How Tom Woods predicted the Chinese financial crisis

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Chinese Economy

I was listening to Tom Woods’ speech at Acton Institute on October 7, 2009, “Money, Morality, and the Economic Crisis”, when I came across these remarks:

 

“It is a characteristic of a bubble economy that everybody thinks you can get rich quick in the stock market. That’s when you know… In fact, John F. Kennedy’s father Joe Kennedy said in 1929 when he took his money out of the stock market, he said: ‘When you have an economy in which the local stock boy at the grocery store is giving you advice on, you know, on stocks, it is time to get out. It is over here’” (31:35).

 

Joe Kenney understood that, when the local shoeshine boy has tips on stocks, the market is too popular for its own good and it is time to sell. This sounded way too familiar to me. When I was in China early this year, everybody was absolutely crazy about stocks. The market seemed to be going up and China had just surpassed the U.S. as the largest economy (or so they said). I don’t know about shoeshine boys in China, but everybody was boasting all over about how much money they were making. You got tips from the local stores, taxis drivers, and fellow teachers. Even the cleaning lady was telling you where to invest. There was this popular state sponsored TV program: you could call there and ask about the stock market, and a well suited guy would give you tips in a fashion way that reminded me of those TV tarotists who scam old ladies. Some people believed they were making so much money that they stopped working and spent all their time in front of the computer, reading online tips and looking at some stock software for hours. The Communist Utopia had finally arrived. No one needed to work anymore!

This started in February, and as we all know, it ended with June’s Black Monday. Had Bill Gates listened to Tom Woods six years ago –or to Joe Kennedy, Bernard Baruch, or Mr. Common Sense–, he would be $3.2 billion richer right now.

I actually did not take Joe Kennedy’s advice but reversed it. I “invested” (“traded” may be a better word) some little money on stocks I believed were going to die soon but not so soon. I operated on the basis that Chinese economy is a highly centralized and intervened economy, domestic firms linked to the CCP elites were less likely to suffer immediately from a financial crisis (because they would be intervened as they collapse), and thus it is all more predictable than its international counterpart. I also followed economic news on Western media for a couple of months and, when news about China overtaking the U.S. as world’s largest economy started to repeat themselves (this was about May), I decided to get out. One month later it all went south and in July I decided to change all my yuans to dollars because it was pretty clear what the next step in this crisis was. Yes, you got it right: China devaluated its currency in August. I am no economist, so I honestly have no idea if what I did makes any sense or if my so-called predictions were mere chance, but it worked all too well.

Once more Communism proved itself wrong. No surprises here.

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