Breaking: Philippine 2Q GDP 5.6% (Y-o-Y), 1Q GDP Revised Down to 5%

The NSCB website remains inaccessible.

However, tradingeconomics.com show that 2Q GDP inched higher to 5.6%, that's lower than the consensus expectations at 5.6-5.7%. But 1Q data had been revised down to just 5% (Rappler.com).

Q-on-Q grew by 1.8% which has been far from consensus expectations.

It's really a curiosity how the government comes up with these figures. 

I'll just wait for the NSCB's site to normalize before making any further comments.

US Stocks Stages Monster Relief Rally

The other day the US stock market rallied hard, but unfortunately, it faltered at the end of the session. I called it the Pump and Dump. 

Yet yesterday’s losses added to the recent stock market woes that have been plagued by a string of quasi crashes.

Last night, the bulls made sure that it would end on a positive note. Not only did it close up, US stock markets staged a monster rally, the biggest since 2011

From the CNBC: (bold mine)

U.S. stocks shot higher on Wednesday, rebounding from six consecutive days of declines that pushed the major averages into correction territory.

In addition to an oversold bounce, some analysts also attributed the gains to comments from the Fed's William Dudley that a September rate hike looks "less compelling" and a strong durable-goods report.

The major averages closed about 4 percent higher for their best day since 2011, with the S&P 500 rising out of correction territory. The index fell into correction during Monday's selloff.

Among the 10 S&P 500 sectors, tech, financials, health care, consumer discretionary and staples are all out of correction territory. The companies in the index gained about $640 billion in market capitalization on Wednesday, but have still lost $268 billion in capitalization this week and are down $1.3 trillion over the last week-and-a-half.

The Nasdaq Composite closed on the edge of correction, up 4.2 percent on the day. The Dow Jones industrial average remains in correction territory.

Gains accelerated into the close, with the Dow Jones industrial average ending up about 620 points after rising as much as 637 points.

Well there you have it.

For an oversold condition to find legs for a massive rebound, it required another soothing statement from the monetary politburo that easy money conditions will stay.

Yet such kind of monster rally we have also recently seen…but just across the Pacific Ocean

Will US stock markets be different?

Cuts in Interest Rate and Reserve Requirements to Save Stocks? Shanghai Index Suffers Steepest 5 day Slump!

So what happened to those “flushing of liquidity into the system”?

And for today, it has been more than just interest rate/ reserve requirement cuts but one of arrest of several personalities (via SCMP’s George Chen)…

Including one from media...

…who probably wrote of something about stocks which regulators didn’t approve of… 

…and of a banker…who may have sold or advocated selling shares or has done anything without the approval of authorities (again from Mr. Chen)

Of course, the day wouldn’t have been fun without the fierce battle between the government (perhaps the only remaining bull?) and a stampeding crowd at the exit gates…

The Shanghai intraday actions (courtesy of Bloomberg) show of the wild swings…down by over 4% at the start of the session to rally by over 1% in the early afternoon trade. This was followed by intense skirmishes as exhibited by the volatility going to the end.

However, finally government bulls succumb to the market bears at the close.

Again government funds led the buying according to Mr. Chen…

Now for the final tally. From Bloomberg:

China’s stocks extended the steepest five-day drop since 1996 in volatile trading as lower interest rates failed to halt a $5 trillion rout.

The Shanghai Composite Index fell 1.3 percent to 2,927.29 at the close, after rising as much as 4.3 percent and declining 3.9 percent. The cuts in borrowing costs and lenders’ reserve ratios were announced hours after the benchmark measure closed with a 7.6 percent drop on Tuesday.

Chinese equities have lost half their value since mid-June, as margin traders closed out bullish bets and concern deepened that valuations are unjustified by the weak economic outlook. The government has halted intervention in the equity market this week as policy makers debate the merits of an unprecedented rescue, according to people familiar with the situation.

Bottom line: The lesson from George Santayana’s wisdom has clearly been a standout for the day: Those who cannot remember the past are condemned to repeat it.

Macabre Tweet of the Day: Victim of China’s Stock Market Crisis

I had second thoughts about posting this macabre tweet from SCMP’s George Chen.

But it dawned on me that this image should underscore the wretched effects of bubbles.

The outrageous part has been that modern day governments (not limited to China) deliberately has fueled domestic bubbles in exploiting its gullible citizenry.

Bubbles have been part of the financial repression (zero bound, negative real rates and QE) policies or the invisible redistribution of wealth from the citizenry to the government and their private sector allies.

And eventually the hapless victims, pay the price for government’s predation.

Victims are not entirely blameless though. Had they developed self discipline through more financial education then this wouldn’t be a likely outcome.

