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Chart Of The Day: Chinese Stocks Turn Red For The Year

Tyler Durden's picture




 

There was much chatter by the punditry in the early part of 2013, when the Shanghai Composite appeared relentless in its surge, when it was tracking the S&P virtually tick for tick, hitting a 2013 high in mid-February, and which was "explained" to be the prima facie proof of the Chinese rebound. The reason said chatter has disappeared is that as of last night's close, the SHCOMP is now officially red for the year.

Why did this rapid and disappointing inversion occur? One simple reason: inflation, or rather the PBOC's response to the surge in G-7 central bank created hot money which is flooding China.

Overnight, the governor of China's central bank warned that they are now on "high alert" as February's inflation figures came in hot. As warned here last year, China is the world's inflation-catcher and as the rest of the world prints, Bloomberg reports that Zhou Xiaochuan notes that monetary policy is "no longer relaxed," which might help explain why the Shanghai Composite is now negative YTD and underperforming the world's liquidity-fueled idiocy in stocks. "The central bank has always attached great importance to consumer prices," Zhou said. "Therefore we will use monetary policy and other measures to hopefully stabilize prices and inflation expectations."

Of course, with a tightening bias out of the economic engine of the world (which for now appears entirely irrelevant fundamentally) one might worry about not just global stock valuations (and earnings growth miracles) but the local government financing loans in China itself that, as Zhou notes, "are prone to risks."

Very odd to hear a central banker be so frank and honest but it appears the Chinese really do care about 'real' inflation - as they know the potential for social unrest that arises from soaring food costs (especially pigs it would seem as supply floats away.)

However, the take home here is that if and when a central bank makes it clear that no more easy money is coming, stocks are the first to take the hint.

For now only China has taken the hint: GETCO's DJIA ramping algos are still very much blissfully unaware.

But more important is the other tangent: with inflation once again on the rise in China, the direct beneficiary is always and mostly gold, as stocks are forsaken. Recall that the main reason for gold move's in 2011 from $1400 to $1900 was the soaring Chinese inflation (driven once more by global reflation and Chinese easy money policy). Judging by the recently rising price of gold, the days when gold langished with "more sellers than buyers", even as the Fed dilsuted base money by 3% every month, may finally be coming to an end.

 

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Wed, 03/13/2013 - 09:39 | 3325607 Smegley Wanxalot
Smegley Wanxalot's picture

Going by recent behavior this ought to send DOW to 15,000

Wed, 03/13/2013 - 09:42 | 3325619 TheFourthStooge-ing
TheFourthStooge-ing's picture

In the meantime, Chinese pork bellies are blobbing up.

Wed, 03/13/2013 - 09:58 | 3325657 hedgeless_horseman
hedgeless_horseman's picture

 

 

If it gets anymore expensive to feed dairy cows in the USA, we might start seeing them in our waterways.

http://future.aae.wisc.edu/data/monthly_values/by_area/3002?area=US&gtype=bar&yoy=true

Fortunately, our family cow gets by on pasture, with a little alfalfa to keep her busy while she is milked.  Commercial dairy farmers have it much worse.

Wed, 03/13/2013 - 09:58 | 3325671 Cognitive Dissonance
Cognitive Dissonance's picture

Say "cheese" when prompted.

Wed, 03/13/2013 - 10:03 | 3325679 otto skorzeny
otto skorzeny's picture

midwest has had plenty of rain to get out of drought conditions and cool temps-may be a bumper year for grains. remember-the only farmer that doesn't bitch about grain prices(or get govt subsidies) is a a dead one

Wed, 03/13/2013 - 10:07 | 3325684 hedgeless_horseman
hedgeless_horseman's picture

 

 

Of course, it is the consumer that is subsidized, not the producer.

 

Most farm subsidies are actually just transfer payments of money taken via taxes from the wealthy minority to pay a portion of the cost of food for the many food consumers that do not pay taxes; nearly 50% of the US, if I remember correctly.

Price paid to farmer = government subsidy + artificially low "market price"

The whole "paying farmers not to produce" is just a distraction, and represents very little of the actual payments.

This inflation effect would be additive to dollar depreciation, should tax revenue not be available to subsidize the price of food.

http://www.zerohedge.com/article/food-riots-commence-feds-loose-money-policy-leads-first-violence-2011#comment-853317

Wed, 03/13/2013 - 10:08 | 3325696 otto skorzeny
otto skorzeny's picture

seriously? there is not a greater recipient of govt largesse than your average US farmer. why do you think alot of thieves in Congress own farmland-for the big tax breaks.

