Global Markets in Review: Has Pullback Begun with China?

During the week marking the second anniversary of the start of the credit crunch, stocks, copper, nickel, zinc and sugar recorded fresh 2009 highs. But the celebrations came to an abrupt end as caution crept back into investors’ vocabulary on Friday when it dawned upon pundits that markets were running away from economic reality. On top of that, Chinese equities - a leading stock market on the way up - saw a reversal of fortune and declined to a five-week low.

This is where the Ecclesiastes-based lyrics of the Byrds’s classic, Turn, Turn, Turn, started resounding in my head: “To everything (turn, turn, turn), There is a season (turn, turn, turn), And a time for every purpose, under heaven, A time to gain, a time to lose …” (Click here for audio.)

Source: Mike Keefe (hat tip: The Big Picture)

Paul Kasriel, chief economist of Northern Trust, reports that the meeting statement of the Federal Open Market Committee (FOMC), released on Wednesday, was a bit more optimistic about the near-term economic environment, changing its language from “the pace of economic contraction is slowing” at the June 24 meeting to “economic activity is leveling out”. However, the communiqué also said that household spending would be constrained by “sluggish income growth”, in addition to the other constraining factors mentioned in the June 24 statement - “ongoing job losses, lower household wealth, and tight credit”.

Kasriel:

Given our current view that the recovery is going to be subdued and uneven over the next several quarters, we do not expect any federal funds rate increases from the FOMC until June 2010, at the earliest.

Shorter-dated U.S., U.K. and other government bond yields - securities that are sensitive to interest rate movements - declined on indications that benchmark interest rates would remain at low levels for an extended period of time. Longer-dated U.S. yields also fell after the Fed announced that its Treasury purchase program would be extended until October.

Remarked Bill King (The King Report):

The point is the Fed said it would keep the punch bowl open an extra month but it would not increase the punch that is already in the bowl. It will just dole it out in smaller increments over an extra month.

To James Grant (Grant’s Interest Rate Observer) the level of Treasury yields spells danger. He said:

Vacation-time thought experiment: With the knowledge that the U.S. government will be borrowing as much as $3.5 trillion from the public in fiscal years 2009, 2010 and 2011, approximately matching the Treasury’s cumulative borrowing between 1789 and 1994, would you have guessed that the yield on the 10-year Note would today be hovering in the neighborhood of only 3.7%? If ‘yes’ is your answer, you must not go away on vacation this month. You have too hot a hand to stay away from the office.

The past week’s performance of the major asset classes is summarized by the chart below, showing risky assets starting to take a breather.

Click to enlarge:

Source: StockCharts.com

A summary of the movements of major global stock markets for the past week, as well as various other measurement periods, is given in the table below.

The MSCI World Index (+0.1%) and MSCI Emerging Markets Index (unchanged) marked time last week, but are still showing solid year-to-date gains of +15.6% and +50.4% respectively. As weakness crept in towards the close of the week, the U.S. and a number of other markets snapped a winning streak of four straight weeks. Emerging markets underperformed developed markets for the second week running since the beginning of May, indicating signs of risk appetite abating somewhat.

Click here or on the table below for a larger image.

Top performers in the stock markets this week were Bulgaria (+9.4%), Lithuania (+6.7%), Estonia (+6.5%), Vietnam (+5.5%) and Venezuela (+4.5%). The top three positions were again occupied by countries from Eastern Europe that are still playing catch-up as the scare of a banking collapse in the region dissipates. At the bottom end of the performance rankings, countries included China (‑6.6%, last week -4.4%), Nigeria (-4.5%), Luxembourg (-3.6%), Cyprus (-3.2%) and Israel (-2.8%).

After surging by 90.7% since the beginning of the year and notching up seven straight weeks of gains, the Chinese Shanghai Composite Index has now declined by 12.2% since its peak of August 4, taking the Index back to its early-July level. On Friday, the Index (3,047) dropped to below its 50-day moving average (3,103), but it is still comfortably trading above its 200-day line (2,420). The Rate-of-Change Indicator (black line in the bottom section of the chart) has broken below the zero line, thereby flashing a sell signal.

