There is a salutary lesson being given right now to anybody who invests in Western markets but few are paying attention. If the penny drops, things could get very ugly indeed.
Overnight, the Shanghai Composite Index fell another 8.5% – with the real damage being done in the last hour as sellers, spooked by a Bloomberg story which suggested intervention in Chinese markets may be curtailed at the behest of the IMF (who, somewhat hilariously, feel that the level of intervention from the Chinese government is a little over the top).
Was the IMF story the cause of the meltdown? Well, it’s hard to see why anybody would think for a second that the Chinese would listen to the IMF about such matters (not even in the face of their desire to be admitted to the SDR), and anyway, it doesn’t matter. There doesn’t have to be a reason for falls like this one.
This is exactly what I wrote about in my most recent Things That Make You Go Hmmm… ‘The Sum of Both Fears’ (www.ttmygh.com).
Whatever the reason, the selling overwhelmed the bids of both natural buyers AND the massive interventionist forces of the PBoC and the seemingly myriad regulatory bodies.
75 stocks fell for each one that rose and those hit hardest were the stocks (such as PetroChina) which had been the recipients of state largesse in the form of direct intervention in recent weeks.
Adding to the woes was the release on Friday of Chinese Industrial Profits, which fell 0.3% YoY.
Again, nobody really believes the numbers emanating from the Chinese National Bureau of Statistics, but when markets are rising, cognitive dissonance reigns supreme.
This time, however sentiment being tilted towards fear was all it took to generate the second-largest fall in the history of the Shanghai Composite.
The lesson? Well, Chinese investors’ confidence was buoyed by the explicit promises (and actions) of the Chinese State machine who directly bought stocks and, seemingly, put a cast iron bid under the market but when investors’ level of nervousness reached a certain point (a point that nobody could have pinpointed in advance), everything changed and even bans on not only those ‘evil short sellers’ we continually hear about in the West, but selling, period, were not enough to stem the tide.
Nor were threats of arrest for short sellers.
Nor were hundreds of billions of dollars (equivalent) in direct market support.
When Fear took over, the Central Bank was powerless to react.
In the West, there are no explicit official sector stock buying programs in place. There are no threats of arrest against short sellers and there are no bans on outright selling.
Everything….. EVERYTHING….. rests on one ephemeral thing – the market’s confidence in the power of Central Banks to ensure a good outcome no mater what.
Anybody paying attention to the lesson should not just be thinking about what might happen when that fragile confidence evaporates, but taking steps to ensure they don’t get caught out when it does.
The problem comes in leaving such precautions a day too long…
Ask anybody who was considering selling their Chinese equities last Friday but didn’t…
Whatever, in the USSA it's bullish.
Our
F
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Is with Satoshi now!
https://btc-e.com
patience
one merely waits until the markets re-open, at which time one can sell
What happens when the market re-opens down 90% Graze?
Then you sell for 10 cents on the dollar!!
I think he was being sarcastic.
Lemme tell you what faith and expertise are. The Chinese quarter after quarter keep on forecasting 7% growth and hitting the target, smack dab bang Rightie-O zippitey do dah on!
Now that's expertise and faith!
They are using "Alice in Wonderland" accounting where if they say it, it must be true. Saint Krugman must be ecstatic about how great they're doing.....
They also said that they only bought 600 tons of Gold in six years,
Which on the surface means that Gold is still in the Fed's vault.
So that they can buy more at cheap penny price until there can not be any delivery from GLD or CB's.
BTFD! The CBs are handing you easy money! It is your Internationalist duty! /sarc
Well you might be able to choose to buy the dip, but who on earth knows when, or even if, they will be able to sell?
Ha! The CBs need to cut out the middlemen and just send me a check.
I think the swings are going to get a whole lot bigger in the months to come. 10% up days followed by 25% down days.
Like a daisey chain around the world, so many levers to play the game with/through yet...
Under this kind of liquidation pressure/margin calling and it's ripple effects, perhaps the ULTIMATE metal buying opportunity IS just around the corner...
but when you try to buy you will find the retail price is %200+ over spot and has not dropped one iota in your favor. ---just saying---
True gs, but if paper goes inferno then metal goes ballistic...perhaps we will have organic pricing, true value again then...
We live in an upside down world, Dollar should be priced in Gold.not the other way around.
All right, a dollar is worth 28.3 mg of gold. (The equation is 31103.5 / <spot price> ).
Hmm. That's not a lot of gold. That's more like 1/4th the sodium content of my soft drink here.
"perhaps the ULTIMATE metal buying opportunity IS just around the corner..."
The real challange will be actually getting delivery. Its pretty late in the game to be thinking about taking possession of precious metal. But if the metal is there and you can hold it then buy it. In the end it will be actually holding the metal far more so then having an order in the cue.
