BREAKING: Chinese stock market ends 3% lower, w/ 1,200+ stocks down 10% daily limit; Chinese media admit gov “failure to boost market” today
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China Loses All Control, Spends 600 Billion Yuan On Plunge Protection In August, Tightens Capital Controls
China Loses All Control, Spends 600 Billion Yuan On Plunge Protection In August, Tightens Capital Controls
Back on July 20, Caijing reporter Wang Xiaolu suggested that China Securities Finance – the state-owned plunge protection vehicle – may be set to exit the market. That sent futures plunging and ultimately led to Mr. Wang’s arrest late last month. Under duress, Wang would later “admit” that he “shouldn’t have released a report with a major negative impact on the market at such a sensitive time.”
Of course Wang wasn’t the last person to speculate about how long China would be willing to spend billions propping up the market, and indeed it certainly seems as though Beijing tried to scale back the manipulation two weeks ago only to see the SHCOMP crash 8%, a move which promptly triggered a global rout of epic proportions. One additional 8% decline and a dual policy rate cut later, and CSF was back in the market desperately trying to arrest the inexorable slide ahead of Xi Jinping’s lavish military parade on September 3.
So in case anyone still harbored any doubts about the degree to which China most certainly has not wound down the plunge protection effort, Goldman has updated its analysis on the “national team’s” efforts on the way to concluding that China spent an additional CNY600 billion propping up the market in August.
Here’s Goldman:
In our note: China musings: How much has the government bought in the market? (Aug 5), we estimated potential government purchases in the stock market based on: (1) our top-down liquidity model; and (2) bottom-up analysis on fund flow changes in key investment channels based on public information released by relevant media sources.
…click on the above link to read the rest of the article…
China “Punishes” Hundreds For “Maliciously” Manipulating The Market
China “Punishes” Hundreds For “Maliciously” Manipulating The Market
The deadly chemical blast in the Chinese port of Tianjin was a preventable catastrophe in which more than 100 people lost their lives thanks in part to what looks like the political connections of the warehouse’s owners and although an upfront, transparent investigation and honest assessment of the environmental impact is likely the only way to safeguard the public and ensure it doesn’t happen again, no one believes the Chinese government has the will to conduct such an investigation.
But whatever you do, do not say any of the above if you live in China.
Similarly, China’s stock market collapse was an entirely preventable financial catastrophe caused by the unchecked accumulation of margin debt and the encouragement of speculation, and the bursting of the equity bubble which began in June has been nothing short of a debacle that’s led to international condemnation and accusations that, even in a centrally planned world, Beijing’s particular brand of intervention is so egregious as to stray outside the bounds of manipulated market decorum.
But if you live in China, don’t say that either.
Over the last two months there were signs that Beijing would soon resort to outright, sweeping censorship as it relates to both the stock market and the Tianjin blast. For instance, in July, phrases like “rescue the market” were reportedly banned and in the wake of the Tianjin disaster, hundreds of social media accounts were shut down for spreading “blast rumors.”
…click on the above link to read the rest of the article…
China Is Pushing On A String Ensemble
China Is Pushing On A String Ensemble
Look, it’s very clear where I stand on China; I’ve written a lot about it. And not just recently. Nicole Foss, who fully shares my views on the topic, reminded me the other day of a piece I wrote in July 2012, named Meet China’s New Leader : Pon Zi. China has been a giant lying debt bubble for years. Much if not most of its growth ‘miracle’ was nothing but a huge credit expansion, with an outsize role for the shadow banking system.
A lot of this has remained underreported in western media, probably because its reporters were afraid, for one reason or another, to shatter the global illusion that the western financial fiasco could be saved from utter mayhem by a country producing largely trinkets. Even today I read a Bloomberg article that claims China’s Q1 GDP growth was 7%. You’re not helping, boys, other than to keep a dream alive that has long been exposed as false.
