Ben Graham said 2 years before the 1960s market top “a large advance in the stock market is a sign for caution and not a reason for confidence.” Taking history into context when it comes to investing in stocks was part of Graham’s approach. Graham also made a distinction between investing and speculation and stated that losing sight of the distinction ” has caused a great deal of trouble in the past and will cause a great deal of trouble in the future.”

From the following charts, you will see that Chinese stock investors are:

1. Failing to take history into account
2. Ignoring underlying fundamentals
3. Clearly in a speculative buying frenzy

First, the China GDP growth story in the last 15 years has largely been supported with public and private credit.

Yet with all the spending, there are definitive signs that the real estate construction supply chain may be collapsing.

A clear signal that growth may be collapsing is the 70% drop in iron prices.

Speculating in real estate has been replaced by stock speculation.

In just 9 months stocks are up 114!

The 3.25 million brokerage accounts being opened each week is more than double what it was at the height of the ’07 market mania.

What is even scarier is the amount of margin now supporting stocks.

At $264 billion it put’s the margin / GDP ratio at the same level just before the ’29 Great Crash in US stocks!

We only have to look at our own history with bubbles to see how this could end.