Comments on: ANOTHER CHINA STOCK BUBBLE?

By: ChineseFingercuffs

ChineseFingercuffs — Wed, 15 Jul 2009 19:10:06 +0000

You guys are getting a few things confused. China’s government is not paying for anything with debt. Unlike the U.S., they have cold hard cash earned from making things. The debt issues lie with the Chinese banks, who have been lending like mad to companies across the region. A good proportion of infrastructure projects and Chinese companies are getting more levered, but the government still has a massive hoard of reserves. Thus they have plenty of cash to keep the market propped up IF they so choose. That is why I have to cast serious doubt on this prediction that the Chinese market will crash.

I am not a Keynesian. I do not think that what governments are doing around the world is ultimately a good thing. I would actually like to see us take our licks and come back stronger after a couple years of deleveraging and absorbing excess capacity. But the REALITY of the situation is that China has helped provide a floor in a deflationary spiral.

By: DollarPro

DollarPro — Wed, 15 Jul 2009 13:36:08 +0000

just be warned that BNP issues a lot of warrants on Shanghai A shares, and HK H shares. you have to read their report with a filter.

By: DollarPro

DollarPro — Wed, 15 Jul 2009 13:33:31 +0000

The regulator last week issued memo to banks asking them to check their loans. Probably the banks have warned those companies. It is just a matter of time those companies take profit with their borrowed monies. If everybody wants to get ahead of others, then we have a stampede. Probably they are waiting for some high liquidity events to cash out.
One of such event is just around the corner.
Nonetheless, it would not be a crash, as long as the expectation that the government would provide a bottom holds.

By: santo kuma

santo kuma — Wed, 15 Jul 2009 03:45:59 +0000

I would like to seethe results of this socalled technique on other emerging markets like India.

By: AndyD

AndyD — Tue, 14 Jul 2009 19:25:01 +0000

There’s always people here to drink the kool-aid. As TPC always says, credit bubbles don’t just end magically and result in a new bull market. They are a process of deleveraging.

By: Nick

Nick — Tue, 14 Jul 2009 18:46:19 +0000

I’ve read some credible reports saying that the recent run up in Chinese stock markets was mainly due to a lot of borrowed money flowing into the markets. The lending by Chinese banks has nearly tripled from last year. Because the government has ordered the banks to lend more. And a lot of that loaned money was used to bid up stock prices in Chinese markets.

And the thing to keep in mind about using borrowed money to bid up stock prices is that this borrowed money will need to be repaid sooner or later. And it’s not only that but there is a limit to how much money investors can borrow. Which means that when they reach their credit limits, then the stock buying will end. And the stock market will reach ‘a permanently high plateau’, as one economist has famously said a couple of weeks before the 1929 stock market crash in USA.

Bidding up stock prices with borrowed money is a recipe for disaster. Because investors can’t afford to loose the money they’ve borrowed. And once the selling begins. Then there will be no stopping it. Not only will the stock prices crash. But the country will end up with a lot of bad loans too.

I think another stock market crash in China is the most likely scenario. Stock prices built up on debt are very unstable.

By: AndyD

AndyD — Tue, 14 Jul 2009 16:40:28 +0000

@ Fingercuffs – You actually believe it’s a good thing that CHina is creating all of this false demand for goods? They are driving up inflation in everything that hurts consumers. It’s damn near manipulation. How is that a positive? You keynesians always believe governments can fix everything by manipulating prices, but it always ends badly. When will you learn?

By: ChineseFingercuffs

ChineseFingercuffs — Tue, 14 Jul 2009 16:23:09 +0000

The Chinese have very deep pockets and are absolutely willing to keep the stock market proppped. Their market ain’t crashing anytime soon.

The Chinese reserves machine is still pumping, and that means plenty of dry powder for all types of stimulus, investment, lending, etc. We should all be happy that the Chinese are actually being this active, because without this behavior the world would be in the painful process of dramatically rightsizing excess capacity through unemployment, factory shutdowns, falling prices, etc

By: AndyD

AndyD — Tue, 14 Jul 2009 15:59:30 +0000

well, the bullish sentiment sure came back fast. nice call on the earnings sentiment TPC. I should have gone gone more positive when you did, but I am sticking with my shorts for now and not liking it. A china crash would tank this market.

By: StanleySteamer

StanleySteamer — Tue, 14 Jul 2009 15:42:57 +0000

Ain’t happening bro. These guys never heard the saying “dont’ fight the tape” huh?