The Complete Guide To China's CNY 4 Trillion Margin Doomsday Machine

On the heels of a veritable bloodbath in Chinese equities overnight which saw the SHCOMP slide a harrowing 8.5%, the entire world is now beginning to take a hard look at the notion that dramatic bouts of selling pressure are aggravated and perhaps triggered by an unwind in the multiple backdoor margin lending channels that allowed investors to skirt official restrictions on leverage and helped to drive the market’s world-beating rally. Here is the complete guide to China's CNY4 trillion shadow margin edifice.

Frontrunning: July 27

  • Chinese shares tumble 8.5 percent in biggest one-day drop since 2007 (Reuters)
  • Japan’s Economy Shrank Last Quarter, Top Forecaster Says (BBG)
  • Creditor teams in Athens to work on third bailout (AFP)
  • Tsipras’s Paradox Is Six Months of Pain and Enduring Popularity (BBG)
  • Goldman-Backed Instant Messaging Company Seeks New Investment (WSJ)
  • Best Buy will sell the Apple Watch on August 7th (Engadget) - when is it coming to Dollar General?
  • Senate votes to revive Ex-Im (Hill)
  • U.S.-Turkey Deal Paves Way to Set Up Buffer Zone in Northern Syria (WSJ)

Global Stocks, US Equity Futures Slide Following China Crash

It all started in China, where as we noted previously, the Shanghai Composite plunged by 8.5% in closing hour, suffering its biggest one day drop since February 2007 and the second biggest in history. The Hang Seng, while spared the worst of the drubbing, was also down 3.1%. There were numerous theories about the risk off catalyst, including fears the PPT was gradually being withdrawn, a decline in industrial profits, as well as an influx in IPOs which drained liquidity from the market. At the same time, Nikkei 225 (-0.95%) and ASX 200 (-0.16%) traded in negative territory underpinned by softness in commodity prices.

Meet The Kagans: Seeking War To The End Of The World

If the neoconservatives have their way again, US ground troops will reoccupy Iraq, the US military will take out Syria’s secular government (likely helping Al Qaeda and the Islamic State take over), and the US Congress will not only kill the Iran nuclear deal but follow that with a massive increase in military spending.  In other words, more and more fires of Imperial “regime change” abroad even as the last embers of the American Republic die at home. Much of this “strategy” is personified by a single Washington power couple...

Clinton Favorability Plunges, Sanders Surges Amid Classified Emails Scandal

Despite all her proclamations of new fairness doctrines, false promises of her truthfulness, and exclamations of 'everyday Americanism' Hillary Rodham Clinton is seeing her favorability ratings collapse. As populist as she dares to be, in the face of her donating captors, it appears the everyday American just isn't buying it as Gallup reports just 43% Americans view her favorably (down from 66% just a few years ago) while none other than Bernie Sanders is bounding up the popularity ladder, rising from 12% to 24% favorability in recent weeks.

Chinese Stocks Extend Friday's Losses Following Drop In Corporate Profits

Following the weakness in Friday's afternoon (China) session, tonight's open is decidedly shaky as Shanghai Composite open down over 2% and CSI-300 (China's S&P 500) is now down over 5%. This follows a year-over-year drop in China Industrial profits (-0.3%), the first since March as the small bounce in April and May is now done. Commodities are lower and silver saw a minor flash-crash shortlty after China opened.

It's Really Very Simple...

There are times when a loud cry of “The emperor has no clothes!” can be most copacetic. And so, let me point out something quite simple, yet very important. The old world order, to which we became accustomed over the course of the 1990s and the 2000s, its crises and its problems detailed in numerous authoritative publications on both sides of the Atlantic - it is no more. It is not out sick and it is not on vacation. It is deceased. It has passed on, gone to meet its maker, bought the farm, kicked the bucket and joined the crowd invisible. It is an ex-world order.

Energy M&A Hits A Brick Wall: Ex Shell-BG Megadeal, Q2 Deal Value Was Lowest Since 2008

If one excludes the gargantuan April merger between Shell and the BG Group, Q2 M&A activity was the slowest in since 2008! If the price of oil continues to decline, one can be certain that Q3 M&A activity will be a dead zone. And since with the exception of just one mega-deal, the merger and acquisition landscape has hit a brick wall, one needs no explanation to understand just how "market participants view future opportunities."

