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China: Economic Beast or Bubble Waiting to Pop?

Fin - Breakout - US

More than 2000 years ago, Confucius wrote, "Everything has beauty but not everyone sees it."

It is probably safe to say that feudal China of the ancient philosopher's day had very little in common with the fast-growing industrial powerhouse of the 21st century, and yet the wisdom of his words has clearly withstood the test of time.

If I were to apply that quote to modern China I would split it in two. The beauty part of it, at least from a financial standpoint, is the sheer growth and global prominence that it plays on the world stage today having replaced Japan as the world's second-largest economy. It is, without dispute, the world's favorite growth story today and to suggest that trillions of dollars from all corners of the world have been invested in it would not be an overstatement.

Not everyone, though, thinks the Asian giant is blemish-free. Vitaliy Katsenelson, CIO of Investment Management Associates, says simply that "China could be the biggest bubble of the century." Take commercial real estate construction. He notes the 1,500-store South China Mall that opened in 2005 and now sits empty, and purpose-built cities for 1.5 million that resemble ghost towns. He distrusts their economic data and frets about China having too much cement and steel and nearly everything else -- except food and natural resources. Political unrest is inevitable, he says.

If all of this is too depressing or conflicting or hard to handle, then you definitely need to hear what this Soviet-era Russian immigrant has to say -- if only to challenge you're your own thesis.

He may not be a household name, but I can tell you Katsenelson's writings (he's author of The Little Book of Sideways Markets) and research are widely read and respected (including by the big, bald, boisterous dude who hosts this show with me) and bear hearing out.

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