House Market Crash Correlated to Share Market Bubble?

[NeverQuestion]

Hi All,

So one thing that I found interesting out of the Chinese House Market Crash was that immediately following there seemed to be a bit of a bubble forming on the Chinese Share Market..

Is this a common trend during a crash? Is there anyone who can confirm that has been the case during property market crashed in other countries?

Thanks in Advance!

[Jinx]

I have no experience in other countries during these crashes (property or otherwise) But the crash of 2007 in the states was a house market crash and that certainly didn't create a bubble for US share markets

[Hoop]

Hi All,

So one thing that I found interesting out of the Chinese House Market Crash was that immediately following there seemed to be a bit of a bubble forming on the Chinese Share Market..

Is this a common trend during a crash? Is there anyone who can confirm that has been the case during property market crashed in other countries?

Thanks in Advance!

Successful investors do DYO homework..so much easier nowadays Google is great.

Just to guide you in the right direction....a bit of History... as it often repeats in various other forms...

Over-simple version:..Markets crash not because they are overvalued (most of the time they are but not always) but due to the sudden lack of "available money" This happens as our "hard coded" survival instincts kick in at a Group behavioural level e.g sudden mass exit.. creates panic (stampede)..Mass withdrawals from selected financial institutions can create a "House of Cards" catalyst and when this catalyst triggers, it sets in motion the sudden non availability of that money which then paralyses the normal day by day operations of the markets and their environment of network systems surrounding the markets.. and this contagion spreads throughout the system network

Flooding these distressed markets with "available money" is not a new idea (https://www.globalfinancialdata.com/gfdblog/?p=1374).....History has seen that back in earlier days Governments where "hamstrung" and it was left up to the very few people that had the financial firepower, the obscenely wealthy individuals or Families to rescue the Country's markets (economy)..Sometimes the Wealthy kept their hands in their pockets and Great Depressions resulted..Sometimes they came to the rescue and as a result Joe and Jane Public had no idea that they were saved and nearly always scorned their "Saviours". Scorned because the successful made huge fortunes from buying into (propping up) a hugely risky depressed market system (not gone unseen in later years by some crafty investors as a way to become personally rich such as Warren Buffet)..The unsuccessful people lost their fortunes in their attempt to save the economy we don't hear much about them as they were labelled as "serves you right fleecing the poor" and got no sympathy from the Public either...which made future decisions at the next market crisis an unknown whether any White knight would come to the rescue..
The best example is the 1907 panic when the likes of people and families such as the Rockefeller's, Rothschild's who were called upon to avert another great depression. There was reluctance as they expressed the view that they and others shouldn't have to be called upon every time a crisis hits...J P Morgan stepped up and risked his money this time as well as convincing others to help create a large pool of money needed....Through this panic and the rising risk of no future White Knights and also the deep concern that these White Knights could become too powerful for the Government to handle as there were fears that J P Morgan had become that, Senator Aldrich whose Father in Law was D Rockefeller sowed the seeds to use State intervention by creating a Reserve funded Central Bank ...the FED..

So with the Central Banks operating why didn't available money help avert the 1930"s Great Depression...Quick Answer.. The Government interfering at cross purposes with its Central Bank.. Long Answer (http://www.hillsdale.edu/outreach/free-market-forum/archives/2006/what-got-us-into-and-out-of-the-great-depression) and this article quote JANET YELLEN is aware of this I think "......U.S. central bankers also began to worry in the late 1920s that by keeping interest rates artificially low, their policies were feeding a frenzy to buy corporate shares and creating a stock-market bubble destined to pop with destructive effects on the real economy. Accordingly, in 1928 and more so in 1929, they moved away from their "cheap money" policies, adopting policies of higher interest rates and exerting direct pressure on commercial banks to stem what they viewed as "speculative excesses" and diversions of bank loans from economically sound purposes. Most economists now believe that this change of monetary policy triggered the U.S. economic downturn that occurred in mid-1929 and the stock-market crash that followed later in the year. Others believe that the prior ("cheap money") policies themselves presaged the downturn, because the malinvestments that those policies had fostered would have to be liquidated sooner or later by means of bankruptcies and reallocations of resources to more sustainable uses, a process marked by economic disruptions and transitional unemployment...."


