When China's Bubble Bursts There Will Be Executions

It will not be long before China’s bubble bursts. The Shanghai index hit over 5000 yesterday, five times where it was mid-2005. Last November, it hit 2000; in March 3000; and in May 4000. One doesn’t need to be a genius to see a big bubble and to see one at the very verge of blowing up. When it does, it will have a huge impact on other markets – most of which are heavily into China’s. It will be viewed, additionally, as very embarrassing by the Chinese. China’s way of dealing with any international embarrassment is to act decisively and forcefully. Executions are common strategies, and you can be sure that heads will role (literally!).

It will not be long before China’s bubble bursts.  The Shanghai index hit over 5000 yesterday, five times where it was mid-2005.  Last November, it hit 2000; in March 3000; and in May 4000.  One doesn’t need to be a genius to see a big bubble and to see one at the very verge of blowing up.  When it does, it will have a huge impact on other markets – most of which are heavily into China’s.  It will be viewed, additionally, as very embarrassing by the Chinese.  China’s way of dealing with any international embarrassment is to act decisively and forcefully.  Executions are common strategies, and you can be sure that heads will role (literally!).

 

China has tried to stop what is today already an 88% gain for the year.  They just raised interest rates to no avail to cool things off.  Only days earlier, they opened some access to Hong Kong’s market (previously closed to those on the mainland).  And, that too has done little to stem the Chinese Market’s meteoric rise. 

 

When China bursts, the credit crunch in the US will seem like a balloon in contrast.  Markets will rock, and our market (and many, many hedge funds) will be particularly affected.  As individuals, any investor still holding FXI or other positions should run for the door.  

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Comments

  • Tom

    August 25, 2007

    You have no clue.

  • Sam Cass

    August 25, 2007

    Opening the Hong Kong market was never expected to cool things down but to have the opposite impact. This just further ties China into the global financial system and makes it more open to capital.

    I don't know enough about China to say whether there is a bubble or not but I'd be a bit worried. Chinese growth has been pretty impressive and as we've seen in Real Estate, nothing goes up forever. I have very little confidence in Chinese central bankers.

  • LMK

    August 28, 2007

    Another short seller throwing a temper tantrum.
    Grow up and buy FXI and in 10 years you will make
    %100,000 on your money.

  • Peter Than

    August 31, 2007

    I am not sure that it is going to pop, but as growth moderates from 14% to 10%, the market will certainly level off.

  • Shorting BX

    September 21, 2007

    I bet they execute Schwartzman if he ever shows his face in China. The Chinese government lost a fortune on his silly IPO.

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