Anything to worry about ?

[Rotobeast]

I've stayed out of this forum for a while, but I'm interested in hearing opinions on this from those who are much more educated on financial systems.

Do you think this will spiral out of control and have an affect on other countries ?

Please share your opinions.

http://www.bloomberg.com/news/articles/2015-07-07/chinese-trading-halts-freeze-1-4-trillion-of-shares-amid-rout

[GMDino]

(07-07-2015, 04:52 PM)Rotobeast Wrote: I've stayed out of this forum for a while, but I'm interested in hearing opinions on this from those who are much more educated on financial systems.

Do you think this will spiral out of control and have an affect on other countries ?

Please share your opinions.

http://www.bloomberg.com/news/articles/2015-07-07/chinese-trading-halts-freeze-1-4-trillion-of-shares-amid-rout

I certainly don't claim to understand the financial markets at all...but assuming this will eventually lead to ripple effects everywhere else I'm sure glad we haven't invested all our Social Security money in the "private sector" yet.

[JustWinBaby]

Nahhh, China has had a hard landing many times before...not the "developed economy" you might have been led to believe as their banking and economic systems are still third-rate.  This is nothing new and shouldn't cause anything like the 2008 financial crisis...however, there's even more "easy money" in the system this time, so who knows. 

I'm not worried about ripple effects - the markets tends to forecast/lead recessions, not cause them (except in the case of liquidity/credit crises, which are relatively much less common).  6+ years into this "recovery" and we are due for another recession.

[Rotobeast]

(07-07-2015, 05:07 PM)JustWinBaby Wrote: Nahhh, China has had a hard landing many times before...not the "developed economy" you might have been led to believe as their banking and economic systems are still third-rate.  This is nothing new and shouldn't cause anything like the 2008 financial crisis...however, there's even more "easy money" in the system this time, so who knows. 

I'm not worried about ripple effects - the markets tends to forecast/lead recessions, not cause them (except in the case of liquidity/credit crises, which are relatively much less common).  6+ years into this "recovery" and we are due for another recession.

I've read about the empty cities that were built to prop up their GDP.
Am I correct in assuming that our debt to them has not matured ?
Should they collapse, what would happen to that debt ?

As far as our "recovery" and being due for another recession, do you think we are really poised for that ?
The housing market is still well below where we were before the bubble burst.

[6andcounting]

The thing that makes a stock so valuable to an investor is that it can be bought and sold in the click of a mouse any anytime. The longer and less efficient something is to trade, the more risky it is to deal with it. If it's not highly liquid (quickly sold for cash at regular market value) it is a useless financial instrument. If every who owns gets nervous and decides to sell and nobody wants to buy, prices will free fall even more.

[SteelCitySouth]

(07-07-2015, 05:23 PM)6andcounting Wrote: The thing that makes a stock so valuable to an investor is that it can be bought and sold in the click of a mouse any anytime. The longer and less efficient something is to trade, the more risky it is to deal with it. If it's not highly liquid (quickly sold for cash at regular market value) it is a useless financial instrument. If every who owns gets nervous and decides to sell and nobody wants to buy, prices will free fall even more.

Sounds like an opportunity to me.

[JustWinBaby]

(07-07-2015, 05:17 PM)Rotobeast Wrote: I've read about the empty cities that were built to prop up their GDP.
Am I correct in assuming that our debt to them has not matured ?
Should they collapse, what would happen to that debt ?

As far as our "recovery" and being due for another recession, do you think we are really poised for that ?
The housing market is still well below where we were before the bubble burst.

The debt maturing is a non-issue.  Basically, a few things can happen:
1) China sells off it's $1T+ in debt...which causes higher interest rates for the US, but as the interest rates rise their debt is also worth less and less
2) Monetizing debt isn't a good thing, but the US and others have done it.  In a global deflationary environment, the higher interest/inflation from such actions might actually be a positive effect
3) Otherwise, the US is basically always just issuing new debt to retire old debt.  All that happens is your interest rate can change when issuing the new debt to retire the old (and that's something the administration has done to take advantage of the low rate environment).

Recessions happen frequently independently of the housing market, and will continue to.  Central banks have generally gotten better at smoothing out the peaks and valleys of economic cycles, generally meaning longer & steadier expansionary periods and shorter & shallower dips.  But we still typically see contractions every 6-8 years...well, 8-10 years might be more accurate (at least over the past 30 years, on average).

[Rotobeast]

(07-07-2015, 05:57 PM)JustWinBaby Wrote: 3) Otherwise, the US is basically always just issuing new debt to retire old debt.  All that happens is your interest rate can change when issuing the new debt to retire the old (and that's something the administration has done to take advantage of the low rate environment).

So, the government is essentially refinancing ?


Thanks for the explanations, btw.
  

[Bengalzona]

China does not have a totally free economy and market. The Chinese government can and is intervening to ease their market's landing.

[Beaker]

The only worry you have is that between this and the avian flu, the prices of sweet and sour chicken are going to skyrocket.

[Benton]

(07-08-2015, 09:04 AM)Beaker Wrote: The only worry you have is that between this and the avian flu, the prices of sweet and sour chicken are going to skyrocket.

Great. Now I really want some sweet and sour chicken.

[JustWinBaby]

(07-07-2015, 06:10 PM)Rotobeast Wrote: So, the government is essentially refinancing ?

Not exactly.  The govt typically doesn't retire debt early.   Of course, the US govt has so much debt outstanding that they are almost constantly issuing new debt to pay old debt coming due.

What they have done, at the risk of oversimplifying, is to issue newer debt with shorter maturities (which normally carry lower interest rates).  The fiscally prudent move would have been to lock-in slightly higher rates, but still historically low, for longer terms.  I want to say the average maturity of US debt has come down to something like 3.5 years, which means significantly more risk (debt service cost) to rising rates in the near future....but that's getting into a different and lengthier discussion.

The longer-term implications are pretty interesting.  Not just the US, but pretty much every sovereign has gone on a debt binge to finance spending in the low-interest rate environments.  And then to keep debt service down, global central banks intervene to arbitrarily suppress interest rates....which then leads to investors chasing yield, combined with the fact they can get more leverage and financing (because it's cheaper with low rates) to do so....which leads to asset bubbles that eventually burst as with the housing crisis.