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China Cuts Reserve Ratio Most Since 2008 In Scramble To Preserve Equity Bubble, Boost Economy

Tyler Durden's picture




 

As we observed yesterday when we showed that if comparing the collapse in China's housing market with that of the US following their respective peaks..

 

... then China is already a recession, we added that "as shown in the chart below [China] has recently engaged in several easing steps, with many more to come..."

Sure enough, just a few hours later, the PBOC announced its second Reserve Requirement Ratio (RRR) for all banks since February 4, when China had its first industry-wide RRR cut since May 2012. The move will be effective Monday, April 20.

Incidentally, this is the first time in history that China has been easing its monetary policy into a surging stock market, as the chart below shows.

 

Perhaps more notably this was the biggest RRR-cut for China since November 2008, and everyone knows what was going on back then.

 

While the move was not unexpected and follows Premier Li's vow last month to actively step in if the economic slow down begins to hurt jobs, as well as the PBOC's hint yesterday that the PBOC has room to act, the size of the cut, which will unleash CNY1.2 trilion into the market or about $200 billion, was far bigger than most had predicted.

“This RRR cut is much bigger than the market anticipated and banks will be flooded with liquidity,” said Liu Li-Gang quoted by Bloomberg, chief China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “It will also add fuel to the already red hot stock market.”

Other commentators, clearly long "of stocks", were just as giddy: “The move is positive, showing policy makers are trying to offset the impact of potential capital outflow and stabilize the macro environment,” said Helen Qiao, Hong Kong-based chief greater China economist at Morgan Stanley. “The 100 basis point cut shows the intensification of policy easing, which is warranted given the sharp slowdown.”

And since none of the recent PBOC easing has done anything to arrest the collapse in the all important housing market, more interest rate cuts are forthcoming.

But is it really about the economy?

Recall that on Friday Chinese equity futures crashed after the close following news that the China Securities and Regulatory Commission (CSRC) put out an announcement which tightened up rules governing certain trading on margin while simultaneously liberalized rules on short selling. The tighter margin rules applied to a category of investors using what are known as 'umbrella trusts' where leverage has expanded greatly in the last 6 months. 

 

This kind of margin has now been ruled illegal going forward (the margin rules for ordinary citizens not using these vehicles have not been altered). The rise in Margin looks somewhat like the rise in the number of new accounts being opened at the brokerages.  The week of Apr 10 it was 850k, versus just about 100k a year earlier.

The CSRC also increased the number of issues eligible for short selling from about 900 to 1100 in the same announcement.  In the few years that either margin or shorting have been allowed, the practice of shorting in China has not caught on at all like the use of long margin.

The result of these moves prompted Evercore ISI to comment that: "after a near 100% rise in Shanghai equities over the last year, any rule tightening would likely yield an immediate correction.  Monday is likely to be a bad day in the Chinese markets.  And maybe all week."

Well, not so fast.

Terrified it had just popped its equity bubble prematurely, overnight China’s securities regulator "moved to allay fears that it intends to kill a breathtaking rally in the country’s stock market, just one day after it warned small investors about trading risks and expanded the use of a mechanism that bets against stocks."

As the WSJ reported, "the abrupt about-face betrays a dilemma faced by the regulator between cooling a market that has doubled over 12 months and causing panic among vulnerable retail investors that account for the vast majority of stock trading in China, analysts say.

In a statement published on Saturday evening, the China Securities Regulatory Commission said measures rolled out on Friday, including tightening rules on margin lending and promoting the use of short selling, aren’t aimed at clamping down on a red-hot market.

 

The measures are about “maintaining the healthy development of the market,” the CSRC said in the statement. “They aren’t intended to encourage short selling, let alone depressing the market...the market shouldn’t over-interpret the measures,” it added.

In other words, the Chinese market may be "red hot", but please don't stop making it even redder. Because as long as China is unable to halt its housing hard-landing, it will gladly take an equity bubble in lieu of a housing bubble if that helps preserve the people's wealth (the problem being that in China only 25% of household assets are in financial products - 75% is in financial markets, something which as we showed before is inverted in the US).

Which is why any attempts to offset the bursting housing bubble with a stock bubble in China will fail.

But it won't keep it from trying, and if yesterday's CSRC announcement was designed to halt the selling seeing on Friday, then the PBOC rate cut hours ago cements it. Call it China's "Bullard" moment.

But perhaps the biggest question is what happens with the Renmibni next: because on one hand China desperately needs to weaken its currency to boost exports and stimulate its mercantilist economy which due the CNY's peg to the soaring USD has lost its competitiveness, yet on the other as many have suggested (us included) beneath the surface China is currently suffering a massive capital outflow, one which a weaker currency will accelerate, leading to an even worse outcome for China: a sequence of events which ultimately will culminate with the launch of the "final" QE.

Expect the Friday selloff to be more then BTFDed as soon as China opens for trading in a few hours, and the SHCOMP to surge even higher and to even more unsustainable, and centrally-planned levels, merely pushing back the day of reckoning by a few weeks or months, as yet one more bank scrambles to preserve the "wealth effect" by artificially pushing its stock market higher..

 

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Sun, 04/19/2015 - 09:31 | 6008184 GMadScientist
GMadScientist's picture

Yeah! Light that candlestick of death!

https://www.youtube.com/watch?v=SOuBrXS8fuM

Sun, 04/19/2015 - 10:09 | 6008264 kliguy38
kliguy38's picture

Yeah that makes a lotta sense......blow the bubble even bigger.......KABOOOOM

Sun, 04/19/2015 - 10:26 | 6008294 NoDebt
NoDebt's picture

Central planning always works out well.  Why else would the US be going in that direction as fast as possible?

Sun, 04/19/2015 - 11:13 | 6008347 TruthInSunshine
TruthInSunshine's picture

This - in not just China but other nations' economies - and not distractions like Jade Helm, Kardashians, Hillary/Jeb, other pop culture crap, etc. - is what to worry about & what's going to bring on our now guaranteed next global crisis which is already underway - It's all about economics.

China is now contracting in real economic terms at a brisk clip (also contracting - Japan, Brazil, India, Spain, Russia, Greece, France, Italy, UK, US, et al.).

China's trying voodoo economics by monetary policy. It can't and won't work. They (and other structurally imbalanced) now will be forced by externalities to take their bitter medicine, and it's going to be devastating.

The problem is globally depressed aggregate demand.

WE ARE NOW WITNESSING THE LARGEST MISALLOCATION OF CAPITAL (THANKS IN LARGE PART TO COORDINATED CENTRAL BANK POLICIES 6 YEARS RUNNING NOW) THAT ALMOST ANYONE NOW LIVING HAS EVER BEFORE SEEN - think about that; if I'm correct, we're going to suffer an early to mid 1930s type era now!

The central banks have blown unprecedented bubbles in both size & variety.

There are too many producers of everything from (unwanted) services (e.g. banking) to unwanted tangible (e.g. steel) and intangible (e.g. "apps") products, far outmatching & being dramatically misaligned with consumers.

Sun, 04/19/2015 - 11:52 | 6008473 KnuckleDragger-X
KnuckleDragger-X's picture

Wants and needs. The herd has been conditioned over the last few generations that wants and needs are the same thing. You NEED a new car, a McMansion and an iWhatever. We're now at the point where the real needs, food, water, shelter, are becoming no longer affordable and the end of the rainbow is a cesspool. It can't go on but it can't be stopped, we're fucked not just as a nation but as a world and it's funny that the third world nations that have suffered the most under the present system will likely have the best chance at survival since they have less to lose.

Sun, 04/19/2015 - 12:26 | 6008555 johngaltfla
johngaltfla's picture

But hey, that and oil prices got a 4% rally in Saudi stocks so the camels are smiling. Meanwhile, back in Shanghai it could be a long, long night....

Sun, 04/19/2015 - 11:13 | 6008387 kowalli
kowalli's picture

Problem with central planning that you must have a high moral and educated people in the top of chain, not a lowlife lizads and scums as it now. They don't care about anything except of them and their power.

Sun, 04/19/2015 - 10:42 | 6008319 Burt Gummer
Sun, 04/19/2015 - 11:07 | 6008375 GMadScientist
GMadScientist's picture

We've been stuffing the committee full of green tea with no bathroom breaks at all.

My prediction: LIQUIDITY!

Sun, 04/19/2015 - 11:54 | 6008478 KnuckleDragger-X
KnuckleDragger-X's picture

China has been in permanent QE for a long time and the printing press is starting to overheat and smoke.....

Sun, 04/19/2015 - 14:18 | 6008776 tarabel
tarabel's picture

 

 

The whole country is a giant Solyndra.

