Here in China, I visited a friend today in her office, on the 34th floor with a great view of the city. I walk in and see 20 or 30 young people packed into rows of desks (including a 16 year old high school dropout girl), staring at charts w/ MACD and ticker lists and chatting excitedly... I found out, the boss is a young girl of about 25, "second generation" (meaning, having money from rich parents). She had started some kind of international trade business in this office, which although well capitalized by her family, was never profitable. So with the recent Chinese bull market she turned to investing her sizeable funds in the stock market, hiring ordinary people and also a rock-star looking "technical analysis expert" to train them to trade her money. She provides all the training, all the capital, and still they keep 80% of their profits plus a modest salary. Sensing that this is a very naive business arrangement for her, I asked what happens if a trader comes in and loses money. She simply said, that has never happened. Not so suprising, considering this is a bull market, and they can only go long...
Despite this seeming like a classic scene from the top, I think the rally in Chinese stocks has a long way to go, simply based on the sheer amount of money sloshing around China, due to the Chinese government policy of enriching (mostly themselves).... consider that although the size of the economy is a bit smaller (or just passed the USA by some measures), the money supply in China is almost twice that of the USA, and much more if you adjust for purchasing power (and the IMF is considering the yuan as a reserve currency?) And secondly, the retail investors who are driving this rally have no idea about valuations, and when to stop buying, it is seemingly a pure function of the exploding money supply...
June '01 Shanghai Composite peak = 2242, M2 = 14.78 trillion, ratio = 14.78/2242 = 0.00659
Oct '07 Shanghai Composite peak = 6092, M2 = 39.42 trillion, ratio = 39.42/6092 = 0.00647
Interesting ratio...
And consider that now, the M2 has more than tripled since 2007, now at 125 trillion ...
Despite this seeming like a classic scene from the top, I think the rally in Chinese stocks has a long way to go, simply based on the sheer amount of money sloshing around China, due to the Chinese government policy of enriching (mostly themselves).... consider that although the size of the economy is a bit smaller (or just passed the USA by some measures), the money supply in China is almost twice that of the USA, and much more if you adjust for purchasing power (and the IMF is considering the yuan as a reserve currency?) And secondly, the retail investors who are driving this rally have no idea about valuations, and when to stop buying, it is seemingly a pure function of the exploding money supply...
June '01 Shanghai Composite peak = 2242, M2 = 14.78 trillion, ratio = 14.78/2242 = 0.00659
Oct '07 Shanghai Composite peak = 6092, M2 = 39.42 trillion, ratio = 39.42/6092 = 0.00647
Interesting ratio...
And consider that now, the M2 has more than tripled since 2007, now at 125 trillion ...
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