MAGAZINE CONSENSUS (Negative Consensus/Bull Market Indicator) China's 1929 Moment?

July 13, 2015

China has reached another milestone in its evolution from hard hitting dictatorship to a softer, more gentle, yet iron handed friend of the people. It has experienced a meaningful stock market correction border lining on a crash that would rival the iconic 1929 US stock market crash that laid the ground work for the Great Depression. The Economist crystallizes this 1929 moment in their cover. 

The giddy days when farmers and machinists could stop and trade their bruising manual labour and low wage factory work for a chance to win the stock market lottery came to a rapid thud. In the case of the Economist cover, it makes a powerful image showing how China has taken a sudden but necessary turn to maturing as a market oriented economy. The China Government sees it that way, but instead is going back to more traditional strategies  to manage this crash (e.g. making short selling illegal, witch hunts to punish said short sellers, and general relaxing of margin lending rules). 

The Chinese stock market has been living in the land of Willy Wonka in the last year. The triple digit price gains despite meagre, slow economic growth is no different from what is happening in other parts of the world. It's just China's bubble got too big too fast. Bubble is a really polite way of describing it. Magazine covers like this can flag a moment where the bottom is in. If these anti-capitalist policies continue to stick, the cover may signal in a perverted way a short-term, catching of breadth for Middle Kingdom equities.