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A Desperate China Begged Fed For “Plunge Protection Playbook” As Its Market Crashed
A Desperate China Begged Fed For “Plunge Protection Playbook” As Its Market Crashed
The SHCOMP’s inexorable, parabolic ascent was to a large degree facilitated by an explosion of margin debt, the likes of which could not be found in any other major market across the globe. For instance, by the end of June, the outstanding balance of margin transactions as a percentage of the SHCOMP’s free float market cap was nearly 14% compared to just 5.5% for the S&P and less than 1% for the TOPIX.
A dramatic unwind in the half dozen backdoor margin lending channels that had funneled an additional CNY1.5 trillion into equities brought the party to a thunderous end and by late July, the market was off by more than 30% from its peak.
Chinese officials had already begun to panic by mid-month and then, on the 27th, the bottom fell out.
A harrowing bout of late day selling led the SHCOMP to post its worst one-day drop since February of 2007 and its second worst single session decline in history as the market collapsed by 8.5%.
More than two-thirds of stocks in the index traded limit down that day.
At that point, China was out of ideas. It had been nearly three weeks since Beijing announced it would inject capital into China Securities Finance Corp., effectively giving the PBoC a mandate to not only underwrite brokers’ margin lending businesses but in fact to buy A-shares directly, and nothing seemed to be working to arrest the slide.
Indeed, starting on June 27 (by which time the Shenzhen had fallen by more than 20% from its peak) the PBoC unleashed an eye watering array of measures that encompassed everything from an RRR cut to the easing of regulations to state mandated investments by pension funds to verbal interventions in the form of threats against “malicious” shorts. Nothing was working.
…click on the above link to read the rest of the article…
The Big Short is a Great Movie, But…
The Big Short is a Great Movie, But…
Paris — Michael Lewis is the chronicler of Wall Street. He takes the complexity behind which the inhabitants of the financial world hide and weaves a tale that is both understandable and compelling. Starting with the classic “Liars Poker” (1989), Lewis has produced a number of books about the financial markets including “Flash Boys: A Wall Street Revolt” (2014) and “The Big Short: Inside the Doomsday Machine” (2010). Working with director Adam McKay and some great actors and screen writers, Lewis has managed to produce what is perhaps the most accessible and relevant treatment of the mortgage boom and financial bust of the 2000s, and the subsequent 2008 financial crisis.
The beauty of “The Big Short,” both as a movie and a book, is that it provides sufficient detail to inform the general audience about events and issues that are not part of everyday life. Wall Street is a secretive place, but “The Big Short” manages to convey enough of the details to make the story credible as a journalistic effort, yet also enormously entertaining. Lewis does this with two essential ingredients of any film: a simple story and compelling characters.
Images of greed and stupidity are presented like Italian frescos in “The Big Short,” pictures that are memorable and thought provoking. Indeed, what many people know and remember years from now about the 2008 financial crisis will be shaped by creative efforts such as “The Big Short” for the simple reason that Lewis has simplified the description into a manageable portion. Unlike hedge fund manager Michael Burry (played by Christian Bale), most people lack the patience and expertise to sift through and understand reams of financial data.
…click on the above link to read the rest of the article…
CEO Of Rosneft Compares Oil Market Manipulation Which “Doesn’t Reflect Reality” To Gold Price Rigging
CEO Of Rosneft Compares Oil Market Manipulation Which “Doesn’t Reflect Reality” To Gold Price Rigging
It was a little under two years ago when, when oil and gas prices were both surging, Obama decided to punish the evil speculators whose fault the rise of oil was when he announced he would “give the Commodity Futures Trading Commission authority to increase the amount of money that a trader must put up to back a trading position. The administration officials said such authority could help limit disruptions in energy markets.” Needless to say, Obama did not punish the world’s central banks for flooding the globe with excess liquidity, which by definition would end up in less than “productive” ventures such as barrels of oil.
Over the weekend, it was the opposite, when instead of blaming speculators for soaring prices, none other than the CEO of Russia’s largest publicly-traded oil company, Rosneft, in not so many words, accused speculators of sending the price of oil plunging. Which is actually a narrow read of what he said, and one we don’t agree with.
What we most certainly do agree with, is his broader message, namely that financial speculation has made a mockery of physical supply and demand and “distorted oil markets, prices do not reflect reality. They are driven instead by financial speculation, which outweighs the real-life factors of supply and demand. Financial markets tend to produce economic bubbles, and those bubbles tend to burst. Remember the dotcom bust and the subprime mortgage crisis? Furthermore, they are prone to manipulation. We have not forgotten the rigging of the Libor interest rate benchmark and the gold price.”
Yes indeed, the CEO of an oil major just used gold rigging as an example of the same commodity manipulation that gold longs have been complaining about for years if not decades.
Here is Igor Sechin full Op-Ed in the FT:
…click on the above link to read the rest of the article…
