To anyone still believing that capital markets around the world express something other than government policy, the latest news out of China may come as a surprise: “Beijing will buy more shares in China’s biggest banks, in an expression of support for the beleaguered stock market and most concrete state action to date to shore up confidence in the slowing economy.” The FT reports further: “Central Huijin, the domestic arm of China’s sovereign wealth fund, will buy the shares to help stabilise the pillars of the country’s financial system, the official Xinhua news agency said on Monday. Coming as the Chinese stock market closed at a 30-month low, the move was the strongest sign that Beijing wants to engineer a restoration of confidence in share prices and the economy. It paid instant dividends with a rally in the final minutes of trading on Monday.” And there you have it: stocks are now nothing more than a means for governments to validate their “success” in something, since they have no more control left over either employment or inflation, or public expression of affection with capitalism as per #OWS. So why not ramp up the DJIA to 36,000? Granted that will happen as all global currencies get terminally davalued against gold, but so what – after all that only thing that matters now is whose stock market is the biggest.
Although Chinese growth has so far held up well, the European debt crisis and the risk of a double-dip recession in the US have cast a shadow over the country’s economy. With inflation running near three-year highs and debt levels swollen by heavy spending, economists doubt that Beijing could launch the kind of stimulus it did when the global financial crisis struck in 2008.
Sensing vulnerability, investors have turned against China, driving down commodity prices, betting on the chances of a government default and selling shares in the banks that are the economy’s lifeblood.
The government, through Huijin, is already the majority shareholder in all of the country’s major banks. While the announcement gave no details about how much more it intends to buy, it was unabashed in declaring that it aimed to halt the roughly 30 per cent slide in bank stocks in recent months.
In a rebuff to traders who have been betting that the renminbi will weaken as the Chinese economy slows, Beijing also allowed the currency to record its biggest one-day gain in years on Monday, letting it rise 0.6 per cent against the dollar.
The motivation for that also appeared to be diplomatic, with the US Senate set to vote on Tuesday on legislation that would punish China for keeping its currency undervalued.
And so on.
We could say “we told you so” but so what – at this point only the biggest idiots don’t realize that is the last ditch desperation manoeuvre to preserve social stability by keeping stock markets at a level that will prevent all out panic. Yes, someone will have to pay the piper at the end of the day because not even Keynes could have envisioned this kind of wholesale lunacy, but by then it will be “someone else’s problem.” For now – it is time to buy, buy, buy and, to those who listen to Berlusconi, create some market volatility.