Tag Archives: china

FXI, a Pre NFTRH+ Highlight

NFTRH+ is really nothing more than an effort to formalize a less important aspect of the entire NFTRH service, which is macro market management through a 25-35 page weekly report and in-week updates, along with individual equity highlights when I feel a good risk/reward setup and/or like what I see on a chart.

Before NFTRH+ and before the current crop of ‘Buy China! Buy Emerging’ callers emerged, there was the NFTRH highlight so many weeks ago in an ETF update showing what looked like an Inverted H&S bottoming pattern.  It’s target by the way and FYI, is 40.  I already took my profit on the vehicle I used (TDF), but the FXI target is alive and well; and it’s closing in.

Here’s the updated chart, untouched from that update.

fxi

Obama Ukraine Speech Drops Market?

So is that what went on?  Markets will be back to positive tomorrow?  Well a positive for the gold bugs is that the precious metals did not try to do any popping on Ukraine hype.  They are busy fulfilling downside objectives and it is best they get that done sooner rather than later.

But the interest rate fundamentals must be married with the technicals.  They are interesting today.

In other news, I guess the question of why Europe and Emerging are strong is answered by the ECB and China stimulus hype going around.  I swear, without hype we would not have a financial market.  It’s what makes the (financial) world go round.

April/May/June Dynamic?

Guest Post by Doug Noland

[admin note]  And just like that, comments are turned off again.  There was a format issue messing with the look of the site that I could not get around.

[edit]  Still not thrilled about Doug’s focus on Ukraine, but that’s what the internet is, readily accessible ideas and opinions.  If you agree with them all, including mine, something’s wrong.  Noland taught me a lot over a decade ago. 

Putin takes Crimea, China devalues and Yellen has a shaky debut.

Last week I posited that “Ukraine and China pose clear and present dangers to global financial markets.” At least for the week, Russian troops stayed put on their side of the Russia/Ukraine border. And while the West ratcheted up sanctions against Russia, at this point leaders on both sides of this crisis appear keen to avoid actions with real economic impact. At the same time, Putin’s chilling speech Monday supported my view of a darkening geopolitical backdrop – a potential inflection point of historical significance.

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A “Truman Show” World

Guest Post by Doug Noland

[edit:  Biiwii.com does not agree with the 'Ukraine as macro economic fundamental' reasoning in this post, but we post guest articles based on the quality of the messenger, not any individual post's premise.]

Ukraine and China pose clear and present danger to global markets.

March 13 – Financial Times (Miles Johnson): “In the ‘Truman Show’, the late nineties Hollywood film, the eponymous character lives a seemingly charmed world, snuggled comfortably into an American suburbia of white picket fences and crisply cut lawns. But gradually Truman starts to notice something is not quite right. He is actually trapped inside a film set controlled by hidden directors, and discovers to his horror that he is the unknowing star of the world’s most popular reality TV show. The question some of the world’s biggest hedge funds are starting to ask is whether overly placid investors will also wake up to discover they are living in a ‘Truman Show market’ – where central bankers’ ultra loose monetary policy has manufactured a fake reality that is bound to end. For Seth Klarman, the manager of the $27bn hedge fund the Baupost Group who recently coined the analogy in a letter to clients, investors have been lulled into a false sense of security that is creating an ever greater risk of a sharp correction. ‘All the Trumans – the economists, fund managers, traders, market pundits – know at some level that the environment in which they operate is not what it seems on the surface,’ Mr Klarman wrote. ‘But the zeitgeist is so so damn pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end.”

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The China Syndrome

Guest Post by Michael Ashton

The last month or two has provided a wonderful illustration of why a diversified commodity index is a better investment than an investment in any given commodity. Since mid-February, April Lean Hogs has rallied 23%. Since late January, May Wheat is up 23%. March Coffee is up 80%. Gold is up 9%. But Crude Oil is 6% off its highs. Copper is 12% off its highs (8% since Thursday). April Nat Gas was up 42% from November through late February, but has lost 10% since then.

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But but but… China Gold Demand is Dropping!

Ha ha ha… people bought last year because of China’s insatiable demand and the price of gold dropped.  Now people get hysterical about a demand drop in China (as if gold is subject to the same macro economic issues as copper) and boink, it pops.

It still says here that you should immediately tune out anyone going on about Indian Wedding season, Central Bank buying and selling, mine supply and most of all… China’s gold demand.

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Gold will be driven by investment demand and specifically investment demand that comes in the face of a loss of confidence in the way that money and interest are manipulated in the effort to promote certain economic signals and agendas.

China Gold Demand Drop? So What?

Now we will get to test the theory that little of what most people consider fundamentals for gold actually matters.  That would be things like Indian wedding season, jewelry demand, central bank buying/selling and the one hyped in the gold “community” more than any other, China gold demand.

