Shanghai Composite Falls Below 3000
Submitted by
CalculatedRisk on Wed, 06/11/2008 - 10:40pm (74 comments)
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And a Chinese slowdown might lead to lower oil prices
Just like our slowdown might. What good is lower oil if the economy sucks???
I find it hard to root for cheaper energy because everyone will just go back to taking it for granted. Maybe if gas held between $4 and $5 a while it could force change without too much drama?
p.s.: Check out what's happening in Spain!
A global recession in 2009 is pretty much guaranteed.
My crystal ball tells the price of oil will look like this chart. Can't make out the numbers on the y-axis, tho. x-axis a little cloudy, too.
Where will all the speculative cash go?
Tora Tora Tora writes:
Where will all the speculative cash go?
Into commodities, secular bull going on there.
Summer of last year as the credit crisis unfolded, almost all the "experts" expected the slowing economy to bring down the commodity prices.
Inflation is always and every where a monetary phenomenon.
Some interesting point about inflation :-
Chinese inflation falls as food prices ease
FT.com / Asia-Pacific - Chinese inflation falls as food prices ease
Oh what to do. Sold my SKF today (for the second ride up - weeee). It just won't be the same checking into CR several times a day without the short stake to consider.
Oil Shock writes:
Inflation is always and every where a monetary phenomenon.
You'll have inflation under control if they stop trying to 'stimulate' the economy.
On another note, here's something interesting about LEH :-
Lehman Could Be In Hot Water
Lehman Could Be In Hot Water - Forbes.com
With its $4.0 billion common stock offering due to close Thursday, Lehman Brothers was battered by rumors of problems with the deal, and came under heavy selling pressure late Wednesday.
Shares of Lehman (nyse: LEH - news - people ) closed down $3.75, or 13.6%, to $23.75, 15.2% below the $28.00 at which it priced the offering.
The losses accelerated into the close on what TradeTheNews.com called "vague chatter" that the capital raising plan had run into trouble. (See: "Lehman's Bear Necessity")
The report said speculation suggests funds could renege on the deal before Thursday's closing.
So the Chinese market has had some corrections? It is still the place to be given the growth prospects and the certainty of a gradual revalutation of the yuan.
Stocks dive on massive sell-off
The current valuation of Chinese stocks is reasonable, said Zhang Xiuqi, an analyst with Guotai Jun'an Securities. After yesterday's fall, the average price/earnings ratio of A-share companies is 20 times, half of that at the beginning of the year.
Despite market insiders' worries that hot money from Vietnam may flow back into China triggering a financial crisis, some economists and experts said the impact of the Vietnamese financial crisis on China would be limited.
Liang Hong, an economist with Goldman Sachs China, said: "China's strong fiscal and balance of payments positions should minimize the impact."
West-East chicken game.
Real grand chess board ala Brzezinski.
I love the Poles.
Real grand chess board ala Brzezinski.
Too bad ZB can't really make public appearances because he's considered anti-Semitic in some circles. Guess saying that displacing millions of inhabitants could lead to resentment isn't a popular observation. Strangely, he has one son that's an FP adviser to Obama and another that advises McCain.
Don't know what happened, maybe it was the fall of the Soviet Union, or maybe it was American hubris, but we don't quite the understand the geopolitical game. Or maybe GWB didn't.
Kissinger & Russia , I wonder could he negotiate another ceasefire like in 1973. With Lê đức Thọ he got a Nobel.
It's a silent oil war now already.
Next Friday is quadruple witching. I know we should all expect greater than normal volatility, but is anyone aware of any reserach that has been done that concludes on whether that market usually movers up more often or down more often before / during / after quadruple witching?
China bank reserves now up to 17.5%?
Bad for bank earnings.
China oil companies pay market prices for crude oil, but can't raise the price of gasoline?
Oil company losses, not profits.
China totally mucks up and reconfigures the mobile telecom market for 3G in the past two weeks, making all the companies losers?
Bad for China telecom earnings.
China Independent Power Companies can't raise electricity prices even though coal prices have doubled?
Chalk up losses here as well.
Chinese property developers leveraged up the whazoo with large land banks that have dropped in value and caps / restrictions on developing the land with no new bank loans?
Uh oh, some of these guys are going bust.
