What’s up with China?
Well the mainland markets are actually closed, taking a week’s well-deserved vacation after falling 19% in the past two months but Hong Kong’s Hang Seng index fell another 5% TODAY bringing that index down from 22,800 on August 1st to 16,822 today (down 26%) after skating along that 16,700 line into lunch.
Much like their bullet train – the Chinese economy began to derail in late July as the accident was a metaphor that slammed home the concept that perhaps China was growing too big, too fast – to be able to sustain the pace. That sent copper tumbling from it’s ridiculous $4.50 high on August 1st, down to $3 in last nights trading (33%) and that’s still about 20% higher than $2.50, which is where, fundamentally, copper should be trading.
What’s 20% between friends though? Copper is downright reasonable compared to gold (still double a more realistic $800 target) and silver ($15 would be a stretch under ordinary circumstances) and even oil is having a herd time justifying the $80s – especially in light of the 6 months it spent below 50 in our last market crash – at a time global consumption was 5% higher!
China has been, up to now, the mythical engine of ever-expanding Global demand that justified overpaying for everything from shares of YUM to stockpiled copper to gasoline futures to Rembrandts – all on the premise that, no matter what price you were willing to pay for something – somewhere in China there would be a "greater fool" looking to take it off your hands for a nice profit.
Keynes described the "Greater Fool Theory" as a beauty contest in which the viewer (market participant) gets a prize for picking the woman who will be voted most beautiful. While many people would just pick their preference, a game-player would pick the woman who he thinks the other voters would vote to be most beautiful – regardless of her actual merits while the "expert" player would take even that into account and would bet according to what he thinks the other think that others are betting on.
That’s the difference between Fundamental and Technical Analysis – A Fundamentalist takes home the girl of his choice, settles down, gets married and has children while the Technical people are still trying to figure…