The Chinese Stock Markets And Manias
Last July in a post titled "Is There Another Gasp" , I speculated that the world of of hot money would continue to have an appetite for large caps in Europe and the US, oil and China. There is no doubt the appetite for all three is very strong. Large caps are leading the U.S. and European markets while Goldman and Deutsche Bank recently issued a communique to double down on commodities in 2007. Chinese stocks were making new highs last summer when I wrote that post and in late December it appears they made an amazing parabolic blow off. If you follow international markets, it's hard not to see the insane stories coming out of China on investor behavior.
The premise for much of my argument that China will surely have a catastrophic outcome to their current economic environment is based on two things. One is directed overinvestment not driven by markets but by corrupt communist political agendas and the other is a parallel to the U.S. development leading up to 1929. Moving from an agrarian society to industrialization. A creditor nation extending credit to other countries to feed disproportionate export growth. The rapid growth of cities as people move from rural areas following the allure of new wealth. Massive over investment due to unholy money supply growth. The coincident linear feelings of invincibility fueling a culture of greed. And on and on and on. It surprises many to learn every American under the sun owned equities in the 1920s. I believe we generally view our forefathers and mothers as somewhat unsophisticated and we believe one must be sophisticated to own stocks. Many people in that time didn't even have running water or electricity yet they were pretty doggone sophisticated and every bit as smart as people today. In fact, much of modern theory in science and human behavior came from that generation. A fact many of us often forget.
Globe and Mail has an excellent story on the stock market mania building in China. I know I've been saying this for quite some time but if the mania is in equity markets, it's surely in the economy as well. While comments have been veiled, the Chinese government has made statements I interpret as fearful of their inability to temper the economy and over investment in recent months. These situations never end on a positive note. There is no reason to believe this one will either. All of this is the reason I have said an overthrow of the communist government at some point isn't so out of bounds. If the Chinese economy sees a protracted hard landing, we could see another repeat of Russia's communist failure. That would be good for the long term global economy, good the Asia, good for the U.S., good for Europe and, most of all, wonderful for Chinese citizens.
The premise for much of my argument that China will surely have a catastrophic outcome to their current economic environment is based on two things. One is directed overinvestment not driven by markets but by corrupt communist political agendas and the other is a parallel to the U.S. development leading up to 1929. Moving from an agrarian society to industrialization. A creditor nation extending credit to other countries to feed disproportionate export growth. The rapid growth of cities as people move from rural areas following the allure of new wealth. Massive over investment due to unholy money supply growth. The coincident linear feelings of invincibility fueling a culture of greed. And on and on and on. It surprises many to learn every American under the sun owned equities in the 1920s. I believe we generally view our forefathers and mothers as somewhat unsophisticated and we believe one must be sophisticated to own stocks. Many people in that time didn't even have running water or electricity yet they were pretty doggone sophisticated and every bit as smart as people today. In fact, much of modern theory in science and human behavior came from that generation. A fact many of us often forget.
Globe and Mail has an excellent story on the stock market mania building in China. I know I've been saying this for quite some time but if the mania is in equity markets, it's surely in the economy as well. While comments have been veiled, the Chinese government has made statements I interpret as fearful of their inability to temper the economy and over investment in recent months. These situations never end on a positive note. There is no reason to believe this one will either. All of this is the reason I have said an overthrow of the communist government at some point isn't so out of bounds. If the Chinese economy sees a protracted hard landing, we could see another repeat of Russia's communist failure. That would be good for the long term global economy, good the Asia, good for the U.S., good for Europe and, most of all, wonderful for Chinese citizens.
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