China Stock Market Drops 8.5%

http://www.marketwatch.com/story/china-shares-wipe-out-2015-gains-as-stocks-tumble-85-2015-08-24?dist=tcountdown

by electic • 11 years ago

373 228 11 years ago

jamesblonde5• 11 years ago

For China to regain some measure of competitiveness, the easiest and most probable solution is to devalue the Yuan around 20% against the dollar: http://www.barrons.com/articles/why-chinas-currency-could-fa...

This will lead to massive drops in global equities due to fears of deflation.

jpatokal• 11 years ago

They're already doing that: http://www.wsj.com/articles/china-moves-to-devalue-the-yuan-...

Despite the misleading subtitle, this is a change to the way the yuan is managed and will allow continual (slow) devaluation.

jamesblonde5• 11 years ago

Agreed, this is just the first act.

danieltillett10• 11 years ago

A currency war is not going to be good for speculative investments - say like the tech industry. Lets hope it does not come to this.

jamesblonde5• 11 years ago

It won't be good for emerging markets or any high-beta investment. So yes, VC money could dry up in the next few months.

seanmcdirmid4• 11 years ago

Stop. Most of my life savings are still in yuan. I really need to convert the rest. We converted a bit when the first devaluation happened (my wife can do that since she is a citizen), but to do the rest, I have to wait a month for tax receipts from work....the joy of earning money in an inconvertible currency!

toyg3• 11 years ago

At least you live in a country with significant internal production, so overall things shouldn't get too bad for you even after devaluation (as long as you stay in the country and buy Chinese).

I grew up in Italy during the last few devaluation waves and then the Euro switchover (when prices basically doubled overnight) -- prices of everything except food and shoes skyrocketed, it was really ugly for us little people.

pmorici• 11 years ago

I'm curious if you could buy Bitcoin on one of the Chinese exchanges transfer it to an exchange out of the country and sell it for Euros or US Dollars?

jacquesm• 11 years ago

You're in a very tough spot (you already knew that, I hope). One way you might get it out a bit quicker is to offer someone who has cash abroad already a percentage, but it's going to be very hard to find takers.

S4M• 11 years ago

Maybe try to see if you can buy a FX swap that guarantees you to be able to sell your yuan in dollars at a given exchange rate?

wintersFright• 11 years ago

are you not able to buy precious metals as a store of value?

jakozaur• 11 years ago

Meanwhile S&P 500 is also failing: https://www.google.com/finance?q=INDEXSP:.INX

46 days ago, I suggested that China slowdown may have global impact: https://news.ycombinator.com/item?id=9851214

I'm glad that I sold my stock ETFs.

reddytowns• 11 years ago

The S&P 500 is poised to drop another 2%. Check out the futures market: http://www.sgxniftydowfutureslive.com/index_files/DOWFUTURES...

ctolsen2• 11 years ago

Not suggesting that you're wrong, only that you're lucky: there is always a risk that things go in any direction.

If you're in it for the long haul, selling your ETFs a month ago isn't necessarily the best thing to do – at least by virtue of allowing yourself to sell your stocks when you feel it's the right time, which is mostly going to be dead wrong.

And selling them today is certainly a terrible idea.

ThomPete• 11 years ago

There are no prodigies in trading, only bull and bear markets :)

joshuahedlund2• 11 years ago

Don't be too glad unless you also manage to buy back in before it recovers past the level you sold.

crorella• 11 years ago

A good time to buy more!

pmalynin• 11 years ago

Time to short everything!

sama• 11 years ago

One of those two things.

jahnu• 11 years ago

If you are long stock and are worried or need the option to liquidate some stock then protect yourself with put options.

If you are short stock and also fear major market moves then buy call options.

lcswi• 11 years ago

Something with bitcoin!

Tycho• 11 years ago

In 2000 this best trade was not to short stocks (too hard to time) but to go long safe haven assets (treasury bonds) for a much smoother ride. However this time around that might not work with the Fed wanting to raise rates(which would hurt bonds).

idlewords• 11 years ago

Do both and get guaranteed returns!

spacecowboy_lon2• 11 years ago

My thought as well I have another £4k to go into my ISA (a type of tax free account) so debating hold back to buy on the drop.

ctolsen2• 11 years ago

I've been buying in continuously before the drop, and will continue to do so after. That's the best way of negating some of the risk.

You can't really know if things are going to go down further, or jump back up again soon.

codecamper• 11 years ago

Good! Down down down stock market! Get all this damn VC out of the market.

c1sc0• 11 years ago

How does that work? My understanding was that money was flowing towards VC exactly because of poor market performance since the 2008 crash.

dluan• 11 years ago

The Chinese bubble has partially been driven by lots of IPOs (http://www.wsj.com/articles/chinas-ipo-market-leaves-u-s-in-...).

w1ntermute3• 11 years ago

Dow, S&P, and NASDAQ futures have tanked: http://money.cnn.com/data/premarket/

This week is going to be ugly.

timr5• 11 years ago

Fun bedtime story: the systemic shock of this downturn causes investors to do what they are naturally prone to do, which is become fearful. Money dries up for the most speculative investments first, which removes the flow of dumb money from late-stage unicorn rounds.

