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Hong Kong Hammered As China Crash Contagion Continues
Submitted by Pater Tenebrarum via Acting-Man.com,
Efforts of Potent Directors Ignored
When we first commented on the emerging problems with China’s market bubble, we warned that although a bounce from oversold levels was the most likely outcome, it wasn’t set in stone. It appeared to us that Chinese investors were especially prone to falling for the “potent directors fallacy” (a term coined by Robert Prechter of EWI many years ago) – the belief that powerful decision makers, in this case the central bank and the government – would be willing and able support the market no matter what. Willing they have been – able, less so.

Chinese retail investors are shell-shocked
Photo credit: EPA
For a long time it has been the general impression that due to its tight control over the banking system and other sectors in the economy, China’s leadership could just “order the markets around”. Investors who were aware of China’s enormous debt problems and its insanely overvalued real estate markets were regularly baffled by the fact that China’s mandarins were apparently capable of arresting any decline in prices or any emerging credit blow-ups with the flick of a finger. Faith in their abilities is currently being shaken to its core. This is highly relevant to the asset bubbles currently underway in other countries, even though what happens in China has little direct effect due to the country’s closed capital account.
China’s stock market crash just keeps going – the index has now reached an important lateral support level. It will probably bounce from there, but for a variety of reasons this is actually somewhat less certain than it would otherwise be – click to enlarge.
The latest gambit of China’s central planners has been to replace the increasingly wobbly looking real estate bubble with a stock market bubble. The plan, as far as we can tell, was to enable state-owned companies to raise a lot of equity at favorable prices, so as to lessen the relative importance of their debt load, resp. enable them to deleverage by putting the proceeds of stock offerings toward paying down debt. However, the stock market bubble rested on an extremely shaky foundation: inexperienced retail investors and just as inexperienced fund managers were the main buyers, and they used plenty of margin to do so. Now they are in an unmitigated panic.
How to Shoot Oneself in the Foot
In their desperate effort to halt the decline in stock prices, China’s authorities have tried every trick in the book and then some. The latest gambit was initiated by listed companies, and may well have been the equivalent of shooting oneself in the foot: In order to stop stocks from declining further, many were simply suspended from trading. Some of those are suspended because they keep trading “limit down”, but in many cases the trading halts were requested by the companies themselves (the exchange must give its placet to such trading halt requests).
As a result, some 27% of listed companies are currently no longer trading, representing approx. $1.4 trillion in market cap. This is reminiscent of the futile attempts to halt stock market declines in the US and Europe by banning short sales in 2008 (as well as on other occasions, e.g. in early 1932, a short selling ban that was followed by a 69% plunge in stock prices).
“Chinese companies have found a guaranteed way to prevent investors from selling their shares: suspend trading.
Almost 200 stocks halted trading after the close on Monday, bringing the total number of suspensions to 745, or 26 percent of listed firms on mainland exchanges, according to data compiled by Bloomberg. Most of the halts are by companies listed in Shenzhen, which is dominated by smaller businesses.
The suspensions have locked up $1.4 trillion of shares, or 21 percent of China’s market capitalization, and are becoming increasingly popular as equity prices tumble. If not for the halts, a 28 percent plunge in the Shanghai Composite Index from its June 12 peak would probably be even deeper.
“Their main objective is to prevent share prices from slumping further amid a selling stampede,” said Chen Jiahe, a strategist at Cinda Securities Co.”
Later, the number of halts requested increased to more than 1,200, the 21st Century Business Herald said, citing exchange data. The Shenzhen Stock Exchange will reject unjustifiable applications for suspensions, QQ.com reported, citing an unidentified person familiar with the matter.
As an aside, the assertion that the stock market rout has “erased at least $3.2 trillion in value” as most financial media are reporting is a rather unfortunate way of putting it. What has changed are merely stock prices. In a way, the previous “values” were largely fictional. They reflected the fact that many in China felt they had discovered a get-rich-quick scheme and were piling in. The “wealth” this has created was phantom wealth – nothing has changed about the underlying businesses just because their stock prices have soared, nor has any money been destroyed because they plunged – it has merely changed hands.
Why are trading halts counterproductive? For one thing, as most of the suspensions concern small caps, investors are now trying to rescue themselves by selling big caps. For another thing, it deters new buying, because investors must fear that they will be locked out again from trading their shares at some point in the future – this has lowered the potential for a significant bounce. Also, while the decline has superficially slowed due to trading halts, the potential for an even bigger decline is now hanging over the market, as those holding suspended shares are likely to sell as soon as it is possible again.
Another effect was that the spillover to the Hong Kong Stock Exchange has worsened considerably. The HSI has crashed by almost 2,100 points or 8.37% overnight:
The HSI in Hong Kong begins to crash as well – click to enlarge.
Why Are the Authorities Helpless?
There is actually a good reason why China’s authorities have been unable to stop the crash so far, in spite of their otherwise well-known ability to influence markets and the economy. China is beginning to feel the lagged effect of the massive slowdown in money supply growth over recent years. This increasingly unmasks capital malinvestment in China and makes it more difficult to keep asset bubbles supported.
