China's Stock Crash: $3.5 Trillion Wiped Out, $2.6 Trillion Frozen 364
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."
A long time coming... (Score:5, Insightful)
They've been building up this bubble for years, it was only a matter or time.
Re:A long time coming... (Score:5, Interesting)
Oh it's gonna get better, there's a lot and I do mean a lot of bad debt in China. A lot of banks over the last two years have been trying to claim it, and suddenly find there's no assets to seize and in some cases assets have been used upwards of half a dozen times under different names. When it pops it's going to be massive, and exceptionally nasty.
Re:A long time coming... (Score:5, Informative)
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.
Re:A long time coming... (Score:4, Informative)
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.
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Yeah, it'll make junk from Wal-Mart suddenly expensive. I can't say I'm upset about that.
Re:A long time coming... (Score:5, Insightful)
Yeah, it'll make junk from Wal-Mart suddenly expensive. I can't say I'm upset about that.
And there's the guy who doesn't have any idea what happens when the poor and middle class that would be directly impacted in more than one country. Suddenly it costs more for things in the US, Canada, Europe and Asia. Suddenly, everyone but the rich and ultra rich are now struggling, and no longer buying items but rather scraping by after paying for basic necessities. Well tell me what happens when growth in the economy comes to a screeching halt because people aren't buying anything?
Re:A long time coming... (Score:5, Insightful)
The growth has halted because nobody is buying anything because nobody in those countries have jobs any more.
So every time we give corporations tax breaks, and then watch them waltz the jobs offshore, what we're doing is transferring money from the economy to the shareholders.
It's the lie of globalization being good for anything but corporate profits which is killing our economies. Basically it transfers the value of our jobs to the corporations.
Kill a CEO, feed a banker to the bears, and throw the lobbyists to the alligators. They're the ones fucking up the economy.
As long as we stay on this suicidal path of assuming that sucking up to corporations and the wealthy is good for everybody else this will continue.
The biggest lie perpetuated on mankind is modern economics and free trade. It's really just the corporations and the wealthy ripping us all off.
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And people want to raise the minimum wage to $15/hour in places that don't have California's cost of living. Same thing will happen there, costs will rise sharply and mostly on goods and services provided to the lower and middle class.
But those same folks don't see past that poor burger-flipper's immediate paycheck to understand the real consequences of moving market prices on low- and middle-class goods.
Re:A long time coming... (Score:5, Insightful)
Here in Alberta, our newest government is planning the same thing over 3 years (minimum wage increase to $15/hr from the current $10.20/hr)
And yes the cost of some goods will go up.
The thing is, labor cost is only a part of the cost of goods and services. So while the cost of good and services will go up, it will not go up as much as the increase in income.
Basically this narrows the gap between the very poor and the middle / upper class. This is a good thing.
"A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Ghandi
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All costs are directly, or indirectly, based on labor.
Nobody pays the ground for food, or the mines for gold and jewels. Nobody pays the rivers for electricity.
All goods are made of raw materials, and the costs of those goods incorporate the various forms of labor involved in extracting those raw materials, assembling them into useful products, packaging them for distribution, and delivering to the customer. So when labor costs go up, the costs of raw materials and all processes that create the final prod
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You pay a person "rent" for land, that's unrelated to any labor.
Someone originally originally cleared the land, built any structures on it, provided all the supplies for doing so. And before all of that, the government claimed the land, fought wars to defend that claim, and went through the work of subdividing it into states, counties, cities/towns, plats, etc. All of that is labor.
You pay for materials that's related to "value", which may, or may not be based on labor.
Market forces can increase value based on things like supply and demand, but the base costs all go back to labor. When you have enough competition (increased supply), prices go down. But
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Yeah, it'll make junk from Wal-Mart suddenly expensive. I can't say I'm upset about that.
And there's the guy who doesn't have any idea what happens when the poor and middle class that would be directly impacted in more than one country. Suddenly it costs more for things in the US, Canada, Europe and Asia. Suddenly, everyone but the rich and ultra rich are now struggling, and no longer buying items but rather scraping by after paying for basic necessities. Well tell me what happens when growth in the economy comes to a screeching halt because people aren't buying anything?
