Not to toot my own horn too much, but I wrote about way back in March.
Welp! Too many companies listing on the Chinese Shenzhen stock exchange coupled with shady accounting practices which lead to bogus valuations of companies lacking any real fundamentals, and viola, $3 Trillion dollars evaporates. And the end isn't in sight.
President Xi relies on economic prosperity to continue his massive program of power consolidation. Pretty big setback for him and his policies.
[ July 08, 2015, 01:16 PM: Message edited by: JanitorBlade ]
Posted by Samprimary (Member # 8561) on :
but who's going to tend those giant empty cities now
Posted by Samprimary (Member # 8561) on :
more seriously though: I hope this doesn't feed on itself a whole bunch and cause great amounts of misery to great amounts of people
Posted by Elison R. Salazar (Member # 8565) on :
In the long term it's probably a good way to clean house and secure the foundations for sustainable economic growth; if it is handled correctly.
On the other hand some analysts are thinking this isn't as big a deal as it could be:
quote: The Shanghai Composite Index has fallen 27% since 12 June 2015, a sharp drop versus the 117% jump over the previous eight months. These dramatic swings have raised concerns about a possible negative impact on the economy. In this note we look at the main channels through which equity market volatility can affect the real economy. First, our estimates suggest that the stock market wealth effect has less impact on consumption than many think. Consumption growth in China is largely driven by income growth rather than changes in wealth and Chinese households still park most of their wealth in cash and deposits. Less than 15% of their financial assets are invested in stocks. Second, the recent IPO rush notwithstanding, total equity financing year to date amounted to RMB289bn, less than 5% of total social financing over the same period. Third, although margin financing on the equity market has risen rapidly, the trend has started to reverse over the past few weeks.
This is the point I’ve been making recently about the Shanghai bust not being disaster in and of itself. At a 15% share of household financial assets equity holdings are relatively minor. Add property and the share becomes small.
By comparison, Australian households hold roughly 7% of their total wealth in direct shares but that rises to 28% when we throw in super so it’s around 20-25% net.
The real problem is the Shanghai bust complicating the existing hard landing.
For serious. But man, thank goodness equity markets are not yet such a huge part (relatively speaking) of the Chinese economy.
Posted by Mucus (Member # 9735) on :
This is probably a good time to illustrate why predicting the future is difficult. I'm not sure which post you're referring to here, I think you linked to the Washington Post twice accidentally. So let's split the difference and say you take a time machine to March 15. You place a big bet that the stock market would decline by July 7.
There's a big bubble and with the benefit of hindsight, you know there's going to be a huge crash. Sure bet right?
Go back in the time machine and go to July 7. Wrong.
Now of course, this will certainly change later. But by jumping the gun on the prediction, the prediction is basically useless.
That's setting aside the question of whether a stock market crashing is inherently a bad thing, which I don't necessarily agree with either.
Posted by Elison R. Salazar (Member # 8565) on :
It's bad in the case like the US 1929 crash or the 2008 crash in that the world economy took a huge hit because of a lack of suitably enforced regulations and leave tens of millions unemployed and desperate for any charismatic figure.
Posted by Mucus (Member # 9735) on :
On the other hand the 2008 financial crisis was an amazing opportunity for investors and young people building up their investment portfolios to buy really good companies on the cheap.
More importantly, if we imagine an alternate reality, where the 2008 crash didn't occur, and the issues with subprime mortgages were discovered not in 2008, but in 2012 after being given much more time to spread and cause damage ... I don't necessarily think that we'd be better off with a much bigger crash.
We should also be reminded that not all bubbles are caused by fraud, plain old speculation is sufficient and is probably a better explanation for a three month bubble and crash. Its not as if fraud almost doubled in the last three months.
There's this good bit of perspective in that otherwise sensationalized article
quote:Critics who think the government has overreacted are particularly mystified by the fact that the market was not malfunctioning. Trades were closing, market participants were not failing and, if anything, a three-week, 30 per cent correction after a 12-month, 150 per cent surge seemed like a welcome adjustment.
Posted by Orincoro (Member # 8854) on :
quote:Originally posted by Elison R. Salazar: It's bad in the case like the US 1929 crash or the 2008 crash in that the world economy took a huge hit because of a lack of suitably enforced regulations and leave tens of millions unemployed and desperate for any charismatic figure.
Well, Elison, in both cases these were *credit* crises, in addition to stock market crashes. A stock market adjustment on its own is not such a terrible thing when the credit market is not too heavily invested in stocks.
In the case of 1929, the problem that fueled the collapse and chaos was that much of the supposed value in the stock market was itself generated by consumer speculation on the stock market, in the form of margin buying. People leveraged their credit to buy stocks, and when the stock value went down, they had to sell to cover their losses, causing a downward spiral and associated panic.
In 2008, it was a bit different. This time, people had leveraged credit too heavily to speculate on real-estate, while at the same time, banks had packaged mortages into their financial instruments to make them appear to be very safe investments. When the value of real-estate dipped, the value of the "safe" investments evaporated. When that happened, credit on the real-estate market disappeared, causing the prices to further drop.
In the case of China, so far, a big part of the "value" of the stock market is in the non-liquid valuation of companies that are not being traded heavily. This means that a minority of share-holders hold most of the stock, and most of the stock is still worth more than the actual cash investments that have been made. Since Chinese consumers don't have enough cash to invest directly in stocks, there is a valuation bubble, but not any associated financial contagion. If the value goes down, it isn't tied to much of anything sensitive- it isn't people's life savings in banks, or their houses, for the most part.
Posted by JanitorBlade (Member # 12343) on :
quote:Originally posted by Mucus: This is probably a good time to illustrate why predicting the future is difficult. I'm not sure which post you're referring to here, I think you linked to the Washington Post twice accidentally. So let's split the difference and say you take a time machine to March 15. You place a big bet that the stock market would decline by July 7.
There's a big bubble and with the benefit of hindsight, you know there's going to be a huge crash. Sure bet right?
Go back in the time machine and go to July 7. Wrong.
Now of course, this will certainly change later. But by jumping the gun on the prediction, the prediction is basically useless.
That's setting aside the question of whether a stock market crashing is inherently a bad thing, which I don't necessarily agree with either.
Thanks for the heads up about the link. I've fixed it so that my actual writing shows up.
As for it still being "up", well I think the simple explanation for that is that China has frozen equity trading and is pumping money to investors encouraging them to buy the stocks that are still trading.
Unfrozen I'm certain they story would be different, not that I'm suggesting the government should unfreeze trading.
Posted by Mucus (Member # 9735) on :
While its true that frozen equities may account for some of that, let's not stray from the larger point that predicting the future in a useful way is hard. Predicting for a crash is sexy, but all stock (or housing, etc.) markets have bubbles and crashes at one point or another. Hell, even trading halts are not uncommon. The NYSE just had one today.
To say that a bet based on your prediction would have earned money if the Chinese government had not frozen equities and done its form of QE is kind of pointless because they did do it.
There are plenty of investors that would have gained or lost money differently if the US had not done bailouts of automobile companies, TARP, and QE in 2008. But the US did do those things. That's the world we have to live in, and that's the world where predictions have to be useful.
To say that the world is wrong, but your prediction is right *shrug*
(This is not to say that the Chinese and Americans *should* do those things, I would actually have greatly preferred that they didn't in all the above cases.)
Posted by JanitorBlade (Member # 12343) on :
Mucus: I never said people should try to profit off the equity markets collapsing by betting. I said that a crash was coming, and it's not going to be a fun time for investors.
Posted by Mucus (Member # 9735) on :
Actually, I would argue that this is a great time for investors. It's a bad time for speculators.
As for the former, I'm just evaluating the predictive power of your prediction in the most straightforward manner. A prediction that a solar eclipse will happen in general in the future is much less impressive than a prediction that it will happen on X day of Y year and it actually happening.
Testable predictions are important.
Posted by Elison R. Salazar (Member # 8565) on :
quote:Originally posted by Mucus:
(This is not to say that the Chinese and Americans *should* do those things, I would actually have greatly preferred that they didn't in all the above cases.)
:stare:
I mean... Beyond a doubt the US went about it in a way that's only delaying the inevitable until the next crash and didn't do nearly enough to punish those knowingly acting illegally. But I would hope you don't mean having the Federal gov't literally just let everything go down. I think the US economy would've literally have collapsed.
Posted by Mucus (Member # 9735) on :
Letting a few banks and individual auto companies go down != let everything go down
Here's an example:
quote: Thanks to their access to below market credit in their time of need, courtesy of the taxpayer bailouts, the Wall Street executives are still pocketing tens of millions a year and the banks are again making record profits. Had the market been allowed to work its magic, this wealth and income would have been available for the rest of society. The financial sector will continue to be a drain on the rest of the economy because the government saved it from the consequences of its own recklessness.
Claim 2 implies that the economy would have collapsed absent the TARP. It assumes an absurd counter-factual: that the government and the Fed would have allowed the banks to collapse and then done nothing in response to boost the economy. Of course that would have been a catastrophe, but it is simply a lie to claim that our options were either doing TARP or never doing anything.
There is no reason that we could not have let the banks go down in the cesspool of junk loans that they had fostered and then flooded the system with liquidity after the fact to boost the economy. This is the serious alternative scenario -- not the permanent do nothing scenario that TARP proponents have created.
...
In short, the TARP opponents are absolutely right. TARP was an unnecessary giveaway to the Wall Street crew that was responsible for the financial crisis.
Economies cannot literally collapse. They can only collapse figuratively or metaphorically. That's because they are not physical structures.
Posted by Orincoro (Member # 8854) on :
You're technically correct KoM. The best kind of correct.
