Chinese equity markets are having their best month in over a year, with the Shanghai Composite up 12% since mid-August, even as every meaningful economic indicator points toward deeper trouble ahead. This isn't just another case of markets getting ahead of themselves. It's a textbook example of how policy desperation can create investment opportunities that make no fundamental sense.

China's manufacturing PMI stalled at 49.8 in August, marking the fourth consecutive month below the 50 expansion threshold, while industrial production growth slowed to 5.1% in July from 5.3% in June and retail sales disappointed at 2.7% versus expectations of 3.4%. Youth unemployment hit 18.8%, the highest level since Beijing stopped reporting the figure last year out of embarrassment.