
Surge in Chinese tech stocks is making the dot-com bubble look tame - viblo
http://www.bloomberg.com/news/articles/2015-04-07/u-s-dot-com-bubble-was-nothing-compared-to-today-s-china-prices
======
sbt
Some interesting take on this from Deutsche Bank:

"Bubble watchers point out median earnings multiples for Chinese technology
stocks are twice US peer valuations at their dot.com peak. More worrying
perhaps is a health-goods-from-deer-antlers producer on 70 times, the seamless
underwear manufacturer on 90 times or those school uniform and ketchup makers
on 330 times"

~~~
adventured
China curbed the flood of money going into real estate, trying to prevent that
market from over-heating and crashing (which has led to a falling real estate
market).

That money has redirected into equities. China saw three million new stock
trading accounts opened in just the first two weeks of April.

China has been flooding their economy with truly massive sums of liquidity and
debt the last five years. It will continue to redirect into available assets
until it gets destroyed in a crash (which will be in the form of a huge stock
market crash, soon).

This is end of the line for China's boom phase. They're almost perfectly
repeating what Japan went through as their growth boom came to a halt,
including the mistakes (extreme debt, asset bubbles in real estate and stocks,
etc), and other signals such as demographic decline and 'deflation.'

~~~
AJ007
These China bubble stories on HN are very amusing. I can remember a few in the
past suddenly filled with commenters writing in broken English that there was
no bubble for X, Y, Z reasons. While I did not at the time, I now wonder if
some of our commenters here are employed by the Chinese government.

I've been following Michael Pettis quite closely. Great analyst, understands
and explains the global balance of payments very well, lives in China, etc.
His opinion has moved from 'China needs to rebalance' to wording that sounds
like he's not sure there is going to be much growth for a long time.

China's growth for some time has been the result of malinvestment on a massive
scale. At minimum since 2008, possibly even before that. The factories that we
think could be productive and producing things people really want at the right
price could be in that position because of very negative inputs (unaccounted
for pollution, interest rates being subsidized by someone else, etc.)
Fundamentally, when you have an economy growing at a rate above the interest
rate, many companies can just overgrow their debt while taking on new debt.
Unprofitable operations can be hidden for decades.

It is now within the realm of possibility that China could see 1-2% growth for
decades ahead. In short term, I would expect negative GDP growth. Based on
what has happened to the price of oil (and other raw materials), and the drop
in high end consumption due to a 'corruption crackdown' this could already be
underway.

In general this should be a good thing. Certainly it is for the environment
and climate change.

~~~
mahranch
> _filled with commenters writing in broken English that there was no bubble
> for X, Y, Z reasons._

This is one of the biggest misconceptions. What we think of as "shills" do not
and would not speak in broken English. It would run completely contrary to
their ultimate goal of "swaying public opinion". Being unable to communicate
efficiently would not be effective propaganda. It would be so obvious and
that's precisely what they're trying to avoid.

Hell, A country could (and some probably do) outsource the work to 'reputation
management' companies who employ people that are native speakers of a
particular language. Subcontracting the work out would also provide a layer of
separation if they get caught. The government has plausible deniability, "We
didn't know that's what they were doing! We thought they were doing this other
thing!".

Digg.com had to send a cease and desist letter to one Chinese propaganda wing
to get them to stop mucking up their website. Those individuals were not
speaking in broken English. They may not have even been Chinese according to a
couple people I knew that worked at digg at the time. One of my friends
believed them to be an Australian company (shilling for China for a paycheck).
Source on the Digg issue here:
[http://en.wikipedia.org/wiki/Internet_Water_Army#Legal_probl...](http://en.wikipedia.org/wiki/Internet_Water_Army#Legal_problems)

~~~
joshuapants
> It would run completely contrary to their ultimate goal of "swaying public
> opinion".

As the saying goes, nobody's perfect. It could easily be that they hired
someone to do this and they did an imperfect job of it before being replaced.

------
viblo
Im from Europe and work for in Beijing for a Chinese startup. I do get a bit
worried when reading this (and similar articles).

~~~
seanmcdirmid
I'm an american living in Beijing working for a big american company. Everyone
around me is a bit worried how the current "non-recession" will play out.
Money moving from a crashing real estate market to a bubbly stock market
doesn't really inspire confidence.

It was only a year ago that the Shanghai stock market was thought toxic given
so much insider trading (you couldn't make money on it without guanxi).

