China shit the bed overnight. The shit is now hitting the fan. Shit is fucked up and bullshit. I’m not shitting you.
Stock markets don’t fall by 8.5% in one day unless there is some major shit happening beneath the surface. A comparable drop in the US stock market would be 1,500 points. Do you think a few Wall Street assholes would shit their pants if that happened? Do you think there would be a few margin calls as that shitty scenario played out?
Here’s the deal. The Chinese authorities have attempted everything they could possibly do to stop their over-leveraged, over-bought, over-hyped, corrupt, fraudulent markets from falling. They have threatened imprisonment for selling, disallowed short selling, stopped allowing trading on thousands of company stocks, and propped up their markets with trillions of yuan poured into the gaping hole.
Between the end of June and early July, the Chinese government announced at least 40 measures to prop up the market, including an interest-rate cut by the central bank and establishing a stabilization fund to outright buy stocks. All together, Chinese authorities are estimated to have mobilized as much as 5 trillion yuan, almost 10% of the gross domestic product, to halt panic sales.
It’s all been for naught. Fear is now trumping greed. The infallibility of central bank manipulators is being revealed to be false. They are nothing but money printing academic fools doing the bidding of greedy bankers and corrupt politicians. This is only the beginning of the end. There are thousands of points to go, billions to vaporize, and millions of lives to be ruined.
Welcome to the Fourth Turning. No shit.
Chinese Stocks Suffer Second Biggest Crash In History, 1,500 Companies Halted Limit Down
Submitted by Tyler Durden on 07/27/2015 06:32 -0400
This was not supposed to happen.
After pledging, investing and otherwise guaranteeing the Chinese stock market to the tune of 10% of GDP, and intervening on at least 40 different occasions in the past month ever since China’s stock bubble burst in late June, with the subsequent crash nearly taking the Shanghai Composite red for the year, overnight China officially lost control for the second time, when after a weak start to the Monday trading session, things turned very ugly in the last hour, when the Shanghai Composite plunged by 8.48%, closing nearly at the lows, and tumbling some 345 points for its biggest one-day drop since February 2007 and its second biggest crash in history!
The selling was steady throughout the day, but spiked in the last hour on concerns China would rein in its market-supporting programs following IMF demands to normalize its relentless market intervention. According to Bloomberg’s Richard Breslow: “fear that the extraordinary support measures employed to hold up the market may be scaled back caused heavy afternoon selling resulting in a down 8.5% day.” Of course, one can come up with any number of theories to explain the plunge: for example the PBOC did not buy enough to offset the relentless selling.
The last thing the communist party and the PBOC wanted was another massive sell off after having not only fired the “bazooka” but come up with a different bazooka to halt “malicious sellers” virtually every day, including threats of arrest.
Nobody was spared in the selloff and of the 1,114 stocks in the Shanghai Composite, 13 closed higher on Monday.
Here, courtesy of the WSJ, are some of the more amazing numbers of today’s selloff:
- The Shanghai Composite Index ended down 8.5% at 3725.56, its second-straight day of losses and worst daily percentage fall since February 27, 2007. The smaller Shenzhen Composite fell 7% to 2160.09 and the ChiNext, composed of small-cap stocks and sometimes known as China’s Nasdaq, closed 7.4% lower at 2683.45.
- More than two-thirds of the stocks in the Shanghai Composite, or about 765 companies, hit their down limit on Monday. Those limits prevented hundreds of stocks from logging sharper declines, though they can also make it harder for investors to exit positions.
- Since the Shanghai Composite peaked in June, it has lost 28% of its
value. Massive intervention by authorities in Beijing engineered a
rebound for the country’s stock markets earlier this month, but Monday’s
selloff eroded much of that recovery. - Although hundreds of stocks have resumed trading since the market bottomed earlier this month, 126 stocks on the Shanghai Composite are still halted.
- International investors have been ditching Chinese stocks for the past few weeks, spooked by widespread share suspensions that locked up capital. Investors sold stocks during 13 of the past 16 trading sessions via the Shanghai-Hong Kong Stock Connect, a trading link connecting the two cities that launched in November. Cumulative outflows now total 39.9 billion yuan, or U.S. $6.43 billion.
According to Reuters, there was little to explain the scale of the sell-off. Some analysts said fears that China may hold off from further loosening of monetary policy had contributed to souring investor sentiment.
