China's visible hand

As you probably know, China's government has made numerous moves to open their markets internationally in an attempt to boost their markets.  It's worked fabulously.  In fact, it's worked too well.

Wednesday, Business Insider notes the belief in China that the government will prevent or backstop any crash.

"China has been through the planned economy model for decades. This is especially ingrained in the generation of my parents, who make up the bulk of individual investors,"

So the Chinese people have this thought in their minds.  Then they see the government implementing new measures weekly for a year.  A year in which the Shanghai Index rises non-stop nearly 160%.  While this is happening the government is telling you to get involved and encouraging market participation.  As a citizen, how do you not feel the government has major control over the markets?

The question that probably matters most is do just the Chinese people think the government can control the market?  Or does the Government think that as well?

It's pretty clear to us that the government doesn't have any long term control, and their numerous measures just continually get priced in.  The market/regulation easing apparently won't slow down.  They're cutting rates and implementing measures more aggressively as the market now falls.

The other thing that's clear is the government doesn't give a rats ass about it's citizens.  Just today the government allowed people to leverage against their homes to buy stocks.

At some point, the long China trade became about getting foreign investors to buy into their markets.  Maybe that was the idea all along, who knows.  Two trading days after MSCI declared they wouldn't add China A-shares to some major indices, Shanghai topped.

For whatever reason, China's communist government is acting desperate.  It seems they want to rip off anybody and everybody they can.  The million dollar question is why.  The simple answer is because of debt issues that have built up in state owned enterprises over the last decade.  Of course, things aren't always what they seem.

The bottom line is: China is much more of a threat to global economic stability, than a threat of replacing the U.S. as a global economic leader.

This story isn't close to over and it'll be something to watch in the rest of the year.

Trade 'em well!