Financial WILDFIRE is Already Burning!
SiverDoctors.com
July 15, 2015
Submitted by Bill Holter, JSMineset.com:
In the last article “An indication of PPT failure”, many readers wrote in and either asked what the various acronyms were or admonished me for using so many without explaining them. I will try in the future to assume the reader does not know what we’re talking about and at least spell out any acronym used. As for the last article; “PPT” = plunge protection team, “ROW” = rest of world
Today, let’s look at China and their recent efforts at preventing their equity markets from collapsing. First, it should be understood they are “too late”. I can say this because their PE (price to earnings) ratio even after the collapse of
25%-40% (with some stocks not even trading Friday), the Shanghai Exchange still trades at over 60 times earnings. In other words, at today’s rate of earnings it will take 60 years worth of earnings to equal what investors are willing to pay now. They have allowed and even fostered a bubble of epic proportions to form, no amount of effort can stop this bubble from collapsing.
This past week, China took the crazy steps of making it “illegal” for institutional accounts to sell …for the next six months! How will pension plans make promised payments? Will they send out IOU’s until it’s “legal” to sell again? There were also reports of brokers refusing to accept sell orders at all. Let’s say this, the harder China works at closing the exit doors and not allow sales will only work to put more pressure on the world’s other equity markets. This was one of the points I was trying to make when I wrote about the crisis “crossing borders” last week.
Think of it this way, what would you personally do if you were locked into the market here in the U.S.? What if our markets were closed, yet the Canadian or other European bourses were open? Would you consider selling something short elsewhere as a hedge because you are trapped long in the U.S.? Even if it is not the same company exactly, would you sell let’s say Fiat or Mercedes short as a hedge against being long shares of Ford Motor? Or forget even being industry specific, would you at least try to sell another bourse short and do it in dollars?
Do you see my point? China closing her markets will put pressure on other markets because being trapped can make for some “desperate people” …and you know what they say desperate people do!
Another reason the Chinese market will not recover is that speculation has run rampant and a cleansing is coming. Forget about opening four million retail accounts per day or hairdressers quitting their jobs to “day trade”, the amount of margin built up and being used is staggering.
The Rest…HERE
