Nicholas Vardy

Nor do you have to go back 100 years. In a book published in 1989 on the United States in the first decade of the 21st century, the words “China” and the “Internet” aren’t even in the index. The World Bank’s book on “The Asian Miracle,” published in 1993, fails to highlight China, focusing on Japan and the “Asian Tigers” instead.

Back in 2008, not one of us on that panel knew what “fracking” was. Yet by 2020, fracking will turn the United States into a bigger oil producer than Saudi Arabia.

The world changes in ways we cannot even begin to imagine.

The Chinese Stock Bubble: A Textbook Case

The “boom and bust” in the Chinese stock market was similar to the Internet boom in the 1990s. Like the Internet, China changed the way much of the world did business. As with Internet stocks, for a while it seemed like any stock from China was a no-lose investment.

But as with all financial manias, the collapse of the Chinese stock market was not a question of “if” but of “when.” The Chinese index had been up sevenfold during the five years prior to its peak in 2007. Valuations of major companies hit price-earnings (P/E) ratios of 60. When I placed the chart of NASDAQ during the tech boom over the chart of the Shanghai index, I could barely tell the two markets apart.

I had seen this story before. At the end of the 1980s, Japanese banks and telecommunications companies headed the list of the world’s most valuable companies. In October 2007, the same list was led by Chinese banking, insurance, telecoms and airlines. China accounted for four of the world’s top 10 companies — China Life, China Mobile, China Petroleum and Industrial and Commercial Bank of China (ICBC).

Fast-forward six years to 2014 — and there isn’t a single Chinese company in the global top 10.

The China Obsession: The Future is Not What It Used to Be

I don’t know how the Chinese economic story will unfold. But neither did any of China’s new-fangled experts on that panel in 2008.

I do believe that China’s economic fate will develop in ways completely different from what today’s China experts believe.

But if you ever want to get a glimpse of the future of your investments in the “next big thing,” read a good financial history like Edward Chancellor’s “Devil Take Hindmost: A History of Financial Speculation.”

As amazing as the money-making opportunities in the “China Miracle” appeared in 2008, it will be even more amazing how off the mark it will seem in 20 years.

In case you missed it, I encourage you to read my Global Guru article from last week about a shockingly simple way to improve your investment returns.


Nicholas Vardy

Nicholas Vardy is currently editor of the monthly investment newsletter, The Alpha Investor Letter, which provides longer-term global investments. He also writes two weekly trading services, Triple Digit Trader and Bull Market Alert, which focus on making short-term profits in the hottest markets in the world.