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Hong Kong Gong! Is the liquidity bell ringing?

“It is well-known that the bailouts of Greece, Ireland, and now Portugal are a breach of the European treaties.  Even Christine Lagarde, the French finance minister, and Karel de Gucht, the Belgium EU commissioner, have admitted that.  What is less well known is that the International Monetary Fund, too, by contributing to these loans, is violating its charter.”
Roland Vaubel
Commentary & Analysis
Hong Kong Gong! Is the liquidity bell ringing?
You know the axiom—they don’t ring a bell at the top! But often we get inklings at the top, even though we may only recognize them as such once delivered the gift of hindsight. Liquidity is turning over in Hong Kong, and investors are playing the same game companies inside China are playing—borrow dollars and buy Chinese RMB. Another sign that stimulus may be doing an Elvis. 
Hong Kong Stock Market Daily: Daily uptrend going back to March 2009 has been broken. Now trading below its 200-day moving average.

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An excellent commentary by Henny Sender, appearing in the Financial Times today, summed up the concerns quite well. Below are some excerpts:

  • In April, the number of property transactions fell to a two year low.
  • Interest rates are beginning to move up and credit growth is slowing.
  • Hong Kong provides evidence the sugar high of easy money may end more swiftly than investors expect.
  • China is slowing and that in turn is having an impact on Hong Kong.
And here is the part I like, as it dovetails nicely with my Currency Currents from Wednesday regarding financial speculation a la copper-RMB-US dollars…
  • At the end of April Chinese currency deposits accounted for 8.4% of all deposits…yet at the same time, everyone wants to borrow what they see as weakening US dollars. In the latest variation of the carry trade theme, both companies and retail investors are borrowing dollars and investing in renminbi.
Once again, speculation predicated on a falling US dollar. What this means to you is this:
If for some undefined reason (though many scenarios exists given the risky risk of leverage in a slowing-growth world) the US dollar were to rally, the exit from all this carry trade spec in Asia will hit risk assets even harder than the normal stock market correction. 
And if the Fed remains true to its word, for some undefined reason, and does drain dollar liquidity at the margin, well ... just saying! 
Happy Non-Farm Payroll Friday        
Jack Crooks
Editor of Currency Currents Professional and Options Predator
Black Swan Capital