Bubble-talk. It’s not us. It’s China.

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Yeah, we’re in a bubble. But China’s stock market is insane right now. Perhaps 1999 insane.

From the New Yorker:

Of seventeen hundred stocks on the Shenzhen Exchange, only four have fallen this year, and more than a hundred have seen their shares rise more than five hundred per cent. The Shenzhen Index as a whole has doubled since January, and is up more than two hundred per cent in the past year.

And from the Economist:

A hotel group rebranded itself as a high-speed rail company, a fireworks maker as a peer-to-peer lender and a ceramics specialist as a clean-energy group. Their reinventions as high-tech companies appear to have less to do with the gradual rebalancing of China’s economy than with the mania sweeping its stockmarket.

 

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But perhaps the most beautiful thing of all: a pet food company trading at 221 earnings.

The problem: China’s GDP growth isn’t that hot compared to its prior spree of raping of the US economy through currency manipulation.

So… what happens if China has a crash?

It might very well be a disaster for the US.

  • The US wouldn’t sell as many treasuries (China is the largest foreign holder of US debt). I’m not sure this would have a major impact, but it wouldn’t be a good thing.
  • Less revenue for big US companies doing business in China (GM, Nike, Apple, etc.).
  • A collapse of commodity imports (copper comes to mind) which would affect our economic partners.

In the end, however, we really don’t know until it happens. But with China being a major global power, now is the time to pay attention.

 

 

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