FXP is the UltraShort FTSE/Xinhua China 25, also known as the Hang Seng. The chart provided is of the Shanghai Composite, or SSEC. They're totally different.
CR,
Thanks for providing several asute observations in one brief post. The China Bubble and the Oil Bubble may both be coming to their correction point.
I will be watching these indicators closely for the rest of the year.
BTW it's interesting to note how like the 1987 crash in the US, this collapse isn't an economic catastrophe for China because they didn't get to the point where monstrous amounts of consumption and debt servicing were dependent on rising asset prices.
Contrast this with the US today where rising house and stock prices have been the only thing keeping most people out of the pet food aisle for their own basic needs.
It's been an uneven playing field in the arena of manufacturing. China's subsidized the transfer of mfg capacity from the US and Europe to itself.
When they factor in fuel costs at world market prices, their advantage, which is solely price, drops significantly.
This is good for the US worker. Yes, the US worker is being impoverished, and they don't like it. And so is the US entrepreneur being clipped, but the outcome will be the termination of the job export phenomenon.
Remaining primarily is the destruction of the store of value symbolized by the trillion + of USD's China is holding. They're disgorging them by buying resources worldwide. The political goal in the US should be and I'm sure is the dimunition of value of those USD's, ala Marshall Plan -- US and Europe.
Only if the USD will drop dramatically will this get "adjusted". Jim Sinclair continues to project 0.52 USD down from 0.73 now. That would knock out 33%. The rise in food and energy by 50% will deplete another 50%, approx.
So, if the worklings in the US can take the heat, down the line, after the equity collapse now underway, China will have the advantage of new infrastructure, the disadvantage of extremely stretched lines of primary resource importation and exportation, and will be a formidable, but equal, manufacturing center, aka employment for its billion people, and the US worklings, if not too dumbed down, as at this point it's nearly all children left behind (thx Geo whose own educational history is quite remarkable), will find goods at home to be directly competitive price wise as they are from China.
Meanwhile, hot money chasing low prices is moving to Vietnam; what an ironic twist for the older readers.
The strength of China will be its ownership of natural resources around the world. The US has no credible answer to that which I can see, save and except military might, which at this point is a helluva'n equalizer.
Ha, nobody's commented how this is a future glimpse of the Case-Schiler graph for Bubbleville, USA. I know many were calling for this crash in the SSEC and after less than a year it's happened. House prices are in free fall - yay.
Yes but FXP is still in the dumpster. Why? Why? Why?
I've noticed that FXP and EEV have been some of the worst performers relative to the underlying index that they're tracking. Both of them being negative when the FXI and EEM respectively were also down (these are supposed to be 2x inverse funds).
Makes me think these double short funds don't work so well with an underlying index that has big volatile moves.
BTW it's interesting to note how like the 1987 crash in the US, this collapse isn't an economic catastrophe for China because they didn't get to the point where monstrous amounts of consumption and debt servicing were dependent on rising asset prices.
At most this means a slower growth for China. Which is their goal anyway.
Will the demand destruction be enough ?
I somehow doubt it, short term crude drops, longer term it gets more expensive.
Not true ac. As someone who owns a large % of EEV in my portfolio, it's traded twice the inverse of the EEM very consistently. Just look today.
Please, everyone, read up on the Proshares before you write about them. I trade them often and always look at the underlying Net Asset Value. And they state their %load, so of course there's slippage over time. But they're fantastic.
As is usual, we briefly dipped below 12k only to rubber-band right back up past the 12K limit. It doesn't matter that the Philly manufacturing report numbers were lousy. I bet we'll end up with a nice solid gain today. Amazing.
The US has plenty of natural resources available within its borders; access to much has been limited by environmental regulation which China has not felt the need to put in place. The fact that Beijing needs to shut down a large portion of its production facilities in a wide area in preparation for the Olympics so that the pollution will hopefully dissipate is a prime example of the difference between China and other industrial nations.
I personally worked for 6 years at a US integrated steel mill which went bankrupt in part because of the capital cost of environmental mitigation equipment which our Chinese and Russian competitors did not have to pay for. Don't get me wrong; I feel it very important to have manufacturing be as clean as possible. But much of the stuff the US has been importing has been produced at plants that disregard pollution issues altogether. If the Chinese have to invest to bring their manufacturing operations up to modern environmental standards, that would significantly reduce their cost advantage.
As is usual, we briefly dipped below 12k only to rubber-band right back up past the 12K limit. It doesn't matter that the Philly manufacturing report numbers were lousy. I bet we'll end up with a nice solid gain today. Amazing.
That's correct. It doesn't matter. During bubbles the financial markets separate from reality and can stay separated for a very long time.
Usually it takes a crash to get the two back together but the Federal Reserve seems to be dead set against that happening, so we just get more and more bubbles.