China’s stock markets have a long way to fall further yet. This little graph from the FT shows why. The Shanghai Composite closed down another 1.27% today at 2,927.29 points. If it ‘only’ returns to its -early- 2014 levels, it has another 30% or so to go to the downside. If inflation correction is applied, it may fall to 1,000 points, for a 60% or so ‘correction’. If we move back 10 or 20 years, well, you get the picture.
…click on the above link to read the rest of the article…
It’s Not Just China You Should Be Worried About
It’s Not Just China You Should Be Worried About
Junk Rolling Over
TIVOLI, New York – Chinese stocks fell hard on Tuesday. The Shanghai Composite plunged more than 6% – the biggest fall in three weeks. Our research team in Beijing is downcast.
“Nobody here wants to hear about stocks,” they tell us.
Image credit: AP
And the junkiest – and riskiest – part of the U.S. bond market has taken a dive too. Here’s that chart of the big U.S. junk bond ETF that Chris highlighted in yesterday’s Market Insight. It has completely rolled over this year…
iShares iBoxx High Yield Corporate Bond ETF (HYG), daily. HYG is down 6% from its high for the year (this chart shows solely the price of HYG, it is not a total return chart including coupon payments) – click to enlarge.
Meanwhile, U.S. corporate earnings have plateaued. And according to Deutsche Bank’s David Bianco, earnings are actually falling when you exclude companies’ slick accounting adjustments to “smooth” their numbers.
The only thing left propping up Wall Street stocks, as we explained yesterday, is insider trading.
Retail Rot
Recent sales figures from America’s retailers show how deep the rot has become.
Sales have been rising at an alarmingly slow rate – just 0.5% since 2007. Between 2000 and 2007, they went up four times as fast. In the 1990s recovery, they went up six times as fast.
Especially rotten are sales at America’s four largest mall retailers – Macy’s, Kohl’s, Sears, and JC Penney. Together, their sales are falling at a 10% rate per year… or four times faster than the fall in department store sales generally. What is interesting about these four companies is that they have been among the most aggressive of the stock market manipulators.
…click on the above link to read the rest of the article…
China explosions: Cyanide in waters near blast site said to be 277 times acceptable level
Drinking water in Tianjin meets national standards, health authority says
Chinese authorities warned that cyanide levels in the waters around the Tianjin Port explosion site had risen to as much as 277 times acceptable levels although they declared that the city’s drinking water was safe.
The local government, under pressure from China’s leaders in Beijing to improve industrial safety, also said it would relocate chemical plants away from the area, where thousands of residents were forced to evacuate last week after the release of toxic chemicals by explosions that killed 114 people.
China’s ruling Politburo Standing Committee called on all levels of governments during a special meeting on Thursday to do more to implement and monitor industrial safety rules, the official Xinhua news agency reported.
“Recently, there’s been a series of serious accidents in certain places, once again exposing grave safety risks,” Xinhua quoted from the meeting, which was called by President Xi Jinping to address the Tianjin explosions.
- 9 of the world’s worst industrial disasters
- China explosions: Warehouse executives used connections to get permit, state media say
- China explosions: Top safety official detained
- China explosion: Tianjin residents demand compensation
A report from the Tianjin Environmental Protection Bureau issued on Wednesday said that tests conducted the day before showed that cyanide levels in the river, sea and waste water in the evacuated area around the explosion site had risen sharply since the deadly blasts. One testing site at the mouth of a rain water pipe recorded cyanide levels 277 times above acceptable standards.
Drinking water in Tianjin, however, met national standards, according to a separate statement from health authorities on Tuesday.
The government has confirmed there were about 700 tonnes of the deadly chemical sodium cyanide in the warehouse that blew up late last Wednesday.
…click on the above link to read the rest of the article…
Toxic Rain Feared In Tianjin As Death Toll Rumored At 1,400
Toxic Rain Feared In Tianjin As Death Toll Rumored At 1,400
The fallout from last week’s massive explosion in the Chinese port of Tianjin continues to worsen, despite Beijing’s best efforts to play down the danger to the public.
