This page has been archived and commenting is disabled.
With Stocks In Free Fall, China Ditches Plunge Protection For Desperation Rate Cuts
Over the weekend, the PBoC was radio silent on a highly anticipated RRR cut and the results, to say the least, were not favorable.
Gulf markets set the tone on Sunday and then from the word "go" in Shanghai on Monday morning until, well, until now, it’s been unabated selling. Selling which spilled over onto Wall Street yesterday and left the Dow down nearly 600 points at the close.
With Chinese stocks still reeling, we got a dual policy rate cut out of the PBoC first thing this morning which is interesting considering that, as Bloomberg reports, the plunge protection national team operating through China Securities Finance has apparently given up on trying to support stocks directly. Here’s what Bloomberg said earlier today:
China has halted intervention in the stock market so far this week as policy makers debate the merits of an unprecedented government campaign to prop up share prices, according to people familiar with the situation.
Some officials argue that falling stocks will have a limited impact on the world’s second-largest economy and that the costs of supporting the market are too high, said one of the people, who asked not to be identified because the deliberations are private. Officials who back intervention say tumbling shares pose a risk to the banking system, the people said.
The Shanghai Composite Index sank 15 percent over the past two days, extending a $4.5 trillion rout since mid-June that has shaken confidence among equity investors around the world. President Xi Jinping’s government is trying to balance a pledge to loosen its grip on markets against the need to maintain financial stability amid projections for the weakest economic expansion since 1990.
"From now on, the CSRC has abandoned the idea of protecting an index level - maybe it's a sign of maturity," one source reportedly told Caixan. "Analysts believe this episode marks the end of Beijing's attempts to directly manage the level of the Shanghai Composite Index. Monday's action has shattered any illusions about the government's appetite for direct intervention," MNI adds.
And a bit more from Bloomberg:
“Government intervention has dropped substantially,” Michelle Leung, the chief executive officer at Xingtai Capital in Hong Kong, said in e-mailed comments on Tuesday. “The reform-minded camp within the government that favors letting the market do its work seems to be driving decision making right now.”
Or perhaps not, as indicated by Tuesday morning’s desperation rate cuts.
It appears as though, on the heels of comments the CRCS made earlier this month which indicated that, although the plunge protection team would linger in the background "for years," intervention would only come during times of extreme dislocations and stress, and while one might well be able to argue that Monday and Tuesday most certainly qualify, the global attention that China’s CNY900 in billion direct interventions have garnered looks to have left the CSF feeling gun shy.
So what’s a central planner to do?
Well, if you're Beijing, one thing you can try is a simultaneous policy rate cut, which is exactly what we got on Tuesday morning.
Part of the aim is quite obviously to free up liquidity, which has suffered in the wake of China’s frequent open FX ops. We got still more evidence of the liquidity shortage last night when the PBoC decided to conduct CNY150 billion in reverse repos. Just last week we remarked on the extraordinary effort to inject cash via a CNY120 billion reverse repo and another CNY110 billion via medium term lending facilities (which, incidentally, the PBoC indicated it is looking to use again earlier today).
But the PBoC likely hopes it can kill two birds with two stones (to adapt the analogy). That is, by bundling a lending rate cut with the RRR cut (which the PBoC also did in June), the central bank may be trying to send a forceful message to the stock market while freeing up liquidity at the same time.
If the market gets the message (or perhaps "takes the bait" is the better way to put it), investors will take solace in the move, Chinese stocks will find their footing, and the CSF can quietly fade into the background for a while. That way, should the meltdown begin anew down the road, China can intervene directly with the national team and point to the fact that it hasn’t done so in quite some time.
So in short, the dual policy rate cut looks to be an effort to i) free up liquidity being sucked out by China’s FX interventions to support the yuan, and ii) shore up confidence in the stock market without resorting to direct purchases of equities on the part of CSF.
We suspect the effects may be short lived on both accounts because after all, aggressive easing only fuels further depreciation necessitating further liquidity-sapping FX interventions in a vicious loop (as Commerzbank's Hao Zhou put it this morning, "the side effect of monetary easing is the deprecation pressure on CNY"), and loose monetary policy likely won’t be much comfort to China’s 90 million retail investors who now, more than ever before, are virtually guaranteed to sell any rip they can get in a desperate attempt to claw back their life savings which they naively poured into stocks back in April and May.
- 15433 reads
- Printer-friendly version
- Send to friend
- advertisements -


Might want to throw in some beach towels.
The world economy is heading deeper into the crapper. Which is why we have a plunger [protection team].
And this is only August's sideshow for September..
September is gold season.....better get thee some.
so building a bunch of empty cities is not working???
about as well as building hundreds of thousands of unsold cars
Well if they built them out of gold they did good, now if they spent the gold building them, welllll......
@vince.. I got me some AU in June, worked out a just under €40 a gram delivered and in my hand.. Ironically the Fedex guy arrived yesterday morning with my delivery just as I was having my earl grey and watching the carnage on the markets... I can tell you guys I felt a whole lot better than I did in 15 September 2008!!
I'm just after converting the last of my "saved" fiat yoyo's (€€) into AU this morning... so apart from some emergency fiat.. im all in on gold...and i have to admit im feeling protected..am I mad going all in??? who the fck knows,,, the world is gone batshit crazy anyway
www.teamramgold.com/about-us
So Chinal admits it's economy is slumping and cuts rates. Worldwide markets go bonkers up. What a fucked up mess!
