"The explosion in margin financing behind the recent astonishing run-up in Chinese A shares is a new twist on China credit concerns, a long-standing grey swan for Chinese and global growth. As of the beginning of June, the balance of margin financing outstanding was RMB2.2tn, an estimated 12% of the free float market cap of marginable stocks and 3.5% of GDP—easily the highest in the history of global equity markets."
Despite the exuberance in US and European equity markets, it appears Bitcoin is sending a different (avoid the looming capital controls) message... Does someone know something?
"With the drastic fall in share prices recently, social stability is clearly at stake," Credit Suisse says. With the bubble now finished it is only a matter of time before all the 'nouveau riche' farmers and grandparents see all their paper profits wiped out and hopefully go silently into that good night without starting mass riots or a revolution.
Markets are beginning to signal that policy makers are losing control. Many second-order-effects of the unprecedented and experimental global actions taken since the 2008 crisis are beginning to manifest. There are always causes and effects that develop; but they do so at different speeds. Many actions in recent years have prioritized 'benefits today' over 'consequences tomorrow'. 'Tomorrow' is approaching ever more quickly. There is no 'free lunch'.
It's officially Groundhog day... and month... and year... and so on.
With just six days to go until the government begins Jade Helm 15, expect the rumor mill to come alive because as The Washington Post reports, the media will not be given access to the drills.
In the wake of China's unprecedented attempt to rescue its collapsing equity markets, Deutsche Bank is out with a history lesson for Beijing where officials can learn some "sweet and sour" lessons from the crash of '87.
What began as a glitch in pre-market trading turned into the NYSE's longest trading halt since Hurrican Sandy battered the East Coast. The ever-increasing complexity of US equity markets combined with an ever-decreasing pool of greater fools leaves windows open on down days (for it appears these 'glitches' only ever occur on down days) for markets to break. While NYSE traders defended the very market structure they have abhorred in the past as evidence that today was "not a failure," we can't help but find CNBC's Scott Wapner's ignorant remarks that "if retail investors want low cost liquid trading they are going to have learn to live with it," the perfect post-mortem for a rigged system brimming with confident insiders ever excited to take mom-and-pop's money.
With equity markets jumping vertically on every possible 'hope' of a deal - no matter what the consequence - we look to the asset class that is a) not driven by headline-reading algos and HFT, and b) is by far the most sensitive to reality - Greek Bank Bonds... and they are carnaging!!
At around 645ET, EURCHF suddenly took off out of nowhere. This instantly lifted European stocks off new post-Greferendum lows, slammeds EU credit risk lower, lifted US equity markets, and drove Treasury yields higher. The SNB has declined to comment on whether it intervenened but we ask in all frankness, have we become so divorced from 'free markets' that China can blatantly enter markets to save them (and fail) and European markets can mysteriously go bid and no one bats an eyelid that this is all rigged.
Today's market battle will be between those (central banks) "hoping" that a Greek deal over the weekend is finally imminent (which on one hand looks possible after a major backpeddling by Tsipras - who may never have wanted to win the Greferendum in the first place - yesterday in Brussels and today during his speech in the Euro Parliament, but on the other will be a nearly impossible sell to Greece as any deal terms will be far harsher than the deal offered by the Troika 2 weeks ago and will have no debt reduction), and those who finally noticed that the Chinese central planners have effectively lost control.
The impact of a full-blown financial crisis in China, if it materializes, on the economy would likely be severe. On corporate earnings, other than the drag from slower growth, many companies may have to book stock-market related losses over the next few quarters by our assessment. Stock lending related losses could run into Rmb trillions.
For corporate management teams it’s all about instant gratification these days and if you needed proof that US equity markets have become the preferred channel for transferring debt sale proceeds directly into the pockets of top management, Bloomberg has all the evidence you need.
When it comes to Greece, and Europe in general, "hope" continues to remain the driving strategy. As Bloomberg's Richard Breslow summarizes this morning, "if you were looking for a word to describe the general feeling of equity markets today, you might well pick hopeful. U.S. equity futures opened higher and have been up all day. European bourses opened cautiously higher as they await word, any word, from the European finance ministers or more importantly, Chancellor Merkel. Equity markets will continue to be very reactive to European headlines, but so far, no news has been taken as a reason for hope." Which incidentally, has been the general investment case for the past 6 years: "hope" that central banks know what they are doing.
"My concern is not just that markets are mis-pricing Greece contagion, mis-pricing deflation, mis-pricing street liquidity and mis-pricing the (now negative) trend in corporate (US) revenues and earnings (Q2 earnings season is upon us and may well show year-over-year earnings down 5%/5%+). My concerns are also that markets are way too optimistic about global growth (especially the US), about China, about the ability of policymakers to do anything new and/or effective to alter things meaningfully to the upside,"