by ilene - July 27th, 2015 1:13 pm
Courtesy of John Rubino.
The whole “market economy” thing is turning out to be a little trickier than China’s dictators expected. To set up the story: After the 2008 crash the country borrowed about $15 trillion (an amount that dwarfs the US Fed’s quantitative easing programs) and spent the proceeds on history’s biggest infrastructure program.
This pushed up the prices of iron ore, oil, copper, etc., igniting a global commodities boom. Then China liberalized its stock trading rules, setting off a stampede into local equities that doubled prices in less than a year. The result is a classically unbalanced economy, with massive physical malinvestment, overpriced financial assets and way too much debt. The inevitable crash began in June.
Beijing responded by tossing about 10% of GDP into equities to stop the bleeding. This worked, as such interventions tend to do, for a while. But last night it failed:
(Reuters) – Chinese shares slid more than 8 percent on Monday as an unprecedented government rescue plan to prop up valuations ran out of steam, throwing Beijing’s efforts to stave off a deeper crash into doubt.
Major indexes suffered their largest one-day drop since 2007, shattering three weeks of relative calm in China’s volatile stock markets since Beijing unleashed a barrage of support measures to arrest a slump that started in mid-June.
“The lesson from China’s last equity bubble is that, once sentiment has soured, policy interventions aimed at shoring up prices have only a short-lived effect,” wrote Capital Economics analysts in a research note reacting to the slide.
The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen tumbled 8.6 percent to 3,818.73 points, while the Shanghai Composite Index .SSEC lost 8.5 percent to 3,725.56 points.
China’s market gyrations have stoked fears among global investors about the broader health of the world’s second biggest economy, hitting prices of growth-sensitive commodities such as copper, which fell on Monday to not far from a 6-year low.
While the prices of commodities and equities have been bouncing around, China’s currency, the yuan, has been eerily stable in US dollars, because the government pegs the former to the latter.
by ilene - July 27th, 2015 11:51 am
Maybe the Chinese should just close their stock market until valuations catch up to prices. Lock in those gains! I mean really lock in.
Courtesy of ZeroHedge
After pledging a whopping 10% of China's GDP, or just about $1 trillion, to its various (at last check over 40) discrete measures to prop up its collapsing market, among which such threats as arresting shorters of stock and "malicious sellers", actions which have merely slowed down the bursting of the world's biggest stock bubble in recent years, China has finally reverted to what the communist regime does best to preserve "order" – implement witch hunts in which the population rats out any criminals who dare to go against the protocols of the communist party. In this case, the targets are "malicious sellers" with the regulator adding that those found guilty of shorting will be "dealt with severely."
This is what appeared moments ago on the website of the Chinese stock market regulator, the CSRC – an interactive online box allowing "traders" to rat out anyone who sells… maliciously (as opposed to non-maliciously).
Online Reporting Notes
Note: This website is in trial operation stage, the event can not normally access, please understand!
According to "securities and futures law violations Report Interim Regulations", the Center received reports meets the following conditions:
- to report the matter belongs to China Securities Regulatory Commission and the various supervisory duties range;
- provided by an informer's name (name), identity and other information;
- to provide violate securities and futures laws and administrative regulations of specific facts, clues or evidence.
The same illegal behavior securities and futures are reporting has been accepted or processed, no new facts or clues of informants to report when no longer be accepted.
- to encourage real name, real name informants should provide my real name (name) when making a report, document number and valid identity information telephone number.
- Respond limited real name reporting centers and Zhengjianju accepted.
- please fill out the form to report each item. Fill out
by ilene - July 27th, 2015 9:17 am
Courtesy of Pam Martens.
Despite unprecedented efforts by the Chinese government to stem the rout in the Chinese stock market that had shaved as much as $4 trillion from share prices before the government’s interventions this month and last, the Shanghai Composite closed down 8.48 percent today at 3,725.558.
