Forget About Greece - It's All About China
The Greek crisis plays well in the financial media. Somehow the characters and the daily drama capture more people's attention. That's why Greece continues as the lead story this week. Meanwhile the real story has to be China.
China, the world's second largest economy, the greatest driver of world economic growth for the past decade, has hit a wall. The credit crisis that's now taking down their stock market has been unfolding for a number of years, below the radar screen of most analysts, but it's hard not to take note now. The problem is, it's likely too late for too many.
The average everyday Chinese investor jumped into a hot market only recently. As history shows us, over and over again, the "little people" wait until a bull market enters what some have dubbed its "manic" phase, then jump in with both feet. The tragedy arises as sophisticated investors take the final push upward as an opportunity to sell into strength, slowly pulling the rug out from under the smaller investor, even as the little guy buys with both fists. The mania continues, and as prices rise, people whose wealth was at best average start to feel like, heck, they're getting rich. Then, Bam! The bottom falls out. Those little last-in investors take a bath. They lose what they invested, and more.
Sad for them of course, but entirely predictable.
As for the rest of us, we who haven't invested our hard-earned money in a bubble mania, we're likely not getting off scot-free. If the stock market crash in China (and it is surely a crash) discounts accelerating declines in the general economy, not only will China face a growing economic and likely social crisis, but the effects of their woe will spread. In fact, they're spreading right now to many emerging markets. Such countries count China as their biggest customer. And when you're biggest customer hurts, so do you.
Will this contagion leap across the ocean and land here? We'll have to wait and see. But it's not something we can afford to ignore.
You may enjoy the classic drama playing out in Greece, but you'd be wiser to pay closer attention now to China.
China, the world's second largest economy, the greatest driver of world economic growth for the past decade, has hit a wall. The credit crisis that's now taking down their stock market has been unfolding for a number of years, below the radar screen of most analysts, but it's hard not to take note now. The problem is, it's likely too late for too many.
The average everyday Chinese investor jumped into a hot market only recently. As history shows us, over and over again, the "little people" wait until a bull market enters what some have dubbed its "manic" phase, then jump in with both feet. The tragedy arises as sophisticated investors take the final push upward as an opportunity to sell into strength, slowly pulling the rug out from under the smaller investor, even as the little guy buys with both fists. The mania continues, and as prices rise, people whose wealth was at best average start to feel like, heck, they're getting rich. Then, Bam! The bottom falls out. Those little last-in investors take a bath. They lose what they invested, and more.
Sad for them of course, but entirely predictable.
As for the rest of us, we who haven't invested our hard-earned money in a bubble mania, we're likely not getting off scot-free. If the stock market crash in China (and it is surely a crash) discounts accelerating declines in the general economy, not only will China face a growing economic and likely social crisis, but the effects of their woe will spread. In fact, they're spreading right now to many emerging markets. Such countries count China as their biggest customer. And when you're biggest customer hurts, so do you.
Will this contagion leap across the ocean and land here? We'll have to wait and see. But it's not something we can afford to ignore.
You may enjoy the classic drama playing out in Greece, but you'd be wiser to pay closer attention now to China.
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