And of course in this case, the collapse is figurative but also real in implication and impact. A market collapsing is the cessation of market activity, and the loss of value, with a corresponding loss in the market's ability to facilitate the exchange of goods and services.
Posted by Orincoro (Member # 8854) on :
quote:Originally posted by Orincoro: You're technically correct KoM. The best kind of correct.
And of course in this case, the collapse is figurative but also real in implication and impact. A market collapsing is the cessation of market activity, and the loss of value, with a corresponding loss in the market's ability to facilitate the exchange of goods and services.
quote: Thanks to their access to below market credit in their time of need, courtesy of the taxpayer bailouts, the Wall Street executives are still pocketing tens of millions a year and the banks are again making record profits. Had the market been allowed to work its magic, this wealth and income would have been available for the rest of society. The financial sector will continue to be a drain on the rest of the economy because the government saved it from the consequences of its own recklessness.
This presupposes that there would have remained a means by which that wealth could be reliably built, goods exchanged, and services appropriately valued. The fear that got TARP pushed through was that without the banking system, as parasitic as it is, there might have been no other way of spreading liquidity in the economy. A real and valid fear in my opinion.
Sort of like yeah: the cops are corrupt, but you can't destaff the police department and still expect to be able to fund law-enforcement. Where do the funds go?
Posted by Mucus (Member # 9735) on :
I think he assumes that people knew that there are banks not on Wall Street as common knowledge.
For example: 1) American banks that didn't need bailouts
quote:I've dug up, with the help of research available on TARP tracker Bailoutsleuth.com, at least 54 publicly traded banks that explicitly refused to take part in TARP. And it's worth pointing out that several of them are decent-sized.
Hudson City Bancorp (HCBK) and People's United Financial (PBCT) are both in the S&P 500. Commerce Bancshares (CBSH), BOK Financial (BOKF) and NY Community Bancorp (NYB) are among the 50 largest banks in the country as ranked by assets, according to figures from the Federal Reserve.
2) Banks head-quartered in other countries with significant operations in the US, such as, well, all the Canadian banks which did in fact expand significantly in the US by buying up insolvent banks during the crisis
The other possibility that he brings up is that the specific banks that would have died could just have been nationalised, killing off creditors and senior staff, but leaving operations in tact.
There were many ways of skinning that particular cat.
Posted by Elison R. Salazar (Member # 8565) on :
B-b-b-b-but Socialism!
The question I would have regarding those banks that didn't take part in TARP, is whether they would've still not had the need for TARP if those banks that did had in fact went down. The problem was that those banks collapsing was the fear of a systemic collapse, wherein one bank falls and takes down the one under it, and so on and so forth.
Posted by JanitorBlade (Member # 12343) on :
Looks like China has managed to rally the Shanghai markets for now, let's see if they can pull this off. If they can, it will certainly force many analysts (And yours truly) to evaluate what they think they know about modern equity markets. Posted by GaalDornick (Member # 8880) on :
quote:As for the former, I'm just evaluating the predictive power of your prediction in the most straightforward manner. A prediction that a solar eclipse will happen in general in the future is much less impressive than a prediction that it will happen on X day of Y year and it actually happening
I mentioned to someone recently that I'm in the market to buy a house. He advised me to think twice about that because "another crash is coming." When I asked when (and why) he thinks tje crash will happen, he responded "it could be in a few years. It could be tomorrow. Who knows? But it's coming."
Ok. Well. Thanks.
Posted by Elison R. Salazar (Member # 8565) on :
quote:Originally posted by JanitorBlade: Looks like China has managed to rally the Shanghai markets for now, let's see if they can pull this off. If they can, it will certainly force many analysts (And yours truly) to evaluate what they think they know about modern equity markets.
It's probably still a potemkin village so it's hard to know if the stock markets are based on anything solid and whether this will just happen again in a few years. Like the US insurance markets.
Posted by Geraine (Member # 9913) on :
Most of the people that invested in the Chinese stock market were middle class Chinese that were looking to make some money, as the stocks were going up quickly.
Now that it is crashing and these people are taking their money out, there are analysts saying that they may turn to other types of investments in other countries, more specifically in the US housing market.
Posted by RivalOfTheRose (Member # 11535) on :
Investing in the US housing market would be good for us stateside if we are looking to sell and buy?
Posted by Elison R. Salazar (Member # 8565) on :
Oh god, more places where the price of living can triple.
Posted by NobleHunter (Member # 12043) on :
If certain commentators are correct that Chinese/Asian investors are driving up housing prices in Vancouver (BC) and Toronto, then it's only good if you're looking to sell. Buyers will soon be confronted with the up slope of a bubble. Or a rapid rise in prices if you're an optimist.
Posted by Elison R. Salazar (Member # 8565) on :
Horrible if your an average person looking for living space.
Posted by Geraine (Member # 9913) on :
quote:Originally posted by Elison R. Salazar: Horrible if your an average person looking for living space.
