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Why It Really Is All About China

Tyler Durden's picture




 

There are two approaches to being a sell-side, talking-head, strategist when it comes to China. If China is rising, then hey, global growth is recovering and China's transition is going well - so buy US equities levered to China. If, however, China is falling (or out of favor) then US equity markets are the cleanest dirty shirt and decoupling is the new normal. Thus, no matter what, being long US equities is your staple investment advice - heck it's worked for a few decades, why not? Well the truth is that, empirically, the correlation between US Machinery or Tech Hardware stocks and the Chinese market has risen for six years straight. In other words, there is no decoupling (ever); as goes China, so goes US equities - and that sensitivity has never been higher.

 

 

The correlation of US Machinery or US Tech Hardware stock returns to those of the Shanghai Composite have risen almost non-stop for the past six years... recent Machinery (cough CAT cough) has become almost entirely synced with the transitioning nation...

 

Chart: Morgan Stanley

 

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Thu, 12/06/2012 - 22:09 | 3041393 Muppet of the U...
Muppet of the Universe's picture

No.  It's really all about the U.S.

 

Let me explain for you. 

Thu, 12/06/2012 - 22:11 | 3041396 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Gold, bitchez

Thu, 12/06/2012 - 22:15 | 3041408 CH1
CH1's picture

BTFD!

Thu, 12/06/2012 - 22:26 | 3041413 Muppet of the U...
Muppet of the Universe's picture

Shitty countries with resources:  Latin american countries, african countries, exporters of oil / nat gas.

These countries sell their commodities to China, and other emerging markets where labor is cheap.

China, and other emerging markets where labor is cheap, create products from these commodities.

They then sell these products to wealthy nations:  Europe & north america.

 

The game ends when there are no more resources, or when the wealthy nations cannot buy any more.

This is why, I've been saying for a really long time, reduced real incomes, means the wealthy nations

cannot buy the cheap shit from China ect.  In fact the game has literally been indefinitely postponed due to

socially acceptable austerity through the innovations of technology and industry. 

 

Well there are still a shitton of resources, too many muppets, and not enough real income.

This certainly is a beginning to an end - When the U.S. and Europe cannot buy shit, China cannot sell.

This means China and others cannot buy commodities from resource rich nations.

This will all eventually lead to the end of the debt super cycle.  It will be one for the ages.

 

I should note however, that if the dollar becomes devalued in a reasonable manner, it will boost the values of chinese and other asian currencies that are in some way pegged to the dollar.

This could, theoretically, make american labor cheap.  potentially cheap enough to create jobs.  However, it should be considered.  & this is why I say U.S. is most important:  Whose gonna buy all that cheap shit?  Its not a triangle trade here.  Its a linear trade system designed to redistribute wealth.  Most of the wealth into the hands of corporate titans.  & redistribute what is left more evenly amongst the peasants- ie take from america and give to asia/africa/south america.  Theoretically, this plan is not all that insanely devious.  The madness has method.

Thu, 12/06/2012 - 23:36 | 3041598 Ginsengbull
Ginsengbull's picture

Chinese currency won't appreciate, because it's pegged to the dollar.

Fri, 12/07/2012 - 06:26 | 3041943 old naughty
old naughty's picture

There you have it.

It's a two-headed chimera, looking to opposite directions, but joined at the hip.

Thu, 12/06/2012 - 22:22 | 3041426 kliguy38
kliguy38's picture

Stack um and rack um

Thu, 12/06/2012 - 22:45 | 3041482 LeisureSmith
LeisureSmith's picture

Gold bitchez indeed. http://alles-schallundrauch.blogspot.no/2012/12/exklusiv-besuch-der-fals... The article has great pictures of some Tungsten core goldbars/coins. (German) Stackers, stay vigilant.

Thu, 12/06/2012 - 22:49 | 3041491 Enslavethechild...
EnslavethechildrenforBen's picture

Rare as it may be, some Gold is counterfeit.

The opposite of rare, ALL PAPER IS COUNTERFEIT

Thu, 12/06/2012 - 23:13 | 3041550 LeisureSmith
LeisureSmith's picture

I agree. Gold is gold. Then again if it feels dodgy, one can just cut it...it's still gold even if it's in pieces. Presuming one has the genuine article. Rare as it may be i would still like to be 100%.

Fri, 12/07/2012 - 06:46 | 3041952 Urban Redneck
Urban Redneck's picture

Pieces to a puzzle, but the the pieces are gaining official sanction.

So Herr Muris of the Bundesbank says they have seen an increase from 1-2 fake bars annually to 16 bars in 2012, and fake coins have at least tripled from a 300-500 per year between 2008 and 2010 to 1500 coins in 2011.

Every detail helps.  It is not surprising that it is someone selling counterfeit detection equipment who provides the detail lacking from official reporting, but sometimes the let clues slip.

http://www.ezv.admin.ch/ezv/03085/index.html?lang=en

Scroll down to the Precious Metals Control video

at 3.10 into the video they have a gold plated tungsten bar, in the middle of an offical State propaganda video, which is far preferable to the children's comics that the Federal Reserve is publishing.

