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China's Stock Crash: $3.5 Trillion Wiped Out, $2.6 Trillion Frozen
An anonymous reader writes: The stock market crisis going on in China is notable for the huge numbers involved. $3.5 trillion ($3,500,000,000,000) in value has been wiped out by falling prices, and over a thousand companies have forced a pause in trading. The combined value of all of these companies exceeds $2.6 trillion, and it represents about 40% of the total market capitalization. This follows attempts by the exchanges and the government to instill confidence in trading once more, but investors are still wary. The NY Times has a detailed explanation of how the market got into trouble, and why it's not likely to fix itself overnight: "Put all these pieces together, and here's what we have: a rise in Chinese share prices in the last year that seemed to be driven more by investor psychology than by anything fundamental. It is hard to see how the prices as of a month ago were justified, and easy to see why the sell-off of the last month would occur. That, in turn, implies that Chinese officials are fighting an uphill battle in their policy moves to try to stop the correction, and helps explain why their policy actions have had little effect so far."
They've been building up this bubble for years, it was only a matter or time.
XML is like violence. If it doesn't solve your problem, you're not using enough of it. --AC
It was never there. It's all speculation.
Is zhat veird?
Fortunately it could "never" happen in the United States. (Eyes Roll)
Institutional investors abroad are pulling out of China in a big way! China is using government money to prop up the market. Some 30% of the companies have been suspended from trading. A lot of investors were working on margins (crash of 1929). It's not going to be good for China. So much for their dream of using the yuan as the global currency, for some time to come at least.
Lately this seems to be how stock markets work.
It has nothing to do with actual value, just the psychotic glee of investors and speculators who envision doubling their money every six months.
The stock market has become separated from reality, with the people running the giant pyramid scheme feeling entitled to skim off the top with high-frequency trading.
In the long term, the assumptions used in the stock market seem to be irrational, unsustainable, and pretty much impossible. And corporations are often overvalued based on valuations which is more than the company will ever earn in the next few centuries.
Stock markets are going to fuck up our economies more than they seem to be helping. Because they stopped having anything to do with fundamentals and sane valuations a VERY long time ago.
The stock market is a reflection of mass delusion and wishful thinking.
Lost at C:>. Found at C.
Meanwhile the Chinese are switching back to BTC, leading the bull run in that market.
Upward mobility is a slippery slope - the higher you climb the more you show your ass.
It shot up 150% fro mid-2014 and then corrected way down so that now it's only up about 75%.
Up about 75% in a year is doing fucking awesome. It's just that the big drop from the ridiculous 150% valuation will let some people sell fear and hurt the economy a bit in the short term.
Remember the endowment effect--people who made money during the 150% rise are now going to be complaining about how much they've *lost* even though they're still up.
Apparently there is such a think as too much ability to innovate.
They tear down my shitty wall street!
SJW's don't eliminate discrimination. They just expropriate it for themselves.
I was listening to a BBC broadcast about this just this morning, and it seemed as if some economists are comparing this crash to the 1929 stock market crash. They draw a corollary between the government actions taken in response to the crisis, and the representation of small private investors in the market. Currently almost 80% of China's stock market is comprised of small private investors and individuals that make up 15% of China's population, so this crash could have far reaching impact on the people, but the real key here is the banks. If the banks get take under prepare for another recession.
comes real estate
My last two girlfriends were both born and raised in China ladies and neither understood very much about how financial markets work. The most recent was quite a bit interested in the stock market in the USA and China. The first one wasn't interested in the subject. My most recent ex-girlfriend, even though she had lived in America for a few years by the time we started dating, seemed to have this belief that you simply couldn't lose money in the stock market. On some level surely she had to know that losses were possible, but I think she just wrote those off as the exception to the rule. She would ask me questions about the market and it seemed to me that she believed that the stock market was free money for the taking, almost everybody got wildly rich, and the fact that I wasn't making tons of money off it (no thought at all was given to exactly how much I even had to invest) meant that I was stupid, lazy, or both. I can't prove it, but I suspect that a lot of Chinese people are like my most recent ex-girlfriend where they think that they can't possibly lose in the stock market. This kind of thinking explains why so much of the Chinese stock market was done on margin trading. Given the high amount of government control over the economy there I really can't explain how the people running the show believed that repeating the mistakes that led to the US market crash of 1929 would turn out differently. Maybe it's due to Chinese exceptionalism run wild (""We're China, so the rules don't apply to us because we're better than everybody else").
