How bad will it be?

[Nictoe]

Wall Street Plummets After Chinese Stocks Take a Big Hit

By JEREMY W. PETERS and DAVID BARBOZA
February 28, 2007

Stocks plunged in New York today after a sell-off in China rattled markets worldwide and surprisingly weak economic data fanned fears that the economy may be more vulnerable to a downturn than widely thought.

A wide sell-off had pushed the benchmark Standard and Poor’s 500 stock index and the Dow Jones industrial average down around 1 percent for most of the trading day. But minutes before 3 p.m., stock prices plummeted, sending the Dow briefly down more than 500 points, or 4 percent. The S&P also fell about 4 percent at the same time.

Both indexes later regained some of their value but remained down about 3 percent from Monday’s close.

After reaching record highs on Monday, China’s stock markets reversed course drastically today, plummeting in one of the biggest sell-offs in their history.

Analysts said there was no single reason for the plunge, but many have cautioned for months that China’s volatile, roller-coaster market, which has been soaring almost nonstop for more than a year, appeared vulnerable.

The plunge in Chinese stocks had global reverberations. Stocks fell across Europe, with the major indexes in France, Germany and Britain all dropping more than 2 percent. In the United States, trading got off to a bad start and stayed that way.

The benchmark Shanghai Composite index, which had passed the 3,000 milestone on Monday after the weeklong Chinese New Year holiday, shed 268 points, or 8.8 percent, to close at 2,771.79

The smaller Shenzhen Component index fell even further, dropping 797.87 points, or 9.3 percent, to 7,790.82.

Share prices also tumbled elsewhere in Asia, although not nearly as much. Hong Kong’s benchmark Hang Seng index dropped 412.94 points, or 1.8 percent, to 20,095.01. In Japan, the Nikkei fell 95.43 points, or 0.5 percent.

The wave of selling then spread to Europe, and later to the United States, where a government report showed that orders of durable goods — big-ticket items that include washing machines, airplanes and semiconductors — declined more than expected in January. That hastened the sell-off on Wall Street.

Chinese share prices have swung wildly in recent months, rising on huge interest from largely inexperienced retail investors in soaring stock prices, then falling on stern Chinese government warnings about “blind optimism” in the market.

The unmistakable trend, however, has been up. Share prices on the major Chinese indexes climbed more than 100 percent last year, ending a five-year stock slump.

It is too early to tell whether the decline today constitutes a healthy correction in China or the opening act of a broader collapse.

Some analysts said that rumors about new taxes on capital gains spooked some investors. Particularly hard hit were more liquid, big-cap stocks, which weigh heavily on stock indexes.

“It’s obvious that a large amount money was being pulled out of the market from big-cap stocks,” said Wu Jianxiong, an investment strategist at Guotai Junan Securities in Shanghai.

Stephen Green, a senior economist and stock market analyst working in Shanghai for Standard Chartered Bank, said the market fundamentals had not changed drastically in recent weeks, adding that the stock markets in China tended to be volatile, particularly after reaching all-time highs.

“People are just on edge,” he said. “It’s very possible in two weeks we’ll be right back up there.”

[theLIBERTARIAN]

I didn't hear about the Chinese stock market taking a hit. I hope this is just a little correction. Maybe a buying opportunity...

[barstow wiz]

[Guitarras Reyes]

Yeah. Good luck with that. Things will get better "soon".

[Nictoe]

Cramer: How the System Failed Us Today

By Jim Cramer
RealMoney.com Columnist
2/27/2007

You didn't even have time to panic.

The system failed us, breaking down too fast for you to panic.

We totally collapsed between 2 p.m. and 3 p.m. ET, dropping 200 points. All the circuit breakers and all of the rules that were put into place years ago after 1987 just utterly failed.

Then we had the backdraft, and it happened so fast we don't yet know how it went wrong. But it did, with the sellers' heavy tinder. Maybe that exacerbated the hard-selling ETFs. Whatever it was, the wick caught and then flared -- when we thought we were fireproof.

The buyers, and there are plenty of them, simply couldn't get to the floor fast enough to buy and put out some of that selling.

