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Frenzied Chinese Stock Buyers Soak Up So Much Liquidity, Central Bank Forced To Intervene, Prevent Seizure
While today's rabid explosion in the S&P500, coupled with a literal break in the NY Fed/Citadel market boosting algo which went haywire in the last moments of trading and pushed the S&P up to 2130 in milliseconds via Kevin Henry's preferred SPY ETF, may be the stuff of market manipulating legends, nothing compares to the far more berserk situation China finds itself in, where a 50% surge in the Shanghai Composite over the past few months - not on improving fundamentals but just the opposite, hopes of massive liquidity injections to halt China's economic hard landing - has found the PBOC scrambling to find a way to, politely, burst the stock market bubble without causing too much pain.
This is because as reported overnight, China's seven-day repurchase rate, a gauge of interbank funding availability in the banking system, surged 139 basis points, to a 10-month high of 5.28% in Shanghai, the biggest since Jan. 20. The reason for the sudden cash crunch, according to Bloomberg, is that subscriptions for the biggest new share sales of the year lock up funds. Twelve initial public offerings from today through Dec. 25 will draw orders of as much as 3 trillion yuan ($483 billion), Shenyin & Wanguo Securities Co. estimated. In other words, the scramble to allocate capital into China's surest way of making money, IPOs, has led to a drying out of general liquidity in the entire market.
This in turn forced the PBOC to intervene and inject short-term money loans to commercial lenders in order to prevent the kind of interbank liquidity lock up that emerged in China in June 2013 in the aftermath of the first Taper Tantrum (and which before all is said and done, will likely take place again) and which sent global capital markets around the globe reeling before China resumed its massive liquidity injections which are at the heart of China's debt-fuelled bubble in the first place.
From Bloomberg: “The IPOs are affecting the market, leading to cautious sentiment with fewer institutions willing to lend,” said Li Haitao, a Shanghai-based analyst at China Guangfa Bank Co. “Quite a few traders found it very difficult to meet their funding needs yesterday.”
Why? Because everyone wants to get rich quick so badly, they are risking collapsing the entire market.
Lenders paid 4.65 percent for 60 billion yuan of three-month treasury deposits auctioned today by the PBOC, the most they’ve paid since January for such funds. The central bank also rolled over this week at least some of the 500 billion yuan of three-month loans granted to lenders in September, a government official said yesterday, declining to be identified as the details haven’t been made public.
“Banks have to prepare for quarter-end regulatory checks, including loan-to-deposit requirements, and hoard cash to meet year-end demand,” said Wang Ming, chief operations officer at Shanghai Yaozhi Asset Management LLP, which oversees 2 billion yuan of fixed-income investments. “With all these factors affecting the market, it’s no surprise it’s suffering more than during previous IPOs.”
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose five basis points to 3.38 percent, data compiled by Bloomberg show.
The yield on China’s sovereign bonds due September 2024 fell two basis points to 3.78 percent, according to data from the National Interbank Funding Center. It’s increased 27 basis points this month.
The PBOC is expected to cut lenders’ reserve requirements before the Lunar New Year holiday in February to top up the money supply as the prospect of U.S. interest-rate increases draws cash from China, according to Ding Shuang, senior China Economist at Citigroup Inc. in Hong Kong.
And since the Chinese stock market is surging ever higher on momentum-driven euphoria, China which wants to if not burst its bubble than certainly tame it as it is already having adverse impacts on cross-asset classes, the last thing regulators want to do is risk a full blown slam in equities, which are now so far above their fair value, a Chinese market correction correction could have dramatic consequences on all other aspects of China's bubble economy.
They better decide quick just how they will do this, becauase as Bloomberg also reported moments ago:
- CHINA 7-DAY REPO RATE TOUCHES 5.81%, HIGHEST SINCE JAN.
Ironic, and very much reflexive: with all the "money on the sidelines" is being soaked up in the stock market, there is nothing left to keep the rest of the facade operating efficiently, which ultimately assures a stock market crash.
Perhaps even in a time of pervasive central-planning, a Princeton economist can only pull the rubber band so far before it finally snaps.
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Nice to know the Chinese market is as deranged as ours is....
Who woulda thunk the chinese would fall for their version of cattle chutes going to their regional slaughterhouses.
Hmmm.
this seems somewhat "disorganized"....I'm sure with some consultation their Central Planners can just turn down the volume knob without any consequences....
the contagion seems to be spreading ... first Russia ....
Bribery and games..
http://hedgeaccordingly.com/2014/12/avon-products-to-pay-135m-to-settle-...
Believe me its worse there and much of the society there is equivalent. As 1 example I was at a street fair there once and watched in disbelief as a little girl was almost trampled and crushed to death by a crowd of people as they rushed a booth to fight over a free balloon the shop keeper was giving away. You know how people say things seemed to go into slow motion. I knew what they meant as that unfolded. The only reason the little girl didn't die is because one young woman maybe in her 20's and right near the little girl started screaming and threatening to attack the whole crowd to get them to stop. Her fortitude really was quite impressive. And people listened and paused long enough for her to pull the little girl out.
