What Happened to the ECB's Bazooka? Euro Surges as European Stocks Clobbered!

Last January I wrote: 

My point is that these central bank policies to subsidize the stock markets via monetary policies, as shown by the experiences of Japan, China and Germany, have conspicuously been increasingly afflicted by the laws of diminishing returns. 

The narrowing windows of gains only punctuate on the risk of severe or dramatic downside ‘flight’ actions overtime. Yet central banks refuse to heed reality. But they continue to focus instead on the short term. The result should be the worsening of the unintended consequences from present day ‘rescue’ actions.

Last night, ECB's Super Mario launched the much awaited stock market bailout via the "bazooka".

The result?

Just what happened to the honeymoon?  The honeymoon didn't even lasted a day as Europe's stocks got crushed!  

US stocks marginally declined, although they bounced back from intraday deep losses.

And the euro rallied hard!

Could the Super Mario's bazooka have been a buy the rumor sell the news? Or could this have been a lagging effect, where the rally may happen later?

If the bazooka failed to whip up on the risk ON appetite, what's to keep global stocks up? The FOMC meeting next week, where the doves are expected to prevail?

Truly interesting developments.

Stock Market Charts: Grizzly Bears Go On A Rampage!

Following last night's rout, the German DAX reentered the bear market...

The French CAC, which eluded the bears in August 2015, joined the DAX this time....

Europe's Stoxx 600, which escaped the bears last August 2015, likewise fell into the grasp of the bears...

The US broad market (equal weighted index) have also been captured by the bears...

The MSCI (ex-US) benchmark have similarly been snared by bear markets

Finally, Bear markets have now seized control of the leadership in the context of global stocks.

Looks like a grand entry for the awakened bears in 2016.

Once again, decoupling anyone?

(charts of US equal weight and global stocks from zero hedge, all the rest from stockcharts.com)

ECB Expands QE: European Stocks Soar, US Stocks Yawn!, IMF Warns on Downside Risks for the World!

So whatever happened to the supposed economic “recovery” from the re-launching of QE by the ECB early this year?

Ironically, despite all the previous stream of adulation on the supposed therapeutic wonders from QE,  the ECB reportedly expanded this yesterday. 

From Bloomberg: (bold mine)

Mario Draghi unveiled a revamp of quantitative easing and signaled officials might expand stimulus if the rout in financial markets continues to weigh on growth and inflation.

The European Central Bank president said in Frankfurt on Thursday that the Governing Council raised the share of bonds the ECB can buy to 33 percent of each issue from 25 percent, and that policy makers are ready to make more adjustments to ensure the full implementation of the 1.1 trillion-euro ($1.2 trillion) program. A weaker global outlook prompted an across-the-board reduction of the institution’s growth and consumer-price forecasts through 2017. The euro slid to a two-week low.

The reset of the ECB’s stimulus program after a six-month review gives officials more flexibility as they prepare to continue bond purchases until at least September 2016. Weaker commodity prices, slowing trade and volatility in global equities have fueled speculation that more stimulus is on the way…

Stimulus will continue until the end of September 2016 “or beyond, if necessary,” Draghi told reporters, in a tweak to language that hints more strongly than before at a readiness to prolong purchases.

“The information available indicates a continued, though somewhat weaker, economic recovery and a slower increase in inflation rates compared with earlier expectations,” he said. “Taking into account the most recent developments in oil prices and recent exchange rates, there are downside risks” to the latest inflation forecasts.

So in the face of wilting stocks, the ECB panicked again for them to prescribe to more monetary heroin! 

Of course, Mr Draghi didn’t directly allude to stocks, rather, he ensconced this by indicating “downside risks” in “oil prices and recent exchange rates”

Yes it's another episode of "I recognize the problem of addiction but a withdrawal syndrome would even be more cataclysmic"! Or treat the problem of addiction by providing more of the same substance that caused the addiction!

So European stocks soared!