You're missing the GP's point but not performing a very nuanced analysis of the issue.
Walmart intentionally puts local vendors out of business with its aggressive pricing and huge margins. They are able to do this by sourcing all of their products from China. Effectively, large businesses like Walmart have fostered the globalization that has hurt the poor and middle class people of US, Canada, and Europe though loss of jobs to (lower wage companies) in Asia.
Thus, an increase in the cost of Chinese product
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That only happened because the money never filtered down to the real economy. It's still stashed somewhere in the Fed.
Re:A long time coming... (Score:5, Informative)
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.
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The Fed creates money by purchasing bonds from private investors. If investors immediately used the proceeds to purchase things like food, housing, consumer goods, etc... then that would certainly cause prices to rise sharply. There would be shortages, because the economy w
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The banks may not have collateral, but the country overall has a lot of assets, such as empty apartment buildings, etc., which the gov't could simply nationalize. They are also sitting on at least a thousand tons of gold (nobody knows for sure), which could come in handy at a time like this.
I would call that an up-side.
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You do realize that an apartment building is utterly worthless if you can't get paying tenants for it, don't you?
Re:A long time coming... (Score:5, Insightful)
Gov't "nationalizes" the building and gives away the apartments to peasants...? If you're the gov't, you don't care if some investor loses his shirt, you want useful stuff that you can give to the masses to keep them from overthrowing you.
The Chinese gov't doesn't define "assets" the same way as a Western banker would.
Re:A long time coming... (Score:5, Insightful)
Devaluing their currency would help with exports, that's about it. Well, it will make their imports more expensive which might help their domestic industries. However, the world is already awash with Chinese goods, and the Chinese themselves know better than to rely on domestic suppliers given their "supply" problems, i.e., delivering a good that isn't some cheap knockoff or laced with chemicals you'd rather not come in contact with.
The government has spent the last several years consolidating power and claiming they know how to run a modern kleptocracy. This pokes a hole in their bureaucratic bravado. They have spent a modest amount attempting to prop up the stock market thinking its tanking reflects badly on them. What they fear most is that the Chinese proles might hold them responsible for all the responsibility they claimed while times were good.
If pushed hard enough, they'll create some foreign crisis to re-rally the people to cover the fact the government has no clothes. They'll have been taking notes from Putin's success in showing just how feckless is the West now that the West is all post-modern and above actually defending its principles.
Re:A long time coming... (Score:5, Funny)
Oh come on, the iPhone's not that bad. Yes, it's a cheap knockoff and yes it's laced with toxic chemicals, but it's still a pretty good value for the money.
Re:A long time coming... (Score:5, Interesting)
Posting anonymously for reasons that will be clear in a moment...
I work at a company that manufactures large items made from steel. Many companies in China, and the Chinese government itself, are customers of my employer.
Every contract we receive from China or Chinese companies has a clause that demands our company to certify that our products that will be delivered to China contain no Chinese-made steel.
I find this very interesting, indeed.
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Pretty sure that has to do with trade regulations between the US and China - anti-dumping provisions and the like for US steel companies, and not a reflection on poor Chinese steel (though I do understand shortcuts taken in China regarding steel manufacturing are rampant and frightening)
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If pushed hard enough, they'll create some foreign crisis to re-rally the people to cover the fact the government has no clothes.
Like claiming the South China Sea [wikipedia.org]?
Re:A long time coming... (Score:5, Insightful)
But with a very large middle class that's become very accustomed to a middle class lifestyle... they lack the leeway to take some drastic measures that a technocratic, authoritarian government could do.
Seriously, China isn't the same as Soviet era Russia or the current North Korea - where only the Party elite and faithful have wealth, economic influence, and access to goods. They've been liberalizing their economy over the last quarter century (which is one of main reasons for the increasing dominance of cheap Chinese good on world markets), and a lot of people have made a lot of money in the process.