There has to be a fallout for this, anyone know when and how this will effect those who are in the United States?
I mean 300 billion $ (build up over the course of decades) Vs 3.5 trillion $ (in a month) ...
I certainly didn't believe the numbers, myself.
China lies about everything. They manipulate their currency. They cannot be trusted.
You probably should have saved yourself the trouble.
Welcome to the world of virtual assets and speculation. Welcome to the world where everyone an his dog prints some currency, until the state bails them out with (also virtual) printed money.
In the meantime, failed states, the IMF rushing in and killing every semblance of a working economy in the name of "austerity". Arguably, the virulence of the Ebola outbreak is partly due to this: the hospitals lacked taps where to wash hands.
When will this folly stop?
Now it is time for us to return the favor.
Please accept with our compliments the following:
Pointy haried bosses, MBAs, "make the numbers for the next quarter" mentality, "The stock market must be propped up at the expense of tax payers" arguments, "Abysmal interest rates that plays havoc on the retirees depending on interest income is acceptable" policy, "income from the capital must be taxed at a lower rate than income earned by working" justification, "too big to fail, too big to jail" etc etc
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
As I'm writing this:
Shanghai's average P/E is 17.31.
( Source: http://www.sse.com.cn/market/d... )
Dow Jones Ind Avg P/E is 16.2.
( Source: http://www.wsj.com/mdc/public/... )
1. The idea is to buy low and sell high. Prices aren't low yet.
2. A lot of people in China bought at very high valuations and hoped to sell at an even higher level to a "greater fool" to make a profit. This is called greed, and these people are in pain. Especially since so many of them bought on margin.
... The more they stay the same.
I had a former co-worker who, when my company switched over from a defined-benefit to a cash-balance pension actually selected the cash-balance (he had enough tenure to have a choice.) He then immediately retired so he could invest it in an IRA account.
I remember when the .com crash started he was in my office talking to my officemate about how the 'Q's (a reference to the NASDAQ composite... which is a measure designed to capture frothiness; it ain't built like the Dow or S&P) just had to come back up after falling (this is after they had only fallen 10-20%). I remember thinking at the time: They don't have to do 'nuthin. (Fifteen years later, it still isn't back at that level.)
When a stock market triples over the span of not-very-long, for no reason connected to projected growth, revenue, or profit, it should not come as a surprise that things are going to come back down. And they still have a ways to go.
In China's case it doesn't help that the government was actively preaching investing in the stock market... (just like our government pushed home ownership so hard.) Perhaps governments should take this as a lesson that pushing particular asset classes doesn't end well for anybody if you can actually get people to believe you.
The think I have noticed about Chinese culture, is its [strike]competitiveness[/strike] need to win. I have seen it Chinese national students who are willing to cheat, or just get book smart so they can Ace the test, then show nearly 0 knowledge about the topic after it is done. They are more willing to go to competitions to show off. For that culture it is about being better then the others, but not about bettering yourself. This has idea has consequences, because you are not focused on making yourself better, it means you can be #1 by bringing others down too, so there is a net reductions in skill.
While Americans are criticize on the focus of short term profit, the Chinese are much worse at this.
But here is the thing. China's economy is still less then the United States Economy.
China has 10 times the population of the United States, China has the same geographical area as the United States with access to many resources. If China did things right they would be a solid #1 economy past the United States by Far!. But they are not. Because they just don't seem to have any good long term plans.
If something is so important that you feel the need to post it on the internet... It probably isn't that important.
Why hasn't this been in the news?
It's called an endowment effect when rich people benefit and entitlement when poor people benefit?
The endowment effect is a well-known human psychological problem where losing what we already have matters more to us than gaining what we don't have, even if it's the same amount of money. It's why an office gives you a "25% discount" is you pay within 30 days as opposed to a "25% penalty" if you pay on day 31: you prefer taking away their money to their taking away your money, even if it's the same transaction.
https://en.wikipedia.org/wiki/...
The US stock market is by-and-large is held by retirement funds, pension funds, Really Rich People, banks, insurance companies, etc. When the stock market crashes, pensions can't be paid, banks fail, insurance companies collapse, etc., sending repercussions throughout the entire market.