Table from CNN Money

Unfortunately for the US, the ECB’s expanded QE only led to an initial pump, and then a closing dump!

Chart/table from stockcharts.com

Stunning response. Previously, central bank credit easing would have sent global stocks flying for weeks. And an adverse reaction would not have been the outcome. Yet like in China, stock markets appear to be pushing back on central bank policies.

There is no such thing as a free lunch. The anesthetic effects from central bank easing policies may have reached an inflection or breaking point. The writing is on the wall.

Even charts appear to be showing such strains

“Death crosses” have plagued not only US major equity indices such as the S&P 500,  Dow Industrials and the Russell 2000, but has spread to Europe…

German Dax now engulfed by a death cross…

Europe’s stoxx 50 seem headed in the same direction!

Oh by the way, the IMF continues to raise alarm bells on the global economy…

From the Wall Street Journal

China’s slowdown and a host of other downside risks threaten to push the global economy into much deeper trouble without concerted action by the world’s largest economies, the International Monetary Fund warned Wednesday.

“Risks are tilted to the downside, and a simultaneous realization of some of these risks would imply a much weaker outlook,” the IMF said in a report on the state of the global economy ahead of a meeting of top finance officials from the Group of 20 biggest economies…

But China isn’t the only concern. With growth slowing in many corners of the world and the U.S. economy strengthening, investors have plowed back into the U.S., pushing the value of the dollar up against most major currencies. That is a problem for many countries and corporations that have borrowed heavily in dollars but whose income is denominated in local currencies. And with the U.S. Federal Reserve preparing to raise interest rates, weak growth prospects and heavy debt loads are a toxic mix for many companies and economies, especially in industrializing nations.

“Near-term downside risks for emerging economies have increased,” the IMF warned.

The risks have been so so so so much obvious that even the erstwhile blind can see or sense them.

US, European Stocks Nosedived!

What an incredible week!

US and European stocks nosedived during the last two trading days.

This is how the mainstream media explains of the quasi-crash

From Bloomberg: (bold mine)

The global equity selloff that sent benchmark indexes to their worst week in four years played havoc with individual stocks and industries in the U.S. market.

To energy shares already snared in a bear market, add semiconductor stocks, which crossed the threshold by capping a decline of more than 20 percent. Apple Inc. also entered a bear market, while the Dow Jones Industrial Average entered a so-called correction with a decline of 10 percent from its last record. Biotechnology, small caps, media, transportation and commodity companies have also entered corrections.

The Standard & Poor’s 500 Index sank 3.2 percent on Friday to cap a weekly loss of 5.8 percent, the worst daily and weekly declines in almost four years. The benchmark gauge is down 7.5 percent from its last record in May, after dropping out of a trading range that has supported it for most of the year.

I’d add that it’s not just the daily or weekly activities that matters but the two-day quasi crash that should highlight this week’s losses.

That’s because as shown above,  the two day losses effectively contributed to the bulk (about 90%) of the weekly losses on various benchmarks. My tally board shows of the weekly and year to date performance:  Dow Industrials -5.82% y-t-d -7.65%, S&P -5.77% y-t-d -4.27% and Nasdaq -6.78% y-t-d +.63%

Yet the start of a new trend?

Before this week, U.S. equities had held their ground throughout 2015, weathering turmoil from Greece and headwinds including a strong dollar that threatened multinationals’ earnings and a more than 60 percent drop in oil prices.

The S&P 500 stuck within a range roughly tracking its 50-, 100- and 200-day moving averages, boosted by signs the economy is recovering and support from central banks. The benchmark index hadn’t had a decline of more than 5 percent all year, and hasn’t dropped more than 10 percent since 2011.

Correction or coming bear market?

 

More…

After the selloff, the S&P 500 is trading at 16.65 times earnings. That’s down from 18.9 times a month ago, which was near a five-year high, but still exceeds the five-year historical average of 16.1 times profit.

