Enis’s Macro Wrap – Chinese Wobbles

by Enis June 26, 2012 8:15 am • Commentary

“China is the next world power.”

“China will be the world’s largest economy in 20 years.”

“China has more than a billion people.  That’s endless demand.”

I’ve heard variations of these stories for the past 5-10 years on numerous occasions.  Who cares if China has a bit of a housing bubble if they have more than a billion people?

The market’s price signals, though, have been emitting significant warning signs in the past year.  I am watching the Shanghai index as it approaches 3 year lows for another alarm signal:



Chinese demand was THE main driver of commodity prices over the last 10 years.  As long as it remains in a bear market, I’m going to look for downside opportunities in commodities and commodity-related stocks.  Currently, I have CAT and SLV puts, and I received a lot of questions about SLV yesterday.  My thesis of an imminent break of 1.5 year support in SLV remains intact, and weak Chinese demand has been a large factor in SLV weakness in the last year.

Yesterday was a very quiet day after the market gapped down more than 1%.  Overnight price action was quiet as well, with Asia and Europe both mixed, close to flat.  The only interesting action that stood out to me was the U.S. dollar selling off vs. most currencies except the Euro, which implies to me that the Euro has detached from the other currencies vs. the dollar.  I think the Euro breaks its recent lows after this weekend’s summit.