China bubble to burst, Greenspan predicts

Former U.S. Federal Reserve Chairman Alan Greenspan warned Wednesday that there's going to be a "dramatic contraction" in Chinese equities and that the current surge on the Chinese stock market is unsustainable, according to media reports. In recent weeks, a number of financial firms, including Goldman Sachs, as well as Governor Zhou Xiaochuan of the People's Bank of China have expressed concern about the possibility of a bubble forming in the Chinese stock market. The Shanghai Composite Index, which tracks shares listed on the larger of China's two stock exchanges, has gained 56% year-to-date.

Is there anyone who doesn't think the Chinese markets are bubblicious?
The bigger questions are whether or not Chinese policymakers have lost control of the economy.

OK, that was written last May...for anyone owning anything in China they have seen remarkable appreciation.

Yesterday, Buffett continued on as was reported by Bloomberg News:

Former Federal Reserve Chairman Alan Greenspan said China's stock market is a speculative bubble that will burst.Asked if China was in a state of "irrational exuberance," a phrase Greenspan made famous in 1996, he said, "I think so," speaking to a conference of insurance executives in Boston on Tuesday."When you don't expect it, it breaks," Greenspan said of the bubble.

His comments reprise remarks from May, when Greenspan said he was concerned Chinese equities might undergo a "dramatic contraction" after its main stock index at the time had jumped more than 90 percent since the start of the year.Greenspan's latest words of concern come at a time when investors are increasing bets on Chinese equities. Tuesday, PetroChina Co. and Alibaba.com Ltd. sold stock valued at more than $10 billion.

PetroChina, the world's second-largest company by market value, raised $8.9 billion in the biggest stock sale this year.Alibaba, the operator of China's largest trading Web site for companies, sold $1.5 billion of shares in the second-biggest initial public offering of an Internet company, after Google Inc., said two people with knowledge of the matter.China's benchmark CSI 300 index has surged 170 percent this year as the country's households invest more of their $2.3 trillion of savings in equities. The rally has given China more of the world's 10 largest companies than the U.S. for the first time and prompted billionaire investor Warren Buffett to warn that prices have risen too fast.China's stock market value is $3.7 trillion, compared with $18.7 trillion for the U.S."It's easy to be carried away in the stock market when things are going very well," Buffett said Oct. 24. "We at Berkshire never buy stocks when we see prices soaring."Greenspan on Tuesday also predicted a "long-term erosion" of the dollar in part because of the U.S. current-account deficit. The U.S. currency's decline is accelerating, he said.For three years, Greenspan has said the dollar will weaken when international investors tire of financing the U.S. current-account gap, the broadest measure of trade."We are likely to see a long-term erosion of the dollar," said Greenspan, 81, who retired from the central bank in January 2006 after 18 years as chairman and last month published a memoir titled "The Age of Turbulence."