Unable to raise further "growth capital" at attractive valuations, and burning money like there's no tomorrow, we see the first unicorn layoffs within 3 months. This spooks investors further, which dries up whatever funding was left for early stage deals. Within 6 months, the weakest startups are beginning to fail outright, which pulls back the tide a bit, and reveals the ponzi scheme of startup-servicing-startup revenue cycles for what they are. Suddenly, a number of heretofore assumed "safe" investments with "strong" revenues are revealed to be precarious, as 95% of their revenue streams were correlated.

Companies go from healthy revenue to practically nothing overnight, as dozens of companies all cut back on burn simultaneously. This only exacerbates the cash flow problems, and startups that were flying high are now flying into the ground at remarkable speed. Market gurus are revealed to be wearing no pants.

Within a year, the valley is in full recession, and people are clamoring for U-Hauls out of San Francisco, which are in short supply...

(In case you were wondering, this is essentially what happened in 1999, minus a few wild-cards like companies with totally fictional revenue, and companies that had no revenue at all.)

cm2187• 11 years ago

I wonder what jet.com is worth now

adventured10• 11 years ago

Well if you want a prediction for a company that's going to take a huge hit in this downturn: Tesla

They're going to deploy the Model X into a temporarily contracting electric car market, with China upside down, and with the US upper class pulling back spending due to a big drop in asset values. The gigafactory will cost vast sums yet to finish and get functional, and then it'll hit the market with weak demand for several years at least. Meanwhile Tesla's growth on the Model S, which has already stalled out, will get hammered further, pushing their already high quarterly losses even higher - all at time when raising more capital is going to be painful.

Any company that needs a lot of financing to do what they do, is going to get hurt bad through this storm.

blackguardx• 11 years ago

I think we are in for a tech market correction at some point but I hope it isn't as drastic as the one you paint! Everyone seems so starry eyed in the Bay Area but few seem to remember 2008-2009 when even Google was laying people off. I remember going from being unhappy in my job to being thankful for having one in the span of a few months when pretty much all job postings dried up.

timr5• 11 years ago

Likewise. I moved to SF right before Lehman, to work at a startup. I had next to no money in the bank when I moved here, and an outrageous rent to pay. It was (financially) terrifying -- but at least it cut back on the douchebaggery in the city!

That said, 2009 wasn't a tech-specific downturn. New York had it far worse than us, and there were still tech companies doing their thing in SF, albeit on a much tighter budget, since the money wasn't flowing. The dot-com crash (which is essentially what I am describing) had its epicenter in SOMA, and we're a lot closer to that scenario than we are to Lehman -- outside of exports (oops, spoke too soon!) and shale oil/gas (oops, spoke too soon!), tech is the primary bright spot in our economy right now. The dumb money is flooding into tech instead of real estate this time, which means that when it does go away, the hangover is going to be pretty wicked.

mavdi• 11 years ago

Glad I paid off the mortgage.

dvirsky5• 11 years ago

Lucky me, I don't even have a mortgage to pay!

Oh well, I guess my family could always move into my mom's spare room.

danieltillett10• 11 years ago

Yes watch the unicorns. It is the private equity market that will be the place that breaks first. If this dries up then things will go down hill quickly.

I actually think this will be good for the VC industry. Valuations will come back to something based on a universe that is possible and with long term investor (all those locked up limited partners) they can invest with thoughtfulness. It won’t be pretty for the angel investors though.

w1ntermute3• 11 years ago

Many unicorn valuations have already taken a hit: https://www.theinformation.com/articles/mutual-funds-show-ma...

MongoDB and Gilt Groupe (both of which happen to have been cofounded by ex-DoubleClick CEO Kevin Ryan: https://en.wikipedia.org/wiki/Kevin_P._Ryan) are specifically called out.

timr5• 11 years ago

It isn't all bad, of course. Hastening the removal of MongoDB from our lives is my kind of silver lining.

dvirsky5• 11 years ago

One major difference is that large parts of the internet are economically viable, and not just driven by money pumped in by VCs and IPOs. Back in 2000, there was little real consumer money going into the web's money cycle. Google didn't even have Adwords back then!

