Thoughts On China, Whole Earth Thinking And How The Future Came To Be

Dear Beijing:

You’re an adolescent in a grown-up economic world. Ending short selling is an awful idea. It’s like wearing a raincoat while taking a shower.

We quote the book that started the Internet revolution in the United States, which has since spread to the whole world. It’s called The Whole Earth Catalog (1968):

“Everything’s connected to everything. Everything’s got to go somewhere. There’s no such thing as a free lunch.”

As imperfect as westernized, advanced economies are, they understand those three rules of life, economics, physics and metaphysics. By prohibiting short selling strategies, you ignore all three and you will pay a price – perhaps not today or next month, but very soon. You have become untrustworthy, not just in your manipulation of data but on a far more important level, namely the conceptual level. You just don’t get it.

Yours,
The rest of the world

Yes, the Shanghai index rose over 3.5% today. But no, it doesn’t mean China is on track to break out of the slump it has built for itself. There is something terribly wrong in the world’s second largest economy and we are just seeing the whale begin to breach the surface of the water.

Meanwhile the combined economies of the rest of the world, which dwarf China’s, saw their bourses struggle to stay at or just below or above even. (Amazing! Even with short selling allowed there were only incremental losses and gains!)

Apple heads the American equities’ leader board. When it moves downward, especially dramatically, it tends to drag all three New York indices with it regardless of what other fundamentals may be in play.

The lack of strong movement, however, may be reflective of the much-anticipated release of July employment data come this Friday. Everyone will be looking for signs in the report that will tell them which way the Fed winds are blowing.

Gold tried to regain some its luster and at one point was trading as high as $1095 per ounce, or up around $9.00. It has since fallen back to $1087 – almost right back where it started. There is still no fundamental reason to buy gold. Many analysts are saying the yellow precious metal is still overpriced and has at least another $40 to $50 to fall before buyers find interest again.

The U.S. dollar fell slightly earlier in the day but in afternoon trading it has regained that ground and pushed the euro down. Gold, of course, suffers from a stronger dollar.

Crude oil is up today, but is also struggling with its own fundamental issues such as oversupply, seasonality and improving technologies. West Texas Intermediate is treading water below he $46 per barrel level. Brent North Sea is just above the heavily psychological, even magical, $50 level.

Somewhat naively, oil traders viewed the uptick in Shanghai equities as an indicator that China’s economy is better. They’ve got the cart before the horse. While Shanghai was surely in a bubble, the decline in Shanghai wasn’t just a puncturing of the speculative idiocy. It was also reflective of the manufacturing slowdown China has been experiencing.

Wishing you as always, good trading,