So What Else is New (February Edition)? Shanghai Index Crashed 6.41% Today!

In the case of China’s stock market crashes history seem, not just rhyme but repeat. Last January 26th, the Shanghai index plummeted 6.42%. 

The same index crashed 6.41% today or about a month from January’s crash.

Today’s crash was another broad based event.

The Bloomberg on today’s crash:

China’s stocks tumbled the most in a month as surging money-market rates signaled tighter liquidity and the offshore yuan declined for a fifth day.

The Shanghai Composite Index sank 6.4 percent at the 3 p.m. close, extending its declines this year to 23 percent. About 400 stocks on the gauge fell by the 10 percent daily limit. The overnight money rate, a gauge of liquidity in the financial system, climbed the most since Feb. 6. The Hang Seng China Enterprises Index retreated for a third day.

The return of volatility in mainland equities will raise the stakes for the nation’s policy makers as Shanghai prepares to host finance chiefs and central bankers from the Group of 20 meetings tomorrow. Today’s declines have almost wiped out a 10 percent rebound from a January low...

China’s overnight repurchase rate increased 16 basis points to 2.12 percent. Some banks were obliged to set aside more funds as reserves at a time when open-market operations are draining cash from the financial system.

The first indicators for China’s economy this month signal its slowdown hasn’t bottomed out yet, despite banks extending record new loans in January. Private gauges of manufacturing and services fell to new lows, a reading of business confidence slipped, and interest in small and medium sized businesses deteriorated, the readings show. If confirmed in official data for February that starts to roll out from March 1, such weakness would suggest a slowdown in the nation’s old growth drivers may be deepening.

China’s repeated crashes should be a noteworthy example of the axiom: there is never just one cockroach (cockroach theory). Of course, Chinese cockroach dynamics also serves as manifestations of how markets boomerang against market perversion through various manipulations. 

For instance, all the measures used by the government or the Xi Jinping Put to support the market—the ban on short selling, the intimidation and the arrests of ‘malicious’ short sellers, the disappearance of top industry officials, the censorship of media, postponement of IPOs, the prohibition of sales by majority holders, the subsidies, the mandate by state enterprises to bolster the stocks, and the coaxing of the public to mortgage their houses or any assets just to buy stocks—have only backfired.

Not even January's massive (half a trillion usd) surge in bank lending has prevented the recent volatility. 

Yet today’s crash nearly expunges more than half of post lunar New Year rebound (as indicated in the report) which was partly supported by the government

Likewise today’s crash brings the Shanghai index to about 3% off the January 28 2016 lows or the November 2014 levels.

Nonetheless, China’s crashes also shows of the 'proportionality' of boom bust cycles or how the bust will be roughly proportional to the imbalances acquired during the inflationary boom

Yet, China's crashing markets will serve as blueprint to all other bubbles.