China: Economic Witch Hunt

China has just revealed itself to be very anti-free trade.

They are going after short sellers.

If you’re not a serious investor, here’s how short selling works:

If you think a stock will go up in price, you buy the stock and sell it when it goes up a ways.

If you think the stock is going down in price, you sell the stock high and buy it to cover the position, when it has come down.

In options trading we have two kinds of options: 

Call options bet the market will go up.  Put options are a bet the market (or stock) will go down.

This month, the Shanghai stock market did terribly.  And as you can see on a one year chart (over here) it has seen something like 30% of its value whacked.

Rather than let the market work things out, however,  Chinese regulators are going on a witch hunt.  They are pressuring both foreign and domestic stock outfits to turn over records on who made money by piling on to bloated, overpriced, supersaturated market and made a few Yuan.

There are two ways to make money in any market:  Spot a good deal before anyone else and ride it up making money with a long position and call options.

The other way is to spot the moment of absolutely loony behaviors and sell short and own a bunch of put options.

So a simple note to the government of China:  Don’t fall into the danger of rigged markets where only good news is allowed.  You want to see real market panic?  Just go after short sellers and everyone else will quickly figure out that the country doesn’t really want winners…it wants something else.

Raw naked power and control.  And that’s not how free markets work.

As someone who made a little money in 1987, 2001, and 2008, I can tell you that short selling is a vital function in markets since it keeps everyone honest.

Would you gamble in a casino where winning more than $5 dollars would lead to a back room shakedown?  “You’re welcome to win as much as you want, but if you bet against the house, take your action elsewhere.”

No worries – The market will.  And Shanghai’s decline doesn’t look complete, to my eyes.

Cancer In Your Ear

We knew it:  New report out says yes, cell phones do cause cancer.

Sometimes being a Luddite pays off.  Everyone laughed at Ure and many went away when I decried cell phone dangers 10 years ago. And now?  Real data.

Mind Control in Drinking Water

Along the same lines, Denver is shaping up for a showdown about putting fluoride in drinking water.

You Need a Job in Government

New employment cost data is out this morning – and here’s how things looked in the private sector:

Compensation costs for private industry workers increased 1.9 percent over the year, about unchanged from the previous year when the increase was 2.0 percent. Wages and salaries increased 2.2 percent for the current 12-month period. The increase for the period ending June 2014 was 1.9 percent. The increase in the cost of benefits was 1.4 percent for the 12-month period ending June 2015. This was lower than a year earlier when the increase was 2.4 percent. (See charts 3 and 4 and tables 5, 9, and 12.) Employer costs for health benefits increased 2.8 percent over the year. In June 2014 the increase was 2.7 percent.

Now, look at how things did for gubmint workers:  (They are too embarrassed to publish the federal worker data!)

Compensation costs for state and local government workers increased 2.2 percent for the 12-month period ending June 2015. In June 2014 the increase was 2.0 percent. Wages and salaries increased 1.9 percent for the 12-month period ending June 2015, higher than a year earlier when the increase was 1.3 percent. Benefit costs increased 2.7 percent in June 2015.

So those of us in the private sector get to make less while those who can’t even close the borders are making what?  Oh, they conveniently didn’t mention federals.

Quick…look surprised.

Stock future futures improved a bit to flat and gold flipped positive on this. 

Sex with Greece

The IMF has decided to join the financial gang-bang of Greece by deciding not to provide bailout funding right now.

The EU says this will not scuttle the bailout, but let me ask you “How is the EU’s track record on honesty, candor, and transparency?”

Falling Oil, Sex with Russia

Oh, Russia which gets a lot of its dough from petroleum (oil and gas) is stuck on hurt today as the price of oil is down to $47 – and wouldn’t be surprised to see high to mid 30’s eventually.

Western sanctions over Ukraine (which drove over a million former Ukraine residents into Russia) are really starting to bite.

But Putin will no doubt weather this storm, as well as others, and come winter when the EU needs gas to stay warm, I expect natgas prices in Europe will take a moon shot.

And in the meantime, if our read of the future is right (which will be out for Peoplenomics readers tomorrow) any missteps around Iran this fall, could have a horrific escalation path.

Governments with revenue problems do stupid things.  We have no further to look than Washington, come to think of it.

MH-370 Question

OK, everyone has seen the bits and pieces of the MH-370 debris coming up, but the main things to be thinking about is whether the intelligence folks are right when they say it is likely that the crash was caused by deliberate pilot action.

Now, flash back to that German plane crash a while back when the copilot crashed on purpose.