Of course, I am not referring to the mainstream education which further exploits people’s vulnerability by focusing on silly historical numbers, from bogus math models and imagery patterns.

I allude to education that focuses on the identification of bubbles, its nature: formation, stages and aftereffects.

Mises-Hayek’s The Austrian Business Cycle Theory (ABCT) principally captures the essence of this. Charles Kindleberger’s "Manias, Panics and Crashes", Peter Bernstein's "Against the Gods" and Harvard’s Carmen Reinhart and Kenneth Rogoff’s “This time is Different” should be wonderful starting points.

Back to China’s developing crisis.

It’s not just interest rate cuts, the yuan was devalued again today

Additionally, the Chinese government has become so desperate to curtail the stock market crash that  they will “launch a three-month crackdown on unerground banking to curb money-laundering and illegal funds transfers as unstable markets stoke fears of capital flight.” according to  Reuters. 

In other words, capital flight has been accelerating to the point that the Chinese government can hardly contain her soft peg. So they had been forced to devalue almost daily.

As I have written two weeks back,

Also last week’s depreciation or devaluation could now be seen as a nasty side effect of China’s stock market rescue. Said differently, the Chinese government focused on saving the stock market either without knowledge of the malevolent consequences of credit expansion on the yuan, or that the government just took on the gambit to save face in the hope to reverse the underlying sentiment that has driven BOTH the stock market crash and capital flight.

This also means that for as long China’s bubbles deflates, the yuan will fundamentally weaken as capital will look for safehaven elsewhere, away from an imploding bubble economy.

Current events only has been validating my projection that “as each day passes China’s woes continues to deepen, where every step undertaken by the government to delay the day of reckoning only hastens its arrival.”

Oh by the way after a seesaw start, the Shanghai index fell by almost 4% according to Mr. Chen. But the SSE has now rebounded to offset the losses. The midday close shows the SSE up .8%

Like in the past, the rate cuts PLUS massive infusion of taxpayer money, capital controls and political repression have done little to shore up the imploding Chinese stock market and the economy.

Yet all the cumulative actions by the Chinese government have signified only signs of panic that things seem as getting out of hand.

Stunning: US Stocks on a Furious Pump and Dump!

Wow.  Posted below I noted of how US stocks had been drifting about 3%+ at the opening. Now I awoke to discover that another quasi crash overwhelmed them

Here’s an ex-post explanation from Bloomberg:

A rebound that took the Dow Jones Industrial Average up more than 440 points disappeared in the final hours of trading, with investors giving in to trepidation over what will happen overnight in China amid the most volatile equity markets in four years.

The 30-stock gauge ended down 204.91 points, or 1.3 percent, at 15,666.44 at 4:09 p.m. in New York, and 4 percent below its session high. The peak-to-trough retreat exceeded the loss at Monday’s close, when concern about global growth ignited the worst decline for U.S. shares in four years. The Standard & Poor’s 500 Index went from up 2.9 percent to down 1.4 percent, closing at 1,867.61 as most of the selling occurred after 2 p.m.

Let me take the Dow as example to explain the quasi crash. 

At 440 points that’s equivalent to 2.8%. So the Dow’s intraday peak was at 2.8%.

But the Dow ended the day down 1.29%. So the Dow’s early 2.8% pump turned into a brutal last minute 4.09% or 644 points dump!

So if China’s rate cut has been the “cause”, or if doubts on the effectiveness of the PBoC’s rate cutting has incited this shocking reversal, then this simply implies that the markets have now taken a transitioning perspective on central bank actions. They are pushing back on central bank policies!

As I wrote last weekend,

The era of central bank free lunch policies are coming to a close.

I’d add that this hasn’t just been China.

This has also been a manifestation of the entropic internal dynamic in US markets too. 

Below are few examples as provided for by Gavekal Team (based on last Friday’s close)

The above only shows of the ongoing decay within US stocks even prior to the meltdown.

In short, the meltdown represented a ventilation of the gaping divergence between the headline index and market internals

Psychologically, the previous sharp slump may have been increasing strains or doubts on the sustainability of US markets at current levels.

Recent developments have really been phenomenal. And I suspect, all this marks a vital MAJOR turning or inflection point.

Let us see how Chinese stocks will respond to the rate cuts. Rationalized by media as similar to Greenspan’s pivotal 1987, the last time around the PBOC cut rates, Chinese stock crumbled. And this prompted to the series of draconian direct interventions.

China’s Shanghai Index Crashes 7.63% Again, Japan’s Nikkei Slumps 3.96%

It seems that the adulterated Chinese version of King Canute, whom has incredibly failed to stop the stampede out of China’s stock markets, might soon concede to the futility of their actions.  That’s because there seems to be no barrier to the juggernaut in the crash of Chinese stocks.

