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Wall Street Still Didn't Get The Memo - China's Done, Top's In!

Tyler Durden's picture




 

Submitted by David Stockman via Contra Corner blog,

Bubblevision’s Scott Wapner nearly split a neck vessel today denouncing the US stock market sell-off. It was completely unwarranted, he thundered, because China don’t have nothin’ to do with anything.

Why, insisted CNBC’s best dressed pom-pom boy, China’s stock market has never been correlated with its economy, and, anyhow, its economy doesn’t matter all that much to the S&P 500 because China accounts for only 14% of global GDP.

Besides that, China’s stock market is exactly like what Yogi Berra said about his favorite restaurant: It’s so crowded, nobody goes there anymore!

That is, according to the talking heads Chinese household’s don’t go to the bourses, either. Few of them own stock and equities account for only 20% of household wealth compared to upwards of 65% in the US.

So enough of the schwitzing about the red chip sideshow. Buy the dip!

Indeed, that’s exactly what the insentient robo-traders did at the close. After banging the 200DMA, they bid the S&P right back-up to Monday’s VWAP (volume weighted average price) in the final seconds, thereby filling-up their sell buckets to unload on tomorrow’s dip buyers. As Zero Hedge noted,

On the day, US equities staged their standard JPY ignited momo bounce off the 200DMA – running perfectly to VWAP in the S&P, before limping lower…and a mini algo meltup to VWAP at the close… all completely human!!

As for purportedly sentient humans, however, the better advice would be to flee the dip with all due haste. The truth is, China is not a sideshow; its the radioactive core of the entire global bubble.

Needless to day, the Wall Street shills and touts are so oblivious to this fundamental reality that they can not even see the obvious facts about China—-to say nothing of the macro-quick sand upon which the entire global economy is poised.

The meme of the day - that China doesn’t have so many gamblers - is hilarious. From stem to stern, China’s version of red capitalism has evolved into the greatest gambling den in history. The whole thing is a giant punt—from 60 million empty high rise apartments, to ghost cities and malls, to endless bridges, highways and airports to nowhere, to laying down more cement in three years than the US did during the entire 20th century.

But today’s Wall Street admonition to move along because there is nothing to see in the plunging red bourses really takes the cake. In fact, yesterday’s 8.5% plunge on the Shanghai market—–mostly in the last hour and in the face of $1 trillion of state buying power and several thousand paddy wagons thrown at sellers, malicious or otherwise—-is merely a foreshock; it’s a fateful warning about the global-scale financial temblors heading at the incorrigible army of dip buyers in New York, London and their farm teams elsewhere.

In the first place, upwards of 90 million households are in the Chinese stock market, most of them buried under margin debt. Among them, they hold exactly 258 million trading accounts and a significant fraction of these were opened in just the past year by Chinese pig farmers, bus drivers and banana vendors, among millions of quasi-literate others.

The country went nuts speculating in stocks just like it has in empty apartments, coal mines, expensive watches, Macau slot machines, fine wines, copper stockpiles, and almost anything else that can be bought and sold. So when the Beijing overlords go into full panic mode about the stock market plunge, they actually have a reason: There are more trading accounts in their red casinos than there are people in Japan, Korea, Thailand and Malaysia, combined!.

Credit Suisse stock trading accounts China.

Do they fear the wrath of the tens of million of newly affluent Chinese that they have lured into the stock market? Yes they do, and for good reason. Namely, if the stock market comes crashing back to earth—–then what is at stake is not merely several trillion in paper wealth, but the essential credibility of the regime itself.

After all, even in China’s fevered gambling halls the people would surely notice the $7 trillion elephant missing from the room, and wonder about its implications for the rest of the Beijing Ponzi. That is to say, at its June 13 peak the Shanghai index was trading at 70X the reported LTM earnings of its constituent companies. Were these nosebleed valuations  to be re-rated to a merely bubbly 30X, the Shanghai index would plunge back to its level of one year ago, vaporizing the aforementioned $7 trillion in the process.
^SSEA Chart

The truth is, the Chinese stock market is not even worth 30X because the entire Ponzi is unraveling. The Chinese economy is bloated with monumental malinvestments and stupendous excesses—–the likes of which have never previously been visited upon a modern industrial economy.