Data in the U.S. today showed an August factory orders index fell. Investors are watching economic data for clues on when the Fed will raise interest rates.

Slower global growth may cause the Fed to delay its first rate increase since 2006. Minutes of the central bank’s latest meeting, released earlier this week, showed officials are concerned about stubbornly low inflation even as the job market improves. Traders are now pricing in a 32 percent probability of a rate move at the September meeting, down from 50 percent before the release of the minutes.

The Chicago Board Options Exchange Volatility Index surged 46 percent to 28.03. The measure rallied 118 percent this week, the biggest five-day gain on record.

Investors are selling the biggest winners of 2015. Companies that have come to be known as the Fab Five -- Netflix Inc., Facebook Inc., Amazon.com Inc., Google Inc. and Apple Inc.-- have seen about $100 billion in market value erased over two days. Losses pushed the Nasdaq 100 Index down 7.4 percent over the past five days, the biggest weekly decline since May 2010.

Note again: utterances of the possible delay on the Fed’s rate hike.

Prior to yesterday’s bloodbath bond traders have already been scaling down on the odds of a rate hike. This only means that the much publicized FED rate hike has hardly been a big factor in the recent equity market and emerging market currency sell off.

Besides given the surge in financial market volatility, the Fed is unlikely to add to the current conditions by tightening. So rate hike looks like another Yellen-Fed poker bluff.

The Fed will likely go for another QE (QE 4.0) once the financial volatility (stock market selloff) intensifies.

Back to the report…

Broad based retreat

All 10 major groups in the S&P 500 retreated today. Technology companies dropped 4.2 percent, while energy and consumer discretionary shares slid more than 3.2 percent.

That’s Friday’s broad based bloodbath on Wall Street as shown by various indices.

The China domino effect and the Euro connect...

U.S. equities followed overseas markets lower, as the Stoxx Europe 600 Index tumbled 3.3 percent, extending its drop since April to almost 13 percent, and the MSCI All-Country World Index slid 2.7 percent to the lowest since October.

Equities continued to slide today after China released its weakest manufacturing data since the global financial crisis, which accelerated losses in riskier assets. Worries about the world economy had already been intensifying after China devalued its currency last week, compounded by uncertainty about what Federal Reserve inflation concerns portend for interest rates.

The German Dax and the Stoxx 600 has been severely mauled.

How about swooning emerging markets and the US dollar strength which are symptoms of the progressing US dollar liquidity crunch?

 

The periphery has now hit the core. The progressing decay of global asset bubble fostered by global central banks has not only been spreading but accelerating. All those massive easing (financial repression policies) seem to have hit a 'tipping point'.

Risk Off is Back? German Stocks Tumble Most Since 2008

Interesting to see of the reemergence of (downside) volatility in global financial markets. This applies especially on stocks that has recently soared to record highs.

On the German Dax and other major European benchmarks, from Marketwatch.com (bold mine)

German stocks slid 3% on Wednesday, knocked lower by a sharp rise in the euro against the dollar after weak U.S. growth data underscored anticipation the Federal Reserve will delay a hike in interest rates.

Germany’s DAX 30 DAX, -3.21% which has been a beneficiary of euro weakness this year, saw the biggest point decline since October 2008, down 378.94 points, or 3.2%, to 11,432.72. The drop also marked the largest percentage decline since March 3, 2014, according to FactSet data.

At the same time, the Stoxx Europe 600 SXXP, -2.21% fell 2.2% to 397.30, its lowest close since late March.

Blaming the euro…

Yet the biggest drop since 2008, the German Dax...

The Stoxx 600...

Here is what the news didn’t say...

Yields of 10 year German bunds spiked!

This comes as bond market mavens, Bill Gross and Jeff Gundlach has declared German bunds as a “short” opportunity of a lifetime. (chart above from Zero Hedge)

From Bloomberg (bold mine)

Investors gave the clearest sign yet they’re losing patience with the record-low yields on euro-area government bonds in a selloff that spared no market.