Sure enough, narratives to “explain” the selling which beget more selling, were promptly offered, as can be seen in this Bloomberg summary of aftter the fact research reports;
NORTHEAST SECURITIES
- “The decline, extending losses on Friday, is a technical correction after hundreds of companies rebounded 50% with dozens of stocks even doubling after the sell-off,” analyst Shen Zhengyang says by phone
- “The rebound from the earlier sell-off has pretty much come to an end and the market needs to take a breather”
- Possible expansion of yuan band may put the currency under depreciation pressure, while pick-up in home prices in 1st- tier cities may mean weaker-than-expected monetary easing policies going forward
- Mkt might enter range-bound consolidation after technical correction, but upside will be limited as investor confidence was shattered in earlier sell-off
CHINA SOUTHERN FUND
- Mkt slumps due to “fragile” investment sentiment, investors locking in profit from previous rebound: chief strategist Yang Delong says in phone interview
- A shares extend decline as investors started to take profit from last Friday after recent mkt rebound
- Investors lose faith in a longer-term rebound
- Expects China to roll out more measures to boost A shrs if SHCOMP drops below 3,800
- Govt backed funds, with big enough war chest, may buy stocks after mkt slump today
SHENWAN HONGYUAN GROUP
- Pullback today mainly due to profit-taking, while news on possible govt exit of mkt rescue also has impact on mkt: analyst Qian Qimin
- Weakness in heavyweight stks may lead to “double dip” in mkt, sees “policy bottom” at 3,500 points as index below that level may trigger panic again
- Fundamentals underpinning bull mkt may have disappeared given low probability in further monetary easing, potential investment shifting to property mkt, more cautious mkt sentiment
SINOLINK SECURITIES
- A share slump today is an “aftershock” as mkt sentiment needs longer time to recover from previous mkt correction: analyst Huang Cendong
We agree with one thing: having gone all in, the Chinese government can’t stop now, and after pledging half a trillion for its Plunge Protection Team (recall China skipped all the QE pleasantries and proceeded straight to buying stocks, launching a quasi-nationalization of the market and making the China Securities Finance Corp a Top 10 shareholder of numerous stocks), it will be forced to do even more, in the process crushing confidence that much more, since investors both offshore and domestic, realize that the fair value of stocks is far lower than current price ex. government intervention.
“Investors are not confident that the bull market will return any time soon,” Jimmy Zuo, a trader at Guosen Securities, told Bloomberg.
“People want to pocket profits after the benchmark index rose past the 4,000 mark.”
And who can blame them? The only question we have is when will people in other “developed” markets wake up to their own just as manipulated markets, and decide they too have had enough with the rigged casino.
Actually, there is another question: the last time Chinese stocks had a near-record crash, the PBOC somehow “discovered” 600 tons of gold hiding under the couch to prop up confidence. We wonder how much it will “discover” this time.
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Ten bucks says they will blame Merica for this crash and counter attack. No shit.
So, does this mean we can’t buy cheap crap at WalMart anymore? Or does this put an end to the “China is going to take over the world as the next Super Power” narrative?
China has never been doing as well as most Westerners think it has.
Don’t forget that it is a communist nation and communist nations focus on the collective whole and not the individuals that make it up, a hive before workers mentality runs their thinking.
I think Bernanke is available to fix their problems.
by Karl Denninger
The Night The Rally Monkey Died
Buy the dip! Ahhhh!
Buy the dip! Ahhhh!
Buy Netflix, Amazon, Disney, Facebook! Ahhhhh!
And then there was the time you did it in China, which over the last few days looked pretty good.
Until last night when the bottom fell out, with a huge number of issues hitting daily 10% down limits, sending the Shanghai index down 8.5%.
Ahhhhhhhh fuuuuuuuuuuuck!
That be coming here folks.
Oh, and that loan that the Chinese government extended to buy those stocks?
You still owe them the money.
Quotes from Zero Hedge days ago …
=============================
” … the magnitude of the Chinese capital outflow is certainly the biggest story surrounding the world’s most populous nation: what is happening in its stock market is just a diversion.”
China dumps $520 Billion in Treasuries in the past 5 quarters —– ” … $520 billion is roughly triple what implied Treasury sales would suggest as China’s capital outflow, meaning that China is also liquidating some other USD-denominated asset(s) at a feverish pace. ”
“…. while there has been latent speculation over the years that China will dump US treasuries voluntarily because it wants to (as punishment or some other reason), suddenly China is forced to liquidate US Treasury paper even though it does not want to …”
“Or let us paraphrase: how soon until QE 4?”
http://www.zerohedge.com/news/2015-07-21/chinas-record-dumping-us-treasuries-leaves-goldman-speechless
Irish, it means they won’t buy much of our junk and we will buy less of their junk. Check out this chart:
Here Beginneth The Lesson…
Submitted by Grant Williams via TTMYGH.com,
There is a salutary lesson being given right now to anybody who invests in Western markets but few are paying attention. If the penny drops, things could get very ugly indeed.
Overnight, the Shanghai Composite Index fell another 8.5% – with the real damage being done in the last hour as sellers, spooked by a Bloomberg story which suggested intervention in Chinese markets may be curtailed at the behest of the IMF (who, somewhat hilariously, feel that the level of intervention from the Chinese government is a little over the top).