Click to enlarge:

Source: StockCharts.com

Of the 94 stock markets I keep on my radar screen, a majority of 63% (last week 74%) recorded gains, 33% (21%) showed losses and 4% (5%) remained unchanged. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)

John Nyaradi (Wall Street Sector Selector) reports that as far as exchange-traded funds (ETFs) are concerned, the winners for the week included Vanguard Extended Duration Treasury (EDV) (+5.2%), iShares MSCI Austria (EWO) (+4.4%) and WisdomTree Japan SmallCap Dividend (DFJ) (+3.8%).

At the bottom end of the performance rankings, ETFs included Market Vectors Solar Energy (KWT) (-5.8%), SPDR KBW Regional Banking (KRE) (‑5.1%) and iShares Cohen & Steers Realty Majors (ICF) (-4.9%).

On the credit front, an indicator worth monitoring is the Barron’s Confidence Index. This Index is calculated by dividing the average yield on high-grade bonds by the average yield on intermediate-grade bonds. The discrepancy between the yields is indicative of investor confidence. There has been a solid improvement in the ratio since its all-time low in December, showing that bond investors are growing more confident and have started opting for more speculative bonds over high-grade bonds (albeit not to the extent to restore the ratio to pre-crisis levels). As to be expected, there is also a close relationship between the Index and the movement of the benchmark U.S. stock market indices.

Click to enlarge:

Source: I-Net Bridge

Economists of the ilk of John Mauldin (Thoughts from the Frontline) and Nouriel Roubini (RGE Monitor) warn that the coming “recovery” may be anemic and not much more than a “statistical recovery”. In this regard, the quote du jour this week comes from Lawrence Mishel, president of the Economic Policy Institute, who described the situation as follows in The Washington Post:

Economists are using one concept of recession that is at total variance with how a normal human being thinks of it. A normal human being thinks of a recession as: You fell into a hole, and as long as you’re in a hole, you’re in a recession. Economists think of [a recession's end] as … when the economy stops shrinking.

Other news is that the Federal Deposit Insurance Corp (FDIC) seized Colonial Bank on Friday - the sixth largest bank failure in U.S. history. Additionally, regulators closed four more banks, bringing the tally of U.S. bank failures in 2009 to 77, including 32 since July 1.

Next, a tag cloud of all the articles I read during the past week. This is a way of visualizing word frequencies at a glance. Key words such as “market”, “economy”, “bank”, “prices” and “China” featured prominently. Interestingly, “recovery” also moved up the ranks as the global economy seems to have turned the corner.

The key moving-average levels for the major U.S. indices, the BRIC countries and South Africa (where home is) are given in the table below. With the exception of the Chinese Shanghai Composite Index, which fell below its 50-day moving average on Friday, all the indices are trading above their respective 50- and 200-day moving averages. The 50-day lines are also in all instances above the 200-day lines and therefore not threatening the bullish “golden crosses” established when the 50-day averages broke upwards through the 200-day averages.

The steepening uptrend of a number of indices has become frothy and some degree of reversion to mean is probably overdue. I believe this process - which could take the form of either a pullback or a consolidation (i.e. ranging) pattern - might have commenced with the declines in China and elsewhere. The July lows are also given in the table, as these levels may offer support for a number of the indices.

Click here or on the table below for a larger image.

Long-timer Richard Russell (Dow Theory Letters) said:

Some of the smartest and most successful men and women in the world disagree as to whether we are dealing with a correction in an ongoing bear market - or whether we are dealing with a new bull market. Nobody on the planet possesses the final, ultimate answer. I happen to believe we’re dealing with an upward correction in an ongoing bear market, and that opinion is what keeps me on the edge of my seat. I’m worried about the economy, I’m worried about the future, and I’m worried about the market itself.