From Hard Assets Investor:  Gold Flat Amid China Demand Drop

According to the China Gold Association, demand in the world’s largest No. 1 consumer may fall 17 percent this quarter from a year ago. An official for the trade group said the decline wasn’t unusual given the huge spike in demand last year.

“Last year was a peculiar year when we saw a big fall in prices,” Zhang Yongtao, vice chairman of the CGA, said. “People bought a lot of gold, and I think demand will start climbing again once the festive and marriage season begin later this year.”

‘But but… China gold demand is strong!!’ kept people bullish last year as gold got blown up.  Marriage season?  Please.  For me it is investment demand that matters.

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The Fed’s Great Adventure in Inflation

In the current policy and media stoked market environment, anything is possible.  It’s  the wonderful, magical world of hands-on policy making.  5 years after the financial crisis, but still not enjoying a ramping economy like the good old (and long gone) days of the last great secular bull market (RIP 2000)?  Just sit back, relax and let the man in charge control the image.

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China, US & Inflation

In light of today’s positive economic data out of China, I thought I would reproduce a segment from NFTRH 255 (9.8.13) that speculated upon the possibility of a new up cycle in inflation expectations based in large part on China and its credit growth cycle (on which central planners have announced a planned clampdown). 

China industrial, retail data beat forecasts

The Greenspan Fed provides a handy reference as to how long it can take for a withdrawal of policy to manifest in a new economic deceleration.

China, US & Inflation

ssec

The Shanghai stock market has declined steadily since the post-bubble rebound in 2009.  Further, after a record amount of credit-based stimulus, central planners are promoting a withdrawal of credit.

China Record Drop in Credit Growth Puts Momentum at Risk  –Bloomberg

“China’s leaders are extending a clampdown on credit, prompting analysts from JPMorgan Chase & Co. to Societe Generale SA to caution that the economy is vulnerable to weakening after the pickup so far this quarter.”

But with the SSEC at notable long-term support, it is appropriate to question whether a bounce in the global growth engine (China) is in the cards.

fxi

The China 25 found support and has been rising since early summer.  After a strong rise last week 38 is now the key level by the weekly chart [ed: FXI broke through this level yesterday].  It is notable that this rise has taken place against a modest decline in many US markets over the last 5 weeks.  Exceptions in the US are technology and to a lesser degree, semiconductors, which service a global customer base.

We all know that China is considered an engine of global growth, so if its credit inflation to date were to manifest in an inflationary growth cycle, there would be trade opportunities in US equities.  But broader Asia and emerging markets would be expected to be part of the play as well and could actually out perform.

Returning to the question of sustainability posed by the fretting analysts at JP Morgan and Societe Generale, let’s note that Alan Greenspan’s famous bubble in commercial credit lived on well after his Fed began to withdraw official accommodation at the beginning of 2004.

irx

So in consideration of the ongoing pull between the deflation and inflation arguments NFTRH simply wants to know what the next tradable cycle will be.  While threatened policy tightening in the US and China paints the headlines toward an anti-inflationary stance, we consider a potential lag time between actual (never mind threatened) policy withdrawal and asset market response (which usually comes in the form of utter liquidation in the ‘Age of Inflaton onDemand’ ™).

Aside from being a road map potentially instructing about Chinese policy, the above chart tells us in striking detail just how desperately inflationary the Ben Bernanke Federal Reserve is and has been.  Never mind the “taper” obsession, this Fed has routinely held ZIRP through thick and thin since 2008 with the only media noise I have seen coming last week from some Fed talking head going on about the first rate hike, out in late 2015!

Fed’s Evans: 1st Rate Hike in Late 2015

Ha ha ha Charles, quit the Fed and hit the standup comedy circuit.

The Fed talks “taper” because interest rates are rising to challenge its image of authority and control.  Why are interest rates rising?  In large part because China is selling Treasury bonds.  Why is China selling Treasury bonds?  How would I know?  I write a macro market newsletter and do not sit on the Central Planning Bureau.

But if I were to make an educated guess I’d say that the utility of funding US growth is no longer considered to be in China’s best interest [ed: as China has been using credit to fund its own growth; one wonders however, if China may settle in for a while as a net buyer of T bonds once again, given the interest rate hype in the US as T bond yields come to target??] and the US Fed’s bald-faced ZIRP (i.e. systematic inflationary policy) is, despite the global upset and deflationary pull of the Euro crisis and China’s slowdown, considered to be an inflationary act.

Bottom Line

We are open to an ‘inflation trade’, which would be a trade only.  In this week’s report we will check up on several elements that would be key to a cycle in which inflation expectations could start to emerge and manifest in certain asset markets appreciating in a cyclical up phase.  Meanwhile, on the micro term we’ll continue to scout for the answer to the ‘will they or won’t they?’ question regarding a final near term decline to support, especially in US stock markets, prior to such an asset market rally [ed: it's not looking that way as of Tuesday morning, as the rally may already be started, led by two prime players, China and US technology].

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