Well guys I am having a hard time with the market at the moment. Everything seems to say down - the media is talking everything up and I just cant get my brain around up or down.
Well after much getting out of bed, web browsing, staring at charts - getting depressed and crawling back into bed again I think I have the picture. Well at least a picture.
The first thing to note is how strongly we follow the Hang Seng. I have been trading it recently and watching the effect on the ASX - you know all those afternoon fades from lunch time - well that is China coming on line.
Also don't underestimate computer trading - watching the minute by minute ticks come in the same size on both the HSI and SPI at the same time really makes you wonder.
Anyway back to the story. China in case you haven't been following has developed a little bit of a bubble. The result of which is that the government has felt the need to tighten up on Third Mortgages amongst other things. Second Mortgages are seemingly a passe Western thing that does not fully realize the equity gain of ones underlying investment.
The Chinese also being the financially astute people they are, have been snapping up real estate - ie investment properties. Unlike us apparent financial dunces who rent them out, the Chinese leave them vacant. You see our strategy offsets the mortgage - but reduces the demand for housing. The Chinese way means that they get the investment property without watering down the demand for housing...
This then increases the value of their investment enabling further mortgages to be taken out against the gain in equity.
Oh dear - did someone ask what happens if some of these vacant properties come on to the market....
Well it appears the Chinese government did and has been taking steps to slow this all down and has come up with an 8% growth target. Note that 8 is a lucky number, so what they really want is less than 10% growth year on year.
On top of that they have inflation.
So China is putting the brakes on.
Probably not a bad thing - except everything from our banks to our miners have priced in mega growth that probably wont be there.
All the reports we are getting about how good the last earning season was are unfortunately rear vision mirror views.
Last earning season was good - the problem is that last earning season is gone. Where we are now is a world in which we will have periodic Chinese economic tightening - that so far seem to correspond to whenever the Hang Seng touches the upper side of the downward sloping trend channel it is in.
Add in Eurorisk and shorts look real good.
I just wish the media would quit talking things up - makes it hard to think.
The following article from bloomberg pretty well sums it up
The central bank will keep raising the ratio frequently until the middle of the year, said Lu Zhengwei, a Shanghai- based economist at Industrial Bank Co., who predicted yesterday increase. The central bank wants to stay ahead of the curve by tightening before inflation starts to gain pace.
Lu forecast an increase in the benchmark lending rate from 5.31 percent as early as April. In contrast, Citigroup Inc. said the central bank may not raise rates until the third quarter as inflation stays mild.
So as a final word if you are having a hard time sorting out what all the charts are saying versus what the media is saying, start out with the Hang Seng.
Chart that up and then do a "Ok we may be up, but looks like China is about to retrace from the top of its channel" or "The Hang Seng is about to jump out of oversold" sort of thing before looking at the local charts.
