China Overcapacity vs. Don't Fight the Fed

In the last couple of days I have read a interview on Businessinsider.com and saw a slideshow of Vitaliy Katsenelson. Although Vitaly could brush his presentation to look more professsional, I give him big credit for making me think about China's investment case:

• Overcapacity: Due to its partially centrally managed economy (with its huge buraucracy), over capacity has been built up mainly in real estate (residential and commercial) and in heavy industries such as cement and steel. The stimulus program to dampen the effect of the crisis in 2008 is increasing capacity as well.
• Too much debt: Huge amounts of money (loans) is handed out according political consideration especially on local level. The stimulus package will increase bad loans. 
• Effect on Chinese economy: Due to high fix costs the Chinese economy will tank because of high fix costs (capacity and cost of debts).
• Effect on other economies: Commodity exporters such as Australia, Brazil, and Russia will have a hard time.

But, don't fight the Fed. Although the picture drawn is dark, we have a quantitative easing program in the US, which will generally support asset prices big time. So, in the short run I do not think this bubble will burst.
Of course, this strategy can bring you in a tight spot once the bursting is earlier than you anticipated.