The official death toll from the apocalyptic blast – which was described by witnesses as akin to a nuclear explosion – has risen to 114. Some reports suggest the number of people confirmed killed may ultimately rise to 1,400. Some 6,000 have been displaced and more than 700 are reported injured. “The whole sky was lit up, and the blast wave sent me into the air,” a first responder told local media, describing the scene that unfolded last Wednesday. “My helmet was gone. It was like a different world, with flames falling like raindrops on my head.”
Speaking of raindrops, authorities now fear that storms in the area could transform sodium cyanide (which is water soluble) present on the scene into hydrogen cyanide. Here’s the CDC’s definition of hydrogen cyanide:
Hydrogen cyanide (AC) is a systemic chemical asphyxiant. It interferes with the normal use of oxygen by nearly every organ of the body. Exposure to hydrogen cyanide (AC) can be rapidly fatal. It has whole-body (systemic) effects, particularly affecting those organ systems most sensitive to low oxygen levels: the central nervous system (brain), the cardiovascular system (heart and blood vessels), and the pulmonary system (lungs). Hydrogen cyanide (AC) is a chemical warfare agent (military designation, AC). It is used commercially for fumigation, electroplating, mining, chemical synthesis, and the production of synthetic fibers, plastics, dyes, and pesticides. Hydrogen cyanide (AC) gas has a distinctive bitter almond odor (others describe a musty “old sneakers smell”), but a large proportion of people cannot detect it; the odor does not provide adequate warning of hazardous concentrations. It also has a bitter burning taste and is often used as a solution in water.
…click on the above link to read the rest of the article…
The US-China “Currency War”: Winners and Losers
The US-China “Currency War”: Winners and Losers
American politicians aren’t congratulating the Communist Party in Beijing for its success in following the capitalist proverb “enrich yourself,” but screaming foul play: China falsifies the exchange rate of the yuan so that it can make more money off the USA than vice versa. The accusation, made by everybody from Donald Trump to Bernie Sanders, is that China’s policy is killing good-paying American jobs – and a lot else besides. What’s bad for America can’t be caused by anything done by America, but by Chinese trickery!
America’s right to success
The remedy for the problem is just as obvious as the blame: China must get on board with America’s approved rules for international trade and commerce. If China allows its currency to free-float, then the value of the yuan will adjust, China’s exports to the USA will become more expensive, China and the rest of the world will buy more products from the USA, and jobs will return to the USA.
The assumption is that the global money traders, in their infinite wisdom, would find the “correct” exchange rate between the yuan and the dollar once they have free access to the supply and demand for China’s currency. What would the correct exchange rate be? One that guarantees the success of US firms.
Before this week’s turnaround in response to its slump, China had been moving towards free market convertibility of the yuan. Since 2005, it had allowed its currency to gain almost 30 percent in relation to the dollar, while trying to moderate its increase. Yet the results for the trade balance with the US were exactly the same. What was inferred from this? China hadn’t gone far enough. So how will we know when it’s gone far enough? When America is the winner.
…click on the above link to read the rest of the article…
Desperate move by China a worrying sign: Don Pittis
Instead of boosting economy there is danger China’s sudden move will hurt confidence
The father of Western medicine, Hippocrates, had some advice in 400 BC that has been passed down to today: “Extreme remedies are very appropriate for extreme diseases.”
As the world responds to this week’s extreme andunexpected devaluation by the Chinese central bank, it sounds as if Beijing was taking the good doctor’s advice. And while the obvious intent was to snap the Chinese economy back to health, the frightening thing is that Beijing’s move smacks of desperation.
The modern equivalent of that Hippocratic maxim is: “Desperate times call for desperate measures.” As the Chinese currency and world markets took a dive, investors and trade partners around the world were asking themselves: “What does Beijing know that we don’t?”