And people wonder why the Chinese stock market is down?
When you buy Chinese stocks today, you're making a bet on Chinese Government policy, not on how well the management of a company can effectively run their business.
HK_Vol writes:
When you buy Chinese stocks today, you're making a bet on Chinese Government policy, not on how well the management of a company can effectively run their business.
I think you are spot on. And may i add it also applies to any other stock market in any where else.
Government policy ultimately controls the markets.
My complaint:
I know it supposedly tracks the "Xinhua China 25" index, but FXP seems to have only a general relation to the Shanghai Composite.
Shanghai at new yearly lows and this instrument still 40% off its highs?
I don't get it. Either this is a badly constructed index or there is a monstrous amount of tracking error.
I had read a piece on Stratfor a couple of years ago indicating that bad loans by China's state banks might amount to 50% of GDP. I have no idea how accurate this characterization might be or what might have happened in the meantime.
We might actually see the slowdown start before the Olympics. Louis-Vincent Gave has written of how, when the Chinese hosted the International Women's Day conference in 1995, they shut down many of the factories around Beijing to reduce the air pollution and thus present a better picture to foreign visitors. He feels it is likely the same thing will happen on a much larger scale for the Olympics. And the Olympics have a number of different sites (including Shanghai). Have Chinese factories been running all out (and sucking up a huge supply of diesel fuel) to build up inventories in preparation for this clean air producing slow down? Gave thinks so.
CR, you haven't reported on the ABX's in a while. Last I checked many were at an all time low. How about a post?
"North Korea demands aid guarantee for disarmament"
in other news...
"IBSs ask the fed reserve to keep the frekin window open to avoid systemic risk"
Hang on to your UltraShorts. It looks like one of them gap up rallies today.
One reason for the quick fall is one reason for the quick rise: many companies were investing in the stock market. Rising stock prices aided profits, which helped fuel further stock gains. Of course, leverage works just as well on the way down. Now many companies are disappointing profit-wise.
I heard a recent story on NPR that the unemployment rate among new college graduates in China is over 20%! So, despite the sizzling economy, China still cannot employ all their best and brightest.
Go read the latest bill bonner piece. Time to short the human race...
Bounce on the BUD
Here come the bounce
Don't buy this hooch
U get screwed like a pooch
Bounce on the BUD
If you look at the Dow in 1929, the Nikkei in 1989 or the Nasdaq in 2000, bubble market busts usually result in a 70-80% peak to trough decline, depending on how serious the ensuing recession/depression is. On that basis, Shanghai could easily still fall to the 1500 level. I'd be a buyer there though. Maybe even start averaging in at 2000.
USD is strengthening, look for a rally in the markets today.
Retail sales through the roof. Looks like J6P is going to spend his stimulus check with a vengence. If cpi tomorrow is bad, the fixed income market will price in a hike from the Fed in August. The market is ignoring the spike back up in claims.
Retail sales up 1%? So what, did they extract inflation from that?
No?
O.k. Move on, there's nothing to see here.
JObless rate is also up, but the markets don't care.. come to a point it's just numbers.
Look for huge rally as commodities are down, especially oil.
and keep in mind, corn is over 7$ a bushel...that's a little more eye-popping then retail sales...
Actually, the pure inflation component of this report is only 0.2%. This is J6P spending every last penny. Clearly there's no need to worry about J6P doing something un-American with their stimulus checks, like say saving them.
and here's an OT thought:
Why would China's earthquake slow China's economy? Disasters are counter-intuitively stimulating to economies...think of all the commodities that will need to be gobbled up just to rebuild...may offset any Olympic effect (factories being temporarily shutdown...)...
CFO and COO are out at Lehman. Heads are rolling
Anonymous writes:
CFO and COO are out at Lehman. Heads are rolling
Will the 28buck placement go through?.. maybe the rally today may be muted after all.
After the comments about Zbig I'm thinking where is Richard Nixon when we need him the most? (disclosure: ZB was my professor at Columbia)
Minh... you went to so much trouble with this name "Lê đức Thọ" but still it's not quite right, no?
So top two out at LEH, but the 4 Billion dollar share offering is going to close today at $28 a share when the stock is looking to be around $20-22 a share today? Who in their right mind is buying this stock at a 30% premium? IS there anyone with even half a brain that thinks LEH has 30% upside potential in the next 2-3 years? Moe good money after bad. At least it will be some chump foreign country that gets the needle on this deal until LEH fails.
si se puede!
