Home > Commodities and Rates, Getting Global, View From Up Top > Are The Wheels About To Come Off The Chinese Band-Wagon?

Are The Wheels About To Come Off The Chinese Band-Wagon?

The prospect of a Chinese slowdown and major drop in equity and real estate prices is beginning to gain traction. For the longest time it has seemed this giant would never falter, until now. We are beginning to see the cracks in the foundation. Don't get me wrong, China, could be and likely is the future of global economic growth. However, with that said, they will not be unlike any other developing economy throughout human history…..there will be set-backs and some of them could be very significant.

If a comparison was to be made with their current situation to that of the  U.S. ,many decades ago, you would find that the States experienced rapid cycling between expansions and contractions coupled with extremely volatile stock market activity. I might add, China apparently hasn't had a recession in 30+ years? The topic of that anomaly, which is NOT organic, can be saved for another day. At any rate, it would be perfectly normal for set-backs to occur.

Chinese authorities just raised the reserve ratio requirements 50bps for the third time this year. Make no mistake about it……Chinese policymakers are acting as every other global monetary decision maker has throughout history by taking action AFTER the evidence has presented itself. There is very little preventative medicine when it comes to monetary policy, only (over)reactions.

Last night, manufacturing in China dipped according to the purchasing managers index to 55.4 from 57 in March. If a slowdown is in its infancy, this will not be an isolated event and economic numbers will begin trending lower. Stay tuned….

Aside from shorting some of the U.S. listed adr's I had recently suggested shorting the Australian Dollar(AUDUSD) as a good way to play a Chinese retraction.The Aussie at the time of this writing is  shedding nearly 2% on the heels of China's weakness and the RBA decision to bump rates to 4.5%.

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