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2015 Correction "OMG China!"

So we had “OMG Ebola!”, “OMG Greece!”, and now we have “OMG China!”. 
 
But really, what is this global selloff actually about
 
It appears investors are connecting dots that don’t actually connect. CN thinks about long-term goals, not day to day noise. They are allowing the RMB to float because that’s what the IMF said needs to happen for them to reach their reserve currency goal. The CN stock market has nothing to do with the economy, so we can’t say the selloff is connected to the economic outlook. The IMF said they should not intervene in the stock market, so they did not, be careful what you ask for! Oil is down mostly because of increased oil production. 
 
Yet it seems the dummies have falsely connected these dots and are thinking “OMG China is slowing down, that’s why they devalued the RMB, that’s why the Shanghai Composite is down, and that’s why oil and commodities are down”. So everyone sells, and then the Chinese sell too, and then everyone sells some more!
 
But does that story really make sense? Sure CN GDP growth is slowing to 7.0%, Bloomberg economists estimate 6.6%. How is this news? How is this gradual slowdown a big deal? It’s still growing a lot! CN is fine with it, it’s the “new normal” in their words. We don’t have a lot of data yet, but an awful lot of sell buttons being pushed over a few data points that don’t necessarily connect. 
 
So what’s it all about? What will it all look like in hindsight?

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glad i bought those ASHR last month

"You want a quote? Haven’t I written enough already???"

RIP

HA! “OMG Ebola” was my favorite…… that one was strait silly.

I see 4 different catalyst for the same cause.  We are going to continue to have “OMG_____whatever” until there is a legitamate adjustment that is not followed by a complete recovery because we realise the catalysts was bull**** but forget the real cause is still an issue.   

..........I learned the hard way last year what exploding delta feels like when you are short and naked

People just wanted to sell. No one cares about China. Everyone was waiting for an excuse and that was it. This is a healthy correction and not the end of the world IMO.

bromion wrote:

People just wanted to sell. No one cares about China. Everyone was waiting for an excuse and that was it. This is a healthy correction and not the end of the world IMO.

I disagree.  I think China the key domino in a larger EM crisis.  With a monetary asset bubble like we have, the only way to have a sustained drop is for money to be taken out of the system.  In 2008, balance sheet holes were plugged with money pulled out of markets as paper money evaporated from the system and you could see a similar thing if a larger demand slowdown were to open up credit holes in the emerging markets.

#FreeCVM #FreeTurd #2007-2017

bromion wrote:

People just wanted to sell. No one cares about China. Everyone was waiting for an excuse and that was it. 

Agree the China narrative doesn’t really make sense. But everyone sold off, even places that did not have valuation issues, and the trigger was China. So I don’t think we should forget the lesson here – this is how global economics work going forward, what CN does matters, a lot.

It seems like a number of drivers and difficult to nail down at this point which carry the most weight; 1) central banks propping up markets led to unrealistic asset prices, 2) leverage and ETF traders panic sell but lack the liquidity of QE in the US and no PBOC support in CN, 3) oil oversupply, 4) RMB is an anchor in Asia and any tweak causes everyone else to adjust, 5) some slowdown in the GDP growth in CN, 6) feedback loop where selling in Asia drives more selling in the West.

More selling in CN this morning, although as I’m writing this we are actually seeing some stocks turn green, that’s new! JP, HK and KR pulling it together, so perhaps we find a bottom today.

igor555 wrote:

glad i bought those ASHR last month

China is all catastrophic losses and astronomical gains, don’t let them freak you out. I bought a bunch of A-shares at crazy good value, but am sitting in a sea of red! Big picture, getting in anywhere at these lows – ten years from now the CSI300 returns will have massively outperformed the S&P500.

When you’re a big enough part of the system, your risk becomes systemic risk practically by definition. 

You want a quote?  Haven’t I written enough already???

LOL, I’ve been thinking this same thing the last couple days…

“A month ago, such measures and others to calm the panic in Chinese equity markets triggered a wave of hysteria outside of China, that China was intervening in the equity market,” said Kenneth Courtis, former Asia vice chairman at Goldman Sachs Group Inc. and now chairman of Starfort Holdings. “In the last few days, the very same critics of China were screaming for the Chinese government to intervene in the equity market. Two weights, two measures.”

http://bloomberg.com/news/articles/2015-08-25/china-lowers-interest-...

purealpha wrote:

igor555 wrote:

glad i bought those ASHR last month

China is all catastrophic losses and astronomical gains, don’t let them freak you out. I bought a bunch of A-shares at crazy good value, but am sitting in a sea of red! Big picture, getting in anywhere at these lows – ten years from now the CSI300 returns will have massively outperformed the S&P500.

hmm. the guy who says buying at 3000 is an amazing value was the guy who said buying at 4500 two months ago was an amazing value. clearly you now agree with everyone on this forum. my target is still 2000 for the SSE. at 2000, i may agree with your statement “ten years from now the CSI300 returns will have massively outperformed the S&P500”.

