Greek crisis is nothing compared to China

cnnmoney ^ | 7/6/2015 | Paul LaMonica

[Signalman]

The population of Greece is slightly less than the state of Ohio's, while its gross domestic product is just a little bit bigger than the economies of Kazakhstan, Algeria and Qatar. Instead of focusing on Athens, investors should be much more worried about what's going on in China. You know, that country with about 1.4 billion people and the world's second largest GDP?

The Shanghai Composite and Shenzhen Composite have both plunged about 30% from their highs due to legitimate concerns that Chinese stocks are in a bubble. China's government is taking steps to try and minimize any more pain in the market. But that could backfire.

Regulators announced Sunday that they would make more capital available for an entity that will allow for even more margin lending, the practice of borrowing money to buy stocks. Buying on margin is incredibly risky. Many experts believe the Chinese stock market's surge earlier this year was partly due to average investors taking on debt to invest in stocks.

And when stocks first started to fall last month, many of those investors had to quickly sell their investments to pay back the loans. That fueled an even bigger drop in stock prices.

It could get worse as investors realize that the slowdown in China's economy should hurt corporate profits. "Exuberance for Chinese stocks isn't backed up by fundamentals," said Michael Pento, president and founder of Pento Portfolio Strategies, in a report Monday morning. "Instead, it appears markets are being levitated by continued government borrowings and manipulations."

[WilliamofCarmichael]

BTW I’m hearing ads on KSFO San Francisco featuring some personality touting the wonderful opportunity to obtain merchandise made in China for you the listener to hawk and make thousands of dollars a week — you can even have the merchandise labeled with your very own brand. Are they nuts? I wonder.