~~~
toomuchtodo
What economic indicator would need to occur for you to start looking for work
outside the country and start to pack up?

~~~
seanmcdirmid
I'm more worried about losing my savings (mostly RMB in China) since I can
always go to the states if I lost my job.

~~~
toomuchtodo
Any thought to shifting your savings to USD ASAP?

~~~
seanmcdirmid
I should do that, but I got rid of my American bank account when I left the
country 9 years ago. I also need to do a bunch of paper work to convert the
money since we are limited to $50k a year (not a big problem, since I think
this is cumulative). So, ya, I'm thinking about it and taking a hit on forex.

~~~
toomuchtodo
Good luck. Interesting times ahead :/

------
nabla9
Just look at the KPCB office locations: Menlo Park, San Francisco, Beijing,
Shanghai.

------
stefap2
So, should we be shorting these stocks?

------
1971genocide
This is really good news. Unlike the US it seems these companies need to proof
that they can turn a profit.

Economists have been crying out "bubble bubble !" on china for 10 years. The
science of capital as applied to western countries do not apply to a system
like china where there are so many SOE. Imagine if economists applied the same
type of thinking during WW2 and the space race.

China seems to be in a similar "war" mode, with there economy. This is a good
thing since their goal seem to be allow billions of asians to have the same
level of living standard as western countries.

The growth of tech outside of silicon valley is good news for everyone. It
creates an alternate market for competition, rather than the current
monoculture.

~~~
Gustomaximus
I really like your point about competition and mono-culture. It's great seeing
tech sectors spring up around the world. I'd personally love to see more
Aussies where I am from staying local rather than heading stateside when their
funding needs come up as well as the benifits this can bring to poorer
countries.

However it's really not good news if it is a bubble. My take from the article,
while companies may be pulling a profit, given the average valuations they are
still extremely overvalued. If this is the case absolute profit means diddly
without income to value ratio and there will be a rude awaking when people
realise this as we have seen repeatedly in history. Unfortunately finance
world errors like this flow heavily into day to day life of everyone else.

And as for people crying out "bubble bubble !" on china for 10 years. In my
life typically people make these claims for years pre-implosion (see dot-com
bubble) almost to the point you get skeptical and think they are naysayers,
and then it happens. And if this market pops, people wont trust the sector for
some time after a bust forcing people out of the tech industry, general flow
on repercussions to the economy, let alone the international repercussions for
an economy the size of China.

~~~
ekidd
As Keynes famously observed, "Markets can remain irrational longer than you
can remain solvent" (while betting against them). Markets can look bubbly for
many years before the bubble bursts.

Having lived through both the first dot-com bubble and the recent real-estate
bubble, I've noticed a pattern:

1\. Natural cynics think things are looking a bit bubbly.

2\. Years pass.

3\. Society as whole becomes heavily invested in the bubble. I can't go to a
cocktail party or family reunion without people buttonholing me to talk about
tech stocks or real estate.

4\. An ideology is invested explaining why assets of category X will undergo
very long-term exponential growth. During the dotcom boom, it was "Dow
36,000". During the real estate boom, it was "If you don't buy a house now,
you'll never be able to afford one." (If you're cynical, you might assume this
kind of delusional hype is an effort to find one last fool to buy in before
the party's over.)

5\. The whole thing explodes messily.

So for me, those are the warning signs: Society-wide buy-in, and new
ideologies that explain why "X will always go up." Oddly, this means I'm not
_too_ worried by a near-term tech bubble, despite the hype and money in San
Francisco: I'm not seeing the widespread public buy-in and rampant wishful
thinking I've seen before. Of course, this may be because few companies are
undergoing IPOs, and the bubble is limited strictly to private capital.

~~~
wahsd
That last sentence is rather valid. The US alone has been pumping trillions
after trillions into the US and global economy, which has not resulted in
general official inflation. But that money went somewhere, and it went into
corporate coffers, financial houses, and the private pockets of the wealthy
who are all "investing" it like it's not their money, which it isn't really.

I am not sure, but it does not strike me that there is another example of the
current type of scenario in all of humanity's history. It's not like the lead
up to the 1929 market crash because there are no margin calls since the
government just gave away free money and even paid the wealthy and their shell
organizations, aka, corporations to steal even more money. It's just
unimaginable amounts of money sloshing around in the global market without
anything productive to apply itself to. It doesn't want to construct
residential in the US because that would depress prices and rents, it keeps
being pumped into land and real assets and maintaining artificial housing and
rent prices, ....

Although I think there is a great storage of inflation just barely being held
back by a policy dam, if that dam doesn't break, I think the outcome, the
effect will be a social one. Desperate regimes of the wealthy paranoid about
losing the wealth they looted will resort to ever increasing repression to
assure their Precious remains with them and their heirs for generation after
generation.

Progress is made when there are constraints and problems need solving and
things need improving. But what happens when we are all essentially trust fund
babies that have no parameters, no limitations, losses are meaningless because
it's not money we earned, and "success" is easily seen as such because it is
measured by state rather than delta. By all current measures, if you have a
successful business / economy no one really cares that you essentially bought
the facade of success with your undeserved trust fund / made up money. We can
see the effects on the poor, where the impact of our policies are being felt
in silent suffering. I suspect the result of at least the last 10 years of
policy will be an era of impoverishment not seen in 100 years in the USA in
the short term, and another era in human history of stagnation and eventual
oppression as humanity turns in on itself if the unearned, and unwarranted
wealth is not recalled. Ultimately, what wealth, i.e., money is, is a relative
measure of power and especially the US government gave the crooks that
defrauded us and almost destroyed America the keys to the vault.

