First Alan Greenspan says that we are “beginning to see” the signs of recession forces.  The next day stocks drop 9% in China and 3% here in the states.  Thanks Alan!

Although Greenspan’s contribution to the sell off can’t be denied, the impetus for the profit locking in China is clear: threat of taxation and regulation.

“The (rumors) that China is going to impose a capital gains tax resulted in regional markets falling,” said S. Sharath, an analyst with MIDF-Amanah Investment Bank in Kuala Lumpur, Malaysia, where the benchmark index tumbled 2.8 percent.

Chinese regulators shifted into damage control Wednesday, with a government-run newspaper denying rumors of plans for a 20 percent capital gains tax on stock investments.

A business analyst on NPR said that the Chinese government is concerned that their stock market is becoming too speculative.  Apparently people over there have gotten the day trading bug and are taking out second mortgages to engage in some legalized gambling.  The government worried about the bottom falling out , so they moved over the weekend to enact regulations that would cool off the day trading frenzy.  Good move.

Stocks in the U.S. are actually reasonably priced compared to the late 90’s or even earlier in this decade.  During those heady days the market’s PE ratio was often in the mid 30’s compared to the high teens today.  Remember: buy low, sell high.  Lots of people took a bath today, but if you’re sitting on a pile of cash take advantage of the low prices.

Obligatory disclaimer: Don’t blame me if you follow my advice and lose your shirt!

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This entry was posted by Brian on Tuesday, February 27th, 2007 at 9:11 pm and is filed under Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Please note the copyright policy.