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SHANGHAI STOCK MARKET DROPS 30% IN THREE WEEKS! [Copy link] 中文

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Post time 2015-7-5 12:20:07 |Display all floors
This post was edited by abramicus at 2015-7-5 15:49



Another victim of the overvalued Yuan, causing a contraction of the real estate and manufacturing sectors, squeezing investors into the stock market, who have leveraged their bets with bank and brokerage margin loans, in order to get rich quick.  Many did, but many also did not make it.  There was a huge transfer of wealth from the losers to the winners.  But was any real wealth created by the stock market?  Doubtful if it did, since wealth is created by manufacturing, and manufacturing is declining throughout the stock market rally.  Now the ranks of the poor is increased by a significant number, who used to be middle class or well-to-do.  The social impact is beginning to be felt from the IMF prescription to overvalue the Yuan . . . a huge impact to be sure.



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Post time 2015-7-5 14:24:42 |Display all floors


true to form, .the government has blamed foreign selling.








I've made my living, Mr. Thompson, in large part as a gambler. Some days I make twenty bets, some days I make none. There are weeks, sometimes months, in fact, when I don't make any bet at all because ...

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Post time 2015-7-6 00:37:27 |Display all floors
This post was edited by abramicus at 2015-7-6 01:45
Revolutionar Post time: 2015-7-5 14:24
true to form, .the government has blamed foreign selling.

There is nothing in the news saying China is blaming foreigners for the stock market rout.  It would be interesting if there is.  So far, news reports suggest they were looking into market manipulation.  But the real cause is more like that of a tsunami, long in coming, where the rising middle and upper class find no investment showing any price movement, except the stock market, and have piled into it, hoping for a quick return.  Even that was too slow, so they bought on margin, thus magnifying the capital inflow into the stock market by several multiples.  

Good if that were creating real wealth.  Bad if that were only to create the impression of creating a lot of wealth but does not create any net wealth for the country.  Allowing the public to invest in a giant Ponzi Scheme is not the fault of the stock regulatory commission, because the companies themselves are sound companies.  The cause of the wave of liquidity hitting the stock market is the PBOC and its higher up backers way to the top, who insist on following the IMF demand to overvalue the Yuan to the point that the manufacturing sector is in full retreat, and the circulation of money inside China has hit a bottleneck, and is causing a traffic jam of sorts, pouring out into the stock market instead of into imports of raw materials that would otherwise have been used to earn more export dollars and euros, but which are now swelling up the stock market.  But the poor market cannot perform if the companies it underwrites cannot make a profit manufacturing what they have always manufactured, due to the overpricing of their products in dollars abroad and in yuans at home.

Therefore, the stock market bubble is the result of the OVERVALUATION OF THE YUAN, and those responsible for this must step down.

By stepping down, the government reassures the public that it is accountable, and will regain their trust, which is more important than any amount of money it could pump into the already overstretched and now ruptured stock bubble.  The hole in the stock bubble is the hole of distrust . . . that the earnings of these otherwise fine companies could merit the prices they are selling for . . . and this is not due to panic, but a ripening realization by the intelligent public that the stock market cannot give them all, what it cannot produce and sell in the real market.

The next step is to do QUANTITATIVE EASING, and throws not only 19 billion dollars worth of money into the stock market, but whatever it takes to keep the prices from falling further, rather than to achieve any higher value of 4,000 that is widely promoted in the press.  There should be no limit as to how much is poured into the market, but only to hold the line, not to help anyone recoup his losses, which will come in due time when the market stabilizes as buyers will later on come in.  In this, China should not further "liberalize" the capital accounts to allow foreigners to buy up these Chinese stocks on the cheap and claim having "made money" with a capital account "surplus" because that would be simply selling the country to foreigners, and would make this wound on the Chinese economy twice as bad and last for decades until the foreign capital can be bought out by Chinese capital, which means, at much higher prices than today's.  The PBOC has the money that it can print instantly to immediately buy up all the sell orders at current prices, it needs no one else, and has no obligation to buy at any higher prices than the closing price of Friday, July 3, 2015.

The next step is to revive the companies that are near death due to the overvaluation of the Yuan by devaluing the Yuan to 6.50 Yuan/Dollar later in the week, after the market has stabilized due to China's QE.  Forget about the IMF carrot of being able to become a 6% part of its 4% share of the reserve currencies of the world, totaling a maximum of 0.24% of the worldwide currency reserves, which is a joke.  Even without the IMF, China's Renminbi already has 2.7% share of the reserve currencies of the world, ten times larger than the 0.24% maximum achievable under the IMF SDR program.

Accountability by resignation, responsibility by guaranteeing the prices of the stock market will not fall further because of unlimited QE by the PBOC, and rectification of the cause by letting the Yuan drift down to 6.50 Yuan/Dollar by simply not letting the PBOC keep buying Yuans with its dollar reserves, money that it could have poured into the stock market instead, and calling the bluff of the IMF-SDR reserve currency promise, is the path out of this mess.  None other.