The overnight rout has raised speculation in some quarters as to whether we are going to see another “glitch” on the New York Stock Exchange today similar to that of July 8 in the midst of another Chinese stock market tumble. As we reported at the time:
“Yesterday, beginning at 11:32 a.m. and for the next three hours and forty minutes, the iconic New York Stock Exchange shuttered trading in all of its listed securities. The Exchange said it had experienced an internal glitch.
“Unknown to most Americans, some of those shuttered stocks on the New York Stock Exchange were Chinese stocks and among the largest capitalized companies in the world. More than 100 Chinese companies trade on U.S. stock exchanges as American Depository Receipts (ADRs) and almost 200 Chinese company ADRs trade over-the-counter in the U.S. (Individual shares are referred to as ADS, American Depository Shares.) Last year, Thomson Reuters estimated the market value of Chinese companies listed on just the New York Stock Exchange and Nasdaq Stock Market at more than $1.4 trillion.
“With the Chinese stock market rupturing over the past week and trading in more than a thousand stocks suspended in China, the spillover has hit the U.S. market hard.
by ilene - July 27th, 2015 4:23 am
Bloomberg video: Herald Van Der Linde, head of equity strategy at HSBC, discusses Chinese equities and the Shanghai Composite's 8.5% smackdown. Other Asian and European markets are down in sympathy. (Source: Bloomberg)
Courtesy of Mish.
The crash in Chinese stocks continued today following a respite last week.
Shares on the Shanghai index plunged 8.48%, the Biggest One-Day Plunge Since February 2007.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 8.6 percent, to 3,818.73, while the Shanghai Composite Index SSEC lost 8.5 percent, to 3,725.56 points.
The drops were the biggest since Feb. 27, 2007.
It wasn't immediately clear what caused such a sharp tumble in the afternoon session. At midday, the two indexes were down about 2.5 percent.
"The recent rebound had been swift and strong, so there's need for a technical correction," said Yang Hai, strategist at Kaiiyuan Securities.
It should be immediately clear stocks are in a bubble, so there is no need to search for a "reason" for the plunge.
If anything, one might wonder why the stocks rose to such absurd valuations in the first place.
$SSEC Shanghai Index
Stock rose from about 2300 in November to 5178 in June. That was an advance of 125% or so in about seven months. Today's decline is shown by the second blue arrow.
Since the plunge in June, China stepped in to directly buy stocks, prohibit short selling, halted trading on half the companies, and prohibited large shareholders from selling any shares for six months.
Expectation of such moral-hazard maneuvers coupled with cheap money is exactly what fuels bubble activity in the first place.
Amusingly, margin buying is still at or near record levels.
Mike "Mish" Shedlock
by ilene - July 27th, 2015 3:06 am
Courtesy of The Automatic Earth.
There’s always a great irony in anyone at all coming under pressure for doing exactly what they should be doing. Still, it happens a lot. The irony gets that much greater when the party in question is a government, and a much maligned one at that.
Of course Syriza had to look into options, possibilities, eventualities if ever the moment might come that Greece had to (were forced to) move beyond the euro. They would have been entirely in fault, and entirely remiss, if not outright criminally negligent, if they had never looked into this.
And of course this had to be done in secret. There is no other way. The proof is in the pudding: just look at the reactions to Varoufakis’ explanation to a group of investors of how he went about Tsipras’ pre-election-victory green light for exploring ‘beyond euro’ scenarios.
Just imagine what political opponents and international media would have made of it all had they known back in December. There are simply far too many ill-informed and/or sensationalist and/or political-gains-hungry voices out there to not do these things in secret.
These are the very same voices that now seek to use that very same secrecy to try and lay blame on Tsipras and Varoufakis. In a world where openness and honesty have been put out by the curb with so many other human and moral values, this is inevitable. But that cannot mean the research should never have been done.
Tsipras could not possibly have avoided -and remember this took place at least a month before his election victory, which was by no means assured- having the research done. And he could not possibly have avoided having it done in secret.