Wed, 03/13/2013 - 10:10 | 3325700 hedgeless_horseman
hedgeless_horseman's picture

 

 

You understand how school lunch programs work, right? The schools are not being subsidized, the poor students are. It is the same with farm subsidies.

Price paid to farmer = government subsidy + artificially low "market price"

The farmers have no choice, because they do not set the price, and they must sell the crop. Care to know who does?

Wed, 03/13/2013 - 10:15 | 3325710 otto skorzeny
otto skorzeny's picture

care to know how much the price of corn would be if the US allowed Brazilian corn into the US market? or sugar if we took the massive tarriffs off? the farmers around here in Il wouldn't be able to afford $400k John Deere combines and $60K F350s.  but the corn industry and Durbin and Grassley don't allow that to happen. my grandfathers(deceased) and uncles farm so I have a little familiarity with the process.

Wed, 03/13/2013 - 10:27 | 3325720 hedgeless_horseman
hedgeless_horseman's picture

 

 

Of course, Otto, you understand that there are significant differences between import tariffs and farm subsidies. This discussion has not been about who benefits from import tariffs (hint--tariffs are revenue for the federal government, not the farmers).

Price paid to farmer = government subsidy + artificially low "market price"

It is the artificially low "market price" that is being subsidized, not the price paid to farmer.  The farmer is going to sell his crop, regardless, as people must eat.

Wed, 03/13/2013 - 10:16 | 3325717 Son of Loki
Son of Loki's picture

HH, Any news about cotton? I was wondering why we do not see higher cotton clothes prices given that cotton prices were up almost 100% last year...or am I wrong?

Wed, 03/13/2013 - 10:23 | 3325723 hedgeless_horseman
hedgeless_horseman's picture

 

 

Cotton clothing is VERY expensive.  Go price 100% cotton sheets.  Clothing producers are using less and less cotton, which concerns Mrs. Horseman.  Only 100% cotton work shirts can both stand up to her abuse and be worn in the Texas heat.

Wed, 03/13/2013 - 10:33 | 3325793 Son of Loki
Son of Loki's picture

ok. Thnx HH. I do notice lots fewer 100% cotton sweaters, etc on the shelves this year and I also notice the 100% cotton ones are not as reduced as the blend ones such a acrylic, etc. You are very correct about those 100% cotton sheets. I am glad I stocked up two years ago on all this cotton stuff....I expect cotton to rise steadily with time and many items will simply disappear since the average sheeeple will settle for a synthetic.

Wed, 03/13/2013 - 10:03 | 3325678 I need more cowbell
I need more cowbell's picture

Oh no, Chinee no have POMO? Too bad, so sad.

Wed, 03/13/2013 - 09:40 | 3325613 ZippyBananaPants
ZippyBananaPants's picture

"you can blindfold them with dental floss"

 

Wed, 03/13/2013 - 09:40 | 3325615 Unprepared
Unprepared's picture

"chinese stocks turn red"

The more politically correct term in this case would be "turn communist."

Wed, 03/13/2013 - 10:35 | 3325798 Son of Loki
Son of Loki's picture
South Korean Stocks Whacked as War Threat Looms

 

Increasing tensions with North Korea, a strengthening won versus the yen and weak economic growth - things are not looking great for South Korean equities, the second worst performing stock market in Asia this year.

 

http://www.cnbc.com/id/100548378?__source=yahoo|headline|quote|text|&par=yahoo

 

 

Wed, 03/13/2013 - 09:40 | 3325617 Moneyswirth
Moneyswirth's picture

Clearly bullish for US equities.  Clearly. 

Wed, 03/13/2013 - 09:47 | 3325636 azzhatter
azzhatter's picture

Can we get a rally

Wed, 03/13/2013 - 09:42 | 3325622 Shizzmoney
Shizzmoney's picture

It's the pigs fault

Wed, 03/13/2013 - 09:43 | 3325625 BlueStreet
BlueStreet's picture

But their exports are increasing, how can this be.  Fuck you CNBC.  

 

 

Wed, 03/13/2013 - 09:43 | 3325626 SheepDog-One
SheepDog-One's picture

WOW no problem! USA = A-OK!!

