Water will not boil at 99°, but it will at 100°

Hugh Hendry, of Eclectica Asset Management, writes a fascinating commentary for his outlook in May 2010, heavily based around Japan and China — interspersed with some Talking Heads song lyrics. As well as revealing his musical influences, I think you'll find that reading Mr Hendry's deep thoughts will be a great investment of your time, especially if you are heavily invested in the Far East.

Not tempted yet? Well, let me supply a little taster (my highlighting):

It is now commonly accepted that the magnitude of the financial problems confronting the world economy are so great that in all likelihood we will be confronted by a hyperinflation allowing sovereign debts to be paid off in worthless fiat currency. Just like the Bolsheviks in 1918 and 1919, the machine-gun of the Commissariat of Finance will pour fire into the rear of the bourgeois system. We do not dispute this outcome.

However, it remains our contention that policy makers can only gain the political legitimacy for such extreme behaviour if the world is once more confronted by a profound and debilitating deflationary event. We therefore find it a more profitable exercise to envisage what such a catastrophic event might look like.

Hendry, in short, is shorting China.

It would be interesting to lock Mr Hendry and Mr Schiff in a fight cage together to see which one comes out breathing.

Eclectica Letter May 2010

(Here's a PDF link, if you would prefer that.)