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Commentary on The Capital Markets- Category [Market Musings]

China is crashing (again); the Shanghai is off another 4+%.

That's about a 30% decline, more or less.... and it appears it's not slowing down either.

Naw, it won't come over here; this is a totally-isolated incident......

Ah, there's the fireworks!



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Now granted, he had been shot and then run over a few times with a truck, and isn't looking so good.

But if you shove a stick up, well, you know where you can replace his busted-up spine for a bit and the idiots in the "markets" will respond to him holding the sign...... for a while.

The problem with this is two-fold:

  • Greece is a tiny component of GDP.  There was never an actual financial risk out of Greece; rather, had Tsipras (incidentally, anyone care to take a wager on the half-life of his government at this point?) held his cards and been backed by his people there was a crack at breaking the strangulation of the banksters over in Europe.  It appears that, as has been the case in the past, someone's going to have to do something unlawful and violent for that to happen -- and that is now very unlikely until math makes conditions intolerable to the point of literal privation, at which point it will become simply a matter of grabbing the pitchfork -- or chainsaw -- in an attempt to fill an empty belly.

  • China is not, on the other hand, a "tiny" component of GDP.  Not only is the margin debt problem there severe, not only is the P/E there off-the-charts, but people are now borrowing in the "peer-to-peer" (read: scam) and unregulated market to continue to play!  Further, technically the market there is broken; last night was confirmatory on the slope of the decline, showing that the so-called "bounce" in the early hours was just a snapback from a trend-break.  Oh, and speaking of which recently I pointed out that the trend break was something you would get no warning on until you had lost 20% of your investment (which, if you're geared up, and the P2P folks over there are allowing gearing as high as 10:1 you're in big trouble!)

As for the US market we have the same sort of problem, but unlike the Chinese market (which exhibited a classic 3-wave parabolic blow-off pattern) we have only seen two such moves.  But this is extremely dangerous for the investor as the trend from the 2009 low, confirmed in late 2010 and then again with two challenges in 2012 (neither of which was actually hit but price got within a breath of it) is not known to be valid or whether it will violate until price hits 1800 as of today.

That's kind of ugly, being a roughly 15% decline from the recent top, and more than 10% from here.

We are, in the present tense, in a rather dangerous place right now from a chart perspective, and the Chinese market blow-up is something to definitely pay attention to.  In early 2007 you got a warning; indeed, that was one of the markers that led me to start looking very closely at the macro-level health of economies and markets world-wide.  It provided you roughly six months of warning before things started to get dicey here in the US, and more than a year before it all went to hell.

History almost never repeats in the markets, but it usually rhymes and right now I hear an odd resonance coming from the general direction of the east....

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The Chinese market is in an all-on crash.

Last night the Shanghai index was down 8%, and while there have been some wild recovery rallies during the last couple of weeks as well the cumulative loss is close to 20% at this point, the formal "declaration" of a bear market.

That market had been in a parabolic blow-off since roughly December, a classic (to a chartist) three-stage parabolic move with two retracements.  The most-recent move down, however, threatens to violate the uptrend support originated back in November and has already erased the gains since May.

Yes, a 2-month round-trip of about 20%.

"Liquidity" is usually given as the reason for the "reasonableness" of stock valuations these days.  I have only one question: What happens when said "liquidity" is really nothing more than a loan (which it always is) and the borrowed funds are lost instead or producing "gains"?


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