The Chinese stock market is held largely by individuals (and highly leveraged). They are totally taking it in the shorts right now; the only systemic effect will be a reduction in consumption by said individuals, but the Chinese economy as a whole is still not particularly driven by these individuals, which are mostly in China's older middle class. (The poor have nothing, the rich own companies directly, the young middle class weren't spending these funds yet)
Unlike, say, the US housing collapse, there's not much risk to the banks that are extending margin. As long as they aren't afraid to make the Margin Call promptly, they'll be able to recover nearly 100% of the principal without a problem. (Of course the investor will be left with a big, fat, nothing, at best...)
The Chinese economic war on the "Round Eyes" has been crippling the economies of the civilized world.
Yes, China owns a lot of the US debt... and???
That's great when you've invested money you have. There is a high number of investors working on margin.
So saying, "I've made a 75% increase" does no good when you have no money backing it.
I think Jack Nicholson put it best in The Departed, "no tickie no wash!"
Yes, the relaxed margin rules are really at fault here. 3.5 trillion got wiped out in a few weeks and there were about 2 trillion margined invested, up from 400 billion a few years ago. So people who invested more money than they have at a time when the market was priced too high are going to have a really terrible time for a while and it sucks for them, but the Chinese economy as a whole should be fine.
The market started to reduce value as they tightened margin rules. It was the right call but obviously should have been done more gradually.
The biggest harm is going to be to consumer confidence for a while, but they'll get over it depending on the timing of when they have a real estate bubble burst, which may lead to a depression down the road. They could have a few bad years but we're not there yet, and the market will adjust.
Let's note that this was all imaginary money that disappeared. This has been a while in coming, because every Chinese person knows that every company out there has two sets of books, the real books and the buffed-up books for the government. All the way from the corner store to the largest corporations. Hell, I did it with my own company, and my legitimate registered accountant was happy to help. And why not? It's what she did with all her other customers.
A bunch of Chinese companies have been recently de-listed from American stock exchanges for fraud, because that's how the Chinese roll. They just don't know any other way to do business. I blame the overcrowding and zero-sum mentality that ensues. There is a firm cultural belief that in order for you to win, others must lose. There's none of this American "let's make the pie bigger so everyone wins" attitude. I've tried it, it doesn't work, people just think you're an idiot. The stock market is just a big casino because everyone knows that the books are full of shit. I know everyone likes to shit all over America's Wall Street but seriously I'd take them any day over mainland A-shares or B-shares or even anything listed in Hong Kong.
Shutting down free speech with violence isn't fighting fascism. It IS fascism!
To be fair, the Shanghai Stock Exchange Composite Index still shows that the value is on par with March earlier this year, after losing 1/3 of value. How did they gain 1/3 just in 3 months is a bit beyond belief, but looks like the bubble merely corrected itself quickly. Hopefully this crash will also correct the bubble in the US housing market where foreign capital comes in as investors to compete with the local working people who just wanted a home for themselves.
I've been analyzing the housing market in my neighborhood because my old landlord just sold my unit to an investor who asks for the rent increase from $1900 to $2500. I realized that at the price the investors are offering, they can make only 2.5% APY, rarely 3% APY, at market rent, if they put down by cash which is rare. Most investors still need to borrow from the bank at 3.75% APR, so they lose money. In my new landlord's case, the rent increase is the amount he needed in order to make up for the loss. The foreign investors give the impression they bring in cash because they can't get a US mortgage, so they have to get mortgage from their home country. It's not as rosy (or gleam) as people think, depending on your perspective. I've now seen units on the market ripe for under asking.
I once had a signature.
No value has been wiped out. What has been wiped out is valuation. There's a big difference.
How do you say "Banking establishments are more dangerous than standing armies." in Mandarin?
I'm not sure what Fractional Reserve banking has to do with it... Yes, I'm sure that the banks lending the money use fractional-reserve lending, but I don't see what that has to do with anything. A margin loan works the same no matter what the source of the funds is.
And what do you mean "the rest of the margin disappears"? What "rest"? When the loan is called due to the drop, the stocks are force-sold, the principal is paid off, and yes, the investor loses his cash.
