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China GDP To Hit 6.7%

EconMatters's picture




 

By EconMatters

 

China releases 2nd quarter GDP data Sunday night in US time zones and it is going to be ugly based upon all the second quarter econ data we have received throughout these three months. The trend is going south fast, and as bad as the second quarter GDP figures are the third quarter GDP will be even worse because of the effects of tightening measures to try to get a handle on the shadow banking sector. 

 

The GDP number should be in the 6.7% range for the quarter, yes even with China massaging the numbers like a GE accountant under Jack Welch, anything in the 7% is just flat out an invalid number based upon the economic number coming out of China the last six months. So China either gives a credible number and the market tanks for anything industrial commodity related, or they make up such a patently false number, and lose all credibility, leading to suspicions that things are so bad that they have to blatantly fix the numbers which don`t even remotely match the econ data.

 

The market will tank under this scenario as well. This is the black swan, Europe is bad, but emerging markets are imploding and Sunday night market participants are finally going to take notice that they can no longer ignore the China bubble collapsing due to excessive lending of the last ten years that is finally coming to roost.

 

 

Chart Source: ICIS, May 2013

Copper has been moved back up to $3.19 a pound, it is an easy short back to the $3 a pound level by Sunday night through Monday morning. Oil will get creamed as well as of this writing oil is sitting just above the next level of support with WTI set to break the $104, $102, and $100 levels next week as stops get hit in mass exodus on the way down, and the shorts pile in after each technical level breaks. Gold and Silver have been getting slammed after bad Chinese data the past several months and it will be interesting to see if the pattern continues after the sharks have covered their shorts.

 

 

If we get a 6.7% number even the safest of asset classes’ equities will get hit as Europe will sell off bringing down the US equities market as well. All in all, traders are going to see a lot of red on their screens next week as bad Chinese GDP data sets the tone for the week. Throw in some bad earning`s reports, and things could get real nasty after the run-up of the past two weeks in most asset classes.

Be advised the smart thing to do is to get out of harm`s way on Friday before the carnage begins next week. Markets have had a nice run, assets are overbought, move to cash, book some profits, protect your capital, and wait for the selling to exhaust itself if you’re a long only participant. Is rest assured once the selling begins next week, everyone will be trying to exit at the same time. If you want to stay long, at least buy some protective puts for your portfolio to hedge any selling if major funds start liquidating positions because they know they can buy back in much cheaper.

 

But the market has been worried about US tapering which is the least of their worries, it doesn`t matter a hill of beans whether the Fed buys $65 or $85 billion a month in Treasuries. But China`s considerable slowdown is what the market should be worried about, especially anything related to industrial from Caterpillar to Oil and Copper and the other industrial metals because everything is inter-related from Iron-Ore in Australia and Brazil, to the mining companies in Europe, to global demand for commodities like Oil and Copper.

 

Remember when all the talk regarding these investment themes referenced China`s incredible growth engine for supporting hefty prices, well now the counter argument applies, and now the hefty premiums for some of these industrial commodities like Oil and Copper need to reflect the facts that instead of China growing at 13% it is now growing even by dubious government numbers in the 6-7% range at best and trending in the wrong direction.

 

Copper should probably be trading below $2.50 a pound for example, and Brent and WTI both under $90 a barrel. Especially if you consider China slows growth by over 7% in the last two years. Yes the Commodity Super Cycle is over folks. QE has held these two commodities up for as long as they possibly could, but China is the prime factor regarding taking major demand for these commodities out of the market. It only a matter of time before these two commodities start to get attacked by the shorts like Iron-ore prices, and my guess is Sunday night with China`s release of GDP with a number in the 6.7% range gets their attention real quick!

 

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Fri, 07/12/2013 - 01:50 | 3744144 Colonel Klink
Colonel Klink's picture

I believe that if China is slowing there very well will be a decline of commodity use but considering China's Trash...err....I mean TreasUSURY reserves.  I have no doubt they'll still be buying and hoarding gold and silver.  Both their own production and reserves from around the world.  While it may decline in price because it too is a "commodity", it will actually be one in demand in physical form AND paper.  I don't think the Chinese want paper anymore in the end, neither do India, reserve banks around the world, or many of the slow awaking sheeple.  No one wants to spook the herd in mass, which is why things are happening quietly (and sometimes not so quietly) behind the scenes.  At that moment, things will be afoot and the jig is up.  We've all been awaiting the stampede.  I just wished it would start.

Sorry for all the bad metaphors. :)

Fri, 07/12/2013 - 08:16 | 3744461 Doctor of Reality
Doctor of Reality's picture

I was wishing it would just happen already! But, instead I'm going to enjoy every day of "normalcy" that I can. I believe we're on the cusp of something very bad... but I pray I'm wrong and the so called "elites" have proven us sound money = sound economy folks wrong. I pray we'll see advanced tech rolled out to save all 8 billion of us, but I deeply fear that ALL the ominous signs out there about the various population reduction plans are VERY real. I believe we have more people on Earth than 8 billion.