So what do all these people want now? Varoufakis implies he’s prepared for treason charges. That would be rich. It would mean treason charges for Tsipras too. And for anyone in Brussels or Berlin who’s ever had any ideas about Greece moving beyond the euro. Try Schäuble.
Record Eurozone Borrowing: Public Debt Rises With Recovery; Greece a Small Sideshow Compared to Italy
by ilene - July 26th, 2015 7:55 pm
Courtesy of Mish.
The eurozone is supposedly in a state of recovery. However, in spite of that recovery, public debt and debt-to GGP levels are still rising. Austerity is difficult to find in any realistic sense.
Please consider Eurozone Borrowing Rises to Record as Recovery Remains Weak.
The European Central Bank’s programme of quantitative easing has pushed down interest rates to ultra low levels, encouraging governments to borrow more in the early part of this year, despite turmoil in Greece.
Across countries that use the euro, average debt to gross domestic product reached 92.9 per cent in the first quarter of 2015, up from 92 per cent in the previous quarter and 91.9 per cent in the same period last year, according to figures from Eurostat, the EU’s statistical agency.
Greece remains the EU’s most indebted nation, with debt equal to 169 per cent of annual GDP, but Italy, Belgium, Cyprus and Portugal also carry government debt that exceeds 100 per cent of economic output.
The rise in debt comes despite a pickup in the pace of recovery in the eurozone, with the region’s economy expanding 0.4 per cent in the first quarter of this year — while the US saw a contraction.
Targets vs. Reality
The “Growth and Stability” pact on which the Eurozone was founded limits debt to 60% of GDP and deficits at no more than 3%.
Average Debt-to-GDP is 92.9% and rising.
Eurostat Data shows Ireland, Greece, Spain, France, Cyprus, Portugal, Belgium, Slovenia, and Finland all exceeded 3% budget deficit requirement in 2014.
France and Spain have been given warnings and extensions on numerous occasions.
By any realistic measure, Greece is just a sideshow for what is to come.
by ilene - July 26th, 2015 6:54 pm
At least short term, you may be better off learning how to mine Twitter data for sentiment signals than learning how to value a company.
And note, currently people are paying higher than usual prices for growth stocks. As all cycles come to an end, studying Twitter may warn us of the turning away from stocks such as Zillow to something as boring as, say, gold.
Courtesy of Marc to Market
The European Central Bank has been particularly busy. It is engaged in an asset buying program. Despite a European Court of Justice ruling highlighting the conflict of interest between its bank supervisory function and role as creditor, the ECB is still part of the
Troika official creditors and participated in the marathon negotiating sessions over Greece.
by ilene - July 26th, 2015 4:44 pm
It has been one month since Greek capital controls were imposed, and as we explained earlier, Greece is nowhere closer to having its deposit limits lifted. In fact, with several more months of capital controls at least, the Greek banks are likely to suffer ongoing balance sheet impairments which will ultimately result in depositor bail-ins, with Germany already pushing for haircuts on deposits over €100,000.
However, when it comes to banks there is at least still the illusion that Greece has some residual sovereignty. The reality is that it does not, as Greece is no longer an independent nation, and as of July 15, the Greek "In Dependence" day, every Greek decision needs to get pre-approval from both the ECB, Brussels and, naturally, Berlin.
This was made very clear earlier today when Reuters reported that the Greek stock exchange will remain closed on Monday but might reopen on Tuesday after a one-month shutdown which started on June 29. "It's certain that it will not open on Monday, maybe on Tuesday," a spokesperson for the Athens Stock Exchange told Reuters on condition of anonymity.
A spokesman for the Athens Stock Exchange said on Friday a proposal to reopen the bourse had been submitted to the European Central Bank for an opinion before a decision on the matter is made by the Greek finance ministry.
Another person with direct knowledge of the matter confirmed that Greek authorities aimed to reopen the bourse on Tuesday.
