The China Syndrome
Getting Ugly
I am sure that you have all been watching the meltdown in the Chinese stock markets. I posted a blog (in the China Ad Nauseam section) on May 6 about the Chinese stock market, finishing up with the statement that “this is going to get really ugly.” It looks like the ugliness is here.
I claim no particular prescience here and I certainly wouldn’t want anyone to mistake my writings for investment advice. With this one, the only question was when it would blow, not if. My own investment abilities are largely encapsulated in the famous saying that “the graveyards of Wall Street are filled with the bodies of men who were right too soon.” But this is still better than being right too late.
I won’t bother to repeat all the statistics about the meltdown, which are readily available elsewhere. I just want to make two points.
In the meantime, the Shanghai Composite has bounced a bit, but only after China’s authorities had thrown everything and then some at the situation, including bans on short selling an banning large domestic institutional investors from selling at all, via StockCharts, click to enlarge.
No “Yellen Put”
The first is the implication of what is happening in China for asset prices around the world. The Chinese government is doing everything possible to prop up the market at this point: cutting interest rates, reducing reserve requirements, providing central bank liquidity to brokers, directing government entities to buy shares, organizing “private sector” (as if that phrase means anything in China) stabilization funds, restricting IPOs, loosening margin requirements, restricting short selling, and suspending share trading.
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