Stocks Will Continue To Fall As Soon As Someone Breaks The Warehouse.

On Monday, the Shanghai stock index fell 260 points, or 7.7%, the most recent 7 years.

Almost all the plates are green all over the world. If there is no limit of 10%, it will be even worse.

The reason is not difficult to understand, that is a few bad news: a number of two financial tickets issued, commissioned loan policy norms.

But the impact of the "bad" policy itself will not make the stock market so bad. For the most recent 7 years, the general analysis would be that everyone wanted to escape to bring the so-called "stampede". This is not bad, but in fact, the logic may be more complicated, which is behind the "liquidity spiral".

The three largest brokerages (CITIC, Haitong, monarch) have been suspended for three months. The general understanding of investors is that no money continues to come in, and fewer people have access to them, so everyone has to run away quickly.

This statement has some behavioral finance analysis, which is pretty good from the perspective of the phenomenon, but all emotions need to be shown on the trading mechanism. For example, if the panic is empty, it will not affect the stock market; for example, there are not so many people in margin trading, and the influence is limited.

In fact, the key reason is leverage and margin. The purpose of margin is to control risk, but the margin mechanism has a "positive feedback amplification effect" in the whole market.

The magnifying effect is not terrible in itself, but fearful is "positive feedback", because the logic of the world's stability lies in the reverse feedback, and the positive feedback can only be a vicious circle of soaring and plunging.

A simple example is that you think a stock will go up, so you borrow money and leverage to buy the stock. Once the stock falls (maybe just an unexpected random factor), your account is floating, you need to add a margin, no bullets, sorry, liquidated.

As soon as someone breaks the warehouse, the stock will continue to fall. That will bring some people to the warehouse. This is the key point behind the big market phenomenon you see today.

The fall of this time is no longer a matter of fundamental issues, because the event itself is a "prisoner's dilemma" in which each of us is at the level of liquidity.

In fact, if people were right in the beginning, they would be right.

Still good, then the more serious the stock falls, the lower the risk of buying operation. The margin requirement should be reduced; but the logic of the market is simple and crude. If you lose, it means that the risk is high. I don't care whether you are good at it or not. You lose money today, you must make up the money tomorrow, otherwise, you will be forced to liquidate the warehouse, so that many people can only be knocked out on the way to the beautiful day after tomorrow.

Or that sentence, even if the dawn is coming, you will not live to that moment.

The logic of science is called "

Helix.

There are two kinds of liquidity. One is

Liquidity depends on whether we can borrow money very happily. What is called market liquidity is that we can easily sell the securities at hand without discount.

Speaking of this incident, the main reason for the suspension of the two financial businesses is financing liquidity (because most people in the bull market are borrowing money to buy goods and sell less by selling goods).

The financing is suspended, and the funds will continue to expire in the early stage, but it can not be renewed. That is to say, the liquidity of the financing will be bad.

When everybody cuts the warehouse, the goods are not good enough, that is, the market liquidity is bad, generally accompanied by the price drop, the margin loss, and the difficulty of increasing the financing of the market (for example, raising the margin requirement), that is, the worsening liquidity of the financing, and so on, the "liquidity spiral" has formed.

In fact, from today's experience, the logic can explain the contagion of the market crisis from past experience. When investors invest in many markets, a market (such as stock market) crisis will force investors to withdraw funds from other markets, such as debt markets, so as to start another market's "liquidity spiral", and the crisis will also spread across the market.

At the end of the paper, what is the scale of the "lever and margin" that induces the disaster? According to the analysis of Deutsche Bank, A shares belong to one of the most leveraged markets in the world.

A share margin debt accounted for 7.8% of the circulation market value, and also accounted for 2.9% of the total market value.

In contrast, when the US stock market lasted nearly 6 years in the bull market, the NYSE margin debt accounted for 2.4% of the market value, while the stock market in Taiwan was 1% and Japan was 0.5%.