China Day 1: Monumental Destruction
Submitted by Salil Mehta via Statistical Ideas blog,
China's Shanghai Composite index was stopped down nearly 7% on the first trading day of the new year. This is worse than 99.6% of all trading days since the beginning of 2007 (a monstrous era covering the entire market turmoil of the global financial crisis).
To put some risk context behind how poor a ~7% drop is -in relation to the worst losses over different time (not just relative to all daily changes)- we look at a variety of time units. This is different from the market convolution math discussed previously (here, here). For example, today’s loss in China is worse than 93% of the worst daily losses per month, since 2007. We see this in the chart immediately below. And in the chart further below that, we see today’s loss is worse than 67% of the worst daily losses per year. Lastly, in that same chart, we show China’s first day loss is worse than even the majority of the worst weekly losses per year! This conservative measure substantiates that on just a single day, the losses stemming from China has breached most of the worst risk levels that would normally take a complete week to get through.
And we see in the chart above that today's loss in China is worse than the worst daily loss coming out of 100 out of the past 108 months (only the 3 months where the worst daily loss was rounded to 0% have been truncated from the chart above)! In fact, as shown in the blue portion of the chart, there have only been 4 months since mid-2008, where the worst daily loss that month was worse than today's loss. Those 2015 months are: January, June, July, and August.
We see in the jittery chart above (third column), that today's loss is worse than the worst daily loss coming out of 6 of the past 9 years (hence the 67%). And in the middle column we see today's loss is worse than the worst weekly loss coming out of 5 of the past 9 years (or the majority)! This statistic provides a powerful segue with our prequel article on the worst weekly loss distributions. Finally in the first column we see that today's loss is worse than the worst monthly loss coming out of even 2 of the past 9 years.
The main takeaways from this article is that market shocks can be quite quick, when they suddenly unravel. There is no need for markets to follow an observable pattern (therefore casting an omen just for you). Recall as well that this is just "day 1"! There are ~20 additional dramatic trading days ahead this month, where anything can precipitously take place.
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I think there is more to China's 7% slump than a crappy manufacturing index number. But, who cares. BTFD.
Can't believe the official numbers, what's going on is probably much worse than we are told.
My guess is it's tied to the disappearing CEO/CFOs. There's been a lot of tolerance for fraud/corruption, and now the consequences are appearing.
I can only imagine this means a very large part of the economy was pure fraud, trading games, and unsustainable developments and it's all imploding.
Next couple weeks will be interesting, in the Chinese may you live in interesting times curse sort of way.
" Lun, Folest, Lun! "
"Double Rainbow, Double Rainbow; What does it mean? So intense!"
https://www.youtube.com/watch?v=AxXVpGyoyu4
I was talking to a Chinese lady in my office today. She said they allowed 10 to 1 leverage on broker accounts and many in the middle class were wiped out when the shanghai market crashed last summer. She also said unemployment was very high and anyone with money was trying to move it offshore before the collapse. She works in finance and is a CFA.
OK. I don't like to call people dimwits or stuff like that BUT This morning on CBS radio (I was driving somewhere, OK?) some ditsy broad was commenting "live from the NYSE floor" (I had an immaculate image of her standing there rolling a long lock of blonde hair about her long red nailed index finger tottering on high heels with a thought balloon where she couldn't choose between "Whatever" and "Duh") that the reason stocks in China took a tumble was that "something's changing in China's economy"
Fucking Dimwit.
I didn't have the heart to tell her (at the top of my lungs that) there is a Panacea for the Chinese Malaise. There are a bazillion Muzzie freedom fighters hungering for love on the battle fields of the Middle East. China has lots of goats...
Need I expound any further?
"Like ya, totally changin ya knowah? It's like, ewww, I broke a nail at the mall one time and there was no fingernail salon to like, fix it, I was like...oriental geehawd dammit!!! Fer sher."
If you're trading stocks with a PE of 200 and a shitlot more...
A 1% decline in turnover is enough to send that stock 4% lower.
I guess that's the downside of high PE's...
And when turnover drops 25%...
RMB is now effectively in the SDR, Kyle Bass's call on RMB meaningfully devaluing will take time and it will be China's last desperate option (most likely forced by the USD strengthening). So what does China do next... IMO they will sell (DUMP) USTs to rasie funds that keep their stock market above water (liquify strategic stocks) and to aslo avoid breaking the RMB/USD pegg! If the Chna route continues downwards get ready for UST 10 year move big time. Question is what will that do to the USD/RMB pegg? I think Kyle Bass might be right but lets see the how this goes down...
Markets? What markets? T'is the plaything of the asset strippers; the Legacy families. Dynastic farmers of people as herd animals. They're very experienced at it and work to a plan. Their methods revolve around not letting the herd get too used to independence. Chew that cud.
But, But, But, The chart looks like a GIANT RAINBOW.
Where is the Unicorn?
Obungholio is giving him (the unicorn) his monthly sheath cleaning... you know, with his tongue...
BIG SWINGS a'comin'. LOTS AND LOTSA BIG SWINGS. The Street's gotta make $.
I couldn't get past these weird colour charts. Is there any worse way of presenting data.
Yes, 50 shades if grey.
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Chinese authorities should have let the market correct way back. Then they'd be buying the lows right now.
All China has to do is make all selling of stocks illegal tomorrow. Their markets will rocket 17% by Friday!
A whole lot of Chinese brokerage managers are shitting themselves wondering if they will be missing tomorrow..
PPT in China=the plunge purge team
How can the market go up if nobody can sell to the buyers?
so you're telling me the "market" "can" go down? bullshit.
Since China's short selling ban is expiring Jan 8 is likely that many traders are trying to avoid the rush on Friday.
Eliminating short sellers is a big reason for the epic proportions of the selloff. Short interest has to buy to cover. Duh. So the politicos' chosen policy, as usual, is producing the exact opposite to its intended effect.
China opened green
CircuitBreaker'sLivesMatter
"Remain calm. Mind the gap."
Same old line, but with new 2016 font and Ad Men.
Whatttt?.........But CNBC told me to buy and hold Chinese stocks?.......
Sum Tim Wong