Alan Greenspan Correct About Correction in Chinese Stock Market

The Oracle of Greenspan has opined on the runaway Chinese stock market. Addressing a meeting in Madrid, the former chief of America’s central bank said the China boom was “clearly unsustainable…there’s going to be a dramatic correction at some point.”

Of course, we’ve been saying that not just about the Shanghai stock exchange, but about a lot of things. And so far, there’s been no correction of any sort. No yelling. No bawling. Not even a few poor souls jumping out of buildings.

But, for once, we’re in perfect harmony with the ex-Fed chief. A correction is coming. How dramatic will it be? When will it come?

Who can say? But never has the world seen a bubble that didn’t pop. Never has there been a boom without a correction. No sucker gets an even break.

So, we continue to hoist our “Crash Alert” flag…fully aware that it’s already been up for so long that people are beginning to snicker about it behind our backs. If we don’t get a crash, soon they’ll be chortling in our faces.

But hey…life has its difficulties for everyone.

“I don’t know,” began English financial columnist Simon Nixon over lunch yesterday. “There are a lot of threats facing this boom…as there always are. But I’m beginning to think a crash in China wouldn’t stop it. You saw what happened when there was that huge hedge fund blow-up a few months ago. No one cared. And when America’s property boom came to an end, it didn’t seem to make any difference either. I’m not sure anything can stop this boom.”

Simon was exaggerating to make his point. There is so much juice flooding into financial assets – from so many different directions…it’s hard to see what would stop it. Investors shrug off one calamity after another…confident that almost no matter what happens, asset prices will rise.

They are right, of course. Asset prices will rise as though they’re never going to fall – until they fall.

“M&A fuels record-breaking run for equities,” is today’s big headline in the Financial Times. The S&P 500 is at a record high. European stocks haven’t been so high in six and a half years. The Dow is trading in record territory. And Ron Baron, founder of the eponymous investment company, paid the highest price ever for a house – USD$103 million for a 40-acre parcel in East Hampton, New York, an area where many over-paid people in the financial industry have their homes.

And in China, the Shanghai Composite Index rose 1.5% to yet another record high.

“There appears to be no end in sight, for liquidity or for stock price appreciation,” says a strategist with Cantor Fitzgerald.

We pause to ask a question. When do really big corrections appear, dear reader? When people see them coming? Or when they don’t?

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

Leave a Reply

Be the First to Comment!

Notify of
avatar
wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@marketsandmoney.com.au