Outside the Box

Chinese Sunset

January 13, 2016

The jet lag from flying back from Hong Kong on Sunday is just about gone, but I’m still deep in thought about what I learned. As I said in last week’s letter, the overall tone on China was bearish for the group of very sophisticated investors I met with. There was particular mention of the quantity of currency flowing out of China and lots discussion about how that was happening. Suffice it to say that the wealthy in China have ways to move money.

I mentioned that fact at lunch today with a close friend of mine (who will allow me to tell the story but not to mention his name in connection with it), and he shared an anecdote that he had run into on a trip to Seattle the day before. It seems that one of his friends bought a rather large, roughly $8 million, new home in a nice part of Seattle and was selling his old home for a mere $4 million. Thirty prospective buyers came through to look at the property, and not one of them spoke English – they were all Chinese.

Think about that for a moment in the context of money leaving China. At the Hong Kong gathering, a Bank of America Merrill Lynch analyst noted that if the top 3% of wealth holders in China moved just 7% of their money out of the country, it would add up to $1.5 trillion. Personally, I think Chinese investors are being smart to diversify their assets and asset bases. That is something we take for granted in the West.

(My friend David Tice, founder and ex-manager of the Prudent Bear Fund, who has a killer apartment in my building – indeed, his apartment was the inspiration for my getting and building mine out – wonders how he can get prospective Chinese buyers to come see his place! The weather is a lot better in Dallas than it is in Seattle. I know from talking to friends in New York City that a lot of Chinese are also buying there, along with Russians and others from that corner of the world.)

All of which brings us to today’s Outside the Box. Earlier in the week I asked my friend Gary Shilling if he could give me a summary of his 2016 forecast. He agreed to do so and sent it on. Then this morning he sent out a special short report on China that offers what I think is a valuable perspective that differs from what we’re seeing in the headlines, and so I asked him if we could use that for the OTB instead.

Gary calls his special report “Chinese Sunset.” Towards the end he draws parallels to Japan (which I too have done in previous letters and speeches). While I think that China will be significantly bigger in five years than it is today, its growth path is coming back to Planet Earth and will be a challenging one for a whole variety of reasons, many of which Gary discusses. (At the end of his report, you can find out how to subscribe to Gary’s letter and get his full 2016 forecast.)

And of course Gary is part of the great lineup of speakers I’ll have at my Strategic Investment Conference. As you know by now, we’ve moved the conference to my home turf here Dallas this year, and the dates are May 24-27. Our theme this year is “Decade of Disruption: Investing in a Transformed World.” China will obviously be a topic of discussion, but we’ll cover the entire gamut of economic, financial, and geopolitical issues that will impact our performance as investors this year.

You can go to the SIC 2016 website to get all the particulars on this year’s conference and register to save $500 off the walk-up rate.

I know I mention from time to time how busy I am, which I guess is a function of how many fabulous opportunities I keep finding, not to mention all the stuff that I feel it’s important to read; but my life just keeps getting busier and better. And though I seem to have more than ever to do, I’m getting more and more excited about working on my new book, The Age of Transformation. It has been a massive learning process trying to keep up with the 120 researchers who have volunteered to help me. The book has turned into a Major Project, but it’s one of the most fun things I’ve ever tried to do. I don’t want to say that I’m running fast, but my shadow is beginning to complain about having to keep up. So I think I’ll hit the send button and get back to work! And you have a great week!

Your needing more time in the day analyst,

John Mauldin, Editor
Outside the Box

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Special Report: Chinese Sunset

By A. Gary Shilling
January 12, 2016

The current turmoil in the Chinese economy and financial markets is shaking security markets globally as the yuan nosedived in the first week of this year and Chinese equities lost $1.1 trillion. What a contrast to the 13.3% compound annual growth from 1992 through 2007 (Chart 1) that propelled China’s GDP from 9% of America’s total to 59% last year (Chart…

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