One of the things you will never hear on propaganda financial comedy TV, is that for all the endless prattle of cheap stocks and unlimited upside, the only purpose of pundit after pundit appearing in between commercials for incontinence diapers and get rich quick while trading options books (call now for a free copy while supplies last, for the next 3 years, is to sucker you, dear reader, in a casino that has been rigged by HFTs, and manipulated by central banks, into buying stocks so someone can collect a commission and someone else can offload a bag of overvalued toxic garbage to the infamous “dumb money” retail investor.
The only problem is that after the Lehman collapse which revealed to everyone just how rigged everything truly was, the “dumb money” refused to participate in this so-called bull market, forcing global central banks to monetize $13 trillion in risk assets, and corporations to buyback their own stock at a record pace since Joe Sixpack refuses to bid it up.
But who can blame the “dumb money” – here, as a reminder, is what the “smart money” has been doing not only in 2014…
… but ever since the start of the second great depression also known as the “bull market”:
As it turns out it is not just in the US that the “smart money” is bailing out as fast as it can: according to Bloomberg, the wealthiest investors in China’s stock market are also scrambling for the exits. To wit:
The number of traders with more than 10 million yuan ($1.6 million) of shares in their accounts shrank by 28 percent in July, even as those with less than 100,000 yuan rose by 8 percent, according to the nation’s clearing agency. While some of the drop is explained by falling market values, CLSA Ltd. says China’s rich have taken advantage of state buying to cash out after the nation’s record-long bull market peaked in June.
Now the reason the smart money is called that, is because, by and large, they know when the game is over and only some last minute government bailouts are keeping the farce upright, although as selloffs such as last night in China showed, it doesn’t take much to spook everyone that the government may not be backstopping the market for long unleashing a furious selling rampage.
And, as Bloomberg adds, “investors with the most at stake are finding fewer reasons to own Chinese shares amid weak corporate earnings and some of the world’s highest valuations. With this month’s devaluation of the yuan adding to outflow pressures, bulls have started to question whether there’s enough buying power to prop up prices once the government pares back its unprecedented rescue effort – – a concern that contributed to the Shanghai Composite Index’s 6 percent plunge on Tuesday.”
As a reminder, the median mainland stock traded at 72 times reported earnings on Monday, more expensive than any of the world’s 10 largest markets. The ratio was 68 at the peak of China’s equity bubble in 2007, according to data compiled by Bloomberg.
Just a tad frothy. “The high net worth clients are the ones who moved the market,” Francis Cheung, the head of China and Hong Kong strategy at CLSA, wrote in an e-mail. “They tend to be more savvy.” What he meant is “they tend to be more selly.”
Not only that, but they tend to own the government, and the press: the same press that promised untold stock market riches on the way up, and is now promising that the government can halt the market crash on the way down so please come back in, the water is warm.
The problem is that only the dumbest money believe it, those with “<100,000 Yuan“, which will be nowhere near enough to satisfy the selling pressure once the whales start really dumping their holdings, leading to another Hanergy-type perpetual halt.
“There is not a lot of fundamental support for the A-share market,” Cheung said. “Earnings are weak.”
The rich know this: “the ranks of investors with at least 10 million yuan in stocks dropped to about 55,000 in July from 76,000 in June. Those with between 1 million yuan and 10 million yuan declined by 22 percent, according to data compiled by China Securities Depository and Clearing Corp.”
The bottom line: “Wealthy investors, who have been through bear markets, are better at exiting,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology.
That’s true not only in China, it is certainly the case in the US as well, where the Fed has desperately been scrambling to give the impression that a $4.5 trillion balance sheet has made things “normal” again, when it apparently can’t realize that the greater the central bank intervention, the less the confidence anyone, not just smart, but dumb, and all other money, has in the market.
Which is why the Fed may be on the verge of throwing the towel, and all those “smart” investors who still have not sold, tough.
Until, of course, they scream and demand to be bailed out once again, when it’s all comes crashing down, which is precisely what will happen because in a banana republic like the US, it is those who never believed that the worst could happen to them for the second time in under a decade, that call the shots and control not only the legislative and the judicial branches of government, but the clueless economists who control the money printer as well.