Yields on Germany’s bunds surged the most in two years as traders shunned an auction of the nation’s debt. Bond titan Jeffrey Gundlach of DoubleLine Capital egged on the declines, saying he’s considering making an amplified bet against the securities. His comments echoed Janus Capital’s Bill Gross, who once managed the world’s largest bond fund. He said bunds were the “short of a lifetime.”

The bond slump reflects growing angst among investors after the European Central Bank’s 1.1 trillion-euro ($1.2 trillion) quantitative-easing program sent yields to unprecedented lows from Germany to Spain. Emerging signs of inflation in the 19-nation economy are also hurting demand.

Growing signs of intensifying unintended consequences from ECB policies? And are these also signs of the spreading and deepening of fractures from a broken system?

Hmmm...

Periphery to Core Transmission? Earnings Growth Estimates in North America and Europe Plummets!

In February of last year, I proposed that the volatility incited by the Bernanke "Taper Talk" would have a feedback loop transmission mechanism to developed economies: (bold original)

if the adverse impact of emerging markets to the US and developed economies won’t be offset by growth (exports, bank assets and corporate profits) in developed nations or in frontier nations, then there will be a drag on the growth of developed economies, which would hardly be inconsequential. Why? Because the feedback loop from the sizeable developed economies will magnify on the downside trajectory of emerging market growth which again will ricochet back to developed economies and so forth. Such feedback mechanism is the essence of periphery-to-core dynamics which shows how economic and financial pathologies, like biological contemporaries, operate at the margins or by stages.

Let us see how this may have been applied anent earnings growth.

First 12 forward EPS growth estimates for MSCI Emerging markets and Pacific…

EPS growth has declined in 2013, rallied in the 1Q of 2014 (green trend line) and has cascaded through the yearend. There seems to be innate signs of recovery. But recoveries look as if it has been driven by seasonal yearend forces (green boxes)

Nonetheless the general trend looks headed south interspersed with gains.

Now here is the more interesting part.

The same EPS estimates for MSCI North America and Europe has collapsed.

Notes the prolific Gavekal Team (charts theirs too)

Without delving into the multitude of reasons for the drop, we just point out that EPS estimates for next twelve months are falling like a stone in North America and Europe and for these two regions the bottom line estimates point to the lowest growth rate since late 2009. It doesn't matter whether we look at average EPS growth estimates or median, as the fall in both series is becoming concerning.

Thankfully, the estimated EPS growth rate for developed Asia and EMs has remained stable.

Will the feedback loop from the developed economies magnify on the downside trajectory of emerging market growth which again will ricochet back to developed economies and so forth?

Also record stocks in the face of collapsing EPS!

Very interesting.

As Oil Prices Collapse Anew, Tremors Hit Global Stock Markets

Financial market crashes have become real time.

Well, last night oil prices plummeted again. The European Brent crashed 5.87% to 53.11 per bbl while the US counterpart the WTIC dived 5.42% to close BELOW $50 or $49.95 a bbl.

The chart above from chartrus.com reveals that the present levels of US WTIC have reached 2009 post Lehman crisis levels.

Then, oil prices responded to deteriorating economic and financial conditions. Today, oil prices seem to lead the way.

Collapsing oil prices hit key stock markets of major oil producers, such as the Gulf Cooperation Council, quite hard.

The recent sharp bounce that partly negated losses from the harrowing crash that began last September seem to have been truncated as Dubai Financial, Saudi’s Tadawul, and Qatar’s DSM suffered 3.35%, 2.99% and 1.91% respectively (charts from Asmainfo.com) last night.

In short, bear market forces seem as reinforcing its presence in these stock markets.

Yesterday’s oil price meltdown affected least Oman’s Muscat and Bahrain Bourse. Nonetheless, again bear markets have become a dominant feature for GCC bourses.

