

Panic wipes £2tn off Chinese shares - danmaz74
http://www.theguardian.com/business/2015/jul/03/chinas-stock-market-slump-continues

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tim333
The government should have been trying to influence prices downwards when they
were at about 2 times the fair value of the assets, not prop them up when they
are at 10 times. Overpriced bubbles just end up with money transferred from
ordinary people into dubious schemes and are an inefficient use of capital.
See the 1999 dot com bubble, the 2006 US house price bubble and the like.

You end up with a bunch of money pissed away in pets.com like ventures or
thousands of houses/flats built somewhere where there isn't the demand. (I've
got one of the latter as a result of my own dumb speculation).

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danmaz74
If only we could know what the "fair value" of an asset is...

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digi_owl
If it is shares, consider the total value of company holdings if it was all
sold off that day.

if you are looking at an asset price that is a multiple of that, you are
basically betting the farm on the company staying afloat for decades.

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joosters
That doesn't answer the question, we still need to know the 'value of the
company holdings', as you say. It's not the same as selling all the physical
possessions of a company.

You have to look at the income generated by the company, and then form an
opinion of its worth. That's a subjective thing, so again we're back to the
problem of determining a fair value.

Basically, there's no formula for it. Or at least, no formula that everyone
agrees on!

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jqm
In a theoretical sense, yes. In a practical sense, from a conservative
perspective there are ways to tell market pricing probably exceeds actual
value. And authorities could take steps at that juncture. But everyone wants
to keep the petal as close to the metal as possible and keep pumping growth
hoping reality catches up eventually. Which results in well deserved wrecks
from time to time.

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howlingfantods
It's interesting to read the Chinese social media reactions to the stock
market crash. In the beginning it was mostly hopeful mixed with a bit of
schadenfreude. Then it was resigned with a lot of morbid jokes.

Now, there is a degree of anger you didn't see before. There is even a streak
of nationalism with some rumors claiming western forces are conspiring to
bring down the Chinese market. Some social media posts are literally "buy
stocks if you love our motherland."

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fredkbloggs
In September 2001 (and again in 2008) it was "go shopping for America!"
Cynically manipulative nationalism knows no borders, sadly.

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SilasX
Warren Buffet in 2008 sold the line "Buy American [stocks]. I am."

(That gave him enough leeway to potentially insist he meant "I am American"
not "I am buying American stocks"...)

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tiatia
Well, what goes up can go down. Considering the volatility of this
stockmarket, this is not very surprising. Two things:

1\. Seeing poor people (fruit street traders etc.) trading in their cell phone
is not necessary a healthy sign.

2\. I am not sure that Chinese mentality and stockmarket go well together.
Seeing investors (stock holders) that you don't know as partners and giving
money to them via dividends will sound absurd for many Chinese.

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paulpauper
I wonder if this has anything to do with prices being grotesquely
overextended? It's not normal for a market to double in less than a year when
inflation is otherwise low.

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mkempe
Alternative explanation: the growth of money manifests itself by inflating
some prices before others, e.g. the stock market before groceries. After all,
money must flow through the system before price levels reach an equilibrium
that matches the new total amount of money. And if the State keeps printing
more money, there is no "equilibrium", just unstable price signals until the
next crash or major change in the rate of money growth.

