China's four-week-long stock market rout wiped out nearly 30% off the
Shanghai Composite Index since its highs of June. To stem those losses the
Chinese government has formulated an interesting hypothesis: stocks won't go
down if you ban sell orders.
Working off this proposition Beijing has ordered shareholders with more
than a 5% interest to stop selling shares; directors, supervisors, and senior
management personnel are also barred from reducing their holdings.
China has also launched investigations on those it believes engaged in
malicious short selling. The threat of imprisonment has proved an effective
deterrent to those who may have been contemplating a short in the Chinese
markets.
And even if you don't fall into either of the above categories of sellers
you still will have trouble getting your money out of shares because two
thirds of the stocks on the exchange have been halted.
It should come as no surprise that the Communist government of China has
fallen off the free market wagon. After all, the government is of the belief
that economies grow by building empty cities. So why shouldn't they think
markets work best when not allowing participants to sell?
The reaction on Wall Street has been just as alarming. Deutsche Bank and
Bank of America Merrill Lynch have applauded the Chinese governments for
doing everything necessary to keep the bubble afloat.
But Wall Street's counterintuitive and ironic bullishness on China is most
evident in the powerhouse investment firm Goldman Sachs. Goldman is urging
investors to buy stock in China right now!
In Observing 40 years of statistical history the Goldman team in China
believes "...the market is currently experiencing a standard bull market
correction, not a transition into a bear market." This is eerily
reminiscent of the Wall Street models that concluded housing prices could
never go down on a national basis.
First, I would like to know how anyone could get forty years of honest and
consistent data from China. Then tell me where else in that forty year
history of data did China expand its debt by $20 trillion dollars in the
space of just eight years, as they have today?
Statistical analysis such as this can offer a complement to fundamental
analysis in making market predictions. However, this assumes the exchanges
where China trades equities bears any resemblance to a market.
A market is a place where a multitude of buyers and sellers freely meet
and price is discovered. What China has now created is a roach motel where
money moves in but it can't easily move out-if at all. Therefore, all
technical and fundamental analysis goes out the door. And those who choose to
participate in this charade are left waiting for Beijing's next decision on
how to direct the market move.
This is the antithesis of capitalism and how free markets work. That's why
it should be shocking to see Wall Street, the supposed bastion of capitalism,
embrace such measures. But the sad truth is there are no free markets left in
this world, and it's becoming increasingly evident that most on Wall Street
prefer it that way. We have grown so accustomed to market manipulations that
we have completely lost sight of how the free market is supposed to function.
In this new market dystopia stocks never go down, companies never fail and
countries never default on their debt--central banks just print all the
problems away. And where counterfeiting money and lowering interest rates
doesn't solve the problem, governments are trying to demonstrate that market
regulations will lead to success.
We can all sleep well knowing that a small group of plutocrats who now
control the global economy will make everything turn out right. Genuine
market analysis has been supplanted by the need to parse the words of
statements from central bankers like students at a bible meeting.
And when you really think about it, why bother analyzing their words
anyway. Central bankers don't understand how markets and economies work; all
they have shown the proclivity to do is print more money. So we can all
continue in our dystopian slumber.
But the victory over command and control economies by free markets has
been decided long ago. However, these hard-fought lessons seem to have been
too easily forgotten. Even the Pope has joined on the Capitalist bashing band
wagon. Referring to it as ideological idolatry which leads to wage slavery,
vast communal dislocation and commodity-market driven hunger. But perhaps he
should take a drive on the Pope mobile down the streets of Cuba or Venezuela
to witness the living standards of the poor that exist without the
"ideological idolatry" of Capitalism.
The truth is there is no place where people live better than in a free
market Capitalist economy. And it is only when you stray from this model, as
we have for the past seven years, that you see the spread between the rich
and poor blow out.
Freedom should have vanquished Egalitarianism forever with the fall of the
Soviet Union in 1991. But if those at Goldman still see the merit of
investing in a tyrannical command and control economy, perhaps North Korea is
the next logical investment to make. I am sure Kim Jong-un has a bridge to
nowhere he would be happy to sell them.
Nevertheless, economic freedom and prosperity is rapidly being replaced by
markets that are driven by the edicts from autocrats, which is leading to the
evisceration of the middle class. People have willingly abandoned most of
their freedoms. Why? Because they have been dumbed down dramatically. How else
could they have handed over the markets, economies and, most importantly, the
structure of the family to governments with such ignorance and alacrity?
The abrogation of markets leads to stagflation, economic collapse and
chaos. Sadly, this is the ultimate fate of the entire developed world.
