China Is a Fraud
By Jeff Clark
September 15, 2009
Is China cooking the books?
It's a reasonable question. After all, we've exported many of our jobs and most of our manufacturing base to the People's Republic... We might as well send them our accounting standards, too.
Every conspiracy theorist, most rational consumers who buy groceries for their families, and nearly all taxpayers suspect the U.S. government massages its economic statistics to make things look better (or less worse) than they actually are. China appears to be taking our lead, supported by the United Nations Conference on Trade and Development.
In a report released last Tuesday, the U.N. Conference estimated the Chinese economy would grow 7.8% this year, while the global economy is likely to decline. The obvious question here is... How does the world's leading exporter of manufactured goods grow 8% while the rest of the world stops buying manufactured goods?
It certainly can't be because the Chinese population is increasing its spending habits. Over 50 million Chinese adults are unemployed, and they're moving from the manufacturing cities back to their rural family farms. So they're unlikely to buy the $100 sneakers we here in the West like so much.
Perhaps it's because the Chinese government has committed to spending $585 billion on various infrastructure projects. As we've seen here in the U.S., massive government spending can provide a temporary boost in economic activity. But it's debatable whether there are any lasting effects.
The Chinese stock market, as represented by the Shanghai Stock Exchange Composite Index (SSEC), bottomed last November, when the Chinese government announced its plan to throw a few trillion yuan at the economy. Between then and its peak in August, the SSEC was up over 100%.
But the price action since August has been weak, and it appears reality is entering the equation. Here's the chart...
After an amazing run higher, Chinese stocks broke down below the rising support line (the blue line) in mid-August. The fall was swift and severe and chopped more than 20% off the index in just one month. Since then, Chinese stocks have gotten the predictable bounce back up near resistance (the red line). If you doubt the validity of the "Chinese Miracle Economy," this is an ideal situation to make a short side bet.
Make no mistake, the Chinese economy – much like the U.S. economy – relies on the U.S. consumer. If Americans aren't buying big-screen TVs or $100 sneakers, Chinese stocks are ultimately headed for trouble.
The American consumer isn't buying.
Oh, sure, if you dangle a $4,500 carrot in front of his face, he can be motivated to trade in his rusty old truck for a sleek, new, pimped-out ride. But unless the government is willing to fund cash for jeans, cash for sofas, cash for refrigerators, and cash for rubber dog poop programs, that stimulus is spent.
The American consumer has no savings. His main source of spending, the home equity line of credit, is nonexistent. And total consumer credit dropped $21.6 billion last month alone. That's a 10% annual decline.
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So the question again is... How can the world's leading exporter of manufactured goods grow 8% when its best customer can't buy the manufactured goods?
The answer is... It can't. And the Chinese stock market is slowly coming to grips with that reality.
Best regards and good trading,
Jeff Clark
P.S. I just showed my Advanced Income subscribers a unique trade that profits as Chinese stocks fall, stay the same, or even go up a bit. It generates immediate income and could return as much as 38% over the next month. To find out more about Advanced Income, click here... |
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Google joins Chinese rival Baidu on new highs list... up 55% since January. |
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Credit-card giant Visa makes fresh 52-week highs... up 20% in two months. |
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U.S. dollar hits 2009 low... the buck weakens to $1.46 per euro as investors seek higher yields. |
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Earnings today... Adobe, Best Buy, Kroger. |
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Last |
Change |
52-Wk |
| S&P 500 |
1049.34 |
+2.34% |
-16.17% |
| Oil (USO) |
35.71 |
-0.31% |
-56.18% |
| Gold (GLD) |
97.96 |
-0.83% |
+29.66% |
| Silver (SLV) |
16.31 |
-1.15% |
+51.72% |
| U.S. Dollar |
76.85 |
-0.62% |
-2.68% |
| Euro |
1.46 |
+0.90% |
+2.45% |
| VIX |
23.86 |
-6.87% |
-7.01% |
| HUI |
419.57 |
-1.53% |
+44.46% |
| 10-Year Yield |
3.41% |
0.07 |
-0.30 |
|
|
| Company |
Sym |
Industry |
Rubicon Minerals |
RBY |
mineral mining |
Gymboree |
GYMB |
children's stores |
Liberty Media |
LCAPA |
TV programming |
Manpower |
MAN |
staffing svcs |
Computer Sciences |
CSC |
computer svcs |
Swisscom |
SCMWY |
telecom |
Pioneer Southwest |
PSE |
oil & gas drilling |
MicroStrategy |
MSTR |
outsourcing |
Hochschild |
HCHDF |
gold mining |
Micros Systems |
MCRS |
systems software |
Lam Research |
LRCX |
semiconductors |
Life Tech |
LIFE |
biotech |
Thomson Reuters |
TRI |
financial pub |
EnerNOC |
ENOC |
business svcs |
Hatteras Financial |
HTS |
virtual bank |
Health Mgmt |
HMA |
hospitals |
DreamWorks |
DWA |
movie studio |
Cerner |
CERN |
health IT |
ConAgra Foods |
CAG |
packaged foods |
Visa |
V |
credit cards |
Cresud |
CRESY |
agriculture |
Cymer |
CYMI |
semiconductors |
Sino Gold |
SIOGF |
gold mining |
Kinetic Concepts |
KCI |
medical devices |
Ultrapar Holdings |
UGP |
gas distribution |
AES |
AES |
utilities |
Telecom Italia |
TI |
telecom |
Applied Micro |
AMCC |
semiconductors |
Tempur Pedic |
TPX |
mattresses |
Syntel |
SYNT |
computer svcs |
Inverness Medical |
IMA |
medical devices |
AmerisourceBergen |
ABC |
pharma |
Baidu |
BIDU |
online search |
Credit Suisse |
CS |
bank |
Salix Pharma |
SLXP |
pharma |
Euronet Worldwide |
EEFT |
business svcs |
Knight Capital |
NITE |
broker |
Reinsurance Group |
RGA |
life insurance |
BMC Software |
BMC |
software |
Talisman Energy |
TLM |
oil & gas drilling |
Telefonica |
TEF |
telecom |
Hicks Acquisition |
TOH |
acquisitions |
SolarWinds |
SWI |
software |
Jack Henry |
JKHY |
outsourcing |
Crown Holdings |
CCK |
packaging |
Priceline |
PCLN |
online travel |
Motorola |
MOT |
cellphones |
Google |
GOOG |
online search |
|
|
| Company |
Sym |
Industry |
First Merchants |
FRME |
Bank |
|
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