
China Stock Market Drops 8.5% - electic
http://www.marketwatch.com/story/china-shares-wipe-out-2015-gains-as-stocks-tumble-85-2015-08-24?dist=tcountdown
======
timr
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.)

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

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

~~~
dantillberg
It's very very likely to rebound, but there would be some question of _when_ ,
and whether that happens before or after your futures contract delivery date.

I remember seeing gas at $4-5/gallon (in the northeast USA), and figuring that
everyone should be happier to stock up while it's not far more expensive, and
that it's bound to just keep climbing forever as we run out of global supply.
Gas is selling for $2.50/gallon or so now, which doesn't mean that it won't
climb again and retail for $20 or $100 a gallon in the future, but it does
mean that if I bought futures in gas ten years ago for delivery now, then I
would have lost of lot of money.

------
netcan
...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.

~~~
adventured
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...](http://www.bloomberg.com/news/articles/2015-08-18/china-s-richest-
traders-are-fleeing-stocks-as-the-masses-pile-in)

~~~
coldtea
> _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...

~~~
adventured
Who said anything about the US or Wall Street?

You're making the classic logic mistake of assuming because I said X, I also
must be implying Y.

~~~
coldtea
When one criticizes X (and only X), then -X which might be equally bad gets
scot free. That's no logical error, it's a fact (that nothing is said of -X).

So either one does an exhaustive critique of all classes of X, or his critique
implicitly favors one of them (it's like if one's two kids do a similar bad
thing and he only scolds one of them).

My argument was just trying to bring some counter-balance (to have the -X
items people consider as "opposite" to the class of X you criticized, judged
too).

~~~
meric
The U.S. Economy is to a smaller extent a command economy due to central bank
control of currency and interest rates, so it's not 'unlike the U.S..' If he'd
talk about the U.S., it'd be 'like the U.S.'.

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

~~~
adventured
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).

~~~
dataminer
I agree with alot of what you have said. However, here is what I am trying to
understand. Who will buy US treasuries, when all its major buyers are getting
in serious trouble? How will US government fund itself?

Here is a list of all the buyers
[http://www.treasury.gov/ticdata/Publish/mfh.txt](http://www.treasury.gov/ticdata/Publish/mfh.txt)

No country is an island anymore. Even Greece, which has a smaller economy, can
cause problems for everyone around the globe.

~~~
pyre
Unless I'm misunderstanding something, that link says "holdings" which doesn't
mean "buyers."

------
jackgavigan
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...](http://www.ft.com/cms/s/0/8a62642e-49b9-11e5-9b5d-89a026fda5c9.html)
(Google "Market turmoil leaves tech sector exposed" to bypass the paywall).

Bill Gurley is being bearish:
[https://twitter.com/bgurley/status/634573025329807360](https://twitter.com/bgurley/status/634573025329807360)

It's worth remembering how markets _really_ work:
[https://pbs.twimg.com/media/CNKLWDOW8AAgUBv.jpg:large](https://pbs.twimg.com/media/CNKLWDOW8AAgUBv.jpg:large)

~~~
jackgavigan
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...

------
joshuahedlund
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...

~~~
jeffreyrogers
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
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.

------
thewarrior
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.

~~~
noja
Here is the chart:
[http://www.bloomberg.com/quote/BDIY:IND](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.

~~~
thewarrior
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 .. :)

------
jakozaur
Meanwhile S&P 500 is also failing:
[https://www.google.com/finance?q=INDEXSP:.INX](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](https://news.ycombinator.com/item?id=9851214)

I'm glad that I sold my stock ETFs.

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

------
rndn
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](http://i.imgur.com/gpHe1gc.png)

~~~
icebraining
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.

------
w1ntermute
Dow, S&P, and NASDAQ futures have tanked:
[http://money.cnn.com/data/premarket/](http://money.cnn.com/data/premarket/)

This week is going to be ugly.

------
crorella
A good time to buy more!

~~~
pmalynin
Time to short everything!

~~~
sama
One of those two things.

~~~
dnautics
"Also, I think the market crash is starting. Im making one last trade (altera)
which should go up 10% and then I am shorting sales force."

\- Me, to my father, five days ago. The altera trade is not going well, so
far... I may not have picked the right stock to ride the wave with.

~~~
pjc50
What on earth made you think that Altera were going to be an exception here?

~~~
trsohmers
Intel announced back in June that they were acquiring Altera for $54 a share,
while the stock is currently at $48.17

------
loso
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](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](https://en.wikipedia.org/wiki/Long-
Term_Capital_Management) hidden with this drop but there is a good chance we
have several.

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

------
jamesblonde
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...](http://www.barrons.com/articles/why-chinas-currency-could-
fall-20-1440143855)

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

~~~
seanmcdirmid
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!

~~~
toyg
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.

~~~
antientropic
The claim that prices "basically doubled" during the Euro switchover seems
rather exaggerated: [http://www.inflation.eu/inflation-rates/italy/historic-
infla...](http://www.inflation.eu/inflation-rates/italy/historic-
inflation/cpi-inflation-italy.aspx) (i.e. inflation was about 2-3%).

~~~
toyg
In Italy there is a wide (and ongoing) debate on this topic, because there is
a clear disconnect between official statistics from those years and widespread
public perception (which, tbh, includes mine). Unfortunately very little is
translated, but a couple of Italian studies on the phenomenon are at
[http://www.treccani.it/enciclopedia/inflazione-e-
inflazione-...](http://www.treccani.it/enciclopedia/inflazione-e-inflazione-
percepita-euro_%28XXI_Secolo%29/) and [http://www.mi.camcom.it/l-euro-tra-
inflazione-percepita-e-po...](http://www.mi.camcom.it/l-euro-tra-inflazione-
percepita-e-politiche-di-pricing)

In short, some specific sectors did increase prices dramatically in those
years, and probably were the ones felt the most by everyday consumers (food,
restaurants, retail etc). I would personally add that Italian statistics on
economic elements are historically lacking, due to widespread tax evasion and
unreported activity, and suffer from the huge economic disconnect between
North and South.

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

~~~
tspiteri
> prepare for more :)

What's funny about that?

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

~~~
seanmcdirmid
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.

------
known
[https://en.wikipedia.org/wiki/Chiemgauer](https://en.wikipedia.org/wiki/Chiemgauer)
can create millions of new jobs in the economy;

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

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

------
curiousjorge
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

------
a3voices
Good thing I sold nearly all my stocks last week! Too many bad experiences
with bitcoin taught me things.

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

------
sidcool
A communist nation trying to reap benefits of capitalism.

~~~
_delirium
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.

~~~
mahranch
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.

~~~
_delirium
Isn't _the_ core part of communist social ideology that the government should
constitute the political rule of the proletariat? I'm having trouble finding
aspects of China's social policy that looks particularly communist. Their
policy in the social realm is something like: try to minimize social
upheavals, and keep huge and growing inequality from causing open rebellions.
When useful, distract the population with nationalist red meat. All that seems
like pretty normal fare for an authoritarian capitalist country.

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

~~~
c1sc0
How does that work? My understanding was that money was flowing towards VC
exactly because of poor market performance since the 2008 crash.

~~~
dluan
The Chinese bubble has partially been driven by lots of IPOs
([http://www.wsj.com/articles/chinas-ipo-market-leaves-u-s-
in-...](http://www.wsj.com/articles/chinas-ipo-market-leaves-u-s-in-the-
dust-1433446985)).

~~~
spacecowboy_lon
And by new investors borrowing money to invest - latest bad idea to use
pension funds to prop up the stock market.

------
obayesshelton
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.

