Fear and Greed
What a juxtaposition of contradictions that the colossal fall in the Shanghai share index proved to be. It happened on the very day that the Chinese Prime Minister promised socialism for 100 years. I wonder what Karl Marx would make of yesterday’s events. It also coincided with the beginning of the Year of the Golden Pig, very auspicious, and an event occurring only once a century.
Markets have done very well – not only shares linked to commerce and industry, but also mining and commodity shares. Almost all over the world house prices have soared, on the back of low interest rates and low inflation. The profits outlook for 2007 is good.
However this golden scenario of ever rising asset prices will not continue for ever, that is the only certainty. Perversely, the chances of this extraordinary bull run continuing for longer is greater today than two days ago. Much froth will have evaporated.
As President Kennedy’s hugely successful father Joe once observed about the performance of stock markets – “leave the last 10% to the other guy”.
What it also tells us is the huge global economic importance of China. It used to be that if General Motors sneezed the US economy caught a cold. Eventually one day, we shall undoubtedly suffer from Asian flu – the moment of greatest danger will be when such an eventuality is universally regarded as inconceivable.