Chinese Stock Market Blasts To New All Time High

(click on chart to see magnified image of Shanghai Exchange chart)

Shanghai Stock Exchange Sets All Time High: 4400.77

Old high from late May was 4335. Today, the Shanghai opened at 4338. Shanghai finished the day at 4440, or 2.20% higher than last Friday's close.

This despite China's government on the same day tried to cool their economy with new banking curbs. From Bloomber we read:

China's government curbed bank lending for a sixth time this year after failing in its previous attempts to cool the fastest expansion since 1994.

Lenders must put aside 12 percent of deposits as reserves, starting Aug. 15, up from 11.5 percent, the People's Bank of China said today on its Web site.

The restriction, coupled with three interest-rate increases since March, is aimed at stopping a $112.5 billion first-half trade surplus from fueling inflation and asset bubbles. Consumer prices rose 4.4 percent in June, the fastest pace in 33 months, and the key stock index more than doubled this year to a record.

``The problem in China is excess liquidity,'' said Tim Condon, head of research for Asia at ING Groep NV in Singapore. ``We can expect steady increases in interest rates and the
reserve requirements.''

The announcement coincided with U.S. Treasury Secretary Henry Paulson's visit to China, in which he plans to push for faster appreciation of the yuan to reduce the trade surplus. Last month, the U.S. accounted for more than half of the gap.

The currency fell 0.07 percent to 7.5674 against the dollar today after gaining 0.15 percent last week. China's economy, the world's fourth largest, expanded 11.9 percent in the second quarter from a year earlier, the fastest pace among major countries. In the first six months of this year, property and factory investment surged 26.7 percent.

Wow. Consumer prices rose 4.4% in June in China? That's huge. That kind of announcement in the USA would cause riots in the Halls of Congress.

Will the Chinese market slow down, or will it continue it's insane growth and pull the US and global economies with it? I don't know. I'm staying invested in all my stocks, many of which are benefitting from globabl exposure to China, India, Russia and other emerging economies playing "Catch Up" to the Western World. And if there is a precipitous fall in any market, I will continue to "hold" and let my dividends punch the "Return Accelerator".

Soon, China will lead the world in GDP. There won't be any more of this "catch up" stuff with a national savings rate of 35% and over $1 trillion in foreign reserves awaiting redeployment in new infrastructure, commodities, and domestic and foreign businesses. China is for real. This isn't faked growth. Just ask Americans shopping at Wal Mart what country's name is usually on the label of clothes, yard furniture and the like. If you were to tear apart your new Iphone, Dell laptop or Sony Bravia LCD TV, you'd be amazed at how many of the important chips are now Chinese made.

China is the reason I see the global economy as more than "half-full" on odd days of the week. Then I look at our bankrupt economy in the USA where overall consumer debt is larger than home equity and I think, "How in hell can we avoid a major crash in our markets?"

Whatever happens, I will ride this piece of history making to its end with condifence. I'm still invested heavily in many stocks which have the global exposure which Dr. Jeremy Siegel says will bail out Baby Boomers depending on income producting dividend paying stocks. I think Siegel is right, otherwise, I wouldn't be buying stocks in these uncertain times where Hedge Funds are going bust.

This is China's Century. Westerners should have some exposure to this biggest of all stories in the Global Economy. If you can't stomach buying a Chinese ADR in a Chinese company, buy a multi-national which is benefitting from Chinese, Russian, Indian and other emerging companies. (Again, look over this blog's first pick: Johnson and Johnson. It's a better buy today than it was a few weeks ago.)

We will focus more of this blogs energy on China's development in the near future. In fact, our next official stock pick will be a Chinese company which is worth investing in whatever happens to their market near or long term.

Last thought: it is good to see their Central Bank is taking measured steps to cool inflation. I hope they continue to tighten up on credit. I don't wish to see a Major Crash in Shanghai or the USA. It would be nice to see a tapering off, or a sideways movement in the markets. I can deal with that.

The USA Credit markets, however, hold the key now to our market, IMO. All we need are a few more hedge fund blow ups, and we could see some bad bad mojo in our markets with -20% down years.

It's interesting to note that all the King Makers on Wall Street were patting consumers on the head just a few months ago, assuring Americans the sub-Prime mess was contained. I can remember just a few months ago Cramer and other famous touts screaming people need to buy Bear Stearns, JP Morgan, Goldman Sachs and such stellar names who would not be touched by the Housing Crash.

One last aside before running off: Housing prices in Key West have already gone down 20% in the first seven months of this year according to Bascom Grooms IV, the President of the local NAR chapter, in a recent radio interview. So, for every million dollar home down here, the owner is now looking at $200,000 evaporated equity which he can no longer tap into when selling or going back to the ATM piggybank lender who said, "You can always refi later . . . "

Keep a lid on your margin buys in this market. Ride the trend of appreiating commodities which will never go out of style: uranium, oil, corn, etc.

The money to be made in Real Estate is still pushing further out. No bottom in 2008. You didn't hear it from me first, but no less a mortal than Robert Toll, CEO of Toll Brother's fine McMansion Homes is saying now that "maybe" we'll see the bottom in 2009.