Because this correction, so far, has been impressive, many analysts are calling it a ‘cyclical bull market’ instead of a bear market rally. I don’t care what you call it, if I’m correct, if, indeed, we are in a rally in a bear market, I want to be on my guard. I went through a number of these ‘cyclical bull markets’ during the 1966 to 1980 bear market, and I saw a lot of investors lose their shirts when those various bear market rallies unexpectedly topped out.

Doug Kass (TheStreet.com), who accurately called the March bottom, is now outright bearish, saying:

The market optimism we are now experiencing in the expectation of a clean hand-over of the baton of stimulation from the consumer (2000-2006) to the government (2008-??) might be more short-lived than many believe, as the price of stimulation, regardless of whether its source is the private or public sector, holds the promise of being more of a growth retardant. With the debt supercycle continuing apace (but in a public sector context), the fragility and inherently unstable ‘balance of financial terror’ argue for a not-so-benign and extremely volatile stock market future.

… the margin of safety is becoming ever more thin as the enemy of the rational buyer, namely optimism, reaches new heights. … since a self-sustaining economic recovery appears doubtful, I do not believe we have started a new bull market. Rather, it is more than likely that economic growth will disappoint in late 2009/early 2010 as the domestic economy confronts many of the emerging secular challenges.

On Friday, I published a short post on Chinese equities and said:

it looks if more downside is in store for the Shanghai Composite Index and it would not come as a surprise if lower Chinese equities serve as the catalyst for a well-deserved pullback in global stock markets.

With world markets coming off the boil by the close of the week, China may already have started leading world markets lower. A much-needed pullback/consolidation of frothy markets looks likely - be cautious out there!

For more discussion on the direction of financial markets, see my recent posts “Stock markets disconnected from economy“, “All eyes on Chinese equities“, “Bob Prechter - ‘Step aside’ from long positions“, “When will the rally end?“, “Revisiting Bob Farrell’s rule #9” and “More on Bob Farrell’s rule #8. (And do make a point of listening to Donald Coxe’s webcast of August 13, which can be accessed from the sidebar of the Investment Postcards site.)

Economy
The Recession Status Map below, courtesy of Dismal Scientist Economy.com, aggregates growth statistics from around the world and allows one to see at a glance which economies are in recession, at risk or beginning to recover. Click on the map to link to the interactive version.

Source: Dismal Scientist

Although the recessionary conditions still dominate, global business confidence turned positive last week for the first time since early last October. (The chart below uses a four-week moving average and is therefore not yet reflecting the break above the zero line.) “The gains in sentiment are evident across the entire global economy and all industries,” said the latest Survey of Business Confidence of the World by Moody’s Economy.com. Businesses’ broad assessment of the current economic environment and the outlook into early 2010 are particularly upbeat. However, despite the steady improvement in confidence, the Survey results remain consistent with a global economy that is still in recession. (Click to enlarge)

Source: Moody’s Economy.com

The German and French economies unexpectedly bounced back in the second quarter - both grew at 0.3% in the three months to the end of June after having suffered four straight quarters of negative growth. This resulted in GDP in the Eurozone falling by only 0.1% in the last quarter. Meanwhile, the U.K.’s GDP lags the OECD economies with a second-quarter decline of 0.8%.”

A snapshot of the week’s U.S. economic reports is provided below. (Click on the dates to see Northern Trust’s assessment of the various data releases.)

Friday, August 14
•The factory sector has turned the corner
•Inflation remains contained
•Consumer Sentiment Index dips again

Thursday, August 13
•Gasoline prices bring down total retail sales in July
•Jobless claims report - sum of continuing claims and special programs advances for second consecutive week

Wednesday, August 12
•FOMC meeting statement - the Fed defines “autumn”
•Trade gap widens while exports also advance

Tuesday, August 11
•Q2 productivity surge is temporary
•Small business optimism dips slightly in July

Also, Zillow.com reported (via Bloomberg) that almost one-quarter of U.S. mortgage holders owed more than their homes were worth in the second quarter, expecting the figure to rise to as much as 30% by mid-2010 as job losses and foreclosures climb.