Falling off a cliff. Chinese currency saw biggest one day decline in decades. (CBC news)
It’s not the first time this year that China has used strong government action to try to counteract inimical market forces. This spring, Beijing intervened, once to encourage stock markets to inflate, and then repeatedly in an attempt to stop the irresistible plunge when savvy traders realized stocks had become unrealistically high.
- Asian markets plunge despite measures to halt China meltdown
- China’s reminder that markets are never risk-free
The trouble is that markets do not like wild swings. And an economy that requires repeated radical intervention is one, like Russia, where no one knows what the government might do next.
Until recently, the fact that China was willing to back its own economy made it seem like an giant island of stability in a volatile world. In the darkest days of the great recession after 2007, China pumped money into its economy by encouraging borrowing and keeping the renminbi undervalued.
…click on the above link to read the rest of the article…
China’s Plunge Protection “National Team” Bought 900 Billion In Stocks, Goldman Calculates
China’s Plunge Protection “National Team” Bought 900 Billion In Stocks, Goldman Calculates
In, “The Complete Guide To China’s CNY 4 Trillion Margin Doomsday Machine,” we presented a comprehensive look at the various backdoor channels the country has used to skirt official restrictions on leveraged stock trading. Here, courtesy of BofAML, is a breakdown of these channels and the bank’s best estimates of their size.
The dramatic sell-off that made international headlines last month and, along with the Greek drama, dominated financial market news, was precipitated by an unwind in these unofficial margin lending channels.
In a frantic attempt to restore the equity bubble that has for the better part of a year served as a distraction for China’s flagging economic growth and bursting property bubble, Beijing unleashed a plunge protection effort of epic proportions that included everything from threatening to arrest sellers to using China Securities Finance Corp. as a state-controlled margin lender.
In short, the PBoC, with the help of the country’s banks, helped CSF mushroom into a multi-trillion yuan Frankenstein and now that the mentality of the retail crowd (which in China had accounted for around 80% of daily turnover) has transformed from “buy the dip and get rich” to “sell the rip and break even,”any indication that CSF is set to exit the market is greeted with panic by market participants.
Here with a breakdown of just how much money has been funneled into Chinese equities by the so-called “national team” and on how, just like the Fed with QE, the PBoC will find that a swift exit is effectively impossible, is Goldman.
* * *
From Goldman
China musings: How much has the government bought in the market?
The Chinese government’s recent measures to support the domestic equity market through the so-called ‘national team’ institution are being frequently discussed by investors and in the media. In this commentary, we estimate the amount of money the ‘national team’ has spent to support the market, the remaining capital left available for use, the sectors that have likely benefitted from government support, the potential overhang on the equity market from government support measures, and our views on the equity market over coming months.
…click on the above link to read the rest of the article…
Scotiabank Warns “The Fed Is Cornered And There Are Visible Market Stresses Everywhere”
Scotiabank Warns “The Fed Is Cornered And There Are Visible Market Stresses Everywhere”
Part One, China
An economic slowdown is underway in China. This is reflected in the steep drop in the commodity complex and in the currencies of emerging market countries. Large imbalances are being worked off as Beijing attempts to shift the composition of its growth. Policy decision are not always economic.
New sources of growth are being sought by Beijing as deleveraging occurs. Since officials care foremost about social stability, they try to preserve as many current jobs as possible during their attempt at economic transformation. During this period, banks might be averse to calling in loans. State owned enterprises (SOEs) are pressured to keep producing, so that workers can continue to receive a pay check. The result is over-production and downward pressure on prices.
Part Two, The Seven Year Fed Subsidy
The Fed’s zero interest rate policy has provided a subsidy to investors for the past 7 years. The lure of easy profits from cheap money was wildly attractive and readily accepted by investors. The Fed “put” gave investors great confidence that they could outperform their exceptionally low cost of capital. These implicit promises by central banks encouraged trillions of dollars into ‘carry trades’ and various forms of market speculation.
Complacent investors maintain these trades, despite the Fed’s warning of a looming reduction in the subsidy, and despite a balance sheet expected to shrink in 2016. It has been a risk-chasing ‘game of chicken’ that is coming to an end. Changing conditions have skewed risk/reward to the downside. This is particularly true because financial assets prices are exceptionally expensive.
