Jim Stack on Shanghai: "This is not going to end well!"
Yeah, that's lookin a bit toppy . . .
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Investech's Jim Stack had a terrific call last month, reiterated on June 1st: Sell China.
“We DO want to issue a formal warning about the Chinese stock market and Shanghai Index. This market has entered a speculative frenzy, with more new Chinese trading accounts opened on Tuesday of this week than in an entire month last year! The government is clamping down on the speculation, and has raised interest rates for the 2nd time in barely two months. We suspect the pinhole will go into the Shanghai market’s parabolic rise in the very near future. If you own Chinese stocks through ADR’s or China-dominated mutual funds, we urge you to take profits now.”
-InvesTech Hotline Report – May 18, 2007
I agree with what Jim calls "Bubble Dynamics:" Once created, bubbles do not deflate gradually – they pop with quite the mess for those investors who have been participating. Fortunately, China's stock markets are not nearly as integrated into their society as ours, so a correction in their markets are much less likely to impact consumer spending and sentiment.
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Wednesday, June 06, 2007 | 10:55 AM | Permalink
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Looks like a pretty standard cup and a Chinese firecracker formation to me.
Posted by: mh497 | Jun 6, 2007 11:57:22 AM
Hey Barry,
Chinese stock market reminds me of some quotes:
"We will not have any more crashes in our time."
- John Maynard Keynes in 1927
"There is nothing in the situation to be disturbed about."
- Secretary of the Treasury Andrew Mellon, Feb 1930
"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future."
- E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928
"There will be no interruption of our permanent prosperity."
- Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928
"There may be a recession in stock prices, but not anything in the nature of a crash."
- Irving Fisher, leading U.S. economist, New York Times, Sept. 5, 1929
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."
- Irving Fisher, Ph.D. in economics, Oct. 17, 1929
"This crash is not going to have much effect on business."
- Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929
"There will be no repetition of the break of yesterday... I have no fear of another comparable decline."
- Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929
"We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices."
- Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929
"This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years."
- R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
"Buying of sound, seasoned issues now will not be regretted"
- E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929
"Some pretty intelligent people are now buying stocks... Unless we are to have a panic -- which no one seriously believes, stocks have hit bottom."
- R. W. McNeal, financial analyst in October 1929
"The end of the decline of the Stock Market will probably not be long, only a few more days at most."
- Irving Fisher, Professor of Economics at Yale University, November 14, 1929
"In most of the cities and towns of this country, this Wall Street panic will have no effect."
- Paul Block (President of the Block newspaper chain), editorial, November 15, 1929
"Financial storm definitely passed."
- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929
"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929
"I am convinced that through these measures we have reestablished confidence."
- Herbert Hoover, December 1929
"[1930 will be] a splendid employment year."
- U.S. Dept. of Labor, New Year's Forecast, December 1929
"For the immediate future, at least, the outlook (stocks) is bright."
- Irving Fisher, Ph.D. in Economics, in early 1930
"...there are indications that the severest phase of the recession is over..."
- Harvard Economic Society (HES) Jan 18, 1930
Posted by: Christopher Laudani | Jun 6, 2007 12:04:41 PM
Barry,
Q: you write: "I agree with what Jim calls "Bubble Dynamics:" Once created, bubbles do not deflate gradually – they pop"
So, do you consider the housing situation in the US a "bubble" _about_ to "pop"? Or is it _not_ a bubble? Because it seems to be acting more like a soufflé.
Posted by: Richard Leite | Jun 6, 2007 12:25:11 PM
Ugh, I leave tomorrow for Beijing and I hope things are quiet in the markets for at least two weeks...
Posted by: TexasHippie | Jun 6, 2007 12:32:10 PM
CL-
Just substitute the dates from today on those quotes and you have a great snapshot of what the street is feeding people at this point. I expect all the financials to get upgrades soon....then it will truly be over.
Ciao
MS
Posted by: michael schumacher | Jun 6, 2007 12:41:03 PM
Richard Leite: See the real estate archive here at http://tinyurl.com/jupmz and read up from the bottom; BR's been on this since '05 so there's a fair bit there including several posts on what he means by the soufflé analogy.
Texas, hope things calm down too but Europe is looking dicey now too. Good luck.
Posted by: RW | Jun 6, 2007 1:33:02 PM
I agree that there is frothiness in .SSEC and China in general, but let's all remember non-Chinese foreigners can't buy .SSEC/Shenzhen. Closest thing to .SSEC is FXI and FXI isn't **as** frothy.