George Soros said in an interview with Reuters that the U.S. economy had hit bottom and the current quarter would see positive growth due to the government’s stimulus spending. He said he did not believe the economy needed further stimulus money, notwithstanding calls for a second round of spending [from the likes of Nobel laureate Paul Krugman].

Meanwhile, a survey by The Wall Street Journal among 52 economists (with 47 respondents) reported that 27 participants said the recession had ended and 11 expected a trough this month or next.

Only six economists expect the Fed to raise the federal funds rate, now between 0% and 0.25%, this year. Most expect an increase at some point in 2010, but more than a quarter of respondents don’t see the rate moving until 2011 or later.

Source: The Wall Street Journal, August 11, 2009.

Week’s economic reports
Click here for the week’s economy in pictures, courtesy of Jake of EconomPic Data.

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior
Aug 11	8:30 AM	Productivity-Preliminary	Q2	6.4%	5.2%	5.5%	0.3%
Aug 11	8:30 AM	Unit Labor Costs	Q2	-5.8%	-2.2%	-2.5%	-2.7%
Aug 11	10:00 AM	Wholesale Inventories	Jun	-1.7%	-0.9%	-0.9%	-1.2%
Aug 12	8:30 AM	Trade Balance	Jun	-$27.0B	-$31.0B	-$28.7B	-$26.0B
Aug 12	10:30 AM	Crude Inventories	08/07	+2.52M	NA	NA	+1.67M
Aug 12	2:00 PM	Treasury Budget	Jul	-$180.7B	NA	-$180.0B	-$102.8B
Aug 12	2:15 PM	FOMC Rate Decision	-	0.00%-0.25%	-	-	0.00%-0.25%
Aug 13	8:30 AM	Export Prices ex-agriculture	Jul	0.2%	NA	NA	0.7%
Aug 13	8:30 AM	Import Prices ex-oil	Jul	-0.2%	NA	NA	0.2%
Aug 13	8:30 AM	Initial Claims	08/08	558K	540K	545K	554K
Aug 13	8:30 AM	Retail Sales	Jul	-0.1%	0.9%	0.8%	0.8%
Aug 13	8:30 AM	Retail Sales ex-auto	Jul	-0.6%	0.3%	0.1%	0.5%
Aug 13	10:00 AM	Business Inventories	Jun	-1.1%	-0.9%	-0.9%	-1.2%
Aug 14	8:30 AM	Core CPI	Jul	0.1%	0.1%	0.1%	0.2%
Aug 14	8:30 AM	CPI	Jul	0.0%	0.0%	0.0%	0.7%
Aug 14	9:15 AM	Capacity Utilization	Jul	68.5%	68.5%	68.3%	68.1%
Aug 14	9:15 AM	Industrial Production	Jul	0.5%	0.5%	0.4%	-0.4%
Aug 14	9:55 AM	Mich Sentiment-Preliminary	Aug	63.2	70.0	69.0	66.0

Source: Yahoo Finance, August 14, 2009.

Click here for a summary of Wells Fargo Securities’ weekly economic and financial commentary.

The US economic data reports for the week include the following:

Monday, August 17
Empire manufacturing
Net long-term TIC flows

Tuesday, August 18
Building permits
Housing starts
PPI

Wednesday, August 19
None

Thursday, August 20
Initial jobless claims
Leading economic indicators
Philadelphia Fed

Friday, August 21
Existing home sales

Markets
The performance chart obtained from the Wall Street Journal Online shows how different global financial markets performed during the past week.

Click to enlarge:

Source: Wall Street Journal Online, August 14, 2009.

Jonathan Hoenig:

Listening to the market, maximizing the bets that turn out and minimizing those that don’t, are the essence of how portfolio management works. Because nobody is right all the time, that discipline is the oft-overlooked secret of how real fortunes are made.

