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China Warns Against Irrational Exuberance
Yesterday, we pointed out that in US dollar terms, Chinese stocks are a real standout among the world’s equity markets, having nearly doubled in less than a year. The catalyst? Liquidity, driven by a number of factors including, as UBS notes, expectations of further policy easing, QE-lite, bank bridge loans, and of course, excessive leverage. We also warned that this, like all liquidity-driven surges, will not end well:
The keyword in all of the above is "liquidity" which means none of the surge is driven by real, fundamental drivers. Which also means feel free to get on the ride, but remember to sell before the inevitable outcome of every single liquidity-driven rally: the crash.
Today we learn that in fact, China’s securities regulator wholeheartedly agrees with our assessment and like us, has been warning that the greater fool theory might not be the best investment strategy to follow for quite some time. Here’s more from Bloomberg:
The Shanghai Composite Index rose for an eighth day on Friday, climbing 1 percent to 3,617.32, the highest close since May 2008 and the longest stretch of gains since Oct. 14. The gauge rallied 7.3 percent this week, as transaction volumes soared, margin trading surged to all-time highs and new account openings rebounded to the highest level since December.
“Investors should be cautious about market risks,” an unidentified spokesman for the China Securities Regulatory Commission said in a statement today on its microblog. “We shouldn’t be thinking if we don’t buy now, we will miss it.”
A previous warning from the CSRC was ignored. The Shanghai Composite jumped 2.8 percent to surpass 3,000 on Dec. 8, the first trading day after the securities body on Dec. 5 cautioned investors about growing market risks.
The valuations of some listed companies are “relatively high,” the CSRC spokesman said in Friday’s statement. “There are about 700 companies in the Shanghai and Shenzhen stock exchanges with a price-earnings ratio of above 100,” the spokesman said.
We definitely agree that P/E ratios above 100 qualify as “relatively high” and once again wish to highlight the following chart as a shining example of something which just might not be sustainable:
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well their home prices hit the skids.. and ramping up Yuan trading...
http://hedgeaccordingly.com/2015/03/rouble-yuan-futures-trading-boosts-y...
http://www.planbeconomics.com/2015/01/nouriel-roubini-china-is-at-critic...
A PE of 100 is the new 12 PE
Timber!
I give up.
Buy it all now...
Or could this be a warning to their investors to get out of the US now. Apparently everyone has more faith in the rigged ChiCom economy than the rigged Ameri-Com economy:
De-Dollarization Accelerates as Switzerland Quietly Wields a Big Bank Stick by Joining the Chinese Founded AIIB
24k area proved support for HangSend, next target 25k once again. Click here 4 full analysis www.tripstrading.com
Swear to fucking God, there must be some sort of special prize being offered to the first one who can turn their economy into green slime.
"We… are… dead… and… this… is… Hell!"
-Nadine Cross, The Stand (miniseries only)
How about an episode of Double Dare?
The Maestro (Alan Greenspan) talked about "irrational exuberance" 3 years before the dot-com bubble burst as well.
Jawboning doesn't trump actual policy. Only insanity trumps policy. And policy drives the insanity.
So the soft crony-communism of lowering expectations then? ;-)
I know man. He gave that irrational exhuberance speech then made every effort to encourage it.
I guess that was the point where the scary men in black took him into a room and explained to him that the banks and not the Gov owns the Fed, and that the Banks were beyond the point of credit extension where a Volker rise could rebalance the cycle
As one article pointed out this week - "the dumb money is the new smart money". It's all Bullshit!!!
Is it possible for this to be anymore nebulous?
The PBoC is going to ease again. Probably in the next 60 days.
Currency traders are nervous, because they don't know how the PBoC will monetize the program. Everyone knows China is massively levered.
Everyone talks about China being the port in a storm for Russia but on the other hand it seems that China is just Japan, a western banking styled vassal state. Will Russia become the new Poland to be partitioned by the west and China when the spice starts running out?
