

China's Market Crash and the Man Who Saw It Coming - rrggrr
http://www.ozy.com/rising-stars/chinas-market-crash-and-the-man-who-saw-it-coming/61193

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gilgoomesh
_Everybody_ saw the crash coming. It was clearly a bubble as the Shanghai
Stock Exchange went up 250% in 12 months while every indicator (company
profits, manufacturing prices, etc) were showing bad news.

[https://au.finance.yahoo.com/q/bc?s=000001.SS&t=5y&l=on&z=l&...](https://au.finance.yahoo.com/q/bc?s=000001.SS&t=5y&l=on&z=l&q=l&c=)

Stock exchanges don't _double_ in price year over year on bad news. That's
just stupid.

I'm surprised the SSE has only fallen 30%. It still looks like it needs to
lose another 30% (it's still up nearly 100% since early last year).

The only reason the entire world isn't shorting Chinese stocks is it's tricky
to fight deliberate market manipulation by the Chinese government. Although I
don't doubt this crash has made a few people _very_ rich.

~~~
jmsdnns
Seriously. The average P/E ratio for a stock on the mainland indexes was 84.
For a frame a reference, Facebook's is around 78. There's no way that could
last.

~~~
snarfy
Wow. If that was the average, that's insane. Anybody investing in that market
was gambling on the hype keeping it going.

~~~
TheOtherHobbes
Textbook bubble.

When widows and orphans are borrowing money to gamble because they've been
told it's a sure thing, it's time to get out.

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AaronFriel
I have said it before and I will repeat that advice here: anyone who can
predict economic crises and when they will occur is just plain lucky.

There are enough people on this planet staking their reputations on one claim
or another that we should expect people to "see things coming". Those many
millions of people making grand claims are usually, but not always, incorrect.

There is a very important quote to remember here, if you're ever told by
someone to make an economic bet:

"Markets can remain irrational longer than you can remain solvent."

You may know, for a fact, that a commodity is overpriced, that a stock is
overvalued, or that the entire market is operating under "irrational
exuberance". Okay, but in the history of the discipline, no economist has ever
been able to predict when the party will stop. Prices can soar to many
multiples of their values, and selling short will bankrupt almost everyone who
thinks they know, for certain, when the party will stop.

Every once in a while a few economists stake their reputation on a market
crash and are correct, and sometimes they get a little too full of themselves,
write a book on their ability to forecast the market, and disappear into
obscurity. Michael Pettis seems he may very well be one of these people.

Just about every economist I've read has thought the party would stop in China
soon, no nation can sustain growth rates like theirs indefinitely. Short of
the Chinese discovering and secretly using cold fusion or a perpetual motion
machine, I would think.

So why is it the "Pettis hypothesis"? Sheesh.

I look forward to another person fleecing poor investors to fade into
obscurity. The man who saw this crash coming was dealt a good hand, that's
true, but he won't always win.

~~~
mbq
Still, I would read something titled "China's Market Crash and the Man Who
Earned >10M$ Having Precisely Predicted It".

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digitalzombie
There's no luck and gilgoomesh is right, many people saw it coming.

There are stories about it and relating tadbit such as Chinese ghost towns and
Chinese build projects. These segment alluding to the fact that China's
economy is base on building stuff constantly and that the government is
encouraging loans for these projects. There were also shadow loans that a few
articles were talking about where bank were loaning outside of the government
consents.

There's an article on Jalopnik about a Chinese car bridge that was the longest
but it didn't save any time at all. It was built just cause they can.

I'm pretty much moderately on top of this because I got hacked by Chinese IPs
and invested in Chinese stocks in the mid 2000 decade. Ended up doing research
of China in general and it's a very fascinating country. Oh, and also China is
flexing its muscles against my birth country so yeah.

We should just watch and wait to see how severe it is. The 6 months stop gap
isn't gone yet. I think we'll have to wait a year or at the latest after 6
months.

There's always greedy people and if they think they can make money in China
they will invest in China.

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curiousjorge
I am bearish but I find myself unable to trust China's stock market to make a
bet because the government is manipulating the prices in order to not have
something like two times the entire population of Canada angry and out for
blood because they lost money in the stock market, which btw, encouraged by
the government.

The quote 'market can stay irrational longer than you can stay solvent' really
hits home here. Especially when it's half way across the world, and a
government that doesn't like to open it's books to outsiders.

Just looking at the chart there could be another crash seeing that the SSE has
failed to close above the crucial 4000 line. People are taking profits and
looking to park their money in West Coast real estate. When the 1400 companies
banned from trading suddenly find the herd is gone, they are in for a nasty
surprise since they put up their company as collateral to raise capital and
they will face margin calls and in turn banks facing margin calls themselves
with each other, and being forced to write off the mountain of debt from
overbuilding will cause catastrophic failure that will make Tokyo's bubble
look tiny.

One thing is for sure, the China that emerges from this market collapse will
be a very different one from the one we have today. Further manipulation and
showing lack of control of the markets will be the CCP's final undoing. Some
members of the party including the current leadership Xi knows this and save
himself as the guy 'that tried' and save himself to the trip to Hague when
they throw jiang zemin under the bus instead.

~~~
norea-armozel
This has been one my issues with the CCP. They seem to feel the only good
policy is to keep the markets growing rather than focusing on making the lives
of the average citizen better. Building highways and airports are nice if you
have a population that can afford to use them, but what many people in China
need is to have their healthcare and schooling made affordable (they basically
took away most of the socialized medicine and schooling programs they still
had in the 1980s which by then were half-govt-covered/half-citizen-covered
affairs). The wealth of the economy shouldn't serve a few if they really
support socialism. But that's just my take on the matter.

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cromwellian
California's earthquake and the man who saw it coming. I'd only believe in the
value of a financial prediction if a) it was timely and actionable and b) the
person making the prediction has made scores of similar predictions satisfying
point a)

Anyone can get lucky predicting a disaster once, that says nothing of the
persons ability to model and predict actual useful scenarios.

We all know there will be boom bust cycles. They exist in human endeavors,
they exist in ecosystem predator/prey relationships. It's interesting to look
at the causes, but predictions like this are only worthwhile to the individual
if they can tell you the best time to get out.

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meric
I saw it coming too - having advised my Chinese cousin to stay out last month.
My last name is also "Man". Thank you.

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eCa
If no-one sees the crash coming, then it doesn't come.

When enough people see the crash coming, then it comes.