Cmon guys the collective will of all the bulls need to think positive and hold up this market. Forget high inflation and falling household asset values.
Its not just Lehman brothers with a 28 dollars a share offering. It was also Wachovia at 25 dollars and WM at 8-9 dollars. I finally understand when people say "more money more problems".
Quite a dramatic disconnect between the consumer sentiment data and the retail sales data. Perhaps someone with some expertise in behavioral economics can explain this to me? To what extent has shopping become not just a means to obtain goods, but also an end in itself?
CFO is going to rejoin another division, Investment banking??
The plot thickens!
So will the stock hold up? see-sawing now.
Futures way up on retail. When the LEH deal breaks down this afternoon, will the market hold up? We shall see...
Sonic Seuss,
Inflation is being underreported and retail sales do not factor in real inflation that people are experiencing. If the government was reporting real core infaltion which is north of 4% the retail sales would be much lower if not negative.
Watch out for a short squeeze on Lehman before all the 28 dollar share investors try to bail out. Bag holder overboard!
Morgan Stanley upgraded the Financial Sector this morning.
LOL!
Lehman is trading just about $22.00.
How's that oversubscribed offering now?
How much of those sales were gasoline sales? Also, anyone believe the inflation of .2% is an complete idiot.
Well Apr & May retail sales are running at about 14% annualized, so even with 5% inflation, it's a pretty whopping number. Behaviorally, it means the Americans clearly sense a perfect storm brewing, but they're going to borrow and spend until they drown anyway. Also, all incentives to act prudently or be a saver have been purged from the system.
Lehman may take out its March 17 low of 20.25 this morning.
Citi to buy Lehman for $3/share?
LEH CFO Callan has been dismissed.
should we be priming the pump for Morgan and Merrill?
Gasoline sales added 0.2% to the retail sales number, which is what I was refering to as the pure inflation component earlier. CPI is out tomorrow, which will give you the monthly inflation component, which I don't expect to be pretty.
I swear I just saw the Oxyclean guy selling Health insurance on CNBC. I am losing faith in America.
If you look at the Dow monthly chart and draw a trendline from the 1990 lows, through the 2002/2003 lows, and through the recent 2008 lows, you will notice that the close yesterday was right on that nifty trendline.
Will the PPT dare let the Dow close below that trendline? Hmmm... If it does, then head for the bunkers because it would look like the fireworks will have started.
anya are you sure that trend line is at yesterdays close and not lower. 1325-1328?
Re: Retail sales.
When the public sees through the smoke and realizes that an inflationary spiral is taking place, the common impulse is to hoard. Wally World can't keep canned goods in stock. Saw it all in the 70's.
Markets will be up today, nothing to see here.
Did you notice oil was way down?
LEH color: Yesterday, the action was in the options market where 250,000 puts (notional of nearly 1Billion USD) traded. The July 40-17.5 put spreads traded on 1million shares and that set off the frenzy. After that, April 45, 40, 35, 30, and 20 puts traded to the tune of 2million shares each. CDS widened and vols / skew screamed higher. The market for July variance was 110-130. that means the market is predicting the stock moves an avg of 7.6% (or roughly 3 bucks) everyday for the next 3 months...sounds messy
from march...
this was JUICY!
It's all those evil short sellers and manipulators!
Nowadays you can't sell a thing that's bad nor buy a thing that's good, without being called something or another.
2181
goes to Strategist Abhijit Chakrabortti , MS
Yes We Can,
Look at the Dow, not the S&P 500.
BB,
Maybe I am stating the obvious, but it looks like the market needs some help just about. Statistical volatility (as measured by the width of Bollinger Bands) is rising and prices have gained momentum to the down side. So the market could very well close up today due to what some would consider an oversold condition and due to some ... help.
former sell-side trader on an options desk, so "not an economist" take this two cents for what you will, but i would ignore "quadruple witching."
on expiration, maybe some stocks pin because of huge open interest around certain strikes, but to infer general market moves, or even, god forbid, to make trades because some "research" tells you stocks always move one way or the other, just because of expiration, is, well, a good way to lose money.
if you want to gamble, go to Vegas. seriously. much more fun.
