Pulling Out All The Stops

I was thinking about the Chinese stock market on my morning walk today. A few days ago, I had an anxiety attack, and was pretty sure the world was coming to an end. Then I put the leashes away and made my Vitamix blend: kale, collards, celery, beet, daikon, and brussels sprouts. After consuming that, I felt "right as rain," as if I were Neo eating The Oracle's cookie and submitting to her programming sub-routine.

Today I feel a sense of detachment from the Chinese crisis. Telegraph UK noted that there are similarities between the China of 2015 and the U.S. of 1929. Huge stock market run-up, fueled by margin buying. Speculative real estate bubble. The premise that the laws of economics no longer apply, that it's "different this time."

If there is a major perceived shortcoming of capitalism, it would be the boom-and-bust cycle, and the inevitable panics. The Chinese government has more levers of control over markets than the United States, and they are using every last one. On Tuesday, more than 40 percent of listed companies suspended trading in their shares. This is in response to share prices on the Shanghai Composite index falling more than 16% month-to-date, and more than 25 percent since the 52-week high, set in June.

It's bad, but not as bad as the bear market of 2007-8. Besides, it's just paper losses, right? Tell that to the retail investors, estimated at more than ninety million people. To prevent the market from returning to equilibrium, the Chinese government is pulling out all the stops.

The Chinese central bank is providing liquidity, brokerages are being made to pump, insiders are being told to pump, and state-run companies are pumping. They are even arresting short-sellers. And I thought the uptick rule in the United States was onerous.

I love the idiom known as "pulling out all the stops." It means to hold nothing back, and throw everything into the fight. It originates from organ music, as the organist uses stops to control music volume and tone. When all the stops are pulled, the organ plays all the tones simultaneously.

Curiously, a stop order, or stop-loss order is a pre-determined sell order that is triggered when a stock falls below a certain point. This is supposed to limit downside risk to the individual. But when a lot of people are selling at the same time, stops are hit, prices fall faster, and selling panic can spread like contagion to the broader market.

When all the stops are removed, it's like an elevator that has every button disconnected except for "P"enthouse and "B"asement. We live in interesting times.