Maybe investors do not believe ‘lift-off’ looms, because the Fed has changed its guidance so many times. Or maybe, investors are interpreting plummeting commodity prices and the steep fall in global trade as warning signs that global growth and inflation are under pressure.
…click on the above link to read the rest of the article…
Op-Ed: U.S. should think twice before retaliating against China over unfounded hacking charges
Op-Ed: U.S. should think twice before retaliating against China over unfounded hacking charges
The United States is on the brink of making another grave mistake under the name of protecting cyber security, as it is reportedly considering retaliatory measures against China for unfounded hacking accusations.
Senior U.S. government and intelligence officials were quoted by a U.S. newspaper as saying Friday that President Barack Obama’s administration has determined to retaliate against China for its alleged theft of personnel information of more than 20 million Americans from the database of the Office of Personnel Management (OPM), but the forms and specific measures of the retaliation have not been decided.
The report added that Obama has allegedly ordered his staff to come up with “a more creative set of responses,” while a U.S. official hinted that the United States will employ “a full range of tools to tailor a response.”
The decision came amid a growing chorus in the United States demonizing China as the culprit behind the massive breach of the OPM computer networks. As witnessed by most past similar cases, the U.S. government, Congress and media once again called for punishing China for this after a top U.S. intelligence official indirectly pointed a finger at China.
Obviously, cyber security has become another tool for Washington to exert pressure on China and another barrier that restrains the further development of China-U.S. relations.
Washington will be blamed for any adverse effects this might have on its ties with China, as all the U.S. accusations against China were made without providing concrete evidence.
The U.S. government was also self-contradictory for declining to directly name China as the attacker on the one hand, while deciding to target China for retaliation on the other.
…click on the above link to read the rest of the article…
Breaking Down China’s $23 Trillion Debt Pile
Breaking Down China’s $23 Trillion Debt Pile
Back in April, we highlighted Beijing’s “massive debt problem“, noting that as of last year, total debt in China amounted to some $28 trillion when you include government debt, corporate debt, and household borrowing.
As Bloomberg noted at the time – and as we’ve discussed extensively – Beijing is facing the virtually impossible task of trying to de-leverage and releverage at the same time.
“Various parts of the government don’t always seem to be working from the same playbook,” Bloombergobserved, before quoting Credit Agricole’s Dariusz Kowalczyk who pointed out the “obvious contradiction between attempts to deleverage the economy and attempts to boost growth.”
Indeed, there are times when the scale seems to tip in favor of deleveraging. For instance, Beijing has recently shown a willingness to tolerate defaults and the case of Baoding Tianwei Group Co even suggested that in some instances, state-affiliated companies may not receive immediate government support.Nevertheless, the abrupt 180 on LGVF financing and the transformation of the local government debt restructuring initiative into the Chinese version of LTROs betrays the extent to which China is still reluctant to deleverage its economy in the face of flagging growth.
Against that backdrop we bring you the following graphic from Bloomberg which breaks down China’s massive debt pile and shows the degree to which it’s grown over the past decade.
Blame the Fed for the Commodities Slump
Blame the Fed for the Commodities Slump
When we left you at the end of last week the world was falling apart.
As you know, the economy functions on electronic credit… not cold, hard cash. Without the banks pumping more credit into the system – by way of loans – it sags.
The Dow fell 163 points – or about 1% – on Friday.
More significant is the action in the gold market. At this morning’s price of $1,103 an ounce, gold is now trading $100 below what we thought was the “floor” under the price.
Why?
It could be that gold is signaling a global recession/depression. People tend to buy gold when they fear inflation. All they see today is a global deflationary slump.
The People’s Daily newspaper – the official organ of the Communist Party – tells us that Chinese electricity consumption is accelerating at the slowest rate in 30 years.