But excellent if you are in no hurry and are willing to wait until the next housing bubble bursts, which will eventually happen.
Posted by GaalDornick (Member # 8880) on :
Not if the bubble bursting just brings it back to where it is now, presumably the start of the Chinese-purchasing bubble.
Posted by JanitorBlade (Member # 12343) on :
Will the mighty CCP force the Chinese stock market to obey its commands?
For those keeping track, the Shanghai composite index is still 11.33% above where it was when JanitorBlade predicted doom and gloom on March 12th (By way of comparison, the NYSE composite is up 1.91%).
Of course, like the best predictions about the second coming of Jesus or judgement day, there were no actual dates or verifiable numbers in that March 12th prediction Posted by JanitorBlade (Member # 12343) on :
It's only up 8% since my writing in March, we can thank deep commitments by the Chinese government to prop it up. But why are you going after me? Just look at the Shanghai composites' behavior. If we look at March of 2014 (A year before I wrote) it was up almost 33% since then, and over 150% over the last year and a half, based on what?! Certainly not wildly successful Chinese economic growth over the last year. It's fueled by speculation and not actual fundamentals in Chinese firms.
Look, crashes happen, but the problem is is that Chinese equity markets are this weird mix of incredibly volatile because investors are trying to chase the fastest returns, but also incredibly managed by the Chinese government, and also very political. Your company getting to IPO in Shenzhen and when is a function of who you know largely.
So what if you are up a few points had you invested in March (You wouldn't be if China didn't control things so tightly), it's the incredible volatility that makes it unwise to invest deeply in Chinese equity markets. It's the crappy accounting standards.
We'll see what the rest of this year brings. If I'm wrong, I'm not going to be put out. China doing well is good for the world. But I think we are seeing the first effects of an economy that is more show than substance. And the charade is finally ending.
Posted by JanitorBlade (Member # 12343) on :
I'm sure what didn't work for in 2008 will work exactly as intended in 2015.
edit: Correction, you can short so long as you wait one day before trying to lock in your profits.
Posted by Mucus (Member # 9735) on :
I wouldn't really characterize it as going after you. You're just asking for credit with statements like "Not to toot my own horn too much, but I wrote about way back in March" so it makes sense to evaluate the performance since then to see if you deserve it.
I'll put my cards on the table. There are going to be crashes, there are going to be bubbles.
Eventually, Samprimary is going to be right. Four years and a half counting Hell, I think I saw predictions that China's "ghost cities" would lead to a crash even before America's own housing crisis in 2008. This is, what, 7 years later?
But I'm not going to be particularly good at predicting them and neither are other people. This isn't particularly unique to China's stock market. You can look at Hong Kong's stock market in the 80s and 90s for plenty of examples even without "incredible management by the Chinese government."
Frankly, I think humans are inherently pretty bad at predicting the future. That's part of why I invest in broad-based globally diverse index funds, because it hasn't even been proven that mutual fund managers add enough value to pay their own management fees.
The bottom line is, we have to measure the results of claims.
Posted by JanitorBlade (Member # 12343) on :
Mucus: I listed several ills of Chinese equity markets, and concluded it's going to be a bad time soon. Markets continued to balloon for three more months, crashed, and are now flat. Signs of a recovery are not in sight yet.
I said it's going to be a bad time, it is a bad time, it could get even worse. That it's not the worst crash ever doesn't make my prediction wrong.
Posted by Mucus (Member # 9735) on :
Don't be silly, I'm not comparing your prediction to "the worst crash ever." I've repeatedly compared it between March 12 when you made the prediction and either July 7th when you proclaimed victory or the current date.
Your prediction is wrong in terms of hard numbers since a hypothetical investor which followed your advice and pulled out on March 12th would actually have missed out on approximately a 12% gain to date. That investor would have been far better off to have ignored you and have waited till today to sell.
Now, you've added this "bad time" definition retroactively to your prediction. For the sake of argument, let's accept this and examine it:
1) What does "bad time" even mean?
To that hypothetical investor who just made a 12% gain? Its a great time! Sure, for the average investor who jumped in say, after April 1st, 2015, they probably lost money. But anyone who predated that, they're probably still net winners. They may not be as rich as they had hoped, but they still made money! This is not what one normally calls a bad time.
2) Is a prediction of a "bad time" a falsifiable claim?
From your posts in this thread, it seems to me that if the stock market had continued to climb, it is either a "balloon" or "fueled by speculation and not actual fundamentals."
A bad time!
On the other hand, if the stock market had crashed, well, "dollars evaporate[d] And the end isn't in sight"
A bad time!
3) "it could get even worse"
Is there *any* time in any market, or hell, any situation on Earth which could not get worse?
Posted by Mucus (Member # 9735) on :
If it's any consolation. I too fully expect that the stock market will eventually fall back to where it was on that March 12th date. It may even fall back to that 2011 date from that linked post. That's basically what volatility means. This is also why we don't deserve any credit.
