Tuesday, August 25, 2015

The East Is In the Red

First of all, why does China, a self-described Communist state, even have a stock market?  Whoever translated Marx into Mandarin has a lot of explaining to do.  But it has, and like everything about China, it's enormous.  So we have to be concerned.

All right, I admit I'm a bad reader. I've been letting magazines pile up all summer while I read books and stuff. So I was as surprised as any non-investor could be when the Chinese stock market crashed and dragged all the others down with it. And I have no excuse. There it was in the June 8/15, 2015, edition of The New Yorker, page 36. A few excerpts:

Speculative markets can meander along, as China's did between 2010 and 2014. The danger is that, when they start to boom, they take on a life of their own and you end up with a bubble. As Robert Shiller...puts it, during a bubble, "news of price increases spurs investor enthusiasm, which spreads like psychological contagion from person to person..." The market's ascent has been spurred by a flood of new money, much of it from inexperienced investors. Fourteen million new trading accounts were opened last year, and, according to one study, two-thirds of those who opened accounts never finished high school. Investors are also increasingly relying on borrowed money to buy stocks, which hugely amplifies the risk of investing...Even if the government succeeds in keeping the Chinese economy on a steady growth path...the fact remains that Chinese stocks are no longer priced for steady growth...

No, I guess not.  So if James Surowiecki knew this two months ago, why all the frenzy last week?  Don't the experts ever turn off CNBC and Bloomberg and open a magazine?  Even at the dentist?  It has cartoons.


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