Just As The Carnival Barkers Ramp Up The Bullish China Rhetoric Again, The Shanghai Composite Breaks Sharply.

Two weeks ago in our post on the continued metastasizing of the crisis in China we wrote "The fact that the Shanghai Index was down 8% at its peak on Wednesday is no coincidence. This is not the behavior of a new bull market......liquidity is draining out of the Chinese economy at a rapid clip."

That was on the 31st of July. Funny how that worked out now isn't it? I'm sure the topic of our post and the subsequent actions of the Shanghai index were merely coincidental. It just so happens many China shills, including three of my favorites - Jim Rogers, Jim Cramer and Peter Schiff - were out around the time of that post talking very bullishly about China. (Strange bedfellows Schiff and Cramer) In addition to our China post, in the last few weeks we wrote "I suspect what we might be seeing is again another rotation (out of commodities and into technology) similar to the one we talked about before the market collapse. Is there finally a growing realization by some smarter money that we are going to see a commodities bust?"

In less than two weeks the Shanghai Composite is down a cool 20% and commodity stocks are taking huge losses. Anyone investing based on the recent barking over China lost three to four years worth of returns in two weeks. That's a faster rate of decline than the collapse in the S&P last September.

I have heard all types of rationalizations for yesterday's weakness in China. That includes relatively meaningless data points such as too many IPOs, new brokerage accounts declining, etc. It is fundamentals that have been and will continue to shake the world. Not how many investors are opening new trading accounts. This is noise perpetuated by people who have no idea what is going on.

Few still appreciate the magnitude of this global crisis. So many have concluded it is over. Eventually when the entire world literally shudders and shakes, we'll witness the horror of its magnificence. Only then will most believe. By then it will be too late.