Accordingly, while it is impossible to gauge the magnitude and timing of the hard landing now imminent, one thing is certain. Namely, the virtual impossibility that an economy flushed with a helter-skelter debt expansion from $2 trillion to $28 trillion in just 14 years—-especially one that has no rule of contract law or even semblance of honest capital markets—- can avoid a thundering deflationary collapse.

Stated differently, profits have already nearly vanished in upstream sectors like coal, steel, aluminum and cement; are now eroding in shipbuilding, construction equipment, solar equipment, and other capital goods; and will soon be falling in overbuilt consumer industries, especially, automobiles, as well. Like Japan in the mid-1990s, China is heading for an era of profitless deflation as its credit binge comes to an end.

In short, China’s companies are not worth last July’s stock market valuation, let alone their current perilous perch. And that’s where the skunk in the woodpile comes in. The Beijing suzerains have shot their wad. They cannot afford to pump more fiat credit into the stock market, meaning that the only remaining recourse is to arrest the sellers as enemies of the state.

Needless to say, red capitalism is not the same as Mao’s red socialism. The latter held that power comes from the barrel of a gun, and if push-came-to-shove, full jails and energetic firing squads could enforce the regime. Indeed, even after Mao foolishly denuded the countryside of insect-eating birds and farm implements during the Great Leap Forward, the regime handily survived 40 million deaths from the resulting famines.

But since the time of Mr. Deng, the power of the Chinese communist party has come from the end of a printing press, and for all practical purposes the People’s Printing Press is out of business. That because China is now imperiled by massive capital flight.

During the last five quarters its external accounts have hemorrhaged upwards of $800 billion of private capital outflows. That staggering figure represents the the sum of its current account surpluses plus its drawdown of official reserve assets. Stated differently, had China’s $400 billion of current account surpluses been added to its reserves during that period, its reserve balance would total $4.5 trillion, not $3.7 trillion. The difference is a massive stampede of hot capital, as depicted in the chart below.

So here’s the thing. A regime that lives by the printing press is consigned to eventually dying by it.  Accordingly, Beijing cannot open up the credit spigot again without further exacerbating its torrid capital flight.

So the only tool left to prop-up the red casinos is Beijing’s enormous fleet of paddy wagons.  But with 258 million trading accounts in place, it is doubtful that even Beijing can arrest the sellers fast enough to forestall the stock market plunge still ahead.

As the communist oligarchs desperately hop from increasingly gimmicky stimulus ploys to the mailed fist of economic repression, one thing is quite predictable. Even its phony numbers machine will not much longer be able to hide the fact that the Chinese economy is grinding to a halt, and that the miracle of red capitalism was never remotely what Wall Street cracked it up to be.

Here’s the thing. Between the 2007 pre-crisis peak and 2014, the estimated world GDP expanded from $53 trillion to about $69 trillion. But fully 33% of that $17 trillion gain was directly accounted for by China; and far more than half of the total is actually attributable when the multiplier effect on resource suppliers like Australia, Brazil and Canada is accounted for, and when the pull effect on intermediate component suppliers like south Korea, Malaysia, Japan and Taiwan is added to the brew.

That’s not 14%. The collapse of red capitalism in China is exporting gale force deflation to the global economy, meaning that the already evident rollover of world trade is just beginning its descent.

So S&P profits are not immune, not by a longshot. One of these days, perhaps soon, even Scott Wapner will get the memo.

 

 

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Tue, 07/28/2015 - 12:51 | 6363428 buzzsaw99
buzzsaw99's picture

please. china syndrome has less impact than greece these days. doom porn fail.

Tue, 07/28/2015 - 13:26 | 6363560 NoDebt
NoDebt's picture

I don't think so, buzz.  China matters.  Sure their capital markets are fairly insular, but their economy still touches other economies like any other.  When the world's second largest economy misses their 7% GPD CAGR by MILES (despite what their government propoganda is), it has an impact.  Everyone has been looking to China to pull world demand up because the rest of the world is flat on it's back.  It ain't happening.  And now it's getting pretty damned obvious it ain't happening.  There's nobody big enough left to fill the hole when they miss by a ton.