EEV started trading last November at a NAV that was consistently well above where it should be. It has now adjusted and is working fine since I've owned it. Many Ultra/short Proshares have been like this. Take a look at QID vs. QQQQ for example. Started out with poor NAV but now, with ample regular volume the 2x inverse correlation is more consistent, minus load slippage.
Btw, I was going to comment that the DIA (DOW ETF) pushed into the $120.00 level with the highest hourly volume in months; looks like it's being retested. This heavy volume means price destruction will soon follow.
EEV started trading last November at a NAV that was consistently well above where it should be. It has now adjusted and is working fine since I've owned it. Many Ultra/short Proshares have been like this. Take a look at QID vs. QQQQ for example. Started out with poor NAV but now, with ample regular volume the 2x inverse correlation is more consistent, minus load slippage.
I've watched these funds closely, keep lots of graphs of comparative performance etc.
What I've found is that for long periods of time having short positions on the Ultra funds seems to work very well when the underlying index is trending down.
For big moves when the market is rolling over where you have a series of down days the Ultra Short funds can be fantastic, but I'm not sold on holding on to them for longer periods of time.
IMO you buy them when the index is overbought an dump them when the index is oversold.
Okay let me try to make a bull case. Oil subsidies cut worldwide, growth slows, oil demand goes down then stocks go up; economy improves, despite worldwide slowdown; oil demand goes back up?
Please, everyone, read up on the Proshares before you write about them. I trade them often and always look at the underlying Net Asset Value. And they state their %load, so of course there's slippage over time. But they're fantastic.
Thanks, anonymous. I second that.
If you invest mainly through a 401(k) or IRA brokerage account, you have very limited short-side options. The Proshares single and double inverse ETFs have opened up the short side for people who have retirement funds and want to hedge or play weakness. The tracking error and daily volatility arguments are not as great as critics claim. At times, they work in your favor.
Btw, I was going to comment that the DIA (DOW ETF) pushed into the $120.00 level with the highest hourly volume in months; looks like it's being retested. This heavy volume means price destruction will soon follow.
Haha... I recall Richard Russell talking about loading up on DIA. That's when I first really start considering short positions.
I understand the point you're making. I'm just wanting people to pay attention to 1)the Index the ETF tracks, 2)the ETF's Net Asset Value relative to that Index, and 3)the % load charged for the ETF. I would recommend SDS for SPY shorters or DXD for DIA shorters anyday - they've become very liquid and correspond well with #1,2,&3.
While I care about price, I benchmark price/volume off where something is pushing - markets are either busting up or busting down on a continual basis. Today the DIA is pushing into its Jan 22, 23, and Mar 17 lows. The volume is accelerating on a daily basis but not yet enough to take out the Mar 17 lows. That will come once enough cause is built - volume pushing back and forth like a jackhammer until the price breaks. So to answer your question I don't know, but today is important nonetheless.
Fist of G: Have you ever been to China? It has a horrible case of pollution. This was true when I was there 20 years ago and today it is even worse. Would you like to live under those conditions? I challenge you to go to Beijing and stay for a while. The Chinese recently had to shut down their steel production for the Olympics in order to clear up some of the air. Many athletes are planning to go only for the day they compete, the air pollution is so bad. There's a reason we have environmental laws.
This week is one of the seasonally worse times for the DOW. A service that I subscribe to recommended shorting DOW futures, starting Tuesday afternoon and I am following their advice. It's a one-week trade.
So from a national accounts point of view, China's savings rate goes up, with the public sector subsidizing private consumption less, so more public sector saving, less private sector saving. More headline inflation because of higher fuel prices, but core inflation slowing because of reduced real household income. China's import bill will grow more slowly due to slower growth in fuel demand, a further lift to national savings.
Skilled labor (in short supply) will probably be able to demand higher wages to offset higher energy prices, while unskilled labor will need to make up for lost purchasing power by working more, so real wages at the low end will be pushed down by two factors.
Rising transportation costs means China will need to export higher value-added goods to the US, mostly made by skilled workers. With their wages likely to rise, they will diminish wage their advantage over US (and other) workers. So this may be an additional factor in narrowing the US/China trade gap.
China's low end import demand growth will slow, because low end demand will slow and low end wages in China will fall.
My comment above was written too quickly. The DOW is pushing into the highs of its low days. It'll be able to close under those highs with todays volume but it needs more cause, that is volume, to take out and hold the lows. This is all part of a large 550 point A-B-C down in process that I commented on yesterday morning.
prairiedog;
I think I wasn't very clear in my post; I agree with you. China is grossly polluted, and they haven't done anything to reduce pollution because it would reduce their manufacturing cost advantage.
On what basis do you say this?
