Bubbles update

Courtesy of Fumiko (doraemon), via Wikipedia.

Futher to my May post on bubbles, Jim Chanos is still a strong China Bear [businessspectator.com.au]. There are plenty who don't agree, like Aussie journalist Michael Pascoe, who paints markedly different China picture in his recent SMH piece.

With the Aussie dollar approaching parity with the Greenback, I really don't know who's right in this debate anymore. But it sure is a fascinating ride!

Of Bubbles

Two contrasting views from the Intelligent Investor blog (Doddsville) on whether there is a bubble in Australian real estate prices make for an interesting read:

• Gareth Brown's Jeremy Grantham calls Australian property market “a bubble”
• James Greenhalgh's follow-up The myth of the house price bubble

Shiller's Irrational Exuberance is great book on bubbles. Personally, I don't think Australia is quite in a bubble situation yet with housing. I tend to agree that as long as there is an under-supply of housing, it's quite unlikely that house prices will crash. On the other hand, the recent history of housing in the United States shows that under-supply in housing can be turned around pretty quickly so there's always reason to be cautious.

China on the other hand, strikes me as being in a real estate bubble. I'm in the Chanos camp there. I've seen the videos of  New South China Mall and Ordos and they are rather scary! Unfortunately, I suspect it will be a very rough ride out of that particular situation, once things start to collapse. I don't think anyone knows exactly when that will be, but more people seem to be of that view: Chanos, Andy Xie, Jack Rodman and others.

Update: Interesting counterpoint on China on Scott Sumner's blog:

I’d say if you are predicting a crash based on construction being 60% of GDP, and it’s actually only about 10%, that’s a big problem.

Hmmm, good point!