Shanghai Index: What's Next?

It would be hilarious to go back and repost commentary and perspective of mainstream politicians, Wall Street gurus, multi-national corporate CEOs and other bureaucrats over the last three years as it pertains to China. They have been bullish all along. Even though its economy has been heading down the toilet. While it would be hard to share all of my analysis without giving away some proprietary data points, I have shared a lot and have hammered mercilessly on this cooked pig since the inception of this blog. We called the collapse in commodities, the collapse in the Shanghai Index and many other timely remarks regarding China and globalization.

Now the Shanghai Index is sitting on the edge of a cliff. We passed a big Lucas turning point as the Shanghai Index turned south some time ago and are quickly closing in on a Fibonacci turning point in the next month or so as it pertains to Chinese markets. This at a time when the world's kings and queens met to decide the fate of billions of people a few days ago. Or so they think. It will be interesting to see what happens. Especially since our President is now out spouting that he expects the yuan to rise significantly. We already know our President has no idea what he is talking about when it comes to economics. Throw in his economics team of Goolsbee, Summers, Geithner and Romer and you have the best economic incompetence money can buy from our finest institutions of learning.

That the Shanghai Index hit an upward reactionary wave peak last summer from its initial collapse and has been trending down for a year is not a bullish sign. The Index is now sitting on a cliff and has seemingly no buyers to thrust it higher but appears to be biding time as it works off an oversold condition before the next wave down. In fact, there is no support at all at this level and I expect it is quite reasonable we will see the Shanghai Index retest its 2008 bear market low within the next two to three months. Remember, two of the outcomes we have discussed are a decline of 30-50% in China's GDP and a yuan driven substantially lower by fundamentals or revalued by the Chinese Communist Party when fundamentals reveal their true self. Then what will our President, his cast of incompetent economic advisers (central planners) and our Congress do? So far, across a wide multitude of issues, they have done a lot of proverbial hand waiving as they pronounce 'our enemies will talk themselves to death and we will bury them with their own confusion'. (The policy of both political parties to wait out the incompetence of the other as politicians practice the timeless art of foot-in-mouth politics.) Ultimately hand waiving and its consequential appearance of action with weak special-interest-driven reformless reform will have to be met with the unthinkable for a politician - Action. God forbid. What will the polls say?

Globalization is dead.