 

Tue, 07/28/2015 - 13:36 | 6363619 buzzsaw99
buzzsaw99's picture

the day trading farmer lost it all and was crying on tv last night. beyond that china's internal problems do nothing but help me.

Tue, 07/28/2015 - 13:47 | 6363672 NotApplicable
NotApplicable's picture

Just as long as you don't need anything that is no longer manufactured anywhere but there, I suppose you're right.

Tue, 07/28/2015 - 16:36 | 6364258 jcdenton
jcdenton's picture

"There's nobody big enough left to fill the hole when they miss by a ton."

Agreed, China matters. It represents the 3rd largest in GWP, with ~$10 T ..

As to nobody left? That's debatable ..

As Reagan's former budget chief posits:

"...60 million empty high rise apartments, to ghost cities and malls, to endless bridges, highways and airports to nowhere, to laying down more cement in three years than the US did during the entire 20th century."

That is what we call probably the mother of all -- excess inventory ..

So, who could "fill the hole?"

Well, Stockman probably was not briefed on his boss' secret weapon (Totten Doctrine) ..

http://eagleonetowanta.com/

Otherwise, would not Stockman tell us that, like in similar manner OBL would speak to us in impeccable English, via his fake GHWB/CIA videos, being that Col. Tim Osman was taught English from age 11, and later would attend the finest in western universities?

Oh, BTW ..

Guess who Col. Osman's chief White House handler was ..

http://www.veteranstoday.com/2013/09/22/fraud-on-the-u-s-supreme-court-b...

You see, when one counts tritium for fun in the PRC in the 80s, at some point in time, you get to own it .. (how else do you repay someone who's life was threatened probably more than JFK, and in that process they got one of his grandsons)

http://wantarevelations.com/2014/01/wanta-plan-macro-financial-economic-...

And the really, really cool thang about it all, he plans to give it all back to -- "the consent of the governed." (whether they really deserve it or not)

http://www.thedailybell.com/exclusive-interviews/3791/Anthony-Wile-Colon...

I think even after all the real recovery, we are all going to be most familiar with the term -- catharsis ..

Tue, 07/28/2015 - 12:52 | 6363434 BoPeople
BoPeople's picture

Timing is very important to the clever ones. It is not time, yet.

Tue, 07/28/2015 - 12:54 | 6363442 Realname
Realname's picture

Are you certain those 3rd and 4th graphics arent just maps of VA?

Tue, 07/28/2015 - 13:00 | 6363471 kaiserhoff
kaiserhoff's picture

There is a resemblance,

but the Virginia economy hasn't fallen into the sea..., yet.

Tue, 07/28/2015 - 13:15 | 6363515 janus
janus's picture

the resemblance is uncanny, in fact.

https://www.youtube.com/watch?v=CvpMeq_4BPM

 

Kaiserhoff, i keep reading you, and it's so funny watching these guys maul you for any comment even remotely pro-american.  sure, so many goddam things i hate about the present-tense amorica...but i keep the faith.  too many great people in this land.  they are rousing from their slumbers, rubbing the sleep from their eyes and clarity is slowly sharpening into focus -- all that's now needed is the inevitable economic collapse.  then this nation's strenght starts to stretch, flex, stand and fight.

got to scrape this shit right off my shoes,

janus

Tue, 07/28/2015 - 14:22 | 6363801 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

"too many great people in this land"

 

American motherfucking Exceptionalism again, eh.

Tue, 07/28/2015 - 13:15 | 6363516 Squid Viscous
Squid Viscous's picture

just a sea of Guatemalans willing to work for $20 a day

Tue, 07/28/2015 - 13:29 | 6363582 kaiserhoff
kaiserhoff's picture

Too true.

Tue, 07/28/2015 - 12:57 | 6363463 prudent1nvestor
prudent1nvestor's picture

It's just the maricious short sellers. Once they are all arrested we will go back to new highs.