Wed, 03/13/2013 - 09:44 | 3325629 otto skorzeny
otto skorzeny's picture

To me this is a better buy than any other index-it's the only one that reflects the state of the world's economy.

Wed, 03/13/2013 - 09:45 | 3325631 Hughing
Hughing's picture

Time to send the Chinese to reeducation camp in Cambridge or Princeton. F**king ignorant savages, really  /sarc

Wed, 03/13/2013 - 09:46 | 3325634 Mr. Hudson
Mr. Hudson's picture

: "the surge in G-7 central bank created hot money which is flooding China."

The Chinese will create a new dish called "Sizzling Hot Money with Hogwash Pork".

 

Wed, 03/13/2013 - 09:47 | 3325638 swissaustrian
swissaustrian's picture

Welcome to the nikkei/shcomp spread trade. Make sure you're using fx hedges.

Wed, 03/13/2013 - 09:47 | 3325640 Downtoolong
Downtoolong's picture

which was "explained" to be the prima facie proof of the Chinese rebound.

It seems clear by now that no one gets paid big bucks to be right. They get paid big bucks to be convincing.

 

Wed, 03/13/2013 - 09:47 | 3325641 NoDebt
NoDebt's picture

What's a little double digit inflation between friends?

Wed, 03/13/2013 - 09:49 | 3325645 101 years and c...
101 years and counting's picture

we must look to china for the rise of capitalism as the fall of capitalism occurs in the west.

Wed, 03/13/2013 - 09:49 | 3325646 buzzsaw99
buzzsaw99's picture

Their central planning is better than the bernank's.

Wed, 03/13/2013 - 09:50 | 3325652 eigenvalue
eigenvalue's picture

There should be another chart: Precious metals have been negative SINCE the beginning of the year and goldbugs and silverbugs have become more and more desperate.

Wed, 03/13/2013 - 10:07 | 3325694 Village Smithy
Village Smithy's picture

Gold and silver bugs cannot become "desperate". It's just not in their DNA.

Wed, 03/13/2013 - 10:40 | 3325832 e-recep
e-recep's picture

have you ever seen a goldbug jumping off a skycraper?

Thu, 03/14/2013 - 10:47 | 3329446 NoWayJose
NoWayJose's picture

Much to hard for goldbugs to carry their stacks to the top of a skyscraper. Most prefer to stay in their bunkers, read ZH, and wait for the bubbles to pop.

Wed, 03/13/2013 - 09:50 | 3325653 q99x2
q99x2's picture

What a market not being used as a weapon for financial terrorism.

Wed, 03/13/2013 - 09:58 | 3325670 realtick
Wed, 03/13/2013 - 10:25 | 3325759 Mr. Hudson
Mr. Hudson's picture

I bet Peter Schiff is schiffing his pants.

Wed, 03/13/2013 - 11:24 | 3325995 yrbmegr
yrbmegr's picture

China's slowdown will become self-reinforcing at some point, as bad real-estate debt becomes increasingly unsustainable.

Wed, 03/13/2013 - 11:46 | 3326072 Shizzmoney
Shizzmoney's picture

This will go over well:

Chinese 'must swap chopsticks for knife and fork'

Then again, as the comedian Jerry Seinfeld once joked, parting the Chinese from their chopsticks is no mean feat.

“They’re hanging in there with the chopsticks, aren’t they? You know they’ve seen the fork. They’re staying with the sticks.

“I don’t know how they missed it. Chinese farmer gets up, works in the field with a shovel all day. Shovel. Spoon. Come on. You’re not plowing 40 acres with a couple of pool cues!”

http://www.telegraph.co.uk/news/worldnews/asia/china/9926599/Chinese-mus...

Wed, 03/13/2013 - 12:22 | 3326203 PontifexMaximus
PontifexMaximus's picture

who cares, bullish

Wed, 03/13/2013 - 12:33 | 3326244 orangegeek
orangegeek's picture

Who cares about the Shanghai index?  China has empty cities.  The markets have gotta bounce back, they just gotta.

 

Bounce back like a dead cat....or dead pig.

Wed, 03/13/2013 - 14:58 | 3326897 mrdenis
mrdenis's picture

Who took the big put posititon in FXI ????

Thu, 03/14/2013 - 10:42 | 3329429 Doode
Doode's picture

That very chart has the answer!! Common you can do better than that! There was an earlier divergence on the VERY SAME CHART so why are you asking given that chart!

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