I had a patient from China tell me there are at least 300 million citizens that are "off the books". So, I figure world population is somewhere around 9-10 billion. The mounds of evidence I've seen on the internet (yes, I realize some stuff is fake, so I cross reference and DIG) points to a desired world with millions to a few hundred million people PACKED into "sustainable" cities on Earth. They openly admit the elites will live comfortably in the countryside. The way to get from 10 billion to 100 million is rather scary. I don't believe I'm in the elites' version of Jehovah's Book of Life. I'm glad I believe in Him and not them!

Thu, 07/11/2013 - 23:25 | 3743932 John Law Lives
John Law Lives's picture

"The market will tank under this scenario as well."

Well, that should be good for another 2-3% pop in the "markets" under the new FED-FUBAR model.  Collapse is bullish.

FED-FUBAR.

Thu, 07/11/2013 - 22:11 | 3743747 FieldingMellish
FieldingMellish's picture

So China prints 6.5% and the market goes... "meh... about what we expected."

Thu, 07/11/2013 - 21:41 | 3743661 FieldingMellish
FieldingMellish's picture

Stop measuring everything in dollars. They are worthless as they can be printed in infinite amounts.

Thu, 07/11/2013 - 22:30 | 3743794 Dick Buttkiss
Dick Buttkiss's picture

I'd be happy to take all that you have off your hands and will even pay postage.

Thu, 07/11/2013 - 22:40 | 3743827 FieldingMellish
FieldingMellish's picture

Sorry. I don't own any. All my savings are in tangible assets which have limited supply.

Thu, 07/11/2013 - 23:44 | 3743973 Dick Buttkiss
Dick Buttkiss's picture

I'm talking about your spending money, my point being that as long as the dollar does in fact spend, it ain't worthless and that the trick is to know when to get out of how much of it, and in what form, when the shit finally hits the fan.

Every digital dollar is a claim on a physical dollar, after all, and given that the vast majority of dollars out there (both foreign and domestic) are digital, physical dollars will be in great demand when the Monetary Masquerade finally comes to an end, their value skyrocketing as a consequence.

Best you own some, then, unless your tangible assets are such that you can hunker down for a good long while without the need for a medium of exchange beyond barter. PMs will have their place, of course, but not in the short run, as most people don't know shiny from shinola and therefore won't give you the time of day when you proffer your pre-1964 quarter in exchange for the dinner you think it will buy.

Fri, 07/12/2013 - 02:37 | 3744201 Lore
Lore's picture

How do EBT cards fit into your picture?  Imagine emergency EBT cards handed out to the masses.  You already have 48 million people dependent on them. It's a safe bet that most can't count large bills or calculate change, never mind adjusting for rising inflation.  Sheep won't want currency in various denominations; they'll want EBT cards topped up.

Fri, 07/12/2013 - 05:38 | 3744318 Mike in GA
Mike in GA's picture

Emergency EBT cards funded by what?

In the event of a financial crisis of such a magnitude that it is necessary to 'provide' emergency EBT cards "to the masses" their monetary 'value' will be on a par with Confederate currency by the end of the Civil War, and for the same reason.

Merchants will not freely accept them, operative term being 'freely'.  1.5 billion DHS bullets may be used to force compliance, but by then the pretense of our government being anything other than raw force will be much more widely known.

Fri, 07/12/2013 - 22:16 | 3747337 Lore
Lore's picture

That would be my expectation as well. Psychopaths want a police state. Considering the sheer number of eaters involved, focus will be on converting major regional retail outlets like Wal-Mart into emergency supply depots, with armed EBT checkpoints at the door.  Small shop owners will be forced to cooperate, but the elimination of economies of scale will cause most of them to disappear.  Let's hope to God it never gets this bad.  There's still hope, if decisionmakers grow some balls, acknowledge how much is at stake and take responsibility.

Fri, 07/12/2013 - 01:27 | 3744119 El Oregonian
El Oregonian's picture

He said "Tangible Assets" not asswipe paper, when the SHTF... Hmmm, come to think of it you'll b needing lotsa asswipe paper... Carry on.

Thu, 07/11/2013 - 21:35 | 3743639 eXMachina
eXMachina's picture

AAPL puts ftw!

Thu, 07/11/2013 - 21:27 | 3743617 Sabibaby
Sabibaby's picture

Why can't Ben just say something and fix it?

Thu, 07/11/2013 - 21:33 | 3743633 BandGap
BandGap's picture

Like "soggy rice not taste so nice"?

Bazam! I'm with the poster above, if it's being talked about it isn't the Swan of Color.

Thu, 07/11/2013 - 21:24 | 3743608 DeadFred
DeadFred's picture

I love reading a post that takes a stand and sets a date. Thumbs up even if you turn out to be entirely wrong. You could be right, could be wrong but it's refreshing not to read " Indications are that there might be downturn of some amount sometime in the near or not-so-near future". 

Thu, 07/11/2013 - 21:18 | 3743596 sgorem
sgorem's picture

wowser. and there ain't no where to hide for a lot of people.

Thu, 07/11/2013 - 21:13 | 3743588 MythicalFish
MythicalFish's picture

If all the data so far point to it, it ain't a black swan buddy.

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