Tue, 07/28/2015 - 12:58 | 6363467 Closet Boy
Closet Boy's picture

"Man who jump off cliff jump to conclusion."

Tue, 07/28/2015 - 13:01 | 6363479 kaiserhoff
kaiserhoff's picture

Faw too Fah!

Tue, 07/28/2015 - 12:59 | 6363469 q99x2
q99x2's picture

Nobody needed fuckin China in the first place except the sheistermeizers. Good they're gone. Now lets get back to business.

Tue, 07/28/2015 - 13:01 | 6363473 lakecity55
lakecity55's picture

So know we know why Christine kept saying "7".

Tue, 07/28/2015 - 13:01 | 6363474 KnuckleDragger-X
KnuckleDragger-X's picture

Sheepherding is hard work dammit!!!!

Tue, 07/28/2015 - 13:02 | 6363483 lakecity55
lakecity55's picture

"Selling your stock means the barrel of this gun, Comrade!"

Tue, 07/28/2015 - 13:06 | 6363490 large_wooden_badger
large_wooden_badger's picture

Recommendation: Buy & Hold, it's like trying on a new pair of cement shoes underwater!

Tue, 07/28/2015 - 13:08 | 6363493 FranSix
FranSix's picture

Margin was handed out like candy to one -sided investment strategies, forcing the sale. And the central bank had no idea. You won't be able to get margin in the trough, though.

Tue, 07/28/2015 - 13:08 | 6363494 stocktivity
stocktivity's picture

"perhaps soon, even Scott Wapner will get the memo."

 Ha...he won't...but thanks for the chuckle David.

What's comical about these CNBC paid cheerleaders is their ratings are much higher during a bear market.


Tue, 07/28/2015 - 13:49 | 6363682 NotApplicable
NotApplicable's picture

It's fun to watch them sweat and squirm while trying to spin the catastrophe as a 'positive.'

Tue, 07/28/2015 - 13:08 | 6363495 scatha
scatha's picture

Global demand is collapsing for at least 3-4 years now and the only “beacon” of growth in the world fueled by artificial, massive stimulus in China is collapsing as well.

The recent, healthy Chinese stock market crash is revealing more and freer capitalism in China than in US where markets of completely fake. But it will not allowed to continue since in the end it is all about power and not money in China as well as it did not in Japan and US. As they say: It is global demand stupid. it is global overleveraging stupid.

A quote from previous post about situation in China:

For last at least two decades China behaves of corporate fascist state in every meaning of the word. Working people and any organizations that would truly protect health, wages or any interests of workers are being destroyed. They benefit nothing from the whole western instigated and financed economic boom in China achieved by robbing western middle class.

Before Chinese worker was making a dollar a month and paid one cent for bread. Now Chinese worker was making 100 dollars a month and pay one dollar for bread calling that improvement.

Remaining true communists are killed, in prisons or gagged. What we have is fascist state of fused state and private profit/public loss corporations and government via rampant cronyism with intimate ties to the western elites, themselves cultivating fascism, global fascism.

China is distinct part but nevertheless, a part of global political system run by world elites through central banking, united in quest form debauchery, gluttony, and psychotic drive to ultimate extermination of ordinary people.

The multiple decisions of China to follow western prescription, such as pumping and damping stocks to rob people blind, only to maintain illusion of functioning world economy with ghost cities, millions un-bought cars hidden from view, fake exports to HK, collapse of energy demand and general consumption, ecological catastrophe and wide spread of poverty in China and elsewhere are clear evidences of harmony at top echelons of global elite, despite often personality conflicts misconstrued as political antagonisms.

Now China’s central bank, PBOC, years after imposing politically motivated stimulus spending, to enable recent transition of power between two political mafias, embarked on a version of massive QE on the way to ZIRP to keep badly collapsed or deteriorated “good things” going joining US, Europe and Japan on the road to collapse of society.

The frantic and futile efforts of Chinese authorities to decelerate massive collapse of the bubble (purposely blown beyond any proportions) by destroying stability of Chinese currency and whole command and control financial system, no mater what economic consequences may ensue is in its form identical to brutal destruction of western markets and financial system via FED intervention, during 2008 crisis in the west.

