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Michael Clark
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Michael J. Clark was born and raised in Sinclair, Wyoming. He is a poet, novelist, artist, historian, and market analyst. His fine arts portfolio can be found at the following address: http://www.hoalantrangallery.com/MJC2.htm His writing portfolio can be found at:... More
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  • ARE CHINESE STOCKS CRASHING? WHAT DOES THIS TELL US ABOUT WHERE WE ARE HEADING? 6 comments
    Mar 14, 2013 7:50 AM

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    "NOTHING COULD BE FINER THAT TO BE INVESTING IN AMERICAN CORPORATIONS IN CAROLINA IN THE MOR-OR-OR-NING...!"

    I relax with my cup of coffee. Everything is fine again. The world seems wonderful. The American Economy is pumping out positive number after positive number: jobs, spending, retail spending...it all just gets better and better. The bulls are in the driver's seat, where they belong (warning the bears not to spoil everything with their negativity!). A good knock up on the side of the head may be in order for those perma-bears who ALWAYS focus on the shadow side.

    I was gloating. I was long stocks and feeling pretty good about it. Up over 30% in a few months. Netflix had just doubled for me. Maybe it was time to buy more. I scan the headlines: "S&P Might Gain Another 20%..." Jeeze: I better buy some more Netflix. Not that Netflix is going to power the American Empire back to global dominance. Is the New America going to be driven by the tech giants to the heights again? Woops. Apple was lower again. I'm shorting Facebook. Then I made a huge mistake -- in terms of my peace of mind. I looked at Chinese stocks and indexes. GASP!

    Is China Crashing? Ok, my first look was at the Chinese banks: the BIG BANKS. Too Big to Fail! Egad! They looked horrible in the charts:

    Agricultural Bank of China seemed to be in a dead-fall.

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    Ok. Then I looked at Industrial and Commercial Bank of China; then China Merchants Bank; then Bank of China -- the last one was touching support. Perhaps support would hold. I do not own any of these; but I was assured by 'China Experts' that these were rock-solid Chinese stocks.

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    Was this just the Chinese financials that were in trouble? No. The Shanghai Index looked bad. So did the Hang Sang. Both seemed to be entering the 'free fall' zone. Note in the charts how the red line in the top pane -- M5Diff% -- when it begins a free fall, stock prices follow.

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    I looked at one of my favorite ETF's. FXP, Short FTSE China Index. Was it time to short China? Incredibly, it seemed like it was. I thought the bulls were in control; and now this. The FXI, China 25 Index, looked horrible -- the long trade looked horrible.

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    What about individual Chinese stocks? Were they all breaking down? SNP, China Petrol and Chemical seemed to be joining the Bear Show. As did PTR, Petro China. What was this telling us? Was this a response to the Japanese Currency War? Or was this simply a picture of global recession creeping back in to reality?

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    YOKU had already crashed, down from 25 to 17.

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    YGE, Yingli Green Energy China, was also breaking down.

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    We've been listening so much to the American cheerleaders on the media tell us everything was fine. It did not look so good for China. SINA had had a healthy rally in September; but it had broken down after that, and the subsequent January-February rally had been feeble. The orange boxes in the chart tell one if the buyers are stronger than the sellers. When the orange box is above, and is broad, then the buyers are strong. When the orange box is at the bottom of the chart, and broad, sellers are stronger.

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    Was it just China? Or was it China plus the industrial metals that was sliding, China's base? Industrial metals looked weak. Lead and Copper were disasters. What about VALE? VALE was also breaking down.

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    Was the banking stock breakdown in China a reflection of a banking stock breakdown generally (except, perhaps, in America, where American banks were being spoon-fed free money by Bernanke?) Royal Bank of Scotland was tanking. Royal Bank of Canada was showing strains also.

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    What about the Devil's Bank, Goldman Sachs? It's still hugging its highs. But it's momentum is flagging.

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    Was this the emerging markets that were crashing? India was not making new highs. In fact India seemed to be sharing some of the Chinese stock symptoms. Was India crashing? What about Vietnam? I thought everything had become suddenly wonderful in the world. Too much American television?

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    Europe was fine, wasn't it? The EUFN, the European Financial Index, had lost momentum and was straining to keep its highs. Italy was broken. Spain was breaking.

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    Suddenly, shorting the Euro had become a good idea. Germany had been furious at Japan for having the audacity to mimic America and Great Britain and Switzerland and torpedo their own currency. Suddenly, the Euro was too high. Suddenly, the European countries needed a weaker currency to support economic growth THROUGH export trade.

    Of course, Italy was on the verge of electing a populist commedian who suggested out loud that Italy should leave the EU and abandon the EURO.

    In Germany, a group of distinguished academicians and economists were starting a new political party that wished to do the same: abandon the EU and the Euro (well, at least the Euro). They were open to the idea of either returning to individual national currencies again; or to having a Northern Euro currency, and a Southern Euro currency. Angela Merkel was aghast at the appearance of this rival political party, which already is supported by about 25% of the German population in terms of the 'get out of the Euro' sentiment.