Latest data showed an increase in purchase by the chinese.
Everyone is doing their best to help the US, cause it is in all's interest that the slowdown doesn't crash. (Or is it too late?)
And from what I can tell almost all the sell off in treasuries in recent months is due to the re-leveraging that began in March.
TLT and FXY basically move in lockstep. That tells me, at the moment anyhow, that FCBs aren't the primary driver behind treasury prices (on the longer end). It's hedge funds moving in and out of risky positions, etc.
I understand that it tracks a different basket of stocks. You'd expect that basket to have some modest relationship to the broad market.
But here's the Shanghai Composite at yearly lows, yet FXP is 50% off its highs. Shanghai down 6.6% last night, FXP flat for the day (probably because of its heavy weighting in Petrochina, up strong because it was eating most of the government subsidy).
Somebody, somewhere, is making a killing in arbitrage in this thing.
On China, they're degrading their environment so quickly and thoroughly that they're going to incur absolutely massive public health problems over the next 20 years. The high rate of cigarette smoking in combination with horrible air quality will lead to endemic cardiopulmonary problems for huge percentages of the population. It's becoming an absolutely filthy country, and the fact that your average Chinese citizen thinks nothing of hawking up a disgustingly large loogey and depositing on whatever surface they're on doesn't help things.
Mr Beans promotion opens a new vacancy for an internal member of the Banks Monetary Policy Committee, and Spencer Dale, a career economist at the Bank will take that position and become the new chief economist.
crispy&cole | Homepage | 06.19.08 - 11:54 am | #Here we go boys... this will bring the market down today!
I doubt it.
Goldman profits brought to market down.
It follows Citi writedowns should bring the market up.
My authority is Bizzaro
I suspect this stock sell off could be in anticipation of a slowing Chinese economy, and a combination of a Chinese slowdown and lower oil and gasoline subsidies could lead to lower world oil prices later this year. - CR
I'm with Misean, way up thread... China might slow but the Shanghai Comp is little more than a gambling ring - seriously. It maybe correlated but it is a gazillion miles from causal. My sis bought some China Mobile and promptly watch gov't regulators completely restructure the biz so none of the current mobile players can profit.
There really isn't a connection between Shanghai prices, profit potential of the participants & economic activity. Its speculation in its purest form.
Also - Chinese LOVE to gamble - as much or more than we do here in the West as evidenced by the growth of the casinos in Macao - Shanghai Comp's real competition.
This is a WAG number, as nothing else makes sense, but I got 49 big bottles of Grey Goose, divided by 100 cases of Miller Lite, add two hotties at the register, and 33 Slim Jims are on sale, so the number is 12052.50.
Have I missed anything or screwed anything up?
k harris | 06.19.08 - 11:45 am | #
Good analysis.
The only caveat I might add is it is tougher to move up the value added export food chain than they might realize.
Its one thing to capture cheap low value added export market share via low labor cost, resource subsidies & currency manipulation... its a whole other thing to capture high value added export market share - that requires a strong technical infrastructure, skilled work force & established supply chain IN ADDITION to favorable cost position in the more traditional labor/material/currency space. Cheap money, resources & labor won't do it by itself.
Not saying China won't get there (probably will) I'm suggesting the time frame will take longer than anticipated - the exact opposite of how long people thought the early phase of industrialization would take (happened MUCH faster than anticipated). Different factors required for early & late phase industrialization. They had everything in place for the early phases - not ready for prime time on the latter phases.
Three years ago this August I spent two weeks in China and one week in North Vietnam. Five days were spent in Beijing and fours days in Chengdu and the surrounding countryside.
Even after arriving from South Florida where I reside, I found the heat unbearable. Beijing was struck by a heat wave and the temperature reached 102 before the heat index. There was not a breath of air. Haze (air pollution) made the city look more like the city of clouds. Construction has been rampant so the demand for electricity through A/C cooling will be tremendous. Lots of the coal fired power plants that provide the city with electricity are within the second and third rings.
Chengdu did not have the same level of air polution but the water pollution was unbelievable. This is a major pig producing province and the major rivers where brown with pollution and had a permant smell even when the skys was clear.
I found the people incredably fiendly and industrious. But it will be impossible to hid the extent of the permanently polluted and damaged environment. China will be shamed into cleaning up their environmental record. The population might use this opportunity to let their wishes be heard.
It is my hope that they they west does not move their polluting tendencies to Vietnam. This country was breath takingly beautiful in the countryside. The major city's had high level of CO2 pollution from millions of high polluting motorcycles.
I found the people warmer and more hard working than the Chinese mainly becuase they could own there homes. though the government held title to the land it can be leased for upto a 100 years so it can pas down from one generation to the next.
The brodcasting of the Olympics in HD will be interesting. The Chinese government will be on crystal clear display.