As for China...Over-simplistic answer:..To avert a great recession (depression) the share market rose because of the same theory but as China has different and controlled systems to that of USA it was applied in a different way..that of direct funding (injection of available money") using the State financial markets as an intermediary straight to the Equity Market to create a support floor and to which lessens the risk of collapse for equity investors and encourage them to invest (create a secondary way to increase additional "available money" into the system)

[peat]

It is quite true that following the share market crash in NZ in 1987 the flow of money redirected itself for a while into property, as the mantra of bricks and mortar prevailed, and it might even be said that this had a long term influence on NZ investors now well renowned penchant for property investment. That said, in 1991 (four years after the stockmarket crash) property prices fell in real terms for the first time for decades, which is when I bought my first house.

[NeverQuestion]

Successful investors do DYO homework..so much easier nowadays Google is great.

Just to guide you in the right direction....a bit of History... as it often repeats in various other forms...

Over-simple version:..Markets crash not because they are overvalued (most of the time they are but not always) but due to the sudden lack of "available money" This happens as our "hard coded" survival instincts kick in at a Group behavioural level e.g sudden mass exit.. creates panic (stampede)..Mass withdrawals from selected financial institutions can create a "House of Cards" catalyst and when this catalyst triggers, it sets in motion the sudden non availability of that money which then paralyses the normal day by day operations of the markets and their environment of network systems surrounding the markets.. and this contagion spreads throughout the system network

Flooding these distressed markets with "available money" is not a new idea (https://www.globalfinancialdata.com/gfdblog/?p=1374).....History has seen that back in earlier days Governments where "hamstrung" and it was left up to the very few people that had the financial firepower, the obscenely wealthy individuals or Families to rescue the Country's markets (economy)..Sometimes the Wealthy kept their hands in their pockets and Great Depressions resulted..Sometimes they came to the rescue and as a result Joe and Jane Public had no idea that they were saved and nearly always scorned their "Saviours". Scorned because the successful made huge fortunes from buying into (propping up) a hugely risky depressed market system (not gone unseen in later years by some crafty investors as a way to become personally rich such as Warren Buffet)..The unsuccessful people lost their fortunes in their attempt to save the economy we don't hear much about them as they were labelled as "serves you right fleecing the poor" and got no sympathy from the Public either...which made future decisions at the next market crisis an unknown whether any White knight would come to the rescue..
The best example is the 1907 panic when the likes of people and families such as the Rockefeller's, Rothschild's who were called upon to avert another great depression. There was reluctance as they expressed the view that they and others shouldn't have to be called upon every time a crisis hits...J P Morgan stepped up and risked his money this time as well as convincing others to help create a large pool of money needed....Through this panic and the rising risk of no future White Knights and also the deep concern that these White Knights could become too powerful for the Government to handle as there were fears that J P Morgan had become that, Senator Aldrich whose Father in Law was D Rockefeller sowed the seeds to use State intervention by creating a Reserve funded Central Bank ...the FED..

So with the Central Banks operating why didn't available money help avert the 1930"s Great Depression...Quick Answer.. The Government interfering at cross purposes with its Central Bank.. Long Answer (http://www.hillsdale.edu/outreach/free-market-forum/archives/2006/what-got-us-into-and-out-of-the-great-depression) and this article quote JANET YELLEN is aware of this I think "......U.S. central bankers also began to worry in the late 1920s that by keeping interest rates artificially low, their policies were feeding a frenzy to buy corporate shares and creating a stock-market bubble destined to pop with destructive effects on the real economy. Accordingly, in 1928 and more so in 1929, they moved away from their "cheap money" policies, adopting policies of higher interest rates and exerting direct pressure on commercial banks to stem what they viewed as "speculative excesses" and diversions of bank loans from economically sound purposes. Most economists now believe that this change of monetary policy triggered the U.S. economic downturn that occurred in mid-1929 and the stock-market crash that followed later in the year. Others believe that the prior ("cheap money") policies themselves presaged the downturn, because the malinvestments that those policies had fostered would have to be liquidated sooner or later by means of bankruptcies and reallocations of resources to more sustainable uses, a process marked by economic disruptions and transitional unemployment...."


As for China...Over-simplistic answer:..To avert a great recession (depression) the share market rose because of the same theory but as China has different and controlled systems to that of USA it was applied in a different way..that of direct funding (injection of available money") using the State financial markets as an intermediary straight to the Equity Market to create a support floor and to which lessens the risk of collapse for equity investors and encourage them to invest (create a secondary way to increase additional "available money" into the system)

Thanks Hoop.. This actually makes a lot of sense!!