I love those fantasy stories about central bankers being all-powerful and able to levitate stock markets forever. They make me all warm and fuzzy. In case you hadn’t noticed, the Chinese central bankers and communist party politicians have been desperately trying to stop their stock market from crashing. EPIC FAIL!!!
It plunged another 5% overnight. They have halted trading on 40% of their stocks and it keeps falling. They ban short selling and it continues to fall. They ban the press from talking negatively about the stock market and it keeps falling. They instruct their government agencies to buy stocks and it continues to fall. The omnipotence of central bankers is being proven to be a fraud.
Anyone who doesn’t think the US markets could drop 32% in a month is just drinking the central bank kool-aid. Our markets plunged 55% from their 2008 highs in a matter of months. And the majority of the losses occurred on 10 trading days. Think about that for a second.
Please note the chart. The Chinese stock market went parabolic in 2006, soaring 500% by 2007. Wall Street shysters were hyping Chinese stocks like there was no tomorrow. Guess what happened next? That’s right – it lost 70% of its value in a year. Fast forward to late 2014. It happened again. Little old Chinese ladies piled into the market on margin and it soared 250% in a matter of months.
If you think the collapse is over, you don’t understand collapses. Once they start, there is no stopping them – like an avalanche coming down a mountain. The Chine stock market collapse has another 30% to go – at least. If you think this won’t impact the world economy – you are a dolt. While everyone is focused on the backwater 3rd world country of Greece – the 2nd largest economy in the world is crashing. Hold on tight. It’s going to be a bumpy ride.
Due to the fact the Chinese stocks continue to plunge, today’s chart is an update from last week’s chart on the Chinese stock market as measured by the Shanghai Composite Index. While much of the world’s attention has been focused on Greece (understandably so with a new Sunday deadline for Athens to reach a deal with the institutions or face Grexit), it is worth keeping in mind that China is home to the world’s second largest economy and provides much of the world’s economic growth. Investors are particularly concerned since the plunge in Chinese stock prices continues despite the fact that the Chinese government has bought up shares of many large-cap stocks, stopped IPOs, cut trading fees and halted trading in many companies (over 1,300 at last count). Despite all this government intervention, the Shanghai Composite is down 32% in less than one month.
The #1 question is: is this the start of a “crash” or just a correction?
The #2 question is: will it be contagious to other markets or confined to Shanghai?
Rime will tell in both cases but there is no “proof” of “look out below” anywhere to be seen here.
MA
That’s “Time”, not Rime.. Old fingers and keyboards and lousy proofing will do it every time.
MA
Anon
32% in a month is already a crash.
China’s stock-market crash is just beginning
By Howard Gold
Published: July 8, 2015 8:32 a.m. ET
The underlying problem is that the investing culture is immature
Since the Shanghai Composite index dropped from a 52-week high around 5,178 on June 12, it’s been downhill all the way.
In just three weeks, stocks listed on mainland China’s most prominent exchange tumbled 30% from their seven-year highs. The even more speculative ChiNext Index has lost 42% of its value over 21 days.
Investors and traders who piled into Chinese shares over the past year, causing Shanghai to rise 150% and other markets to catapult even more dramatically, faced margin calls on their highly leveraged positions and started selling with both hands and both feet.
It was the biggest rout in this volatile market since 1992, and it prompted the Chinese government to take strong measures.
Last week, the Bank of China cut short-term interest rates for the fourth time this year. Regulators relaxed margin requirements and cracked down on short sellers, while state-run media tried to calm jittery investors with happy talk. That did little to stanch the hemorrhage.
Over this past weekend, government authorities and “private” Chinese brokerages and companies announced even more dramatic moves to prop up stocks:
• Brokerages and mutual-fund companies said they would buy billions of dollars’ worth of Shanghai shares.
• A state-owned investment firm said it would buy China-based ETFs.
• Twenty-eight companies said they would put planned initial public offerings on hold, as IPOs had been the focus of the most intense speculation.
• Regulators also increased the kinds of assets that can be used as collateral to buy stocks, to include — are you ready for this? — people’s homes. I’m not making this up.
The goal: Show retail investors that the all-powerful Chinese government had their backs and that the “Beijing Put” was alive and well.
Except it wasn’t. Shanghai opened up a strong 8.5% on Monday, despite Greece’s resounding “no” vote in Sunday’s referendum. But shares slipped throughout the trading day and closed up only 2.5%. On Tuesday, Shanghai slipped 1.3%, and on Wednesday plunged 5.9%.
That was a clear sign that the government had taken its best shot and failed. Which means that the most likely direction for Shanghai, Shenzhen and other mainland exchanges is down, down, down.
Morgan Stanley, which made a good “sell” call on China weeks ago, now expects Shanghai to fall as low as 3,250 by mid-2016. Citigroup analysts told clients the selloff has a “long way to go.”
I agree, but I think it could go much, much lower.