China’s AIIB is clear example of China’s desperation and entering a path following the US imperial path after WWI and WWII to grow sagging economy by exploiting the world (global investment strategy and dedollarization) , in attempt to bring stability to their society that no longer can be exploited with satisfactory ROI without serious political consequences. 

In other words, these are evidences that China began to depart from their Confucian historical perspective toward short-term political game. The greed of China’s ruling elites is sowing their demise as much as American ruling elite.

They have a way to go but within next 20 years or less China’s about 300 millions strong middle class is likely to join the rest of the western world middle classes in common global extermination camp.

An interesting take on rise and fall of Japan and fallacy of her economic miracle I found at:

https://contrarianopinion.wordpress.com/2015/02/20/japan-miracle-that-wasnt/

and on convergence of the political systems at:

https://contrarianopinion.wordpress.com/2015/01/06/pools-and-propaganda-...

Tue, 07/28/2015 - 13:09 | 6363500 roisaber
roisaber's picture

I always felt bad about Mao. A genius general and a highly competent Taoist and political philosopher - then like so many others, he falsely assumed that his success in those areas would automatically make him an expert at farming, metallurgy, land management, etc. etc. etc. And tens of millions of Chinese paid dearly for that arrogance.

Tue, 07/28/2015 - 13:51 | 6363691 NotApplicable
NotApplicable's picture

There is no such thing as a "competent political" anything.

Otherwise, Mao might have known better.

Tue, 07/28/2015 - 14:50 | 6363909 roisaber
roisaber's picture

He correctly ascertained that political power comes out of the barrel of a gun. He incorrectly ascertained what that power could and should be used for.

Tue, 07/28/2015 - 14:10 | 6363758 City_Of_Champyinz
City_Of_Champyinz's picture

Mao was always nothing but a communist piece of shit dictator.  He acted as every communist dictator in history has acted, like a ruthless butcher intent on dominating and controlling the citizens so he could hypocritically tell people how to live while he of course did not follow the rules.

Tue, 07/28/2015 - 13:10 | 6363502 large_wooden_badger
large_wooden_badger's picture

Klamer says "buy"!

Tue, 07/28/2015 - 13:10 | 6363503 JLO
JLO's picture

Must be coincidence. Because Greece and Puerto Rico dont matter neither.

Tue, 07/28/2015 - 13:14 | 6363512 Squid Viscous
Squid Viscous's picture

10 minutes until Wapner... that's why they call him "Judge" get it? so funny!! those two pony tailed azzhats are HILARIOUS!

Tue, 07/28/2015 - 13:14 | 6363514 KansasCrude
KansasCrude's picture

Scott Wapner LOL,  guy has been a moron for as long as he has been on the show....for that matter are their any male commen- taters that have an above average IQ on CNBS?  I can remember being astounded back in the day how little they said that made any impression on me other than these guys have no business on a business network....of course that was when I still watched it.    Been about 8 years now with very sporadic viewing usually when I visit my dad and its that or Faux News....After a couple of days I am usually  feeling really dumbed down.

Santelli and Art are not included in that crew as they are not what I consider the minute eaters.

Tue, 07/28/2015 - 13:55 | 6363713 NotApplicable
NotApplicable's picture

I quit watching the day after Mark Haines died. While he was also prone to arguing a line of BS, it was at least "old school" BS, and you could tell he actually had a conscience that held true to his beliefs. His Barney Frank interview has got to be one of my all-time favorite moments on live TV.

Santelli was fun, but his Friedmanite outlook of targeted inflation growth is every bit as disastrous as everything else his peers pass off as wisdom.

Tue, 07/28/2015 - 17:24 | 6364445 northern vigor
northern vigor's picture

I am waiting for the big one to crash, so I can watch CNBC one more time...see how they spin the bs. Should be hilarious.

Tue, 07/28/2015 - 13:17 | 6363520 rejected
rejected's picture

Up 160 as of 12:13.

Manipulators having a heyday.

