REALITY CHECK: Very small crowd at rally, very inflated Chinese growth numbers



Jeff deGraaf, chairman at New York-based Renaissance Macro Research, thinks most investors have stayed out of Crash2, Rally4. He uses simple maths to deduce this: the volumes traded are unusually low.

This is one of those obvious things to look for that gets overlooked when all around you are lighting Havanas with 1000SFr notes.

“This entire 150-point rally has been one of the weaker rallies in my 25-year career,” said deGraaf, the top-ranked technical analyst in Institutional Investor’s annual survey for the last 11 years,“fade this breakout”. I think this is American for “it’ll soon be over” but I can’t be sure; what I do recommend you do is check it out.

While the three week ‘rally’ is the fastest for many years, the trading volume was the lowest of the year: most investors played safe and stayed out. So much for market sentiment.

A ‘true’ rally asks for 50-60% of stocks to be hitting around 15-20 day highs. The ratio has rarely been above 35% since it started….whereas those stocks signalling ‘oversold’ on the red light gizmo now stand at 53%.

Meanwhile, back to the issue of using unadjusted Dollars to measure Chinese slowdown. There is a degree of bubbling under about this, which of course I can categorically state because I now have a Google alert about it. But that’s enough self deprecation: the very latest data using this basis shows that Chinese gdp rose only 4.25% in  2015 Q4- a gain of $439 billion. Two years before, China added $1.1 trillion to the global economy, expanding 13% percent from a year earlier.

Most people have 5-6% growth baked in for 2016. With a real deceleration number of 2.8:1, that simply isn’t going to happen.

China is skidding to a halt because the lower end of Western consumers (always their biggest customers) are living with job loss and wage cuts having maxed out their credit. It is that simple: we should stop looking for arcane interpretations, and think ‘30% wage depreciation + austerity + less welfare = consumption collapse’.

There are two camps on China: those who think the Inscrutable Ones are gently easing over towards a ‘more balanced’ economy but making a poor fist of explaining this; and those who think China is in headless chicken mode, but the Davos Dingbats need another narrative at the moment [see first camp]. I’m in the latter camp.

13 thoughts on “REALITY CHECK: Very small crowd at rally, very inflated Chinese growth numbers

  1. No doubt when the POnziopoly games goes pop, China will find it difficult, but it has enough land mass to feed itself.

    England won’t fair so well………..which scares the shit outta me


  2. The spat in the spratlys has deeply upset the neighbours.
    Confucious say ; upset your next door if you want your door upset.
    There will be consequences one would imagine from Hilary or Donald. Obummer just wants to see out his watch on the golf course.

    Liked by 1 person

  3. It’ll all be massaged back into the ‘feelgood’ comfort zone and it will be business as usual for a while, this is going to drag on for an eternity I feel.
    Oil keeps on rising, markets doing very little but, not losing either, yet I read somewhere that $20 oil will be a reality soon.
    Merkel is in Turkey fast-tracking Erdogan’s membership in the EU, and Putin gets the blame for the refugee crisis, anyway Badger continued his journey downriver to meet Mole…….


  4. @Canex

    If accurate, it would seem that our Russian friends are on the case and that their Greek mates have got their backs covered.

    Just off Rhodes, suggests that someone was pre-warned and they knew about this before the weapons were even loaded into the containers.

    US / Saud / Turk dummies.


  5. Anon, the current stats on China shows it importing a large percentage of its food. This supply line has to stay open or those affected would revolt, say 200 million? They reportedly closed fishing lanes to other nations yesterday.
    Here in the 51 (or so) states, the Walmart fungus has been retreating. Closing stores, in large part because the people don’t purchase enough cheap Chinese copies of what looks like a functional product any more. People are spending on only what they need. Just like 2008?


  6. China is affecting the world economy because their output has dropped – is what an arrogant Westerner would say. It’s all their fault. But as John so truly pointed out, the outut from China is slowing because the West is importing less, because either people are realizing that they don’t need such cheap plastic products, or that because there is simply no more money to be spent on them (almost certainly the latter).


  7. To rephrase an old saying, it looks like a bear in the China shop; however, the previous incumbent was remarkably incontinent.


  8. Is it worth wondering if this whole austerity thing is actually designed to reign back China’s attempt at economic supremacy?


  9. @Canexpat – Could the trawler full of weapons be an independent thought of Erdogan nipped in the bud by US/Israel who have a gut full of the crazy SOB?


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