Chapter 232: The Oracle of Delphi (4)
<The Fall of the Dragon: The Collapse of China’s Stock Market Bubble>
<China's stock market stands at the peak of a massive speculative bubble. The skyrocketing stock prices are detached from economic fundamentals or corporate performance. This is not a natural rise, but an illusion created by artificial intervention and speculative frenzy. This bubble will burst soon, and the resulting shock will likely spread far beyond China to the entire world.>
The message in Delphi’s China report was clear.
—China’s stock market is a bubble, and it will soon collapse.
Delphi also presented concrete evidence to support this claim.
<The rapid rise of China’s stock market is unnatural. It’s because the Chinese government deliberately funneled capital into the market under the pretense of economic stimulus. State-owned enterprises and sovereign wealth funds led massive buying sprees, and regulations on stock investment were significantly eased.>
From the beginning, China’s stock market was inflated not by market forces but by artificial government intervention.
But Delphi pointed out a problem even more serious than that.
<China’s government policies have poisoned the market. Currently, individual investors account for a staggering 80% of the Chinese stock market. And many of them are heavily leveraged.
...... The Chinese government clamped down hard on real estate investment to curb overheating in the housing market. As a result, many Chinese retail investors, now lacking viable investment options, poured into the stock market. Moreover, in the name of stimulating the market, the government loosened margin trading regulations. As a result, margin trades came to account for nearly 10% of the total market cap.>
So, what does this all mean?
In effect, China’s stock market is now 80% controlled by rookie investors making highly leveraged bets.
Of course, until now, all these elements worked in favor of the market.
In just one year, the Shanghai Composite Index (SSE) surged from the 2,000-point range to 5,166 points.
Enticed by the idea that “you can earn a 150% return in a single year,” retail investors rushed into the stock market.
The result was the creation of an enormous bubble.
But Delphi's report made a simple point.
<That bubble is now about to burst. Once it does, retail investors will panic-sell. Combined with margin calls, the market will inevitably plummet out of control. This moment will come no later than this summer.>
Delphi predicted that the collapse of China’s stock market bubble would happen by this summer at the latest.
And now it was already July.
The end of summer was fast approaching.
In other words, this was a warning that a catastrophe would strike within one, or at most, two months.
But Delphi didn’t stop there and left a chilling warning.
<The Chinese government will try to intervene. However, the more it intervenes, the greater the scale of the disaster becomes. Therefore, we recommend accepting a natural correction.>
Delphi advised China not to resist this fate, but to yield to it.
Because the more one tries to artificially hold out, the more catastrophic the collapse will be.
Expert opinions on this report were divided.
—Most agree that China’s stock market is indeed a bubble. But even so, it’s hard to consider Delphi’s timing predictions credible. After all, it’s virtually impossible to predict the exact moment a bubble will burst.
Anyone can claim a bubble exists.
There were many years of bubble debates leading up to the dot-com crash and the 2008 financial crisis.
However— only a handful ever successfully predicted the exact timing of the collapse.
—There’s a clear reason why it’s so hard to predict a bubble’s burst. It doesn’t stem from economic logic, but from human psychology. Human greed is irrational, and bubbles can inflate to unimaginable levels.
Another expert emphasized China’s unique characteristics.
—China possesses an unprecedented capacity for government intervention. Unlike free-market economies, China’s government can directly control its markets. So it’s unreasonable to apply Western economic logic to China as-is. Even if the bubble bursts, the Chinese government won’t just sit by and watch.
However—
There were also many experts who agreed with Delphi’s prophecy.
—It’s generally difficult to predict when a bubble will burst. But this time might be different. Because Delphi’s prediction has the nature of a “self-fulfilling prophecy.”
—Delphi’s words carry immense influence in the market. If individual investors who read this report act on it en masse, that alone could be the spark that ignites the bubble’s collapse.
But that’s not why people were watching Delphi.
It wasn’t because of their analytical accuracy.
It was because of their enormous market-shifting influence.
In other words, if Delphi makes a prophecy, the retail investors will react—and that very reaction might trigger the collapse of China’s bubble.
In fact, WSB was already in an uproar over Ha Si-heon’s latest “revelation.”
—The Prophet of Delphi has returned! Withdrew it all! My student loans welcome you!
—I broke my savings and sold a kidney! Locked and loaded!
—Malaysia and Greece were just warmups... China is the real Lehman-level bomb!
—Took out a secret mortgage without my wife knowing and went all-in on YANG 3x leverage!
—A friendly guide for monkeys betting on China for the first time:
1. FXI short – Even kids can do it.
2. BABA/JD/BIDU puts – These sit atop collapsing bridges.
3. YANG 3x – The true monkey’s choice.
—Hold until my mom drags me off this ride!
