| We all were witness to quite a bit of history yesterday. In addition to yesterday, we have seen the US equity markets experience the worst three day move in history. The world desperately anticipated action by the Chinese over the weekend and when they did not get it, get out of the way! The Dow was down over 1,000 points at one point, the Ten-Year Treasury yield was below 2%, etc. The proverbial "blood on the streets" was in full effect. Not to worry! - CHINA PBOC CUTS INTEREST RATES
- CHINA PBOC CUTS REQUIRED DEPOSIT RESERVE RATIO
- CHINA PBOC CUTS 1Y DEPOSIT RATE BY 25 BPS
- CHINA PBOC CUTS 1Y LENDING RATE BY 25 BPS
- CHINA PBOC CUTS BANKS DEPOSIT RESERVE RATIO BY 50 BPS
Analysts' reactions: According to Bloomberg: China has halted intervention in the stock market so far this week as policy makers debate the merits of an unprecedented government campaign to prop up share prices, according to people familiar with the situation. Some officials argue that falling stocks will have a limited impact on the world's second-largest economy and that the costs of supporting the market are too high, said one of the people, who asked not to be identified because the deliberations are private. Officials who back intervention say tumbling shares pose a risk to the banking system, the people said. The Shanghai Composite Index sank 15 percent over the past two days, extending a $4.5 trillion rout since mid-June that has shaken confidence among equity investors around the world. President Xi Jinping's government is trying to balance a pledge to loosen its grip on markets against the need to maintain financial stability amid projections for the weakest economic expansion since 1990. Goldman's three main reasons for their actions: Activity growth weakened meaningfully after a brief rebound in 2Q. July activity data were disappointing. July IP sequential growth moderated to 3% mom ann from 10% mom ann in June. While we still need hard activity data to confirm, August activity growth has probably also been weak, as reflected in the Caixin manufacturing PMI flash reading. Shutdown of factories (from August 20 to September 4) around major international events will add further downward pressures on activity growth in August and September. The official GDP target of "around 7%" this year is clearly under threat, and policy easing measures therefore must be stepped up to support growth. Outflows re-emerged and drained liquidity. On the back of a weakening economy and FX rate devaluation, FX outflows re-emerged in July (see China: FX outflow re-emerged in July, Aug 18, 2015) and very likely worsened in August. The PBOC needs to keep at least a steady level of liquidity supply and interbank rate. The RRR cut is therefore called for to offset the liquidity drain from FX outflows. Compared with open market operations, the RRR cut sends a much clearer message about policy intention which is much needed. Equity market has been falling very rapidly. As of the time of writing, SHCOMP broke the 3000 level, down 16% from last Friday. We believe this decision to cut the RRR is also partly due to the recent equity market performance. If these markets felt manipulated before, boy does it really feel like it now. I get the distinct feeling that I am dealing with a compulsive liar. This is the guy who cannot remember which lie he has told to whom and cannot get his story straight. But never fear! The US equity market is up 4% at the time of this writing! Trade well and follow the trend, not the perma-bull OR perma-bear "experts." Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia. | 
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