Good Morning,
If your house is going to be flooded and some rooms are cut
off, you save possessions from the rooms you have access to. The exact same
thing is happening on the Chinese markets as a result of further trading halts
by companies. Traders or blind speculators are saving what they
can, whilst the behemoth type stability funds buy large stocks directly or via
ETF.
FT China
steps up efforts to halt stock market rout, and wider market are now reported
what was widely known on the trading floor and here. The PBOC (People's Bank of
China) funds are being utilised by the China Securities Finance Co. (CSF)
(CSFP was previously used here but to keep in line with wider commentary the
"P" has been dropped) to buy stocks direct in the market, as well as
provide margin liquidity to brokerages. The total sum of the parts is
approaching $140B, this should be called another form of QE.
On the one hand you have oil dropping, but perversely
PetroChina is breaking ranks and staging a bull-run of legendary proportions.
Tacking on near 25% price appreciation as the "stability" band aid
funds buy less risky investments. So as a trader, you'd sell anything that
isn't being bought and buy what the Government/Funds are buying, or run for the
hills?
With promises of improved margin and the like, the rule of
5% short is near non-existent. Li cannot get a short on for love nor money,
with technical problems and various other 'reasons'. The Government is
attempting to stop any form of selling, from suspension to undertakings from
large brokerages (24 now) not to sell.
Well some are adhering to the no-sales-agreement, but
limited time to explain what is happening on “opening", for which
followers should check. Simply, China collectively buys stocks the herd are
running to the door with, the likes of Yeast Angel and then post lunch the
price tanks as the buyers disappear but it’s not 8% down, only say 4%. That's
if the entire market isn't in a trading halt by the end of the week.
There's a number of brokers that have serious liquidity
problems. Some of those were "told off" for excessively lending and
rolling over positions only 7 months ago. The gossip is they've blown up
(financially a la CHF) because clients are unable to liquidate positions that
may have been in profit, because they're suspended and are unable to cover
serious losses. Until the brokerages have been able to access emergency margin
provisions put in place by the CSF, 'traders' accounts' will remain suspended.
Another win for the policy makers, limiting sales!
Yesterday, with safe havens been sort in the west in light
of China and the EU boil that needs lancing, Greece. Silver was surprisingly
weak, the obvious shall occur for those leveraged silver producers we love to
kick on weakness (HOC/FRES). The same for gold, with a modest bounce well below
what was expected.
It looks like American Futures traders have such large
positions (short) that any headwind of buying is wiped out. The decimation
caused by the over-speculation a few years back, has left the gold market
unbalanced. Some traders committed such levels of $ in 2012/13 that the thought
of speculating long has left the market void.
The last time the mint ran out of Silver in November 2014, the
price spiked near 20% over three months, the same happened yesterday. The
difference being the entire absence of Chinese speculators in commodities, the
“bears” will have this market for longer. The Chinese cashed in significant
positions this week, no doubt as their margin was squeezed in the equity
positions, liquidating positions in Nickel, Silver, Iron Ore, Tin and pretty
much all commodities.
The prime example being Nickel, where the Chinese are happy
to accept near physical spot prices, with limited futures trading the price
fell through the $5/lb support like a brick. Same for Iron Ore, price setting
iron ore outside of the market at $45/t well below the market $49/t. With the
usual suspects, Rio Tinto (RIO), BHP Billiton (BLT) and Fortescue Metals Group
(FMG) all taking a kicking.
FMG is entirely absent of any support for obvious reasons,
being the higher cost producer of the majors. At AU$1.67 a share the $2 support
is but mere history, with $1 a share likely, but wisdom dictates to take
profits. One hopes those Atlas Iron holders don't hug this stock through the
pain, although riskier for the bears with the possibility of event risk.
For those with a memory on this Wednesday morning, Rio is
only 240 pence off the 12 month target of 2200 pence, with most Companies
tapering back their assumptions / targets to circa 2800-3000 it may just be
still too much. It was Deutsche Bank at 4200 pence at the time that raised a
few eyebrows a year ago. That case of wine will be thoroughly enjoy from a good
sport whom accepts differing opinions are positive for the market.
The above a complete validation for conviction short Amur
Minerals (AMC). The company is still over-valued on all levels. Admittedly
depreciating quicker than anticipated but far from complaining. The project is
uneconomic and after yesterdays' fall, and the company is "perhaps"
worth cash.
This nicely brings us on to Monitise (MONI) whom are the
unfortunate beneficiary of another selling shareholder. MONI inform
us that they have been notified by Visa Europe...that it will
reduce its shareholding over time while continuing to work with the Company
throughout the duration of its current commercial agreement. Those
holders in the stock will be used to a declining SP, so perhaps an opportunity
to average down further and then hug the stock? Better still embrace the “2016
profit forecast!” Cash is king, and MONI burn it like no tomorrow and whether
its profitable or not in 2016, the positive cashflow may not be!
Some bizarre events on Aga Rangemaster (AGA) today...more
later perhaps. With gossip of the deal being off...surely the company would have updated!?!
Atb Fraser