~~~
AJ007
I'm hardly the expert to comment on this, but I'll make the response just for
future historical reference (may be I am completely wrong.) Certainly there is
a bubble in asset prices now, presuming interest rates do not remain zero or
negative forever.

The great irony is that at some point extra money can deflate prices rather
than increase depending on where that money is applied. E.g. build enough
solar panel factories in China and eventually everyone gets to flood the
market with cheap solar panels. So it is not clear that more cheap money will
increase prices for a very long time. The second irony is if the Fed and other
central banks hit their goal of increase prices, the wealthy won't feel
anything but it will hit the poor and middle classes very, very hard. As in
choosing when to eat meals hard.

The thing most analysts miss is there is all of this 'new' money but we still
have huge future liability holes. This is both with debt which requires future
cashflows to pay off along with future promises which may not be able to be
met. This is very apparent in underfunded pension funds. Despite many
different metrics pointing to all time highs in US stock market valuations
(many ways to cut this pie) we still have big pensions funds that are 50%
funded or less (Illinois & Chicago for one.) That is with expected 7%+ returns
year after year in to the future. If their future gains are a lot lower its
even worse. Pension fund problems are visible, insurance, annuities, etc are
opaque. There could be huge problems there still. Banks aren't even that well
capitalized still.

We could imagine quantitative easing, money printing, and cheap money as
something that could be shoveled in to huge holes of "negative" money. As long
as those huge holes exist, the stimulus is not going to perform as expected.
If the stimulus is through more debt its plausible these holes are staying the
same or getting larger. Certainly it is possible that all of this money has
done a great deal already including preventing wide spread bank failures.

My general thesis is we are in a period of time where technology and monetary
policy are in direct and absolute conflict with each other. Monetary policy is
totally reliant on inflation to pay off future debt and claims. On the other
hand, technology is about delivering more at a much cheaper price. We want a
market for $1000 iPhones, not $1 billion iPhones. We want software that
delivers 1000x more value to a customer, not that costs 1000x more. Fuck, hn
wouldn't be here and we would all be living in a bizarre universe if things
were the other way around. May be there would be the global market for 10
supercomputers or whatever was once predicted.

~~~
Gustomaximus
> presuming interest rates do not remain zero or negative forever

Slightly off topic but I don't believe US interest rates can go up without
creating a massive issue for the US economy. From the link below: "a 5%
increase in interest payments for the federal government would cause the level
of federal debt to rise to $85 trillion over the next 20 year". So should the
Fed reserve return interest rates to a historically normal level before the
government significantly reduces debt (which seems unlikely) they would likely
crash the US economy.

[http://danielamerman.com/va/Conflict.html](http://danielamerman.com/va/Conflict.html)

~~~
hnnewguy
> _a 5% increase in interest payments for the federal government would cause
> the level of federal debt to rise to $85 trillion over the next 20 year "_

So if interest rates suddenly rise to 5% and the US _didn 't make a single
debt payment for twenty years_, total debt would explode? What insight! Then
again, if nobody cares that no debt payment was made for 20 years, who cares
what the total debt is!

The article says at 5% the debt payment is $900BB annually, which is 5% of
GDP. High, but hardly debilitating. First you need to explain what purpose the
would be served by the Fed raising rates to 5% tomorrow, though.