This is not good for US companies with assets in China..
That just strikes me as an odd thought. If a a 'US' company has more than say 15% of their assests in China then they are not really a 'US' company.
It looks like oil will drop $5 today. Sweet! I think there is a 50% chance that the China move will turn out to be the pin that pricked the speculative bubble.
Interesting observations, "From the Side Lines", but I beg to differ with your sentence below:
"The major city's had high level of CO2 pollution from millions of high polluting motorcycles."
Carbon Dioxide is not a pollutant, OK, people? It is a natural product of combustion - you get 2 things from complete, stochiometric burning of pure hydrocarbons - water and carbon dioxide. The trees love it, believe you me, as I used to be one in a previous life - could not get enough of that sweet stuff!
Leaving aside that this Global Warming/Cooling/NotSureWTFItsDoing business is the biggest scam since Social Security, (i.e. even if I believed that crap), CO2 is, I repeat NOT a pollutant.
Maybe you meant CO, Carbon Monoxide, but the thing is, if you had enough of that around to sense it, I doubt you'd have long to live at that point.
So, let's get to the truth: There are loads of particulates getting spit into the atmosphere from vehicles and coal-burning plants in China. Some of that stuff can make it across the Pacific under the right conditions from what I've heard.
It'd be interesting to see what environmentalists have to say about that, instead of the make-believe Kyoto nonsense. Maybe they have nothing to say, as that may start a war. I think most enironmentalist organizations only want to bother nice westerners, whose income, productivity, and lifestyle can be messed with without much fear of gunfire. The Chinse government doesn't take too kindly to these organizations, and they do not feel a need to be politically correct.
Back to economics (oh, yeah, hehe) as F.O.G. said, countries like China have a heck of an advantage in manufacturing due to the lack of worries about keeping the air and water clean, in addition to cheap labor. What pressure do they have to clean up?
Yes but FXP is still in the dumpster. Why? Why? Why?
I suspect we had a parabolic bubble based on gambling mentality that is now bursting.
Cheers,
Can't fly .( Bad fuel ).
"Leftys Liquors writes:
Dow 11983. and no helicpters yet.
Leftys Liquors | 06.19.08 - 10:07 am | "
Time for Decoupling puns of questionable taste?
tyaresun,
FXP is the UltraShort FTSE/Xinhua China 25, also known as the Hang Seng. The chart provided is of the Shanghai Composite, or SSEC. They're totally different.
Hope that helps.
CR,
Thanks for providing several asute observations in one brief post. The China Bubble and the Oil Bubble may both be coming to their correction point.
I will be watching these indicators closely for the rest of the year.
Yippee!
As the driver of a diesel car, I am pleased. Maybe less demand in China means an end to $4.95-a-gallon pricing where I live.
This is not good for US companies with assets in China..
If they had short sellers the SSE composite would still be at 5800 right now.
This is not good for US companies with assets in China.. - Vermont Trader
Good! Hahahahahaha! Maybe they will move assets back home?
/schadenfreude
BTW it's interesting to note how like the 1987 crash in the US, this collapse isn't an economic catastrophe for China because they didn't get to the point where monstrous amounts of consumption and debt servicing were dependent on rising asset prices.
Contrast this with the US today where rising house and stock prices have been the only thing keeping most people out of the pet food aisle for their own basic needs.
It's been an uneven playing field in the arena of manufacturing. China's subsidized the transfer of mfg capacity from the US and Europe to itself.
When they factor in fuel costs at world market prices, their advantage, which is solely price, drops significantly.
This is good for the US worker. Yes, the US worker is being impoverished, and they don't like it. And so is the US entrepreneur being clipped, but the outcome will be the termination of the job export phenomenon.
Remaining primarily is the destruction of the store of value symbolized by the trillion + of USD's China is holding. They're disgorging them by buying resources worldwide. The political goal in the US should be and I'm sure is the dimunition of value of those USD's, ala Marshall Plan -- US and Europe.
Only if the USD will drop dramatically will this get "adjusted". Jim Sinclair continues to project 0.52 USD down from 0.73 now. That would knock out 33%. The rise in food and energy by 50% will deplete another 50%, approx.
So, if the worklings in the US can take the heat, down the line, after the equity collapse now underway, China will have the advantage of new infrastructure, the disadvantage of extremely stretched lines of primary resource importation and exportation, and will be a formidable, but equal, manufacturing center, aka employment for its billion people, and the US worklings, if not too dumbed down, as at this point it's nearly all children left behind (thx Geo whose own educational history is quite remarkable), will find goods at home to be directly competitive price wise as they are from China.
Meanwhile, hot money chasing low prices is moving to Vietnam; what an ironic twist for the older readers.
