Wednesday August 10, 2011
Chinese households consume only about 35% of gross domestic product GDP. far less than any other country. Such a large domestic imbalance has no historical precedent.
WSJ today China's Economy i Headed for a Slowdown, page A13
Regular readers are aware that we predicted the top of the economic cycle would occur as it did in 2008. The price or oil would top along with the prices of Energy Service stocks like Patterson PTEN. This has now happened, as predicted.
The countries that surround China, particularly the commodity producers like Australia, have seen speculative booms. This parallels the housing boom and bust in the US in 2007-2008. It has started to happen in Australia. Read the story as Mish explains it.
China itself has produced a facade of a boom buy constructing buildings no one can afford and businesses do not occupy. It is only a matter of time until their gerry rigged accounting systems and questionable banking practices implode. Just as with our banks and brokers and sub prime loans, the 'investments' in real estate are not worth their values on the balance sheets.
Australian Stocks versus Aussie Dollar in Green
Recall that crude oil and silver peaked in early May. Well whaddya know, the Australian stock market and Australian Dollar peaked at the same time!
The group worried about inflation is dead wrong. This is a deflationary cycle. Already cash banks in NYC are charging customers to hold cash, paying essentially negative interest. As I have said, this is a Trend Change, not a mere correction.
Steve Keen also asserts that a bear market rally has ended and the move lower has begun.
Now understand where we are. In the very big picture, the market topped at S & P 1370. We are now headed down to another March 2009 type low. This will take a couple of years to complete.
The collapse we are now experiencing is Wave One down in what will be a five Wave progression to the eventual bottom. Yesterday began a fourth wave bounce. That will be followed probably next week by a firth wave to end Large Wave One. At that point we want to have orders in to buy for what should be a spectacular Wave Two rally into the Fall.
Wave Count for Large Wave One
Notice at far right on the bottom panel that the volume on the move up for the fourth wave is less than the volume which finished the third wave down. That adds to the reliability of our count.
Now about that shopping list. Let's start a new post!
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