With today’s 7.63% crash, the Shanghai Index fell below the key psychological threshold of 3,000

From Bloomberg:(bold mine)

Chinese shares plummeted to extend the steepest four-day rout since 1996 on concern the government is abandoning market support measures.

The Shanghai Composite Index tumbled 7.6 percent to 2,964.97 at the close, sinking below the 3,000 level for the first time in eight months. The gauge has dropped 22 percent in four days since Aug. 19. More than 700 stocks fell by the 10 percent daily limit in Shanghai on Tuesday, including PetroChina Co., the nation’s biggest company by value.

Speculation around the government’s intentions has escalated since Aug. 14, after China’s securities regulator signaled authorities will pare back the campaign to prop up share prices as volatility falls. The China Securities Regulatory Commission made no attempt to reassure investors after Monday’s plunge, unlike a month ago when officials issued two statements shortly after an 8.5 percent drop.

See, China’s King Canute has almost given up in trying to quell the selling tsunami! That’s because with every effort they take, they look incredibly helpless, if not ludicrous. 

Additionally, perhaps the Chinese leaders now realize that their actions only exacerbate on the ferocity of backlash.

More…

Tuesday’s drop is the seventh decline of more than 6 percent for the benchmark gauge in the past three months.

The CSI 300 Index declined 7.1 percent, with gauges of energy, technology and material companies sinking more than 8 percent. PetroChina, long considered a favorite holding of state-linked rescue funds, closed at its lowest level since December…

Some 17 percent of listed shares traded on mainland bourses were halted from trading Tuesday, little changed from Monday. About 40 percent were suspended during the depths of last month’s rout.

Industrial & Commercial Bank of China Ltd., the nation’s second largest company, fell 5.1 percent in an 11th day of declines. Agricultural Bank of China Ltd. slid 9 percent. Futures on the CSI 300 sank by the 10 percent daily limit.

To add, according to SCMP's George Chen only 28 stocks rose today with about 2000 stocks at daily limit down.

So today’s rout brings the Shanghai index back to the February 2015 and December 2014 levels.

Should another 900 points of losses materialize, then this would extrapolate to 'back to square 1' for the index or the return to the root of the bubble cycle. And in the event this happens, this means ALL gains from the previous boom would have been expunged!

Meanwhile, the Yuan fell anew against the US dollar on likelihood of continuing capital flight from the China's multiple hissing bubbles.

On the other hand, Japan’s Nikkei 225 slumped by another 3.96% today.

Curiously, the Japanese major equity index experienced sharp intraday volatility today 

After opening deep in the red, the Nikkei rallied strongly to erase all the losses to even generate modest gains going into the mid session.

These gains, unfortunately, succumb to late session collapse. So essentially the Nikkei closed at almost the same level where it opened. Fantastic round trip.

Well, US futures and German equities seem to have departed from the Asian counterparts. As of this writing, both are up by about an astonishing 3.0%+ which almost neutralizes the gist of yesterday’s losses. 

Updated to add: No wonder the violent rally, China's central bank, the PBOC just cut interest rate for the Fifth Time since November 2014. 

This means no surrender yet for China's Canute. 

And this also means additional debt to an economy struggling to maintain its debt.

Chart of the Day: How Big is Uber?

From the National Post (hat tip Mark Perry)

Asian Crisis Watch: Bears Snare Fourth Asian Bourse: Thailand's SET

Membership to the Asian Bear Market Club has been growing amazingly fast.

Thailand's major equity bellwether, the SET, highlights the fourth bourse (Asia ex-China) to join the bear's camp during last three trading days.  

The above represents the SET down 20% from the May 2013 highs.

That's because today's crash aggravated the existing sagging conditions of the SET

Of course, the bears' week old Asian recruits include Hong Kong, Taiwan and Indonesia.  

Also, bears now control two major ASEAN indices.

Well, Thailand's stock market quandaries have been abetted by the falling currency,  the baht.

Like the rest of Asia, the US dollar against the baht has recently been surging

As I have been saying, the more the bears gain recruits, the greater the chances for an Asian Crisis 2.0. Of course, an Asian crisis will most likely have a global fallout.

Worst, a China crisis PLUS an Asian crisis will likely usher in a 1929 like global crisis but with the epicenter situated in Asia.  

The Phisix is Mortal After All: Crashes 6.7%!

After all the portrayal of invincibility and of “this time is different”, the Philippine Phisix is shown to be mortal after all!