The strength of China will be its ownership of natural resources around the world. The US has no credible answer to that which I can see, save and except military might, which at this point is a helluva'n equalizer.
Ha, nobody's commented how this is a future glimpse of the Case-Schiler graph for Bubbleville, USA. I know many were calling for this crash in the SSEC and after less than a year it's happened. House prices are in free fall - yay.
Yes but FXP is still in the dumpster. Why? Why? Why?
I've noticed that FXP and EEV have been some of the worst performers relative to the underlying index that they're tracking. Both of them being negative when the FXI and EEM respectively were also down (these are supposed to be 2x inverse funds).
Makes me think these double short funds don't work so well with an underlying index that has big volatile moves.
Kinda like the prospectus says.
ac writes:
BTW it's interesting to note how like the 1987 crash in the US, this collapse isn't an economic catastrophe for China because they didn't get to the point where monstrous amounts of consumption and debt servicing were dependent on rising asset prices.
At most this means a slower growth for China. Which is their goal anyway.
Will the demand destruction be enough ?
I somehow doubt it, short term crude drops, longer term it gets more expensive.
Not true ac. As someone who owns a large % of EEV in my portfolio, it's traded twice the inverse of the EEM very consistently. Just look today.
Please, everyone, read up on the Proshares before you write about them. I trade them often and always look at the underlying Net Asset Value. And they state their %load, so of course there's slippage over time. But they're fantastic.
who said that china is today the usa from 1929? so no wonders the selloff begins. what happened to uk in 1929?
Deals with Iraq are set to bring oil giants back
Deals with Iraq are set to bring oil giants back - The New York Times
No, really it wasn't for the oil. Right?
it wasnt for oil, it was for oil companies
As is usual, we briefly dipped below 12k only to rubber-band right back up past the 12K limit. It doesn't matter that the Philly manufacturing report numbers were lousy. I bet we'll end up with a nice solid gain today. Amazing.
Not true ac. As someone who owns a large % of EEV in my portfolio, it's traded twice the inverse of the EEM very consistently. Just look today.
On a day to day basis maybe, but I'm talking longer term. Note that both EEV and EEM are below where they were 6 months ago:
EEV vs. EEM
The US has plenty of natural resources available within its borders; access to much has been limited by environmental regulation which China has not felt the need to put in place. The fact that Beijing needs to shut down a large portion of its production facilities in a wide area in preparation for the Olympics so that the pollution will hopefully dissipate is a prime example of the difference between China and other industrial nations.
I personally worked for 6 years at a US integrated steel mill which went bankrupt in part because of the capital cost of environmental mitigation equipment which our Chinese and Russian competitors did not have to pay for. Don't get me wrong; I feel it very important to have manufacturing be as clean as possible. But much of the stuff the US has been importing has been produced at plants that disregard pollution issues altogether. If the Chinese have to invest to bring their manufacturing operations up to modern environmental standards, that would significantly reduce their cost advantage.
OT: Philly manufacturing numbers in, and they ain't too spiffy.
U.S. Economy: Factory Index Falls, Leading Gauge Up (Update1) - Bloomberg.com
As is usual, we briefly dipped below 12k only to rubber-band right back up past the 12K limit. It doesn't matter that the Philly manufacturing report numbers were lousy. I bet we'll end up with a nice solid gain today. Amazing.
That's correct. It doesn't matter. During bubbles the financial markets separate from reality and can stay separated for a very long time.
Usually it takes a crash to get the two back together but the Federal Reserve seems to be dead set against that happening, so we just get more and more bubbles.
You know the story by now.
ac,
EEV started trading last November at a NAV that was consistently well above where it should be. It has now adjusted and is working fine since I've owned it. Many Ultra/short Proshares have been like this. Take a look at QID vs. QQQQ for example. Started out with poor NAV but now, with ample regular volume the 2x inverse correlation is more consistent, minus load slippage.
Didn't mean to sound rude, ac.
Btw, I was going to comment that the DIA (DOW ETF) pushed into the $120.00 level with the highest hourly volume in months; looks like it's being retested. This heavy volume means price destruction will soon follow.
ac,
EEV started trading last November at a NAV that was consistently well above where it should be. It has now adjusted and is working fine since I've owned it. Many Ultra/short Proshares have been like this. Take a look at QID vs. QQQQ for example. Started out with poor NAV but now, with ample regular volume the 2x inverse correlation is more consistent, minus load slippage.
I've watched these funds closely, keep lots of graphs of comparative performance etc.
What I've found is that for long periods of time having short positions on the Ultra funds seems to work very well when the underlying index is trending down.
For big moves when the market is rolling over where you have a series of down days the Ultra Short funds can be fantastic, but I'm not sold on holding on to them for longer periods of time.
IMO you buy them when the index is overbought an dump them when the index is oversold.
