The Shanghai Composite Index soared by 8% last week to its highest level since 2008 and is up about 130% over the last year.
The Shenzhen Composite Index jumped by 12% last week and is up 166% over the same period and is now trading at 66x earnings according to Bloomberg, three times the level of the Shanghai Index.
How do you spell "bubble" in Chinese?
In China, the "Casino" Was Open Last Week
What caught investors' eyes last week was the plunge in Hong Kong listed Hanergy Thin Film Power Group's (OTCMKTS: HNGSF) stock, which collapsed by 47% and cost China's richest man $15 billion.
Hanergy is a maker of thin-film solar panels whose stock has soared by 600% over the last two years. The company is controlled by privately held Hanergy Group, which is headed by founder Li Hejun, who was listed by Forbes as China's richest person before last week's stock collapse. Most of Hanergy's sales are made to its parent company, which should raise questions if anybody was worried about the fundamentals of the company. But in China's stock market, fundamentals don't matter. The only thing that matters is momentum and whether the government is perceived to be supporting a stock. This isn't investing, it is gambling.
While the millions of uneducated Chinese who are opening trading accounts may not know better, American investors should know better. Yet U.S. investors got burned by Hanergy last week nonetheless. A U.S.-listed exchange traded fund (ETF), Guggenheim Solar ETF (NYSearca: TAN) held 12% of its $439 million of assets in HNGSF stock and lost 8.6% on the week. Investors need to understand their ETF holdings to avoid these kinds of blow-ups.
Stocks are Expensive and Fed Meddling Won't Help
Back in the U.S.A., markets were quiet. The Dow Jones Industrial Average lost 41 points or 0.2% to close at 18,232.02 after closing earlier in the week at a new record of 18,312.39. The S&P 500 rose 3 points or 0.2% to 2,126.06 after also hitting a record high of 2,130.82 a few days earlier. The Nasdaq Composite Index, powered forward by Apple, Inc. (Nasdaq: AAPL), added 41 points or 0.8% to 5089.39.
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You all don't have to worry, they will manufacture a reason not to raise rates..
The problem for Yellen is that the unemployment rate is low because the participation rate is low and the inflation increase is mainly to be found in health care and that's mandatory.
Health care costs are not going to be tamed by increasing interest rates and such increase will spill on other sectors.
It would be interesting to see what the P/E of the NYSE or Dow is relative to interest rates.
Participation is dropping in large part because boomers born from 46-64 are retiring. When people reach 16 they are added to the workforce. Live births in 1950 and in 1999 are similar, even though US population has doubled. By definition, if you subtract 1 person for each new person added, work force participation will eventually decline to 50%. There has been no significant change in births for 50 years. This trend will not change unless the retirement age is increased to match longer lives.
The Chinese are great copyists but they add their own "innovations". In this matter. you have two disparate Chinese groups at work…the mainland and the overseas Chinese and both are involved in the evolving of Chinese business all over the globe.
The international stock exchanges have been built to provide a platform for the dollar to reign over the new international financial game being played, which the Chinese are exploring with The West's help. They note that there is a fixation growing among us that the dollar is holding on to its supremacy by its fingernails and they read all our advisories and so they have assessed the problem and are testing just what it will take to effect the downfall of The West when they want it!
Frankly, I would prefer to be invested in Chinese enterprises in Europe when the mess hits the fan and there are plenty to find, especially in Italy where the Chinese have bought out most of the great Italian "houses" and are stocking the markets worldwide as the Italians never could do! There was a reason the black money heart left Vegas for Macau and now to Monaco. Follow the gamblers and you will survive!