(hat tip: Charles Kirk)

Let’s hope the news items and quotes from market commentators included in the “Words from the Wise” review will assist Investment Postcards readers in making those fortunes.

Comments

[Pauly B:]

Thank you for the great article. The China piece is concerning not just from an economic point from a political point as well. I am hearing of millions of layoffs over there because of decreased demand for product from the world which intern could cause political upheaval.

Aug 16 08:41 AM

[elated7:]

Current global market value is nothing more than a manipulation by those, like that of Goldman Sachs and JP Morgan and other Hedge Funds. And now, we will see that the market will tank or it will not support the US Dollar. For the Dollar Hegemony, they will drive down global market, starting from China and other emerging market. US consumers will dictate this course and Goldman Sachs and the likes, will lubricate the scenario. Interesting scene to play out.

Aug 16 09:25 AM

[Dave Wrixon:]

This is about Dollar and US Hegemony and there are a lot of dirty tricks being played to try to sustain the status quo, but it will all be to no avail.


On Aug 16 09:25 AM elated7 wrote:

> Current global market value is nothing more than a manipulation by
> those, like that of Goldman Sachs and JP Morgan and other Hedge Funds.
> And now, we will see that the market will tank or it will not support
> the US Dollar. For the Dollar Hegemony, they will drive down global
> market, starting from China and other emerging market. US consumers
> will dictate this course and Goldman Sachs and the likes, will lubricate
> the scenario. Interesting scene to play out.

Aug 16 11:34 AM

[LKofEnglish:]

first off when I think of the word "idiot" the name "John Jansen" comes to mind. Second when I think of "scary brilliance" the name "Jim Grant" comes to mind. One gives his thoughts away for free, the other you have to pay up the nose for, i let the SA readers guess which one is which. this is a very well presented piece but for folks looking abroad relative to the American economy they're "missing the boat" so to speak. This economy has been overwhelmingly domestic oriented since its founding and that certainly isn't going to change now. now i know everyone sees a collapse in the dollar as symptomatic of a larger, looming economic catastrophe. while this is true at some point as the old saw goes "you can die while waiting for the market to act rationally" or in this case, relative to the dollar, the economy. THIS IS NOT GERMANY. We're a low cost leader in so many commodities the Federal Reserve in conjunction with a totally wacko congress has, simply put, "monetized" the American economy by bankrupting the nation in conjunction with QE. In other words for Wall Street which INCREDIBILY is recieving taxpayer bailout money never has there been more assets for sale at basically the price of "free." If this was politico.com I would agree the correct response is to basically get the pitchforks out and "let 'em have it." But this is a financial website so I assume people congregate here to make a fortune. well, it doesn't get any better than this if you're very tactical in your approach towards you're own "monetizing." great article but the focus has to be on healthcare. of course the global economy matters and if i'm a rancher in kansas i'm very interested in where my wheat is going. but if i'm in iowa i'm looking at ethanol subsidies and thinking "i think i've died and gone to heavan."

Aug 16 11:35 AM

[ebworthen:]

Excellent analysis, I enjoy your work here and on Minyanville.com

The cartoon at the beginning of you article says it all.

In our "unprecedented since the Great Depression" times, unemployment is now a leading indicator.

Government spending and corporations turning quarterly profit by laying off people and cutting their hours, and banks getting free money from taxpyayers to lend out at 5%-25% do not a recovery make.

The anchor of any economy, people producing things to sell and people with jobs and income to buy, save and invest, is what matters long term. Banks, corporation, governments, and the wealthy cannot take that boat out of the doldrums or away from the churning whirlpool of debt without a middle class that is employed with enough disposable income to save, invest, and spend.