Matt Likes Analysis wrote:

hmm. the guy who says buying at 3000 is an amazing value was the guy who said buying at 4500 two months ago was an amazing value.

I bought Dec 2014 @ 3000, and sold 2015 @ 4500 kiddo, time stamped here on AF. Where were you? Missing out.

Yes, 3000 is a good buy (13.3X PE on CSI-300, 8.9X on A50). You just want to wait for a price that will never happen, you’ll miss out on this one too.

Jesus Matt, you’re following him around threads like some nagging fly trying to make a point that isn’t there to be made.  Just let it go instead of trying to run an agenda and drag down the discourse.

#FreeCVM #FreeTurd #2007-2017

For once I agree with Black Swan! ;)

We were trying to have an intelligent discussion about what is really at the core of this global selloff. So, it looks like everyone (especially US and JP) is trying to peer pressure CN into this government stimulus madness. CN of course has already said they will NOT do crazy US-style easing, that they will continue prudent policy, and have also implied they are perfectly fine with a “new normal”. But the US media just keeps going crazy “CN needs to do more!”. Why? Basically US/JP/EU just want everyone to do what they did, shoot all the bullets in their gun, so that it helps prop up their markets now…with no thought of the future.

Will be darn interesting to see what happens, I definitely do not think CN should do anything more than the rate cut they aready did. There is no real problem in CN. Let US/JP/EU deal with their own problems. 

What about infrastructure stimulus to shore up demand.  They could use the grid work and transport anyway?

#FreeCVM #FreeTurd #2007-2017

Chinese Autobahns?

“I can no longer obey. I have tasted command, and I cannot give it up.”

An autobahn full of Asian drivers…surprise

#FreeCVM #FreeTurd #2007-2017

Black Swan wrote:

What about infrastructure stimulus…

Sure, that was announced at the start of the year…
 
(Bloomberg) – “China is accelerating 300 infrastructure projects valued at 7 trillion yuan ($1.1 trillion) this year as policy makers seek to shore up growth that’s in danger of slipping below 7 percent.” http://bloomberg.com/news/articles/2015-01-05/china-said-to-accelera...
 
On China’s growth in general, if you listen to people in the know over here, most believe China’s 7% GDP growth is real and will likely be achieved. The skeptics who say the numbers are made up (Westerners), really have no basis for that claim, and all other metrics we could use to estimate, are less reliable than gov numbers. Beijing are master planners and take slow steady steps well in advance to hit goals, they don’t do desperate reactive moves like what US/JP want to see. So this morning’s announcement should have been expected “monetary policy will remain prudent”.
 
Thus I don’t actually believe there is any real economic issue in China, but there may be a issues for global markets:
 
* The services sector is now larger than the manufacturing sector and growing, so people who freak out at the low manufacturing PMI, need to get with the future.
 
* RMB should remain roughly stable, as China already clearly said. They need it accepted as a reserve currency and can’t have wild moves, and they can enforce that. Yet there seem to be all sorts of irrational fears and theories on it depreciating wildly. Nobody over here in the know has that as their base case, it really keeps coming back to global investors being totally ignorant on how China works.
 
* Hitching S&P500 moves to moves in Shanghai stocks is absurd. SH has nothing to do with the CN economy. Why would the most sophisticated financial market in the world (US) be looking to what unsophisticated gamblers in China do, for guidance on the Chinese economy? It doesn’t make sense. Also if global investors are waiting for SH to stabilize, they will be waiting a long time! ;)
 
* Chinese don’t say much, they aren’t going to address the world with a big Yellen talk-fest. They know growth is fine, and have already said so, so they will just remain quiet and keep doing their thing. I don’t think the selloff will trigger a pep talk from CN, but we’ll get one from Yellen!

