China stock market crisis
The Chinese stock market is in big trouble, and no one seems to quite know why.
And although it’s always nice to have some company when you’re feeling ignorant, it’s not nice to have this much company.
The question, as always, is what to do, or whether to do less (or nothing). Economists have been arguing about that sort of thing since before the Great Depression, and the argument isn’t going to go away now:
[China’s] markets have lost more than three trillion dollars in value, and so far the bottom is not in sight. Perhaps it can’t be fixed because it’s not broken, or rather that it’s been broken all along and this might be a tough-love cure. One analyst tweeted that this is actually less of a crisis than it is a long-overdue correction…
If the stock prices were “appallingly overvalued,” that’s probably due in part to China’s policies, and more intervention won’t fix that problem. One has to wonder whether a rational revaluation would be possible in a panic sell-off, which this appears to be, and whether intervening only on behalf of state-owned firms might exacerbate that problem even further. Regardless, it’s a situation that bears watching, especially for any hint that the contagion may spread to other markets.
Great.
China has been interventionist, trying to protect certain stocks. But its moves seem to have had a paradoxical effect, if I’m reading this right:
China’s tumbling stock market showed signs of seizing up on Wednesday, as companies scrambled to escape the rout by having their shares suspended and indexes plunged after the securities regulator warned of “panic sentiment” gripping investors.
Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures to arrest the sell-off, and the People’s Bank of China said it would step up support to brokerages enlisted to prop up shares.
The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen closed down 6.8 percent, while the Shanghai Composite Index .SSEC dropped 5.9 percent.
With nearly half the market on a trading halt and another round of margin calls forcing leveraged investors to dump whatever shares could find a buyer, blue chips that had been supported by stabilization funds earlier in the week bore the brunt.
“I’ve never seen this kind of slump before. I don’t think anyone has. Liquidity is totally depleted,” said Du Changchun, an analyst at Northeast Securities.
“Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips.”
You might say that the best thing to do would be nothing. But the human impulse is to cry out “Help!” and the government’s is to respond—especially in a country used to having a lot more control than this.
[NOTE: Meanwhile, there’s some sort of “technical issue” at the NY Stock Exchange that has halted trading. It seems to have something to do with computer problems—hacking? They say it’s not a cyberattack, but I wonder. I wonder.
Other exchanges are still open.]
Protecting a stock merely means that the stock’s value is attached to the protection of the government, and hence everyone that knows when to unload the stock will get a tip from the inside trading government. Everyone else, the poor stucks that have their wealth redistributed to the elites, don’t get that tip. By the time the market has “adjusted”, the wealth has de facto transfered from the non politically connected, to the politically connected. Of course this kind of system is ginned up by a few masterminds like Chriss Dodd in Congress or current day MPAA. But everyone else tends to tag along like a moral hazard or band wagon train of thieves. This creates a Lemming or Browning cascade effect, sort of like how a mob crushes people underfoot because even if the guy stepping on you wants to move off you, the 50 people pushing him won’t let him. Chain locks on all the exits in a crowded club when the fire alert has been sounded, is similar.
American stocks are the same way, except there’s more exterior adjustment mechanisms so they become harder to crash. On 9/11, people crashed the stock market because they were getting rid of stock liabilities and transfering their assets into liquid, portable, or more stable formats that weren’t vulnerable to terrorist attacks. The market adjusts after some time, but the damage inflicted isn’t equal to the damage to the markets, as the markets are fungible or rather wealth is fungible, it can be used at any access point, with the stock market being only one of the more obvious points.
When there’s too much top down totalitarian pressure, the market doesn’t adjust because everyone with the big bucks are waiting for the “inside tips” to tell them when to hold em or to fold em. THey are like puppets. Only a few masterminds are the ones pulling the strings, starting the cascade.
“One-party autocracy,” Thomas Friedman assures me, “when it is led by a reasonably enlightened group of people, as China is today,” is the best of all possible governments. Other than Greece and the EU, that is.
We need more ‘Elites’
Folks are getting nervous.
NEW YORK, July 7 (Reuters) – The U.S. Mint said on Tuesday it temporarily sold out of its popular 2015 American Eagle silver bullion coins due to a “significant” increase in demand, the latest sign plunging prices have spurred a resurgence of retail buying.