A prolonged below cost of production oil prices will translate to heavy economic losses for Arab oil producing states. Such will also entail political repercussions as welfare programs of these nations depend on elevated oil prices as discussed here.  This will also have geopolitical ramifications.

Incidentally, as I previously pointed these nations play host to a majority of Philippine OFWs. 

More than half or about 56% of OFWs according to the Philippine Overseas Employment Administration (POEA) have been deployed to this region. Will OFWs (and their employers) be immune from an economic or financial crisis? This isn’t 2008 where the epicenter of the crisis was in the US, hence remittances had been spared from retrenchment. For this crisis, there will be multiple hotbeds.

So a financial-economic collapse (possibly compounded by political mayhem) in GCC nations may impede any remittance growth that could compound on the travails of the Philippine bubble economy.

It’s not just in emerging markets, though, last night Europe’s stock markets likewise convulsed.

Part of the concerns had not only been about oil but about a GREXIT or Greek default from tumultuous Greek politics based on the failure to muster majority support for a presidential candidate.

Incredibly German’s DAX was slammed 3% (table above from Bloomberg).

Crashing Greek stocks lost another 5.63% yesterday.

Apparently broad based selling also buffetted near record US stock markets.

The XLE Energy Sector endured another tailspin down by 4.19%. Yesterday’s clobbering only fortified the bear market forces affecting the US energy sector which has diverged from her peers.

I propounded that the slumping energy sector will eventually impact the rest of the markets. Divergence will become convergence; periphery to the core.

Remember, the reemergence of heightened financial volatility comes in the face of October’s stock market bailout via stimulus implemented by ECB, BoJ-GPIF, and the PBOC.

This implies that the soothing or opiate effects, which had a 3 month window, has been losing traction. 

Will Ms. Yellen come to the rescue???

Global Stock Market Rout Continues, Russian Government Hikes Rates from 10.5% to 17%!

European stocks started strong, but ended the day in another carnage as oil prices continued its free fall. European Brent oil sunk 1.03% as US WTIC collapsed 3.62%!

The table from Bloomberg says it all

UK’s FTSE now at October levels, the French CAC just a few points away from the same area, the German and the European Stoxx600 likewise in a steep fall.

Interestingly, in order to stem capital flight and the collapse of her currency the ruble Russia’s central bank stunningly hikes official policy rates from 10.5% to 17%!

From the Bloomberg:

Russia’s central bank raised its benchmark interest rate the most since the nation’s 1998 default, making the announcement in the middle of the night in Moscow as policy makers seek to douse investor panic and stem a ruble rout.

The central bank increased the key rate to 17 percent from 10.5 percent effective today, it said in a statement on its website. Policy makers gathered for an unscheduled meeting after a one-point increase on Dec. 11.

“This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks,” the bank said in the statement.

Russia’s central bank raised interest rates for the sixth time in 2014 after more than $80 billion spent from its reserves failed to stop a 49 percent selloff of the ruble, the world’s worst-performing currency this year. President Vladimir Putin, whose incursion into Ukraine’s Crimea peninsula in March prompted the U.S. and its allies to strike back with sanctions, this month called for “harsh” measures to deter currency speculators.

The chart above of the USD Russian (RUB) gives an idea of how the ruble has recently been smashed from collapsing oil prices exacerbated by economic sanctions imposed against Russia  by Western political economies.

The stunning rate hikes will hurt domestic debt holders!

Oh by the way, speaking of crashing currencies, neighboring Indonesia’s currency the rupiah has now reached record lows. Or alternatively said the USD- Indonesia IDR is at record highs!

The USD Malaysian ringgit (MYR) seems headed that way too!

Financial pressures have reared their ugly heads in ASEAN financial markets

Meanwhile US stocks was partly affected by the European stock selloff…

Oh don’t worry be happy. Philippine stocks will rise forever!