Of course there's still a large chunk of revenue today that is just recycling VC money - e.g. apps advertising in other apps, or AWS which is a huge sink of VC money from other startups. But there is a lot more "end user" money coming in from real people and companies that purchase products and services online. Even if that flow stops, the internet today is less of a ponzi scheme as a whole.

timr5• 11 years ago

You're right that there's more legitimate internet revenue than in 2000. But most of that is going to a few established players that are decidedly post-unicorn in nature. I don't think Google is going anywhere (though Twitter might just get its fatal wound; that would be a particularly symmetrical ending, wouldn't it? Company born of the ashes of dot-com 1.0 dies in the explosion of dot-com 2.0. But, I digress.)

From what I know, most of the "unicorns" are neither profitable nor particularly modest with their spending. They are vulnerable to any sort of turn in investor sentiment, even if their revenue streams are real.

puranjay3• 11 years ago

You're right. Startups are overvalued. But they're still making money. The Indian 'unicorns' - Flipkart, Snapdeal, Ola, etc. have real revenues and customers.

Do they deserve their $1Bn valuations? Probably not. But do they have enough customers to give them $100M-$1B revenues? Yes.

If these startups were public companies, they'd still be valued at at least half of what their last Crunchbase entry says

amyjess• 11 years ago

Google didn't even have Adwords back then!

Google didn't, but banner ads were around back then, and they were one of the main ways of making money off the Internet until the market bottomed out. DoubleClick was a pretty major player for years before Google bought them.

I remember lots of websites saying they suddenly had problems affording their hosting around 2000 because their banner ads suddenly started paying them pennies when they used to provide at least enough cash to cover the server bills.

And that started the trend of websites accepting more and more intrusive ads, because they made more money than banner ads. Pop-ups became popular because pop-ups made money and banner ads didn't.

pjc504• 11 years ago

Systemic shock is likely to be lower than you'd expect, as the Chinese stock market is on the other side of capital controls to the west and so therefore less linked.

I do agree that there's a lot of 1999-like companies around, especially people wanting to do Webvan 2.0.

toyg3• 11 years ago

The feared impact is a systemic Asian downturn crashing industrial export towards the area, which in turn would reduce demand for services. Germany in particular is currently being watched, since their industry relies on export towards Asia quite heavily these days (since European demand is overall low). If German giants start feeling the pinch, the startup world in Berlin will inevitably get hit.

From a US perspective I honestly don't know. Chinese investments are mostly one-way anyway (it's hard to take money out of China) so they shouldn't significantly impact any honest balance sheet; however, if Japan and Singapore start going under as well, things might turn ugly all around.

BadassFractal• 11 years ago

Very exciting time for companies with good reserves. Can't wait for more engineers to start looking for jobs and the ability to lower salaries.

deciplex2• 11 years ago

Which company do you belong to?

jazzyk• 11 years ago

You forgot your signature: Mark Zuckerberg

:-)

joezydeco• 11 years ago

Where's Pud when we need him the most? Bring back fucked fuckedcompany.com!

danmaz74• 11 years ago

The scenario you paint is far from sure but possible; but why are you using to comment a crash on the Chinese stock? I hardly see a correlation. There could even be a negative correlation, if more investor money flows back from Asia to the West.

blazespin• 11 years ago

Not quite right. Interest rates play a larger role all this, which compared to 2000 are at historical lows. The fed might even cut, now. Negative real rates will spur speculative investments.

DanielBMarkham• 11 years ago

And small, self-funded, nimble startups outside the valley eat the lunch of overstaffed and overfunded startups with high leverage and a gun to their head.

I don't think we're due another cycle yet, but every cycle just decreases the amount of money you actually need to make a go of it. Sometime over the next 5-10 years another bust would probably be an overall good thing.

mcv2• 11 years ago

So the smart investment is in U-Haul right now?

david927• 11 years ago

No, the smart investment is in "cash" right now.

abledon2• 11 years ago

Exciting new SV market : U-Haul startups

tag-line: "Location based, real-time, mass-aggregator content manipulation"

eigenvalue• 11 years ago

I know this is supposed to be facetious, but UHAL stock is actually quite attractive at current levels. They own a growing self-storage business but don't break out the profit contribution (although they do disclose the revenue contribution). Pure-play self-storage stocks like EXR/SSS/PSA trade for 18-20x 2016 TEV/EBITDA. If you give UHAL credit for that on the estimated earnings from the self-storage business, you are getting the moving business for a very undemanding valuation despite it growing 5-6% per year and with a dominant market position.

pinaceae• 11 years ago

no, the smart thing is to quickly create a startup, uber for uhaul. slick app, shows all available trailer and trucks, you order and they appear in minutes, all transactions done through app.

there, go get rich (or not).

CSMastermind• 11 years ago

Personally I'd buy oil futures, it's trading low right now and it's almost certainly going to rebound.

sho• 11 years ago

Something of a tangent to what you said, but I see other parallels between current events and 1999 - this is what happens when unsophisticated investors gain sharemarket access for the first time.