Was the IMF story the cause of the meltdown? Well, it’s hard to see why anybody would think for a second that the Chinese would listen to the IMF about such matters (not even in the face of their desire to be admitted to the SDR), and anyway, it doesn’t matter. There doesn’t have to be a reason for falls like this one.
This is exactly what I wrote about in my most recent Things That Make You Go Hmmm… ‘The Sum of Both Fears’ (www.ttmygh.com).
Whatever the reason, the selling overwhelmed the bids of both natural buyers AND the massive interventionist forces of the PBoC and the seemingly myriad regulatory bodies.
75 stocks fell for each one that rose and those hit hardest were the stocks (such as PetroChina) which had been the recipients of state largesse in the form of direct intervention in recent weeks.
Adding to the woes was the release on Friday of Chinese Industrial Profits, which fell 0.3% YoY.
Again, nobody really believes the numbers emanating from the Chinese National Bureau of Statistics, but when markets are rising, cognitive dissonance reigns supreme.
This time, however sentiment being tilted towards fear was all it took to generate the second-largest fall in the history of the Shanghai Composite.
The lesson? Well, Chinese investors’ confidence was buoyed by the explicit promises (and actions) of the Chinese State machine who directly bought stocks and, seemingly, put a cast iron bid under the market but when investors’ level of nervousness reached a certain point (a point that nobody could have pinpointed in advance), everything changed and even bans on not only those ‘evil short sellers’ we continually hear about in the West, but selling, period, were not enough to stem the tide.
Nor were threats of arrest for short sellers.
Nor were hundreds of billions of dollars (equivalent) in direct market support.
When Fear took over, the Central Bank was powerless to react.
In the West, there are no explicit official sector stock buying programs in place. There are no threats of arrest against short sellers and there are no bans on outright selling.
Everything….. EVERYTHING….. rests on one ephemeral thing – the market’s confidence in the power of Central Banks to ensure a good outcome no mater what.
Anybody paying attention to the lesson should not just be thinking about what might happen when that fragile confidence evaporates, but taking steps to ensure they don’t get caught out when it does.
The problem comes in leaving such precautions a day too long…
Ask anybody who was considering selling their Chinese equities last Friday but didn’t…
Market manipulation goes global
By Stephen S. Roach
Published: July 27, 2015 11:38 a.m. ET
China only the latest to try to prop up a collapsing bubble, says Stephen Roach
NEW HAVEN, Conn. (Project Syndicate) — Market manipulation has become standard operating procedure in policy circles around the world. All eyes are now on China’s attempts to cope with the collapse of a major equity bubble.
But the efforts of Chinese authorities are hardly unique. The leading economies of the West are doing pretty much the same thing — just dressing up their manipulation in different clothes.
Central banks make the unsubstantiated claim that things would have been much worse had they not pursued QE. But, with now-frothy manipulated asset markets posing new risks of financial instability, the jury is out on that point as well.
Take quantitative easing, first used in Japan in the early 2000s, then in the United States after 2008, then in Japan again beginning in 2013, and now in Europe. In all of these cases, QE essentially has been an aggressive effort to manipulate asset prices. It works primarily through direct central-bank purchases of long-dated sovereign securities, thereby reducing long-term interest rates, which, in turn, makes equities more attractive.
Whether the QE strain of market manipulation has accomplished its objective — to provide stimulus to crisis-torn, asset-dependent economies — is debatable: Current recoveries in the developed world, after all, have been unusually anemic. But that has not stopped the authorities from trying.
In their defense, central banks make the unsubstantiated claim that things would have been much worse had they not pursued QE. But, with now-frothy manipulated asset markets posing new risks of financial instability, the jury is out on that point as well.
China’s efforts at market manipulation are no less blatant. In response to a 31% plunge in the CSI 300 (a composite index of shares on the Shanghai 000010, -8.71% and Shenzhen 399100, -7.11% exchanges) from its June 12 peak, following a 145% surge in the preceding 12 months, Chinese regulators have moved aggressively to contain the damage.
Official actions run the gamut, including a $480 billion government-supported equity-market backstop under the auspices of the China Securities Finance Corp., a $19 billion pool from major domestic brokerages, and an open-ended promise by the People’s Bank of China (PBOC) to use its balance sheet to shore up equity prices. Moreover, trading was suspended for about 50% of listed securities (more than 1,400 of 2,800 stocks).
Unlike the West’s QE-enabled market manipulation, which works circuitously through central-bank liquidity injections, the Chinese version is targeted more directly at the market in distress — in this case, equities.
Significantly, QE is very much a reactive approach — aimed at sparking revival in distressed markets and economies after they have collapsed. The more proactive Chinese approach is the policy equivalent of attempting to catch a falling knife — arresting a market in free-fall.