What I can't do is predict *when* it will happen which is the million-dollar question and I don't think anyone else can with any reliability.
Posted by GaalDornick (Member # 8880) on :
I'm predicting the Dow will rise 12% between now and the next time I post in this thread. Bank on it.
Posted by Samprimary (Member # 8561) on :
I predict the DOW will grow 4% in the next 4 months
Posted by JanitorBlade (Member # 12343) on :
quote:Originally posted by Mucus: [QB] Your prediction is wrong in terms of hard numbers since a hypothetical investor which followed your advice and pulled out on March 12th would actually have missed out on approximately a 12% gain to date. That investor would have been far better off to have ignored you and have waited till today to sell.[qb]
Yes, that's true. But a new investor who had entered the market just a few days after I had written would have broken even or lost money.
quote:Now, you've added this "bad time" definition retroactively to your prediction.
. No I haven't, it's literally the last thing I said in my LI post.
quote:For the sake of argument, let's accept this and examine it:
1) What does "bad time" even mean?
A lot of volatility is by definition a bad thing in investing.
quote:To that hypothetical investor who just made a 12% gain? Its a great time! Sure, for the average investor who jumped in say, after April 1st, 2015, they probably lost money. But anyone who predated that, they're probably still net winners. They may not be as rich as they had hoped, but they still made money! This is not what one normally calls a bad time.
I did not anticipate the Chinese government would inject $1 Trillion + to prop up the market. That's roughly 1/3rd of the entire value that was lost, or five times what the Obama administration spent to prop up markets in 2008. So yes, you can technically still have had a non-bad time, courtesy of the Chinese government not because the markets are healthy.
quote:2) Is a prediction of a "bad time" a falsifiable claim?
From your posts in this thread, it seems to me that if the stock market had continued to climb, it is either a "balloon" or "fueled by speculation and not actual fundamentals."
Climb? no. Exploded, yes.
quote:3) "it could get even worse"
Is there *any* time in any market, or hell, any situation on Earth which could not get worse?
No signs of recovery *and* it could get worse. That's not as good as "It could go either way."
Posted by Dogbreath (Member # 11879) on :
quote:Originally posted by JanitorBlade: I did not anticipate the Chinese government would inject $1 Trillion + to prop up the market. That's roughly 1/3rd of the entire value that was lost, or five times what the Obama administration spent to prop up markets in 2008.
*cough*
Posted by JanitorBlade (Member # 12343) on :
quote:Originally posted by Dogbreath:
quote:Originally posted by JanitorBlade: I did not anticipate the Chinese government would inject $1 Trillion + to prop up the market. That's roughly 1/3rd of the entire value that was lost, or five times what the Obama administration spent to prop up markets in 2008.
*cough*
True, wrong administration. Though of course Obama agreed with propping up the markets, and probably wished more money had been spent.
Thanks for the correction.
Posted by Mucus (Member # 9735) on :
quote:Originally posted by JanitorBlade: Yes, that's true. But a new investor who had entered the market just a few days after I had written would have broken even or lost money.
I don't really see the relevance. Even a stopped clock is eventually correct. One cannot simply call up their stock broker and retroactively change when they bought a stock.
quote:
quote:Now, you've added this "bad time" definition retroactively to your prediction.
No I haven't, it's literally the last thing I said in my LI post.
No, you didn't. Go back and do a ctrl-F. What you said is subtly different and even more wrong which is why I accepted your new definition for the sake of argument.
quote:I did not anticipate the Chinese government would inject $1 Trillion + to prop up the market.
So your prediction would have been correct if it was made at a different time and nothing unanticipated had happened.
Amazing.
Posted by Mucus (Member # 9735) on :
quote:Originally posted by JanitorBlade: A lot of volatility is by definition a bad thing in investing.
This doesn't make any sense. Many investors thrive on volatility. This is a simple mistake.
So I'll just quote:
quote:However, what seasoned traders know that the average person may not is that market volatility actually provides numerous money-making opportunities for the patient investor. Investing is inherently about risk, but risk works both ways. Each trade carries with it the risk both of failure and of success. Without volatility, there is lower risk of either.
Volatility can benefit investors of any stripe. Many more conservative traders favor a long-term strategy called buy-and-hold, wherein stock is purchased and then held for an extended period, often many years, to reap the rewards of the company's incremental growth. This strategy is based on the assumption that while there may be fluctuation in the market, it generally produces returns in the long-run. While a highly volatile stock may be a more anxiety-producing choice for this kind of strategy, a small amount of volatility can actually mean greater profits. As the price fluctuates, it provides opportunity for investors to buy stock in a solid company when price is very low, and then wait for cumulative growth down the road.
For short-term traders, volatility is even more crucial....
Mucus: Let me ask you a couple of things, since I'm not really enjoying having just the places I've been wrong (And you're doing a marvelous job finding them) highlighted.
1: Are Chinese equity markets very volatile?