This isn't limited to China. North America, Asia and Europe are in the same situation. If I can give one word of of advice it's this SELL.
One thing all stock market crashes have in common is debt. Stock declines force margin calls, which forces selling, leading to more declines, a vicious cycle.
Margin trading for individual investors is a recent development. Previously, individual investors were not allowed to open margin accounts. As this old article explains, China brokerages became nervous of the margin debt at the peak. As soon as brokerages tightened margin requirements, the selloff began. This article from December 2014 goes into a little more detail on the recent history of margin in the China markets.
There is also Shadow debt in the market, off-balance-sheet debt invested in the market, sometimes at a leverage of 3 to 1. Normal margin accounts are much more restrictive, about 9%. This shadow debt has been around for a few years now, but the latest boom is much more recent.
It should be noted that the China market has had huge booms and busts in the past, without the more recent leverage.
Have gnu, will travel.
Why can't people understand the simple concept of stock buying and selling?
No money was lost, no value was lost. That is a lie.
At the time of selling there is a seller and a buyer. None of that money "disappears". The time of selling is the only time a stocks value is known, but the net gain in money for all parties is always zero.
Even in the crash of 1929, not one cent was lost.
So, just who has been seeling short Chinese stocks lately? Koch brothers? Trump? Big banks? Just follow the money!
They literally have whole cities just lying around idle. I mean, Spain's got one, sure, but they have several. The economy never developed sufficiently to employ people in jobs that would permit them to live in developed cities in a capitalist society... so the places rot.
You are quoting gloating "China is fallin - see?" populist Daily Mail-grade articles which have little to no relevance to reality.
I.e. OMG LOOK AT THIS GHOST CITY! Silly Chinese peoples. Don't they know any thing? Their stupid, stupid brains.
Meanwhile, in reality...
It's a case of combined schadenfreude over someone's perceived failure and a situation akin to when a small turnip farmer from Lower Bumfuck comes to a BigCityTM and starts despairing at the sight of a construction yard which will surely fail cause there is no chance that 50-storey building could ever be filled with people.
He could have planted turnips there.
Ordos is actually an entire prefecture. Slightly bigger than South Carolina or Austria (86,752 km2).
Population: ~1.9 million.
Urban population: ~582,544, living in the Dongsheng District.
That region has 16% of all coal reserves in China. And a 2nd highest income-per-capita in China.
It has a textile, petrochemical, car, electricity generating and a building industry - all built on the back of all that coal.
And they are using it to rapidly urbanize the prefecture - pooling all those 1.9 million people in one place.
http://www.theatlantic.com/chi...
http://www.vagabondjourney.com...
http://tmagazine.blogs.nytimes...
China is urbanizing RAPIDLY. At the rate of about 1% per year.
How much is 1% out of 1.35 billion people, yearly? About an entire Los Angeles of people looking for home, food, work, running water, electricity... and generally better living conditions than back in their village.
Year after year after year...
So, China is building entire cities from scratch and half coaxing half forcing people to move there.
Not just dropping apartment buildings or giant towers and sand islands that "someone will surely buy into" either.
Those are planned cities with built-in infrastructure (including all those "empty" parks and highways) to support hundreds of thousands of people with tens of thousands pouring yearly into Ordos alone, on a 20-year urbanization plan.
Many of those people coming in quite literally from the fields.
I asked the men where they had lived before moving to their apartments in Kangbashi. One of them, a 56-year-old man named Li Yonh Xiang, spoke up. "I lived here," he said.
Li had been born and raised just steps from the bench where he was sitting. About half of the 90-acre park had belonged to his family; the government bought the land in 2000. "When we were peasants, we lived according to the weather," Li said. "Now I live in a heated building with six floors. The city is very nice. There are many cars and buildings, but the air is very clean."
By stick and by carrot both.
http://europe.chinadaily.com.c...
China's urbanization program has been forced into motion by a fiscal policy that all but demands local cities expand to remain economically solvent. According to the World Bank, China's cities must fend for 80 percent of their expenses while only receiving 40 percent of the country's tax revenue, so land sales are often used to make up the difference.