Sun, 04/19/2015 - 15:59 | 6009052 the great rift
the great rift's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com

Sun, 04/19/2015 - 09:38 | 6008198 buzzsaw99
buzzsaw99's picture

more then = moar than

fixed it

Sun, 04/19/2015 - 09:45 | 6008221 LawsofPhysics
LawsofPhysics's picture

LOL!!!  At least the chinese state is unified in their bullshit...

tick tock motherfuckers...

Sun, 04/19/2015 - 09:48 | 6008228 valley chick
valley chick's picture

Been trying to search archives regarding the mad global printfest and haven't found it but remember a couple years ago it was predicted it would end with everyone all in on QE.  Believe we are finally at the end of the road. Cue false flag.

Sun, 04/19/2015 - 09:57 | 6008245 GMadScientist
GMadScientist's picture

There's still some time they can buy with CBs taking turns devaluing, but what they can't do is fix the damage they've done in the meantime. The music is picking up pace and the contest has become less about the chairs than about who will drop and who will bop.

Sun, 04/19/2015 - 10:05 | 6008257 Oldwood
Oldwood's picture

And the winners will celebrate the death of the losers, while only heightening their sense of superiority. Arrogant hubris that will be the end of us all.

Sun, 04/19/2015 - 10:10 | 6008263 LawsofPhysics
LawsofPhysics's picture

Yes, but the numbers and demographics are what they are...  ...so who will be the "losers" this time around?  Governments have always eventually become filled with the most corruptable people. The ultimate outcome is dependent on the quality of the people in any given society.  Producers always do better than consumers in general.  Look around America these days and tell me what you see.

Interesting times either way.

Sun, 04/19/2015 - 10:17 | 6008278 Oldwood
Oldwood's picture

When the difference between winning and losing is a relative one and not an absolute one, competition thrives and lifts us all.

That is not what this is.

When winning comes at the destruction of others, we all lose.

Sun, 04/19/2015 - 11:12 | 6008385 TheReplacement
TheReplacement's picture

Well said.

Sun, 04/19/2015 - 15:33 | 6008956 crisrose
crisrose's picture

80% of Americans:

http://www.peopleofwalmart.com/

 

Sun, 04/19/2015 - 11:12 | 6008386 GMadScientist
GMadScientist's picture

From the prescient mouth of my very own babe: "And who will MOP!"

Sun, 04/19/2015 - 09:50 | 6008232 DavidC
DavidC's picture

Meanwhile there are going to be small unsophisticated 'investors' who've leveraged up into a bubble market who are (if they weren't on Friday) going to get wiped out.

Nice one

DavidC

(sarc off)

Sun, 04/19/2015 - 09:59 | 6008249 Oldwood
Oldwood's picture

The Chinese will eat their dead. The epitome of the "good of the many outweighs the good of one" and as we know the "one" is any one of us.

Long on Soylent Yellow.

Sun, 04/19/2015 - 10:25 | 6008289 Pure Evil
Pure Evil's picture

Would you like a little low sodium soy sauce with that Soylent Yellow?

Sun, 04/19/2015 - 10:55 | 6008336 I M DeMan
I M DeMan's picture

Well, yes. The Chinee need to blow their 500% overpriced houses up higher to 1000% percent overpriced. Not until they take more land form the farmers and when their peasants revolt will their Bubbled Assets correct. It's part of their history.

Sun, 04/19/2015 - 14:00 | 6008749 TruthInSunshine
TruthInSunshine's picture

Too late.

Chinese RE is in process of crashing in long-term, water torture style, and sheeple investor money has rotated to Chinese equity markets of Shanghai & Hong Kong, which have a huge % of sham companies traded, with another huge % of companies that are circa-1999 overvalued (or more so).

A massive % of that money being dumped into Chinese equities will be vaporized (as it will be in other equity markets - not to mention bond markets - which insure real kicker that will leave no safe harbor thanks to the insanity of central bank monetary Franken-experimentation).

Sun, 04/19/2015 - 12:06 | 6008506 Redneck Hippy
Redneck Hippy's picture

No MSG prease.

Sun, 04/19/2015 - 10:26 | 6008292 GMadScientist
GMadScientist's picture

Hold on, I got a tiny fiddle just for such gambling Chinese Mommy situations.

Sun, 04/19/2015 - 10:18 | 6008246 buzzsaw99
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as with the fed there is no boc equity put "per se" (per se = dudley weaselese). it just happens that their policy currently favors soaring equities so there is. [/johnny cochran not making any sense defense]

Sun, 04/19/2015 - 10:04 | 6008248 ParkAveFlasher
ParkAveFlasher's picture

I admire the Chinese sense of overkill.  It lacks any restraint. 

