THE NEXT STEP: PANIC

U.S. stocks fell more than 1.3% yesterday, some 220 points down. The Nasdaq Composite lost more than 1.9%. The S&P 500 fell into negative territory for the year and only just became positive at the close. Very significantly when looking towards economic fundamentals, energy stocks this year are down 17%.

Average crude oil fell to $40.90; the forty-dollar line has been an emotional game-changer since last December. “Oil is poised to dip below $40,” admitted Larry Peruzzi, director of international trading at Cabrera Capital Markets LLC in Boston.

The PBOC’s balance sheet is astronomically bigger than it was five years ago (ie, they’ve been buying tons of junk) and the China money supply has risen 20% in three months. The Politburo knows this must shrink and money will have to get a lot more strict. As to how that can aid a recovery, your guess is as good as mine: but in reality, China policy is no longer about recovery, it is about surviving….and not allowing the future to become an infinite American hegemony.

Meanwhile, on July 27th 2015, the Shanghai Composite plunged 8%. On August 18th, it dropped 6%. Today (August 21st) it fell a further 4.3%….and that’s in the context of draconian Beijing controls on selling, as the PBOC has been buying. But (see above) now the buying’s eased as the Government tries to stop other excrement hitting hithertoo unseen fans in the attic and the cellar…so things seem a tad out of control.

Even the Wall Sreet Journal now accepts that: it opines this morning about ‘doubts building about Beijing’s ability to get the world’s No. 2 economy back into gear’, an exceptionally polite statement on the whole: exports having slumped some 8% last June, new Chinese data released today shows that factory activity fell to a six-and-a-half year low.

The simple truth is this: long-term Zirp installed by the West to save its financial system has built assets into gigantic, unstable bubbles in the East. These bubbles hid China’s cul-de-sac for a while, but now it too is running out of road.

The FTSE plumbed deeper correction territory this morning at 6274, but has regained some ground since. Nevertheless, since early August it is 400pts off. US crude is still unable to get much escape velocity from $40, UK (Brent) crude is also dropping back down towards $45. In the last hour (3pm CET) the Dow’s Top 30 shares have dropped from 17,500 to 16,875. Practically every measured commodity price is heading south…but gold has gained $36 in the last three days.

You can cut these data any way you like, they’ve all been pointing one way for over a fortnight now: a slump in economic activity, multivariately growing financial instability, and the break to safety gathering speed.

Enjoy the weekend.