Tweet
 |
May 25, 2007 (The Independent)
The former Federal Reserve chairman Alan Greenspan says China's stock market is heading for a crash, threatening to ruin millions of middle-class investors. By Clifford Coonan
In old-style Communist China, the stock market was a potent symbol of evil capitalism and the rise to power of Mao Zedong's hard-line Communists in 1949 brought an end to share-owning capitalism in China. Stock ownership was a capital offence.
These days, the middle class in the world's fourth-largest economy has gone equities-crazy. First-time investors, ranging from taxi drivers to Buddhist monks, pensioners to students to cash-rich entrepreneurs, are engaged in a frenzy of share buying that has seen prices rise 50 per cent this year and prompted fears of a speculative bubble. The former US Federal Reserve chairman Alan Greenspan's warning on Tuesday that the bubble might burst was therefore a potential disaster for millions of Chinese - particularly as market setbacks following his speech suggest the prophecy could be self-fulfilling.
AntiSpin: Alan Who? asked Chinese investors when they heard ex-Fed Chairman Alan Greenspan's warning that stocks in China face a "dramatic contraction.' The CSI 300 Index closed down only 0.5 percent. Yawn.
Maybe the shrugging off of Greenspan's warning was not caused by lack of recognition of the great man by Chinese investors but because they remember him too well, and recall his stock market bubble about which he said in testimony before the U.S. Congress Joint Economic Committee in June 1999, "But bubbles generally are perceptible only after the fact. To spot a bubble in advance requires a judgment that hundreds of thousands of informed investors have it all wrong." In so doing, he echoed the words of Professor Lawrence of Princeton University who in September 1929, a month before the great crash, said, "The consensus of judgment of millions whose valuations function on that admirable market... is that stocks are not at present over-valued. Where is that group of men with the all-embracing wisdom which will entitle them to veto the judgment of this intelligent multitude?" Chinese speaker and reader Mrs. iTulip is looking through the Chinese language newspapers now and will let us know if we find People's Bank of China President Zhou Xiaochuan uttering a similar sentiment. Keep in mind, he only started to raise interest rates this month, for the first time in 10 years; in the case of the US stock market bubble, it didn't turn turtle until six months after a series of rate hikes began, which lag time places a Chinese market crash on the calender around the market's favorite time for such events, October 2007.
 |
We won't give away the punch line here, but it's a big number, and if Greenspan wants to be constructive as a bubble warner, he needs to make a few subtle comments about the bubble in foreign investment in US financial assets, as indicated by the fact of 85% of them going into the US, way out of whack relative to the 27% of global GDP that the US contributes to the world economy.
I'm going with something in the 70 to 80 trillion range. Can we buy a ticket for $1 to guess the number of trillion in asset price inflation. Proceeds to go to the sorry sap who lost the most fictitious value, but the least actual losses.
) obtuse speeches, the words irration exuberance got picked up. But in truth, the entire speech was Greenspam's (h/t Tet) suggestion that the Fed's responsability ought to be asset price inflation instead of consumer price inflation.
Comment