It happened in the late 90s in the states (remember those "trading poolside" etrade ads?); it's happening now in China. Only recently you've been able to actively trade and view your portfolio on smartphone apps; it became a kind of game and more and more people piled in. I know people there who were up tens of thousands in paper gains even a month ago and could not be convinced they were basically gambling. Well, they're convinced now :-P

I suppose this is the way people learn...

admyral• 11 years ago

Are you really blaming financial instability on "unsophisticated investors"? Not on automated, high speed traders able to liquidate stocks and topple markets in seconds? Not on reckless, fear-mongering media outlets competing for the most sensationalist headline? Not on government action/inaction affecting trillions in assets?

netcan4• 11 years ago

I think taking 1999 as a general example is a bad idea. The mechanics of how the bubble popped is not really interesting. It could have popped any number of ways.

What happened in the 90s was this. People realized the internet was a huge deal. World changing, re-writing the rules of the economy, among other major human institutions (learning, governance, etc.) They were right. 20 years later a lot has changed because of the internet. Revolutions have been driven by it. Economic titans have been created by it.

A large chunk of the blue chip economy is now made up of internet and internet compliment companies, even Apple & MSFT are in that category. Google, Alibaba. The new blue chips being generated today are internet companies and I'll wager the blue chips generated in 2030 will also be driven by this.

The investors of 1997 were not wrong about the scale of the revolution. What they were wrong about was the importance of early mover advantages. It's as if they expected the internet economy to be built behind walls constructed in their entirety by 2000. They thought they were buying shares in Google, Facebook, Alibaba & Uber, that these companies were all being founded between 95 and 98. Seems silly now. But, hindsight.

The really large scale irrational exuberance lasted a short while, just 2-3 years maybe less. That's hard to justify but it's the end of a bubble when bubble thinking is totally disconnected with the rules outside the bubble.

In that environment, it doesn't matter what bursts the bubble, it's going to burst.

Without that kind of bubble, you don't get that kind of burst. With that kind of bubble, you inevitably get that kind of burst. Investor sentiment may be fickle, but U-haul traffic jams are caused by real economics, not panicky investors.

So, who are these unicorns? Can they survive a month or twenty of panicky investors? Can they do away with investors all together? Are they reliant on investor money for revenues like all the ad selling startups of 1999?

Here they are: http://graphics.wsj.com/billion-dollar-club/

I think no matter what investors do tomorrow morning, Uber, Xiomi, AirBnB and Palantir will still pay salaries, bonuses and such. The IPO might be put off by a couple of years. If the market goes extremely nasty a lot of people who expect to buy houses with stock options will be disappointed. That might cause trouble.

U-Hauls? I don't see it.

Marazan2• 11 years ago

Uber is burning through cash, without fresh investment they cannot keep going on their current course.

ska• 11 years ago

   What they were wrong about was the importance of early mover advantages.

There is also a tendency to underestimate the "early mover disadvantage", if you will - if you move too early you risk ending up being little more than a detailed market study for a company that will succeed with your idea a few years later. The current wave of delivery and mobile services includes lots of ideas people were chuckling about in 2000, but now they are functioning pretty well.

nitrogen• 11 years ago

It's important to remember that companies and programmers at the top of their games can still thrive in a down economy. There will always be software to write, especially in economic sectors that aren't directly wired to startups. Take ecommerce for example, which depends on income from the whole population. The whole population never recovered from the last market downturm, yet people still need to buy stuff, and increasingly do so using apps and the web.

I just hope urban real estate doesn't go even more berserk with investors looking to park otherwise uninvestable money.

marincounty2• 11 years ago

"I just hope urban real estate doesn't go even more berserk with investors looking to park otherwise uninvestable money."

I fear this too, and I have benefitted greatly from this realestate bubble.

My two hopes are: The Fed doesn't chicken out, and starts to raise interest rates. Plus, I would like to see an immediate end to foreigners buying realestate without becoming citizens first! At least residential? Right now they can pick up a phone, and buy any home.

spb• 11 years ago

The economic situation is apparently so grim that some experts fear we may be in for a stretch as bad as the mid seventies.
When Microsoft and Apple were founded.

http://paulgraham.com/badeconomy.html

bottled_poe2• 11 years ago

I think the fact that this is the top comment says a lot about the general sentiment of people working in the tech sector.

bpodgursky• 11 years ago

HN is not really tech worker dominated anymore.

danieltillett10• 11 years ago

Yes. The real worry is if this is shared by those outside the tech sector. We can all sit around speculating if the sky is going to fall in without it really mattering, but if it shared by those outside then it can become self-fulfilling.

api• 11 years ago

I don't think we are in a bubble overall. I lived through 1999 and this is not that. But it's possible that there is a bubble in certain "unicorn" valuations.