I’m more bearish, possibly because I cover manfuacturing and metals and mining and that particular sector is skewing my perspective.  For instance, the grid spending that was supposed to be up 8% for 2015 is currently down 1% ytd and tracking towards negative mid single digits due to paralysis from the anti-corruption campaign with some funds being diverted towards rail.  This makes me question just how much of the stimulus is actually getting done.  

I see your point though, it’s probably improved my doom and gloom perspective, but I still see significant risk along the industrial segments in the BRIC / EMEA space.

#FreeCVM #FreeTurd #2007-2017

purealpha wrote:

igor555 wrote:

glad i bought those ASHR last month

China is all catastrophic losses and astronomical gains, don’t let them freak you out. I bought a bunch of A-shares at crazy good value, but am sitting in a sea of red! Big picture, getting in anywhere at these lows – ten years from now the CSI300 returns will have massively outperformed the S&P500.

+1

"You want a quote? Haven’t I written enough already???"

RIP

this was a good read, explains china(CN) pretty well

http://scribd.com/doc/39288120/China-the-Mother-of-All-Grey-Swans-Ja...

"You want a quote? Haven’t I written enough already???"

RIP

Black Swan wrote:

Jesus Matt, you’re following him around threads like some nagging fly trying to make a point that isn’t there to be made.  Just let it go instead of trying to run an agenda and drag down the discourse.

really bs, really. he was hyper bullish on china at 5000. that’s all that needs to be said. he shouldn’t bring down the discourse by saying china is a great buy 40% below when he was pumping it.

also, there’s nothing really to discuss. China has been stimulating like crazy for 5 years and we’re still down 3-4% in annual GDP growth per year. the best they can do, and what they’ve been doing, is allowing for a slow decline in GDP growth. their market is screwed and should find itself back where it started around 2000. if a bank or any financial institution goes down, the state will simply eat it up. no prolonged credit crunch.

the key risk isn’t what is happening in China, it is how surrounding economies deal with China’s support for its economy. watch Japanese, Korean and Indonesian growth and markets for clues about whether this turns into an Asian Financial Crisis II.

Matt, my issue is that for reasons unbeknownst to me, purealpha is being civil as of late.  He has his opinions and they are backed by a lot of good reasoning and I respect that.  I don’t have to reach the same conclusion, but I get that he has at least done a good deal of homework.  His trades are also to his credit documented and time stamped around the forum.  Lastly, any good value investor will tell you an investment that is lower than the price at which it was a good buy is just a better buy, so long as your thesis remains intact, which he clearly believes is the case. 

Other than that, nobody needs you chasing him around the forum on some vendetta making attacks and trying to drag things down to the point of a stupid argument.  You guys had your little argument, neither of you came out looking better for it.  Just let it drop.

#FreeCVM #FreeTurd #2007-2017

"You want a quote? Haven’t I written enough already???"

RIP

your perception of valuable discourse is much different than mine. i’ll leave it at that.

In Matt’s defense, Matt’s posts tend to include harder data than most posters here and even when there isn’t hard data, the arguments are solid, even if they are not completly lock-tight (nor does he present them as lock-tight).

purealpha is more variable, more of a Jim Cramer like mix of data and, “it’s the future!”, and “It’s mathematically impossible to for me to lose!!!!” remarks.

You want a quote?  Haven’t I written enough already???

haha. thanks for the rep boost and the cramer slam bchad!

My point wasn’t to compare poster dicks, I’m just saying lets keep the bickering to the watercooler and try to keep the investments forum a little more on target.  As of late PA has been better at that, so I’m just saying lets not drag it back down.

#FreeCVM #FreeTurd #2007-2017

saying virtually the same thing over and over again is hardly a good contribution to the Investments forum. but fine, i’ll lay off him until he clearly needs to be reigned back in.

bs, i think you’re just upset because that abx trade isn’t working out so much anymore. <coughs> shoulda put an onstop <coughs>

I’m actually perfectly happy with my ABX trade.  My options are still at a gain.  Not a lot of people saying that about their positions right now.  You gotta realize I got deep OTM 2017 calls and volatility is good for them.  I mean, I’m not going to say no to non-stop ABX equity appreciation, but I’ll take what I’ve got going on right now as well.

#FreeCVM #FreeTurd #2007-2017

true story. i forgot you owned such long-dated options. why if you don’t mind my asking, didn’t you just buy the stock? everytime i’ve looked at buying 2 year options, it almost always makes more sense to just buy the stock outright, or on margin if you want to put up less than whole capital.