China Stocks Drop 6.5% Yet the MSM is Silent?

May 28, 2015 at 08:24 AM EDT

This is just getting surreal . I've been warning you for weeks that a big correction is coming in China and it's been amusing reading how wrong I was and how it's a new paradigm that I don't understand and China isn't like other markets etc., etc. In other words – pretty much the same stuff people say right before every bubble bursts but instead of dot.com or sub-prime, now people say "this time is different" for China . I don't like telling people to go to cash – no one wants to subscribe to a stock market newsletter that tells you not to buy stocks but, when the sitution in the market becomes this uncertain – I'd rather be safe than popular. The only reason the Shanghai stopped dropping today is because the bell rang to close the market. Also, you have to consider that a 10% drop is limit down for individual stocks so almost half the stocks stopped trading long before the close . If you even hear the MSM mention the fact that a major Global market fell 6.5% in a day, you'll probably also hear the excuse that " brokers tightened margin requirements " but that's only partly true as what really happened today is Changjiang Securities Co. became the 3rd broker to raise margin requirements and it's much smaller than two majors who raised them last Thursday, which had no effect at all on the market. “With the total margin financing volume approaching two trillion yuan ($322 billion), institutional investors [are becoming] more cautious over any potential market bust,” said Li Lei, an analyst at Minzu Securities . “The growth rate of margin finance will slow down as brokers tighten rules, but the sheer volume will continue to climb to around three trillion yuan.” Disclosures that Central Huijin Investment Ltd. was selling mainland shares of two of China’s largest state-owned commercial banks— Industrial & Commercial Bank of ChinaLtd. and China Construction Bank Corp.--came out earlier in the week, but analysts said that Chinese websites and blogs were talking about the sales. Huijin—a subsidiary of China Investment Corp., the nation’s sovereign-wealth fund—is …

Embedded image permalink This is just getting surreal.

I've been warning you for weeks that a big correction is coming in China and it's been amusing reading how wrong I was and how it's a new paradigm that I don't understand and China isn't like other markets etc., etc. In other words – pretty much the same stuff people say right before every bubble bursts but instead of dot.com or sub-prime, now people say "this time is different" for China.

I don't like telling people to go to cash – no one wants to subscribe to a stock market newsletter that tells you not to buy stocks but, when the sitution in the market becomes this uncertain – I'd rather be safe than popular. The only reason the Shanghai stopped dropping today is because the bell rang to close the market. Also, you have to consider that a 10% drop is limit down for individual stocks so almost half the stocks stopped trading long before the close.

If you even hear the MSM mention the fact that a major Global market fell 6.5% in a day, you'll probably also hear the excuse that "brokers tightened margin requirements" but that's only partly true as what really happened today is Changjiang Securities Co. became the 3rd broker to raise margin requirements and it's much smaller than two majors who raised them last Thursday, which had no effect at all on the market.

“With the total margin financing volume approaching two trillion yuan ($322 billion), institutional investors [are becoming] more cautious over any potential market bust,” said Li Lei, an analyst at Minzu Securities. “The growth rate of margin finance will slow down as brokers tighten rules, but the sheer volume will continue to climb to around three trillion yuan.”

Disclosures that Central Huijin Investment Ltd. was selling mainland shares of two of China’s largest state-owned commercial banks— Industrial & Commercial Bank of ChinaLtd. and China Construction Bank Corp.--came out earlier in the week, but analysts said that Chinese websites and blogs were talking about the sales. Huijin—a subsidiary of China Investment Corp., the nation’s sovereign-wealth fund—is…