Brush Fires Everywhere

“Beijing is throwing everything and the deep-fry wok at the markets to try and stabilize them,” writes Greg Guenthner of our trading desk. “The big joke now is that they’ll just give up and make it illegal to sell shares.”

Some joke. Moments after Greg’s Rude Awakening hit subscriber inboxes this morning, Bloomberg posted this story: “China’s securities regulator banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months, the latest effort to stop a $3.5 trillion rout in the nation’s equity market.”

About half of China’s listed companies have suspended trading anyway — up from about a third yesterday. Still, the Shanghai Composite Index slid another 6% today.

That’s a 32% drop from the peak on June 12. On the other hand, it’s still up 72% from this time a year ago.

“I have mentioned before that a 40% correction in Chinese stocks should be expected?” writes the estimable Marc Faber in his latest Gloom, Boom & Doom Report.

“This would likely lead to weakness in other Asian stock markets as well. Should Asian stock markets decline more meaningfully (by 20% or more), it is likely that there would be a spillover effect, which would spread to Europe and the U.S. as well.”

Tumultuous, for sure, but not the end of the world. “China may have a multibillion-dollar meltdown,” our own Jim Rickards explained in Monday’s Daily Reckoning, “but it has a multitrillion-dollar fire hose in the form of its official reserves.”

For what it’s worth, Chinese state media are taking the longer view. The business programming on English-language CCTV News acknowledges the market turmoil, but it’s not the big story…


Ufa, Russia, is the scene of two summits this week. First come the BRICS nations — Brazil, Russia, India, China, South Africa. At the top of the agenda is the launch of something called the New Development Bank — a competitor to the World Bank and International Monetary Fund.

Then comes the Shanghai Cooperation Organization — comprising China, Russia and four of the central Asian “-stan” countries. India and Pakistan are likely to join this week.

Both groupings amount to what Jim Rickards labels an anti-dollar alliance. “All of these countries,” he said here in The 5 last December, “are clear about their desire to break free of U.S. dollar dominance.”


Dave Gonigam
for The Daily Reckoning

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