The question is to what extent these unicorns are leveraged against their possibly-fictitious valuations? Can they survive a collapse of those valuations to more 'sane' levels? One way they could be leveraged is options promised to key employees, all of which would now be underwater.

Of course any company that suffers a valuation collapse and has no cash on hand is toast, since they won't be able to raise on anything other than bend-over terms. So part two of my question is how much cash the unicorns have. If they have enough to last, they'll probably be okay.

Edit:

There are some good arguments against an overall bubble here. Slide 10 with "spending per person online" is a very powerful argument against an Internet bubble but not necessarily against all possible bubble scenarios.

http://a16z.com/2015/06/15/u-s-tech-funding-whats-going-on/

But as I said above, it's possible that there are "mini-bubbles" and that these could pop destructively.

Of course there are other questions, like to what extent are VC firms exposed to China risk and to what extent will stock market losses destroy angel and VC investment? It's possible that the tech field itself is not in a bubble per se, but that it's part of a larger bubble in the global economy.

curiousjorge2• 11 years ago

Andreesen talked about this. His specifically mentions that many many startups and tech companies are going to evaporate overnight if the capital stops and these are run by people who are basically burning cash and not knowing what they are doing. A major market correction.

ChuckMcM• 11 years ago

I am SO ready for the traffic relief we got in 1999/2000 :-) But in this case it's China's market not the US market, so traffic relief in Chenzen?

Presumably it would be a challenge if your new startup was selling to people in China.

alkonaut2• 11 years ago

Brent is now $44. Russia produces 10 million barrels per day. Their budget was amended earlier to account for the massive drop from $100 -> $50, leaving a huge hole in the revenues and a massive expected deficit. With a price more than 10% lower than that level, things are about to become really interesting (in the worse sense of the word).

jmnicolas• 11 years ago

Why specifically Russia and not Norway, Saudi Arabia or ... the US ?

guard-of-terra• 11 years ago

Russia walks the thin line - large population, huge social spendings, military spendings also, restrictions on borrowing cheap capital. Might be first to fall.

Makes me really want to move my savings (which are already in dollar mostly) out of Russian banks, but I'm not entirely sure where to. Or just burn those on something?

alkonaut2• 11 years ago

The US produces almost as much oil as Russia, but is a net importer.

Saudi Arabia runs a large deficit at current prices, but has a pretty large pile: http://www.eia.gov/todayinenergy/detail.cfm?id=19971 The story is similar in Norway.

In Russia it's not as rosy: http://www.bloomberg.com/news/articles/2014-12-26/russia-may...

On top of the dwindeling reserve, Russia has been given some stiff fines from international courts for unlawful actions, for example $50bn to Yukos shareholders.

Edit: there certainly are also nations that are in at least as deep problems as Russia, Venezuela for example.

roel_v• 11 years ago

- Norway: lots of natural resources, low population, spends only part of oil money (in fact, Norway makes more money per year from the oil fund (i.e., money saved from past oil sales ) than it does from actual oil sales.

- Saudi Arabia: lots of headway to cut spending; standard of living is already very high, with huge reserves to soften the impact of short-term price volatility.

- US: has imported oil for decades until there were enough combined geopolitical and economic incentives to start using its own; exports < 10% of all exports.

- Russia: > 50% of exports are oil; heavily cash-strapped already, so all decreases in oil revenues are directly painful; few options to diversify; too small to be a market maker. Oil money is a direct driver of improving economic circumstances, which in turn provide for much of the countries relative stability.

adventured10• 11 years ago

It certainly applies to Norway, Canada, Australia (commodities) and Saudi Arabia as well, among others.

It doesn't apply much to the US. Among the major oil producers, the US is by far the least dependent on the oil market for the domestic economy's well being. It's arguable the US benefits more from cheap oil (industry, consumers, gasoline), than it takes a hit due to the loss of oil jobs and growth in the oil field in general. $40 to $50 oil has slowed oil well expansion and exploration, but US oil production is still sitting near all-time highs, and that will continue so long as oil doesn't go to eg $25-$30 or so for an extended period of time. At a range of $40-$50 for 2016, current projections are that US oil production will expand by another 500,000 barrels per day.

The dollar turning, which has crushed commodities, has pushed Canada into a serious recession, and is threatening to push Australia into one. To make matters worse, China's growth has been trending down for ten years - they temporarily spiked it back up after the great recession at the cost of tens of trillions in debt. China's economy tanking, is hitting any commodity dependent economies very hard.

In Norway's case, they get to start from an amazing position of strength overall. They have extremely low unemployment and a very high standard of living. They have the sovereign wealth fund to lean on if times get really bad. It's very likely that five years of cheap oil will hit Norway very, very hard. They're already facing a scenario where they'll have to tap the sovereign fund to deal with their budget demands. That's not going to get any prettier any time soon. The party is over, but Norway has a lot of wealth accumulated from it, and can weather this storm better than most.