Can anyone recommend a good Chinese economics website or blog to read so that I can keep up with what's happening in China? (something like a Chinese version of calculated risk)Thanks!
re chinese economics, i think this is a terrific blog:
http://piaohaoreport.sampasite.com/china-financial-markets/
badger boy writes:
I heard a recent story on NPR that the unemployment rate among new college graduates in China is over 20%! So, despite the sizzling economy, China still cannot employ all their best and brightest.
Go read the latest bill bonner piece. Time to short the human race...
badger boy | 06.12.08 - 8:19 am | #
That has been going on for YEARS. No news there... check this out:
Job Fair 2005
Page two - looking down on the mass of people - is the clincher. And these are engineers & other techs mostly - some biz folks too. The gov't hiring is done separately I understand - a different even larger venue.
And that was at just one large interior industrial city - not even the coastal hotspots around Guangdong or Shanghai.
Sobering.
And folks wonder why the 'ChiComms' don't just 'let the yuan float'? Like somehow everyone's kid can just go get a job at Aeropostale or Orange Julius and live at home... if they can't immediately get a 'real job' upon graduation... like say back in New Jersey. Imagine the home those folks fall back to? Imagine the the parents angst & shame?
And our mfg, finance, IT sectors are fighting hammer and tong w/ these folks for global market share?
And people wonder why I'm insanely obsessed with productivity & innovation and currency manipulation? I have friends over and back there a gazillion times - the pictures don't even begin to tell the whole story.
It's obvious that the stimulus checks are driving retails sales and further fanning the flames of inflation. When the checks run out, watch out. After things get worse, there will probably be another desperate stimulus attempt.
And I agree about LEH, I'm really curious how this offering will go.
For the record - I see little connection between Shanghai Composite Index and economic activity in China... neither as a leading nor lagging indicator... from what I've been told by Chinese nationals the 'markets' there are just extensions of the gaming tables in Macao. Making a prediction on economic trends in China from this 'indicator' is like predicting US activity from winnings & losings at the crap tables in Vegas.
"And people wonder why I'm insanely obsessed with productivity & innovation and currency manipulation?"
amen.
HK_Vol and other on China oil.
Elaine Kurtenbach of AP writes occasionally on the subsidies to SinoPec and PetroChina, to offset "refining operating losses" resulting from price caps on refined product. From her article in March 08 I expect that the current year "offset" will be much greater than the RMB 12.5Bn of last year.
The Chinese are investing some of that "trade surplus" in propping up the big tent.
No the Chinese economy will not slow down much. Their stock markets are still new and don't provide an accurate picture of the underlying economic activity (They are exciting to watch - like watching a crap shoot). China's economic activities will more likely rise due to the Sichuan earthquake as the rebuilding proceeds. Both Chendu and Chonquing were hubs of building activity before the earthquake, and the rebuilding will just feed the frenzy. I bet a dollar that we will not see the type of paralysis and delay in Sichuan as we saw in Louisiana after Katrina.
Nixon went to China in 72 ?
Well and now what ?
China was and is always "street smart".
But they're still a central planning economy. Sadly the US is looking more and more like China especially during and after 911.
Smart money now went to Germany to buy houses.
Bush was slow, and paid the price.
I'm probably stupid. But why do I see a pattern.
Tech Bubble => Housing Bubble ==> Chinese Stock Bubble ==> Commodities Bubble?
Gives me this sense that there is this huge amount of 'money' out there playing a game of musical chairs. More that we've managed to hide a huge amount of inflationary money 'creation' in various markets where they tend not to hurt the general economy.
The last though, the commodities markets are different from the rest. If prices go up or down on google stock, the African dirt farmer could give a hoot. Prices go up on rice, fertilizer, and diesel; he starves to death.
ChefViser:
Your point is taken.
But it does argue my larger point. Profits at Sinopec will be whatever the Chinese Government deems appropriate in terms of "rebates" or whatever. Hardly a reflection of the company, its management, or its prospects.
As a shareholder, you will earn (or lose) whatever amount the govt. determines is "correct."
Insurance company earnings are getting hammered as well, as much of their assets were invested in A shares. So it is a bit of a cascading effect for them.