As I’ve written many times, China, Brazil, Russia and other emerging markets are suffering through secular bear markets that will last years. Since Chinese stocks represent more than 20% of some emerging-markets ETFs, the pain will likely continue well into this decade.
Secular bear markets feature sudden, violent rallies and mini–bull markets that fool people into thinking they’re the genuine article. In real bull markets, indexes repeatedly top their previous highs; in bear markets, they never do.
So it was an ominous sign when Shanghai hit 5,000 and then reversed sharply. The previous all-time high was over 6,000 in October 2007. We thus have an eight-year down trend.
Back in 2007, China was booming as the government rolled out massive new infrastructure ahead of the 2008 Olympic Games, which by any measure were a huge success.
But after the financial crisis, the Great Recession and a domestic real-estate bust, China is struggling to hit the government’s 7% economic-growth target. When the property market crashed, desperate Chinese authorities encouraged novice investors to channel their speculative energies into the stock market.
Now that’s reversing quickly, as massive margin calls swamp the government’s efforts to stop the rout.
The underlying problem is that while the Chinese economy has made great strides and become a global powerhouse, China’s investing culture remains backward and immature.
As John Mauldin wrote in his “Thoughts From the Frontline” e-letter this week: “Chinese individual investors are not primarily ‘value’ investors. Sky-high valuations don’t seem to faze them. They are primarily momentum investors who buy whatever is moving and sell whatever is falling.
“According to my friends who go to casinos and watch the Chinese gamble, they tend to jump on a ‘trend’ such as red coming up on the roulette table repeatedly — never mind that the odds are only ever 50-50. Red is seen as hot and therefore the way to bet. That carries over into trading styles. …”
When highly unsophisticated investors run into trouble, they panic quickly and try to get out at any price. The same inexperienced bettors who drove Shanghai up to 5,000 will take it way down, maybe to the last bear-market low above 1,700 — or maybe even lower, to 1,500, before it finds a long-term bottom.
When Shanghai was peaking at 5,000 in June, I gave you five words of advice: Get. The. Hell. Out. Now.
To which I’ll add five more: And. Stay. The. Hell. Out.
Yet we’re told China is THE world economy, etc…….bullshit. They’re old, polluted, broke, and full of sheeple – a lot of sheeple, which will only serve to exacerbate the glacier sized issues as they come. So how long can the rest of the worlds markets buckle before it really effects our ponzi? Just proof as to what a reserve currency can do for you I guess?
OK, I totally get that the Chinese stock market was one huge bubble and overdue for a crash. I understand that.
But, is it possible that the USA (etc.) has had some hand in giving this a gentle little push? We know China regularly hacks our systems, and probably does much more than is reported in the MSM. (Anyone wonder about the airline system failures lately?) We know that the USA has some investor… things (not really banks, nor funds, nor managers… what to call them?) that are expert in high-frequency trading and other forms of market manipulation. I can easily imagine that if someone here wanted to crash Chinese stock indexes, it could be done at moderate cost using the same trading tools that rig the US markets. What do you think?
OTHER … about Greece
I’m sorry for putting this here, but the Greek article are gonna fall off soon.
The always brilliant Paul Craig Roberts says that there will be no Geek exit. TPTB will (or, already have) a plan to rescue Greece. His bottom line: Greece leaving the EU could mean the end of NATO, or at least a very severe reduction of its powers. And the USA!USA!USA! will never allow that.
===============================================================
I doubt that there will be a Greek exit.
The Greek referendum, in which the Greek government’s position easily prevailed, tells the troika (EU Commission, European Central Bank, IMF, with of course Washington as the puppet master) that the Greek people support their government’s position that the years of austerity to which Greece has been subjected has seriously worsened the debt problem. The Greek government has been trying to turn the austerity approach into reforms that would lessen the debt burden via a rise in employment, GDP, and tax revenues.
The first response of most EU politicians to the Greek referendum outcome was to bluster about Greece exiting Europe. Washington is not prepared for this to happen and has told its vassals to give the Greeks a deal that they can accept that will keep them within the EU.
Washington has a higher interest than the interests of the US financial interests who purchased discounted sovereign debt with a view toward profiting from a deal that pays 100 cents on the dollar. Washington also has higher interest than the interests of the European One Percent intent on using Greece’s indebtedness to loot the country of its national assets. Washington’s higher interest is the protection of the unity of the EU and, thereby, NATO, Washington’s mechanism for bringing conflict to Russia.
If the inflexible Germans were to have Greece booted from the EU, Greece’s turn to Russia and financial rescue would put the same idea in the heads of Italy and Spain and perhaps ultimately France. NATO would unravel as Southern Europe became members of Russia’s Eurasian trade bloc, and American power would unravel with NATO.
This is simply unacceptable to Washington.
rest of article here —-> http://www.opednews.com/articles/Greece-And-The-EU-Situatio-by-Paul-Craig-Roberts-Austerity_Debt_Euro_Greece-150707-54.html
The reason for their stock appreciation earlier this year:
China is closer to joining the major league of reserve currencies with a deal possible later this year to include the yuan in the International Monetary Fund’s unit of account, international finance officials say.