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Post time 2015-7-6 02:36:31 |Display all floors
This post was edited by abramicus at 2015-7-6 02:38

Reports indicate that the CSRC since July 1, 2015, has allowed brokerages to set their own rules for demanding more collateral from clients when the value of their stocks fall below their original purchase prices, which prior to that date had required a forced liquidation of stocks if their collateral dropped below 130% of their market value.  Margin loans are now allowed to be extended beyond their original six-month limit.  Investors with less than 500,000 Yuans in assets were previously not allowed to buy on margin, but now they are allowed.

These are no longer standard Western prescriptions.  They are Chinese answers to plugging the hole in the dyke.  They lack perspective, not because they are Chinese, but because they are fighting a losing economic war in their enemy's chosen battlefield.  And they are in a rout.  They are shifting the losses to the lenders, the banks and the brokerages, leaving the stock bubble at least half inflated.  In time, they will have banks and brokerages filing for bankruptcy as the margined accounts get liquidated for less than what was borrowed from them.  Even now, the losses could be hard to shoulder.  The wiser course is to not let the brokerages fail, which will add to the lack of liquidity of the market, forcing prices to drop even more.  The wiser course is for the PBOC to directly buy all the assets listed in the bourses at their closing prices as of July 3, with the promise that if the investors can hold on to their shares, it will buy them at a 15% premium to current prices in one year, effectively setting the interest rate for margin accounts at 15% per year.  This will prevent those who have not yet sold from selling.  It will not make up for the losses of those who have sold their stocks.  The stock holder will have to prove that it owns the shares as of the close of July 3, 2015, as purchases beyond this date will not benefit from this free PUT OPTION.  This PUT OPTION is free only to those who already own the stocks as of the end of July 3rd.  

With this large infusion of fiat money into the market, the next threat is that of inflation.  Again, the solution is to devalue the Yuan exchange rate such that exports will pay for this, as otherwise, the people will end up holding the bag, and inflation is the harbinger of social unrest.  And the Yuan exchange rate must be lowered before the money starts to circulate in the consumer market driving up the consumer price index.  This is where Western reliance on equations hides the answers to China's problems.  Variables in economics are not always commutative.  If China first devalues the Yuan, then it would not have to raise interest rates which will cause even more contraction of manufacturing, which when combined with the excess liquidity injected into the stock market, would cause inflation to get worse, not better.  Like the butterfly effect, initial conditions are paramount to the solution especially in a self-similar system as economics.  The first step is to let the Yuan drift down to 6.50 Yuan/Dollar, before anything else is done that would prevent it from happening.  Miss this chance, and you may never be able to do it again until the economy is in total shambles.

CHINA IS VERY FORTUNATE THAT THE STOCK MARKET CRASH OCCURRED BEFORE OPENING UP ITS CAPITAL MARKETS TO FOREIGN INVESTMENTS, BUT STARTING IN NOVEMBER, THROUGH THE SHANGHAI-HONGKONG STOCK CONNECT, FOREIGNERS HAVE BEEN ABLE TO BUY CHINESE A-SHARES DIRECTLY WITHOUT PRIOR APPROVAL.  THIS "COINCIDENCE" WITH THE RISE IN THE STOCK MARKET PRICES OF CHINA NEEDS TO BE CLOSELY STUDIED.  IT COULD STILL BE DUE TO CHINESE INVESTORS GOING TO HONG KONG TO BUY A-SHARES WHICH WERE PRICED LOWER THAN IN SHANGHAI ITSELF.  BUT IMAGINE IF FOREIGN SPECULATORS WERE ABLE TO BUY INTO CHINA'S STOCK MARKET AT A LOW PRICE, AND THEN IN CAHOOTS WITH THE BROKERAGES AND REGULATOR AGENCIES, ALLOW THE GULLIBLE PUBLIC TO BUY SHARES ON MARGIN, BEFORE THEY SELL THEIR SHARES AT THE TOP, LEAVING THE PUBLIC WITH LOSSES.  IF THAT WERE TO HAPPEN, CHINA WOULD BE FINISHED.

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Post time 2015-7-6 06:21:19 |Display all floors
HELLO, IS ANYBODY HOME?

In the USA, if China truly wants to emulate the US system, by now, someone at the top would have already stepped forward to take responsibility for the decline of the economy, starting with its declining GDP growth rate, declining exports and declining foreign currency reserves, now topped with falling stock prices.  That is transparency and accountability.  Merely secretly following the dictates of the IMF is neither.  It will only worsen the economic quagmire that China is placed into, because the cause, the overvaluation of the Yuan to the point that its golden goose, the manufacturing sector, cannot sell its products because they are overpriced in dollars abroad and in yuans at home, remains intact, at work at undermining the Chinese economy, day and night, even as the politicians pretend to seek remedies for the many problems it spawns, and will continue to spawn in ever more extreme degrees.

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Post time 2015-7-6 10:18:06 |Display all floors
Revolutionar Post time: 2015-7-5 14:24
true to form, .the government has blamed foreign selling.

It's a stock market prices go up and down its normal

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Post time 2015-7-6 10:19:37 |Display all floors
The only government guarantee stock market in the world

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