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Saturday, August 16, 2008

China in its final part of its crash?

On the left, you see the real crash of the last 12 months - the invincible Chinese superstar market. We had 50k new broker accounts daily or weekly - I do not recall anymore. We lost almost 2/3 of the value from the top with a market valuation, which was insane (the same story like Japan 20 years ago). We are not finished yet, heading for 2000. I am wondering where all the decoupling heroes are, which do not dare to show up anymore with their pathetic theories. China is the manufacturing plant of the USA and EU and they are heading for a deep recession, so how could China do any good without their demand?

Anyway, within 4-6 weeks we will have a serious bottom-out period and we should see a substantial move up. Assuming we will hold around 2000, the least counterwave should mark a 24% rebound even 38% is thinkable giving a 1000 points to 1500 points potential to 3500, but we might put that in more exact numbers as soon as we have the low. China is not still cheap and the valuation prospect depends on a scenario nobody accounts for right now, which is a global depression, which should slow down Chinese growth substantially.

Another aspect will be the new cold war, which was kicked off by the Russian intrusion into Georgia, but to be honest the rocket shield of the US to be deployed on Polish and Czech soil was part of the reasons why things got to this stage. The question is how will China position itself in this new emerging situation - for now they do not speak up, in order not to spoil the Olympic games. Nevertheless, it will be inevitable to take a bias with Iran and other Middle Eastern issues looming.

My assumption is that we will move away from globalization to nationalism as a general attitude, which will have a big impact on economic affairs and the flow of goods and money going forward. This would be a structural disruption of China's growth story. Twenty years ago Japan was also declared to overtake the USA as an economic power. This did not materialize, in fact just the opposite, Japan had a 20-year deflation period from which it never really returned. Twenty years later the Nikkei is still 70% below its high of 1989. China is definitely an emerging market at the brink of becoming a developed country within at least one more generation. Mainland China is still not like the Olympics make us believe. China possibly could be, although even they have severe problems going ahead, one of which is severe population (20 times an average US city, I heard yesterday watching Olympics).

The 2 dangerous weeks turned out to be the breakout of the cold war - part 2 and the markets have not discounted that yet, but when Uranus goes opposite Saturn in November, they will be evaluated in this new situation and markets will go lower, not in particularly in China, but globally.

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