2: While volatility provides profit opportunities for clever/lucky investors, is a lot of volatility good for financial planning or for the economy?
3: Do you feel this recent boom and bust is the result of actual fundamental economic growth and Chinese firm performance?
Posted by Mucus (Member # 9735) on :
Alright
1) They are very volatile compared to, say, the US stock market. But that's a bit apples and oranges given the vast differences between the two in terms of one being an emerging economy and one being developed, one which is dominated by individuals and the other being dominated by institutions, etc.
In general, it is known that the more volatile the investment, the higher the return. Have no tolerance for risk? Invest in GICs (or whatever the US equivalent is). Have a little tolerance? Invest in bonds. Have more? Invest in common stocks. Have the most? Invest in penny stocks?
The Chinese stock market has been very very lucrative since to pick an arbitrary date that I remember, roughly 2006, so I would expect volatility.
2) For financial planning, I think you have that backwards. One doesn't mold a stock market to fit an investor's risk tolerance. An investor's risk tolerance determines where they should invest.
The worst stories of people who lost money in the most recent crash are those who were not prudent, who borrowed large sums of money when they couldn't tolerate losses or who jumped in to speculate. It's actually a good thing that the stock market fluctuates to drum out some of this speculative excess in favor of real investors.
Remember this:
quote:So smile when you read a headline that says "Investors lose as market falls." Edit it in your mind to "Disinvestors lose as market falls -- but investors gain." Though writers often forget this truism, there is a buyer for every seller and what hurts one necessarily helps the other. (As they say in golf matches: "Every putt makes someone happy.")
As for the economy, its kinda irrelevant. It hasn't been demonstrated that there is much of a link between stock market growth and growth in the real economy.
quote: News that emerging market equities have markedly underperformed their developed world peers so far this year highlights a perennial paradox of the investment world – why stronger economic growth does not feed through to elevated equity market returns.
Intrinsically, one might think that the spoils of robust growth should be split between the providers of labour and capital, enabling the population at large to improve their lot as well as rewarding stock market investors handsomely, certainly more handsomely than the misguided souls who invested in the Greeces of this world.
Standard economic theory suggests that, over the long run, corporate earnings should account for a roughly constant share of gross domestic product, meaning profits should rise broadly in line with the economy. Yet the long-run data suggest nothing of the sort.Indeed, if there is a relationship, it is that economic growth and stock market returns are negatively, not positively, correlated.
3) I think my answers to the last two should make the answer to this clear. This recent boom and bust is not the result of actual fundamental growth, but in general many booms and busts aren't. How could Chinese firm performance have anything to do with it when there hasn't been either a 200% growth in performance in a few mere weeks or a 200% drop in performance either.
The whole thing has more to do with the speculative excess among mainlanders who borrow money to invest or who invest based on rumor rather than fact while having little risk tolerance for losses.
Posted by JanitorBlade (Member # 12343) on :
Thanks for your answers, Mucus. I think you made a lot of interesting points. I guess ultimately I feel that China like the US in 2003-2007 was happy to let this enormous bubble happen. Then they try to scramble and stop the crash from happening. I don't think that's a good thing. Firms were IPOing at an incredible rate to take advantage of the speculation and receiving valuations that were ridiculous. And here in the US, Chinese firms listing don't have to show their books to anybody. It's a super bad idea.
In other news, because the US has decided to stop devaluing its currency, the dollar has strengthened against the Yen and the Euro. The RMB since it is kept within a band of the dollar has risen as well and its hurting the Chinese economy. So the Chinese government decided their in charge of what the RMB is worth.
But at the same time they have agreed to let the end of day market rate from the previous day determine the beginning of next day market rate for the exchange market.
It's a pretty big move, we'll see if it plays out to China's advantage.
Posted by Lyrhawn (Member # 7039) on :
They picked a good time to do it.
The Yuan will fall in value helping their exports, and when the US complains they'll say "but we're letting our currency float on market value, just like you said you wanted!"
At least, that'll be the public line. I'm not conversant enough in the particulars of international currency trading to know the issue backwards and forwards.
#Imnotaneconomist
Posted by Mucus (Member # 9735) on :
quote:Originally posted by JanitorBlade: I guess ultimately I feel that China like the US in 2003-2007 was happy to let this enormous bubble happen. Then they try to scramble and stop the crash from happening. I don't think that's a good thing.
Probably not. Like I said, I would prefer if this kind of market intervention was cut-out across the board. Picking winners and losers and all that. But unfortunately, that's the world we live in.
quote:Firms were IPOing at an incredible rate to take advantage of the speculation and receiving valuations that were ridiculous. And here in the US, Chinese firms listing don't have to show their books to anybody. It's a super bad idea.
While true, this seems to be more of a case of "don't hate the player, hate the game." I think the NYSE(?) knew what it was doing when it accepted, among other things, sub-standard IPOs that were rejected in Hong Kong. And from what I understand, many of these firms ultimately delisted themselves in the US and relisted in China to take advantage of the stock market boom. So meh.