That's why the government is working so hard to stabilize the market - to keep that segment appeased. They aren't going to be very happy to be reduced to penury.
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It's been a few years since I searched this on the 'net, but now there is an answer: [wikipedia.org]
"May you live in interesting times" is an English expression purported to be a translation of a traditional Chinese curse. Despite being so common in English as to be known as "the Chinese curse", the saying is apocryphal, and no actual Chinese source has ever been produced.
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Oh it's gonna get better, there's a lot and I do mean a lot of bad debt in China. A lot of banks over the last two years have been trying to claim it, and suddenly find there's no assets to seize and in some cases assets have been used upwards of half a dozen times under different names. When it pops it's going to be massive, and exceptionally nasty.
I've been waiting for this for a long time. It is pretty amazing how long the Chinese government has been able to keep this thing going. It will certainly be interesting to watch these bubbles burst. Then there is their 'shadow banking' system which is an unknown quantity. It seems to me that if western governments could sweep a bunch problems under the carpet before they lost control of the situation in 2008, an autoritarian regieme can sweep a whole lot more crud under the carpet and make things way worse
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I think it should be noted that before anyone gets to exited Chinese markets still are higher than even a few years ago. Its pretty hard to call this a crisis. Until the bank runs starts and business actually close their doors its just the evaporation of money for which no wealth ever existed in the first place.
The Chinese market makes the US stock market look down right rational. When you consider the lack of reporting requirements, the level of state involvement in many enterprises, the fact that so mu
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I think it should be noted that before anyone gets to exited Chinese markets still are higher than even a few years ago. Its pretty hard to call this a crisis. Until the bank runs starts and business actually close their doors its just the evaporation of money for which no wealth ever existed in the first place.
The Chinese market makes the US stock market look down right rational. When you consider the lack of reporting requirements, the level of state involvement in many enterprises, the fact that so much of the financial media there is state owed and therefore a propaganda arm; there isn't a value investor in all of China. Investing without information is actually just gambling no matter which side of the Pacific you happen to be on. The thing about China is there are only gamblers because the government made real investing impossible.
I think overall this will prove to be non-story when the dust up settles in another week or so. If anything the big story will be how the Chinese government blinked and interceded to soon and their intervention failed. The economic story will simply be: Market values will return to something that is at least moderately reflective of the real economic situation. The illusion of China's authoritarian system being a run-away success will be shattered. The reality is though that they will still have perfectly respectable growth, they will still be the worlds second largest economy. etc. So rather than 8% it will be the same 2% that western economies are perfectly happy to see.
Every time I see an economy grow by double digit percentages, when there are stock market bubbles a-plenty, they have a massive real estate bubble going on and people tell me this is sustainable in the long and that these people have invented some sort of new brand of 'free lunch' economics run I get skeptical. Especially when these events are happening in environments like the one you just described. What is happening in China is not sustainable and it will end in tears. If people think a suspension in th
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Re:A long time coming... (Score:5, Interesting)
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. If they had chosen people to just move into them by merit, or hell had a lottery, the situation would be better.
Capitalism only works when you have free markets and China is the opposite of that. When you have some businesses which clearly have state sponsorship (notably when their whole business model is lying on customs forms) the game is rigged and it doesn't work.
Here in the USA, the robber barons perverted capitalism for their own ends. In China, whatever kind of barons they have over there are preventing it from developing, for their own ends. Same problem, from different ends.
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The idle cities thing that Frontline reported on was massively overblown, the real estate surplus amounted to less than 7 months of internal migration, and most of the units shown were filled by the time the program aired. China has 500m rural peasants that are migrating to the cities as farms are mechanized. This will not slow down for decades.
Re:A long time coming... (Score:5, Interesting)
Fortunately for China, this is a bubble that formed as the usual speculative excess on top of a building boom. Unlike our own latest market bubbles, the Chinese boom has created enough durable infrastructure - dams, power plants, rail lines, freight terminals, water systems - that the financial effect of this crisis will be muted and temporary. For years now, China has done all the building we have not been able to break ground on. China can build bullet train lines thousands of miles long, while we can't even start a research telescope.
