The China Bubble is Bursting, Halleluyah!

I’ve been writing about this for a year and a half. It is finally happening. Chinese stocks are down another 7% today.

The last time I covered this was June 1 at TheStreet in an article titled Chinese Chinese Stocks Headed For a Bust:

Despite huge gains today (June 1), the Chinese markets may have topped and are prime for a bust.

In short, the People’s Bank of China seems to be tightening the reins on the money supply, which could lead to continued slowing in the Chinese economy.

Last Thursday, Bloomberg reported that the People’s Bank of China sold $16 billion worth of short term debt to select financial institutions as a way of draining excess liquidity. Central bank jargon calls these “repurchase agreements” but what it basically means is the PBOC is giving debt contracts to banks, and the banks give the PBOC money in return, which is then taken out of the circulating money supply. This shrinks the money supply overall.

When governments shrink money supply after years of inflationary expansion, busts must happen by logical necessity.

There’s still time to get in on the short side here. I own 2017 puts on FXI. I think I have to put that legally or the government will fine me for saying things. And that I am not an investment adviser and I’m not making any recommendations. Or something like that. Am I yotzeh?

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