Lots o' luck with the timing there though.
Okay let me try to make a bull case. Oil subsidies cut worldwide, growth slows, oil demand goes down then stocks go up; economy improves, despite worldwide slowdown; oil demand goes back up?
uh forget it.
Thanks, anonymous. I second that.
If you invest mainly through a 401(k) or IRA brokerage account, you have very limited short-side options. The Proshares single and double inverse ETFs have opened up the short side for people who have retirement funds and want to hedge or play weakness. The tracking error and daily volatility arguments are not as great as critics claim. At times, they work in your favor.
Btw, I was going to comment that the DIA (DOW ETF) pushed into the $120.00 level with the highest hourly volume in months; looks like it's being retested. This heavy volume means price destruction will soon follow.
Haha... I recall Richard Russell talking about loading up on DIA. That's when I first really start considering short positions.
He's been a great contrary indicator recently.
BTW consider SRS vs. URE for one of the bigger ProShares divergences. They're supposed to be -2x and 2x IYR respectively.
SRS is up about 10% over the past year. URE is down over 40% the past year.
Again, they're supposed to be tracking the same index.
ac,
I understand the point you're making. I'm just wanting people to pay attention to 1)the Index the ETF tracks, 2)the ETF's Net Asset Value relative to that Index, and 3)the % load charged for the ETF. I would recommend SDS for SPY shorters or DXD for DIA shorters anyday - they've become very liquid and correspond well with #1,2,&3.
Ok, so what will the DOW end at today?
Answers people, I want answers!
11697
China Less Willing to Be Americas Piggy Bank
Investments in US Treasuries going down.
The US recession is going to be ugly.
km4 writes:
China Less Willing to Be Americas Piggy Bank
Investments in US Treasuries going down.
On what basis do you say this?
Latest data showed an increase in purchase by the chinese.
Everyone is doing their best to help the US, cause it is in all's interest that the slowdown doesn't crash. (Or is it too late?)
BB,
While I care about price, I benchmark price/volume off where something is pushing - markets are either busting up or busting down on a continual basis. Today the DIA is pushing into its Jan 22, 23, and Mar 17 lows. The volume is accelerating on a daily basis but not yet enough to take out the Mar 17 lows. That will come once enough cause is built - volume pushing back and forth like a jackhammer until the price breaks. So to answer your question I don't know, but today is important nonetheless.
Fist of G: Have you ever been to China? It has a horrible case of pollution. This was true when I was there 20 years ago and today it is even worse. Would you like to live under those conditions? I challenge you to go to Beijing and stay for a while. The Chinese recently had to shut down their steel production for the Olympics in order to clear up some of the air. Many athletes are planning to go only for the day they compete, the air pollution is so bad. There's a reason we have environmental laws.
This week is one of the seasonally worse times for the DOW. A service that I subscribe to recommended shorting DOW futures, starting Tuesday afternoon and I am following their advice. It's a one-week trade.
So from a national accounts point of view, China's savings rate goes up, with the public sector subsidizing private consumption less, so more public sector saving, less private sector saving. More headline inflation because of higher fuel prices, but core inflation slowing because of reduced real household income. China's import bill will grow more slowly due to slower growth in fuel demand, a further lift to national savings.
Skilled labor (in short supply) will probably be able to demand higher wages to offset higher energy prices, while unskilled labor will need to make up for lost purchasing power by working more, so real wages at the low end will be pushed down by two factors.
Rising transportation costs means China will need to export higher value-added goods to the US, mostly made by skilled workers. With their wages likely to rise, they will diminish wage their advantage over US (and other) workers. So this may be an additional factor in narrowing the US/China trade gap.
China's low end import demand growth will slow, because low end demand will slow and low end wages in China will fall.
Have I missed anything or screwed anything up?
My comment above was written too quickly. The DOW is pushing into the highs of its low days. It'll be able to close under those highs with todays volume but it needs more cause, that is volume, to take out and hold the lows. This is all part of a large 550 point A-B-C down in process that I commented on yesterday morning.
prairiedog;
I think I wasn't very clear in my post; I agree with you. China is grossly polluted, and they haven't done anything to reduce pollution because it would reduce their manufacturing cost advantage.
CR, another piece of news for your blog
Citigroup likely to take "substantial" Q2 subprime markdowns - MarketWatch
Citi faces substantial write downs for the second quarter.
Regards.
On what basis do you say this?
Latest data showed an increase in purchase by the chinese.
Everyone is doing their best to help the US, cause it is in all's interest that the slowdown doesn't crash. (Or is it too late?)
And from what I can tell almost all the sell off in treasuries in recent months is due to the re-leveraging that began in March.
