The Bulls that are ignoring China right now may be lining up our markets for a scene much worse than that imaginary Swarovski shop. Jim Chanos has been warning for a while that the big bump under Chinas belly isn’t a Buddah Belly, but in fact a big Giant Bubble being concealed by a tightly knotted Kimono. There are millions of homes and square feet of new office space constructed and unoccupied. The main positive factor that much of the good news we have relied on the last couple years is China Growth. China consumption, China construction, China China China. They own the news, they own the markets, they own the banks. They basically own the people, how we can rely on simply their word that things are great is a scary thought and a key reason smart short sellers have been signaling that we cannot base economic forward looking forecasts on Chinese Data. Its just not a reliable source.
Now for two days in a row, the country that is typically eerily quiet in its public proclamations has been in the news. To me - NOT GOOD.
First they said they would not move to un-peg the Renminbi, they don’t want the value to increase at any rate faster than they say. Right now they say it should be pegged to the dollar. Now the rumor is that they were considering moving out of some Euro Bonds, and maybe even lighten their holdings in actual Euros in reserve. That mere comment as a possibility sapped 200 points out of an otherwise Bullish looking day. Overnight some Euro union members obviously got on the phone and begged Master Hu to say he likes Europe, so they put out a statement, saying they are committed long term to the Euro zone. Think of that Bull in China shop and this damage could be a lot worse.ARE WE SAFE?
SAFE is the China STATE ADMIN of FOREIGN EXCHANGE, aka their Central Bank.
The supposed rumor was floated out of a Beijing SAFE conference with Global Finance Ministers, and markets shit the bed. Then comes the news that they were just kidding and things are just rosy. I think Rosy is Red and the markets will probably be red when the real behavior of China starts to pan out. I personally would be selling the NEWS.
Key points to be recognized:
1. They said they are committed long term…. Translation - All this long maturity Euro slop we have in our portfolio we will hold onto as there’s a shot that in 5-10 years things will get better. Real Translation: We no buy no new Euro Trash. We have our own problems.
2. They will not sell Euro debt. Translation - the basket of currencies that we keep in our SAFE, is almost never cut, so the statement is benign as they don’t typically sell. In fact China has so much new money to invest each month that they hardly ever actually ‘Sell”. Real Translation: A Chinese diplomat told FT today, he was "worried about" the effect of Europe's debt crisis and the weakness of the euro on the global recovery and China's exports.
3. KEY POINTS—IF China were selling why would they tell everyone? IF they are the only ones with actual cash on hand, they must be pretty smart as the rest of the planet is FLAT Broke. This sounds like a “he went thattaway” as they are ready to retreat from Euro investment.
WO HOP FOR EVERYONE
Selling by China would be Armageddon no doubt, but what they don’t say is if they will still be buying. Some unnamed have said that the decision has already been made to reduce the proportion of new investment in EURO instruments, effectively reducing the weight of that asset in their portfolio.
THE MOST KEYPOINT OF ALL: They can say whatever they want to the press, as we all know China has no regard for Free Honest Press. In their little corner of the planet they control the news, so telling the media that they aren’t gonna whack the EuroZone is a good way to mask their true behavior, and to get a good TRANSAPRENT look at what the Chinese Central Bankers are doing, why not just go to their website, and see what the composition is of their asset blend? Oh a spokesman for SAFE, reminds us “the composition and management of the funds controlled by Safe are regarded as state secrets.” With that type of zero sum transparency, the only investment I feel good about right now related to China, is a Won Ton Egg Drop Mix- Roast Pork Fried Rice, and a Beef with Mushrooms from WO HOP, NYC.
Kim Jong “Mentally” Il
Let me count the reasons the market should be up,
The Euro Currency is crashing, the EuroZone is in debt, out of cash and the people are rioting against the necessary cuts to try to bring them back to normalcy, the UK has a Freshman tag team Government, the US has failing banks, insurers, mortgage issuers,
Unsustainable monetary and spending policies, underreported yet ever increasing unemployment, foreclosures, and a debt ridden populous, facing tax hikes, all being shepherded by another Freshman Leader. Iran just forged an alliance with some of our allies to trade in nuclear products, North Korea admitted a pre-emptive strike against a So. Korea naval ship, with no punitive action. WOW that’s a veritable potpourri of positive stuff. The North Korea thing gets even more scary as China has agreed to protect them, and is against sanctions. So with South Korea as our ally, we basically have allowed a Chinese proxy (No. Korea) to take military action against a key Asian ally. China is playing this set of circumstances like a fiddle, and we need someone to force open that Kimono, and expose their true situation before they get themselves in position to decimate their enemies, without an ounce of military might. They can just use the Mental one, to take potshots militarily and then in a systematic and calculating way take control of their enemies by owning their economies.
The quiet approach, makes me fear psalm 37:11 - The meek shall inherit the earth, and delight in the abundance of Peace. We need to be on high alert!
INTERESTING SHORTS
Volume overall to short was slightly down yesterday on the LocateStock front but the breadth of names requested continues to increase. The shorts haven’t shown any significant behavior leading me to believe they are getting off this downturn, and there are some signs related to extended length of overnight carry that they are less concerned with overnight short risk. The names that are of interest are HAFC—Korean Bank Holding Company, this US entity has seen an increase in interest from shorts, and this seems directly correlated to the No. Korea-So. Korea saber rattling. NBG—National Bank of Greece, C—Citi continues to move up in a range and this 4$ range always seems to be a top, also with the US Government as a seller, it looks like shorts think the overhang and a dollop of bad news could tank the bank.
Moving on Up?
After being highlighted by myself as one of the top shorts of the decade,
Overstock.com OSTK has shocked media and market watchers by posting their first ever profitable quarter. The online e-tailer is in a sweet spot with more and more people seeking bargains the online discount retailer seems to have shed the shorts, and now they are set up to inherit a healthy set of global dynamics to continue the profitable ways.
Even with an insider sale by the CEO the stock is performing healthy and even though we saw some legal shorts pop up in the stock off the recent spike the overall fundamentals look good for the sector and it looks like historical support levels of $27 and $31 are attainable.
Also I reiterate that we see a strong Canadian currency, a low exposure to Subprimes lingering US bank concerns, and some very healthy balance sheets for the Canadian Banks to have significant upside possibilities. BMO—RY are two symbols that we continue to see zero interest from shorts, and we hear are both in search mode to possibly strengthen their US presence.
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