Monday, August 2, 2010

the Daily Note - The Bull in China (Shop)

Is the current market headed for a breakout high? If so, it will, in my opinion be only on more hot air. Unlike the bull in current China where it has to wear a compression suit to prevent explosion, USA needs to worry about pumping enough hot air to keep the bull from crashing. Put simply, USA prints money, China suppresses money.

China is experiencing what we in the USA experienced in the 1950's  It makes no difference that their "oil" is coal and their "plastic" is housing. It's still a fast steep growth despite all the measures taken to slow it. The USA's growth during the 1950's, although equally spectacular,  was less steep probably because of less intervention and dollar availability. China has no such luxury, since they became dollar fat over the years thanks to the USA, so when building took off, it really took off; so steep that China had to restrict housing price growth, lending and ownership. Since the measures took effect the housing bubble cooled but we will have to keep wondering how long can the restrictions keep a lid on what is desired by the masses: wealth building.

China in order to keep increasing the GDP kept building which allowed people to earn incomes most likely never seen before saw homes to be the safest investment and most desired. So, housing investment speculation took off.   As long as China keeps building and also as long as China keeps restricting the housing bubble the bull is  relatively safe. China  has been around a long time, so I suspect they can keep the game going for a long time too, yet it needs to be remembered that now they are also tied to the USA, and I'm not sure how long the USA can keep up the charade.

On the other hand, despite the fast growth, China is not on board with consumer spending as some around the world wish, therefore imports are lagging. As China is lagging in meeting expectations of imports, and as the USA slows in being top consumers, the entire world economy may need to take pause. In which case we have to wonder about those lofty and heady bulls yet again.

Question is which one will inflate, deflate, burst or crash first; or will this delicate bull in China (shop) dance actually succeed?

Happy Trading, Living and Dancing

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