By the rivers of Babylon
we sat and wept
On the willow-trees of Babylon
we hung up our harps
It is May Day, which the communists would have us believe is a day for the workers of the world to unite. But the workers of the world have probably never been more disunited. The global labour market has not quite turned into a Hobbesian war of all against all to see who can produce the most for the least. But it sometimes feels like it, and frankly, it has kept consumer price inflation down. We have a nice new $49 pull over zip sweater from Myer to prove it.
In the Catholic calendar, today is the feast day of St. Joseph the Worker. The adoptive father of Jesus of Nazareth was a carpenter. Joseph would probably feel out of place in today’s Western world, which favours consumption over production.
Our task today is to figure out if China’s work (making things) is about to be undone by China’s stock market bubble (trading claims on things.) Joseph doesn’t really have anything to do with it, but it is May Day and it is his feast day. And it reminds us of our favorite quotations.
“God’s world is good. It is only we who are bad,” Chekhov wrote. “One must work, and to hell with everything else. The important thing is that we must be just and all the rest will come as matter of course.”
It’s something worth keeping in mind if the relentless parade of violence on the television (and internet) gets you down. It’s something Anton Chekhov wrote in a letter after visiting the Czar’s prison camp on Sakhalin Island off the East Coast of Russia. Sakhalin Island, incidentally, is now how to major liquid natural gas project. But back in 1890, it was just Alexander the Second’s gulag.
Off to work we go then. First stop: we are getting more and more nervous about the massive bubble blowing in Shanghai. The index as up 18%…last month. It’s up over 100 per cent in the last twelve months. It is hard to find value in the midst of melt up. We sent a note to our U.S. based colleagues asking for their take and heard back from Dan Amoss at Strategic Investment.
“I second your notion that it’s not prudent to pile into anything aggressively at this point,” Dan wrote. “I think that the Shanghai Bubble is about where the NASDAQ was in December 1999, but then again, it could only be August 1999. It’s gotten to the point where the Chinese are trading all day and then doing their day jobs at night.
“Over the next few months, who knows? There’ll probably be some fireworks, so an allocation of cash is advised. I think you’ll get a chance to pick up some quality companies at a discount. I think the Communists are going to continue their feckless attempt at tightening, but will remain like Ben Bernanke – big talk, but little action. They don’t really control the local party bosses anyway. They also fear a deflationary spiral enough – like Uncle Ben – that they’ll risk inflation getting a bit out of hand.
“And over here in the States, I have a feeling the public will stop buying the “Core CPI” BS as the price of food increases 15%-20% in the wake of the ethanol debacle.”
Markets and Money