The year-on-year growth rates of the monetary aggregates M1 and M2 in China have collapsed to the lowest level in more than 15 years – click to enlarge.
China’s authorities are now finding out that one cannot have everything at once. If a credit bubble is to be deflated, asset prices cannot grow to the sky at the same time. Rising stock and real estate prices require “fuel” in the form of money supply inflation, and a slowdown in credit extension automatically brings about a slowdown in money supply growth in the modern-day fractionally reserved fiat money system.
As a result, even if the market should begin to bounce from here, it will very likely remain a “sell” until money supply growth has accelerated again for a while. This is however unlikely to happen anytime soon, as China’s banks are increasingly reluctant to add to their burgeoning credit problems (these don’t exist officially, but everybody knows they are simply masked by accounting tricks).
Prime minister Li Keqiang wants to reform China’s economy and is also unlikely to order banks to massively increase their lending again. He may of course eventually well be outvoted by others in the politburo, but at the moment, he remains in charge of economic policy. Note in this context that stock prices fell again on Monday after Li Keqiang failed to mention the stock market crisis in an official statement on the economy.
Conclusion
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.

China’s premier Li Keqiang: Apparently not sympathetic toward stock market speculators.
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No glitchez bitchez? NYSE showed ya how its done
Bingo, bro...this mf'r is burning down before our very eyes! Or at least those not preoccupied with confederate flags and gays getting hitched.
I’m willing to bet that more than a few folks get executed out of this one.
If only we were that judicious here.
Man, this big suck feels like 2008. Hopefully everyone has loaded up on the correct 3x Ultra Short ETFs :)
Guess What Happened The Last Time The Chinese Stock Market Crashed Like This?
And what are the odds that the feds are going to raise rates in September so as to provide cover the that same 2008 outcome? I now put it at 90% with a crisis beforehand getting out of hand being the outlier.
Falls right in line with my cruise ship analysis.
I'm feeling nostalgic already...
https://youtu.be/m3FGVFAgY_I
https://youtu.be/_KClpLzFftU
Where's the banker suicides. We need some excitement to lighten up the atmosphere.
My phone's finally been ringing for nail gun work after a long drought. The pussies in the US and Europe say my methods are too "high profile" and "raise too many questions". The Chinese apparently have no such reservations. I've been learning Mandarin and Cantonese the last couple of weeks.
Give me some time to work.
If we put hyperbole ("burning down before our eyes") aside, it is clear that China has taken the lead in bringing back Price Discovery.
Even if some of the wrong people (sheeple) got hurt, and perhaps some of the right people (Globalist Speculators, like Soros, the Squid, the Morgue).
Like the Chinese Premier, I too hold these Parasites in contempt and disgust.
are those guys constipated
Has to be some intestinal stress.
That flush is going to leave some skid marks.
Insanley great, WB !
That's, like, 2 AAPLs
Big wooop
Actually closer to four; then it will increase exponentially as the market crash worsens and AAPL stock also declines.
Wow, this is getting fucking CRAZY!!! And fuck me for selling my chau, ashr and chau puts. I would have made over $300,000 had I kept them.
Japan down over 2% as well.
Oops...almost 3% now.
Korea and Australia sliding.
Japan down 3.11%. Closing fast on 19K
make that over 5%
cliff dive
The Yap Islanders had an excellent fishing day, so it wasn't all bad.
Prunge Plotection Team to the rescue: now down only 2.3%
I love watching the world's "largest, deepest, most liquid markets" bounce around like penny stocks. It's confidence-inspiring.
Agreed. It does take some of the sting out knowing that these bankster doosh bags are getting rim-checked this round. The cynical side of me wants a good old fashioned unraveling over the next several days. Going to be fun but scary if these Asia markets continue the hemorrhaging.
The Hang Seng cash doesn't open for 20 minutes or so.
The Nikkei icash is open though...We're gonna need a bigger boat.
Nikkei 225 19,146.50 19,737.64 19,716.00 19,091.50 -591.14 -2.99% 0:36:55lau pon yo
Lets see...hmmmm
NYSE down 3.5 hours "glitch"
Greek toasted, banks shut for another week
Puerto Rico soon to follow
China carshing
Hong kong
No clue here...
after watching and waiting for over twenty years..Im seriously pondering ordering a shit load of Toilet paper,
among other things
Got an attic full of TP and PT. All else fails I can wipe my ass and blow my nose.
All is well. China strong like dragon.
It's amazing how fast a buying frenzy can turn into a selling panic. It's like a switch in the collective consciousness of all those Chinese investors suddenly got flipped. Good thing we're smarter than that here in the US, eh?
"Credit"--->Latin credo, "I believe."
"Credit"--->Latin credo, "I believe."
Interesting. What is "I don't believe?"
"derivative"
You can have rhetoric ..."truth in lies."
In a panic there is no "derivation of truth" however.
In Vino Veritas
NOTHING CAN STAND IN THE WAY OF THE DEFLATION.
HOWEVER...