Land is bought by cit
Mit der Dummheit kämpfen Götter selbst vergebens
Shouldn't we let the market adjust without intervention? Isn't this what free markets are all about? And what about the wisdom of crowds? What's the big deal?
putting the 'B' in LGBTQ+
AFAIK, real estate agents are not allowed to keep statistics on the race and/or nationality of their purchasers. Thus, we only have anecdotes to go by. Stories of houses with prices like $2,888,888 to attract Asian buyers abound. Stories of Chinese using US real estate to secure their wealth also abound. Some of these buyers may be forced to sell. It's too early to say what kind of an impact it could have. So there's the tech angle and "news for nerds" for anybody who might have been questioning that.
"$3.5 trillion ($3,500,000,000,000) in value has been wiped out by falling prices"
That wasn't real money. Stocks are imaginary. The losses are not real. It's just a game.
A few years back. Make loans to people that have no way to pay it back, package & sell the paper to "investors" and on and on til the chickens come home to roost, then POP! goes the balloon.
The ironic thing about a huge sell-off is that it converts "paper millionaires/billionaires" into actual millionaires/billionaires. So a lot of people got very rich by turning their monopoly money (stocks) into "real" money before anyone else did.
Comment removed based on user account deletion
Ooopsie!
Please do not read this sig. Thank you.
...to the Shark Tank, rook'.
I mean 300 billion $ (build up over the course of decades) Vs 3.5 trillion $ (in a month) ...
The thing about Greece is that if #grexit happens, Spain, Italy and other weak economies with large debt/GDP ratios will be "emboldened" to also exit the Euro.
While greeks are suffering crippling unemployment under the austerity measures approved by their former leadership, the rest of Europe is scared shitless of letting them "off the hook".
As you said, for $300B. The ECB and politicians are essentially incompetent, but are dealing with a very poor situation, the real fix should have been that the investors involved in the Greece debt take some pain, but they were made whole and the EU countries are now on the hook for Greece's debt.
Same ol' recipe for crony capitalism: privatize the gains, socialize the losses. And you wonder why banksters are held in such contempt...
Make sure everyone's vote counts: Verified Voting
n/t
I recall reading a while back a journalist recorded Bobby Kennedy claiming there was a Chinese curse that went "may you live in interesting times" at Johannesburg airport, which he researched and suspected Kennedy had invented.
A google search brings up a speech he gave to students later at the University of Cape Town which is online at http://rfkcenter.org/day-of-af...
The relevant part goes:
There is a Chinese curse which says "May he live in interesting times." Like it or not, we live in interesting times. They are times of danger and uncertainty; but they are also the most creative of any time in the history of mankind. And everyone here will ultimately be judged -- will ultimately judge himself -- on the effort he has contributed to building a new world society and the extent to which his ideals and goals have shaped that effort.
If it works, it's obsolete
According to the wall street journal today the amount that was lost in the past weeks only wiped out the major gains that were made in the last 4 months. While a lot of speculators have been hurt badly, the losses are not overwhelming.
RE: Perfect is the enemy of good.
Aphorisms are the enemy of wisdom.
I'm not sure what Fractional Reserve banking has to do with it...
Nothing. Anyone who says "factional reserve" or "fiat" when discussing money can be safely ignored with no value lost. It's a chance for the loons to pitch their pet theories in situations too complicated for anyone to easily prove them wrong. Though they are still quite clearly wrong.
His argument is that if you loan a coworker $10 to get lunch, and after he buys the lunch, if he drops it in the road and it's run over and destroyed, then your $10 will never be paid back, and the shop he got the $10 meal from has the $10 magically disappear from within their register. If that's not reality, then the ACs complaints are just the insane ravings of an AC with a pet theory to push, regardless of reality.
Learn to love Alaska
This is a 4-5 month fluctuation (fluck you, Asian!)
Assets are only "wiped out" for those who buy high and sell low.
China's markets use the same or similar algorithms and fundamentals that the US and Europe use. They are just as susceptible to irrational exuberance. Many Chinese are relatively new to investing and, like most animals, are given to panic and herd mentality in the face of worrisome data.
It's a good thing that relatively low quality articles like this are published. It's a nice exposure of the "we're all the same, we're all equal" mythology, and the follow-on theories of equalization that derive from it. We're obviously not born the same, then parenting, then education, then /.
“The best way to help the poor is not to become one of them.”
Shaming success will never equalize the population, and neither will promoting the weak.
China created wealth. Bur failed to divide it rationally among its citizens.