TLT and FXY basically move in lockstep. That tells me, at the moment anyhow, that FCBs aren't the primary driver behind treasury prices (on the longer end). It's hedge funds moving in and out of risky positions, etc.
FXP is a crappy instrument.
I understand that it tracks a different basket of stocks. You'd expect that basket to have some modest relationship to the broad market.
But here's the Shanghai Composite at yearly lows, yet FXP is 50% off its highs. Shanghai down 6.6% last night, FXP flat for the day (probably because of its heavy weighting in Petrochina, up strong because it was eating most of the government subsidy).
Somebody, somewhere, is making a killing in arbitrage in this thing.
CITI SAYS IT FACES 'SUBSTANTIAL' SUBPRIME-RELATED MARKDOWNS IN SECOND QUARTER
Here we go boys... this will bring the market down today!
Paulson: Fed Needs Power To Regulate Wall Street
Paulson: Fed Needs New Powers to Regulate Wall Street - CNBC
One FED to bring them all.. and in the darkness bind them.
"Ok, so what will the DOW end at today?"
If it ends up below 12 I'll be shocked. 12050.
On China, they're degrading their environment so quickly and thoroughly that they're going to incur absolutely massive public health problems over the next 20 years. The high rate of cigarette smoking in combination with horrible air quality will lead to endemic cardiopulmonary problems for huge percentages of the population. It's becoming an absolutely filthy country, and the fact that your average Chinese citizen thinks nothing of hawking up a disgustingly large loogey and depositing on whatever surface they're on doesn't help things.
BB writes:
Ok, so what will the DOW end at today?
Answers people, I want answers!
BB | 06.19.08 - 11:35 am | #
11810, minus 218. (Ave Joe: write down these guesses)
Bean appointed Bank of England deputy chief
FT.com / World - Bean appointed Bank of England deputy chief
Mr Beans promotion opens a new vacancy for an internal member of the Banks Monetary Policy Committee, and Spencer Dale, a career economist at the Bank will take that position and become the new chief economist.
His views on monetary policy are not known.
That's Mister Bean to you.
crispy&cole | Homepage | 06.19.08 - 11:54 am | #Here we go boys... this will bring the market down today!
I doubt it.
Goldman profits brought to market down.
It follows Citi writedowns should bring the market up.
My authority is Bizzaro
Fist of Gork: Oh darn!
We should slap tarrifs on all Chinese products that are not made to our environmental standards.
I suspect this stock sell off could be in anticipation of a slowing Chinese economy, and a combination of a Chinese slowdown and lower oil and gasoline subsidies could lead to lower world oil prices later this year. - CR
I'm with Misean, way up thread... China might slow but the Shanghai Comp is little more than a gambling ring - seriously. It maybe correlated but it is a gazillion miles from causal. My sis bought some China Mobile and promptly watch gov't regulators completely restructure the biz so none of the current mobile players can profit.
There really isn't a connection between Shanghai prices, profit potential of the participants & economic activity. Its speculation in its purest form.
Also - Chinese LOVE to gamble - as much or more than we do here in the West as evidenced by the growth of the casinos in Macao - Shanghai Comp's real competition.
This is a WAG number, as nothing else makes sense, but I got 49 big bottles of Grey Goose, divided by 100 cases of Miller Lite, add two hotties at the register, and 33 Slim Jims are on sale, so the number is 12052.50.
Have I missed anything or screwed anything up?
k harris | 06.19.08 - 11:45 am | #
Good analysis.
The only caveat I might add is it is tougher to move up the value added export food chain than they might realize.
Its one thing to capture cheap low value added export market share via low labor cost, resource subsidies & currency manipulation... its a whole other thing to capture high value added export market share - that requires a strong technical infrastructure, skilled work force & established supply chain IN ADDITION to favorable cost position in the more traditional labor/material/currency space. Cheap money, resources & labor won't do it by itself.
Not saying China won't get there (probably will) I'm suggesting the time frame will take longer than anticipated - the exact opposite of how long people thought the early phase of industrialization would take (happened MUCH faster than anticipated). Different factors required for early & late phase industrialization. They had everything in place for the early phases - not ready for prime time on the latter phases.
I'll say 12110 for the DJIA!
Three years ago this August I spent two weeks in China and one week in North Vietnam. Five days were spent in Beijing and fours days in Chengdu and the surrounding countryside.
Even after arriving from South Florida where I reside, I found the heat unbearable. Beijing was struck by a heat wave and the temperature reached 102 before the heat index. There was not a breath of air. Haze (air pollution) made the city look more like the city of clouds. Construction has been rampant so the demand for electricity through A/C cooling will be tremendous. Lots of the coal fired power plants that provide the city with electricity are within the second and third rings.
Chengdu did not have the same level of air polution but the water pollution was unbelievable. This is a major pig producing province and the major rivers where brown with pollution and had a permant smell even when the skys was clear.