Link = http://www.reuters.com/article/2015/04/02/us-china-imf-sdr-insight-idUSKBN0MT0LB20150402
Persnickety
You question if the USA!USA! has a hand in the drop in the Chinese market. Without a doubt the answer is yes. Market watch posted a article the other day that China is blaming Morgan Stanley and others for shorting stocks and causing huge drops in their market.
More unsettling is that due to a security pact between China and Russia, China advised they consider it a act of war for the US to attack their financial markets.
China Makes Selling For Big Investors Illegal
Submitted by Tyler Durden on 07/08/2015 09:05 -0400
With another bloody session in the books for China’s bursting equity bubble, it’s now abundantly clear that Beijing and the PBoC have lost control not only of the market but of the narrative as well, despite dozens of attempts to steer both in the “right direction.”
Having corralled selling by the National Social Security fund earlier this week and after discouraging local reporters from mentioning selling in the press, China has now made it illegal for big investors to dump shares over the next six months. Here are the details via Bloomberg:
China’s securities regulator banned major shareholders, corporate executives and directors from selling any of their stakes for six months, the latest effort to stop a $3.5 trillion rout in the nation’s equity market.
Controlling shareholders and investors holding more than a 5 percent stake in a company will be prevented from cutting their holdings over that time period, the China Securities Regulatory Commission said in a statement.
And here’s the official word from the CSCR (Google translated):
Recently, the stock market fell irrational, for the maintenance of the capital market, and earnestly safeguard the legitimate rights and interests of investors, is now on the relevant matters are announced as follows: First, from now on within six months, the controlling shareholders of listed companies and shareholders holding more than 5% (hereinafter, saying large shareholders) and its directors, supervisors and senior management personnel shall not reduce shares held by the secondary market. Second, the major shareholders of listed companies and the directors, supervisors and senior management personnel who fails to reduce shareholdings in the Company, the China Securities Regulatory Commission will be given serious treatment. Third, the major shareholders of listed companies and the directors, supervisors and senior management personnel in the six months after the reduction of shares from shareholders with specific measures, separately.
Yes, the stock market “fell irrational” lately. And by “irrational” the CSCR apparently means that temperament that tends to fall over people once they realize they’ve helped to faciliate a completely “irrational”, debt-fueled mania that’s sent valuations on many listings into the stratosphere and lured in millions of farmers and hairdressers who are now collectively leveraged to gills.
In any event, this, like every other move in China’s rapidly expanding plunge protection playbook, will fail miserably, meaning Beijing with ultimately be left with no choice but to “halt” whatever shares are still trading by the end of the week.
I read somewhere that the Chinese stock market was comprised of some 80-90% retail investors, in other words, investors more prone to panic. More like the US in the late 20s…and we all know how that turned out. How effective can it be to make it illegal for large investor to sell? Just a question, trying to force markets always ends in disaster.
The big question in my mind is when does this reach Main Street? and how? What are the big things to watch for those unsophisticated slobs (ie me) with zero exposure to markets?
Drud let’s be realistic here, the Chinese have 21 Trillion in savings to be fleeced out of in one way or another. Only a schmuck on wheels would believe that that kind of cash could would be off limits to the global cabal. I picture them like wolves with drops of saliva dripping from their fangs when you have that much money on the table just waiting to be vaporized.
Americans only have a little over half a billion in savings so for now we are not the prey of choice.
Their problem is that they haven’t learned how to have technical glitches at appropriate times the way we have.
Which is why it happens there but not here.
@Bea – I don’t knwo how your post was in any way an answer to my questions, but I will respond…21 trillion of savings in what? We see how quickly paper wealth can evaporate. The Chinese markets have lost $3.2 trillion in 3 weeks. That “wealth” simply went up in smoke…and there is plenty more fuel for that fire.
@DRUD
Just agreeing with you. The poor fools will be cheated out of their money, restricting large investors will not make a difference.
Treating the crash and flame-out of the Chinese market as a given, how does this affect Chinese manufacturing and our U.S. dependency on the same.
Thinking big picture, I’m ordering extra popcorn!
who is to say the bankers aren’t causing the crash ? they are not omnipotent…but not allowing any country to get too rich is part of their power
I was up on a roof all day and every time I put on hearing protection I listened to the local NPR/talk radio station.
I always listen for memes. Like when Boston had the big manhunt, the meme was “shelter in place”, that kind of thing. One person says it, then as if there were an edict from on high, every last talking head is suddenly on script.
Yesterday it was “technical glitch” which sounds very…technical. The hoi polloi will not become restless if they know that their betters are on top of things.
United Airlines, the NYSE and the WSJ all simultaneously had a “technical glitch”?
That’s good enough fer me!
@Bea – yeah, I realized that sometime after I posted….I am just trying to figure out th ewarnings signs for when things will get bad on a scale closer to home.