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.
http://affluentinvestor.com/2015/07/the-extinction-of-markets/
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