Slashdot Mirror
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."
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.
On the up-side, the gov't has been pouring tons of money into infrastructure (partly fueling the bubble), and they still control their own currency. So they have some room to maneuver. And with a technocratic, authoritarian gov't, they have some leeway to take drastic measure that would be difficult if not impossible in a democracy. It will be interesting* to see how this plays out in the coming days and weeks.
* BTW, about that Chinese curse "May you live in interesting times," after decades in Asia, I have yet to find a native speaker who can tell me the original Chinese. So it seems this curse is apocryphal, most likely invented by a Westerner as a joke.
XML is like violence. If it doesn't solve your problem, you're not using enough of it. --AC
There's no upside in that. The only solution is them to turn on the printing press when the banks run out of money because of non-existent collateral and they try to claim it. That in turn is going to cause an entirely separate problem.
Om, nomnomnom...
The DOW Industrials are at a P/E of 16.2, historical averages since the 1880's is 16.6, there's no huge bubble or crash coming unless it's an international contagion from Greece or China that halts world economic progress.
There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order. Starting now.
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.
Sorry, that's false. The stock market (rather accurately) reflects the earnings and intrinsic values of the underlying companies (at least in the US). Values are a little bit frothy right now as we're 6 years into a bull market, but well within historical norms. The Shiller price:earnings ratio is around 25 right now, with the historical average being around 16-18 depending on your timescale.
http://www.multpl.com/shiller-pe/
Sure, there are plenty of people making money off the stock market and investors do dumb things, but the fundamentals of the stock market haven't changed.
The most interesting factoid in the links is:
The Chinese stock market has dropped 26% in a month and The Chinese stock market is up 83% over the last year. Both are factually accurate.
Happiness in intelligent people is the rarest thing I know.
Ernest Hemingway
What Iceland has to do with the reality of the situation being China having a stock market bubble and some US bonds on hand beyond transparent FUD, nobody knows.
7% is what it took to collapse the Iceland markets and pop their bubble when they had mixed currency debt. Now China holds 8% which is significant, now let's say China decides to devalue existing bonds in order to make up their short fall. What happens when you have a sudden 8% devaluation just like Iceland on mixed currency debt.
Om, nomnomnom...
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
Quantitative easing didn't work the same way that literally printing money does, something that many who don't have a solid grasp of economics don't understand. QE has kept the money circulating within a very limited span, and was used in part to purchase weak loan assets from banks. While those banks held them, they created significant risk and could impact the minimum holdings required by law. The Fed doesn't have the same kind of problem, and by purchasing the assets (which, collectively, are profitable) it could strengthen the banks and increase its own profit levels. Those profits are then largely sent to the federal government.
QE was also used to purchase a lot of Treasury bonds, but that's much more an accounting maneuver. When the Fed purchases the bonds from the Treasury, it holds them until maturity. When they mature, they're cashed in and the Treasury pays out to the Fed, which becomes part of the Fed's profits, the lion's share of which are turned over to the federal government. However, that part is closer to printing money because it increases the amount of money available to the federal government to spend in the more general economy.
This has turned into an important revenue stream for the federal government. In 2014, the Fed sent $97 billion of its $101 billion in profits to the Treasury. That number may continue to climb for a couple of years, but will decline over time as assets draw down; of the $4.5 trillion in assets held by the Fed, some $800 billion of that is in Treasury bonds that mature by the end of 2016. Other bonds will continue to mature, and loans will be paid off. The money created by the Fed will enter circulation eventually, but it will do so over time, and not in the same way as literally printing the money would have.
You can never go home again... but I guess you can shop there.