Shanghai's SHIBOR Experiment...

Over 700,000 new trading accounts were opened by Chinese brokerage firms last week as more first time investors flock to the Shanghai market. Even after last night’s downturn as the market digested a slew of newly announced IPOs the Shanghai composite is still up 84% YTD.  

 

The “it’s a bubble” crowd are pointing out, correctly, that short term rates have been spiking as more hot money flows into the equity and futures markets (see the 7 day and 14 day SHIBOR chart below). Despite an 18 basis point pullback last night the one week swap rate is still up 32% from this time last month. Clearly the bearish thesis is based on a common sense perspective that often: unbridled optimism + easy credit + inexperienced investors = an overextended rally.

 

Shanghai's SHIBOR Experiment...  - barber123

 

The “it’s not a bubble (just yet)” crowd – which includes the strategists at most big banks,  are arguing that multiples, while expensive, are justified by ramping internal demand dynamics that presents the best long term growth prospects on earth. In other words, on a longer duration the exuberance is justified. Where these cats were 9 months ago on China (100% lower) is beyond us…

 

The PBOC quarterly monetary report released yesterday stated with usual opaqueness that policy tools would be used to achieve “appropriate” liquidity levels. Although I am not privy to any inside track at the PBOC, if I was going to speculate about exactly what “appropriate” means in this instance –I’d guess that it means that the desire to continue bring new issues to market will be offset by an equally stronger desire to avoid any market volatility that could cause consternation among the masses in advance of the celebration of the anniversary of the People’s Republic on October 1st. As such any tightening of credit will likely be executed in stages designed to provide a soft landing. 

 

China is a managed economy, not a free market, and order is prized above all else in Chinese society. Therefore it is only natural that the powers that be in Beijing will attempt to manage the equity market towards an orderly outcome in advance of the biggest public event since the Olympics.

 

How appropriate.

 

Andrew Barber
Director 


Director


Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more