Middle East employers of OFWs will NOT be affected by the current financial market crash. Shrinking global trade will NOT impact demand for local goods. Slowing GDP has been an ANOMALY which means harried consumers (from BSP's inflationism), declining investments and slowing output have signified as aberrations or temporary dislocations. Debt can perpetually rise WITHOUT consequence of impairing balance sheets of the consumer and mostly of the highly levered supply side firms (mostly owned by domestic plutocrats). Falling peso and regional currencies will hardly will affect decisions of foreigners on their portfolio holdings of Philippine stocks, bonds, properties and currency, or simply stated, profits and losses or economic calculation have now been VANQUISHED! BSP actions of two interest rates and, SDA hikes and requirements to raise bank capital plus the ongoing depletion of GIRs (combined with the other flows that didn’t appear in the GIRs) to defend the Peso will have NO impact on liquidity conditions. Property prices can only rise forever WITHOUT real economic dislocation where the law of demand has been REPEALED!

Don’t you see we have reached economic nirvana! No amount of global meltdown will stop the domestic stock market boom. That’s what stock market operators, who has been rigging the markets with impunity, wanted to show!

Bloody Tuesday: GCC, European Stocks Battered; Greek Stocks Collapse 13%!

Add to the carnage in China’s stock markets, it has been a largely bloody Tuesday for global risk assets.

The 4% crash in Europe’s crude oil, the Brent (as of Monday December 8), sent stock markets of major oil producers the Gulf Cooperation Council (GCC) plunging, again

table from ASMA

US oil WTIC rallied mildly today.

Risk OFF Tuesday hit European stocks pretty hard (from Bloomberg)

Since October, crashes have become real time. Greece’s financial markets cratered!

The Athens General index lost 12.78% in a single day (stockcharts.com) 

Today’s meltdown signifies the single biggest crash since 1987. Notes the Zero Hedge: (bold original)

Greek stocks are now down 13% - the biggest single-day drop since (drum roll please) the crash of 1987... led by total carnage in Greek banks (down 15-25% on the day). Greek bond yields exploded, 3YR +183bps to a new post-bailout high at 8.32% (and inverted to 10Y).

Greek bond yields also soared.

The Greek president called for a snap election on December 17 which reportedly may spark “political turmoil”.

The anti-bailout leftist group the Syriza which has been said to “promise everything to everyone” by reneging on deals for bailout, halting austerity, restoring social spending, continue to receive subsidies from the Eurozone, IMF and labor protection reportedly leads in the opinion polls. In short, the popular leftist group wants a bankrupt nation to revive free lunch policies and expect to get a free pass on the economy. So market’s response has been rational.

Interesting to see how a revival of the Greek crisis will impact a vulnerable Europe, in the face of a Japanese recession, a highly fragile Chinese economy and a slowdown in Emerging markets, aside from heightened geopolitical tensions.

Nonetheless US markets bounced backed from the depths of the selling pressure from a recovering USD-yen, buoyant small cap and technology stocks.

Chinese Stocks Skyrockets on STIMULUS HOPES, European Stocks follow China’s Footsteps

Who says stocks are about economic and earnings growth? In today’s era of modern central banking, stocks have really been all about credit and liquidity expansion designed to rev up confidence (animal spirits) based on “hopes” from government’s free lunch magic.

It’s why bad news have become 'good news' for stock speculators. 

China's Shanghai index catapulted to new 3-year highs following today’s 3.1% surge.

From Bloomberg Businessweek: (bold  mine)

China’s stocks jumped the most in 15 months, sending the benchmark index to a three-year high, as a surge in trading boosted the outlook for brokerage profits and investors bet the central bank will ease monetary policy…

The Shanghai Composite Index (SHCOMP) advanced 3.1 percent to 2,763.55 at the close. Hong Kong’s Hang Seng China Enterprises Index (HSCEI) rebounded from the steepest plunge in nine months, adding 2.8 percent. Data yesterday showing slower-than-forecast growth in manufacturing increased speculation the central bank will follow up on last month’s cut in interest rates with a reduction in lenders’ reserve-requirement ratios.