It seems the Chinese peasant farmers understand a con much better than western civilizations.
The rest of the world still thinks they can profit from this corruption, but you can't get out without loss. When you are in, its painful as hell to get out. People are desperate to get back their losses and there is ultimately only one game in town. The fear of missing out on a rise is greater than the fear of loss. Of course it doesn't hurt that most are gambling with other people's money.
Serious question as I'm not a finance guy; what do I do with my 401K? Wife won't even consider liquidating them so I'm stuck. I did just leave my job and can rollover into something else but can't imagine what that might be.
The good news is that we have almost 2 years worth of food and a place/means to protect it so there's that.
Am I just fucked?
You could roll the funds into an IRA and buy land.
Regular IRA or Roth? How does one go about buying land with an IRA? Sounds perfect for me if I can pull it off.
Click on my username and request to become a contact. I can give you some detailed information but I would rather not do it on the forum.
Have you considered a self directed gold IRA? You can buy silver or gold bullion. I understand that this can be even held offshore. Below is one possible source. Do your due dilligence.
A gold IRA or precious metals IRA is an Individual Retirement Account in which physical gold or other approved precious metals are held in custody for the benefit of the IRA account owner. It functions the same as a regular IRA, only instead of holding paper assets, it holds physical bullion coins or bars.
https://www.goldline.com/d/index.html?id=1572&meng=e&keng=Gold%20ira&med...
Can you borrow against it?
Buy gold,silver,bullets & beans with the FRNs?
Fat Finger, Algo-Burp or Glitch in the Matrix: This is not the crash you are looking for....
Chinese chaotic waterwheel torture.
http://www.ace.gatech.edu/experiments2/2413/lorenz/fall02/
Rate cuts = plunge protection by another name.
This does have the look of desperation...as does QE4 by the Fed
Yesterday was QE4 all in a day. Onward to QE infinity.
Things were sure not looking very rosy last night. Debt will keep us going another day.
http://www.theguardian.com/us-news/2015/aug/25/us-sends-f-22-fighter-jets-to-europe-as-part-of-ukraine-response
http://www.msn.com/en-us/news/world/air-force-sending-advanced-fighters-to-europe/ar-BBm3qWH?ocid=ASUDHP
"Grandmother! Your voice sounds so odd. Is something the matter?" she asked. "Oh, I just have touch of a cold," squeaked the wolf adding a cough at the end to prove the point. "But Grandmother! What big ears you have," said Little Red Riding Hood as she edged closer to the bed. "The better to hear you with, my dear," replied the wolf. "But Grandmother! What big eyes you have," said Little Red Riding Hood. "The better to see you with, my dear," replied the wolf. "But Grandmother! What big teeth you have," said Little Red Riding Hood her voice quivering slightly. "The better to eat you with, my dear," roared the wolf...
[/little red retail investor]
Chinese elites made money yesterday too.
No one cares about any of the people.
Just how many hundreds of billions of dollars did the Fed create yesterday, out of thin air, to prop up markets? It must have nearly equaled an entire year of QE3.
That information is privileged, little man. Now get back to work.
the CB's have gone completely rogue, markets and up and down like a whore's panties, Half of the amazon is felled to print moar fiat..yet the one asset we all endose is essentially static... can anyone answer it.. as you all know im huge on gold, but its not behaving as we all imagined it should??? is the back door left ajar for anyone willing to convert to AU before it breaks out? will it break out... IDK...but I do know im glad to have stacked these past 12 months...
www.teamramgold.com/about-us
We are all dead.
This is hell.
@j jason; yeah this is shit right now... but its not hell.... whenever I feel like that I try to imagine what soldiers felt like in the trenches during the great wars, surrounded by death, disease and evil foisted upon them by twisted generals and so called leaders. to me that is hell.. this is a wealth transfer of epic proportions and there is going to be big big losers and perhaps a few winners.. I'm trying to win this time and im going after it like a dog with a bone..
www.teamramgold.com/about-us
Desperate times call for desparate measures. When your long range plan is to accumulate as much real assets as possible while making sure the majority have paper claims on more paper, in order ensure generations of quasi-slaves for your progeny, one will get one's pets to do anything including pushing other countries' central banks to do things that are against that country's best interests. In other words, if you are asset wealthy and in control, you will do anything to maintain the status quo that put you there. If all the other 1%-ers think the same (and they do) you have an undeclared class war going on.
Just a bit of nostalgia, if I may....
Remember Aug 17, 2007? I do. Went from set for life to 'gotta keep working' with a simple FED action of 25 bps done just before the market open and index options settled.
The financial coup d'etat.
https://www.youtube.com/watch?v=K73gNKjFx0I
Catherine Austin Fitts. From May - predicting the current melt down. And discussig the bankers plan to steal everthing and rule the world.
To kill two birds with one stone is an idiom, not an analogy.
A bird in the hand is worth killing two canaries on a bush in a coal mine with one stone.
SHCOMP will see 1700 again before the last Chinese farmer/daytrader gives up. So about another -40% from here.
GOING DOWN. Next floor kitchen utensils. down, down, Men’s & Women’s clothing. DOWN, DOWN, DOWN, basement next folks Garden Equipment, Shovels (for digging up your SHINY) _JOHNLGALT. By the way WHO IS JOHN GALT?