Your comment is really "broad based". The covenants of your thoughts span (2) almost 3 continents.
Perhaps I can give you some guidance?
Moscow Exchange MICEX-RTS OJSC's P/E (without Non-Recurring Items) ratio for today is 9.30
One does not simply walk into russia. One just doesn't, period.
The Chinese stock exchange is up 80% in 8 months, some stocks are up low triple digits. But the Chinese stamp exchange, well that's where you can make 10,000% in 8 months.
China Is World Center of Speculation: Forget Stocks, Buy Stamps
The problem is that stamps have already gone up. Buying now would be the action of a greater fool. What is down in an economic zone that is just starting QE? That is what I'd buy if I were the type to buy crap like that.
Or tulips
China has already built the cities, and wants 250-350 mm people (extra) in there by 2025.
Any housing crash on the mainland is already priced into the plan. They'll crash the internal market temp, drive ag down and then pull the next 5-10 year plan when everyone is moving, and link it to Africa investment. [Hint: I might be able to get you this document, but it's chinese only]
If you're looking for actual signs the Chinese markets are fucked, look to Toronto etc.
p.s.
China is also looking to pull a 1970's EPA (but the penalties are death) soon. It'll all be linked in - coal down, nukes / solar / wind up, a lot of graaar, but China is looking to hit targets by 2050 when warming really starts to hit. People in cities = manageable.
Bangledesh .... welcome to the spectacle of 150 million people dying. It's going to be Biblical. Oh, and Florida.
Aren't we overdue for an ice age as predicted by the same scientists in the 1970s?
More to the point of disproving the bullshit scaremongering propaganda: IF temps go up and the ice melts that will result in more waterfront, not less. Combine slightly higher temps with more water and more of the planet will be capable of producing food which means that it can then support an even higher human population. Higher temps would also mean less fuel needed for heating.
As for Bangledesh and Florida, what is to stop people from migrating as the water rises?
Hey look! Your emporer is naked! Condolences on his small wee-wee.
Aww.
Men get really uptight about penises, don't they?
Almost as uptight as women being complimented on their nippiles being hard & erect in the cold ;-)
Sometimes you have to play the junk-magnet card, it brings the boys to the yard.
;)
[Or, another way to look at it: the fear debt caused by 9/11 etc is taking rediculous amounts of plays to sort out. Laughing at willies is only one level, not to mention the shadow state. The baser fears have to be dealt with first: and dealt with they were]
The Chinese took action against margin accounts. At least they're doing something. Moreover, the Chinese socialize enough of the profits to make up for the losses at the banks, unlike Americans, who privativze profits and socialize losses. In that sense, the Chinese have a Greenback dollar which gives them lots of leeway when growing their economy. For that reason, I remain bullish...
The Chinese took action against margin accounts. At least they're doing something. Moreover, the Chinese socialize enough of the profits to make up for the losses at the banks, unlike Americans, who privativze profits and socialize losses. In that sense, the Chinese have a Greenback dollar which gives them lots of leeway when growing their economy. For that reason, I remain bullish...
Man i was sure this fella was going to say hurry up and buy some stoxxx before its too late, smh
All of those pools of hot money has got to go somewhere. Where do you stash and do with electronic digits, since you can't possibly print all that loot without defeating the purpose of what your doing when you own the system. Hell, they have already driven up the price and market costs of that expensive shit. The Chinese wealthy can't be fleeing the country but leaving their money.
As the great general says "It's a trap!"
Ironic eh?
The most irrational exuberance is GOVERNMENT itself.
Oh, that always works. Good idea, China.
Ten, Nine, Eight, Seven, Six, Five, Four, Three, Two, One, Liftoff
This is Ground Control
To Major Tom
You've really made the grade
Now the PBoC needs to raise interest rates
to back that up.
SCO credibility would skyrocket!
Does anyone on here know a way to short chinese construction? Which just so happens to be the biggest bubble in the entire world right now. Would love to find a way to short this.
Thanks