[Groty]

Goldman Sachs, Alan Greenspan, a couple of Asian billionaire investors and high ranking Chinese government authorities have all recently warned about the bubble in Chinese stocks. And yet Chinese stock speculators have ignored their warnings and pushed stocks higher -- even in the face of tightened financial condiitions (increased interest rates, increased banking reserve requirements, and widening the band in which it's currency is allowed to trade). Is it Chinese style irrational exuberance? Or are the Chinese acting rationally? I have a kooky theory.

The Chinese stock market speculators may believe the government will intervene and prevent a major market decline prior to the Olympics. By nearly all accounts, the Chinese government intends to dazzle the international community next year during their visit. The last thing the government wants is a stock market collapse that wipes out the life savings of many of its citizens. So, if the bubble looks like it is starting to unravel, maybe the Chinese speculators think the government will intervene and prop up the market. After agreeing to spend $3 billion to invest in a capitalistic pig like Blackstone, the communist government would be under alot of political pressure to use its reserves to supoort its own equity market if it started a sustained decline. Maybe that's why the Chinese speculators have ignored all the warnings and keep buying.

It's just a kooky theory, who knows.