In the old days, when things were sane, we would have had order imbalances, a stoppage of trading. We didn't get that today. We got nothing. We got nothing but a gap, and it reminded us of the old days, when we used to have to have bids way underneath. In other words, be ready to buy because of the whims of sellers.

But there's another difference now. You can force the market down. The old rules put into place in the 1930s, the ones that were meant to stop motivated sellers from breaking the market are all gone now, taken out by a complacent Securities and Exchange Commission that never dreamed of what could happen today. My sources indicate that a big options trade went awry and some concentrated ETF selling simply cut through this market as easily as a knife through butter

[Fringe]

Yes Sir. That Jim Kramer is right on. (I just can't stand when he's on tv)

BOO-YA!!

[Guitarras Reyes]

[Guitarras Reyes]

Here is a novel concept, "lets have good world relationships and stop demeaning people and humanity"

[Scott]

[Nictoe]

[theLIBERTARIAN]

[theLIBERTARIAN]

There goes Nic again, invoking one of my favorite politicians...

[bestsynd]

(Best Syndication) While stock markets in New Zealand and the Philippines rebounded early Thursday, the markets in Tokyo and Shanghai fell more than 1% by mid-day. The Associated Press (AP) is reporting that markets in Australia, Hong Kong, and Malaysia retreated just mildly.

The China Daily called the slump on Tuesday a correction. Many investors held on to their stocks even in the face of possible disaster. They mention state-sponsored advertising in China that warns investors of the dangers and advises them not to expect immediate returns from the stock market.

Complete Best Syndication Article

[Guitarras Reyes]

[Nictoe]

After the Sell-Off

March 1, 2007
Editorial

In a way, the stock market’s rebound yesterday was as troubling as Tuesday’s rout.

Ben Bernanke, the chairman of the Federal Reserve, managed to calm the market, saying that one could reasonably hope for a stronger economy by midyear if housing stabilized soon, and if manufacturing strengthened. But those are big ifs.

The torrent of bad news on housing is only worsening, with a report yesterday that new home sales for January had their steepest slide in 13 years. And as David Leonhardt pointed out in yesterday’s Times, manufacturing has already slipped into a recession, with activity contracting in two of the last three months. How is it then that investors took Mr. Bernanke’s words as a “buy” signal?

The short answer is that investors have a proclivity to hear what they want to hear. On Tuesday, warning bells were simply too loud to ignore, including the steep sell-off in stocks in Shanghai, downbeat reports on the United States economy and an attempt in Afghanistan on the life of Vice President Dick Cheney. Yesterday, investors needed only the slightest prod to revert to “hear no evil” form.

The more complete answer is also more troubling. In recent years, as housing and stock markets surged, even highly speculative investors have been encouraged to an unusual degree by their bankers and regulators, who are supposed to restrain investors’ more maniacal bents, but instead have done little to quell or question excessive risk-taking.

Just last week, Treasury Secretary Henry Paulson Jr. and top financial regulators said the government need not — and should not — provide greater oversight for the $1.4 trillion hedge fund industry, or, by extension, the trillions of dollars more in complex derivative transactions spawned by the industry. That stance is mostly free-market ideology run amok. But it is also based on the unproven assumption that unregulated investing, which dispersed risk and reduced volatility as markets surged, will continue to do so when markets tank.

The upshot is a one-sided bet for investors. They have explicit assurances from regulators and policy makers that almost anything goes when the markets are hot, and implicit assurances — based on past experience — that the Fed would lower interest rates to contain a financial crisis should one erupt. Unfortunately, there is no guarantee that easing up on rates would have the same powerful effect in a future crisis as it had in the past.

The next crisis appears to be building around weakness in the United States, not in Russia or Asia or South America. That means money could flow out of the country if markets were rattled. That would weaken the dollar and require speedy and complex remedial action by the world’s central banks — not just a rate cut by the Fed. Tuesday’s stock market decline could turn out to have been a garden-variety correction. But major market participants would be wise to rethink their assumptions.

http://www.nytimes.com/2007/03/01/opinion/01thur1.html?hp