I've been predicting the crash of China for a while now, but the bubble has been refusing to burst. But fundamentals always win in the long run. Finally, this week, after a long period of irrationality, the first fishes floated belly up.
All of a sudden the media realized that:
-Company earnings are often fictitious
-There are many Enrons among those Chinese high-fliers
-Inflation is on the rise, wiping out savings
-The real estate market is going to crash
-If China raises rates to combat inflation, that will be coup de grace for many real estate developers
-Exports can't be increased any more without provoking a trade war, but without export growth, the economic miracle will end immediately
-Dollar assets on the Chinese Central Bank's balance sheet are junk, these T-bonds are just a bit more scarce than sand in the Sahara.
-The endless supply of cheap labor is going to end soon
-The commodity boom based on expectations of unlimited demand from China will now turn into bust, which, in turn, is crashing stocks of Chinese companies such as CNOOC.
-And finally, despite QE2, these clueless jerks are again going to buy dollars because they don't have an independent economic science, and meanwhile the stock market has risen too far, too fast.
So, just as I said half a year ago, it's still the time to be a US supremacist. The Keynesian secret of America's success has not been deciphered by any Asian or European government, not even in Airstrip One (they have quite gone over to the Austerians), meaning that the US will continue to provide consumption services for the rest of the world for the foreseeable future. In the long run, this emerging market trouble is great news for American corporations. Meanwhile, we must retrench and regroup before the next rally. Too many mini-bubbles have formed at home. If S&P reaches 1150, the first bargains will begin to appear. At 1100 many valuations will become reasonable, and at 1050 the S&P will be a buy.
The bond market had a pullback recently, but I think it's temporary. Bernanke has just started buying and he will not stop anytime soon. Moreover, QE2 will not be the last one.
Up with USD, up with US bonds, up with US virtual economy. Down with US real economy! Up with US stock market in the long term. Down with US market in the short term! Down with gold. Down with silver. Down with commodities. Down with emerging markets. Down with leveraged bulls. Down with leveraged bears. And down with CNBC, these clowns are always late to the game!