I told you so barely covers it on this one!
China failed to provide the anticipated additional stimulus over the weekend or today and the Shanghai Composite quickly gave up half of the gains they made over the past two weeks of MASSIVE stimulus and rule changes that STILL have many stocks halted and this time no one was allowed to cover with short sales. This morning, in fact, barely one in 100 stocks that were trading in Shanghai were not in the red with MOST of the index closing limit down. THAT, my friends, is a catastrophe!
As I noted on Friday, China's PMI showed CONTRACTION for the second month in a row DESPITE the MASSIVE stimulus – the only thing that would have been strange about today would have been a rise in the Chinese indexes. This morning, rather than new stimulus, China reported (surprise!) that Industrial Profits had fallen 0.3%. That's WITH the Government tossing Trillions at the market and WITH the CLAIM of 7% GDP growth.
You'll hear a lot of nonsense in the MSM but what's really spooking investors in China today is that you can no longer reconcile the country's fake economic data with the fake (but not as fake) Corporate Profits. We discussed some of this nonsense, here, here, here and here – if you'd like to get up to speed.
China consumes 40% of the World's coal, copper and steel and essentially acts as America's factory floor, making goods inexpensively, often in conditions that would not be tolerated in US factories. To some extent, those lax regulations are now restricting China's growth as the air is unbreathable and the water is undrinkable to the point where it's affecting the fertility rate of their population.
As noted by Morgan Stanley earlier this month, “Forget about all the shoes, toys and other exports. China may soon have another thing to offer the world: a recession.” China accounted for 38 percent of the global growth last year, up from 23 percent in 2010, according to Morgan Stanley. It's the world's largest importer of copper, aluminum and cotton, and the biggest trading partner for countries from Brazil to South Africa.