In the U.S. we now have and administration and Congress bent on imposing new taxes and dis-incentives to make money, spend it, or invest it in equities. The "trillions on the sidelines" will likely stay there as millions of baby-boomer investors, retired or close to it, have been burned. If we have a correction this Fall, a regression to the mean or a re-test of March lows, even more will eschew equities and be happy with money market funds, tips, and hard assets or stocks like gold, silver, and oil.

There isn't enough gas or horsepower in that little motor to get the water skier going anytime soon, if even above the waterline.

Aug 16 11:49 AM

[Observer45:]

I think as far as the Shanghai market goes, air is already coming out of that bubble. My guess is another 15% to 20% more to fall. Business loans will continue but at a more cautious pace but loans through business going into the stock market will stop as their banks are remitting the loaned amount directly to the supplier.

Aug 16 12:29 PM

[Dave Dorgan:]

Instead of 'pullback' we could see choppy sideways for some time. That type of market movement is typical after a strong run - in either direction.
I would not expect the Chinese government - or any government for that matter - to just sit there and watch their political future just go out the window. I expect a serious amount of band-aids, duck tape, word smything, serious rule bending and outright lies - before market forces eventually have the last word.

Aug 16 12:38 PM

[Suzanne H.:]

Don't we all feel so confident that the economists that didn't see the recession coming are now declaring it ended or a trough this month or next. How do these guys keep their jobs???

Meanwhile, a number of wall street insiders and other professionals are turning bearish, the sentiment of public investors is highly bullish (in the US I follow AAII showing 51% bullish, high reading whereas not too many weeks ago on July 9th bearish levels hit 54% so it worked out as a great contrarian indicator). Furthermore, Investor's Intelligence bullish sentiment is almost at 50% highest level since dec 2007 and bearishness is at 21% lowest since oct 2007.

I am slightly net short, mostly china, emerging markets, and oil, but not giving it much leeway at all -- any rally on spx (if 38% or 1020 resistance does not hold and spx punches higher) I am out, will ask questions later. Trading is not so much about being right, but about cutting the loss and getting out immediately when things don't go as planned -- and that could be my day on Monday, never know, but it is the best occupation in the world, in my opinion, where theory and practice come together on a global scale.

Aug 16 01:31 PM

[LIVE FREE O...:]

Excellent piece of work, thanks!!

Aug 16 03:34 PM

[Dave Wrixon:]

Exactly my sentiments!

On Aug 16 01:31 PM Suzanne H. wrote:

> Don't we all feel so confident that the economists that didn't see
> the recession coming are now declaring it ended or a trough this
> month or next. How do these guys keep their jobs???
>

Aug 16 07:37 PM

[Old Trader:]

It certainly wouldn't be the first time a global market shock originated in Asia. While they've dropped off the page 1 headlines, I'd also keep an eye on the Baltics, as well. Things in that neck of the woods are hardly all "skittles and beer", either. Austrian and Swedish banks have some SERIOUS exposure there.

Aug 16 08:27 PM

[Lexy:]

IMHO, I've been hearing this for the past year, and I don't believe there is any merit to it. The CIC purportedly has over $1.5T USD, enough to placate the masses for several years if exports continue to decline in a worst average case.

On Aug 16 08:41 AM Pauly B wrote:

> Thank you for the great article. The China piece is concerning not
> just from an economic point from a political point as well. I am
> hearing of millions of layoffs over there because of decreased demand
> for product from the world which intern could cause political upheaval.

Aug 16 10:04 PM

[wyn:]

Good article,

Yes, more PRC downside, short-term. But I'd be a buyer, if the trend continues down, us stop loss! Way to much money on the side-lines. China just in not like the US w/ huge systemic RE, Bank, Debt problems. Their fiscal/monetary system is not dependant on a broke consumer, or central bank (but,that seems to be working TOO WELL!)

Botttom line, let the market 'tell you' when to Buy/Sell. No preconceptions...(TSTC), (GRRF) state funded infrastructure--Telco'... PLAYS!

