Bubble

Best Bull Argument for the Chinese Market

08/07/2009 by Research Reloaded

The best bull argument I can find in regards to the Chinese market is that the government has little choice but to keep liquidity flowing, even if they know this is will be negative in the long-term. 

Since a government "investigation" can't possibly yield much, and since they're saying flat-out that lending won't be capped, this sounds incredibly bullish. China isn't going to take away the punchbown -- as we've noted, they just can't. When even the slightest hint of lending curbs recently brought up, the market tanked nearly 7%. Imagine if the threats were real. The bubble must roll on.

The government may fear the potential repercussions of deflating asset prices in the short term so much that they are willing to ignore the longer term consequences of fueling asset prices further. Fair enough, sounds like standard human nature when it comes to politics and just today Chinese officials have said they will investigate price gains but won't cap new lending. Thus if you openly regard this as a punt on the government's actions, fair enough we can't argue that. But...

This is How You Know the Chinese Market is in Trouble

08/06/2009 by Research Reloaded

For the third time in under ten days, the Shanghai market has fallen based on fears the Chinese government might merely rein in profligate lending. Earnings have nothing to with it, this isn't an earnings scare. Nor is it some sort of economic data point which has shaken the market for the third time in ten days. Rather, it is simply the fear that the Chinese government might actually try stop bad loans from happening and help create a healthier financial system. Thus the market is falling on fears that the country might actually come to its senses when it comes to lending and the use of liquidity. Efforts to have a smarter economy hurt the market? That is a problem. It clearly exposes the market as supported by nothing but greater fool theory.

The Shanghai Composite Index lost 2.4 percent after the People’s Bank of China said it will fine-tune monetary policy where necessary and guide “appropriate” loan growth...

“The ‘fine-tune tone’ is spooking investors who are worried that the central bank will follow up with tightening measures, such as hiking the reserve ratio,” said Wang Zheng, a fund manager at Jingxi Investment Management Co. in Shanghai. “With the market at a high-flying level, investors are very sensitive to any news related to liquidity.”

Thus the market shakiness makes it is even more clear that this is not a market for sound investment, despite Goldman's recent strategy saying it is, and even as a punt the market is looking shaky as well. The chart below shows we are nowhere near to breaking the previous high, yet we have a jittery market already without valuation support. To me this says we've seen a bear market rally, and prudent money, if any is left in the market, should be heading for the exits. If you don't take my word for it, listen to Andy Xie and then decide.

China's Bubble Will Burst in the Next Few Quarters

07/29/2009 by Research Reloaded

Jeremy Grantham of GMO in my hometown of Boston warns that the Chinese economy could come apart in the next few quarters. This would truly be game-changing for markets at their current level. Especially in the commodities/emerging markets space. Still, he remains a long term bull on emerging markets, ex-China. Which is a breath of fresh air. Usually China is the automatic inclusion for any emerging markets lover. Well not for Mr. Grantham it seems. Full newsletter can be found here or just read the excerpt below. Hat tip Mr. Blodget @ The Business Insider.

Jeremy Grantham July 2009 Letter - China Will Burst

07/29/2009 by Research Reloaded

Filed attached. Please see the related story.

Syndicate content