Greenspan's comments

Alan Greenspan is a common private citizen. But when he talks, the markets still listen to. However, the respond just depends on which markets.

On Wednesday afternoon, the S&P 500 was above its record closing high, with which it had been flirting all week. Then, comments from the former Federal Reserve chairman hit the wires: he feared a “massive contraction” in Chinese stocks. Prices were “unsustainable”.

There are so many comments about Chinese stock market sounding that "a lot of foam", "PBOC should suppress the foam" and so on. A huge number of the citizens rush into the market. China's stock market currently obeys a different logic to that of the US. As the Shanghai Composite has almost tripled since January last year, very few analysts would disagree with Greenspan's judgment. Such a sell-off, in a market that is still small and illiquid, need not have much effect on the world economy. But his words were still enough to prompt a 0.7 per cent sell-off in the S&P.

Well, during the structure improving day by day and law system being built, the stock market begins to reflect the real economics, thus the high rising market price seems logical. Though the experts all warn the "scattered" shareholders that the risk becomes bigger and bigger, I think the most simple way to find out whether to "sell" or "buy" is to observe the real economy of the industry you invest. If the profit or profit rate begin going down, you need to be cautious, cuz the price/profit will be higher, then you can sell the stock at a proper price.

Besides the "scattered" shareholders, we may need to check about the whole market. Is there any too much foam? Is there too much danger? Are there too much risks? Ok. I would like to have a bet with Greenspan--the massive contraction seems not likely occur