China crash

My debate with Gordon Chang on China's future at the Vancouver Resource Investment Conference was a stimulating, intellectual exercise.

A healthy market needs a compromise between the bid and ask, and discussions between people who strongly disagree is a great way to promote critical thinking.

Critical thinking is vital to our investment process as a means to ensure that we question assumptions.

A lack of critical thinking sometimes leads to bubbles, such as the one taking place in the parabolic rise in the number of articles foretelling China will experience a "hard landing."

Last fall, more than 1,000 articles questioned the possibility of a "China crash," according to data from BCA Research. This is twice as high as the number in 2004, when fear articles reached 500.

Gordon's bearish pronouncements only added to the extremely negative groupthink surrounding China's economy.

Money Morning Chief Investment Strategist Keith Fitz-Gerald, a long-time friend of mine, wrote an excellent article comparing today's doomsday sentiment of China to the naysayers who forecast the demise of the U.S. during the market bottom of March 2009.

Throughout the past century, U.S. stocks went through many secular bear markets.

Keith points to the 1929-1932 period when the Dow Jones Industrial Average declined by nearly 90%, along with pointing out the Dow's loss of more than 52% from 1937 to 1942.

Also, in 1901, 1906, 1916 and 1973, there were four "40-plus% declines," says Keith.

Americans have also endured two world wars, the Great Depression, presidential assassinations and the deadliest terrorist attack ever seen on U.S. soil. What's important for investors to remember was that each significant market decline presented a "great buying opportunity" with U.S. stocks rising double-, or in some cases, triple-digits, writes Keith.

And, over the past 100 years, the Dow gained an outstanding 24,000%.