Monday Market Mayem – Asia’s Meltdown Continues

The Shanghai dropped 5.3% fro the day and the Hang Seng finished down 2.22% and that 5.3% is very impressive when you consider that 10% is "limit down," the point at which trading is halted so, if half the stocks were even, then half the stocks were halted!  

The concept behind "The China Syndrome" is that a severe meltdown of containment in a nuclear reactor would create a reaction so hot that it would melt through the housing of the building and through the Earth, in theory all the way to China (ignoring the fact that gravity doesn't actually work that way).  

In this particular case, we have a liquidity incident in China where the gaping hole that is being blown in their economy is so great that the effects are certainly being felt here – on the other side of the World.  This is no surprise to PSW readers – we've been worried about China since last year and they've been melting down since early this year – it just took this long for the rest of the World to see it.  Today the Hang Seng failed to hold it's 20,000 line, which is what lead to 2011s August 20% melt-down to 16,170 (from a higher high of 24,500) and 2012's 10% break-down to 18,056.  Not exactly a "black swan" event, is it?  

This weekend, Forbes realized that "Pessimism Grows in China" with 36.4% of 5,000 businesses surveyed saying they believed the macroeconomic landscape has weakened, compared to 31.9% who said so in the first quarter.  Nomura Securities economist Zhiwei Zhang in Hong Kong said he would not be surprised if China’s second half GDP fell below 7%, bordering on the old “hard landing” territory.  Similarly, the Washington Post sees "China's Economic Slowdown Emerges as Risk to US Economy."  

These are just those boring old Global Fundamentals I keep banging the table on BUT, fundamentally, to a large extent China has brought this crisis on themselves by attempting to stomp out their housing and lending bubble by PURPOSELY starving their banks of cash, causing the interbank lending rates (SHIBOR) to skyrocket – forcing the banks to reign in their own off-balance sheet investments ahead of their annual audits in June.  

This punishes lenders who have taken on too much debt and relied on short-term repo agreements to…

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