There are several other noteworthy distinctions between China’s market manipulation and that seen in the West. First, Chinese authorities appear less focused on systemic risks to the real economy. That makes sense, given that wealth effects are significantly smaller in China, where private consumption accounts for just 36% of gross domestic product — only about half the share in more wealth-dependent economies like the U.S.
Moreover, much of the sharp appreciation in Chinese equity values was very short-lived. Nearly 90% of the 12-month surge in the CSI 300 was concentrated in the seven months following the start of cross-border investment flows via the so-called Shanghai-Hong Kong Connect in November 2014. As a result, speculators had little time to let the capital gains sink in and to have a lasting impact on lifestyle expectations.
Second, in the West, post-crisis reforms typically have been tactical, aimed at repairing flaws in established markets, rather than promoting new markets.
In China, by contrast, post-bubble reforms have a more strategic focus, given that the equity-market distress has important implications for the government’s capital-market reforms, which are viewed as crucial to its strategy of structural rebalancing. Long saddled with a bank-centric system of credit intermediation, the development of secure and stable equity and bond markets is a high priority in China’s effort to promote a more diversified business-funding platform.
The collapse of the equity bubble calls that effort into serious question.
Finally, by emphasizing a regulatory fix, and thereby keeping its benchmark policy rate well above the dreaded zero bound, the PBOC is actually better positioned than other central banks to maintain control over monetary policy and not become ensnared in the open-ended provision of liquidity that is so addictive for frothy markets. And, unlike in the West, China’s targeted equity-specific actions minimize the risk of financial contagion caused by liquidity spillovers into other asset markets.
With a large portion of China’s domestic equity market still closed, it is hard to know when the correction’s animal spirits have been exhausted. While the government has assembled considerable firepower to limit the unwinding of a spectacular bubble, the overhang of highly leveraged speculative demand is disconcerting. Indeed, in the 12 months ending in June, margin financing of stock purchases nearly tripled as a share of tradable domestic-equity-market capitalization.
While Chinese equities initially bounced 14% off their July 8 low, the 8.5% plunge on July 27 suggests that that may have been a temporary respite. The likelihood of forced deleveraging of margin calls underscores the potential for a further slide once full trading resumes.
More broadly, just as in Japan, the U.S., and Europe, there can be no mistaking what prompted China’s manipulation: the perils of outsize asset bubbles. Time and again, regulators and policy makers — to say nothing of political leaders — have been asleep at the switch in condoning market excesses. In a globalized world where labor income is under constant pressure, the siren song of asset markets as a growth elixir is far too tempting for the body politic to resist.
Speculative bubbles are the visible manifestation of that temptation. As the bubbles burst — and they always do — false prosperity is exposed and the defensive tactics of market manipulation become both urgent and seemingly logical.
Therein lies the great irony of manipulation: The more we depend on markets, the less we trust them. Needless to say, that is a far cry from the “invisible hand” on which the efficacy of markets rests. We claim, as Adam Smith did, that impersonal markets ensure the most efficient allocation of scarce capital; but what we really want are markets that operate only on our terms.
Even the chicoms know how to socialize the losses and privatize the gain. It appears greed is universal and knows no bounds.
The 7 billion man question is how will “Murica react when China takes back Taiwan.
Palace Intrigue: Chinese Soldiers Storm Replica of Taiwan Presidential Office
Is Beijing doubling down on its longstanding threat to reclaim Taiwan by force? That’s a concern for some Taiwanese after China’s state broadcaster showcased a recent military drill that featured soldiers storming an apparent replica of the island’s presidential palace.
http://blogs.wsj.com/chinarealtime/2015/07/23/palace-intrigue-chinese-soldiers-storm-replica-of-taiwan-presidential-office/
Maybe the bible has a point.
“For the love of money is a root of all kinds of evils” (1 Timothy 6:10 ESV)
The “short seller’s” of gold futures must be just shitting themselves this morning!!!!!
Finally…….. some GOOD news this morning!!!!! I feel much better
@flash, don’t worry. Mishva is going to take care of you.
Why would I worry. I don’t …but FWIW those living in the land down under might want to prepare a back door exit.
robert h siddell jr,
The Chinese sell us roughly 3.5 – 4 times as much crap as we sell to them.
http://www.census.gov/foreign-trade/balance/c5700.html
They weren’t buying much from us to begin with and with paid-for politicians creating gems like NAFTA, they managed to take our manufacturing base out from under us.
Your link to the chart on the velocity of money is concerning.
As if China was never going to experience a recession, along with a contracting economy! The more important question is what version of China(s) will survive the severe recession (or even depression) they have created for themselves with all their elaborate market-rigging? We do indeed live in interesting times…
Interesting how this ‘news’ was pretty much ignored. There is that woman who died in jail and a couple kids who went out to sea unprepared and are now missing. Those are the important stories….at least for those whose goal is to distract us instead of educate us.