Year End #8 - Why The Chinese Downfall Is Just Starting.

china concrete

Just how big is China’s bubble? Credit or otherwise.

The chart above is one way to look at it. Here is another. China breaks up $64 billion underground banking network

Recently, quite a few financial media outlets have suggested that China has been fixed. Has it been?

If your think in a linear fashion, which would eventually be devastating to your investment returns, the answer is YES. One Less Hurdle for Fed Hike: China Comes Back From Danger Zone

When the Federal Reserve in September held off from its first interest-rate increase since 2006, the U.S. central-bank head cited growing concerns about China’s market turmoil among the reasons. “A lot of our focus has been on risks around China,” she said in a press conference after the decision.

The above is just another data point confirmation that the FED is now a market puppet. The reality is quite different. Take a look at this 3-year Chinese Large Cap ETF (FXI).

China Market Investwithalex

Does it look like the worst is behind us?

Well, one can argue that the bottom has been put in place and that the Chinese market is now ready to stage a come back rally. Yet, I can just as easily argue that we are in the early stages of a more severe decline. Think 2000-2002 on the Nasdaq. There are no technical confirmations either way. At least not yet. As a result, we have to rely on the fundamentals. And the picture there is kind of scary.

In other words, it is kind of presumptuous to assume that China has somehow bottomed. If anything, their fundamentals continue to deteriorate. In July of this year I have suggested the following China’s Nasdaq 2000 Crash Is Set For A Bounce And while I was a few weeks early, we did get that bounce. A bounce that might now be over.