Will China markets take a dive?

[stockstradr]

Here is bug of a speculation opportunity that flew into my brain last week and has been buzzing that sweet sound means I stumbled upon a money maker, and just need to figure out the right play here.

THEORY: China’s stock market is poised for a significant correction, set off by BoC (and other Chinese Bank) exposure to subprime mortgage backed securities that exceeds “2% of book value” in the case of BoC. What we know (see Marketwatch.com) is that at least some China banks have 10% of their dollar-denominated assets deep in subprime mortgage securities. We’re talking about tens of billions of dollars.

Let’s understand the backdrop. Shanghai SSE Composite Index has climbed above 5000, from about 1300, in only five years. So far it has continued higher and higher, oblivious to 10% market corrections that have recently hit other markets.

CONCLUSION: China’s stock market is due for a significant correction, and it could be triggered when Chinese investors realize the extent of Chinese banks’ subprime exposure.

How to make money on this correction?

I’m looking at shorting China mutual funds, or ETF’s. Unfortunately non-Chinese are not able to directly go long or short the Shanghai Index. We have to find indirect ways.

One possibility: buy puts on the FTSE/Xinhua China 25 index. Maybe that can be shorted also.

Any ideas?

[stockstradr]

Now, a final item that has been bugging the hell out of me in the last week also:

QUESTION: What is China going to do after its banks lose about 50 billion dollars on subprime mortgage backed securities that American financial institutions sold them by “putting lipstick on the pig”?

I think Chinese leaders will view it as conspiracy by corporate America (and American government) to defraud the Chinese. They will want revenge, and will have it. The question is how?

This is about running economic simulations in my mind, and figuring out how I can make money buy anticipating China’s revenge. Maybe China will disconnect the RMB$$ exchange rate, and dump that estimate trillion US dollars they are holding in reserves, which will destabilize the dollar. But I need to think more on this. Keep in mind I don’t see onset of this for another several years, at the earliest.

How will this revenge scenario play out, that is the question.

[stockstradr]

Now, a final item that has been bugging the hell out of me in the last week also:

QUESTION: What is China going to do after its banks lose about 50 billion dollars on subprime mortgage backed securities that American financial institutions sold them by “putting lipstick on the pig”?

I think Chinese leaders will view it as conspiracy by corporate America (and American government) to defraud the Chinese. They will want revenge, and will have it. The question is how?

This is about running economic simulations in my mind, and figuring out how I can make money buy anticipating China’s revenge. Maybe China will disconnect the RMB$$ exchange rate, and dump that estimate trillion US dollars they are holding in reserves, which will destabilize the dollar. But I need to think more on this. Keep in mind I don’t see onset of this for another several years, at the earliest.

How will this revenge scenario play out, that is the question.

[stockstradr]

Now, a final item that has been bugging the hell out of me in the last week also:

QUESTION: What is China going to do after its banks lose about 50 billion dollars on subprime mortgage backed securities that American financial institutions sold them by “putting lipstick on the pig”?

I think Chinese leaders will view it as conspiracy by corporate America (and American government) to defraud the Chinese. They will want revenge, and will have it. The question is how?

This is about running economic simulations in my mind, and figuring out how I can make money buy anticipating China’s revenge. Maybe China will disconnect the RMB$$ exchange rate, and dump that estimate trillion US dollars they are holding in reserves, which will destabilize the dollar. But I need to think more on this. Keep in mind I don’t see onset of this for another several years, at the earliest.

How will this revenge scenario play out, that is the question.

[kewp]

I think Chinese leaders will view it as conspiracy by corporate America (and American government) to defraud the Chinese. They will want revenge, and will have it. The question is how?

Stop buying US treasuries and unload a big chunk of the dollars they have. This should tank our economy and blow whatever is left of our RE market to smithereens.

With their remaining currency reserves they will be able to by up controlling interests in most major US corporations (that will be teetering on the edge of bankruptcy) and billions of dollars in prime real estate all over the country. The top percentile of Chinese will then emigrate to America to occupy their newly acquired housing assets.

Welcome to the United States of New China!

[kewp]

I think Chinese leaders will view it as conspiracy by corporate America (and American government) to defraud the Chinese. They will want revenge, and will have it. The question is how?

Stop buying US treasuries and unload a big chunk of the dollars they have. This should tank our economy and blow whatever is left of our RE market to smithereens.

With their remaining currency reserves they will be able to by up controlling interests in most major US corporations (that will be teetering on the edge of bankruptcy) and billions of dollars in prime real estate all over the country. The top percentile of Chinese will then emigrate to America to occupy their newly acquired housing assets.

Welcome to the United States of New China!

[kewp]

I think Chinese leaders will view it as conspiracy by corporate America (and American government) to defraud the Chinese. They will want revenge, and will have it. The question is how?

Stop buying US treasuries and unload a big chunk of the dollars they have. This should tank our economy and blow whatever is left of our RE market to smithereens.

With their remaining currency reserves they will be able to by up controlling interests in most major US corporations (that will be teetering on the edge of bankruptcy) and billions of dollars in prime real estate all over the country. The top percentile of Chinese will then emigrate to America to occupy their newly acquired housing assets.

Welcome to the United States of New China!

[stockstradr]

Stop buying US treasuries and unload a big chunk of the dollars…

Keep brainstorming! Just by joking about it we may accidentally guess the future. Truth is stranger than fiction, as they say.

[stockstradr]

Stop buying US treasuries and unload a big chunk of the dollars…

Keep brainstorming! Just by joking about it we may accidentally guess the future. Truth is stranger than fiction, as they say.

[stockstradr]

Stop buying US treasuries and unload a big chunk of the dollars…

Keep brainstorming! Just by joking about it we may accidentally guess the future. Truth is stranger than fiction, as they say.

[bsrsharma]

I think reality is already happening. Not just China. No foreign creditor wants to buy any paper other than treasuries. No liquidity in Mortgages, Commercial paper, LBOs even munis. Next shoe to drop will be credit card and auto loans. By then we will have full fledged recession.

Already LBO value of Home Depot was negotiated down by $1.5B.

So instead of going round in circles, go straight and short US market. Long on essentials, short on “desirables”.

[bsrsharma]

I think reality is already happening. Not just China. No foreign creditor wants to buy any paper other than treasuries. No liquidity in Mortgages, Commercial paper, LBOs even munis. Next shoe to drop will be credit card and auto loans. By then we will have full fledged recession.

Already LBO value of Home Depot was negotiated down by $1.5B.

So instead of going round in circles, go straight and short US market. Long on essentials, short on “desirables”.

[bsrsharma]

I think reality is already happening. Not just China. No foreign creditor wants to buy any paper other than treasuries. No liquidity in Mortgages, Commercial paper, LBOs even munis. Next shoe to drop will be credit card and auto loans. By then we will have full fledged recession.

Already LBO value of Home Depot was negotiated down by $1.5B.

So instead of going round in circles, go straight and short US market. Long on essentials, short on “desirables”.

[HereWeGo]

I doubt the Chinese stock market will tank any time soon. The Chinese still have a mountain or three of savings to push into the market. Now if the Chinese central bank continues to raise interest rates, that should certainly slow the rate of ascent of the Shanghai market.

The Hang Seng might not be a bad place to put money, now that mainland Chinese are allowed to invest in that market.

[HereWeGo]

I doubt the Chinese stock market will tank any time soon. The Chinese still have a mountain or three of savings to push into the market. Now if the Chinese central bank continues to raise interest rates, that should certainly slow the rate of ascent of the Shanghai market.

The Hang Seng might not be a bad place to put money, now that mainland Chinese are allowed to invest in that market.

[Author]

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