With today’s 6.7% carnage which totals 16.44% from the April 10 record high of 8,127.48, suddenly the Philippine benchmark finds itself staring at the eyes of the bear market.

I expect the self attribution bias to dominate tomorrow’s headlines: Today’s crash hasn’t due to internal factors but to external forces [insert explanation here. Choose: Fed hike, US, China, global meltdown, blah blah blah]

What you won’t hear is that panics and crashes are symptoms of excesses.

What you won’t also hear is that Philippine stocks have become vulnerable to external influences because of internal maladjustments.

Just to give some basic examples: Are 20-35 PERs ‘normal’? Especially for mature firms whose growth should in the long run equal the rate of growth the economy? (the above are based on Friday’s close)

Second, just look at the distribution of market cap weight as % share of total index. The top 5 issues carry a weight of 39.5% which is almost DOUBLE the aggregate share of the last 15 issues at 19.82%! (again numbers are from last Friday). The next 5-10 accounts for 25.33% which is still 27% more than the last 15!

The mispricing based on PERs has been reflected on the market cap distribution. That’s because the object of the previous pumping has been centered on the biggest markets caps. And such daily serial pumps on these big cap issues has vastly inflated their PERs

Again, the disproportion in the distribution in market cap and the PERs has been a function of the index pumping which is basically has been a result of the scheme by manipulators to push the index to record highs even when the general market has been diverging from the performance of the top 10 issues.

So manipulations led to the deformation of the index weighting and to the overvaluations.

And remember, the Phisix has already been weakening even prior to the last week’s global meltdown. Just look at the chart above from Bloomberg.

I spilled a lot of ink here showing how shrinking volume, and other trade data, aside from deteriorating market internals, have been indicative of diminishing liquidity. Just yesterday I wrote,

This week’s average daily peso volume has skidded to the lowest level for the year. This extrapolates to the fast evaporating firepower from the bulls and from manipulators in support of the bids. When the support for the bids at current levels weakens, the probability of pronounced downside volatility will be amplified.

Just look at the PSE data above, the bids appeared (as shown by the Php 13.03 billion) only after the Phisix came down to the 6,800 levels. Yet to sustain this level, volume has to be retained. Otherwise there will be more downside pressures.

Moreover, the internal market selloffs have been a continuing trend since the start of the year. But the deterioration of which became evident during the past four weeks. 

Thus, today’s 13 advancers as against 212 decliners or 1 advancing issue for 16 declining issues represents the venting of the buildup of internal pressures.

So what happened was that external factors became the justification to unleash the pressures from imbalances that has accrued WITHIN the index proper.

You can see this before and after the crash.

As of Friday, 15 index issues have been in bear markets. Four came from the top 15. But the Phisix was just slightly off the record highs.

Here is how it looks today at 6,790. 

21 issues are now in bear markets! Four have now infected the top 10, and 9 on the top 15.  So bears spread to contaminate more of the biggest heavyweights.

Media and their talking heads will blame everyone else. But here is the most important factor which they will deny or ignore: 

The obverse side of every mania is a crash.

Chinese Stocks Craaasssshhh 8.5% Again! Japan's Nikkei Tumbles 4.61%!

This is just awesome!

Newton’s third law of motion: For every action, there is an equal and opposite reaction

From Bloomberg: (bold mine)

China’s stocks plunged the most since 2007 as government support measures failed to allay investor concern that a slowdown in the world’s second-largest economy is deepening.

The Shanghai Composite Index tumbled 8.5 percent to 3,209.91 at the close to erase its gains for the year. The Hang Seng China Enterprises Index of Chinese stocks in Hong Kong fell 5.8 percent to its lowest level since March 2014. Futures on the CSI 300 Index declined by the 10 percent daily limit.

Worsening economic data and signs of capital outflows are undermining unprecedented government attempts to shore up the country’s $6 trillion stock market. While China said over the weekend it will allow pension funds to buy shares for the first time, a speculated cut in bank reserve ratios failed to materialize.

Broad based meltdown…

More than 800 stocks fell by the daily 10 percent limit on the Shanghai Composite, including China Shenhua Energy Co. and China Shipbuilding Industry Co. The gauge has tumbled 38 percent from its June 12 peak to wipe out more than $4 trillion of value.

The Hang Seng Index sank 5.2 percent in Hong Kong. The gauge’s relative strength index declined to 15.1, the lowest since the aftermath of the October 1987 stock market crash. A level below 30 signals to some traders losses are overdone. Taiwan’s Taiex index slid as much as 7.5 percent, before paring losses to 4.8 percent.

