KWN – July 28, 2015
Absurdities in the World will End Badly
Normality is rare in today’s world. We have excesses in debts, asset values, consumer goods and many other areas. Most overvalued are of course stock and bond markets. They have reached extremes which are totally absurd and bear no resemblance to reality.
China is now showing the way what is going to happen to all the bubble markets in the rest of the world. The Chinese stock market topped in mid June at a 70 p/e ratio. This is of course a totally absurd valuation driven by a massive credit expansion. As is always the case in speculative moves, the public comes into the market in the final stages driving the market to dizzy heights supported by colossal margin debt. Since the peak 6 weeks ago, the Chinese market is now down over 25%. The Chinese authorities are clearly concerned about the consequences of this both for credit markets as well as the danger of public uproar. Like for the rest of the world, the Chinese authorities realise that only rising stocks is good for the country so when stocks fall, all kinds of intervention and manipulation is required – even in a communist country. Thus a number of restrictions have been implemented including prosecution of short sellers.