We all know China’s GDP figures are untrustworthy, but electrons don’t lie. They flow with the economy. And they’re now only increasing at a sluggish 1.3% a year – suggesting a big slowdown in the Chinese economy.
According to economists’ estimates compiled by Bloomberg – as opposed to the official spin from Beijing – China’s economy is growing at the slowest pace in 25 years.
A Pileup in Commodities
Meanwhile, on the commodities highway, there’s a huge pileup.
The crash in the oil market – which has taken the price per barrel of U.S. crude down 53% over the last 12 months – has left a massive slick.
A barrel of U.S. crude oil sold for just $48.14 at Friday’s close – just 42 cents above its 52-week low. Overall, commodities are at a 13-year low.
And the coal miners have slid on the cheap oil and gas.
In the March issue of our monthly publication, The Bill Bonner Letter, we explained why energy was so cheap. The Fed dropped the price of capital so low that it cost almost nothing to borrow.
…click on the above link to read the rest of the article…
Chinese Stock Plunge Resumes With 1200 Stocks Halted Limit Down; Yellen, Greek Elections On Deck
Chinese Stock Plunge Resumes With 1200 Stocks Halted Limit Down; Yellen, Greek Elections On Deck
Just when the Chinese plunge protection team (and “arrest shortie” task force) seemed to be finally getting “malicious selling” under control, first we saw a crack yesterday when the composite broke the surge of the past three days as a result of yet another spike in margin debt funded purchases, but it was last night’s reminder that “good news is bad news” that really confused the stock trading farmers and grandmas, which goalseeked Chinese economic “data” beat across the board, with Q2 GDP coming solidly above expectations at 7.0%, and retail sales and industrial production both beating, but in the process raising doubts that the PBOC will continue supporting stocks.
After all, the only purpose of the stock bubble was to deflect attention from the bursting of the housing bubble and the collapse elsewhere in the economy. So if Beijing is willing to telegraph that the worst is over for the economy, there is no further need for SHCOMP 5000 which can now be carefully deflated, as otherwise a violent bursting threatens China’s social stability.
As a result the Shanghai Comp tumbled -3.0% and Hang Seng slid -0.3% with markets showing a subdued reaction as the data does dampen calls for further actions by the PBoC. However that does not do justice to yet another day of Chinese stock insanity. This does:
China Is Just Another Front in the Zombie War
China Is Just Another Front in the Zombie War
LONDON – This morning, a desperate message from our analyst in Beijing puts us in a lighthearted mood:
I’m sure you must have heard about the recent disaster in the Chinese stock market.
It’s my first time experiencing something like this. And it shocked me. It’s like the world is suddenly turning upside-down. Everyone is running for themselves.
People here feel hopeless, as they see so many government bailout plans fail.
There are so many rumors I can’t tell what’s true and what’s not. Some even said that it was U.S. capital shorting Chinese index futures.
Opportunities Everywhere!
At the Diary, we always look on the bright side: We see opportunity everywhere.
Investors in U.S. stocks seemed to wake up yesterday with a start. They didn’t panic. But they were at least beginning to worry. The Dow dropped 261 points – wiping 1.5% off its value. There is probably a lot more where that came – an opportunity on the downside.
To recap: Greece’s creditors have given Athens until midnight to come up with an acceptable reform plan. Nobody knows what will happen.
But Greeks are pulling as much cash out of ATMs as they can. There have been lines at gas stations and food stores. And Greek stocks are selling with as much as 20% dividend yield and just over two times earnings. This could be a (highly speculative) opportunity on the upside.
Meanwhile in China, investors have seen roughly $3.5 trillion in paper wealth evaporate over the last two months as stock prices there plunged. The Chinese are not sophisticated stock market investors. They have only been at it for a few decades. So, they tend to get over-excited in both directions.
It was only a few weeks ago that Chinese brokers were opening new accounts in record numbers. From farmers to hairdressers, everyone was itching to get a piece of the action, as the stock market soared.
…click on the above link to read the rest of the article…