    Things are not well in Europe. We can look for civil wars in Europe eventually -- and the rising of populist governments all over the continent, attempting to deal with the DEBT Cancer, and with the cultural cancer of an alien religion embedded inside its bodily tissues.

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    Is this global weakening (and the Chinese crash) being caused by a stronger US Dollar? The suddenly crashing Japanese Yen also makes for a much stronger dollar, as does a crashing British Pound, a crashing Swiss Franc, and a crashing Euro. This is Ben Bernanke's greatest fear -- two-headed fear: a stronger US Dollar; and rising US interest rates.

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    If the strength of the US Dollar is causing this turmoil in the commodity markets, how long until it begins to sink stocks and housing also? We know what Ben has been doing with his QE and his ZIRP and his MORE QE. He has been trying to inflate prices through Dollar devaluation. Japan is no longer playing this game. China has inflation. China needs higher interest rates to fight inflation; but higher interest rates suffocate growth, right.

    Interest rates are rising. Bernanke's TBond bubble is being taxed. The hullabaloo over American housing is a scam, a last attempt to sucker in more buyers, before the bottom falls in for real. Bernanke should be ashamed of himself. He's a huckster. He's a con-man. He's a front man for America's corrupt banks.

    Yes, American stock indexes are hitting new highs. But suddenly I don't feel so much equanimity bout this rally as I once did.

    I look at some charts depicting America's decline into another recession -- and the true picture of American housing.

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    The governments of the world have got so used to lying that they don't know what else to do. Businesses are no better. Our leaders are liars; and they are leading us nowhere. They don't know what to do; so they make up lies to make us feel better. They are afraid what will happen if we get tired of their stealing our money, and misleading us with slogans, and the easy virtue of a fixed prosperity based on ever-increasing levels of debt. Let the next generation worry about it.

    Selfishness, greed, vanity and dishonesty (and hoarding) are all sins, let's not forget. Sins get punished in the afterworld; and, for all intents and purposes, each Night-Cycle (1929-1947; 1965-1983; 2001-2019) is an afterworld.

    ___

    I am adding an addendum to this blog because I think it becomes clear why the Chinese stocks are falling. US Dollar strength. The US Dollar strength, if it continues, will create the deflation that the world needs, and the deflation that central banks fear -- deflation of prices in commodities, stocks and housing. Deflation will also destroy much of the worthless debt Bernanke is now protecting with taxpayer money, debt that is clogging the arteries of the global economy.

    Note the absolutely perfect inverse relationship between Strength of the US DOLLAR (UUP, US Dollar Bullish ETF)

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    Note also the perfect inverse relationship between the US Dollar and the China Shanghai Index.

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    A strong US Dollar will defeat Ben Bernanke. Ben Bernanke knows this. This is Ben Bernanke's nightmare.

    Michael J. Clark, CGTS

    Hanoi

    cgts@mindspring.com

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Comments (6)
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  • Tom Au, CFA
    , contributor
    Comments (6774) | Send Message
     
    "Then I made a huge mistake -- in terms of my peace of mind. I looked at Chinese stocks and indexes. GASP!"

     

    I've been bullish for the past six months. Then your article reminded me of this article that I published years ago. http://bit.ly/siO6u1
    14 Mar 2013, 10:21 AM Reply Like
  • Michael Clark
    , contributor
    Comments (8403) | Send Message
     
    Author’s reply » Interesting post, Tom.

     

    China has a huge credit bubble to deal with.
    14 Mar 2013, 11:54 AM Reply Like
  • flash9
    , contributor
    Comments (3669) | Send Message
     
    I just read an article, is China the worlds largest bubble. It's hard to see through fog, but I think that's a black swan. It sounds as if China has made a full scale offensive stretching their lines to the breaking polnt and extending their supply lines way too far because they've had no resistance. Have the Japanese, the other tigers, and the west started a counter offensive? If so, they are very vulnerable.
    14 Mar 2013, 03:18 PM Reply Like
  • Michael Clark
    , contributor
    Comments (8403) | Send Message
     
    Author’s reply » I agree, Flash. Japan's currency war is shaking up everyone: South Koreans, Germans, Brits. With everyone driving their currency lower, the dollar comes up -- and that's the last thing BB wants. Chinese stocks clearly are 'showing strain'.
    15 Mar 2013, 01:50 AM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (11030) | Send Message
     
    Actually, their is a foreign investment drop in all Asia recently which is impacting everyone including China. If I was to join the conspiracy theorists this means somebody in the US knows the US economy will crash, is yanking money overseas and repatriating it making the US economy look rosy temporarily before it takes a major dump and the US dollar gets strong again against everything save maybe precious metals. Believe it or not? All I'll say is be careful. The US economy is weak at best.
    21 Mar 2013, 11:26 AM Reply Like
  • Michael Clark
    , contributor
    Comments (8403) | Send Message
     
    Author’s reply » Could not agree more. This rally is coming from ZIRP and corporate buybacks; and massive margin. When the margin calls come, look out below.
    22 Mar 2013, 02:42 AM Reply Like
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