BTFD, BTATH,,, 

Hell, just buy, buy, buy,,, who cares why,,,  in the new and improved can't lose Wall Street casino!

Tue, 07/28/2015 - 13:17 | 6363521 Tinky
Tinky's picture

Scott, this your dad, Judge Wapner, and the People's Court finds you to be guilty of accesory to the murder of real journalism.

Tue, 07/28/2015 - 13:57 | 6363714 NotApplicable
NotApplicable's picture

Journalism was dead and buried long before these fools were even born. Didn't Mark Twain write about it?

Tue, 07/28/2015 - 13:19 | 6363526 Consuelo
Consuelo's picture

 

 

"China is not a sideshow; its the radioactive core of the entire global bubble."

Are they really...?   Or is it more like, the progenitors of the reactor itself and their schemes, have yet to be fully unmasked...? 

Tue, 07/28/2015 - 13:59 | 6363723 NotApplicable
NotApplicable's picture

No reason it can't be both, given you're referring to collective abstractions in both cases.

Tue, 07/28/2015 - 13:22 | 6363545 nakki
nakki's picture

90 % of the people in the world are 2 paychecks from being broke. All stock markets and economies are non GAAP, mark to fantasy creations of central banks. To pick out one is ludicrous. Anybody want to buy some Amazon or Tesla or Facebook? 

The talking head media clowns loved Chinese 7% growth every year and never questioned if it were real, and now it doesn't matter. These people are teleprompter readers and nothing more. Watching CNBC, or Blomberg, or Fox business or any "news" on TV is a kin to having a special needs child trying to teach you quantum physics. Turn it off stop watching it, its not even good propaganda anymore. It actually quite laughable.

Tue, 07/28/2015 - 13:37 | 6363625 Nationwide2020
Nationwide2020's picture

What a mess for man kind to deal with.

Tue, 07/28/2015 - 13:58 | 6363722 Berspankme
Berspankme's picture

Don't watch CNBC anymore but that Scott Wapner was truly an insufferable little prick. One of the guys on my guillotine list

Tue, 07/28/2015 - 15:08 | 6363963 Squid Viscous
Squid Viscous's picture

keep it on your don't watch list there are even worse little jew pricks these days

Tue, 07/28/2015 - 14:00 | 6363726 ipud
ipud's picture

Here's the thing: you can't say "here's the thing" more than once. Otherwise, there's two things.

Tue, 07/28/2015 - 14:11 | 6363764 gregga777
gregga777's picture

CNBC is a tool the rich oligarchs use to con the American People out of what little net worth they have via the Wall Street Conmarket.  Wall Street is a massive CON job on the American People.

Tue, 07/28/2015 - 14:13 | 6363769 no1ninja
no1ninja's picture

Great time to start a conflict over the contested Vietnamese Islands.

The neocons are looking for conflict as well.

Tue, 07/28/2015 - 14:15 | 6363777 gregga777
gregga777's picture

Lead the entire media tallking heads and their rich oligarch owners to the gallows or guillotines for a starter on cleaning up the corruption in the United States of America.  They are all corrupt liars and whores (no insult intended to the honest "working" ladies out there) for the oligarchy.

Tue, 07/28/2015 - 14:20 | 6363794 Maestro Maestro
Maestro Maestro's picture

Fuck China and fuck the Chinese.

They told their people to buy gold and silver and then they collaborated with JPM, CITI and Goldman Sachs to crash the gold price.

They're making their own people work like slaves so that they can send real goods and services to the US in return for electronic digits.

What a bunch of utter morons.

They're buying real estate in America and at the same time building islands to fight with the Americans.

How stupid.

How Chinese.

There is nothing mysterious about China or the Chinese.

The Chinese are insanely stupid.

Tue, 07/28/2015 - 14:42 | 6363885 Herdee
Herdee's picture

Who took the needle to the balloon?

Tue, 07/28/2015 - 16:41 | 6364270 jcdenton
jcdenton's picture

According to Ben Fulford, they call themselves White Dragons. But they had some significant help from some elite group of Americans, called -- White Hats .. (others call them "intel cowboys.")

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