is no risk & the market goes up each month more than they would make in their bank acct’s in a year. There have been several occasions in the past year that the Chinese gov’t has attempted to reign in speculation in markets without success. It’s also been said that the Chinese banks have several billion dollars in exposure(I don’t have the number at my finger tips - but I recall it to be in the 10s of billions) to our subprime mess, but the gov’t doesn’t want to do anything about that because they believe the domestic subprime stuff is several magnitudes larger in scope. Finally, there is a tremendous amount of gov’t spending right now on both infrastructure & services for the Olympics next year. That may well change after that.



It’s taken me a while but I’ve been able to talk my father-in-law into selling our place when it reaches 13,000 RMB/sq ft. We bought it in 2002 for just under 3000 RMB/sq ft. The current price is just over 12,000 - up from 11,500 in April when he was last there.



I guess that makes me a bear on China.

I would hesitate to put new money in at these levels.  I have a couple of chinese stocks I bought through pink sheet listings…one bought in May of 2006 and the other this past April.  They are up 166% & 184% respectively.  The newsletter I got both those from long since recommended selling one (I held it - dumb luck) and has said nothing about the second.  If you asked them today, I have my doubts they’d say buy on either one.  My only question is when to exit…a much harder question for me then when to buy.  I think I’m getting pretty close to cutting at least one of them loose, though.

Many of my clients have holdings in China.  Many want to buy more, but I'm recommending against it at the levels we're at now.  I also have family in China so I hear it from their side also.  Most of the retail investors in China have very little idea of what they're doing.  They're just buying because it's all going up.  Banks are only paying about 4% interest on savings and with inflation running at ~6%, investing's about the only way to stay ahead of the curve.  The unfortunate thing is that all it will take is one negative word from the gov't and these people will panic and dump their holdings so fast it would make your head spin.