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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
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.
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.
They tear down my shitty wall street!
SJW's don't eliminate discrimination. They just expropriate it for themselves.
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").
What you are seeing is the market correcting itself. Prices are returning to what they should be. The problem is not the crash, the problem is the high prices that exist right before the crash.
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.
No value has been wiped out. What has been wiped out is valuation. There's a big difference.
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