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.
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.
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?