You don’t suppose there is some kind of worldwide plot to radicalize pilots and turn them into mass murderers, so you?  Or, was there a medication in common?  Some thread like that?

Comments

China: Economic Witch Hunt — 9 Comments

  1. you wrote:
    ‘Western sanctions over Ukraine (which drove over a million former Ukraine residents into Russia) are really starting to bite.’

    this is an extremely misleading sentence, since what drove over a million Ukrainians into Russia was the massive bombing of civilian areas of eastern Ukraine by the coup government in Kiev.

  2. Do we really have a “free” market ourselves, George? When whispers and rumors can cause a stock to rise or fall, I don’t call that free, I call that manipulated. While obviously very lucrative for some, it just doesn’t set right with me.

  3. You’ve really hit the jackpot on this part of the column – so many interesting topics, but I’ll just mention a couple . . .

    Re: China’s attempt to manipulate short selling (and Greece’s problems for that matter) – large scale economies whether of countries or really large companies haven’t followed ‘normal’ everyday type business practices since say, the Egyptians – I can see some ‘very important person’ say to an early engineer, ‘I’d like a tomb to be remembered by’ and they drag in all the farmers in the region during the ‘off season’ to build the thing – they learned quickly how to use debt financing, etc.

    Both of those situations are going to be painful, but it will be ‘a learning experience’ and even I hazard that the IMF will be surprised – they are not immune to economies of scale. (Countries will know that they are not to be relied upon . . .)

    The other topic I would like to comment on is the ‘cell-phone study’ –
    I heard about that several years ago and I wondered at the time whether this was going to be another instance of something like ‘the Radium problem’. After x-rays were discovered in the late 1800’s – it really was amazing being able to look into a person’s body, and see their bones. And that ‘glow in the dark’ thing was great for watches (later of course the women who painted said watches developed cancers from wetting the brushes on their tongues, that had just previously had the radium . . .) I even remember going to the doctor and being tall enough to see inside the device that showed how my sister’s bones were growing . . . All of this is now either strictly controlled or banned.

    I’m not an electrical engineer, so I don’t know personally what cell-phones might do – but I might mention since it is mentioned in the article that you reference – they admit that they are using a ‘collection’ of research papers. Scientists have to be very careful when conducting studies else they ‘preach to the choir’ by picking the results that they expect. This grouping of results can lead to some rather large errors and would tend to magnify problems . . .

    I’m not a big cell-phone user, so I’ve never given it much thought – there are other consequences of heavy cell phone use both good and bad. Car accidents, being able to be tracked, instant communications, large cell phone bills, to name a few . . .

    Does look like we are participating in a large scale experiment though . . .

    • Frequencies…radar frequencies, being exposed to them is probably what caused my Dad’s Parkinson’s….so this cell phone exposure to frequencies is just the tip of the ice berg IMHO.

  4. Falling crude oil prices also adversely affect US producers…see thousands of layoffs in the ‘oil patch’ This oil glut can be eliminated by the outbreak of a major war. Thousands of planes and tanks on the move. .

  5. The Chinese government’s response to the stock market stampede: these guys are still learning capitalism. They should have a central bank (if they don’t have one already) create oodles of money and lend it to their “too big to fail” banks who in turn will buy humongous amounts of stock shares until selling stampede aka financial excitement stops. then they can judicious sell these shares back into the market judiciously.

  6. George, loved the lead in…China is very anti-free trade. Who’d a thought? Of course, the TPP has got to be pro Free Trade, right? My CONmen tell me it is…even though they haven’t read it. Which brings me to a question I posed to my favorite CONman, Tom(I got the biggest payoff)Cotton. I asked, if it is important for us to know what was in the Iran deal, isn’t it just as important to know what is in an international trade deal that will affect our economy for years to come? I got the standard(previously received)form email, pro-free trade, blah,blah,blah. He just gave Kerry hell over the secret part of the Iran deal, saying the people have the right to know what’s in the deal…but,apparently, when it comes to the TPP, it’s a great idea to vote for something (especially when it’s worth $510,000) they haven’t read and the sheeple don’t have the right to know what’s in it. On a lighter note, anyone seen the press release on the Monsatan false advertising class action suit? Oh, that’s right, there’s a press blackout on it and it keeps disappearing from the Monsanto litigation section in Wikipedia and on facebook, posts get removed. If anyone is interested: http://www.monsantoclassaction.org/
    Maybe this is a crack in their armor.

    • Thank you for sharing, I just signed up…this is VERY important and a for sure CRACK in their poisonous armor…