Saudi Arabia has $640+ billion in foreign reserves that they're depleting by the month. It'll get worse over the next year, but they can weather it for a few years yet without a threat to their stability or economic well-being. Saudi is of course also among the low cost leaders on production, so while their budget demands $100 oil, on the other side they have among the best margins on what they are producing.

Out of the group, Russia is drastically worse off. Not only have they been trying to significantly increase military spending at exactly the wrong time, not only are they under international sanctions, but they're starting from a position of national weakness compared to eg Norway: their people are not well off, their Ruble is being hammered, and they're run by a dictator that is not good at managing the economy (as witnessed by their complete non-diversification the past decade plus, which has left them vulnerable to this outcome in the commodity market).

matwood• 11 years ago

Saudis have huge cash reserves and can survive on a much lower oil price for longer. The US is already shutting down rigs and other production to get costs in line. As a country the US doesn't require oil exports to stay afloat. In fact, from a strategic standpoint the US prefers to import other countries oil and stock pile its own.

I'm not sure about Norway.

thomasnno• 11 years ago

Norwegian here. The entirety of the earnings from the oil industry is funneled into our Sovereign Wealth Fund, and has been for decades. A few percent (4% ?) of this fund is spent each year by the state. So we are not as hard hit as the others, and the state can basically keep spening money at our present level for many years. Note that oil companies in Norway is scaling back, so our jobless rate and tax income is being hurt, but so far things are only getting interesting for those laid off and those directly in the oil business.

myth_drannon• 11 years ago

Canada is in huge trouble as well.

kushti• 11 years ago

Well, I have a feeling problems will be not so huge as in 2009 due to increased money velocity index, but I can't find statistics behind that (imports shrinked though http://www.tradingeconomics.com/russia/imports ).

Lawtonfogle• 11 years ago

With a price more than 10% lower than that level, things are about to become really interesting (in the worse sense of the word).

It'll be FUN (in the dwarfiest sense of the word).

rndn• 11 years ago

Is that surprising at all? If we take a look at the Shanghai Composite index in the past 5 years the bubble is pretty obvious [1]. That makes me wonder whether a simple averaging/smoothing law could mitigate such crazyness without limiting sensible business traffic significantly. I don't know enough about the stock market to say how and whether this could work, but the fact that a monstrous apparatus like this is allowed to develop such abnormalities seems absurd.

[1] http://i.imgur.com/gpHe1gc.png

pjc504• 11 years ago

Averaging of what? Prices are what they are, despite limits on daily movements (closing "limit down"). Price controls can work on commodities in some limited circumstances but not on a pure abstraction like a stockmarket.

icebraining3• 11 years ago

It's not exactly simply "being allowed", China has been implementing a lot of new measures regarding this crisis (e.g. banning short selling, limiting price drops). Some people argue those have been making it worse - though for a layman like myself, it's hard to distinguish honest from biased opinion.

sidcool3• 11 years ago

A communist nation trying to reap benefits of capitalism.

_delirium2• 11 years ago

It would be hard to spend even a day in Shanghai and believe that the system you're observing is "communism", even under the notoriously wide range of meanings people have assigned that term. Something like "state capitalism" is a decent description I think.

pavlov• 11 years ago

Although the rhetoric is completely different, today's China could be seen as a state that embodies many of the goals Mussolini had for Italy.

mahranch2• 11 years ago

I think it's obvious he's talking about China as a country that has a capitalistic economic infrastructure with a communist social ideology & political structure.

Hytosys2• 11 years ago

Because of their embracing of the free market, it's often accepted that China is not a communist nation (despite being led by a communist party).

Actually, this situation is pretty much just capitalism at work. It really has nothing to do with communism; every free market is susceptible to this sort of failure.

le_clochard• 11 years ago

It's anything but "capitalism at work" if "capitalism" has anything to with "free markets". The Chinese Government has been graying out, if not altogether fudging, their economic indicators and propping up domestic investors. Now it has moved to outright rigging of the market through selective bans and directives (no short selling, no selling if you hold >5%, no trading at all on certain stocks, and so on).

This current rout is simply a continuation of the previous one in July when similar curbs were placed to halt the plunge.

Once again, even if their tactics work they'll only help bring about yet another plunge.

All in all, the western demand is dying out since most countries are trying to in-source materials and goods (instead of importing from China) and domestic asset bubble has nowhere to pop and the lies invested in that bubble have nowhere to hide.

sidcool3• 11 years ago

That was not my point. I am being critical of China for staunchly supporting Communism (and hence to some extent being anti-capitalism and anti-democracy) and at the same time reaping benefits from democracies and capitalist states. I guess HN didn't like my earlier comment, but I do believe that. China has several times castigated India (where I belong) for being a shoddy nation of scared people due to its democracy. I find it a double standard.

