06 Mar Inspector Mobius is Shocked…Shocked!
We failed to note the occasion, but last Tuesday, February 28, marked the 20th anniversary of our last day as an employee of Lehman Brothers. We left Lehman for a variety of reasons, but the biggest reason was that the powers that be at the firm didn’t really appreciate all of the subjects we wanted to cover as Washington macro analysts. And as we have noted before in these pages, the most notable of the subjects about which they wanted us to shut up was the corruption of the CCP and the concomitant risk associated with investing in China. We wanted investors to know that the “Butchers of Beijing” was not just a cute nickname, but that the leaders of the CCP were, in fact, butchers who lived in Beijing. We wanted clients to be aware that, despite the economic “liberalization” undertaken by Deng Xiaoping and his successors, China was still a totalitarian state. We wanted everyone to realize that the Chinese ruling class was corrupt and self-serving and wouldn’t hesitate for a second to deprive outside investors of their life, liberty, and property, if it suited the regime’s purposes.
Meanwhile, Lehman’s bankers were hammering out the details of agreements with that same ruling class.
Something had to give, in other words. And that something was us.
We mention this today not because we want anyone to celebrate The Political Forum’s birthday by showering us with extravagant gifts – although, you should feel free to do so, if you’re so inclined. Rather, we mention it because of the following, which appeared at Business Insider last Friday:
Mark Mobius, a pioneer in emerging markets investing, said China is restricting investment outflows from the country, a move that would be taking place as the world’s second-largest economy is trying to shake off pressure from COVID-19 lockdowns.
“I’m personally affected because I have an account with HSBC in Shanghai. I can’t get my money out. The government is restricting the flow of money out of the country,” Mobius said on Thursday on the Fox Business show “Mornings with Maria”. “So I would be very, very careful investing in China,” the founder of Mobius Capital Partners said.
Mobius, who has spent decades traveling the world searching for investment opportunities, said he hasn’t been able to get an explanation about why he’s running into the restrictions in China.
“It’s just amazing. They’re putting all kinds of barriers,” he said. “They don’t say, ‘No, you can’t get your money out,’ but they say, ‘Give us all the records from 20 years of how you’ve made this money,’ and so forth. It’s crazy.”
Hong Kong, on the other hand, “seems to be a little more open,” he said. The previous executive chairman of Templeton Emerging Markets Group said he’s been able to get his money “in and out” of the financial center.
A few observations:
First, we wouldn’t know Mark Mobius from Mobius Mobius or even the planet Mobius. We know that he’s big on ESG, however, which makes his struggles in China kinda comical. We will, on occasion, cut ESG guys some slack. It sounds enticing, after all. Do well by doing good. What’s not to like? ESG guys with investments in China, however, get no such slack from us. To them, it’s a scam – inarguably and indefensibly. Sorry, Mark. Google the phrase “just deserts.”
Second, Mobius says that the fact that he can’t get his money out of China is “amazing.” Well…nope. It’s not “amazing” at all. It’s perfectly expected. What’s amazing, frankly, is that he’s amazed by this. Heck, we know guys who have been warning about such things for 25 years (give or take).
Third, Mobius says Hong Kong “seems to be a little more open.” That’s what is known as an “artifact.” Hong Kong was, for decades, the freest and most open economy in the world. And then the Brits gave it back to China. For a while, the CCP pretended that “One Country, Two Systems” was a real thing. They stopped even pretending FOUR years ago, however, with the introduction of the infamous extradition law. If Hong Kong happens to be “more open” today, it is only because the nice folks in the CCP haven’t yet figured out how to make it less so. Give them time, though. They’ll get there.
Finally, Mobius wants us all to know that because he is having a bad experience, everyone should now “be very, very careful investing in China.” Seriously. It wasn’t the Great Famine or the Cultural Revolution; not the slaughter at Tiananmen or the ensuing mass coverup; not the enslavement of the Uighurs or the attempted genocide of the Tibetans; not the decades of forced abortion, forced sterilizations, and rampant infanticide of girl babies or the decades of massive fraud in business and government; not the unofficial, unilateral abrogation of the Sino-British Joint Declaration on Hong Kong or the building of islands in the South China Sea. Nope. None of these events/calamities/atrocities convinced Mark Mobius that the CCP was…maybe…not the greatest business partner in the world. But the one time he couldn’t use the HSBCM ATM in Dusseldorf…well…ahh hell noes!
As you all know, the old market adage has it that “to be early is to be wrong.” We were early on China, VERY early. But we don’t think we were wrong. For decades, the CCP’s been running the long con, with Western investors as it marks. If the con is coming to an end, it’s because of one of two things. Either China is in such great shape that it no longer needs to sucker marks like Mobius, or it’s in such terrible shape that it can no longer afford to keep up the appearances necessary to maintain the con.
We’re betting on it being the latter. Time will, of course, tell.
