Sunday, October 23, 2011

Chinese Money Supply and Stock Performance

Here's the chart which explains the decline in the Chinese stock market, with no end in sight. When a country increases its money supply, it distorts the economy in favor of the capital goods sector (including the stock market). Once the money growth is slowed, the distorted structure can not support itself and begins to crash. That's what is going on in China now.(Click on chart for a larger view)

.(Chart via Ed Yardeni)

1 comment:

  1. What I find most interesting is that despite the HORRIFIC increase in Money and Loans during 2008-2009, the bounce in the stock market wasn't even close to the 2007-2008 top. That must have been one helluva speculative bubble top.

    I'll stick with predicting this sucker going back to 2005 levels, which I feel is actually a fairly "conservative" estimate when looking at above graph.....