In a podcast in February of 2009 before the “big plunge,” I related a concept that I call “from the outside in.” Basically this theory holds that when trouble starts in financial markets, it begins in the periphery with the weaker markets, before spreading to the center.
At the time, I was deeply uncomfortable with what I saw in several European markets, as well as India’s.
This time?
China has had a particularly rough August, although September has seen a modest recovery, with the first three days of the month almost covering the territory lost on the final two.
Still, that’s a pretty awful August, and a bounce here would not be surprising. A variety of ‘explanations’ have been touring the news, but I am not sure I buy any of them at this point. However, there’s some interesting smoke wafting about the wreckage:
Chinese shares plunge amid fears of default
Share prices in Shanghai slumped by 7 per cent yesterday amid fears that the “China effect”, which has helped to stoke growing global economic confidence in the past six months, is about to fizzle out.
The stampede out of shares came amid reports that the authorities in Beijing may be planning to protect state-run companies from their trading mistakes by allowing certain companies to default on derivative contracts struck for oil, coal and other commodities.
The massive stock plunge, which was driven chiefly by Chinese retail investors, also reflected concern that coming days will bring a litany of disappointment through official economic statistics.
by farmer-brown-2