When our current tech bubble pops, the dollar will have been backed up by...social media apps?
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Fortunately for China, this is a bubble that formed as the usual speculative excess on top of a building boom. Unlike our own latest market bubbles, the Chinese boom has created enough durable infrastructure - dams, power plants, rail lines, freight terminals, water systems - that the financial effect of this crisis will be muted and temporary. For years now, China has done all the building we have not been able to break ground on. China can build bullet train lines thousands of miles long, while we can't even start a research telescope.
When our current tech bubble pops, the dollar will have been backed up by...social media apps?
Have you actually taken a close look at the insanity that is China's property bubble? All that construction, much of which is based on questionable logic and planning, has largely served the purpose of creating growth where there would else have been none. They have massively over invested in real estate and industrial facilities because of poor planning and corruption.
Re:A long time coming... (Score:5, Informative)
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.
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Capitalism only works when you have free markets and China is the opposite of that.
But China is not trying to be capitalist. They're trying to fit together free market and socialism, that is a free market with state control of capitals.
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free market with state control of capitals
I think you mean Fascism [wikipedia.org]
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That's the thing about extremes. No matter how opposite they may seem, like a piece of string they bend and end up meeting at the same place, in politics and economics.
Re:A long time coming... (Score:5, Insightful)
The whole "Chinese ghost city" bubble tends to be misunderstood. Sure there are boondoggles in Mongolia but a lot of those ghost cities are basically extensions of boomtowns. And it is tough for people to understand just how big a boomtown in China is; Shenzen is adding almost 300,000 people every year, Tianjin almost 600,000. So the general area of Shenzen needs to build a city the size of Pittsbugh, and Tianjin needs to build a city the size of Boston *every year*. Most of those empty cities were built in anticipation of people relocating from elsewhere and have filled up quickly. And for those that haven't, with building on that massive a scale, if they build residences for an extra 100,000 people in the wrong place here and there it's hardly a sign of foolhardy building that isn't necessary *somewhere*.
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The whole "Chinese ghost city" bubble tends to be misunderstood. Sure there are boondoggles in Mongolia but a lot of those ghost cities are basically extensions of boomtowns. And it is tough for people to understand just how big a boomtown in China is; Shenzen is adding almost 300,000 people every year, Tianjin almost 600,000. So the general area of Shenzen needs to build a city the size of Pittsbugh, and Tianjin needs to build a city the size of Boston *every year*. Most of those empty cities were built in anticipation of people relocating from elsewhere and have filled up quickly. And for those that haven't, with building on that massive a scale, if they build residences for an extra 100,000 people in the wrong place here and there it's hardly a sign of foolhardy building that isn't necessary *somewhere*.
It isn't just about empty houses, China's problem is debt, bad debt. The debt to GDP ratio is 105% and climbing, a healthy GDP to debt ratio in a developed economy is between 50 and 60%. Chinese municipalities have been racking up close to a trillion dollars of debt, loans scured with land parcels at bubble prices. Now, what happens when the realestate bubble bursts/deflates and land prices plummet? Loans backed by overvalued assets, massive writeoffs, insolvent banks.... Ring any bells? Real estate bubbles
Re:A long time coming... (Score:5, Insightful)
Capitalism only works when you have free markets
Free markets don't exist. they need an infinite amount of land, resources, perfect and complete information for all players on this market.
Bullshit! (Score:5, Informative)
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! [time.com] 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... [theatlantic.com]
http://www.vagabondjourney.com... [vagabondjourney.com]
http://tmagazine.blogs.nytimes... [nytimes.com]
China is urbanizing RAPIDLY. [xinhuanet.com] 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... [chinadaily.com.cn]
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
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True for the stock bubble, but their entire economy has been "bubbly" for a lot longer than that (eg: real estate).
China trying to be #1 at a cost. (Score:3, Interesting)
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
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Not sure about years. In the last year, foreign investment was allowed to come into the market, which brought a huge influx of cash.
They've gone up 100% in the last year, and down 30% in the last month.
