Aside from all the jitters surrounding the Greek default, the other economic story worth following is the Chinese stock market. It went up by 50% in the first 5 months of the year, and has declined by 25% in the last month. The Chinese government has been trying to stabilize the market, but much of the meteoric rise of the market was due to margin purchases by ordinary citizens who have not yet developed the skills of stock picking. According to the China Household Finance Survey conducted by the Southwestern University of Finance and Economics in China:
“Reports say the China Household Finance Survey, which is conducted by Southwestern University of Finance and Economics, found nearly 6 percent of new investors were illiterate, a quarter finished only elementary school and more than third left the education system at junior high school level.”
Buying on margin is a very risky process since a buyer only puts down a small percentage of the value of the stock, but the full price can be demanded at any time (and usually is when the price begins to fall). When the sellers begin to demand full price from those who bought on margin, the end result is usually a precipitous decline. We will have to see if the Chinese government can calm the markets.
Despite vehement Russian denials, evidence uncovered by a Ukrainian defense force indicates that the Russian military presence in eastern Ukraine is quite substantial. Dnipro-1, a volunteer defense force in Ukraine, flew a drone over a Russian military encampment and posted the video on You Tube. The military presence is substantial and is designed to prevent the Ukrainian government from feeling too comfortable in forging closer relations with the European Union and the US. Although the film is quite persuasive, there is little that the West can do to force the Russians to leave.
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