Sun, 04/19/2015 - 10:12 | 6008271 Oldwood
Oldwood's picture

It is simply the arrogance that each of these "central command geniuses" accumulates while watching each other apply even more extreme measures without consequence. They truly believe they can do no wrong and as their counterparts do the same, a strange balance of stupidity that is allowing what would normally be suicidal actions, appear as super powers, as a form of enlightenment, godliness.

We are doomed as we know there is no God walking the face of this earth.

Sun, 04/19/2015 - 10:27 | 6008295 Pure Evil
Pure Evil's picture

There is a God walking the face of the Earth, but why does everyone expect this God to intercede in all of Man's follies?

Sun, 04/19/2015 - 10:32 | 6008306 Oldwood
Oldwood's picture

The people driving us on this path to destruction, see themselves as gods, as infallible.

Sun, 04/19/2015 - 10:39 | 6008312 Pure Evil
Pure Evil's picture

It may seem that way.

But, this is the folly of mankind.

Sadly these people have gotten away with so much crap for so long they begin to believe they're infallible.

But, as is always the case, no one escapes the grave.

Sun, 04/19/2015 - 10:53 | 6008338 Winston Churchill
Winston Churchill's picture

Our Lloyd God still walks the earth.

Sun, 04/19/2015 - 12:02 | 6008499 Baby Eating Dingo22
Baby Eating Dingo22's picture

Correction

Lloyd has a chauffeur

Sun, 04/19/2015 - 11:53 | 6008475 cherry picker
cherry picker's picture

God doesn't need to walk.

Moral checks and balances are all in place.  God has always given mankind enough rope to hang themselves and going back through fairly recent history we know it works.  The decline of US predominance in the world is a consequence of actions past including hypocrisy/murder and the bottom is still far off.

When everything goes to hell, the only thing left is God.

 

Sun, 04/19/2015 - 10:26 | 6008293 Chuck Knoblauch
Chuck Knoblauch's picture

The real war in between US and China.

Russia is the government approved enemy.

Wake up.

Sun, 04/19/2015 - 10:29 | 6008302 NoDebt
NoDebt's picture

At this point I think we've done a pretty good job of pissing off the entire continent of Asia.

Sun, 04/19/2015 - 11:02 | 6008361 Winston Churchill
Winston Churchill's picture

The common folk in Europe aren't too happy either.

When I talk to my scattered relatves across the core, I hear things that mostly all Americans never

will.Anti Americanism is a gross understatement.

Sun, 04/19/2015 - 11:07 | 6008378 kowalli
kowalli's picture

don't worry, fed will print happiness. They think that they can solve anything with money

Sun, 04/19/2015 - 11:11 | 6008382 Chuck Knoblauch
Chuck Knoblauch's picture

The Fed is fascilitating Chinese hegemony.

US military must be blind.

Sun, 04/19/2015 - 11:16 | 6008393 TheReplacement
TheReplacement's picture

According to Rickards they are not blind to this.  It seems they just do not understand their responsibilities as per their oaths.  Sadly, they are not alone in that regard.

Sun, 04/19/2015 - 11:38 | 6008422 Chuck Knoblauch
Chuck Knoblauch's picture

Geronimo is laughing somewhere watching karma unfold.

The Apache probably considered themselves superior too.

It happens when you think you're safe.

I don't like Rickards.

Sun, 04/19/2015 - 11:08 | 6008379 Chuck Knoblauch
Chuck Knoblauch's picture

Exceptionalism breeds arrogance.

No one likes a snob.

Sun, 04/19/2015 - 10:30 | 6008303 Pure Evil
Pure Evil's picture

They all sit on the same Board of Directors.

Just because they're willing to send their mere mundanes to kill each other doesn't mean they're entirely evil.

Sun, 04/19/2015 - 10:28 | 6008297 christiangustafson
christiangustafson's picture

The VIX candle on Friday already suggested something like this was coming. Short-squeeze on Monday ...