I'd take that performance most days.
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It's gone up because it was going up--people wanted stocks that had been steadily racking up large gains. Now that it's not going up anymore it's tough to see where the floor might be. That's how a bubble works.
Perspective of the last 4 months (Score:2)
To be fair, the Shanghai Stock Exchange Composite Index [bloomberg.com] 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
Most stock markets ... (Score:5, Insightful)
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.
Re: Most stock markets ... (Score:5, Insightful)
Lately? If you believe this is a new phenomenon I have some tulip bulbs I'd like to sell you.
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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 investor
Re:Most stock markets ... (Score:5, Insightful)
Wow, speaking of delusion and wishful thinking.
Sorry, but I think you're pretty much full of shit. The market has become very separated from intrinsic values.
It's what speculators and morons think the company will be worth in the future. Just look at any company going IPO ... it's massively overvalued, unrelated to any actual valuation ... it's priced on the manic glee of people knowing they'll sell the stock for way more than they paid, get the heck out, and leave some other idiot holding the bag.
So much of the stock market these days is a complete fiction. Some of it is real, yes, but absolutely scary amounts of it are underwritten with bullshit, lies, and false optimism.
And, in many cases, bullshit ratings by companies paid to give bullshit ratings.
The financial meltdown in 2008 was caused by companies selling junk debt which had been carefully packaged to appear as if it actually had value .. which was done with the cooperation of the ratings agencies who basically lied to get their cut.
Wall Street is a fucking Ponzi scheme, not some objective valuation. It's a business run by crooks to take the money from the rubes and move it around, ensuring they can skim off the top each time.
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Wall Street is a fucking Ponzi scheme, not some objective valuation.
Most of the mutual funds work off analytics that are objective (at least the good ones that follow Berkshire Hathaway policies). Individual investors are idiots, but they don't really move the markets.
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The problem isn't identifying an overpriced craze. This isn't hard if you look at it with a clear eye. The problem is figuring out when the bubble will pop. If you try to sell short too early, you'll be swimming against the tide and the market will crush you.
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"Lately"? There's a book I'd like to recommend to your attention: Extraordinary Popular Delusions and the Madness of Crowds, which discusses this phenomenon in excellent detail. It was first published in 1841.
Fear (Score:5, Insightful)
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.
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The government is running now to put measures in place to stop the drop. But what they SHOULD have done was to put measures in place to keep it from shooting up so far so fast in the first place. They have only themselves to blame.
There is also a bubble in the U.S. stock market, BTW, building for some time now. The Dow Jones average closing was at less than 3,000 in 1990. Today it's up too around 18,000 (over a 6x increase in just 25 years). And was artificially propped up even more by the government bailou
Re: Fear (Score:5, Informative)
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.
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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.
The DOW is not a good benchmark for investigating if there is a bubble or not. It is comprised of just 30 companies, [wikipedia.org]mostly huge conglomerates and industry titans. There are also little to no "new" businesses on the list. The tech companies on the list are very mature, and include Apple, Intel, IBM, and Microsoft. As far as companies that are trading at a "fair" price, I would say the 30 companies in the DJIA are priced very fairly because of all the eyes on them.
If there is a bubble, it is almost sur
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Well considering the numbers the GP post quoted were the DJIA composite I think pointing out that their P/E ratio is in line with historical norms despite being up 600% in 25 years is fine in assessing whether there is some huge bubble in that number.
If you want to look at the broader market the NYSE composite index has a P/E of 21.1 which is a bit over the 18-20 range that most risk averse investors would be looking for, potentially pointing to the need for a correction, but again hardly pointing to some h
Endowment Effect (Score:2)
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/... [wikipedia.org]
Margin Requirements (Score:2)
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
Stupid Mongolians! (Score:5, Funny)
They tear down my shitty wall street!
My limited personal experience on the subject (Score:5, Interesting)
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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.
You should have taken her to a casino and used it to explain how markets work, then ask her where she thinks the money to build casinos comes from.