WSB exploded with enthusiasm, eager to follow Delphi’s report, and a flood of betting strategies emerged.
Retail investors’ massive capital was now aimed at China, finger on the trigger.
However, China didn’t sit back quietly.
—The Chinese stock market is stable. The recent volatility is merely a temporary correction.
Delphi Institute, which once shook global markets during the Greece crisis...
From the moment Delphi directly mentioned China, the Chinese government had been on high alert.
They dismissed the very possibility of a bubble collapse and shifted the blame to Delphi.
—However, we are detecting movements by forces attempting to disrupt the market. In any country, actions that threaten the stability of international financial markets cannot be tolerated in any form.
—If the attacks on the Chinese market continue, this could go beyond a mere financial issue and negatively affect U.S.-China economic cooperation. We urge the U.S. government not to sit idly by.
China took a firm stance and applied pressure on the United States.
It was a demand to stop Delphi from making any more dangerous remarks.
However, the U.S. government officially responded as follows.
—The Delphi Report is merely an expression of individual opinion, and the United States respects the freedom of speech of journalists and market analysts.
—That said, we do express concern over the report’s impact on the market and announce that relevant regulatory authorities will launch a thorough investigation.
The U.S. government's position was that it could not silence Delphi.
However, due to ongoing suspicions of market manipulation surrounding Delphi, they announced the launch of an official investigation.
Shortly after—
<SEC Targets Delphi Institute............ Is It a Prediction or Market Manipulation?>
<Delphi Report Escalates Market Manipulation Debate... SEC Reviewing 'Intentional Fearmongering' Possibility>
Indeed, the U.S. Securities and Exchange Commission began investigating Delphi.
However...................
Even as that happened, retail investors who believed in the power of the Delphi Report—particularly those from WSB—were already recklessly betting against the Chinese stock market.
<Alibaba, Tencent and Other Chinese Giants Plummet............ $20% Market Cap Wiped Out>
<Shanghai Composite Index Plunges 15%... Is Panic Selling Gaining Momentum?>
<Hong Kong’s Hang Seng Index Falls in Tandem. Further Declines Expected?>
As a result, China’s stock market actually began to sway.
But for China, a bigger problem was emerging.
<Mass Exodus of Foreign Capital from Chinese Markets............ Escape Rush Accelerates>
<Foreign Capital Fleeing Chinese Stocks Like the Tide............ Global Investors Shift to Risk Aversion>
It was that foreign capital had begun withdrawing en masse from the Chinese market.
The money currently fleeing was not from American retail investors.
U.S. retail traders had never significantly invested in the Chinese market to begin with—so naturally, they had nothing to pull out.
The ones withdrawing funds from China were institutional investors such as sovereign wealth funds and hedge funds.
Unlike retail traders, they didn’t blindly trust the Delphi Report.
They simply judged that at this point, investing in China posed too great a risk.
"This is basically gambling, isn’t it?"
"In the end, what matters is whether Delphi’s disruption or China’s artificial intervention proves stronger—and predicting that is impossible."
"The bubble was unstable from the start..............."
It had always been difficult to predict the fate of a financial bubble.
And this wasn’t even a natural one.
Now, Ha Si-heon and the Chinese government were locked in a tense tug-of-war atop a giant bubble.
Predicting the outcome of such a battle was practically impossible.
In this situation, major funds and sovereign wealth funds that prioritized stability quickly began pulling out their money.
Many hedge funds also started stepping back, opting to observe for now.
However, not all of those cautious hedge funds were prioritizing "safety."
Many were looking for "opportunity" instead.
"If there’s a clear sign that one side is winning..............."
"This could actually be a big opportunity."
They closely monitored the situation, ready to bet on the more favorable side and make a profit.
The more unstable things became, the higher the potential returns.
If Ha Si-heon appeared to have the upper hand?
They would bet on China’s collapse too.
On the other hand, if China looked stronger?
Then the moment the market hit bottom, they’d seize the chance to buy up Chinese stocks at a bargain.
As all of Wall Street’s investors watched China’s stock market with bated breath, strange smiles crept onto their lips.
"Can’t believe this is happening."
"Kind of reminds me of that time."
In a way, Wall Street was now witnessing a showdown between a single individual and a massive nation.
A situation like this was nearly unheard of.
No—there had been one.
"Reminds me of Soros’s attack on the pound."
"The scale’s different, but in terms of structure..."
They were recalling the British pound crisis of 1992.
That was when George Soros’s hedge fund shorted the pound so aggressively that it brought the Bank of England to its knees. It became a legendary case of an individual triumphing over a country.
‘We all thought that could never happen again............'
But now, another individual was challenging a giant nation.
An event long believed impossible was repeating itself.
And with the entire world watching in tense silence, the first to take action was the Chinese government.