See? Bad news (slower than forecasted growth) has now become fodder for manic bidding up of securities because the PBoC will come to the rescue (follow up on last month's interest rate cut).

The PBoC suspended sterilization via open market operations again yesterday which means allowing recently injected liquidity to stay within the system.

I’ve repeatedly saying here that the Chinese government has been engineering a stock market bubble. The reason for this could most likely be to camouflage her deflating property bubble, as well as, to find alternative avenues for overleveraged companies to access funds.

Here is what I wrote of the stock market veneer from China's deflating property bubble:

Given that the housing markets have been on a steep decline, the Chinese government hopes that by providing “gains” on speculative activities to retail investors in the stock market, such would create “demand” for housing, thereby cushioning the current pressures on the housing markets.

It figures that there could be a third reason: divert the average Chinese from shadow banking into the stock market.

From the Wall Street Journal:  (bold mine)

Chinese investors have long chased the best-performing assets. They dumped stocks to buy into a property boom before the global financial crisis, and when the housing market cooled about two years ago, they piled into high-yield but risky bank loans packaged as wealth-management and trust products…

But Beijing has been seeking to reduce use of these products. The trust industry, a pillar of the country’s large but poorly regulated informal lending system, has come under the spotlight in recent years after a few high-profile incidents when investors suffered losses from missed or delayed interest or principal payments…

“I used to buy some trust products with returns of more than 10%, but I have lost some money recently. I am staying away from that risky business and putting more money into stocks now,” said Ralph Lv, a 41-year-old retail investor in Nanjing in eastern China.

Sad to see how Chinese government’s financial repression policies have led the average citizenry to chase bubbles after bubbles— “dumped stocks to buy into a property boom” then “piled into high-yield but risky bank loans packaged as wealth-management and trust products” and now back to chasing stocks.

In short, desperate to generate returns from savings and given the few alternatives amidst a zero bound regime, the average Chinese has tacitly been goaded by government policies to gamble their savings away. 

Also the average speculators have known to leverage their bets on the stock market, so Chinese debt problem will likely surge, perhaps shifting from shadow banks to brokerages and financial houses. So China's debt problem will only balloon.

Again the Wall Street Journal

Such a speculative mentality is evident within the stock market itself. In contrast to the losses last year on the blue-chip-heavy Shanghai bourse, the ChiNext board, the Nasdaq -style marketplace for startup firms on the smaller Shenzhen stock exchange, rose 83% last year as investors piled into more volatile tiny stocks. The Shanghai index fell 6.8% last year.

The idea that the 21st century will be a China century will only be a dream if current bubble blowing policies will continue. The Chinese have been consuming or depleting their savings from chasing bubbles after bubbles.

In today’s actions, it’s not just Chinese stocks. European stocks have been up (as of this writing) reportedly for the same reason as the Chinese: expectations of bailout.

From the Bloomberg (bold mine)

European stocks rose, snapping two days of losses, amid an increase in mergers-and-acquisitions activity, and as investors weighed stimulus prospects before the European Central Bank meets this week.

The Stoxx Europe 600 Index added 0.4 percent to 346.95 at 8:07 a.m. in London. The benchmark gauge lost 0.5 percent yesterday as a decline in oil prices, and factory data in China and Europe stoked concern about slowing inflation and global growth. The gauge gained 3.1 percent last month as ECB President Mario Draghi said the lender may broaden its asset-buying program to include government bonds, while central banks in Japan and China boosted stimulus measures.

The ECB’s next policy meeting is on Dec. 4. More than half the economists in a Bloomberg survey expect the central bank to buy government bonds if it expands its stimulus program.

Good news—stocks go up. Bad news—stocks also go up. Stocks can only go up forever. 

That’s if you believe in the fantasy called "free lunch".