Totallyindy...although, here in India, no postal/delivery order queues etc. You go to a jwellery store and pick up metal and bring it....*------*
Another thing on this Indy, is that the counterfieters will probably be working overtime producing fake gold. I expect we will see a rash of counterfiets coming on the market.
If you see a gold bar stamped "Hecho in China", be suspicious...
;-D
Bloomberg ran a story saying that the IMF has asked China to curtail its intervention in the Chinese stock market? Who placed this story? CIA?
The economic wars are beginning in earnest now. And Bloomberg, like all the free and fair financial press in the West, is doing its fair share.
I still belive Uncle Scam has certainly helped in the Chinese turmoil.
Easy to play the Chinese obsession with gambling.
Seeing the wads of paper being bet on a Mah Jong was hillarious.
As if this is not obviously a coordinated bankster attack...."look, the chinese are a mess!"
That's why I cant exactly say I'm against their decision to arrest short sellers who are trying to pull a sterling soros on china. People forget that WAR is being waged, and the first battlefield is always economic.
I find your lack of faith disturbing...
Upvote for the Star Wars reference, which is also appropriate given the tyrannical overtones.
The simple fact is we are all held hostage to fiat money. That is only possible because of "unconstitutional" legal tender laws. Not one person in a 1000 even knows how they got those laws "through the court". http://www.thetruthaboutthelaw.com/our-legal-tender-laws-were-blessed-by...
Indian sensex down 500 points
India and China are gonna need more powerful algos hooked up to those central bank money conjuring machines.
Yet gold and silver go down..again. I have no faith in anything financial. People around me are worried and losing their jobs. No one who has a job notices how shitty the economy is. I have an executive job, but have taken a 50% cut. I'm noticing and waiting for the collapse.
things are pretty good for me and my family, so people dont understand why i preach doom and gloom.
Maybe theyll see soon enough.
You are not alone. When the FSA makes $15/hr at McD's, everyone else in blue collar world will want adjustments. That'll be the beginning of the end. I have friends who were execs forced into retirement over the last couple of years. I was retired some years ago too.
... a 50% cut ... wow, we have taken two 10% cuts in the last 8 years and all the benefits are trimmed. But the good thing is the Bossman discussed everything along the way and gave us choices. I guess it's a relatively small company so he can do that sort of thing. Plus, everyone has a pretty good comraderie ... so far. If Barry keeps destroying the Middle Class it could get much worse...much much worse.
As more productive people are fired, we'll see national revenues plunge even more and the national debt skyrocket even faster then now. Eventually, we'll get severe inflation due to massive printing to cover the welfare, jobless, etc. . Serious inflation is almost inevitable at some point.
"As more productive people are fired, we'll see national revenues plunge even more and the national debt skyrocket even faster then now."
Bravo!
Just read a quote form somewhere that is applicable to China's situation. In spite of all this intervention to prop up the market ........
"There is no such thing as strong support in the markets"
"Again, nobody really believes the numbers emanating from the Chinese National Bureau of Statistics (Bureau of Labor Statistics, Bureau of Economic Analysis, etc.) but when markets are rising, cognitive dissonance reigns supreme."
Fixed it - she's runnin' great now Ma'am...
I Wong Moar Leech
The situation is only this way because the central banks have had the power to force people and institutions to become completely dependent on them.
Forced dependence is slavery.
It does not have to be. However the question then "what would we do otherwise?". Most people are not motivated to dominate others and to create systems to order the chaos of normal human existence. The profit and power motivations have been a great incentive throughout our history and along with wars have brought great technological advancement, even though they do not appeal to all.
One then asks, "should those who do not want power and and do not want to be monetary slavers, be forced to acquiesce to those who do?". Those in power and running the money system don't ask. They just assume that they have the right and to hell with the rest of the world ... which is why they are considered sociopaths.
Coming soon to a stock market near you! Fourth quarter this year or first quarter next year!
The liberals ALREADY KNOW the central banks can't save us - History AND theory and even Keynes himself said it would fail. The only people fooled are those believing the liberals' claim they think it will work.
The liberals only claim they "think" it works because it aggrandizes them and their constituents in the short term, and destroys capitalism in the long term - for example zero interest rates will eventually destroy the bond market, a key foundation of capitalism.
“Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
—Keynes, The Economic Consequences of Peace
http://www.teapartytribune.com/2015/05/18/keynesian-beauty-contest-revea...
Read all this and more in Atlas Shouts:
http://www.amazon.com/Atlas-Shouts-Modern-Patriot-Action-ebook/dp/B00OLR...
Why would you buy Chinese equities when the government is buying gold, with your money?
Young fools.
The Chinese government is buying stocks now in addition to gold and keeping the market supported. Oops...wait....uhmm....
Odds on, when the bail in first hits, it will start with Mutual Fund redemptions.