The Dumbest Macro Call Ever

Don't you love how the same bozos who kept insisting that there wouldn't be a recession, that there wasn't a housing crisis, and that Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) wouldn't need to be bailed out now claim to know when we're going to come out of the current downturn?

Heck, if the talking heads were to be believed, the only folks who have seen more bottoms than the stock market in the past year or so photograph lingerie models for a living. (Zing!)

Here's what you need to remember
The financial media is tasked with filling up the airwaves with something 24 hours a day. Bonus if that something is interesting. Bigger bonus if it's interesting and somewhat useful. Enormous bonus if it's Limited Brands' (NYSE:LTD) earnings report and they get to show stock footage of Victoria's Secret models parading down the runway.

But there's no accountability. No one remembers that you said something stupid. That's how the game works, my friends.

Which brings me to ...
Do you remember the widely held belief that the Chinese stock market would be buoyed by the Beijing Olympics? Many claimed that this was a surefire bet since the Chinese Securities Regulatory Commission would do everything in its power to keep domestic stocks stable while the world's focus was on Beijing.

Let's look at the tape, shall we?

1-year performance of the Shanghai Stock Exchange (SSE) Composite Index

Prices from Yahoo! Finance.

And now, let's look at what has happened since the Olympics began 14 days ago:

14-day performance of the Shanghai Stock Exchange Composite Index

Prices from Yahoo! Finance.

Here's stating the obvious
This widely held belief has been thoroughly discredited. Yet that does not mean that it was solely the stuff of fantasy. After all, the Chinese Securities Regulatory Commission said as recently as a few weeks ago that it would "spend all their resources keeping the capital market functioning stably." Perhaps more amazingly, it asked fund managers not to make decisions that might damage the stability of the stock market.

Yet the biggest Chinese index is down 10% in just two weeks. And while quality companies such as China Mobile (NYSE:CHL), General Steel (NYSE:GSI), and Baidu.com (NASDAQ:BIDU) have come down modestly in price, lower-quality companies restricted to the Chinese exchanges have gotten absolutely crushed.

Capitalism 1, Authoritarianism 0
What was truly amazing to me was that regulatory statements from China's Communist Party became the basis upon which many commentators became short-term China bulls. Think about it -- a year ago you'd be hard pressed to find many China market skeptics speaking their minds. Now nearly three-quarters of fund managers think the stock market boom in China is over.

Wow, just in time.

The problem should have been obvious
If you believe that something will happen at a given point in time, then you would rationally attempt to get yourself into position to profit from this event before it happens. The more the Chinese government jawbones stocks for the sake of the Olympics, the more thousands and millions of investors are going to make the individual decision to get themselves situated by selling their shares in advance.

In fact, the best sell signal may have come in the form of PetroChina's (NYSE:PTR) Chinese IPO, in which the company was suddenly, artificially, valued at more than $1 trillion. There isn't any direction from there but down.

The Olympics support theorem was bogus from the start because it had a withdrawal date attached. Yet commentators throughout the world bought it hook, line, and sinker simply because the Chinese government insisted that it would be so. The invisible hand, once again, kicked the snot out of the visible hand.

So, is China doomed?
My team at Global Gains and I traveled to China in June 2007 and then again in June 2008. On our first trip, we were energized by the growth we saw in the country, though we returned with few investible ideas given that valuations were so outrageous. But in the meantime, the market has been smoked and ideas that weren't interesting to us a year ago are very interesting to us today.

That's because China is not doomed. It should be clear that no great growth story ever happens in a straight line. Always there are excesses. Always there are bad investments that have to be wrung out. Always there are assumptions that turn out to be wrong.

And while I don't have much insight into what the Chinese stock market will look like a year from now, I've got a pretty good idea that the state-sponsored entrepreneur class that is driving the phenomenal rate of growth in China is going to continue to wring gains out of this incredible market for quite a long time.

That's why we're taking advantage of weakness in the Chinese stock market to recommend our subscribers buy shares of Chinese companies while other investors are fleeing. Though there will be volatility in the near term, China's long-term picture remains extremely promising.

You can see all of our research and recommendations, as well as our notes from our trip to China in June, by joining Global Gains free for 30 days. Click here for more information.

Bill Mann is the advisor of Motley Fool Global Gains. He does not own shares of any company mentioned. General Steel Holdings is a Global Gains recommendation. Baidu.com is a Rule Breakers pick. Since it's just 15 years old, the Fool's disclosure policy was unable to compete in gymnastics at this year's Olympics.