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For instance, if you take a million people and all of their retirement savings you instead play blackjack for 40 years then at the end how many of them would have lost money? Pretty much all of them.
How many 40 year periods has a good mix of income producing assets have a nearly guaranteed failure rate? None.
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Markets don't work like a casino though.
They've got enough in common. In order for there to be winners there have to be losers, and the house always gets a cut.
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This is incorrect. That is only true if the market is a zero sum game, which it is not.
Right, it's a negative-sum game. We ignore externalities until the world ends.
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I don't think Drinkypoo was trolling. Until we account for externalities and essentially build our industries into a self-sustaining loop, we're simply burning through tomorrow. Global consumption continues to grow and as fracking demonstrates, our tools and techniques for plundering the Earth are only getting better.
So yeah, we ignore externalities until the world ends is a pretty accurate summation.
I think the idea of a One World Government is Orwellian and frightening but we do need some sort of global o
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It's possible to predict in advance the outcome of 40 years of blackjack. It's impossible to predict in advance what constitutes 40 years of "a good mix of income producing assets".
Fallout (Score:3)
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Bad, China holds a lot of sovereign US debt. Think Iceland, and you'll get the idea.
I don't follow... (Score:2)
Yes, China owns a lot of the US debt... and???
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Bad, China holds a lot of sovereign US debt. Think Iceland, and you'll get the idea.
And if the Chinese sell those bonds what exactly are they going to do with the stacks of USD they will get paid for them? Ship them back to China in bales and use them for heating?
That's why running a mercantilist strategy in exchange for fiat currency is a pretty stupid thing to do, and why the USA has happily let them indulge. Japan did the same thing and is similarly now trapped with a US bond debt that it can't do anything useful with.
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I like how this questionable factoid gets parroted with not context. First and foremost, China doesn't hold "most" of US sovereign debt. As other people have pointed out it's closer to 10-15%.
Second, what's your point? Even if China owned 100% of issued US bonds, they have no power over the US beyond the terms of said bonds. They can't "call in" the debt, that's not how bonds work. The worst they could do would be to sell the bonds at a significant loss, temporarily flooding the market with US debt and mak
Re: (Score:2, Informative)
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.
Not much fallout for the US (Score:2)
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 Ch
Huh? Fractional Reserve? Wha?? (Score:2)
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.
I guess the Greek Crisis is small potatoes... (Score:3)
China, welcome to the club (Score:3)
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
Chinese stocks not cheap (Score:5, Informative)
As I'm writing this:
Shanghai's average P/E is 17.31.
( Source: http://www.sse.com.cn/market/d... [sse.com.cn] )
Dow Jones Ind Avg P/E is 16.2.
( Source: http://www.wsj.com/mdc/public/... [wsj.com] )
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.
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The more things change... (Score:2)
... 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
valuation vs value (Score:5, Insightful)
No value has been wiped out. What has been wiped out is valuation. There's a big difference.
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It's a bit of an ugly process.
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It's not "faith based hype", it's simply investing. Investing produces bubbles and crashes. Nothing wrong with that.
Well, if you structure your "things" that way and you don't insure against losing that valuation, you'r
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https://www.youtube.com/watch?... [youtube.com]
So... (Score:2)
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What does the ability of private investors investing in private companies have to do with "banking establishments"?
And in what way is this crash "dangerous"? Do large numbers of people get killed or starve?
Re:Unregulated capitalism at work. (Score:5, Insightful)
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I'd like to hear how the BRIC currency is going to wipe out the USD and take over the world.
You don't hear that particular canard anymore.
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Why hasn't this been in the news?
It has been. You have to watch Distractavision News carefully, though.
Coverage is lagging behind Jared, Cosby, and Trump over here in the States.
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I've seen it repeatedly for some days now on CNN, or you no longer consider that news?
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But money changing hands is what an economy is, someone spending millions to many people who spend that...are what makes an economy have volume. If that stops the economy dies.
Now let's switch gears and talk about things with potential present and future ability to "make money" from a single entities point of view. Infrastructure can make money if that investment was wise; real estate moreover can be sold.