In a statement sent to its biggest U.S. wholesalers, the Mint said its facility in West Point, New York, continues to produce coins and expects to resume sales in about two weeks.
If China merely wanted to do wealth redistribution in the stock market, they didn’t need to go to such extents. The fact that they are getting dumped so strongly all at once, reminds me of Enron or Madoff. They were running a pyramid scheme and thus needed the active propping up of certain stock portfolios, for whatever reasons they had. Then when things bottomed out, the guys at the top took the money and ran, causing the market to panic.
Folks are getting nervous.
If they were really nervous, they would transfer their precious metals to Zurich, in sealed vaults or other fancy bank security systems they got over there.
Having money in the US means the US government has you as their money bag they will squeeze until blood comes from the rocks.
It’s not like the US feds don’t know how this works, they did it before under FDR.
They say it’s not a cyber attack, but, I wonder. I wonder.”
Remember, it isn’t paranoia if they have given you a reason to not believe them.
Too many times this administration and others “in charge” have consistently lied. And the MSM has gone along with them despite the obvious truth. So, can we believe them?
G6loq,
Good one re Friedman… lest we forget that the “reasonably enlightened group of people” are a deadly epidemic for which there is not yet an inoculation and so, for which, the remedy would seem to be wholesale incineration.
Corrections of stock markets are to be expected when the market has been rising as rapidly as the Chinese Markets. The Shanghai Composite Index now stands at 3507.19. At the beginning of the year, January 5, 2015 it was at 3,350,52 so it is still up about 4% this year. This chart should put things into perspective.
http://fortune.com/2015/06/29/china-stock-market-volatility/
Ymarsakar Says:
July 8th, 2015 at 2:16 pm
Folks are getting nervous.
Having money in the US means the US government has you as their money bag they will squeeze until blood comes from the rocks:
US Mint Announces Caitlyn Jenner Commemorative Gold Coin.
Discuss?
Since the late 80s easy credit has created one bubble after another. The popping of these bubbles grows more severe as each bursts in turn. Globally we are on the cusp of a bubble that will be even larger than 1929. Its everywhere in every market around the world. Government – bankster manufactured bubbles present a suicidal dilemma of creating hyperinflation or acquiescing to the equally painful alternative of steep deflation.
Let the hunger games begin and may the odds be in your favor.
See the chart of the Shanghai Composite Market Index 2006-2015 to see what Beijing is trying to control. An incredible run-up followed by an incredible run-down. Not the first time, either.
I don’t know what geopolitical implications this has, but they are certain to be 1) Bad, and 2) Extensively felt. We are not at all safe from this literal financial tsunami.
Sorry, link didn’t work.Try
http://www.tradingeconomics.com/charts/china-stock-market.png?s=ssecomposite&d1=20060101&d2=20151231
We’ve never been able to definitively explain the hows, whys, and wherefores of the business cycle as it applies to our own market-based western economies, let alone China’s, such as it is. Solution-wise Adam Smith would argue for a governmental hands off “laissez faire” approach, but that’s never going to happen, not here, and not in China.
Read yesterday (do not have link) that the Chinese government had their (apparently centrally controlled) pension system throw a huge pile of cash at the market to shore it up.
That money evaporated immediately to the detriment of pensioners.
Greek banks (according to Rush) are rummaging through safe deposit boxes in search of cash, leaving IOU’s (Rush noted the double key thing; how would the boxes be opened? Still, I would not be surprised).
Zurich is too far away. But there must be a safe place to hide my growing hoard of canned chili.
In so corrupt country as China all money deals are utterly murky, nobody really knows who owns what. Market participants are in panic mode, politicians and regulators are too. The end results in such situation are completely unpredictable like decisions of panic-stricken people dealing in abscence of veritable information on the basis of hearsay.
The Chinese like to blame their problems on the Japanese, due to WWII and Mao’s insurgency methods which promoted Japanese colonialism so that Mao’s civil war foes would bleed themselves dry fighting for Chinese nationalism, then Mao took over after the civil war factions were worn out since Mao preserved his forces by refusing to fight the Japanese.
The Chinese also like to blame Americans, but America is still pretty strong, so they don’t tend to do that as much unless we speak of the leadership.
It’s similar to how Southern Democrats were brainwashed into blaming Lincoln and Sherman for the war.
Who was it that said, “If all the economists in the world were laid end to end, they wouldn’t reach a conclusion.?