Speculative bubbles and the realization of risk:

Bubbles Brewing in Shanghai, Tokyo, and London

There is a bubble growing. Investors should be concerned about the risks, said Cheng Siwei, vice-chairman of Chinas National Peoples Congress in a January 31st interview with the Financial Times. But in a bull market, people will invest relatively irrationally. Every investor thinks they can win. But many will end up losing. But that is their risk and their choice, Cheng warned.

In what might develop into the third biggest stock market bubble in history, ranked alongside Japans Nikkei-225 of 1986-89, and the Nasdaqs 1999-2000 bull run, the Shanghai Composite A share Index, restricted mainly to Chinese nationals, has posted a 140% gain over the past 12-months, after soaring 46% in the fourth-quarter of 2006 alone. And without deliberate market intervention, the A-share market could inflate into a Nasdaq-like bubble.

China Stocks Post Biggest Drop in Decade

Chinese stocks plunged nearly 9 percent Tuesday, their biggest drop in a decade, rattling markets from Hong Kong and Singapore to as far away as New York amid concerns over a possible slowdown in China's economy.
Investors were also spooked by comments Monday from former Federal Reserve Chairman Alan Greenspan, who said a recession in the U.S. was "possible" later this year.

One day after sending Shanghai's benchmark index to a record, investors dumped stocks to lock in profits amid speculation about a fresh round of austerity measures from Beijing to slow the nation's sizzling economy. The Shanghai Composite Index tumbled 8.8 percent to close at 2,771.79, its largest decline since it fell 8.9 percent on Feb. 18, 1997, following the death of Communist Party elder Deng Xiaoping.

Stocks Have Worst Day Since 9/11 Attacks

Stocks had their worst day of trading since the Sept. 11, 2001, terrorist attacks Tuesday, hurtling the Dow Jones industrials down more than 400 points on a worldwide tide of concern that the U.S. and Chinese economies are stumbling and that share prices have become overinflated.
The steepness of the market's drop, as well as its global breadth, signaled a possible correction after a long period of stable and steadily rising stock markets that had not been shaken by such a volatile day of trading in several years.