Despite today's crash, still expensive…

Stocks on mainland bourses traded at a median 61 times reported earnings on Friday, according to data compiled by Bloomberg. That’s the most among the 10 largest markets and more than three times the 19 multiple for the Standard & Poor’s 500 Index.

A stock market triggered capital flight…

Yuan positions at the central bank and financial institutions fell by the most on record last month, a sign capital outflows have picked up. Chinese equity funds were the biggest contributors to more than $4 billion of outflows in Asia excluding Japan in the week to Aug. 19, EPFR Global said. Margin traders reduced holdings of shares purchased with borrowed money for a fourth day on Aug. 21

This means more pressure on the yuan...

..as the USD/CNY marched upward today..

Oh by the way ...

Japan's Nikkei 225 also plunged today

SCMP’s George Chen gives the LOL of the day…

1929 China edition déjà vu?

China Stock Market Rescue Fever Spreads to Taiwan, South Korea and Indonesia

When the Chinese government launched their stock market rescue program, I predicted that this will be copied by the others:

Yet pretty soon, China’s latest anti bear market paradigm may be embraced by political agents of other nations.

Bullseye! Here comes the Asian stock market rescue boom. 

From Bloomberg:

China isn’t the only country resorting to extraordinary measures to shore up its tumbling stock market.

Taiwan on Sunday slapped a ban on short-selling of borrowed stocks at prices lower than the previous day’s close, while South Korea’s finance ministry said it will act “pre-emptively” after the nation’s largest exchange-traded fund suffered the biggest weekly withdrawal since its inception 15 years ago. China itself said over the weekend it will allow pension funds to invest in stocks for the first time, while penalizing major shareholders at publicly traded companies for violating rules that limit stake sales.

Benchmark stock gauges in Taiwan, Hong Kong and Indonesia entered bear markets last week after sliding at least 20 percent from recent peaks as China’s surprise devaluation of the yuan and prospects for the first U.S. interest-rate increase since 2006 triggered concern competitive devaluations will hurt economic growth and fund outflows will accelerate.

In South Korea, financial authorities were ordered to hold meetings to monitor the markets and implement measures when necessary, the country’s Financial Services Commission said.

More on Taiwan’s ban on short selling

Taiwan’s financial watchdog imposed the ban on short-selling of borrowed stocks and depository receipts, the Financial Supervisory Commission announced. The measure will take effect on Monday, it said.

While the rule doesn’t apply to brokerages and futures brokers who are shorting for hedging purposes, the regulator is working to encourage the financial industry to hold shares of listed companies, it said on its website. Taiwan’s benchmark index fell 5.2 percent last week.

Indonesian lackeys to support stocks even as the currency dives

In Indonesia, the nation’s largest fund manager is taking the slump that’s driven stocks into a bear market as the cue to start buying again.

BPJS Ketenagakerjaan, which manages around 193 trillion rupiah ($13.8 billion), will enter the equities market along with other state-owned institutional investors, Elvyn Masassya, its president director, said in a text message on Sunday. Shares are “relatively cheap,” he said, without naming any.

Poor depositors. Their moneys will be sacrificed at the alter of politics.

Well, might as well ask the Indonesian central bank to hyperinflate as this will surely cause a stock market boom.

Additional actions by the Chinese government: more crackdown on selling and the punishment of pensioners:

China securities regulator said late Friday it will penalize major shareholders at publicly traded companies, such as Southwest Securities Co. and Guoxing Rongda Real Estate Co., for violating rules that limit stake sales.

The China Securities Regulatory Commission’s investigation focuses on whether shareholders sold their stakes beyond what rules allow, if they sold them during a moratorium period and whether they made timely disclosures, Zhang Xiaojun, a spokesman for the regulator in Beijing, told reporters. The benchmark Shanghai Composite Index plunged 4.3 percent on Friday, coming within one point of wiping out an 18 percent rebound since the July 8 low.

The State Council, or cabinet, on Sunday announced it will allow pension funds to invest in new products, including the stock markets, while restricting the maximum proportion of investments in equities to 30 percent of total net assets. Pension funds had net assets of 3.5 trillion yuan ($547 billion) by the end of 2014, the official Xinhua News Agency reported.

As I have repeatedly said here, stocks markets have transformed into a political tool.

 

Yet more calls for state support is a sign of desperation and PANIC

Arab Stock Markets Crushed!

Interesting start of the week. 

Stock markets of members of Gulf Cooperating Council (GCC) have just taken a beating.

The above table represents an overview of last night's performance of Arab stock markets (all charts from ASMAINFO.com). 

Below are charts of the national stock markets

Kuwait

Saudi Arabia

Oman's Muscat

Qatar

United Arab Emirates

Bahrain

With oil at $40, these indices are south bound.