Sun, 04/19/2015 - 10:29 | 6008300 JBilyj
JBilyj's picture

Great article, best paragraph:

"But perhaps the biggest question is what happens with the Renmibni next: because on one hand China desperately needs to weaken its currency to boost exports and stimulate its mercantilist economy which due the CNY's peg to the soaring USD has lost its competitiveness, yet on the other as many have suggested (us included) beneath the surface China is currently suffering a massive capital outflow, one which a weaker currency will accelerate, leading to an even worse outcome for China: a sequence of events which ultimately"

Sun, 04/19/2015 - 10:33 | 6008307 Pure Evil
Pure Evil's picture

"... which ultimately" will give the North American oligarchs lessons on how to quell the mass uprisings of their own proletariat.

Sun, 04/19/2015 - 16:47 | 6009186 The Ingenious G...
The Ingenious Gentleman's picture

Except for one critical typo:

(the problem being that in China only 25% of household assets are in financial products - 75% is in financial marketssomething which as we showed before is inverted in the US)

"Financial markets" should be "real estate".

Sun, 04/19/2015 - 10:39 | 6008314 q99x2
q99x2's picture

YeeeeeeeeHaaaaaaaaa BTFChinaD https://www.youtube.com/watch?v=bn5pGQPYcrY

Sun, 04/19/2015 - 10:50 | 6008330 Ban KKiller
Ban KKiller's picture

Let's change the rules. Yeah, that will fix things. We exported our pollution to China, was it worth it? Long run, I would say yes. The pollution in China is leading to many long term problems not solved by a rising "stock" market. When greed replaces thought you have pollution so thick you can't see logic. Meanwhile here in the USA we just don't talk about our polluted legacy as the media is strangled. There is free press but no one reads anymore. 

I liked the quiet skies after 9/11/01. Building 7? Please ignore facts....

What's on TEEVEE?     Oligarchy/Plutocracy 2016! 2+2=5

Sun, 04/19/2015 - 10:52 | 6008335 falga
falga's picture

Ok this is not instantaneous but sure will make the summer interesting. This does not affect new stock margin rules. Right thing to do at right time.

Sun, 04/19/2015 - 11:25 | 6008412 disabledvet
disabledvet's picture

"I'll write a suicide note on a trillion dollar bill."

Sun, 04/19/2015 - 11:54 | 6008484 Dragon HAwk
Dragon HAwk's picture

Always cracks me up when i read about how banks have to Hold Cash. in order to operate. there so broke and leveraged,  if we looked at their true books there all so damn Broke and insolvent, so lieing about their latest lie, doesn't mean much.

Sun, 04/19/2015 - 12:09 | 6008513 Soul Glow
Soul Glow's picture

Reserve ratio 9:1 so they don't even need to hold much cash especially when assets are rehypothicated multiple times over.  Ask anyone who has gold at a bank the last time they have seen said gold haha they likely haven't evar.

Sun, 04/19/2015 - 11:57 | 6008489 Weaponized Innocense
Weaponized Innocense's picture

Cool I should have my tax refund by then and I can get my yang on..... and if China does it right it might not be much of a bounce off the bottom for their economy but a long long time ski slope to keep my yang on for long term till I get bored with making money and don't want a pop to eat the past year flatlining economy.
That yang makes it goes to one and I am going to sell my house with whatever scheme this gov in U.S. has made to bubble our housing and beep beep beep back up the yang truck,

Sun, 04/19/2015 - 12:05 | 6008505 Soul Glow
Soul Glow's picture

To keep financing their under water bases.

Sun, 04/19/2015 - 12:07 | 6008509 Atomizer
Atomizer's picture

Imagine Geico, and Progressive insurance going out of business without giving you a free device to lower your insurance cost.

/it's fucking hilarious.

Sun, 04/19/2015 - 12:11 | 6008517 Father Lucifer
Father Lucifer's picture

Everytime market support is about to break some fool CB does something to distort the market. Some day it won't work.

Sun, 04/19/2015 - 12:21 | 6008543 Weaponized Innocense
Weaponized Innocense's picture

Yup & the harder they will fall right into the hands of my rattlesnake portfolio in which they can not make it all illegal without destroying themselves too & being so unbelievably obvious no faking can mask.

Sun, 04/19/2015 - 12:15 | 6008522 Weaponized Innocense
Weaponized Innocense's picture

I dream of etf's which short currencies but pay u in PMs....... wouldn't that be so delicious.

Sun, 04/19/2015 - 12:20 | 6008535 Atomizer
Atomizer's picture

Flo might need to hit the stripping pole to advertise more insurance options.

https://www.victoriassecret.com/panties

Sun, 04/19/2015 - 14:20 | 6008777 jubber
jubber's picture

It's shame these Chinese punters don't buy an Ounce of Gold each...

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