Taoyuan Nights

The BBC and FT are reporting on China’s latest craze. Currently around 400,000 extra people per day are beginning to trade on the Shanghai markets.

Let me see. That’s the same as the entire population of Scotland deciding they are market professionals, every 12 days or so. When people with no money (most of these people are students, housewives…) start borrowing money to invest on a can’t lose proposition, on that kind of scale… things are going to go nuts. I’m thinking here of shoeshine boys who were handing out share purchasing tips just before the great depression hit the US.

Though in fact, this particular madness is of a new order of magnitude from history’s perspective - never have so many people been so quick to throw themselves off a cliff.

Things that will be interesting:

• The Chinese government has just discovered that publishing scary stories about the markets no longer has any effect on the markets!
• The markets are about to dramatically improve the ability for big traders to short stock (ho, ho, ho… can you say explosive collapse of a market?)
• If the Chinese currency appreciates, then all things being equal, the markets should recede appropriately (to maintain the same relative value as measured in other currencies). And the Chinese currency is under a lot of pressure to appreciate.
• A classic sign of the endgame: ‘new listings’ of completely pointless companies whose only true purpose is to suck up some of the speculative money that’s floating around. Just like the dotcoms.

Here’s a quote from one of the crazies involved.

“The index is going to double!” gushed one man, who identified himself only as Mr Wang, brushing off the day’s small sell-off. “This is good for the country and good for the people.”

Yeah… it sure is. It’s a whole new paradigm. It’s different this time. “We deserve it because we just do, right?”. Of course, the PRC is not the only country guilty of producing muppets with this kind of lemming-like naivety. Britain and Taiwan have bubbles of their own…