China's Nasdaq 2000 Crash Is Set For A Bounce

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I have been warning people to stay away from the Chinese market since at least the beginning of this year. You know it is time to get out when street vendors and housewives start telling everyone how easy it is to make money trading stocks. In the meantime, Shanghai Stock Composite continues to follow the exact trajectory of Nasdaq’s March of 2000 initial crash.

Even the index print is the same. And while we are likely to get a bounce off of 50 day moving average, the jig is up. Once any such bounce plays itself out, the real sell-off will start. The US Equity markets are likely to join the party as well.

Just how big is China’s bubble and/or malinvestment?

Here are just a few more bits that should scare the bejeezus out of you.

Chinese corporate borrowers owed $14.2 trillion at the end of 2013 Vs $13.1 trillion owed by U.S. corporations.
This means that as much as 10 percent of global corporate debt is exposed to the risk of a contraction in China’s informal banking sector.
Cash flows and leverage at Chinese corporations are the worst among global peers, having deteriorated from being the best in 2009.

As I have mentioned in the past, most of China’s economic growth over the last 5-6 years has been financed by massive credit expansion. The likes of which we have never seen before. The result?

$21 Trillion Debt Mountain. Roughly the same size as the entire US Banking Sector. It took the US 220 years to get to that number, it took China just 5 years of explosive credit growth.
$6 Trillion In Shadow Banking. Actually, no one knows how large this number is. I have read good data/reports putting this number at $10-15 Trillion range.
Empty cities, shopping centers, massive speculative bubble in real estate, built out infrastructure, rising cost of labor and export driven economy.

How much longer can this go on? Well, that’s a Trillion dollar question…..or a $40 Trillion dollar question. Apparently, it is unraveling in front of our eyes.