Yesterday, a smallish crack appeared in the Great Wall of Shanghai. Prices on the Shanghai exchange fell 6.5%.
But as far as we know, no one was injured by a body falling from one of the skyscrapers in the financial district.
“Markets shrug off Shanghai tumble,” says the headline in today’s Financial Times.
Things are getting more interesting in the financial markets… in the sense of the old Chinese curse: May you live in interesting times. But every curse comes back to damn the cursor. Here at the Markets and Money, we watch the interesting new developments from what seems like a safe distance. We own no Chinese stocks. We don’t even own many U.S. stocks. Our little nest egg is in property… and the family business. It is all interesting to us… entertaining even.
What we find most interesting right now is that the risks of financial calamity have gone way up… and no one seems very interested.
“There is so much money around… unbelievable amounts of money; I think this expansion has a lot further to go,” said a dinner companion on Tuesday night. Our friend was previously chairman of the London office of one of the world’s leading investment banks. Now, he heads up a section of one of the largest commercial banks in the world.
“I’ve never seen anything like it. And I don’t necessarily like it. I just don’t think it’s going to stop any time soon.”
‘Why It May Not Stop Soon’ has been a regular subject of these Markets and Money columns… along with a steady interest in the companion subject: ‘Why It Will Stop Tomorrow.’ Of course, we don’t know when it will stop. But we know it will. At least, we strongly believe it will. All credit expansions eventually end in credit contractions. All bubbles pop…
All asset prices go down as well as up. And all paper money, sooner or later, ends up as decoration.
Our old friend Doug Casey once gave us a whole collection of defunct paper money, mounted and framed. We had it on the wall of our office. Old currencies – like Confederate dollars and German Reichsmarks – hung on our wall, like antelope heads… dead… trophies from a monetary safari.
In the Middle Ages, scholars used to keep a skull on their desks – a reminder of their own mortality. We kept our currencies. Also on the wall was a great chart/map, illustrating Napoleon’s disastrous campaign against Russia. A wide black band began at the Russian border. As it moved east, it grew narrower and narrower – measured by the number of troops still on the march – until it reached Moscow. Then, of course, Moscow was burned. Bonaparte figured he would be trapped in the burned out Russian capital for the bitter winter. He beat a retreat. So, the black line reversed to the West, growing suddenly thinner and thinner, with each battle and each mile along the way.
Also on the map, at the bottom, the cartographer recorded the temperatures. As the poor men tramped along – over miles – it grew colder and colder… with the temperature falling to negative degrees. The troops set houses on fire to try to warm their hands… and froze in the night when the flames died down. By the time the Grande Armée recrossed the Neman River, the black band had become a mere pencil line… of the some 690,000 soldiers who followed the Corsican into Russia, only about 22,000 followed him out.
Everything fails and dies… currencies… armies… the best laid plans… and credit expansions. But when?
In our ‘Why It Will Stop Tomorrow’ reflections, we put the obvious, age-old insights: The market is an unpredictable, headstrong beast. He can do what he wants, when he wants. Yesterday, we saw that he could go down suddenly. Tomorrow, we may see that he can go down a lot more.
In our ‘Why It Will Not Stop Soon,’ perambulations, on the other hand, we discover something new everyday… something the world has never seen before. Never before has the planet been so globalised… with instantaneous communications all over the world. Never before has market capitalism been held in such high regard. Never before have so many new people – most of them in Asia – been so eager to enter the modern market system. And never before has the world money system, if you can call it that, rested on such a thin and wobbly reed.
Markets and Money