The Chinese stock market bubble is imploding. And guess what? Nothing in particular started the plunge. Chinese central bankers have been easing, and it is still collapsing. Chinese politicians are promising new stimulative financial policies, and it is still collapsing. The ignorant Chinese masses who piled into the market in the last six months are roadkill.
The Fed reduced interest rates from 2007 through 2009 and the US stock market still fell 55%. If you think the Fed is all powerful and can stop a stock market collapse, you are badly mistaken. Markets are driven by fear and greed. Greed has been winning for the last six years. It was winning big time in China until three weeks ago. The Chinese stock market was up 60% in six months and the Wall Street investing geniuses paraded on CNBC were telling you to get into Chinese stocks before it was too late. As usual, their advice was worse than worthless.
When the selling begins in the US, with the level of margin debt, the fear will spread rapidly. A 30% drop in the Dow over three weeks would be about 5,500 points. Watching the Wall Street lemmings play follow the leader will be entertaining.
The blood, gore, and cries for relief from the taxpayers will be epic. Bring some popcorn.
What is most troubling is that, as we noted last night, this clear bubble bursting is not done with the government’s blessings – as should have been the case since a crash was clear to anyone – but despite the government constant attempts to intervene and prop up the bubble.
It all started with appeals to buy and hold because, well, it’s patriotic: “Fan Shaoxuan, a senior executive at Weibo TV who has more than 12,000 followers on Sina Weibo, posted a photograph showing the slogans: “Hold stocks with confidence. Win glory for the country even if you lose the last penny.”
Then overnight Bloomberg reported that in one sign of utter desperation, China is telling underwater investors to literally “bet the house on stocks” because under new rules announced Wednesday real estate is now an acceptable form of collateral for Chinese margin traders, who borrow money from securities firms to amplify their wagers on equities. Clearly this also means if share prices fall enough, individual investors who pledge their homes could be at risk of losing them to a broker.
While the rule change was intended to help revive confidence in China’s $7.3 trillion stock market, down almost 30 percent in less than three weeks, analysts say securities firms may be reluctant to follow through. Accepting real estate as collateral would tether brokerages to another troubled sector of the economy, adding to risk-management challenges as they try to navigate the world’s most-volatile stock market.
“It does come across as relatively desperate,” said Wei Hou, an analyst at Sanford C. Bernstein & Co. in Hong Kong. “Globally, illiquid assets such as real estate are not accepted as collateral as they are very hard to liquidate.”
“Brokers are not stupid,” said Hao Hong, a China strategist at Bocom International Holdings Co. in Hong Kong. “I don’t think they would be willing to take this kind of collateral.”
It wasn’t just the shorts: a crackdown on “manipulators”, which really means sellers, has also been launched:
China’s securities watchdog announced Thursday it will investigate suspected manipulation of the stock market following weeks of plummeting stocks and future markets. Zhang Xiaojun, spokesman of the China Securities Regulatory Commission (CSRC), said they will investigate possible illegal activities occurring in multiple markets. He said they have tracked irregularities between securities and futures trading.
Just think…….one and half billion Chinese and “nobody saw this coming”. heh
That’s a lot of butthurt sheep over there, they should stick to gold.
Shit!! I thought their superior Asian intellect would have allowed them to see this! Oh, wait…I guess human nature still trumps IQ potential. That fucking limbic system…