More News on China

China: Market Breaks Below 2300

This article makes a couple of interesting points. However, there's nothing really new here. I still expect the Chinese economy to undergo the biggest overheat and subsequent implosion the world has ever seen. The collapse of the stock market has reduced national wealth by trillions. Chinese real estate is also in complete collapse. Now we learn that local governments have no money. Wherefore is thy savings glut, O miracle of China? The only miracle is how many western investors have been conned into believing in it. There is no doubt in my mind: China will collapse. Eventually, their currency will plunge, taking them into a depression. However, these things take time; I expect this in the next two years.

So, let me try to explain what's going on with the Chinese money supply. For the first six months of this year, smuggling foreign currency into China and Yuan out was a bigger business than all Chinese manufacturing combined. We're talking hundreds of billions here.

So, where do commodities come in? They are the vehicle for this smuggling. I don't know exactly how it works, but Chinese companies have been paying more for copper on the Shanghai exchange than on the London exchange. Why? Because they can pay in Yuan.

I wouldn't be surprised if Chinese companies didn't buy copper with Yuan, bring it to China, and then sell it back to someone else for Euros or Dollars or some other foreign currency. Of course, there would be an appropriate level of complexity and trading back and forth, as money laundering operations are never this simple. But I think I have the gist of it.

So the conclusion to all of this is that commodities are toast. And there you have it: The World According to Me.

I'd like to put my money where my mouth is. However, with trading considerations being an important part of my trading strategy, I think I need to be patient. While I may not short anything later today, I've got to close out GG and maybe also OZN. If the dollar strengthens a bunch more, gold will get killed.