_pmf_2• 11 years ago

A communist nation trying to reap benefits of capitalism

Thank god that US companies will never betray their nation's core values by shelling out to non-free countries in order to save production costs and circumvent labor laws.

icebraining3• 11 years ago

Knee-jerk reaction much? The parent poster is not even from the US, how exactly is that relevant?

sidcool3• 11 years ago

As mentioned before, that's not the direction of my argument. I have explained more in my comment above

branchless4• 11 years ago

Yes they should follow the US lead and bail out all their banks!

mahranch2• 11 years ago

Actually, China goes way beyond that. Where the U.S tries to nudge things one way or the other indirectly (by changing interest rates and the like), China has total control over their economic & monetary system (including the banks). And they exert that control almost daily. It's one of the reasons why the Chinese Yuan will replace the dollar as the world's reserve currency.

adventured10• 11 years ago

China has vaporized trillions already trying to bail out their banks, which are extremely over-leveraged on debt. China's entire banking system is under high duress right now due to the 'shadow banking' debt mess.

obayesshelton• 11 years ago

funny story, I was shorting some ETF's and Chinese indexes and I had to close all my positions due to a personal issue. Could of been drinks on me.

eddd• 11 years ago

China is at the "fear" level [1], prepare for more :) [1] https://steveblank.files.wordpress.com/2011/06/bubble-phases...

tspiteri• 11 years ago

prepare for more :)

What's funny about that?

riaqn• 11 years ago

"It's neither bear market nor bull market, it's monkey market".

seanmcdirmid4• 11 years ago

It is a heavily gamed market where only the inside traders usually win. It really is a reflection of how corruption is bad for china.

dpacmittal• 11 years ago

India's Sensex and Nifty is also 6% down wiping almost $120B from the market.

kriro• 11 years ago

Does anyone have a good link to a quick refresher on fundamental analysis and/or a reading list besides Graham and Buffet? Seems like just about the right time to look over some financial statements/balance sheets in depth.

drunkpotato• 11 years ago

The Bogleheads Guide to Investing is quite good and short. I read it before Graham and it helped my understanding quite a bit.

netcan4• 11 years ago

...1,968 stocks fell by the maximum 10% allowed by regulators…, or 68% of all stocks in China…

I don't really understand the way a price regulated stock market would normally work. Anyone understand this?

Normally the problem with price regulation is that the market doesn't clear. If the 10% limit was hit, there are sellers out there that tried to get out at the lowest allowable price but failed. Doesn't this mean they are probably going to be shares for sale at a lower price tomorrow?

Any time you hit the floor price you are accumulating a backlog of sellers. I don't think getting a call from a broker that he was unable to sell your shares is likely to cause calm tomorrow morning.

Basically, how's China's regulatory stuff going, now that it's getting tested in rough conditions.

icebraining3• 11 years ago

I think that's exactly what's been happening for weeks by now. It's like falling down the stairs - a step each day.

branchless4• 11 years ago

It's an attempt to put a break on sentiment. Many exchanges world-wide have "circuit breakers".

adventured10• 11 years ago

It doesn't work particularly well. A lot of people thought China's management of the economy was brilliant while the growth was easy. The same was true of Putin's Russia while they were riding the temporary oil price boom. Now the tide is going out on all of these easy growth scenarios that were riding the cheap dollar (including the $9 trillion in foreign debt issued in dollars that provided a lot of the growth fuel). The dollar has turned and is crushing emerging markets and pulling trillions in capital away from them.

When the tide goes out like it is now, you quickly discover that the bureaucrats in command economies are almost always incompetent and that incompetence was being temporarily masked.

China was propping up their markets to give the elites time to get out.[1] The stock market bubble was designed to be a wealth transfer, from household savings, to their extremely debt-laden corporations. That transfer is complete, and didn't work particularly well, so now China is prepared to allow the ceiling to cave in on the average investors holding the bag. That's why they've stopped supporting the market.

http://www.bloomberg.com/news/articles/2015-08-18/china-s-ri...

coldtea2• 11 years ago

When the tide goes out like it is now, you quickly discover that the bureaucrats in command economies are almost always incompetent and that incompetence was being temporarily masked.

So totally unlike those Wall Street genuises, with the trillion dollar bailouts and huge weath transfer crisis...

Sven72• 11 years ago

Doesn't matter how competent you are when the tide is unpredictable. In the long run with each cycle, there is some level of wealth transfer between the developed and developing world and that's not a bad thing in the fast changing times we live in.

thewarrior2• 11 years ago

Allow me to barge in with my armchar financial analysis ...

If you check the Baltic Dry Index , it's started dropping in the past few weeks indicating a slowdown in global shipping. Similar for crude prices.

