Eric King:  Mark Mobius had this to say about China:

“China is going through an incredible, almost revolutionary change because the leadership is determined to reform the economy. …All of these changes are going to have an incredible impact going forward.  So I'm very optimistic.  However, you are going to get a lot of bad news coming out of China, because if you are going to have a freer economy, a more market-oriented economy, obviously there will be failures along the way.”

Eric King:  “What about China?”

Sperandeo:  “First of all, I deal in principles.  What does that mean when it comes to China?  Although China is a relatively free market economically, there is a lot of corruption, as there is in any country.  But there is more in China because you have to buy your way through the system....

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“The point is that without a free market system, a country will decline.  In other words, a politburo cannot dictate all the needs and desires of the people.

I believe that although China has done extremely well in getting where they are, so did the Russian Revolution when it first started.  But without a truly free market, you will overproduce what people don’t want and you will underproduce what people do want.  This leads to a country becoming weaker.

If you look at the Shanghai Composite, which is the only thing I can trust as a market of sorts, it topped in June of 2009.  It made a low quite a while ago but it hasn’t gone anywhere.  The Chinese market has been in a bear market for a long time.  This has been the case as the whole world has been in a bull market.

What does this mean?  It means the Chinese have issues, lots of issues.  You can’t trust any of their numbers, just like you can’t trust any of the numbers from the United States.  The fact is that a centrally planned economy is going to lead to egregious mistakes.  We see those types of mistakes in VA care and Obamacare.  Well, amplify that type of thing throughout the whole economy.  The bottom line is that the whole world has been in a slight recovery, and yet China has been in decline since June of 2009.  So I am not a bull on China.”

Eric King:  “What are your thoughts on this remarkable chart KWN published?”

Sperandeo:  “I can honestly say there is no way to be smart and make money in this market because nobody should be long.  And people are only long because the central banks around the world are pumping money.  So this is a ‘tulip bulb’ market.

This chart represents a disconnect.  You already had a first quarter GDP down 1 percent.  I have been correct about the economy but that’s only because I am an Austrian School believer.  Meaning, the money and the credit that’s coming into the system has created that distorted chart, but it hasn’t helped the economy.

In fact, Eric, I have to tell you that a record was just tied a couple of days ago.  Before yesterday, the S&P futures were up 14 days in a row.  The only market in history that I know which was up 14 days in a row was the Dow Jones around the 1913/1914 time period.  So the market is strong but it has nothing to do with the economy.”

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Eric King

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