South Seas and China Seas

The South Seas Bubble (1720) is one of history's most notorious market bubbles. If you are not familiar with it, Wikipedia has an excellent entry on it, from which the following chart of the South Seas Company stock price is taken. Very smart people lost fortunes in the scheme (Sir Isaac Newton lost the equivalent of today's $4 million). The Company actually made little profit from trading goods and slaves with the Spanish colonies in South America - as was the charter of the Company. The bubble was formed, instead, when the company arranged to take over a large portion of England's public debt.

Ding, ding, ding...does this "arranged to take over a large portion of England's debt" ring a bell? Well, of course it does. The Seas are now further to the East, but the same elements are there: promises of riches from trade as a "hook", but the real money is made from speculating on financial assets.

Today's "China Syndrome" drives the following equation:

1.3 billion Chinese x (insert your product/service) = UPF (Unimaginable Profits Forever)

I close by providing a comparison chart, which I believe is quite apropos. It compares the monthly prices of South Seas Company stock from 1720 with today's prices of a cargo ship company stock listed in the US. I leave the name of the company out, for obvious reasons.


We can just as easily compare with a variety of other stocks... Chinese banks, for example.

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PS September Retail Sales came in +0.6% vs. August, somewhat more than expected. Here is the breakdown:

	Sales $Million	% Of Total	Weighted Change
Motor vehicle & parts dealers …….	78,653	20.69%	0.25%
General merchandise stores……….	48,526	12.76%	-0.01%
Food & beverage stores…………….	48,281	12.70%	0.10%
Food services & drinking places …	37,764	9.93%	0.00%
Gasoline stations ……………………	35,551	9.35%	0.19%
Building material & garden	29,541	7.77%	0.01%
Nonstore retailers …………………..	25,027	6.58%	0.07%
Health & personal care stores …….	20,197	5.31%	0.05%
Clothing & clothing accessories	18,936	4.98%	-0.02%
Miscellaneous store retailers ……..	10,396	2.73%	-0.04%
Furniture & home furn. stores ……	10,293	2.71%	-0.02%
Sporting goods, hobby, book & Music	7,565	1.99%	-0.01%
Electronics & appliance stores ……	9,500	2.50%	0.02%
	380,230	100.00%	0.59%

Autos accounted for 0.25% out of the 0.60% increase. But the rest came almost entirely from gasoline (+0.19%) and food stores (+0.10%), which are actually indicators of accelerating inflation.

The more economically sensitive sectors, the ones that depend on discretionary spending like restaurants, clothing, etc., were flat to down. The consumer is not on a strike yet, but he is being extremely cautious.

And something else: food and gasoline combined account for 22% of all spending. Can we please stop this nonsense about "core" inflation?