China Welcomes Stock Manipulators in Bid to Boost Liquidity, Australia Fraudulent Lending

Chinese ADRs were pummeled on Friday and one stock in particular, Bitauto (BITA) collapsed right to its major support level. It is a trifecta of trouble: China, Internet and autos.

An article at CNstock discusses how the 5G sector, hit by a "Black Swan," has led the market rebound. 饱受“黑天鹅”事件困扰的板块，缘何成了反弹领先者？ Everything looks like a bear market bounce to me.

On the mainland exchanges, "hot money" is returning to the market because Chinese regulators said they would intervene less in the markets. The dearth of trading has caused the shift in focus. According to one report, traders suspected of manipulation are no longer receiving warnings for their suspicious trading activity.

CNStock: 游资努力重返市场！操盘一周，他们有话要说……

"Before this, our group died in silence, no one spoke, and on the day the news was released, our group blew up. There was more discussion in one day than in the previous year." Mr. W said to the reporter.

In the past week, the hot money has struggled to return to the market, despite “demon stocks” made them feel pressure, their existence also provided valuable liquidity to the market.

On October 30, the official website of the China Securities Regulatory Commission issued a statement during the trading hours, indicating that it will optimize transaction supervision and enhance market liquidity.

This news generated a strong response within the hot money community. For this sudden and unexpected news, the long-lost group of hot money in the past week, first of all, will be suspicious, and then gradually dispelled doubts, more and more people try to test.

The hot money has always been adhering to the short and fast style. When the news was first seen, Mr. W entered the trading. In fact, Mr. W has been away for more than two years. In mid-October this year, he was told by the broker that his account had been removed from the blacklist.

“There were three transactions this week. I still received the supervision letter for the first time, but I did not receive window guidance or supervision letter the next two times. The trading environment is indeed picking up.” Mr. W’s feelings also led to other active funds around him.

A number of active investors focused on short-term trading said that through a week of operations, they found that the verbal instructions and warning letters received were indeed decreasing.

Alhambra: Why Chinese Authorities Are Freaking Out

The economic stats all keep pointing in this direction. China’s economy isn’t right now collapsing but that isn’t the problem. Again, what the numbers suggest is we’ve seen the best there is and it isn’t (ever) going to get any better. And it isn’t near enough growth.

There just isn’t sufficient economic momentum anywhere in the world to overcome eurodollar tightening. In fact, the two go hand in hand; lack of momentum leads to monetary caution, spurning further growth creating more monetary tightening. The result is growing desperation in China, as elsewhere, about where things might be going just on the other side of the horizon.

A credit-driven decline in Chinese economic activity followed by the rapid or large one-off depreciation of the yuan still looks likely to me. It may be that as in 2016, central bankers and politicians intervene, but there's no more than one save left because the U.S. markets are peaking. If there's a rebound in the U.S., it will unfold similar to the final melt-up phase of the dotcom bubble in 1999. It will take another leg down in the markets to change central bank policies though. The major indexes will officially enter bear market territory as the Nasdaq did in 1998 when it fell 30 percent.

Australia strikes me as a good candidate for China fallout. Recently, China's government told banks to lend to small businesses and not call in loans early. Australia's Treasurer just did the same. (H/T to Macrobusiness.) AFR: Josh Frydenberg tells banks to ease up on lending crackdown

"I would encourage the banks when it comes to lending, in particular for small business, make sure you get the balance right, keep the books open and don't lose sight of the broader public good," he said.

"We all know the royal commission has brought into focus the issues of responsible lending and examples of misconduct. While both issues are important, I do see them to some extent as separate, with different responses required."

The tightening of credit has taken its toll not just on investors but owner-occupiers with housing loans falling sharply in September, according to the latest housing finance figures from ABS.

Macrobusiness has a more detailed look at the topic, though it may go behind the paywall.

China remains in focus because of its size and because the markets haven't priced in a yuan devaluation. It will be a called a "Black Swan" by the same folks who thought 2008 was a surprise. Aside from a breakup/crisis in the euro, my top bear market recognition event is substantial yuan depreciation, but that doesn't mean it will make for the best short candidates in terms of total decline.

My read of the China charts: the downturn that started in June hasn't broken yet. Tactically, I'm not going to short if there are sustained rallies, but the risk/reward remains in favor of the bears heading into this week.