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**bsteadman** · 01-08-2016, 02:19 PM

New Year Market Massacre Intensifies as China Sickness Spreads

Money and Markets
Mike Larson
1/7/2016

Excerpt:

Here we go again. Last night, Chinese stocks plunged around 5% right off the bat. That triggered a temporary, market-wide trading pause.

Then when activity resumed, the benchmark Shanghai Composite Index dropped all the way to negative-7%. That halted trading for the rest of the day.

In the 25-year history of Chinese stock markets, there has never, EVER been a trading session that lasted only 29 minutes. A whopping 1,600 individual stocks plunged the maximum 10% that is allowed.

One Chinese investment manager dumped every stock his firm owned, telling Bloomberg, “This is insane.” A retail investor told the Wall Street Journal, “I am speechless,” after attempting to sell a stock only to find it had already tanked by its daily limit.

The carnage spilled over into the currency market, too. The Chinese yuan dropped to yet another five-year low of 6.5646 against the buck. Investors now are widely assuming the Chinese economy is poised to slow even further, and are yanking money out of the country as fast as they can.

The evidence? We just learned that China’s currency reserves plummeted by a record $108 billion in December. Not only was that five times as much as economists forecast, but it also brings the total decline in reserves from the 2014 peak to a hefty $660 billion.

At $3.3 trillion, China’s hoard is still sizable. But it’s definitely getting smaller by the month. And China is far from the only country being forced to liquidate reserves and dump stocks and bonds held by their sovereign wealth funds. Those are the huge “hidden sellers” I talked about recently.

The carnage didn’t stay bottled up in China, either. European bourses all dropped by a few percentage points, while U.S. Dow futures plunged around 400 points in the early morning hours.
“The carnage didn’t stay bottled up in China.”

Then Chinese authorities tried to stem the panic by announcing they would suspend their current circuit breaker plan. That led to a bounce off the lows later in the morning.

But the bounce began to falter before long. Then the markets fell out of bed this afternoon when Reuters reported that the People’s Bank of China was being urged to allow an even-sharper currency devaluation. Advisors are reportedly recommending a quick drop of as much as 15% – much more than the mid-single-digit slump we’ve already seen. The Dow ultimately closed down 392 points on the day.

So what is the message of the markets? Where do we go next? I can’t say what’ll happen in the next few hours or couple of days. We may very well see an oversold bounce soon, given how far and how fast stocks have fallen.

Lastly, I can’t stress enough how caution should be your investing watchword until further notice. You can play market bounces with quicker trades. You can buy select, high-grade, high-yield blue chip names when panic takes hold, and generate some upside gains.
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View the complete article, including image, at:

http://www.moneyandmarkets.com/new-y...5#.Vo_DQVmSkxI

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China's 29 Minutes of Chaos: Stunned Brokers and a Race to Sell

China's 29 Minutes of Chaos: Stunned Brokers and a Race to Sell

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