Posted by Mucus (Member # 9735) on :
The CNY devaluation is on a personal level much more exciting. The gradual increase in the CNY over the last few years means it has been getting prohibitively expensive to travel in China and when combined with the CAD dropping in value due to our stupid central bank, it was a double-punch to the wallet.
Here's hoping it continues.
Posted by JanitorBlade (Member # 12343) on :
Death toll hasn't settled down, but is likely at least in the hundreds. No word on whether its terrorism yet.
(Edit to add: Probably not)
[ August 12, 2015, 10:58 PM: Message edited by: Mucus ]
Posted by BlackBlade (Member # 8376) on :
Saw that. What a terrible tragedy. Posted by Wingracer (Member # 12293) on :
I saw that last link earlier and I really wonder how the person taking it survived. I hope they are ok, I mean someone must have uploaded right?
Posted by Mucus (Member # 9735) on :
Possibly live-streaming, but hopefully not and he/she uploaded it themselves.
Posted by BlackBlade (Member # 8376) on :
Mucus: I have the Shang-hai composite index at +5% since the date of my writing, but expecting it to exert downward pressure quite a bit today. It will be interesting to see if Beijing can dig in their heels and keep it level.
Posted by Mucus (Member # 9735) on :
I have it at +6.59% since the 12th. I suspect that Monday will probably prove you "right" (as far as I know, they don't trade on the weekend) though because of the correction everywhere else today.
The prediction would have been "right" already for the S&P 500 (-3%) and Dow Jones (-7%) at least.
quote:The major averages had their biggest trade volume day of the year and posted their worst week in four years.
The Dow Jones industrial average closed at session lows, off nearly 531 points and in correction territory for the first time since 2011 as all blue chips declined. The last time the index closed more than 500 points lower was on Aug. 10, 2011. In the last five years, the index has only had four instances with closing losses of more than 400 points. ... The Nasdaq Composite lost 3.5 percent, also closing in correction territory and joining the other major averages in negative territory for the year.
I wish I could determine how much of the US equity markets move because of news out of China.
Posted by GaalDornick (Member # 8880) on :
Can you guys check your crystal balls and tell me if the US markets are going to bounce back anytime soon or will they keep sliding because this is painful
Posted by Elison R. Salazar (Member # 8565) on :
quote:Originally posted by BlackBlade: I wish I could determine how much of the US equity markets move because of news out of China.
No but you see, the prices are going low! Buy buy buy!
I literally heard that from someone I know who has almost a million$ in stocks, and someone I know who works as a broker for various individuals with at minimum 1.8 million$ in stocks, they see $$$$$ in China's stock market.
Posted by SenojRetep (Member # 8614) on :
Here's a chart showing the Shanghai composite vs. S&P500 over the last five years.
(S&P in blue, SCOMP in orange, with the dashed line approximately where BB made his comment about the Chinese economy being in for trouble)
Personally, that chart makes me think the Chinese stock market was likely experiencing a significant bubble which was popped by the news of a slow down in exports. I imagine (but who knows!) that the S&P's steady growth over the past six years will continue from a slightly lower base, but I think the Chinese stocks will continue to drop until they're more in line with their historical averages.
Or maybe this is the start of the next global recession! Buy gold now!
Posted by BlackBlade (Member # 8376) on :
It may be a fantastic time to buy in a few days, I'm leaning towards we haven't seen the end of this. But, Tesla (And there's definitely irony in that traditional valuations make no sense for this company) was at 205 this morning. If I had cash burning a hole in my pocket, I would pounce.
Posted by Elison R. Salazar (Member # 8565) on :
quote:Originally posted by BlackBlade: I wish I could determine how much of the US equity markets move because of news out of China.
Turns out, a lot.
This is kinda weird, if this keeps up I need to buy a whole lot of not-China. It seems odd that a market slide in a developing world market with plenty of uneducated retail investors and speculative excess is triggering a market slide in a developed world market with a lot more "sophisticated" institutional investors (or hell, not a developed world market, but like *all* of them). But hey, no looking a gift-horse in the mouth.
Posted by SenojRetep (Member # 8614) on :
You're surprised that the world's 2nd biggest economy losing 30% of its market value in a week caused a shock in other world markets? Your surprise surprises me.
Furthermore, investors are also reacting to real economic news out of China, in terms of the yuan revaluation and the slump in Chinese exports. Plus the fact that Chinese central government seems to be thrashing a bit. Even if the bubble had been priced in (which it hadn't; just last month smart people were pointing out that, despite Chinese stocks melting down, the Shanghai composite was still up 9-10% since March) there's enough other bad news to cause a reaction in world markets.
But European and US markets seem to have stabilized for now (the FTSE rose 3.5%, and Dow futures are up 600 points), even though the Chinese market was down another 7.5%.
Posted by GaalDornick (Member # 8880) on :
The futures are trading up, they said.
