Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Government Shutdown Ends – Markets Ignore Looming Debt and Bond Market Threat - 23rd Jan 18
Stock Risks to Watch: Choose Your Bear Market Dashboard - 23rd Jan 18
Worse than Watergate - Release the Memo - Investigate Uranium One - 23rd Jan 18
CAT Stock Bouncing after JPM Upgrade How High and How Long Can This CAT Jump? - 23rd Jan 18
Why Banks Will Be Slammed In The Next Crisis—And That May Be Good News - 23rd Jan 18
Medicare Premiums Are A Shared Pool - Coming Changes That Will Transform Retirement - 23rd Jan 18
Charged Atmosphere of Heavy Police and Security Presence at Sheffield Street Tree Felling Protests - 23rd Jan 18
Pension Crisis And Deficit of £2.6 Billion At Carillion To Impact UK - 22nd Jan 18
Two Factors for Gold That You Don’t Want to Miss - 22nd Jan 18
Why You Must Own Silver in 2018 - 22nd Jan 18
This Could Be The Hottest Mining Stock Of 2018 - 22nd Jan 18
Stock Index Trend Trade Setups for the SP500 & NASDAQ - 22nd Jan 18
Stock Market Deceleration / Distribution - 22nd Jan 18
US Markets vs Govt Shutdown: Stock Markets at all time highs - 22nd Jan 18
Land Rover Discovery Sport - 1 Month Driving Test Review - 22nd Jan 18
Why should you use high-quality YouTube to mp3 converter? - 22nd Jan 18
Silver As Strategic Metal: Why Its Price Will Soar - 21st Jan 18
Stocks, Gold and Interest Rates Three Amigos Ride On - 21st Jan 18
Why Sometimes, "Beating the S&P 500" Isn't Good Enough - 21st Jan 18
Bunnies and Geckos of Sheffield Street Tree Fellings Protests Explained - 21st Jan 18
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

China’s Slow-Motion Stock Market Sleight Of Hand Shatters

Stock-Markets / Chinese Stock Market Jan 04, 2016 - 04:02 PM GMT

By: Raul_I_Meijer

Stock-Markets

The Chinese stock markets broke through 2 circuit breakers today, breakers that were introduced only a few months ago in response to the market selloff, triggered by a surprise yuan devaluation, in August. The first breaker, at -5%, forced a 15-minute trading halt. The second one, at -7%, halted trading for the rest of the day.

For many people, today’s bust can’t have been a huge surprise, because it’s been known for some time that a ban on stock sales by parties holding a 5% or larger stake in a company, is set to expire on Friday. Beijing may panic again before that date, but it can’t force stakeholders to hold on to large portfolios forever either.


Xi and his crew should have stayed out of the markets from the start, but that’s not how they see the world. They still think like apparatchicks, and don’t understand that markets are opposed, at a 180º angle, to top down control. You can either have a market, or you can have central control.

They pumped up the housing market for all they could, and when that bubble blew they tricked their people into buying stocks. And now that one’s fixing to die too, and that didn’t take nearly as long as the housing bubble. The central control team is frantically looking for the next carnival attraction, but it won’t be easy.

They should have stayed out of all markets. Just like western central banks. All interference by governments and central banks can only make things worse, a fact at best temporarily hidden by the distortions they force upon markets.

And we shouldn’t forget that expectations for China as the world’s economic savior determined western central bank ‘thinking’ to a large extent over the past decade. Like so many others, central bankers too are incapable of spotting a Ponzi when it’s staring them in the face.

Now the Chinese bubble is bursting, and set to spill over into and over the global economy with dire consequences, we are all exposed to that much more than was ever necessary. All the PBoC, Yellen, Kuroda and Draghi managed to accomplish was a dran-out illusion, a slow-motion sleight of hand.

Here’s something I was writing over the weekend, prior to today’s market action:

China underlies all problems the world faces economically today. Since at least 2008, the global economy has been a one-dimensional one-way street, in which all hope was focused on China. Western companies and stock traders were so confident that China would lift the entire planet out of its recessionary doldrums, they leveraged themselves up the wazoo to bet on a China-based recovery. It was the only game in town, and it was merrily facilitated by central banks.

The People’s Bank of China threw some $25 trillion at the illusion, the Fed, ECB and BoJ combined for probably as much again. One way of looking at it is that if you weren’t sure on how bad the recession really was, now you know the numbers.

But today China is close to entering its own recession, whether Beijing will admit it or not. The official GDP growth goal of 6.5% looks downright silly when you see this graph that Charlene Chu sent to BI:


CEIC and the National Bureau of Statistics; Charlene Chu, Autonomous Research

From the article:

Secondary industry comprises about 40-45% of GDP. [..] In China, GDP is classified into three industries, primary (agriculture), secondary (manufacturing and construction), and tertiary (services). [..]

This slowdown in the secondary industry is part of China’s intentional shift toward an economy focused on services and consumer consumption rather than manufacturing.

The first line there is educative, the second is nonsense. Manufacturing in China is plunging because ‘we’ don’t buy their overcapacity and overproduction any longer. And neither do the Chinese themselves. Primary industry, agriculture, may grow a little bit, but certainly not much.

Tertiary industry, services, may also grow a bit, but Beijing can’t just flip a switch and get people to buy services on a scale that can make up for the decline in manufacturing. Neither can it retrain tens of millions of workers for jobs in that illusive services sector, let alone on short notice.

This decline will take years for the Chinese economy to absorb, since so much of it is based on overleveraged overcapacity and overproduction. The spectre of massive job losses hangs over the entire ‘adjustment’ process, both in China itself and in countries that -used to- supply it with commodities. Mass unemployment in China in turn raises the spectre of severe social unrest.

As I said in 2016 Is An Easy Year To Predict, China has got to be the biggest story going forward (rather than oil, for instance), and it would have been already, to a much larger extent than it has, if there were less denial involved. And less debt.

Like the west, China will have to deleverage its enormous debt burden before it can even start thinking of rebuilding its economy. Which is precisely what they all seek to deny, loudly and boisterously, not only as if a recovery were feasible without dealing with the debt, but even as if more debt could mean more recovery.

This debt deleveraging will involve such stupendous amounts of -largely virtual- money that the situation, the bottom, from which rebuilding will need to take place will be one at which today’s societies will be hardly recognizable anymore.

Debt deleveraging comes with deflation. Spending will plummet, unemployment will shoot up, production will grind to a halt. Power will shift from established political and economic parties to others.

Obviously, this will not be a smooth transition. The clarions of war sound in the distance already. What is crucial to realize is that none of it can be prevented, other than perhaps the warfare; the economic parts of the play must must be staged. All we can do is to make it as bearable as possible.

The people on the streets, as always, will bear the brunt of the downfall. We only need to look at Greece today to get a pretty good idea of how these things play out.

It won’t be all straight down from here, but the trend will be crystal clear. It didn’t start all of a sudden today, but China’s double circuit breaker is a useful sign, if not an outright red flag. One thing’s for sure: we’ll make the history books.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)© 2015 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Raul Ilargi Meijer Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules