China’s stock bubble is going supernova
A supernova is a stellar explosion that is so bright it momentarily outshines the entire galaxy. The most massive supernovae are caused by stars which collapse under their own gravity, sending massive shockwaves radiating outwards into space. Any onlooker happening to see a supernova might be forgiven for thinking that these super-bright objects are the most awesome stars in the sky — but that bright spot is just an epic final burst of remaining energy. At their brightest moment, we are actually witnessing stellar death.
So… sell?
We think it’s a pretty good metaphor for China’s off-the-charts markets. In equity-market terms, a supernova is a blow-off top: That moment when novice traders get suckered into thinking that today’s awesome growth is a sign of even higher future returns tomorrow. The reality is that they are merely witnessing a final burst of energy — after which the future won’t be quite as bright, to say the least.
Here’s what’s happening in China:
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