Today it will recover, they said.
Posted by Mucus (Member # 9735) on :
quote:Originally posted by SenojRetep: You're surprised that the world's 2nd biggest economy losing 30% of its market value in a week caused a shock in other world markets?
In context though, the Chinese stock market lost roughly 43% of its value in July with relatively little reaction in the US.
Now though, I see over-reaction.
For example:
quote:After a day of wild swings, the S&P 500 lost 3.9 percent Monday. That capped a 7 percent two-day retreat, the most since December 2008, sending the index into its first correction since 2011. JPMorgan Chase & Co. today recommended buying at these levels. The Chicago Board Options Exchange Volatility Index slid 12 percent Tuesday to 36.02. The VIX surged as much as 90 percent Monday to touch the highest level since January 2009 before closing at a nearly four-year high.
Might this be China's version of the US 2009 financial crisis? Maybe? But is this a repeat of America's financial crisis *for America* warranting sell-offs and fear in the US as serious as 2008? It seems doubtful.
But again, totally not complaining.
Posted by JanitorBlade (Member # 12343) on :
China says it's going to ease up on shadow lending. The market bounces up 4%. Link.
What a great idea, I'm sure unregulated black markets are exactly what's needed to fix equity markets.
I think the year's GDP figures are going to be pretty terrible. Not close to 7%.
Posted by Mucus (Member # 9735) on :
"Policy rumour"
Posted by JanitorBlade (Member # 12343) on :
I know it's a rumor. But I think at this point the government is going to grow increasingly desperate propping up an inflated market.
Posted by Elison R. Salazar (Member # 8565) on :
I think sooner rather than later the politburo opinion will probably turn against this and turn to other measures.
Posted by Mucus (Member # 9735) on :
I'm not commenting on whether the rumour is true or false.
What I'm saying is that it is misleading to call it "China says ..." when you're actually linking to a article that actually says that "China" (as represented by the China Securities Regulatory Commission) had no official comment.
ex: America says that Barack Obama is getting a divorce. link Posted by King of Men (Member # 6684) on :
quote:Originally posted by GaalDornick: Can you guys check your crystal balls and tell me if the US markets are going to bounce back anytime soon or will they keep sliding because this is painful
Absolutely! From my vantage point almost a month from your post, I can tell you the US markets did not bounce back. You should totally sell all your stocks and put the money in something safe.
Posted by BlackBlade (Member # 8376) on :
quote:Originally posted by Mucus: I'm not commenting on whether the rumour is true or false.
What I'm saying is that it is misleading to call it "China says ..." when you're actually linking to a article that actually says that "China" (as represented by the China Securities Regulatory Commission) had no official comment.
ex: America says that Barack Obama is getting a divorce. link
Fair enough. It's rumor at this point.
Posted by JanitorBlade (Member # 12343) on :
Turns out when China sneezes, everybody else catches a cold.
Posted by JanitorBlade (Member # 12343) on :
Look! An easy to read chart of impending disaster!
"Metals have rallied big time this year, in part because of Chinese traders’ new-found enthusiasm for commodities futures. Turnover of rebar futures in China reached 606 billion yuan last Thursday, greater than the combined 542 billion yuan transaction value of the Shanghai and Shenzhen stock exchanges."
The stock market has tanked, and so people determined to get the quick returns promised in stocks are flooding into the futures market. One problem though,
Sure the price of steel rebar is back to 2003 levels,
But that's because China has flooded the market with iron because it overproduced it by about 100 million tons. This production was following a massive real estate development/industrial growth bubble. When the growth stopped, China kept the metal production going so as to avoid job losses and a disastrous economic impact.
From Bloomberg,
"The recent broad-based rally in commodity futures was the result of two factors, including increasing belief that China will continue to rely on infrastructure and property sectors to support the growth as well as ample liquidity,” OCBC said. The risk of a correction can’t be ruled out, it warned."
You mean all that iron and steel is going to be used for infrastructural development and because people have cash to burn? Uh huh. Tell me more about how booming development was in China last year.
Chinese government numbers are garbage, and we've got more pain coming because they won't stop flooding the market with iron and steel.
Posted by zlogdanbr (Member # 13374) on :
My IT/electronics/C++ perspective:
Sometime ago a friend of mine who owns an audio processing tools small industry asked me what would be necessary to create a usb host circuit /firmware to be used with pendrives attached to one of his amps. I made some research and we end up agreeing that he could not reach the price Chinese ready to use ICs could reach.
I used to work for Ericsson and one European manager came from Germany and told my boss that we should be more committed to work in the same ways Chinese devs were, she even said "why don't you sleep at the office".
I usually buy Chinese developed products and products assembled in China so I cannot complain much, but it is difficult not avoid thinking they are making our jobs as programmers much harder because of the low prices they can supply even for product development as we also continually support the slave work in China by buying cheaper products, but the irony is that I cannot see things reversing in a near future.
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