Aug 17 01:55 AM

[Paul Harper:]

Agreed regards the Baltics, but even the Irish are feeling chipper about things when you look at what's ahead for Spain ... nw there is real boom & bust in the property market.
Interestingly enough, Poland has see some positive activity in its stock market to date, but the zloty is still under a lot of pressure.


On Aug 16 08:27 PM Old Trader wrote:

> It certainly wouldn't be the first time a global market shock originated
> in Asia. While they've dropped off the page 1 headlines, I'd also
> keep an eye on the Baltics, as well. Things in that neck of the woods
> are hardly all "skittles and beer", either. Austrian and Swedish
> banks have some SERIOUS exposure there.

Aug 17 03:19 AM

[doubleshortetf:]

Been to China over 30 times since 1998 while working for 3 multinationals. It's amusing to see "experts" who has not been to China or spent few days in the big Chinese cities recommending Chinese stocks... Wonder if they ever spent weeks at a time in gritty factory towns or poor interior areas...

Some sober facts:

1. China is a communist country ruled by 1 party with iron grip. Party bosses pick the politicians and many private company managements since many private companies are ex-SOE (communist state owned enterprises).

2. Corruption in China is rampant and one of the worst even down to lower ranking employees. Even factory canteen chef gets "envelopes" in scheme where he claims he received 10 bags of rice when only 8 bags are delivered.

3. There is almost no "law" since law itself is written to support the communist party or corrupt local communist bosses. Judges are appointed by the local communist boss and few if any understand law. Many judges got job thru "guanxi" or connection and of course bribes.

4. The Chinese banks in are BIG TROUBLE. E&Y got in heaps of trouble for discussing hidden bad and noncollectable debts. Local communist cadres dictate banks to lend to their pet projects and of course friends who bribe them not to mention COMPLETE lack of transparency.

5. No one except pea size brains trusts the communist government's statistics which are MANIPULATED.

6. Many of the listed companies numbers are COOKED. Auditors and their management can be bribed and extorted. It's beyond me how anyone would trust Chinese companies' financials unless audited by Big 4. And even Big 4s audited numbers are suspect since most Chinese companies carry multiple books including one for taxation and another with slush funds.

7. Latest Chinese share and commodity appreciation have lot to do with communists pumping money to the economy by directing the banks to lend. This kind of stimulus cannot go on.

Now is good time to buy FXP when all the investment gurus in unison are recommending Chinese stocks.

Aug 17 10:17 AM

[doubleshortetf:]

History repeats... Another 2007 bubble in making indeed.

Another sign of Chinese market bubble was rate of new brokerage account openings. Read that 700 to 800,000 new accounts were opened at end of July. Same thing happened in last bubble few months before the Beijing 2008 Olympics.

Local investors also appear to have same dumb money herd mentality and blind misplaced faith in CCC (Chinese Communist Party) to "hold" up the market during the Olympics than and now the 60th anniversary of CCC on Oct 1.

Local investors behave more like gamblers than investors and add this to Chinese people's penchant for gambling add more fuel towards the bubble. And guess who the "house" is. CCC since most companies are heavily owned by CCC as major shareholder and most of ex-SOE (state owned enterprises). And we all know "house" wins.

Aug 17 10:26 AM

[SteadyEddie:]

Economics wise, the Chinese can not sustain their stimulus driven economics for too long. Unless US goes to borrowing like a drunkard again, how could they keep exporting to keep up their growth rate? It will take years for them to develop their own consumption, so people wake up!

Aug 17 12:18 PM

[optionsgirl:]

I have some call options I want to sell to you.


On Aug 16 10:04 PM Lexy wrote:

> IMHO, I've been hearing this for the past year, and I don't believe
> there is any merit to it. The CIC purportedly has over $1.5T USD,
> enough to placate the masses for several years if exports continue
> to decline in a worst average case.
>
> On Aug 16 08:41 AM Pauly B wrote:

Aug 17 02:33 PM

[optionsgirl:]

doubleshortetf: Thanks for the fxp suggestion!

Aug 17 03:51 PM