However, to understand what really happened, one should read the Bloomberg explanation, according to which it was the ECB which rejected proposals by Greek authorities to reopen country’s financial markets with no restrictions in place for both Greek and foreign traders, citing an Athens Exchange spokeswoman.
Ministerial decree is now expected, setting some restrictions in use of money from Greek bank accounts for trading.
And just like that, we wave goodbye to the Hellenic Republic, and greet the Mediterranean Vassal Province of Mario and Merkel. Because as of this moment, no Greek decision can be taken without the direct or indirect express prior approval of either the ECB and/or Berlin.
by ilene - July 26th, 2015 3:35 pm
The myopia displayed by corporate America in terms of inflating short-term earnings at the expense of balance sheet leverage and long-term growth is now so pervasive that it’s become a major campaign issue for Hillary Clinton who recently unveiled a plan to forcibly break what she’s calling the "tyranny of the next earnings report." (For more on possible ulterior motives for Clinton’s decision to effectively tax shortsightedness, see here. Note: I read that article and didn't see the ulterior motive angle. ~ Ilene).
Zero Hedge readers are well aware of how ZIRP has served as a convenient excuse for price insensitive corporate management teams to borrow and plow the proceeds into EPS-inflating, equity-linked compensation-boosting buybacks.
This comes at a price. Capex (i.e. future productivity) and wage growth suffer even as investors are rewarded and executives are enriched.
Of course buying back shares can obscure negative earnings trends but it can’t do anything to hide the fact that revenue growth is non existent and indeed, as FactSet reports, "the blended revenue decline for Q2 2015 is -4.0%. If this is the final revenue decline for the quarter, it will mark the first time the index has seen two consecutive quarters of year-over-year revenue declines since Q2 2009 and Q3 2009. It will also mark the largest year over-year decline in revenue since Q3 2009 (-11.5%)."
Here with more on what certainly looks like a 'revenue recession’ and on the excessive price investors are willing to pay for top-line growth, is Barclays.
* * *
Paying for revenue growth
Growth is not easy to find.
In the U.S., the economy has failed to accelerate, with GDP growth stubbornly below 2.5%. It is worse in Europe and even China has slowed. Stagnant global economic growth, a strong USD, and lower oil prices have combined to cause revenue growth for the S&P 500 to fall. The first quarter of 2015 was the first quarter of negative sales growth for the S&P 500 since the financial crisis. 2Q15 is expected to be worse (Figure 2).
by ilene - July 26th, 2015 3:27 pm
Courtesy of Mish.
I had the pleasure of being on CNBC last Friday with Rick Santelli. It was the third time we discussed the sorry state of Chicago and Illinois finances. The focus for this interview was legacy issues.
Public Debt, Taxation, Legacy Costs
Who wants to move to Illinois, with its high taxes, when the vast majority of those taxes are just to support legacy issues like pensions?
Chicago mayor Rahm Emanuel recently mentioned hiking Chicago’s already obscene property tax structure. Moreover, Emanuel who claims to want to make Chicago a technology hub, just imposed a 9% data streaming tax, effectively nickel and diming businesses and residents alike when pension issues for Chicago alone are close to $30 billion.
At the state level, “progressives” in the Illinois legislature have their eyes on your pocketbook as well. They seek to hike Illinois income taxes.
It is impossible to say everything that needs to said in a 3 minute time window, but that is all the studio allows. So we focus on one key item, and the central theme this time was taxation solely to support legacy issues.
What Needs to Be Done
To spare the citizens of Illinois massive tax hikes, the only reasonable course of actions are as follows:
- Halt defined benefit pension plans for new employees
- Eliminate collective bargaining of public unions
- Scrap Davis Bacon and all prevailing wage laws so that cities do not have to overpay for services
- Enact right-to-work legislation
- Pass bankruptcy legislation allowing cities, municipalities, and other taxing bodies the right to declare bankruptcy
Had options 1-4 been done a decade ago, Illinois would not be as bad off as it is today. Now, even those measures cannot and will not fix the problems.