I found the people incredably fiendly and industrious. But it will be impossible to hid the extent of the permanently polluted and damaged environment. China will be shamed into cleaning up their environmental record. The population might use this opportunity to let their wishes be heard.
It is my hope that they they west does not move their polluting tendencies to Vietnam. This country was breath takingly beautiful in the countryside. The major city's had high level of CO2 pollution from millions of high polluting motorcycles.
I found the people warmer and more hard working than the Chinese mainly becuase they could own there homes. though the government held title to the land it can be leased for upto a 100 years so it can pas down from one generation to the next.
The brodcasting of the Olympics in HD will be interesting. The Chinese government will be on crystal clear display.
Anyone reads Chinese?
中国证监会忠告股民：
(Warnings of Chinese SEC to stock investors):
笑着进去，哭着出来
(Come in smiling, come out crying)
处女进去，大妈出来
老板进去，打工出来
别墅进去，草棚出来
鳄鱼进去，壁虎出来
苍鹰进去，苍蝇出来
蟒蛇进去，蚯蚓出来
黑发进去，白发出来
人才进去，饭桶出来
博士进去，白痴出来
貂禅进去，母猪出来
姚明进去，潘长江出来
宝马进去，自行车出来
西服进去，三点式出来
(come in in suits, come out in bikini)
富翁进去，叫化子出来
爱着国进去，叛变逃出来
健康着进去，残废着出来
坐火箭进去，坐潜艇出来
杨百万进去，杨白劳出来
欲投资进去，想投河出来
频送秋波进去，目光呆滞出来
打着饱嗝进去，饿昏了头出来
鲜花盛开进去，残花败柳出来
做着美梦进去，一场恶梦出来
想买房子进去，卖了房子出来
花天酒地进去，哭天喊地出来
欢欢喜喜进去，哭哭啼啼出来
开着小车进去，拉着板车出来
自作聪明进去，自认倒霉出来
探头探脑进去，连滚带爬出来
人模人样进去，不三不四出来
握着双枪进去，举着双手出来
听着故事进去，做着噩梦出来
看着鱼饵进去，咬着鱼钩出来
坐着邮船进去，划着舢板出来
系着领带进去，扎着草绳出来
穿着名牌进去，光着屁股出来
喝燕翅鲍进去，嚼萝卜干出来
风风火火进去，疯疯颠颠出来
满面红光进去，鼻青脸肿出来
大腹便便进去，骨瘦如柴出来
火眼金睛进去，眼冒金星出来
学巴菲特进去，被扒了皮出来
小康家庭进去，五保特困出来
小家碧玉进去，弄成破鞋出来
心系国家进来，心肌梗塞出来
千方百计挤进去，黔馿技穷跑出来
大小非解禁进去，大小便失禁出来
捐了救灾款进去，领了救济款出来
...
Vermont Trader.. writes:
This is not good for US companies with assets in China..
That just strikes me as an odd thought. If a a 'US' company has more than say 15% of their assests in China then they are not really a 'US' company.
It looks like oil will drop $5 today. Sweet! I think there is a 50% chance that the China move will turn out to be the pin that pricked the speculative bubble.
Interesting observations, "From the Side Lines", but I beg to differ with your sentence below:
"The major city's had high level of CO2 pollution from millions of high polluting motorcycles."
Carbon Dioxide is not a pollutant, OK, people? It is a natural product of combustion - you get 2 things from complete, stochiometric burning of pure hydrocarbons - water and carbon dioxide. The trees love it, believe you me, as I used to be one in a previous life - could not get enough of that sweet stuff!
Leaving aside that this Global Warming/Cooling/NotSureWTFItsDoing business is the biggest scam since Social Security, (i.e. even if I believed that crap), CO2 is, I repeat NOT a pollutant.
Maybe you meant CO, Carbon Monoxide, but the thing is, if you had enough of that around to sense it, I doubt you'd have long to live at that point.
So, let's get to the truth: There are loads of particulates getting spit into the atmosphere from vehicles and coal-burning plants in China. Some of that stuff can make it across the Pacific under the right conditions from what I've heard.
It'd be interesting to see what environmentalists have to say about that, instead of the make-believe Kyoto nonsense. Maybe they have nothing to say, as that may start a war. I think most enironmentalist organizations only want to bother nice westerners, whose income, productivity, and lifestyle can be messed with without much fear of gunfire. The Chinse government doesn't take too kindly to these organizations, and they do not feel a need to be politically correct.
Back to economics (oh, yeah, hehe) as F.O.G. said, countries like China have a heck of an advantage in manufacturing due to the lack of worries about keeping the air and water clean, in addition to cheap labor. What pressure do they have to clean up?