CRASH2: Brace yourselves for the next phase, ‘reality intervention’.

Other factors are about to come to the fore in China, and the West has more to face beyond a Chinese implosion

As the PBOC printed a few billion more yuan overnight, things on the Shanghai Composite have gone from temporary fingers in the leak to mutliply-installed automatic pumps:

shangcomp28815For those of you unfamiliar with the Wu Chinese language group native to Shanghai, the phrase yo oh no yo looks like this

chinasimpand is pronounced shi-o-fou-shi. This is simplified Chinese, more literally translated as “Why am I pushing this stupid index up, aaargh a doubt has entered my inscrutable mind – quick!….more Yuan!….oooooh, that’s better”.
There is no, repeat NO reason for this recovery: it will hit a bust soon enough, and its creators will be heading for the firing squad along with the other five sets of predecessors who dreamed up rate cuts, devaluation, the stocks bubble, the housing bubble, and QE. The West lacks consuming power for reasons explained earlier here, and no amount of financialisation à la Wall Street, the Bank of England or the ECB is going to change that. China has run out of road: it needs to get real and take the hit.
In a sense, it’s already done this by shifting from QE to what’s being called ‘QT’ – quantitative tightening. But look what happened when it did: a rout. China accounts for an amazing 16% of global gdp, so ignore the drivel of US Bull denialism. Whatever it does is going to hurt the rest of us. And if – in order to completely purge its current model – Beijing QT steps back from panic and does raise rates, then the US and UK are going to be in deep doo-doo. The US Fed, of course, has its own form of QT – Quantitive Teasing – but the Seven Veils routine of Janet Yellen has to stop in September.

Slowly, however – at the very core of the West’s bubble itself –  reality is intervening among the pros about a lot more than Chinese meltdown: dollars are still leaving the stock markets in search of better returns and lower costs, and importantly the ‘price-insensitive sale’ trade is firmly established in New York: this is peopled by folks who must sell equities – be they good trades or bad, these are not margin calls any more, they’re credit calls.

We’re seeing this reflected in today’s futures numbers: contracts on the S&P 500 expiring in September lost 0.8% in New York, as did those related to the Dow Jones Industrial Average. And lest we forget, ‘rally’ or not, when the S&P 500 closed yesterday, it was still down 5.5% for the month.The Nikkei is 1500 points below where it was on August 10th, and the Australian ASX 200 fully 9% lower than it was on August 3rd.

Late afternoon CET today (Friday), the Dax is down 0.7% and the FTSE has clawed itself back to no change on the day: across the Pond, the Dow, S&P, Nasdaq and NYSE composite are seismographing up and down to little effect. Nothing dramatic, but this is beginning to feel like a rally-car with one of its wheels loose.

Enjoy the weekend.

Earlier at The Slog: Britain’s Silent Property Debt Disaster

25 thoughts on “CRASH2: Brace yourselves for the next phase, ‘reality intervention’.

  1. If China were to raise rates significantly and cripple the US, I think the whole world would be a in very parlous state, we all know that the US would stop at nothing, given in their minds, the right set of reasons. Might just be the catalyst for WWIII.


  2. Ain’t the Web Wonderful…
    However you can read steve keen (on china), peter radford (on “voodoo economics”), lars p syll et al on RWER blog, which I can heartily recommend (as they haven’t blocked my comments yet)


  3. Steve K is always good value. More deserving of a Nobel than most of the twats who get them like Krugman. Trouble is he is neither Jewish nor American.


  4. It’s the Monte Carlo rally: a turbocharged (tempting) race to the casinos with highly modified suspension.. of disbelief. The SQUIT (Shanghai Quantitative Tightening Index) attempts to keep all sphincters tightly shut but several important screws are on the loose and the next bolt from the blue may well drive us all nuts. Next up, Demolition Derby..


  5. I’d prefer not to take any sides whatsoever in the middle-east on the grounds that it’s never ended well (so far).


  6. Pingback: CRASH2: Brace yourselves for the next phase, ‘reality intervention’. |

  7. Seems to me that the real problem with the Shanghai market is that it’s 50% up from a year ago and there’s no obvious reason for that.


  8. @kfc1404

    Agree with you along the lines if you have everything to lose like world domination then you will use all means necessary to KEEP IT ALL.


  9. The most amusing piece for me this week, realising China is now in the proverbial toilet the MSM have been nudged into proclaiming India the next global saviour.

    Right on … not so long back they were on the QE trail themselves attempting to stimulate their economy SO THEY WILL NOT BE SAVIOURS OF THE GLOBAL ECONOMY. India will still have the same issue but potentially more devastating for the West as more and more service sector work (that will be India’s growth) is offshored.

    One good thing India has done though is declare patents of the table on medicines if it is beneficial to the population. I do like that!


  10. I gleaned some mild amusement from an “expert” on World Svc this Am who announced that Chinese Capitalism is not really a proper free market because it’s being run by Communists……


  11. Kfc104.
    U were 4 real. I didn’t expect it to be quite as brazen/shameless as this tho. Expletive Deleted x 20 + 2 x Wendi Deng jokes.


  12. To add to the woes of the world it looks like Saudi Arabia’s actions in respect of the suppressed oil price is going to cost them dearly. One has to wonder if the US had this in mind all along..


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