Waiting for the China Bubble to Pop

The U.S. has had its share of bubbles in the economy.  There was the stock bubble (technology in particular) in the late 1990s.  There was the housing bubble of the early to mid 2000s.

You could even say that there was an oil bubble that has popped.  You could even say it has happened twice for oil in less than a 10-year period.

While the U.S. has seen its share of bubbles, which I largely attribute to the Federal Reserve, at least the bubbles have popped at different times.

China may not get so lucky.  I have known for several years about the real estate bubble in China.  They have built ghost cities that could house a million people or more, yet they sit virtually empty.

It seemed the real estate sector was starting to cool, but the central bank in China keeps trying to prolong the inevitable.  And in doing this, not only has it allowed the real estate bubble to stay alive for now, it has also spawned a stock bubble.

The Shanghai Stock Exchange Composite Index has doubled over the last year.  It is up over 25% year to date.  It sat under 2,500 just back in November 2014 and has now exploded past the 4,000 mark.  This is basically a parabolic rise.

These things don’t usually end well.  This could be the final part of the boom phase.  I am amazed it has lasted this long, but sometimes things take time to shake out, especially when you have a determined central bank.

China could very easily experience a stock market crash and a housing bust simultaneously.  This isn’t going to be pretty.  It will be China’s first modern-day recession, unless you count most of the 20th century as one giant recession.

There will be ramifications for Americans.  The Chinese might actually stop buying up U.S. government debt, which I would actually view as a good thing for the long term.  It would stop subsidizing Washington’s spending.

I believe the U.S. may have its own stock bubble, but it is nothing compared to China at this point.  Watch China closely, as it could get very interesting, very fast.

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