Fri, 12/07/2012 - 07:31 | 3041980 Urban Redneck
Urban Redneck's picture

Toronto police counterfeit seizure from a few days ago.  The text of the article conveniently ignores the 10 gold bars and 4 silver bars seen on the table in the picture.  There is also a video from the news conference, replete with more concern for children's toys and the rights of big business (e.g. Microsoft), some-dumb-bitch who could really use teleprompter lessons from Barry, and a clown who conveniently ignores the fake PMs to discuss real cash before the video finally cuts out...

Carry on, nothing to see here...

http://www.cp24.com/news/police-seize-3m-worth-of-counterfeit-goods-in-g...

Thu, 12/06/2012 - 22:36 | 3041465 Coke and Hookers
Coke and Hookers's picture

US machinery and tech companies are increasingly a part of the Chinese economy so increasing correlation is not surprising. It's basically like correlating something against itself. Soon there will be no more US economy apart from money printing, consumer loans, latte sales at Starbucks and insurance sales. Everything involving real wealth creation will be perfectly correlated with its home economy, China. The bankers will own everything while the Chinese make everything.

Thu, 12/06/2012 - 22:15 | 3041407 HeavydutyMexica...
HeavydutyMexicanOfTheNorthernKingdom's picture

ok

Thu, 12/06/2012 - 22:16 | 3041416 Jam Akin
Jam Akin's picture

A long but important question:  Will capital equipment businesses that have depended on the promise of never ending rapid China growth - and selling to their customers both within China and elsewhere in the world based on this promise - continue to prosper with a downturn in China exports to US/Europe and a possibly long protracted difficult path to growth in domestic consumer/business demand in China?

Thu, 12/06/2012 - 22:18 | 3041419 e-man
e-man's picture

"as goes China, so goes US equities"

Yeah, this is gonna end well...

Thu, 12/06/2012 - 22:28 | 3041442 Muppet of the U...
Muppet of the Universe's picture

actually.  I think one of the most potentially hilarious thing ever, would be if equities managed to hold most of their nominal value...  note nominal.

Thu, 12/06/2012 - 22:22 | 3041425 francis_sawyer
francis_sawyer's picture

Only idiots own equities [Ancient Chinese secret ~ trust us, we invented paper]...

Thu, 12/06/2012 - 22:25 | 3041431 Yen Cross
Yen Cross's picture

 Replace tech hardware with AAPL in that graph and see how it looks... ;-)

Thu, 12/06/2012 - 22:25 | 3041432 cherry picker
cherry picker's picture

Did you see the pictures of earth at night from space and how much of the planet is illuminated?  Light bulbs represent people.  Seems to me those pictures are evidence that maybe there are just too many of us and technology being what it is there are just not enough jobs.  How many lights are not turned on as people may be sleeping or simply cannot afford the juice on this world?

That tells us a lot, doesn't it?

 

Thu, 12/06/2012 - 22:28 | 3041437 shovelhead
shovelhead's picture

We no buy Caterpirrar...

You no get frip-frops.

Fri, 12/07/2012 - 02:25 | 3041805 moonstears
moonstears's picture

Can't stop giggling at this comment, shovelhead. Add please: "We buya Silbah an Goal"

Fri, 12/07/2012 - 03:21 | 3041848 eaglefalcon
eaglefalcon's picture

You go bloke cuz Obama win erection!

Thu, 12/06/2012 - 23:18 | 3041557 Die Weiße Rose
Die Weiße Rose's picture

Nokia has agreed to sell its latest flagship smartphone through China Mobile,

the world’s largest telecom operator and the only one in China -

without a contract to sell Apple’s iPhone.....

On Wednesday, Nokia agreed a deal to launch a version of its latest flagship Lumia smartphone that has been designed for the world’s largest mobile telecoms market.

China Mobile is the biggest operator in the world with more than 700m subscribers.

Is that why Nokia shares are up 10% while Apple's are down 20% from it's lofty hight ?

http://www.ft.com/cms/s/0/4954fb54-3eef-11e2-87bc-00144feabdc0.html#axzz...

(Foxcon child slave-labour sweat-shops to produce Apple I-phones and I-Pads around the clock

probably did Not help Apple much to seal a China deal.)

never mind....

wr;)

Fri, 12/07/2012 - 00:43 | 3041704 jonjon831983
jonjon831983's picture

If people really cared about child labour and terrible working conditions, they wouldn't buy 1/2 the consumer goods out there. 

Thu, 12/06/2012 - 23:31 | 3041592 Ginsengbull
Ginsengbull's picture

If China is rising, then they are consuming and producing less.

 

They're upside down, because they're on the other side of the world.

Fri, 12/07/2012 - 02:35 | 3041815 JKearney3153
JKearney3153's picture

Didn't China screw the pooch when they started buying US bonds? If China is growing, won't that mean a strengthening Yuan and a weakening USD? Won't trade between us decrease?

Fri, 12/07/2012 - 03:03 | 3041840 q99x2
q99x2's picture

When the FED started in the US the elite owned 86% of US stock (as I remember.) I think it is a worldwide phenomenon now. Stocks don't have much to do with fundamentals. They are a control mechanism. Somebody has to be paying though. I'd like to know who it is. It might be a machine.

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