You still have exceedingly low rates.
In theory...
YOU COULD SPEND THAT MONEY
(but you would have to spend it VERY wisely.)
HONOR, INTEGRITY, PERSERVERENCE...
these are not mere words
Aurum
(gold)
I shit you NOT...top story on CNBC...."he knows nothing, NOTHING"
Damn if it aint true...FU Cramer!
Japan is getting the blunt end of the ugly stick tonight.
Q: Why are managers electing to suspend trading?
A: Margin call on company shares
You list some shitty company on the Shenzen exchange, wait for the crazy (chisin market) to pump the float shares then take out margin loans secured by your founder shares to buy Teslas and gold iWatches...
What can go wrong?
Yes, now everyone see's it.
And to everyone who said "This is capitalism!" a resounding fuck you.
A capitalist (the pure capitalist) invests/RISKS his own saved earnings & profits, he doesn't rely on favorable law(s), regulations, subsidies or GOVERNMENTS help (of all fucking things) to make a return on his RISK.
Fucking burn it, burn all of it.
The companies that got their shares 'protected' are the SOEs owned by the various red princelings and ubiquitous family members down to the fifth Auntie. The small-caps owned by the 90 million retail investors--who were promised blue skies by the CPC are the muppets.
Li and Xi have targets on their backs as the so-called reforms and anti-corruption campaigns have made them many enemies within the party ranks.
The masses have confused capitalists with rentiers forever. One ventures in risk, the other taxes the profits from said risk. Yet the parasites in finance and banking have been able to equate themselves to Henry Ford and Thomas Edison. Most unfortunate...
"The fun part is, they always look absolutely stunned when it slices right through the left shoulder with no end in sight...lol."-George Soros ;-)
Okay, can we safely say that Blythe Masters destroyed civilzation with the "financial instruments" she created, or is it still too soon?
It's all in "our heads"...fiat regimes.
We think "all will go one way forever"...then it goes the other.
The "one way" would appear "the Yuan will always be stronger than the dollar."
And right now this is indeed NOT TRUE.
The irony may end up being "no one believed this to be more true than the American."
We now can only "wait and see."
not this American my friend--I've been saying China is broke for as long as I've been on here---just letting you know
Asian markets looking like chum in the water for shark week. Prediction: more glitches in NY tomorrow.
So when is everyone buying China?
Nothing more ironic in a fiat regime of "HAVING A SHORTAGE OF YOUR OWN DOLLARS."
Wait, what?
I thought we could just print them?
Nay, veerily...we are printing DEBT not dollars.
So even in the midst of the biggest energy boom in world history...here stands the USA itself...on the verge of a MULTITUDE of defaults!
Can there be any doubt that after Detroit comes Baltimore?
None of us want to say yes to that. But here we are again..."letting the market decide."
The backdrop to this is World War Three I might add.
"This never happened in World War II" needless to say.
You can always default to hold of course. Simply FIX the price, yes?
Nay...even the USA itself wants to default to dollars.
"Not even an Abe Lincoln copper penny" can be "printed" here.
"To dear/to dear...
Bai Lo
Bai Hi
Go Long
RIP
The bases are loaded and the "clean-up" hitter is on deck.
9 min AUD Employment Change (Jun) -5.0K 42.0K
9 min AUD Full Employment Change (Jun) 14.7K
9 min AUD Participation Rate (Jun) 64.7% 64.7%
9 min AUD Unemployment Rate (Jun) 6.1% 6.0%
9 min CNY CPI (MoM) (Jun) -0.1% -0.2%
9 min CNY CPI (YoY) (Jun) 1.3% 1.2%
9 min CNY PPI (YoY) (Jun) -4.5% -4.6%
* realtime chart HangSeng
Hory shit...this calls for 500,000 jobs saved or created!
Crouching Tiger, Hammered Dragon.
cancel all shorts, make them due and payable - new rule
hang seng green, it is irregal to serr so solly
went red verr riki tik, goin down, down, down, down, down down............
Holy shit I hope my Hong Kong bitcoin accounts are ok.
lol...I hope they don't put a halt to trading in them ;-)
"The “wealth” this has created was phantom wealth – nothing has changed about the underlying businesses just because their stock prices have soared, nor has any money been destroyed because they plunged – it has merely changed hands."
This is not really true. No money necessarily changes hands when price goes up or down. (Unrealized) wealth and certainly collateral can be created and destroyed with changes in market prices. No transaction is required. Entities, such as investment banks can book profits based on mark to market accounting, but not have to pay taxes until the assets sells.
The Chinese stock markets have been Panda Hammered.
Looks like support at 3200 and then 3000. If that doesn't hold then its all over.
Don't forget to stockpile those tampons for the women folk. Imagine the barter!
I'm not sure which stats you guys are looking at. Google Finance says Hang Seng (Hong Kong) is up 3%. Shanhai is up 0.5%. Nikkei down 0.7%.
Look on the bright side. They won't have to change the color of their wallpaper.
It's ON....
LIKE DONKEY HONG KONG!!!!!!
Sum Ting Wlong?