Would You Be Bullish About A Country with Five Years of Negative Real ROE? Posted on January 6, 2011 by Yves Smith Hat tip reader Michael Q: 800010 Post navigation ← HuffPo: Fed Reverses Position, Prepared to Rein in Mortgage Abuses Links 1/6/10 → Subscribe to Post Comments 6 comments M.InTheCity January 6, 2011 at 4:28 am Um, does this mean that China is the mother of all Ponzi schemes/Bubbles? I wonder what the US’s ROE was before the crash in ’29… Brian January 6, 2011 at 5:11 am Isn’t it fun that crisis makes us real? Toothless gumming is so antique. We discover we’re crops, our pockets extracted, the largest strip mine in all history taking us down, converting our wealth to goofy yachts, our leaders to shills, our day to day dilution… Clarity is such a good thing. Whoopee! We’re Americans again. GloriousLudwigvan January 6, 2011 at 11:31 am That’s an interesting graph … but can I get more details about the data behind it? How is it put together? Some context would be nice. I’d like to refer people to it … I might be asking a bit too much for a free blog though ;-) Clarification January 6, 2011 at 1:18 pm I found the source document online: http://www.forensicasia.com/public/pdf/forensicasia-crises.pdf Max424 January 6, 2011 at 1:34 pm YS: “Would you be bullish about a country with five years of negative real ROE? Yes. In fact, it is this exact stat that leads me to believe, that almost alone among nations, China has an outside chance to make through the next two oil shocked decades — battered but relatively unscathed. Canada is the only other country that pops quickly to mind in the “are you bullish on this nation” category — due to the the oil sands, obviously. Then again, and just as obviously, the sands could prove to be Canada’s undoing. No matter what, 21st century Alberta will prove to be the most sought after slice of geography in the history of human civilization. Should China and the US go to war, it won’t be over something ticky tacky, like currencies, or Straights, it will be over who gets to dominate Alberta. …bet it kid, if you can find a way. It’s a lock. Alex January 6, 2011 at 2:45 pm Why would you be bullish about China? Canada I can understand: it has a meager population, a vast territory, ample reserves of oil and WATER (more on this in a moment), an already high GDP per capita/living standard, and is, along with the US, one of the world’s food superpowers. China gets most of its energy from coal: so much that, despite being the world’s leading coal miner, it still is a net importer of coal. Its oil demand is skyrocketing and has contributed to rising crude prices. Despite its public efforts at clean energy development, these projects sate only a sliver of China’s overall burgeoning energy demand, and the country in sum is just as reliant on fossil fuels as the US, if not more so. If you are worried about oil shock, China is a prime “sell” if only because of its combination of low energy efficiency compared to the West with rapidly increasing demand. In any case, you cannot compare China to Canada at all. China has only about 1/4th the amount of water per capita as the US and Canada. At the current rate of use/depletion, China is looking at a massive water shortage in only a few years: http://www.foreignpolicy.com/articles/2010/01/07/a_123_trillion_china_not_likely As for the negative ROE: is anyone really surprised? China’s GDP is now driven almost exclusively by investment, with consumption taking up an ever smaller sliver of economic activity. Construction and investment account for almost 2/3rds of GDP growth. At some point, capital gets misallocated; this is how bubbles burst. Comments are closed. Tip Jar Please Donate or Subscribe!