Try to imagine if they're willing to kill over a free balloon what will happen when the fraud ends and things collapse. And then do your best to have your families prepare accordingly
Gasius.
Top shelf and over the heads of most folks. USA is now a "swing producer" in both oil and natural gas...in effect a cartel. Suppose to be illegal but hey, that's the way these things go. Not an expert in muni debt but I imagine someone has done the numbers and there is only so much that needs paying. "Game,set, match the dollar." The Dominion Wars have now concluded.
Can you connect your first sentence with your second? I am not getting there from here. On that note, not from the second to the third either.
And then you proclaim King Dollar the winner. Like a spoiled grand child, the Dollar has forgotten about grandpa Thaler and all he stood for ...
Thanks,
Cooter
Dude...the facts are the facts. I got phucking killed today but not because I'm clueless. "Thales Corner" is nice but he never understood the number ZERO. Hence "HW was alwaysntrying to corner the market" but "he never had any concept of leverage." As with a subsidy so it is with debt: "lever it and get more of it.". Silver, gold, OIL, you name.
So what backs the promise to repay a debt? I would argue " not having the debt to begin with" (ala a gold standard.). Another is simply a stupendous amount of liquidity ("infinity" if you will.). If I have infinity natural gas (and apparently Pennsylvania does) I only need ONE DOLLAR...and that will pay for everything. Everything else...meaning ALL debt...is just an interest payment.
Meanwhile in Moscow...
I bought a stock and it went down in price. Who do I call to get the trade DK'd?
Kevin Henry apparently.
I mean 2 to 2 and a quarter percent on the ten year in one day?
WTF.
I still stand by my "Putin is a dope" but "invading Russia is bad" meme. I also stand by my demand for bikini beach volleyball on the moon which I freely admit I laid out on "the internet" six years ago.
The Ukie shit has me more nervous than anything.
Regards,
Cooter
Ya think?
I see nothing that says "if Putin fails to act we won't."
That's what I would do. His failure to respond force on force says to me attack. 25 billion from the IMF will buy a lot of top of the line shit.
You need to get you some sleep, i'll do some driving.
all hail bikini beach volleyball, anywhere
as long as it's wommin...
1-800-TRADEPIMP
O/T.. But what's up with the pink cloud thingy over Fukushima??
looks like all that wall street blow is going to china now. look at the size of that guys nostrils on the thumbnail for this article. looks like he could put any wall street trader to shame.
is china investing in columbia? they should be. with nostrils like that they are going to need it.
Never mind all that, what was your search string for the title pic??? Gold
That pic was awesome!
Here is a google image search. Right click the image, copy image location, then go to google, go to image search, put in the URL and do an image search. It will return "similar images". I think this is a movie screen cap (fish tank?) of some sort, didn't spend much time digging.
EDIT: It is a movie, but is called "Push".
http://www.bbspot.com/News/2009/02/review-push.html?from=rss
Regards,
Cooter
Reminded me of Arnold Schwarzaneggar actually.
and the fruits that thy soul lusted after are departed from thee, and all things which were dainty and goodly are departed from thee, and thou shall find them no more at all.
GMC, baby.
I am seriously confused. Things keep spinning along..in a totally irrational manor and nothing makes sense. And on top of everything, it appears that Kim Jong Un is now the CEO of Sony.
I probably need meds.
The latest thing in literal hostile takeovers, as foretold by the ferocious reaction to the notorious Mohammed cartoons.
The solution is not to refrain frm publication but to put them on the front page of every newspaper in the world and defy the crazies to do their worst-- and to offer free showings of the movie to people who dress up like North Korean versions of Rocky Horror-ites.
We must defy them or else they will only grow stronger.
Agreed.
The unintended consequence of asset inflation that fuels the already high internal debts and the stuck infrastructures from years of malinvestments.
The declining RMB is not helping to sustain the green shoots of internal consumption. (They need the stream of foreign funds to fuel consumption).
The state capitalist model has spawned no deep markets to transmit monetary policy effectively. State owned banks are largely allocators of credit to sectors dictated by the Center. (All the fragilities from centrally planned system are coming to roost).
These are headwinds of an economy on the brink of implosion. Global Markets not about to wait for them to get their act together. Only some fear accorded given their standing as the world largest economy in PPP term.
The debate continues as to how stable china is and how hard it will land following a period of rapid growth. A big reason dropping house prices in China is so important is that is where almost 75% of household wealth is stored. Here in America a much larger share of household wealth, approximately 71% is stored in financial instruments.
The end of the housing bubble in China has the potential to become a huge deflationary "house of cards"in a country already suffering from massive overcapacity. Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured huge amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need.
For years the people of China have had the habit of saving much of what they earn but the low interest rates paid at banks has not rewarded savers. With few investment options much of this money has drifted towards housing and driven housing prices sky high. The article below delves into how the economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be very painful.
http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html