Market Crash

While the markets have improved since the "resolution" of the Greek crisis, in my opinion we would have expected substantially more given the overall "angst" that the situation was generating. Yet, the market remains in a bearish consolidation pattern. Furthermore, relative strength, momentum and volume remain a detraction from the "bullishness" of this week's "crisis resolution rally."

The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system.

But... but... they just provide liquidity.

Greece is saved!!! I mean BANKERS are saved!!! The market will celebrate the total capitulation of Greece to the EU bankers. Nothing has been resolved. The debt won’t be repaid. The can has been kicked again. Portugal, Spain, Italy, Ireland and even France are essentially insolvent. It’s all a ponzi scheme. The bankers win and the people lose. Hope is not a strategy. Hussman’s weekly tome shows how a crisis plays out. Bad shit happens and the powers that be react with bad solutions that keep their wealth and power protected. Their bad solutions lead to a worse crisis. More bad solutions. And so on, until complete collapse.

For students of history, the China stock market crash looks eerily familiar. It’s playing out much like the Wall Street stock market crash of 1929. One of the factors fueling the soaring stock market of the 1920s was an influx of new, financially unsophisticated investors who saw the rising numbers and saw an opportunity for quick and easy profits. And that’s exactly what’s happened in China over the past year or so.

"Where ignorance is bliss, it's folly to be wise..."

"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."

Since 1982, the entire market has been nothing but one massive slow-motion leveraged buyout. This places the SEC right up there with the Federal Reserve in market manipulation credentials.

Have you noticed that events have begun to accelerate?

Guess who just went "marginally net short... in dollar terms."

Chinese markets bounced last night following drastic intervention by the state when it banned large players from selling their shares in listed companies – arresting the over 30% decline of the past four weeks.

• Only update software on down days: NYSE, SEC Suspect Software Update Triggered Trading Halt (BBG)
• Trade halts add to China’s Potemkin market problem (Reuters)
• Why Beijing’s Efforts Have Failed to Tame China’s Stock Market (WSJ)
• Irrational Exuberance Triggers Chaos as China Watchdog Sidelined (BBG)
• China bounce ends five-day losing streak for stocks (Reuters)
• Fear Grows in Greece as Decisive Hour Nears (WSJ)
• Once Swarming with Greek Visitors, a Bulgarian Town Reels as Business Languishes (WSJ)
• Greece Shuts Markets Through July 13 as Officials Debate Bailout (BBG)
• Germany calls for European defence sector consolidation (Reuters)

No bubble can remain aloft without a heavy dose of monetary inflation. The fact that China’s authorities, including its central bank, have been unable to stem the decline stands as a stark warning to the many Western investors who seemingly believe that central banks are nigh omnipotent entities run by magicians. This is not the case. Once an asset bubble begins to burst, there there is nothing central bankers can do to stop it – and we have plenty of bubbles awaiting their turn in the barrel.

"The A-share market may not bottom until the government, possibly via the PBoC, becomes the buyer of the last resort. It seems that the government might have just taken the first step in that direction on Sunday night with PBoC’s promise to provide liquidity support to stabilize the market. If PBoC becomes the main source of market-supporting liquidity, we expect the central bank's credibility to be hurt."