Trading the Red Sheets

Well, the progression of the credit crisis has finally made it all the way to the common good. With the bond insurers losing or about to lose their AAA ratings, the places that need to cut costs most - municipalities - are going to have trouble getting affordable financing. Who needs a sewer? Let's just raise the tolls on the Turnpike! And forget about that music program after school.

It's a good thing our bridges are so well built that they don't collapse. Oh wait.......

It's now moved from the greedy (bankers) to the needy (subprime borrowers). From stupid investors buying the pig with the lipstick to Main Street where credit cards are threatened.

It's a good thing that households have enough reserves to ride it out. Oh wait........

OK, you know all that. Here's where I am going with this. We all see the fallout from all of this but everywhere there is a bubble there is the inevitable bursting. Where are the pundits saying will survive any global slowdown sparked by years of cheap credit? China and India of course with a lot more emphasis on the former. Everyone is scrambling to make a yuan (who wants greenbacks these days?) that they are throwing investment dollars at anyone hanging a shingle in Shanghai.

That's good, you say? Go where the growth is! So the market over there is a bit overheated. We're in it for the long haul.

I am not talking about a bubble in Chinese stocks. I am talking about a bubble in throwing all your dough at China where nothing is regulated and everything, including some political stuff I won't get into in this blog and simple stewardship of resources is for sale. China is nearly number 1 in global pollution already. Do any of the waste products and casualties of business matter as long as there are profits to be made?

Investment in China is the bubble. How many companies in your portfolio are taking excessive risk over there? How many are judging their investments on some silly Tech bubble metric like price to advertising budget ratios?

To me, China is one giant OTC-BB but with much higher stakes. Call it the Red Sheets.

I am not saying that Chinese investment is a bad thing and indeed I do believe exposure to that kind of growth is needed. But too much of it will most certainly turn sour down the road when the poor business ideas and excessively risky venture blow up. They always do.