There was a similar pattern in 2008 (though the reasons this time are a bit different) with crude and the Baltic index starting to tumble in August before the market nosedived in September. Not that we will repeat 2008 but we definitely have a leading indicator for renewed weakness in the global economy.

branchless4• 11 years ago

And this won't be 2008. For starters they can't cut to "emergency" rates.

jcfrei• 11 years ago

yeah, in my opinion the decline in shipping is far more worrying than the recent stock market crashes.

adventured10• 11 years ago

It's far worse than even the baltic is indicating:

"Shipping freight rates for transporting containers from ports in Asia to Northern Europe fell by 26.7 percent to $469 per 20-foot container (TEU) in the week ended on Friday"

"It was the third consecutive week of falling freight rates on the world’s busiest route and rates are now nearly 60 percent lower than three weeks ago."

http://gcaptain.com/asia-europe-container-freight-rates-have...

noja• 11 years ago

Here is the chart: http://www.bloomberg.com/quote/BDIY:IND

Can you explain why it worries you in a bit more detail? The drop doesn't look so bad.

thewarrior2• 11 years ago

The drop doesn't look so bad.. But (And I don't think it is) if this is 2008 redux then it has only started dropping .. :)

Balgair2• 11 years ago

Honestly, the BDI hasn't really changed that much as compared to the 2007 heydays : http://investmenttools.com/futures/bdi_baltic_dry_index.htm . There was some increase in the 'green shoots' days, but it's been bumping along since then. If anything, I think that means the world economy hasn't really ramped since then. Still, I'd love another opinion by someone that recognizes the value of watching the BDI.

loso• 11 years ago

A good thing to look at right now is the "Asian Contagion" in 1997. While we have different spark there is a good chance that the pattern could be similar. https://en.wikipedia.org/wiki/1997_Asian_financial_crisis. I'm hoping that we don't have a LTCM https://en.wikipedia.org/wiki/Long-Term_Capital_Management hidden with this drop but there is a good chance we have several.

jackgavigan2• 11 years ago

European markets are down ~3%.

EDIT: Make that ~4.5%. This is getting interesting!

Index futures markets suggest that the S&P500 will drop by ~3%, and the NASDAQ will drop by 4% when the market opens.

Tech stocks get hit harder in circumstances like this: http://www.ft.com/cms/s/0/8a62642e-49b9-11e5-9b5d-89a026fda5... (Google "Market turmoil leaves tech sector exposed" to bypass the paywall).

Bill Gurley is being bearish: https://twitter.com/bgurley/status/634573025329807360

It's worth remembering how markets really work: https://pbs.twimg.com/media/CNKLWDOW8AAgUBv.jpg:large

joeyspn• 11 years ago

It's worth remembering how markets really work

The panic button has been pressed...

https://www.youtube.com/watch?v=Bbv5B71KmkA

jackgavigan2• 11 years ago

Well, after a big dip when the US markets opened (the NASDAQ was down by more than 8% at one point, and the DOW dropped 1,000 points at the open), they've recovered and stabilised down between 2% and 3%. European stock markets have recovered from their lows too.

Move along, nothing to see here...

a3voices• 11 years ago

Good thing I sold nearly all my stocks last week! Too many bad experiences with bitcoin taught me things.

stephenitis• 11 years ago

That sounds like a terrible move to base all your investment strategy on your experiences from bitcoin.

acd• 11 years ago

Google Schiller P/E "Shiller P/E is 50% higher than the historical mean of 16.6"

joshuahedlund2• 11 years ago

Looks like it's time for the first real-world test (for most of us younger folks who didn't have anything invested in 2008 and have enjoyed a bull market since then) of all the theories I've read from financial independence gurus about index funds, i.e. how the market always recovers and goes up and if it doesn't none of this will matter anyway, the financial heads will always say it's different, the investors will always panic and oversell, just stay tough, hold on, maybe buy more, and come out ahead...

jeffreyrogers3• 11 years ago

China's market is very different than the markets in the developed world for a number of reasons (more isolated, less mature investor base, more direct government involvement, to name a few). So it probably isn't the best barometer for how other markets work.

roymurdock• 11 years ago

The stock market operates differently, but China's economy, which is an integral part of the world economy, is still tied directly to the market.

Chinese economic fundamentals (export, import, saving, consuming, government spending) will all be impacted by a failing stock market, which will translate into economic concerns across the globe.

known• 11 years ago

https://en.wikipedia.org/wiki/Chiemgauer can create millions of new jobs in the economy;

curiousjorge2• 11 years ago

in b4 "oh but if you bought back in 2003 you'd still be up 1000%"

shadow banking > gdp

debts > gdp

real estate over supply

infrastructural problems

political strife

pissed off middle class

China Stock Market Drops 8.5%

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