Gold's Two Stories: Paper Markets Collapse... While The Retail Public Buys At A Record Pace

We’ve seen some significant swings in precious metals over the last several years and if we are to believe the paper spot prices and recent value of mining shares, one would think that gold and silver are on their last leg. Last weekend precious metals took a massive hit to the downside, sending shock waves throughout the industry. But was the move really representative of what’s happening in precious metals markets around the world? Or, is there an effort by large financial institutions to keep prices suppressed? In an open letter to the Commodity Futures Trading Commission First Mining Finance CEO Keith Neumeyer argues that real producers and consumers don’t appear to be represented by the purported billion dollar moves on paper trading exchanges. With China recently revealing that they have added some 600 tons of gold to their stockpiles and the U.S. mint having suspended sales of Silver Eagles due to extremely high demand in early July, how is it possible that prices are crashing?

From Trump Tower To Clinton's Compound - The Homes Of The 2016 Presidential Candidates

As dozens now vie for residence in the big white one of Pennsylvania Avenue, MarketWatch, courtesy of LoanDepot.com and CoreLogic, unveil the homes (since most own more than one) and mortgages of the 2016 presidential candidates. With homeownership rates at multi-decade lows, and the American Dream disappearing for most, it appears it pays to be in government - from Trump Tower and Clinton's Compounds to Bernie Sanders' underwater mortgages and Carly Fiorina's five fireplaces...

It's Not Just Margin Debt: Presenting The Complete Chinese Stock Market Ponzi Schematic

Late last month, we suggested that the pressure on Chinese equities - which at that point had only begun to build - was at least partially attributable to an unwind in the country’s CNY1 trillion backdoor margin lending edifice. Precisely measuring the amount of shadow financing that helped drive Chinese stocks to nosebleed levels is virtually impossible, as is determining how much of that leverage has been unwound and how much remains or has been restored, but BofAML is out with a valiant attempt to not only identify each shadow lending channel, but to quantify just how much leverage may be built into the Chinese market. The figures will shock you.

Gold and Gibson's Paradox

There is a myth prevalent today that the gold price always falls when interest rates rise. The logic is that when interest rates rise it is more expensive to hold gold, which just sits there not earning anything. And since markets discount future expectations, gold will even fall when a rise in interest rates is expected. With the Fed's Open Market Committee debating the timing of an interest rate rise to take place possibly in September, it is therefore no surprise to market commentators that the gold price continues its bear market. Only the myth is just that: a myth denied by empirical evidence.

Europe's New Colonialism: ECB Rejects Greek Request To Reopen Stock Market

To understand what really happened  earlier today, one should read the Bloomberg explanation, according to which it was the ECB which rejected proposals by Greek authorities to reopen country’s financial markets with no restrictions in place for both Greek and foreign traders, citing an Athens Exchange spokeswoman. And just like that, we wave goodbye to the Hellenic Republic, and greet the Mediterranean Vassal Province of Mario and Merkel. Because as of this moment, no Greek decision can be taken without the direct or indirect express prior approval of either the ECB and/or Berlin.

Reports Of Secret Drachma Plots Leave Tsipras Facing Fresh Crisis

Now that Tsipras has succeeded in compelling Greek lawmakers to cede the country’s sovereignty to Brussels in exchange for the right to use the euro, tales of unrealized redenomination plots have come out of the woodwork. Just two days after FT reported that former Energy Minister Panayotis Lafazanis planned to seize the country's mint and currency reserves, Kathimerini reports that Yanis Varoufakis, on orders from Tsipras, developed a top-secret parallel banking system. Now, the opposition lawmakers who helped Tsipras pass the new bailout measures through parliament are demanding answers. 

Forget Banks - GMOs Are The New "Too Big To Fail' System

Before the crisis that started in 2007, both of us believed that the financial system was fragile and unsustainable, contrary to the near ubiquitous analyses at the time. Now, there is something vastly riskier facing us, with risks that entail the survival of the global ecosystem - not the financial system. The G.M.O. experiment, carried out in real time and with our entire food and ecological system as its laboratory, is perhaps the greatest case of human hubris ever. It creates yet another systemic, “too big too fail” enterprise - but one for which no bailouts will be possible when it fails.