And remember Beijing wants a good 2008....so the Party may use its $1 trillion+ to buoy .SSEC/Shenzhen (Naturally, that won't help FXI.).
For a pairs trade, long EWH (or EWT) and short FXI...Just a thought.
Posted by: johntron | Jun 6, 2007 1:54:56 PM
China is not done yet. We will see another run to euphoria pretty soon.
Posted by: ManhattanGuy | Jun 6, 2007 3:14:41 PM
I just sold my house and i am moving into a cave.
Posted by: Patu | Jun 6, 2007 3:21:32 PM
I just sold my cave and am renting a deserted island.
Posted by: 123 | Jun 6, 2007 5:18:41 PM
I was just evicted from my deserted island...
I'm now renting 'environmentally friendly,' 'manufactured housing.' (i.e., a cardboard box)
Posted by: Pool Shark | Jun 6, 2007 6:02:28 PM
Cardboard box??? Luxury!!!! I live in a 6 inch hole I had to dig myself in the ashphalt of a parking lot behind a slum in East Saint Louis, have to get up 30 minutes before I go to bed, eat nails and sewage for breakfast and work 42 hours a day chained to a escapee from Devil's Island.
Tell that to kids today and they won't believe you.
Posted by: Winston Munn | Jun 6, 2007 7:56:22 PM
I agree it looks like a bubble but...
shouldn't virtually all market graphs be shown on a logarithmic scale? Using linear scales always makes things look worse.
Posted by: mla | Jun 6, 2007 9:24:33 PM
This thread must be dunzo. I was about to post with Mia's comment. Once I comment, a thread tends to dry up due primarily to my chronic inability to contribute on a timely basis.
Posted by: CDizzle | Jun 6, 2007 9:40:30 PM
allow ME then, to take this thread into euphoria....
Posted by: brion | Jun 6, 2007 10:22:48 PM
> Fortunately, China's stock markets are not nearly as integrated into their society as ours, so a correction in their markets are much less likely to impact consumer spending and sentiment.
One thing though: Although China's stock markets are relatively small as a % of GDP, a higher proportion of the stock market capitalization is held by retail investors. Note that the millions of securities accounts are all opened by retail investors. Therefore, while the absolute amount that the economy's going to lose when the bubble pops may be relatively low, individuals will be hit quite hard because of their enthusiastic participation in the frenzy. Therefore I believe consumer spending and sentiment will be adversely impacted to a great extent, which would have severe implications for the rest of the world.
Alas, I can't afford to spend sufficient time on researching current figures to support my postulation.
Posted by: nor | Jun 6, 2007 10:28:06 PM
Thanks for the great Shanghai chart Barry and supurb call. It made me go out and put a stop/loss order on my China investments: Hopefully, I can milk them for another 10%, but I'm set my losses from here at a 6%.
Best,K3
Posted by: K3 | Jun 7, 2007 1:03:12 PM
Dear Barry,
Let me ask you one question.
I believe Chinese Government understands they have a large bubble in the stock market but after several acts of increasing the interest rates, widening the trading bands and finally the more forceful 3 fold increase in the stamp duty on securities transactions recently, the market started to cool but once the stock market started to cool, Beijing immediately voiced thru the mass media that the Chinese stock market is "on the right track' and recent measures are not meant to clamp down on the stock market...Given such a scenario, I am a bit perplexed that if Beijing means what they said, a P/E multiples of more than 50 is normal and investors, no matter they are institutional investors or retail investors, they do not have to worry about any bubble because the Chinese Government feels that there is not bubble.....Now two questions
a) The bubble in the Chinese stock market would not pop because Beijing would not exercise real measures to curb the bubble even everyone in the world feels there is a bubble....so Chinese investors are immune to market clashes
b) Would the Chinese stock market pop by itself with a P/E coming to 50 or 60 soon ? and if it pops, do you think the Chinese government have the relative financial muscle to wrangle with market forces?
Posted by: Steven Soh | Jun 8, 2007 12:03:06 AM
This just in...
The Chinese are shorting their own economy--take a look at the new National Geographic for pics and text of "here-overnight, gone-tonight" company cities that the provinces and manufacturers throw up (no pun intended), milk, and abandon.
Posted by: Bob Brooklyn | Jun 9, 2007 3:19:30 PM
